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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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: 0-5537
INVESTMENT PROPERTIES ASSOCIATES
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
A New York Limited Partnership 13-2647723
- ------------------------------ ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
60 East 42nd Street, New York, New York 10165
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 687-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Participations of Limited Partnership Interests
-----------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 31, 2001 is not applicable.
The number of Participations of Limited Partnership Interests outstanding of the
Registrant as of December 31, 2001 was 820,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
None.
Investment Properties Associates
Form 10-K
For The Fiscal Year Ended December 31, 2001
INDEX
Page
----
Part I ............................................................... 1
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 4
Item 3. Legal Proceedings.............................................. 4
Item 4. Submission of Matters to a Vote of Security Holders............ 4
Part II ............................................................... 5
Item 5. Market for the Registrant's Participation Interests and
Related Security Holder Matters.............................. 5
Item 6. Selected Financial Data........................................ 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk..... 13
Item 8. Financial Statements and Supplementary Data.................... 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 13
Part III ............................................................... 14
Item 10. General Partners of the Registrant............................. 14
Item 11. Executive Compensation......................................... 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 16
Item 13. Certain Relationships and Related Transactions................. 18
Part IV ............................................................... 19
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.......................................... 19
Signatures..................................................... 21
-i-
PART I
This report contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of any number of factors discussed herein including, without
limitation, under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." When used in this
report, the words "anticipate," "estimate," "intend," "believe," "project," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected, estimated, intended, believed or projected.
Item 1. Business.
- ------- ---------
General.
Investment Properties Associates ("IPA" or "Registrant") is a limited
partnership formed in accordance with the New York Revised Limited Partnership
Act, and pursuant to a Limited Partnership Agreement, dated as of May 15, 1969,
and as amended on October 2, 1969, October 31, 1969, December 3, 1969 and May
30, 1997 (the "Partnership Agreement"). The Registrant's sole business is the
ownership and operation of commercial real estate.
Current Property.
On October 22, 2001, Registrant signed a contract, subject to certain
closing conditions, to sell its only remaining property, a vacant commercial
office building located at 570 Broad Street, Newark, New Jersey, for a purchase
price of $11,500,000. In connection with the contract, Registrant received
non-refundable deposits from the buyer in the amount of $1,500,000. In January
2002, due to the buyer's inability to satisfy the closing conditions, the
contract expired and Registrant resumed marketing activities with respect to the
Property. Registrant retained the non-refundable deposits from the buyer in the
amount of $1,500,000.
Sales of Property.
On July 11, 2001, Registrant sold its interest in two parcels of
undeveloped land in Houston, Texas for a sales price of $100,000. In connection
with the sale, Registrant recognized a gain of approximately $95,000, after
payment of closing costs and other commitments of approximately $5,000.
Dividends.
On June 25, 2001, Registrant declared a special dividend of $5,200,000
from its available cash to its General Partners and Special Limited Partners and
holders of record of the Participations of Limited Partnership Interests (the
"PPIs") as of the close of business on July 6, 2001. In accordance with the
Partnership Agreement, a distribution of $2,600,000 was paid to the General
Partners and Special Limited Partners and $2,600,000 was paid to the holders of
PPIs.
On December 21, 2001, Registrant declared a special dividend of $410,000
to its General Partners and Special Limited Partners and holders of record
1
of the PPI's as of the close of business on December 31, 2001 from its available
cash. In accordance with the Registrant's Partnership Agreement, $205,000 will
be distributed to the General Partners and Special Limited Partners and $205,000
will be distributed to the holders of its PPIs. In addition, as of December 31,
2001, Registrant has accrued a distribution in the amount of $280,965 in respect
of 2001 net operating revenues, of which $140,482 will be paid to its General
Partners and Special Limited Partners and $140,483 will be paid to the holders
of record of the PPIs. These dividends will be paid on March 31, 2002.
Background.
Harry B. Helmsley, a General Partner of Registrant, died on January 4,
1997. Upon his death, Mr. Helmsley's general partnership interest in Registrant
was converted to a special limited partner interest, which was inherited by his
spouse, Leona M. Helmsley, from Mr. Helmsley's estate as of December 31, 1997
(the "Converted Special L.P. Interest"). Under the terms of the Partnership
Agreement as in effect on the date of Mr. Helmsley's death, the General Partners
were required to create a new limited partnership with the same attributes as
Registrant and to convey all of the assets and liabilities of Registrant to such
entity. Such action would have involved substantial transfer tax, insurance
premium costs and other related expenses and no benefit to the partners of
Registrant or to the holders of PPIs in the limited partnership interest of the
limited partner of Registrant. Accordingly, Registrant obtained the approval of
the holders of a majority of the PPIs to, among other things, amend the
Agreement to permit the remaining General Partners to elect to continue the
business of Registrant in the event of the death of a General Partner and to
make such election with respect to the death of Mr. Helmsley. Such amendments
were effective on May 30, 1997 (the "Amendments"). As contemplated by the
amended Partnership Agreement, effective July 3, 1997, H Associates L.L.C. ("H
Associates"), an entity owned by Leona M. Helmsley, was admitted as a General
Partner of Registrant. H Associates' economic interest in Registrant was
acquired from Helmsley-Noyes Company, Inc., also a General Partner of
Registrant.
On June 10, 1998, ScogBell Acquisition, L.L.C., a Delaware limited
liability company ("ScogBell"), purchased from Leona Helmsley all of her
interests in Registrant. The interests from this sale that were acquired by
ScogBell from Leona Helmsley included, among other things, general partnership
interests (0.05%), special limited partnership interests (33.29%) and an
aggregate of 282,377 PPIs. Also on June 10, 1998, ScogBell acquired 28,550 PPIs
in the over-the-counter market. As a result, ScogBell
2
became a beneficial owner of 310,927 PPIs in Registrant which represents 37.9%
of the outstanding PPIs.
(a) Financial Information About Segments.
--------------------------------------- Registrant's sole business is
the ownership and operation of commercial real estate. All of Registrant's
revenues, operating profit or loss and assets relate solely to such industry
segment.
(b) Narrative Description of Business.
----------------------------------- Registrant's only business is the
ownership and operation of commercial real properties. During 2000, Registrant
disposed of its remaining income producing properties and, at December 31, 2001,
Registrant's remaining real property consisted of one vacant commercial office
building, which was held under contract for sale, subject to certain closing
conditions. In January 2002, due to the buyer's inability to satisfy the closing
conditions, the contract expired and Registrant resumed marketing activities
with respect to the Property. The primary cost associated with Registrant's
remaining Property is real estate taxes. All of the real property owned and
operated by Registrant is set forth in Item 2.
Registrant's needs for working capital are satisfied by existing cash
balances which were generated primarily from previous sales of properties.
Registrant employs one person who handles maintenance of the remaining
Property. All of the Registrant's other operating functions, which consist
primarily of property management and administrative services, are performed by
Helmsley-Spear, Inc. ("HSI") or affiliates of HSI, which entities may be deemed
to be affiliates of Registrant. Management fees and leasing commissions charged
by HSI aggregated approximately $0, $393,000 and $1,288,000 during the fiscal
years ended December 31, 2001, 2000 and 1999, respectively. HSI also earned
$3,000, $6,754,000 and $3,962,000 in brokerage commissions in 2001, 2000 and
1999, respectively, in connection with the sale of two parcels of undeveloped
land in Houston, Texas in 2001, the 50% undivided interest in the Marbridge
Building and the 245 Fifth Avenue and 261 Fifth Avenue properties in 2000 and
the Mojud and 1440 Broadway properties in 1999. Registrant believes that such
services are supplied at prices that approximate those that would be available
from non-affiliates. See Item 13.
3
Item 2. Properties.
- ------- -----------
General. At December 31, 2001, Registrant's Property included fee title to
one vacant commercial office building. The Property is located at 570 Broad
Street, Newark, New Jersey.
The table below sets forth a description of the Property owned by
Registrant on December 31, 2001, its location, type of ownership and rentable
area in square feet.
Total Rentable
Property Description Ownership Area (Sq. Ft.)
- -------- ----------- --------- --------------
570 Broad Street
Newark, New Jersey(1) 14-story office bldg. Fee 190,000
(1) The Property has been vacant since 1996, and was held under contract for
sale, subject to certain closing conditions. In January 2002, due to the buyer's
inability to satisfy the closing conditions, the contract expired and Registrant
resumed marketing activities with respect to the Property.
Item 3. Legal Proceedings.
- ------- ------------------
There are no material pending legal proceedings to which Registrant is a
party or of which any of Registrant's property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No matters were submitted to a vote of holders of PPIs at a meeting or
otherwise during the fourth quarter of 2001.
4
PART II
Item 5. Market for the Registrant's Participation Interests and Related Security
- ------- ------------------------------------------------------------------------
Holder Matters.
---------------
Market Information.
As discussed above, Registrant is a limited partnership. PPIs represent
the beneficial interest of the Registrant's sole Limited Partner. On September
27, 2000, PPI's ceased to be traded in the over-the-counter ("OTC") market on
the National Association of Securities Dealers Automated Quotations System
("NASDAQ") under the symbol "IVPA." After such date, the PPI's have continued to
trade in the non-OTC market on the NASDAQ under the symbol "IVPA." During the
fiscal year of 2001, and at December 31, 2001, there was no established public
trading market for these securities and quotations are limited and sporadic.
The following quotations represent prices between dealers, do not include
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions. The range of high and low closing bid quotations for PPIs for the
two most recent fiscal years was as follows:
2001(1) 2000(2)
----------------- ------------------
High Low High Low
---- ---- ---- ----
First Qtr. 2.50 1 150 50
Second Qtr. 3.50 2.95 80 3.75
Third Qtr. 3.50 0.10 9 6
Fourth Qtr. 7 0.60 7 5
(1) Trading volume for PPIs was low and quotations are limited and
sporadic.
(2) Quotations from January 1, 2000 through September 26, 2000 are OTC
NASDAQ market quotations. All quotations on and after September 27, 2000
are non-OTC NASDAQ market quotations. Trading volume for PPIs was low and
quotations are limited and sporadic.
Holders.
As of December 31, 2001, there were 505 holders of record of PPIs.
5
Dividends.
Pursuant to the Partnership Agreement, Registrant is required to make
certain cash distributions to holders of PPIs. Net operating revenues for each
calendar year are distributable to the partners of Registrant approximately as
follows:
General Partners (as a group): .55%
Irving Schneider
Minlyn, Inc.
ScogBell AG, Inc. (formerly known as
Helmsley-Noyes Company, Inc.)
ScogBell
Converted Special L.P. Interest: .95%
ScogBell
Special Limited Partners (as a group): 48.50%
ScogBell
Irving Schneider
Limited Partner (nominee for holders of PPIs): 50.0%
The Limited Partner is the nominee for the holders of PPIs and all
distributions to the Limited Partner are distributed ratably to the holders of
820,000 Participations of Partnership Interests. If with respect to any calendar
year the Limited Partner's distributive share (computed on the same basis as
that used in preparing Registrant's Federal income tax return) of income (loss),
plus one-half of such partner's distributive share of long-term capital gains,
exceeds the net operating revenue allocated to the Limited Partner as referred
to in the preceding paragraph, then Registrant must also distribute additional
funds in an amount equal to such excess to the holders of PPIs. If Registrant
does not have funds for such distribution (from cash on hand or borrowings), the
Partnership Agreement obligates the General Partners to lend or contribute funds
to Registrant for such purpose.
In 2001, Registrant had "net operating revenues" of $280,965, of which
$140,483 in the aggregate (or $0.17132 per PPI) will be distributed on March 31,
2002 to the holders of PPI's and $140,482 will be distributed to the Special
Limited Partners and the General Partners. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
On July 18, 2001, Registrant paid a special dividend of $5,200,000 to its
General Partners and Special Limited Partners and holders of record as of the
close of business on July 6, 2001 of its PPIs from its available cash, of which
$2,600,000 was paid to the General Partners and Special Limited Partners and
$2,600,000 was paid to the holders of its PPIs.
6
On December 21, 2001, Registrant declared a special dividend of $410,000
to its General Partners and Special Limited Partners and holders of record of
its PPIs as of the close of business on December 31, 2001. In accordance with
the Registrant's Partnership Agreement, $205,000 will be distributed to the
General Partners and Special Limited Partners and $205,000 will be distributed
to the holders of its PPIs. Such distribution will be paid on March 31, 2002,
together with the aforementioned 2001 net operating revenues.
In 2000, Registrant had "net operating revenues" of $3,908,231, of which
$1,954,116 in the aggregate (or $2.38 per PPI) was distributed on March 31, 2001
to the holders of record of PPIs as of December 31, 2000 and an aggregate of
$1,954,116 was also distributed to the Special Limited Partners and General
Partners on that date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
On January 18, 2000, Registrant declared a special dividend of $37,000,000
to its General Partners and Special Limited Partners and holders of record of
its PPIs from its available cash in connection with the sale on such date of
Registrant's 50% undivided interest in the Marbridge Building, of which
$18,500,000 was paid to the General Partners and Special Limited Partners in
January of 2000 and $18,500,000 was paid to the holders of its PPIs in February
of 2000.
On May 8, 2000, Registrant declared a special dividend of $120,000,000 to
its General Partners and Special Limited Partners and holders of record of its
PPIs from its available cash in connection with the sale of the 245 and 261
Fifth Avenue properties, of which $60,000,000 was paid to the General Partners
and Special Limited Partners in May of 2000 and $60,000,000 was paid to the
holders of its PPIs in June of 2000.
"Net operating revenues" is defined in Registrant's Partnership Agreement
as follows: for any year, (i) net taxable income of the Registrant, plus (ii)
depreciation and amortization expenses allowable for income tax purposes during
such year (but only to the extent of mortgage repayments), (iii) plus
amortization of Bond issuance costs and Bond discount (which is not relevant
after 1994), (iv) plus amortization of financing costs, (v) less principal
repayments on mortgages. In recent years, cash distributions to Registrant's
partners have generally exceeded the amount defined as net operating revenues.
See Item 7 below.
7
Item 6. Selected Financial Data.
- ------- ------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Income Statement Data
Gross revenues from real $ 143,887 $ 5,969,098 $ 31,640,834 $ 43,454,081 $46,463,473
estate
Net Income transferred to $ 376,061 $153,829,678 $150,779,832 $112,747,733 $ 8,726,836
Partner's capital accounts
Net operating revenues, as $ 280,965 $ 3,908,231 $ 12,606,987 $ 9,803,570 $ 9,174,787
defined
Net income per PPI: $ 0.1713 $ 65.3015 $ 87.8823 $ 60.4848 $ 5.5280
Balance Sheet Data
Total assets $5,631,958 $ 12,959,799 $102,611,031 $ 49,762,234 $53,585,976
Mortgages payable $ -- $ -- $ 4,000,000 $ 23,847,488 $36,847,488
Affiliate Loans $ -- $ -- $ -- $ -- $18,000,000
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- ------------------------------------------------------------------------
of Operations.
--------------
Liquidity and Capital Resources
Registrant disposed of two unimproved parcels of land in Houston, Texas
during 2001. At December 31, 2001, Registrant's remaining Property consisted of
one vacant commercial office building located in Newark, New Jersey, which was
under contract for sale, subject to certain closing conditions. In connection
with this contract, Registrant received non-refundable deposits aggregating
$1,500,000 from the prospective buyer. In January 2002, due to the inability of
the buyer to satisfy the closing conditions, the contract expired and Registrant
resumed marketing activities with respect to the Property. Registrant will seek
to consummate a sale of this property during 2002, after which the Registrant
will initiate steps to wind up its affairs, but there can be no assurance that
such sale will be consummated.
On July 11, 2001, Registrant sold its undeveloped land in Houston, Texas
for $100,000. The sale proceeds were used to pay closing costs and other
commitments of approximately $5,000. In connection with this sale, Registrant
recognized a gain of approximately $95,000.
On July 18, 2001, Registrant paid a special dividend of $5,200,000 to its
General Partners and Special Limited Partners and holders of record as of the
close of
8
business on July 6, 2001 of its PPIs from its available cash, of which
$2,600,000 was paid to the General Partners and Special Limited Partners and
$2,600,000 was paid to the holders of its PPIs.
On December 21, 2001, Registrant declared a special dividend of $410,000
to its General Partners and Special Limited Partners and holders of record of
its PPIs as of the close of business on December 31, 2001. In accordance with
the Registrant's Partnership Agreement, $205,000 will be distributed to the
General Partners and Special Limited Partners and $205,000 will be distributed
to the holders of its PPIs.
In addition, Registrant is required to make certain cash distributions to
its partners for each year (see Item 5). Accordingly, Registrant has accrued
distributions in the amount of $280,965 in respect of 2001 net operating
revenues, of which $140,482 will be paid to the Special Limited Partners and the
General Partners, and $140,483 will be paid to the holders of record of its
PPIs.
The aforementioned special dividend and 2001 net operating revenues, in
the combined aggregate amount of $690,965, will be distributed on March 31,
2002.
Registrant anticipates satisfying its working capital requirements for
fiscal year 2002 generally through existing cash reserves. Registrant also
anticipates generating additional liquidity through the consummation of the sale
of its remaining property; however, there can be no assurances that such sale
will be consummated.
Net cash provided by operating activities was approximately $2.3 million
in 2001, as compared to $4.4 million in 2000. Such decrease was primarily due to
decreased property operating income as a result of the sale of Registrant's New
York properties in 2000. Net cash provided by investing activities was
approximately $95,000 in 2001, as compared to $164.4 million in 2000. Such
decrease was primarily attributable to a net decrease in the proceeds received
from the sales of properties of $164.9 million. Net cash used in financing
activities was approximately $9.1 million in 2001, as compared to $239 million
in 2000. Such decrease was primarily due to decreased distributions of
approximately $226 million and repayment in 2000 of Registrant's 50% share of
the mortgage on the Marbridge Building in connection with the sale of its
undivided interest in that property.
9
Results of Operations
2001 Compared to 2000
- ---------------------
Gross Revenues from real estate for 2001 decreased approximately
$5,825,000 (approximately 98%) as compared to 2000, primarily due to the impact
of the sales of the 50% undivided interest in the Marbridge Building (sold in
January of 2000), and the 245 Fifth Avenue and 261 Fifth Avenue properties (sold
in May of 2000), representing all of Registrant's remaining income producing
properties. Total expenses decreased by approximately $2,311,000 (approximately
63%) as a result of the aforementioned property sales. Net income for 2001
decreased approximately $153,454,000 primarily due to a decrease of
approximately $150,405,000 in the gain on sale of real estate offset by a
decline in property operating income of approximately $3,083,000 as a result of
the aforementioned property sales.
During 2001, gross revenue from real estate was generated primarily by the
final settlement of certain closing adjustments and prorations associated with
the sales of properties which occurred during 2000. During 2000, Registrant's
rental income was generated by the operations of its 50% undivided interest in
the Marbridge Building and the 245 and 261 Fifth Avenue properties, which were
sold during 2000.
Interest and other income in 2001 increased approximately $432,000
(approximately 37%) primarily due to the receipt in 2001 of $1,293,000 in real
estate tax refunds relating to the Marbridge Building and 261 Fifth Avenue
Building (which were sold in 2000), and the 6 North Michigan Avenue, 360 North
Michigan Avenue and One LaSalle properties (which were sold in 1998), offset by
decreased interest income of approximately $861,000 due to reduced investments
in commercial paper as a result of distributions in 2000 of the net proceeds of
sales of properties.
For 2001, Registrant incurred no interest expense due to the repayment in
2000 of Registrant's 50% share of the $8,000,000 mortgage loan on the Marbridge
Building in connection with the sale of Registrant's 50% undivided interest in
such property.
Registrant's real estate tax expense in 2001 decreased approximately
$290,000 (approximately 53%), due to the sale of its 50% undivided interest in
the Marbridge Building in January 2000 and the sale of the 261 and 245 Fifth
Avenue properties in May 2000.
Management fees decreased approximately $110,000 (100%), because
Registrant had no income producing properties during 2001, and as a result,
incurred no management fees. In 2000, management fees were incurred with respect
to Registrant's 50% undivided interest in the Marbridge Building, 245 Fifth
Avenue and 261 Fifth Avenue properties, all of which were sold in 2000.
10
Payroll and related expenses decreased approximately $303,000
(approximately 70%), due to the sale of the aforementioned properties in 2000.
Repairs and maintenance expenses decreased approximately $239,000 (100%),
due to the sale of the aforementioned properties in 2000.
Other property expenses decreased approximately $692,000 (approximately
84%), due to the sale of the aforementioned properties in 2000.
Administrative expenses increased approximately $196,000 (approximately
31%), primarily due to the payment in 2001 of a $250,000 settlement relating to
an escalation dispute with a former tenant.
Depreciation and amortization expenses decreased approximately $830,000
(100%), due to the sales of the aforementioned properties in 2000. Registrant's
remaining property, a vacant office building, is classified as property held for
sale and depreciation is not recorded.
2000 Compared to 1999
- ---------------------
Gross Revenues from rentals for 2000 decreased approximately $25,672,000
(approximately 81%) as compared to 1999, primarily due to the impact of the
sales of the 50% undivided interest in the Marbridge Building (sold in January
of 2000), the 245 Fifth Avenue and 261 Fifth Avenue properties (sold in May of
2000), and the sale of the 1440 Broadway property (sold in December of 1999).
Total expenses decreased by approximately $14,160,000 (approximately 79%) as a
result of the aforementioned property sales. Net income for 2000 increased
approximately $3,050,000 primarily due to an increase of approximately
$14,065,000 in the gain on sale of real estate offset by a decline in property
operating income of approximately $11,196,000 as a result of the aforementioned
property sales.
During 2000, Registrant's rental income was generated by the operations of
its 50% undivided interest in the Marbridge Building and the 245 and 261 Fifth
Avenue properties, which were sold during 2000.
For 2000, Registrant's interest expense decreased approximately $1,633,000
(approximately 97%), due to the repayment of Registrant's 50% share of the
$8,000,000 mortgage loan on the Marbridge Building on January 18, 2000 in
connection with the sale of Registrant's 50% undivided interest in such
property.
Registrant's real estate tax expense in 2000 decreased approximately
$4,086,000 (approximately 88%), due to the sale of its 50% undivided interest in
the Marbridge Building in January of 2000 and the sale of the 261 and 245 Fifth
Avenue properties in May of 2000. Registrant, under certain commercial leases,
was able to pass
11
a portion of the increases in real estate taxes, operating expenses and
increases in the consumer price index to the tenants based on lease escalation
clauses.
Management fees decreased approximately $407,000 (approximately 79%), due
to the sale of the aforementioned properties.
Payroll and related expenses decreased approximately $1,467,000
(approximately 77%), due to the sale of the aforementioned properties.
Repairs and maintenance expenses decreased approximately $1,544,000 (87%),
due to the sale of the aforementioned properties.
Other property expenses decreased approximately $3,089,000 (approximately
79%), due to the sale of the aforementioned properties.
Administrative expenses increased approximately $44,000 (approximately
7%), due to the increased professional fees associated with the administration
of the partnership activities.
Depreciation and amortization expenses decreased approximately $1,978,000
(approximately 70%), due to the aforementioned sales.
Recent Accounting Pronouncements.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Registrant expects
to adopt FAS 144 as of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant impact on the Registrant's financial
position or results of operations.
12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
- -------- -----------------------------------------------------------
At December 31, 2001, Registrant had no interest bearing indebtedness and
accordingly was not exposed to market risk with respect to changes in interest
rates, and does not anticipate a need to seek additional borrowing.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The response to this Item 8 is submitted in a separate section of this
report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- -------- ----------------------------------------------------------------------
Financial Disclosure.
---------------------
None.
13
PART III
Item 10. General Partners of the Registrant.
- -------- -----------------------------------
Registrant is a limited partnership formed in accordance with the New York
Revised Limited Partnership Act. It does not have directors or executive
officers. The information set forth below is provided with respect to the
General Partners of the Registrant, who may be considered to occupy positions
equivalent to directors or executive officers. There is no specific term of
office for any General Partner of the Registrant. Each General Partner, with the
exception of ScogBell, has served in such capacity since December 4, 1969.
The names, ages, and business experience during the past five years of the
General Partners of the Registrant, including their principal occupations and
employment during that period and the name and principal business of any
corporation or other organization in which such occupations and employment were
carried on, is as follows:
Irving Schneider - 82; Executive Vice President of Helmsley-Spear, Inc.
Mr. Schneider has been in the real estate business for over 50 years and owns
and operates, individually or through partnerships, numerous real estate
investments.
Minlyn, Inc. was formed in 1968. All of its stock is owned by Mr.
Schneider. Mr. Schneider is a director of Reliance Group Holdings, Inc. and
Reliance Insurance Company.
Registrant has been advised that ScogBell was created in June 1998 to
acquire, hold, finance and sell interests in Registrant. Control of ScogBell is
vested exclusively with ScogBell AG Manager, Inc. and ScogBell SB Manager, Inc.,
as managers.
ScogBell AG, Inc. (formerly known as Helmsley-Noyes Company, Inc.), was
incorporated in 1926 and it is a real estate management firm in New York City
which was acquired by ScogBell on June 10, 1998.
Harry B. Helmsley was a General Partner of Registrant until his death on
January 4, 1997. He was succeeded by H Associates on July 3, 1997. H Associates
acquired a nominal general partner interest from Helmsley-Noyes Corporation in
connection with its admission as a General Partner. On June 10, 1998, H
Associates ceased to be a General Partner of Registrant and was replaced by
ScogBell as a General Partner pursuant to a sale of its entire beneficial
ownership position. See "Business."
14
Item 11. Executive Compensation.
- -------- -----------------------
Registrant is a limited partnership. It does not have officers, executive
officers or directors. The information set forth below is provided with respect
to the General Partners and the Special Limited Partners of the Registrant, who
may be considered to act in capacities similar to directors, or perform
policy-making functions similar to those of executive officers or officers in
charge of a principal business unit, division or function.
Paragraph 11A(3) of the Partnership Agreement provides for certain
guaranteed payments to be made to the General Partners and Special Limited
Partners of Registrant equal to 8-3/4% per annum of their "Remaining Original
Cash Contribution." The Remaining Original Cash Contribution is $1,500,000, less
the cumulative amounts distributed to the General Partners and Special Limited
Partners from time to time in respect of the net proceeds from the sale of
Registrant's properties. The Remaining Original Cash Contributions of December
31, 2001 was $1,160,000. For the fiscal year ended December 31, 2001, Registrant
paid or accrued, pursuant to such paragraph 11A(3), guaranteed payments to the
General Partners and Special Limited Partners in an aggregate amount of $101,500
as follows: Irving Schneider - $33,732, ScogBell - $67,576, ScogBell AG, Inc.
(formerly known as Helmsley-Noyes Company, Inc.) - $91 and Minlyn, Inc. - $101.
Under the terms of the Partnership Agreement, since January 1, 1973, the
General Partners are entitled to receive an annual payment equal to 1/2% of the
gross revenue from real estate of the Registrant. During the fiscal year ended
December 31, 2001, the General Partners waived their right to such payment. Mr.
Schneider and ScogBell are entitled to receive distributions of net operating
revenues in each of their respective capacities as Special Limited Partners. See
"Item 5" above.
The Registrant does not provide any compensation to the General Partners
or the other persons in the form of option or stock appreciation right grants,
long-term incentive plans, or a defined benefit or actuarial plans. The
Registrant has no standard arrangements for payment of fees to General Partners
(other than for their interest as General Partners, as described above), or
employment contracts or change-of-control agreements.
15
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
(a) Registrant is a limited partnership. Except to the extent set forth
below, it does not have voting securities. The right to control the business of
Registrant is vested in the General Partners of Registrant by virtue of
provisions of the Partnership Agreement and the New York Revised Limited
Partnership Act.
The Partnership Agreement provides for modification or amendments of the
Partnership Agreement upon obtaining the consents or affirmative votes of
specified percentages of the Special Limited Partners and the Limited Partners,
each voting as a class. The sole limited partner votes as directed by the
holders of PPIs.
To the extent that the Special Limited Partnership Interests and PPIs are
considered voting securities, the following information is provided as to
holders of 5% or more of each such class at December 31, 2001:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ---------------- -------------------- --------
Special Limited ScogBell Direct 66.66%
Partnership Interest 660 Madison Ave.
New York, NY 10021
Irving Schneider Direct 33.34%
880 Fifth Avenue
New York, NY
Converted Special Limited ScogBell Direct 100.00%
Partner Interest 660 Madison Ave.
New York, NY 10021
PPIs ScogBell 310,927(1) 37.92%
660 Madison Ave.
New York, NY 10021
Long Island Jewish Medical Center 90,095 10.99%
270-05 76th Avenue Direct
New Hyde Park, NY 11040
- ----------
(1) Includes PPIs purchased from the following: 258,877 PPIs owned directly by
Leona M. Helmsley; also 4,000 PPIs held by Helmsley-Noyes Company, Inc.
(0.5%), a company owned by Helmsley Enterprises, Inc., which in turn is
wholly-owned by the Harry B. Helmsley Revocable Trust, under agreement
dated December 13, 1989; 13,000 PPIs held by HBH Holdings Corp. (1.6%),
6,500 PPIs held by Park Lane Hotel, Inc. (0.8%) and 28,550 PPIs in the
over-the-counter market.
16
(b) Registrant is a limited partnership and, as such, its affairs are
managed by its General Partners. The following table sets forth the amount and
nature of the beneficial ownership at December 31, 2001 of each class of
partnership interests by its General Partners individually and as a group:
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------- ------------------- -------------------- ----------------
General Partnership Irving Schneider Direct(1) 90.91%
Interests 880 Fifth Avenue
New York, NY
ScogBell Indirect 9.09%
660 Madison Ave.
New York, NY 10021
As a group 100.00%
Special Limited ScogBell Direct(2) 66.66%
Partnership Interests 660 Madison Ave.
New York, NY 10021
Irving Schneider Direct(2) 33.34%
880 Fifth Avenue
New York, NY
As a group 100.00%
Converted Special Limited ScogBell Direct(2) 100.00%
Partner Interest 660 Madison Ave.
New York, NY 10021
Participation Interests ScogBell 310,927 37.92%
660 Madison Ave.
New York, NY 10021 Direct(3)
(1) Mr. Irving Schneider owns approximately 90% of such interest directly and
10% indirectly through his ownership of Minlyn, Inc.; 60 East 42nd Street,
New York, New York, which is also a General Partner of Registrant.
(2) The Special Limited Partnership Interests have the rights set forth in the
Partnership Agreement and are not securities issued by Registrant. The
Converted Special L.P. Interest represents the economic interest in
Registrant formerly owned by Harry B. Helmsley in his capacity as a
General Partner. See "Business."
(3) Includes PPIs purchased from the following: 258,877 PPIs owned directly by
Leona M. Helmsley; also 4,000 PPIs held by Helmsley-Noyes Company, Inc.
(0.5%), a company owned by Helmsley Enterprises, Inc., which in turn is
wholly-owned by the Harry B. Helmsley Revocable Trust, under agreement
dated December 13, 1989; 13,000 PPIs held by HBH Holdings Corp. (1.6%),
6,500 PPIs held by Park Lane Hotel, Inc. (0.8%) and 28,550 PPIs in the
over-the-counter market.
17
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
(a) Transactions with Management and Others.
None.
(b) Certain Business Relationships.
As set forth in Item 11(a) above, during the year ended December 31, 2001,
Registrant paid certain fees and certain guaranteed payments to each of its
corporate General Partners, ScogBell AG, Inc. (formerly known as Helmsley-Noyes
Company, Inc.) and Minlyn, Inc., pursuant to the Partnership Agreement. See Item
10 hereof as to the ownership of said corporations. In 2001, HSI earned $3,000
in brokerage commissions in connection with the sale of two parcels of
undeveloped land in Houston, Texas. The amount of the commissions paid for such
services is believed by Registrant to be no more than the amount which
Registrant would be required to pay to unrelated parties performing such
services.
(c) Indebtedness of Management.
None.
18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(a) (3) Exhibits. Subject to Rule 12b-32 of the Securities Exchange Act of
1934 regarding incorporation by reference, listed below are the exhibits which
are filed as part of this report and are hereby incorporated by reference
(according to the numbers assigned to them in Item 601 of Regulation S-K):
(3)(i) Registrant's Limited Partnership Agreement dated as of May 15,
1969, as amended on October 2, 1969, October 31, 1969, and
December 3, 1969 is hereby incorporated by reference to
Exhibits 3.1, 3.2, 3.3 and 3.4 to Registration Statement No.
2-33132 which was declared effective by the SEC on December 4,
1969.
(ii) Amendment to Agreement of Limited Partnership, dated as of May
30, 1997.
(10.1) Management Agreement dated May 20, 1969 between
Helmsley-Spear, Inc. and Registrant is hereby incorporated by
reference to Exhibit 12.1 to Registration Statement No.
2-33132. The leasing commissions and management fees currently
being charged to the Registrant are consistent with the rates
generally charged in the areas where the properties are
located.
(b) Reports on Form 8-K filed during the period covered by this Report:
(i) On June 25, 2001, Registrant filed a Current Report on Form 8-K
relating to the special dividend of $5,200,000 paid on July 18, 2001
to its General Partners and Special Limited Partners and holders of
its PPIs.
(ii) On June 26, 2001, Registrant filed a Current Report on Form
8-K/A relating to the special dividend of $5,200,000 paid on July
18, 2001 to its General Partners and Special Limited Partners and
holders of its PPIs.
(iii) On October 24, 2001, Registrant filed a Current Report on Form
8-K relating to the contract to sell 570 Broad Street, Newark, New
Jersey for $11,500,000.
19
(iv) On December 28, 2001, Registrant filed a Current Report on Form
8-K relating to a special dividend of $410,000 to its General
Partners and Special Limited Partners and holders of record as of
the close of business on December 31, 2001 of its PPIs.
(c) Financial Statement Schedules. The response to this portion of Item 14
is submitted as a separate section of this report.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized, in the City of New York,
State of New York, on March 25, 2002.
INVESTMENT PROPERTIES ASSOCIATES
By: /s/ Irving Schneider
-------------------------------
Irving Schneider
General Partner; Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated on March 25, 2002.
Signature Title
--------- -----
/s/ Irving Schneider General Partner,
- ------------------------------------ Principal Executive,
Irving Schneider Financial and
Accounting Officer
MINLYN, INC. General Partner
By: /s/ Irving Schneider
--------------------------------
Irving Schneider
President
SCOGBELL AG, INC. General Partner
By: /s/ Craig Effron
--------------------------------
Craig Effron
President
SCOGBELL ACQUISITION, L.L.C. General Partner
By: /s/ Craig Effron
--------------------------------
Craig Effron
President
ScogBell AG Manager, Inc.,
Manager
21
Annual Report on Form 10-K
Item 14(A)(1) And (2) and Item 14(D)
List of Financial Statements and Financial Statement Schedule
Financial Statements and Financial Statement Schedule
Year Ended December 31, 2001
Investment Properties Associates
(A New York Limited Partnership)
New York, New York
Investment Properties Associates
(A New York Limited Partnership)
Index Of Financial Statements And Financial Statement Schedule
Page
Report of Independent Auditors...............................................S-1
Balance Sheets-December 31, 2001 and 2000....................................S-2
Statements of Income-Years Ended December 31, 2001,
2000 and 1999......................................................S-3 and S-4
Statements of Changes in Partners' Capital (Deficiency)-
Years Ended December 31, 2001, 2000 and 1999...............................S-5
Statements of Cash Flows-Years Ended December 31, 2001,
2000 and 1999..............................................................S-6
Notes to Financial Statements........................................S-7 to S-18
The following financial statement schedule of Investment Properties Associates
is included in Item 14(d):
Schedule III-Real Estate and Accumulated Depreciation..............S-19 and S-20
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or have been otherwise disclosed, and
therefore have been omitted.
Report of Independent Auditors
Investment Properties Associates
We have audited the accompanying balance sheets of Investment Properties
Associates (a New York Limited Partnership) as of December 31, 2001 and 2000,
and the related statements of income, changes in partners' capital (deficiency)
and cash flows for each of the three years in the period ended December 31,
2001. Our audits also included the financial statement schedule listed in the
index at Item 14. These financial statements and schedule are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Investment Properties
Associates at December 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
January 23, 2002
S-1
Investment Properties Associates
(A New York Limited Partnership)
Balance Sheets
December 31,
2001 2000
----------- -----------
Assets
Real estate held for sale, at cost (Note 3) $ 8,033,347 $ 8,033,347
Less accumulated depreciation and
amortization 5,880,040 5,880,040
----------- -----------
2,153,307 2,153,307
Cash and cash equivalents 2,788,292 9,514,349
Due from managing agent (Helmsley-
Spear Inc.) (Note 5) 229,291 730,578
Receivables, principally for rentals 3,553 8,215
Other assets,
(Note 4) 457,515 553,350
----------- -----------
Total assets $ 5,631,958 $12,959,799
=========== ===========
Liabilities and partners' capital
(deficiency)
Accounts payable $ 7,903 $ 113,368
Accrued real estate taxes -- 11,086
Distributions payable to General Partners,
Special Limited Partners and Limited
Partner (Note 8) 698,179 3,915,446
Guaranteed payments due to General
Partners, Special Limited Partners and
Limited Partner (Note 6) 146,500 180,553
Due to managing agent (Helmsley-
Spear, Inc.) (Note 5) 35,661 41,820
Sundry and accrued liabilities 233,638 172,545
Deposits (Note 3) 1,500,000 --
----------- -----------
Total liabilities 2,621,881 4,434,818
----------- -----------
Commitments and contingencies (Note 12)
Partners' capital (deficiency)
(Notes 1, 6, 7 and 8):
General Partners (2,495,206) (2,465,397)
Special Limited Partners 3,286,292 5,966,387
Limited Partner (represented by
the equivalent of 820,000
Participation Interests) 2,218,991 5,023,991
----------- -----------
3,010,077 8,524,981
----------- -----------
Total liabilities and partners'
capital (deficiency) $ 5,631,958 $12,959,799
=========== ===========
See accompanying notes.
S-2
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income
Years ended December 31,
2001 2000 1999
------------ ------------ ------------
Revenues:
Gross revenues from real estate (Note 10) $ 143,887 $ 5,969,098 $ 31,640,834
Interest and other income 1,607,060 1,174,914 798,599
------------ ------------ ------------
1,750,947 7,144,012 32,439,433
------------ ------------ ------------
Expenses:
Real estate taxes 258,100 547,845 4,633,769
Interest -- 43,584 1,676,492
Management fees (Note 5) -- 109,737 517,005
Payroll and related expenses 128,403 431,153 1,898,115
Repairs and maintenance expenses -- 239,056 1,783,373
Other property expenses 133,753 825,410 3,914,440
Administrative expenses 833,226 636,900 592,736
Depreciation and amortization of real estate -- 598,174 1,974,245
Amortization of leasing commissions -- 232,160 831,865
Amortization of mortgage refinancing costs -- -- 1,593
------------ ------------ ------------
1,353,482 3,664,019 17,823,633
------------ ------------ ------------
Income before items shown below 397,465 3,479,993 14,615,800
Gain on sales of real estate (Note 3) 95,096 150,500,239 136,434,754
------------ ------------ ------------
Income before guaranteed payments required under the
Limited Partnership Agreement $ 492,561 $153,980,232 $151,050,554
See accompanying notes.
S-3
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income (continued)
Years ended December 31,
2001 2000 1999
------------ ------------ ------------
Guaranteed payments required under the
Limited Partnership Agreement (Note 6):
To the Limited Partner $ 15,000 $ 15,000 $ 15,000
To General and Special Limited Partners 101,500 101,500 101,500
To General Partners -- 34,054 154,222
------------ ------------ ------------
116,500 150,554 270,722
------------ ------------ ------------
Net income $ 376,061 $153,829,678 $150,779,832
============ ============ ============
Net income allocable as follows
(Notes 7 and 13):
General Partners $ 2,591 $ 1,103,106 $ 865,880
Special Limited Partners 232,987 99,179,316 77,850,455
Limited Partner 140,483 53,547,256 72,063,497
------------ ------------ ------------
$ 376,061 $153,829,678 $150,779,832
============ ============ ============
Net Income Per Limited Partner
Participation Interest
(820,000 units outstanding): $ 0.1713 $ 65.3015 $ 87.8823
============ ============ ============
See accompanying notes.
S-4
Investment Properties Associates
(A New York Limited Partnership)
Statements of Changes in Partners' Capital (Deficiency)
Special Limited
Total General Partners Partners Limited Partner
------------- ---------------- --------------- ---------------
Partners' Capital (Deficiency) January
1, 1999 $ 6,721,813 $ (2,768,948) $ (21,325,648) $ 30,816,409
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 8) (141,898,110) (780,440) (70,168,615) (70,949,055)
Net income for the year ended December
31, 1999 (Note 7) 150,779,832 865,880 77,850,455 72,063,497
------------- ------------- ------------- -------------
Partners' Capital (Deficiency) December
31, 1999 $ 15,603,535 $ (2,683,508) $ (13,643,808) $ 31,930,851
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 8) (160,908,232) (884,995) (79,569,121) (80,454,116)
Net income for the year ended December
31, 2000 (Note 7) 153,829,678 1,103,106 99,179,316 53,547,256
------------- ------------- ------------- -------------
Partners' Capital (Deficiency) December
31, 2000 $ 8,524,981 $ (2,465,397) $ 5,966,387 $ 5,023,991
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 8) (5,890,965) (32,400) (2,913,082) (2,945,483)
Net income for the year ended December
31, 2001 (Note 7) 376,061 2,591 232,987 140,483
------------- ------------- ------------- -------------
Partners' Capital (Deficiency) December
31, 2001 $ 3,010,077 $ (2,495,206) $ 3,286,292 $ 2,218,991
============= ============= ============= =============
See accompanying notes.
S-5
Investment Properties Associates
(A New York Limited Partnership)
Statements of Cash Flows
Years ended December 31,
2001 2000 1999
------------- ------------- -------------
Operating activities:
Net income $ 376,061 $ 153,829,678 $ 150,779,832
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 830,334 2,807,703
Deferred rent -- -- (1,082,359)
Gain on sale of real estate (95,096) (150,500,239) (136,434,754)
Changes in operating assets and liabilities:
Due from managing agent 501,287 2,091,590 (446,415)
Receivables 4,662 459,017 139,042
Other assets 95,835 676,101 (121,133)
Accounts payable (105,465) (564,809) (476,892)
Accrued real estate tax (11,086) 11,088 (1,586,162)
Accrued interest -- (29,278) (125,747)
Guaranteed payments due to General Partners,
Special Limited Partners and Limited Partner (34,053) (120,168) (400,107)
Due to managing agent (6,159) (189,293) (60,292)
Sundry and accrued liabilities 61,093 (438,167) (469,253)
Deposits and rents received in advance -- (1,696,853) (162,447)
Deposits 1,500,000 -- --
------------- ------------- -------------
Net cash provided by operating activities 2,287,079 4,359,001 12,361,016
------------- ------------- -------------
Investing activities:
Property improvements -- (595,995) (1,371,534)
Net proceeds from sale of real estate 95,096 164,953,897 149,599,635
------------- ------------- -------------
Net cash provided by investing activities 95,096 164,357,902 148,228,101
------------- ------------- -------------
Financing activities:
Distributions to General Partners, Special Limited
Partners and Limited Partner (9,108,232) (234,972,567) (74,802,647)
Principal payments on mortgages payable -- (4,000,000) (19,847,488)
------------- ------------- -------------
Net cash used in financing activities (9,108,232) (238,972,567) (94,650,135)
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents (6,726,057) (70,255,664) 65,938,982
Cash and cash equivalents at beginning of year 9,514,349 79,770,013 13,831,031
------------- ------------- -------------
Cash and cash equivalents at end of year $ 2,788,292 $ 9,514,349 $ 79,770,013
============= ============= =============
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ -- $ 72,862 $ 1,802,239
============= ============= =============
Supplemental disclosure of non-cash investing and
financing activities:
Deferred rent receivable charged to cost of sales $ -- $ -- $ 1,993,760
Deferred leasing commissions charged to cost of sales -- 2,350,881 1,703,931
See accompanying notes.
S-6
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements
December 31, 2001
1. Description of Business
Investment Properties Associates ("IPA") was formed as a limited partnership on
May 15, 1969 to acquire and operate commercial properties. Through January 4,
1997, the General Partners of IPA were Mr. Harry B. Helmsley and Mr. Irving
Schneider and two corporations owned or controlled by them. Collectively, the
General Partners owned a 1.5% interest in IPA. Upon the death of Mr. Helmsley on
January 4, 1997, the general partnership interest owned by him automatically
converted to a Special Limited Partnership Interest owned by his estate. As a
result of this conversion, the total interests of the General Partners were
reduced to .55%. The Special Limited Partners are Mrs. Leona M. Helmsley, Mr.
Irving Schneider, and the Estate of Mr. Harry B. Helmsley and the Limited
Partner is Mr. John Bailey. Undivided interests in the limited partnership are
represented by 820,000 Participation Interests ("PPI's"). Changes in ownership
subsequent to January 4, 1997, are described below.
Under the terms of the Partnership Agreement in effect on the date of Mr.
Helmsley's death, the General Partners were required to create a new limited
partnership with the same attributes as IPA and convey all assets and
liabilities of IPA to that entity. Because such a course of action would have
resulted in substantial expense to IPA and no benefit to the partners and
holders of PPI's, the General Partners obtained approval of a majority of the
holders of the PPI's to continue the business of IPA, and the Partnership
Agreement was amended to that effect effective May 30, 1997.
Effective July 3, 1997, the Partnership Agreement was further amended to admit a
newly formed limited liability company owned by Mrs. Leona M. Helmsley as a
General Partner of IPA. This entity was allocated a portion of the general
partner interest owned by one of the corporate general partners.
On June 10, 1998, the General Partner interests of the corporation and limited
liability company owned by Mrs. Leona M. Helmsley, and the Special Limited
Partner interests owned by Mrs. Leona M. Helmsley and the Estate of Harry B.
Helmsley, were acquired by ScogBell Acquisition, L.L.C. ("ScogBell"). Also on
June 10, 1998, ScogBell acquired 282,377 PPI's from Mrs. Leona M. Helmsley and
28,550 PPI's in the over-the-counter market.
S-7
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies
a. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
b. Rental revenue from tenant leases is recognized on a straight line
basis over the terms of the associated leases.
c. Depreciation of buildings and building improvements is provided for
by the straight-line method over estimated useful lives of 19 to 39
years. Leaseholds, leasehold improvements and tenants' alterations
are amortized over the terms of the related leases. Amounts
applicable to tenants' alterations and the related accumulated
amortization are eliminated from the accounts at the time the
related lease expires or, if the tenant should vacate the premises
prior thereto, unamortized assets are charged to operations in the
year the premises are vacated.
d. Costs in connection with mortgage refinancings are included in
deferred charges and are being amortized over the terms of the
related mortgages.
e. Leasing commissions are amortized over the terms of the related
leases.
f. IPA's employees are covered under multi-employer defined
contribution pension plans. All contributions are funded currently
based upon negotiated union contracts. Information from the plans'
administrators is not available to permit IPA to determine its share
of unfunded vested benefits. During 2001, 2000 and 1999, IPA paid
approximately $18,000, $93,000, and $273,000, respectively, for
employees to union plans for pension, welfare and other benefits.
g. For the purpose of determining cash equivalents, IPA considers all
highly liquid investments with a maturity of three months or less,
when purchased, to be cash equivalents.
S-8
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
h. Financial Accounting Standards Board ("FASB") Statement No. 107,
"Disclosures About Fair Value of Financial Investments", defines
fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties. The methods and assumptions used to estimate the
fair value of financial instruments at December 31, 2001 and 2000
are as follows:
(i) The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and
deposits approximate fair value due to the short maturities of
these items.
i. Gains on sales of real estate are recognized at closing in
accordance with FASB Statement No. 66, "Accounting for Sales of Real
Estate".
j. FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flow estimates to be generated by those assets are
less than the assets' carrying amount or on long-lived assets held
for sale when the assets' carrying amount is greater than the fair
market value less costs of disposal for those assets on a property
by property basis. IPA evaluates each of its properties for
indicators of impairment by reference to the undiscounted cash flows
to be generated from the operation and sale of the properties. No
indicators of impairment were present, and, accordingly no
provisions for impairment have been recorded in any of the periods
presented.
k. Basic earnings per share has been calculated by dividing the net
income allocated to the Limited Partner by the 820,000 PPI's
outstanding. As IPA has no potentially dilutive securities, no
presentation of diluted earnings per share is required.
l. Effective January 1, 1998, IPA adopted FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). IPA is engaged in the ownership and operation of
commercial office properties and has one reportable segment. IPA
evaluates real estate performance and allocates resources
S-9
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
based on net operating income. The primary sources of revenue are
generated from tenant base rents and escalations of operating
expenses and real estate taxes. Operating expenses primarily consist
of common area maintenance. The commercial office property segment
meets the quantitative threshold for determining reportable
segments. IPA has no investment in foreign operations.
3. Real Estate
Real estate is held for sale and is summarized as follows:
Classification 2001 2000
-------------- ---------- ----------
Land $ 502,032 $ 502,032
Buildings and building improvements -- --
Leaseholds and leasehold improvements 7,531,315 7,531,315
---------- ----------
$8,033,347 $8,033,347
========== ==========
On October 22, 2001, IPA entered into a contract to sell its only remaining
property, a vacant commercial office building located at 570 Broad Street in
Newark, New Jersey for $11,500,000. In connection with this contract, IPA
received non-refundable deposits from the buyer aggregating $1,500,000 which is
included in Deposits in the accompanying balance sheet. In January 2002, due to
the buyer's inability to satisfy the closing conditions, the contract expired
and IPA resumed marketing activities with respect to the property.
On July 11, 2001, IPA sold its undeveloped land in Texas for $100,000. In
connection with this transaction, IPA recognized a gain on the sale of
approximately $95,000.
On May 8, 2000, IPA sold the 245 Fifth Avenue and the 261 Fifth Avenue, New
York, New York, properties for $135,000,000. The sales proceeds were used to pay
closing costs of approximately $4,400,000 and a sales commission to one of the
general partners of approximately $5,110,000. In connection with this
transaction, IPA recognized a gain on the sale of approximately $113,570,000. In
addition, distributions of $60,000,000 were paid to the General Partners and
Special Limited Partners in May 2000 and $60,000,000 was paid to the holders of
Participation Interests in June 2000.
S-10
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
3. Real Estate (continued)
On January 18, 2000, IPA sold its 50% undivided interest in the 1328 Broadway,
New York, New York, property for $43,500,000. The sales proceeds were used to
repay IPA's 50% share of the $8,000,000 mortgage loan encumbering its interest
in the property, pay closing costs of approximately $1,400,000 and a sales
commission to one of the general partners of approximately $1,650,000. In
connection with this transaction, IPA recognized a gain on sale of approximately
$36,930,000. In addition, distributions of $18,500,000 were paid to the General
Partners and Special Limited Partners in January 2000 and $18,500,000 was paid
to the holders of Participation Interests in February 2000.
On December 16, 1999, IPA sold the 1440 Broadway property for $152,000,000. The
sales proceeds were used to repay mortgage debt of approximately $17,347,500,
sales commissions of $3,800,000 paid to an affiliate of one of the General
Partners and other closing costs of approximately $5,047,000. In connection with
this transaction, IPA recognized a gain on sale of approximately $130,557,000.
In addition, on December 16, 1999, IPA declared a special distribution to its
partners of approximately $128,000,000 of which $64,000,000 was paid to the
General Partners and Special Limited Partners in December 1999 and $64,000,000
was paid to the holders of Participation Interests in January 2000.
On May 18, 1999, IPA sold the Midland Savings Building located in Midland, Texas
for a sales price of $300,000. In connection with this transaction, IPA
recognized a gain of approximately $298,000.
On April 14, 1999, IPA sold the Mojud Building located in Long Island City, New
York for a sales price of $6,500,000. The sales proceeds were used to pay sales
commissions of $162,500 to an affiliate of one of the General Partners and other
closing costs of approximately $239,000. In connection with this transaction,
IPA recognized a gain of approximately $5,580,000.
S-11
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
4. Other Assets
Other assets consist principally of amounts held in escrow by the buyer of the
Partnership's Chicago properties, which were sold in 1998.
5. Management of Properties
The properties are managed by Helmsley-Spear, Inc. Mr. Irving Schneider is
co-chairman and Chief Operating Officer of Helmsley-Spear, Inc., and owns 50% of
its outstanding stock. In addition to providing general property management
services, Helmsley-Spear, Inc. locates tenants and negotiates leases for its
properties. Management fees are based upon negotiated percentages of revenues
for each property in the portfolio.
Leasing commissions are based upon varying percentages of the annual rent paid
by tenants obtained by Helmsley-Spear, Inc. Management fees and leasing
commissions charged to IPA by Helmsley-Spear, Inc. aggregated $0 (2001),
$393,447 (2000), and $1,287,902 (1999).
Tenants' security deposits for certain properties are held by the managing agent
principally in special bank accounts; interest thereon accrues principally for
the benefit of the tenants.
6. Guaranteed Payments Due to Partners
The Limited Partnership Agreement requires that certain guaranteed payments be
made to partners and deducted as expenses in determining net income. The General
Partners and Special Limited Partners receive guaranteed payments equal to
8-3/4% per annum of their "Remaining Original Cash Contribution" ($1,160,000 at
December 31, 2001, 2000 and 1999). In addition, the General Partners receive
guaranteed payments equal to 1/2% of gross revenues, as defined, and the Limited
Partner receives $15,000 per annum.
S-12
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
7. Allocations of Partnership Income
In accordance with the terms of the Limited Partnership Agreement, elements of
income for financial reporting purposes were credited (but not distributed in
cash) to the capital accounts of the partners through January 3, 1997, as
follows (see Note 8 for the basis on which cash distributions are determined):
Special
General Limited Limited
------- ------- -------
A. Net income before items C, D, E and F below 1.5% 48.5% 50.0%
B. Net losses, before items below 100.0% -- --
C. Depreciation and amortization of real estate:
1.Equal to mortgage amortization (as defined) 1.5% 48.5% 50.0%
2.Balance 3.0% 97.0% --
D. Bond discount amortization -- -- 100.0%
E. Gain on disposition of property:
1.To the extent of the aggregate depreciation
and amortization of such property included
in C(2) above 3.0% 97.0% --
2.Balance 1.5% 48.5% 50.0%
F. Loss on disposition of property 100.0% -- --
S-13
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
7. Allocations of Partnership Income (continued)
Upon the death of Mr. Helmsley on January 4, 1997, and the conversion of his
General Partner interest into a Special Limited Partner interest, the elements
of income for financial reporting purposes are generally credited (but not
distributed in cash) to the capital accounts of the partners as follows:
Special
General Limited Limited
------- ------- -------
A. Net income before items C, D, E and F below .55% 49.45% 50.0%
B. Net losses, before items below 36.67% 63.33% --
C. Depreciation and amortization of real estate:
1.Equal to mortgage amortization (as defined)
.55% 49.45% 50.0%
2.Balance 1.1% 98.9% --
D. Bond discount amortization -- -- 100.0%
E. Gain on disposition of property:
1.To the extent of the aggregate depreciation
and amortization of such property included
in C(2) above 1.1% 98.9% --
2.Balance .55% 49.45% 50.0%
F. Loss on disposition of property 36.67% 63.33% --
8. Cash Distributions
Net Operating Revenues, as defined, are distributable at the discretion of the
General Partners, as follows:
Through From
January 3, 1997 January 4, 1997
--------------- ---------------
General Partners 1.5% .55%
Special Limited Partners 48.5% 49.45%
Limited Partner 50.0% 50.00%
Notwithstanding the foregoing, if with respect to any calendar year the Limited
Partner's distributive share (computed on the same basis as that used in
preparing IPA's Federal income tax return) of income (loss) plus one-half of
such partner's distributive share of long-term capital gains exceeds the cash
distributions referred to above, IPA must distribute an additional amount equal
to such excess to the Holders of the Participation Interests.
S-14
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
8. Cash Distributions (continued)
In 2001, 2000 and 1999, Net Operating Revenues, as defined in the Limited
Partnership Agreement, amounted to $280,965, $3,908,231 and $12,606,987,
respectively. At December 31, 2001, 2000 and 1999, accrued distributions
amounted to $698,179, $3,915,446 and $77,979,781, respectively. The accrued
distribution at December 31, 2001 consists of $280,965 in respect of 2001 Net
Operating Revenues and $410,000 in respect of the special distribution (which
was declared on December 21, 2001).
9. Income Taxes
IPA has obtained a ruling from the Internal Revenue Service that IPA will be
classified as a partnership for Federal income tax purposes, and has received an
opinion of tax counsel that IPA, as a partnership, will not be subject to any
Federal income taxes, and that each holder of Participation Interests will be
treated for Federal income tax purposes as if he were a limited partner of IPA
to the extent of his proportionate interest in the Limited Partnership Interest.
Each partner of IPA and each holder of Participation Interests at any time
during the taxable year of IPA must take into account his distributive share of
all items of IPA's income, gain, loss, deduction or credit, without regard to
whether such partner or holder of Participation Interests has received or will
receive any distributions from IPA. Accordingly, no provision for income taxes
has been made in the accompanying statements of income.
The amount of income (loss) for federal tax purposes for the years ended
December 31, 2001, 2000, and 1999, was $(452,532), $146,534,487, and
$150,375,301, respectively, as compared with the net income of $376,061,
$153,829,678, and $150,779,832, respectively, shown in the statements of income.
A reconciliation of the differences between income as reflected in the
accompanying statements of income and the amount of income for federal tax
purposes is as follows:
S-15
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
9. Income Taxes (continued)
December 31,
2001 2000 1999
--------- ------------- -------------
Net income per statements of income $ 376,061 $ 153,829,678 $ 150,779,832
Depreciation and amortization (229,480) 153,124 762,866
Gain on sale of property -- (7,414,167) 42,439
Loss on sale of property (599,113) -- --
Deferred rental income -- -- (1,082,359)
Other, net -- (34,148) (127,477)
--------- ------------- -------------
Income (loss) for federal tax purposes ($452,532) $ 146,534,487 $ 150,375,301
========= ============= =============
10. Gross Revenue From Real Estate
IPA earns rental income under leases principally with commercial tenants located
in its office buildings. Such leases generally provide for the tenant to pay
minimum rentals plus, in certain instances, a portion of increases in real
estate taxes, operating expenses and/or increases in the consumer price index
based on lease escalation clauses. Office leases generally range from 5 years to
15 years and contain various renewal options. In addition, IPA earns rental
income from retail stores. Such leases generally provide for minimum rentals
plus percentage rentals based on the store sales. Retail store leases generally
range from 1 to 5 years and contain various renewal options. All of the
aforementioned leases are accounted for as operating leases. Included in Gross
Revenues from Real Estate for the years ended 2001, 2000 and 1999, are $0,
$1,839, and $536,325, respectively, representing revenue from escalations and
percentage rentals. For the years ended 2001, 2000 and 1999, approximately $0,
$259,290, and $17,000, respectively, was received in connection with lease
cancellations with former tenants.
Since disposing of its remaining income producing properties during the year
ended December 31, 2000, IPA has no minimum future rentals due on noncancelable
operating leases as its remaining properties included vacant land located in
Houston, Texas, which was sold during 2001, and a vacant office property at 570
Broad Street, Newark, New Jersey (see note 3).
S-16
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
11. Recently Issued Accounting Pronouncement
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company expects to
adopt FAS 144 as of January 1, 2002 and it does not expect that the adoption of
the Statement will have a significant impact on the Company's financial position
and results of operations.
12. Contingencies
IPA is involved in various legal matters and disputes arising in the normal
course of operations, the ultimate outcome of which is not expected to have a
material effect on the financial statements.
S-17
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
13. Summary of Quarterly Financial Information (Unaudited)
The separate results of operations of IPA for the years ended December 31, 2001
and 2000 are as follows:
2001
-------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- --------- ------------ -----------
Gross revenue from real estate $ 3,232 $ 8,020 $ 51,536 $ 81,099
Net income (loss) 415,103 (123,590) 451,852 (367,304)
Net income (loss) credited to the
partners' capital accounts:
General Partners 2,283 (680) 2,485 (1,497)
Special Limited Partners 205,268 (61,115) 223,441 (134,607)
Limited Partner 207,552 (61,795) 225,926 (231,200)
--------- --------- --------- ---------
$ 415,103 $(123,590) $ 451,852 $(367,304)
========= ========= ========= =========
Net income (loss) per Limited Partner
Participation Interest $ 0.2531 $ (0.0753) $ 0.2755 $ (0.2819)
========= ========= ========= =========
2000
-----------------------------------------------------------------------
Three Months Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ------------- ------------- -----------
Gross revenue from real estate $ 4,057,422 $ 1,797,052 $ (128,103) $ 242,727
Net income (loss) 39,557,263 115,100,658 (969,346) 141,103
Net income (loss) credited to the
partners' capital accounts:
General Partners 233,163 874,499 (5,331) 776
Special Limited Partners 20,963,468 78,625,414 (479,342) 69,775
Limited Partner 18,360,632 35,600,745 (484,673) 70,552
------------- ------------- ------------- ---------
$ 39,557,263 $ 115,100,658 $ (969,346) $ 141,103
============= ============= ============= =========
Net income (loss) per Limited Partner
Participation Interest $ 22.3910 $ 43.4155 $ (0.5911) $ 0.0860
============= ============= ============= =========
S-18
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2001
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Gross Amount
Initial Cost of Company at Which Carried Close of Period
----------------------- Improvements --------------------------------
Capitalized Buildings
Buildings and Subsequent to and
Description Encumbrances Land Improvements Acquisition Land Improvements Total
----------- ------------ ---- ------------ ------------- ---- ------------ -----
570 Broad Street Building
Newark, New Jersey $ -- $502,032 $5,937,404 $1,593,911 $502,032 $7,531,315 $8,033,347
-------- -------- ---------- ---------- -------- ---------- ----------
Totals $ -- $502,032 $5,937,404 $1,593,911 $502,032 $7,531,315 $8,033,347
======== ======== ========== ========== ======== ========== ==========
Col. F Col. G Col. H
------ ------ ------
Life on which
Depreciation in
Latest Income
Accumulated Date of Statements is
Depreciation Construction Computed (1)
------------ ------------ ------------
570 Broad Street Building
Newark, New Jersey $5,880,040 1962 34.3
---------- ---- ----
Totals $5,880,040
==========
(1) At December 31, 2001, the property is classified as held for sale.
Accordingly depreciation has not been recorded in 2001.
S-19
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2001
Reconciliation of Real Estate and Accumulated Depreciation:
Year ended December 31,
--------------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Investment in Real Estate
Balance at beginning of year $ 8,033,347 $ 40,649,960 $ 68,589,793
Sale of real estate -- (33,212,608) (29,311,368)
Abandonment of real estate
Improvements and additions -- 595,995 1,371,535
------------ ------------ ------------
Balance at end of year $ 8,033,347 $ 8,033,347 $ 40,649,960
============ ============ ============
Accumulated Depreciation
Balance at beginning of year $ 5,880,040 $ 26,391,697 $ 44,261,629
Depreciation charged to costs and expenses
-- 598,174 1,974,245
Less amounts applicable to sale of real estate
-- (21,109,831) (19,844,177)
------------ ------------ ------------
Balance at end of year $ 5,880,040 $ 5,880,040 $ 26,391,697
============ ============ ============
The aggregate basis of real estate assets for Federal income tax purposes
amounted to $7,298,926 (2001), $7,898,039 (2000), and $44,822,622 (1999).
S-20