Empire State Building Associates L.L.C.
September 30, 2010
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
o
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 0-827
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(Exact name of Registrant as specified in its charter)
A New York Limited Liability Company
13-6084254
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
One Grand Central Place
60 East 42nd Street
New York, New York 10165
(Address of principal executive offices)
(212) 687-8700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 o.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act)
Yes o No x .
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o
Smaller Reporting Company x
Empire State Building Associates L.L.C.
September 30, 2010
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Balance Sheets
(Unaudited)
Assets |
| September 30, 2010 |
| December 31, 2009 |
Real Estate: |
|
|
|
|
Building |
| $38,933,801 |
| $ 38,933,801 |
Less: accumulated depreciation |
| 8,444,742 |
| 7,696,045 |
|
| 30,489,059 |
| 31,237,756 |
Building improvements |
| 10,162,577 |
| 10,162,577 |
Less: accumulated depreciation |
| 346,092 |
| 150,666 |
|
| 9,816,485 |
| 10,011,911 |
Land |
| 21,550,588 |
| 21,550,588 |
Total real estate, net |
| 61,856,132 |
| 62,800,255 |
|
|
|
|
|
Cash and cash equivalents |
| 20,237,586 |
| 28,531,544 |
|
|
|
|
|
Restricted cash re: mortgage interest Capital One Bank |
|
1,389,399 |
| 714,839 |
Rent due from sublessee |
| 11,330 |
| 16,181 |
Receivable from participants re: |
|
|
|
|
NYS estimated tax |
| 77,409 |
| 103,715 |
Due from sublessee |
| 8,961,815 |
| 8,961,815 |
Other assets |
| 100,000 |
| 100,000 |
|
|
|
|
|
Mortgage financing costs |
| 3,358,658 |
| 3,358,658 |
Less: accumulated amortization |
| 2,290,400 |
| 1,790,448 |
Mortgage financing costs, net |
| 1,068,258 |
| 1,568,210 |
Total assets |
| $93,701,929 |
| $102,796,559 |
Empire State Building Associates L.L.C.
September 30, 2010
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Balance Sheets
(Unaudited)
|
| September 30, 2010 |
| December 31, 2009 |
Liabilities and members equity Liabilities: |
|
|
|
|
Mortgages payable |
| $ 92,000,000 |
| $ 92,000,000 |
Accrued mortgage interest |
| 498,333 |
| 514,944 |
Additional rent due to sublessee |
| - |
| 2,429,589 |
Accrued supervisory fees |
| 156,249 |
| 214,591 |
Total liabilities |
| 92,654,582 |
| 95,159,124 |
Commitments and contingencies |
| - |
| - |
Members equity |
| 1,047,347 |
| 7,637,435 |
|
|
|
|
|
Total liabilities and members equity |
| $93,701,929 |
| $102,796,559 |
See notes to condensed consolidated financial statements.
Empire State Building Associates L.L.C.
September 30, 2010
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Statements of Operations
(Unaudited)
| For the | Three Months | For the | Nine Months |
| Ended | September 30, | Ended | September 30, |
| 2010 | 2009 | 2010 | 2009 |
Revenue: |
|
|
|
|
Rent income from a related party | $2,027,938 | $2,022,103 | $6,066,213 | $5,782,403 |
Dividend and interest income | 3,072 | 10,543 | 9,451 | 46,548 |
Total revenue | 2,031,010 | 2,032,646 | 6,075,664 | 5,828,951 |
Expenses: |
|
|
|
|
Interest on mortgages | 1,528,223 | 1,528,222 | 4,534,834 | 4,273,208 |
Supervisory services, to a related party | 196,104 | 39,855 | 275,812 | 119,563 |
Depreciation of building & improvements | 314,708 | 314,688 | 944,123 | 834,218 |
Amortization of mortgage financing costs | 166,651 | 166,651 | 499,952 | 418,789 |
Professional fees and miscellaneous, including amounts paid to a related party | 97,130 | 6,641 | 132,107 | 190,984 |
Total expenses | 2,302,816 | 2,056,057 | 6,386,828 | 5,836,762 |
Net Loss | $(271,806) | $(23,411) | $(311,164) | $(7,811) |
Earnings (loss) per $10,000 participation unit, based on 3,300 participation units outstanding during the period | $(82.36) | $(7.10) | $(94.29) | $(2.37) |
Distributions per $10,000 participation unit consisted of the following: |
|
|
|
|
Income | $ 0 | $ 0 | $ 0 | $ 0 |
Return of capital | 294.64 | 294.64 | 1,902.70 | 883.93 |
Total distributions | $294.64 | $294.64 | $1,902.70 | $ 883.93 |
|
|
|
|
|
At September 30, 2010 and 2009, there were 3,300 units (at $10,000 per unit) of participation units outstanding.
See notes to condensed consolidated financial statements.
Empire State Building Associates L.L.C.
September 30, 2010
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Statements of Members Equity
(Unaudited)
| For the | For the Year |
| Nine Months Ended | Ended |
| September 30, 2010 | December 31, 2009 |
Members equity: |
|
|
January 1, 2010 | $7,637,435 |
|
January 1, 2009 |
| $4,156,945 |
Add, net income (loss): |
|
|
January 1, 2010 through September 30, 2010 | (311,164) | -0- |
January 1, 2009 through December 31, 2009 | -0- | 7,369,823 |
| 7,326,271 | 11,526,768 |
Less, distributions: |
|
|
Monthly distributions |
|
|
January 1, 2010 through September 30, 2010 | 2,917,000 | -0- |
January 1, 2009 through December 31, 2009 | -0- | 3,889,333 |
Additional distribution on March 2, 2010 | 3,361,924 | -0- |
|
|
|
|
|
|
Total distributions | 6,278,924 | 3,889,333 |
|
|
|
Members equity: |
|
|
September 30, 2010 | $1,047,347 |
|
December 31, 2009 |
| $7,637,435 |
|
|
|
See notes to condensed consolidated financial statements.
Empire State Building Associates L.L.C.
September 30, 2010
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months | For the Nine Months |
| Ended | Ended |
| September 30, 2010 | September 30, 2009 |
Cash flows from operating activities: |
|
|
Net loss | $ (311,164) | $ (7,811) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
Depreciation of building & improvements | 944,123 | 834,218 |
Amortization of mortgage financing costs | 499,952 | 418,789 |
Changes in operating assets and liabilities: |
|
|
Rent due from sublessee | 4,851 | (3,706) |
Additional rent due to sublessee | (2,429,589) | -0- |
Accrued mortgage interest | (16,611) | 159,701 |
Accrued supervisory services | (58,342) | -0- |
Net cash provided by (used in) operating activities | (1,366,780) | 1,401,191 |
|
|
|
Cash flows from investing activities: |
|
|
Purchase of building improvements | -0- | (10,162,577) |
Due from sublessee | -0- | (5,305,579) |
Net cash used in investing activities | -0- | (15,468,156) |
|
|
|
Cash flows from financing activities: |
|
|
Change in receivable from participants | 26,306 | (24,400) |
Change in restricted cash | (674,560) | (502,486) |
Financing costs | -0- | (1,562,371) |
Proceeds of second mortgage | -0- | 31,500,000 |
Cash distributions to participants | (6,278,924) | (2,917,000) |
Change in other assets | -0- | (100,000) |
Net cash provided by (used in) financing activities | (6,927,178) | 26,393,743 |
|
|
|
Net change in cash and cash equivalents | (8,293,958) | 12,326,778 |
Cash and cash equivalents, beginning of period | 28,531,544 | 9,649,212 |
Cash and cash equivalents, end of period | $ 20,237,586 | $ 21,975,990 |
|
|
|
Supplemental disclosure of cash flow information: |
|
|
Cash paid for interest | $4,551,445 | $4,113,507 |
See notes to condensed consolidated financial statements.
Empire State Building Associates L.L.C.
September 30, 2010
Notes to Condensed Consolidated Financial Statements (unaudited)
Note A Interim Period Reporting
In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Empire State Building Associates L.L.C. (the Registrant) reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of Registrant as of September 30, 2010, its results of operations for the three and nine months ended September 30, 2010 and 2009 and its cash flows for the nine months ended September 30, 2010 and 2009. The condensed consolidated financial statements include the accounts of the Registrant and its wholly-owned limited liability company, Empire State Land Associates L.L.C. All intercompany accounts and transactions have been eliminated in consolidation. Information included in the condensed balance sheet as of December 31, 2009 has been derived from the audited balance sheet included in Registrant's Form 10-K for the year ended December 31, 2009 (the "10-K") previously filed with the Securities and Exchange Commission (the "SEC"). Pursuant to rules and regulations of the SEC, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these consolidated financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and the other information contained in the 10-K. The consolidated results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for any interim period or the full year.
Note B Organization
Registrant was originally organized as a general partnership on July 11, 1961. On October 1, 2001, Registrant converted from a general partnership to a limited liability company under New York law and is now known as Empire State Building Associates L.L.C. The conversion did not change any aspect of the assets and operations of Registrant other than to protect its investors from any future liability to a third party.
Registrant's members (Members) are Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner, Jr. (collectively, the "Agents"), each of whom also acts as an agent for holders of participations (Participations) in his respective member interest in Registrant (the "Participants").
Note C Purchase of Fee Title to The Empire State Building and Land Thereunder, Mortgage Debt, and Related Depreciation and Amortization
On April 17, 2002, Registrant acquired, through a wholly-owned limited liability company (Empire State Land Associates L.L.C.) the fee title to the building known as the Empire State Building at 350 Fifth Avenue in New York (the Building), and the land thereunder (the Land) (together, the Real Estate or Property), at a price of $57,500,000, and obtained a $60,500,000 first mortgage (the First Mortgage) with Capital One Bank to finance the acquisition and certain related costs.
The Real Estate is carried in the financial statements at its historical cost of $60,484,389, consisting of $57,500,000 for the purchase price paid to the seller, $752,022 for acquisition costs, and $2,232,367 representing the unamortized balance of the cost of the Master Lease on the date the Real Estate was acquired. The cost of the Land was estimated to be 35.63% of the total cost of the Real Estate, and the Building 64.37%. Under the terms of the contract of sale, the deed contains language to avoid the merger of the fee estate and the leasehold, although on a consolidated financial statement basis the Registrant incurred no leasehold rent expense after acquiring the Real Estate.
The First Mortgage matures on May 1, 2012 and requires monthly payments of interest only at 6.5% per annum. The First Mortgage may be prepaid at any time after 24 months with the payment of a premium equal to the greater of (a) 1% of the amount prepaid and (b) an amount calculated pursuant to a prepayment formula designed to preserve the banks yield to maturity. The First Mortgage is secured by a lien on the Real Estate and Registrants leasehold estate under the Master Lease of the Real Estate.
Restricted cash at September 30, 2010 represents funds in an interest-bearing account held at Capital One Bank pursuant to the terms of the First Mortgage, to be used monthly to satisfy a portion ($166,667) of Registrants mortgage interest obligation. On March 4, 2010, Registrant deposited an additional $2,000,000 into this restricted account under the same conditions and will continue to do so annually hereafter.
To finance improvements at the Property and costs of the financing, on February 25, 2009 Registrant borrowed $31,500,000 from Signature Bank (the Second Mortgage). The Second Mortgage also matures on May 1, 2012 and requires monthly payments of interest only at 6.5% per annum. The Second Mortgage may be prepaid at any time without penalty and is secured by a lien on the Real Estate and Registrants leasehold estate under the Master Lease of the Real Estate.
The estimated fair value of Registrants total mortgage debt based upon available market information was $93,400,000 at September 30, 2010.
The Building and Building improvements are being depreciated on the straight-line basis over their estimated useful lives of 39 years. Mortgage financing costs, totaling $3,358,658, are being amortized ratably over the lives of the respective mortgages.
Note D Sublease
Registrant does not operate the Building. It subleases the Building to Empire State Building Company L.L.C. ("Sublessee") pursuant to a net operating sublease (the "Sublease"), which included an initial term which expired on January 4, 1992. The Sublease provided four separate options for Sublessee to renew the term, in each case for an additional 21 years, on the terms of the original Sublease. Such renewals have been exercised by Sublessee (a) on January 30, 1989, for the first renewal period from January 5, 1992 through January 4, 2013 and (b) as of February 11, 2010, for the remaining three renewal periods from January 5, 2013 through January 4, 2076 (the last two such renewals being exercised by Sublessee with Registrants consent for early exercise).
Sublessee is required to pay annual basic rent ("Basic Rent") of $6,018,750 from January 1, 1992 through January 4, 2013 and $5,895,625 from January 5, 2013 through the expiration of all renewal terms. Sublessee is also required to pay Registrant additional rent of 50% of Sublessee's net operating profit, as defined in the Sublease, in excess of $1,000,000 for each lease year ending December 31 (Additional Rent).
In accordance with the 2nd lease modification dated February 25, 2009, Basic Rent described above has been increased to cover debt service on the $31,500,000 Second Mortgage that closed on February 25, 2009. Basic Rent will be increased to cover debt service on any additional borrowings for improvements and tenanting costs and on any refinancing of such debt so long as the aggregate amount refinanced does not exceed the then existing amount of debt plus refinancing costs.
Due from Sublessee at September 30, 2010 represents advances made to Sublessee for building improvements costs.
Additional Rent and any interest and dividends accumulated thereon are distributed annually after deduction for any additional payment described in Note E below, set-aside of $2,000,000 to satisfy a portion of Registrants First Mortgage interest obligation, other expenses and additions to general contingencies management judges to be suitable under the circumstances. For 2009, Sublessee reported net operating profit of $16,140,821; therefore, Additional Rent of $7,570,411 was earned for the year ended December 31, 2009. Since it is not practicable to estimate Additional Rent for the lease year ending on the ensuing December 31st which would be allocable to the first nine months of the lease year until Sublessee, pursuant to the Sublease, provides to Registrant a certified operating report on the Sublessees operation of the Property, Registrant recognizes Additional Rent when earned from the Sublessee at the close of the lease year ending December 31st. The cost of improvements to be incurred by the Sublessee will reduce Additional Rent but should have no effect on the payment of Basic Rent to Registrant.
Sublessee is a New York limited liability company in which Peter L. Malkin is a member and entities for Peter L. Malkins family members are beneficial owners.
Note E Supervisory Services
Supervisory and other services are provided to the Registrant by its supervisor, Malkin Holdings LLC (Malkin Holdings or Supervisor) (formerly Wien & Malkin LLC), a related party. Beneficial interests in the Registrant are held directly or indirectly by one or more persons at Malkin Holdings and/or their family members.
Registrant pays Supervisor for supervisory services and disbursements. The basic fee (the "Basic Payment") has been payable at the rate of $100,000 per annum, payable $8,333 per month, since inception in 1961. The Agents have approved an increase in such fee in an amount equal to the increase in the consumer price index since such date, resulting in an increase in the Basic Payment to $725,000 per annum effective July 1, 2010. The Basic Payment will be subject to further increase in accordance with any future increase in the consumer price index. The fee is payable (i) not less than $8,333 per month and (ii) the balance out of available reserves from Additional Rent. If Additional Rent is insufficient to pay such balance, any deficiency shall be payable in the next year in which Additional Rent is sufficient. The Agents also approved payment by Registrant, effective July 1, 2010, of the expenses in connection with regular accounting services related to maintenance of Registrants books and records. Such expenses were previously paid by Supervisor.
The basic supervisory services provided to Registrant by Supervisor include, but are not limited to, maintaining all of its entity and Participant records, performing physical inspections of the Building, providing or coordinating certain counsel services to Registrant, reviewing insurance coverage, conducting annual supervisory review meetings, receipt of monthly rent from Sublessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, active review of financial statements submitted to Registrant by Sublessee and financial statements audited by and tax information prepared by Registrant's independent registered public accounting firm, and distribution of related materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the SEC and applicable state authorities.
Registrant pays Supervisor for other services at hourly rates.
Pursuant to the fee arrangements described herein, Registrant incurred supervisory service fees of $196,104 and $275,812, respectively, attributable to each of the three and nine-month periods ended September 30, 2010, consisting of the basic supervisory fee at the rate of $100,000 p.a. for the first six months of 2010 and at the annual rate $725,000 for the quarter ended September 30, 2010 plus additional fees totaling $59,417 p.a. representing 6% of the annual rent and debt service reductions from which Registrant has benefited. Supervisory fees were $39,855 and $119,563 for the three and nine-month periods ended September 30, 2009. No remuneration was paid during the three and nine-month periods ended September 30, 2010 and 2009 by Registrant to any of the Members.
Supervisor also receives an additional payment equal to 6% of distributions to the Participants in Registrant. For tax purposes, such additional payment is recognized as a profits interest and the Supervisor is treated as a member, all without modifying each Participants distributive share of reportable income and cash distributions.
Reference is made to Note D above for a description of the terms of the Sublease between Registrant and Sublessee. The respective interests of the Members in Registrant and in Sublessee arise solely from ownership of their respective Participations in Registrant and, in the case of Peter L. Malkin his participating interest and his family entities' ownership of participating interests in Sublessee. The Members as such receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or members in Sublessee. However, all of the Members hold senior positions at Supervisor (which supervises Registrant and Sublessee) and may, by reason of their positions at Supervisor, receive income attributable to supervisory or other remuneration paid by Registrant to Supervisor.
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward Looking Statements
Readers of this discussion are advised that it should be read in conjunction with the condensed consolidated financial statements of Registrant (including related notes thereto) appearing elsewhere in this Form 10-Q. Certain statements in this discussion may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Registrants current expectations regarding future results of operations, economic performance, financial condition and achievements of Registrant, and do not relate strictly to historical or current facts. Registrant has tried, wherever possible, to identify these forward-looking statements by using words such as believe, expect, anticipate, intend, plan, estimate or words of similar meaning.
Although Registrant believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents and the availability of financing; adverse changes in Registrants real estate market, including, among other things, competition with other real estate owners, risks of real estate development and acquisitions; governmental actions and initiatives; and environmental/safety requirements.
Financial Condition and Results of Operations
At the time of its organization, Registrant acquired the Master Lease of the Property subject to the Sublease. Basic Rent received by Registrant was used to pay annual rent due under the Master Lease and the Basic Payment for supervisory services to Supervisor; the balance of such Basic Rent was distributed to the Participants. Currently, Basic Rent received by Registrant is used to pay the Basic Payment and a portion of debt service on the mortgages; the balance of such Basic Rent is distributed to the Participants. Additional Rent and any interest and dividends accumulated thereon less any expenses and general contingencies are distributed to the Participants after the additional payment to Supervisor. See Note D to the condensed consolidated financial statements herein. Pursuant to the Sublease, Sublessee has assumed responsibility for the condition, operation, repair, maintenance and management of the Property. Registrant is not required to maintain liquid assets to defray any operating expenses of the Property.
Registrant does not pay dividends. During the nine-month period ended September 30, 2010, Registrant made regular monthly distributions of $98.21 for each $10,000 Participation ($1,178.52 per annum for each $10,000 Participation). There are no restrictions on Registrants present or future ability to make distributions; however, the amount of such distributions, particularly distributions of Additional Rent, depends solely on the ability of Sublessee to make payments of Basic Rent and Additional Rent to Registrant. Registrant expects to make distributions in the future to the extent it receives the payments provided for under the Sublease.
During March 2010 Registrant made an additional distribution of Additional Rent of $3,361,924 received for the year ending December 31, 2009 to Participants after adding $2,000,000 to general contingencies of Registrant, $2,020,000 to satisfy a portion of Registrants First Mortgage interest obligation and $214,591 to Supervisor, offset by $26,104 of dividend and interest income. See Notes C and D to the condensed financial statements herein; and see below in Liquidity, Capital Resources and Distributions regarding Registrants anticipated inability to pay additional distributions during next several years.
During March 2009 Registrant made no additional distribution of Additional Rent received for the year ending December 31, 2008 to Participants. Additional Rent of $3,509,384 was applied to Registrants mortgage interest obligation and the balance of $1,509,384 for general contingencies. See Notes C and D to the condensed financial statements herein; and see below in Liquidity, Capital Resources and Distributions regarding Registrants anticipated inability to pay additional distributions during next several years.
Registrants results of operations are affected primarily by the amount of rent payable to it under the Sublease. The amount of Additional Rent payable to Registrant is affected by the New York City economy and real estate rental and tourist attraction markets, which are difficult for management to forecast, and by the amount of unfinanced improvements undertaken at the Property. The following summarizes, with respect to the current period and the corresponding period of the previous year, the material factors regarding Registrant's results of operations for such periods:
Total revenues decreased for the three-month period ended September 30, 2010 as compared with the corresponding period of the prior year. The decrease was the result of a decrease in dividend and interest income for the three-month period as compared with the corresponding period of the prior year. Total revenues increased for the nine-month period ended September 30, 2010 as compared with the corresponding period of the prior year. The increase was the net result of an increase in Basic Rent income to cover an increase in debt service and a decrease in dividend and interest income for the nine-month period as compared with the corresponding period of the prior year.
Total expenses increased for the three and nine-month period ended September 30, 2010 as compared with the corresponding period of the prior year. The increase was the result of an increase in basic supervisory fees, depreciation of the building improvements and professional fees and miscellaneous expense for the three-month period as compared with the corresponding period of the prior year. The increase in total expenses for the nine-month period ended September 30, 2010 was the net result of an increase in basic supervisory fees, interest on the mortgage payable, depreciation of building improvements and amortization of mortgage financing costs relating to the Second Mortgage and a decrease in professional fees and miscellaneous expense as compared with the corresponding period of the prior year.
Liquidity, Capital Resources and Distributions
Registrants liquidity has decreased as of September 30, 2010, as compared with September 30, 2009 due to the advance of funds by Registrant to Sublessee for it to acquire building improvements and tenanting costs. Adverse developments in economic, credit and investment markets over the last two years impaired general liquidity (although some improvement in such markets has arisen recently) and the developments may negatively impact Registrant and/or space tenants at the Building. Any such impact should be ameliorated by the fact that (a) each of Registrant and its Sublessee has very low debt in relation to asset value, (b) the Buildings rental revenue is derived from a substantial number of tenants in diverse businesses with lease termination dates spread over numerous years.
No amortization payments are due under the mortgages to reduce the outstanding principal balances prior to maturity. Furthermore, Registrant does not maintain any reserve to cover the principal payment of mortgage indebtedness at maturity. Therefore, repayment of the mortgages will depend on Registrants ability to arrange a refinancing. Assuming that the Real Estate continues to generate an annual net profit in future years comparable to that in past years, and assuming further that real estate capital and operating markets return to more stable patterns, consistent with long-term historical real estate trends in the geographic area in which the Real Estate is located, Registrant anticipates that the value of the Real Estate will be in excess of the amount of the mortgage balances at maturity.
Registrant anticipates that funds for working capital for the Real Estate will be provided from rental payments received by Sublessee, which entity is required under the Sublease to make payments of Basic Rent and, subject to cash flow, Additional Rent. Sublessee would also be required to make additional capital investment, if necessary to maintain the Real Estate. Registrant has no requirement to maintain substantial reserves to defray any operating expenses of the Real Estate.
Registrant has the following contractual obligations:
Payments due by period |
|
| Less than |
|
| More than |
Long-Term Debt Obligations | $92,000,000 | $0 | $92,000,000 | $0 | $0 |
Interest Obligations | 10,048,370 | 6,063,056 | 3,985,314 | 0 | 0 |
Capital Lease Obligations | 0 | 0 | 0 | 0 | 0 |
Purchase Obligations | 0 | 0 | 0 | 0 | 0 |
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet | 0 | 0 | 0 | 0 | 0 |
Total | $102,048,370 | $6,063,056 | $95,985,314 | $ 0 | $ 0 |
Sublessee is to maintain the Building as a high-class office building as required by the terms of the Sublease.
Based on Sublessees review of the need for upgrades and improvements to the Property, Registrant has incurred improvement costs of approximately $10,160,000 through September 30, 2010, which costs were funded from Second Mortgage financing proceeds. Other improvement and tenanting costs funded out of Sublessees operating cash flow are owned by Sublessee and reflected in its financial statements. However, through September 30, 2010 Registrant advanced approximately $8,962,000 to Sublessee for building improvements and tenanting costs. To seek to maximize overall funds for improvement and tenanting costs, currently unapplied amounts of such financing proceeds may be used for such costs in the future. Sublessee estimates that the total cost of all projects will be approximately $626,000,000 over 10 years, including sprinklering of the Building of approximately $23,000,000 required by Local Law #26 to be completed by 2019.
The Sublessee has not achieved its own required internal approvals for such financing beyond approximately $61,500,000 including the $31,500,000 Second Mortgage, plus an additional financing of approximately $30,000,000 or less, and now anticipates that its operating cash flow will thus continue to be dedicated largely to the ongoing improvement costs, greatly reducing or eliminating both (a) Sublessees payment of Additional Rent and (b) Registrants ability to make extra distributions to Participants.
As a result, Registrant has advised Participants that possibly in subsequent years, it expects to make no distributions other than regular monthly distributions at the rate of $1,178.52 per annum for each $10,000 Participation. As noted above in Forward Looking Statements, the foregoing is based on estimates, and actual results may be materially different.
Inflation
Registrant believes that there has been no material change in the impact of inflation on its operations since the filing of the 10-K for the year ended December 31, 2009.
Security Ownership
As of September 30, 2010, the Members of Registrant owned of record and beneficially an aggregate of $41,043 of Participations in Registrant, representing less than .124% of the currently outstanding Participations therein totaling $33,000,000.
As of September 30, 2010, certain of the Members of Registrant held additional Participations as follows:
Entities for the benefit of members of Peter L. Malkin's family owned of record and beneficially $1,049,583 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations, except that related trusts are required to complete scheduled payments to Peter L. Malkin.
Peter L. Malkin owned of record as trustee or co-trustee, but not beneficially, $516,667 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations.
Anthony E. Malkin owned of record as trustee or co-trustee, but not beneficially, $38,333 of Participations. Anthony E. Malkin disclaims any beneficial ownership of such Participations.
Trusts for the benefit of members of Anthony E. Malkin's family owned of record and beneficially $50,000 of Participations. Anthony E. Malkin disclaims any beneficial ownership of such Participations.
Members of Thomas N. Keltner, Jr.s family owned of record and beneficially $6,667 of Participations.
Item 4T.
Controls and Procedures.
(a)
Evaluation of disclosure controls and procedures. The Supervisor after evaluating the effectiveness of Registrants disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of September 30, 2010, the end of the period covered by this report, has concluded that as of that date that Registrants disclosure controls and procedures were effective and designed to ensure that material information relating to Registrant would be made known to him by others within those entities on a timely basis.
(b)
Changes in internal controls over financial reporting. There were no changes in Registrants internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to affect, the Registrants internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings.
The Property of Registrant was the subject of the following material litigation:
Malkin Holdings LLC and Peter L. Malkin, a member in Registrant, were engaged in a proceeding with Sublessees former managing agent, Helmsley-Spear, Inc. commenced in 1997, concerning the management, leasing and supervision of the Property that is subject to the Sublease to Sublessee. In this connection, certain costs for legal and professional fees and other expenses were paid by Malkin Holdings and Mr. Malkin. Malkin Holdings and Mr. Malkin have represented that such costs will be recovered only to the extent that (a) a competent tribunal authorizes payment or (b) an investor voluntarily agrees that his or her proportionate share be paid. Accordingly, Registrants allocable share of such costs is as yet undetermined, and Registrant has not provided for the expense and related liability with respect to such costs in its consolidated financial statements included in this Form 10-Q. As a result of an August 29, 2006 settlement agreement which included termination of this proceeding, Registrant will not recognize any gains or losses from this proceeding other than the possible charges for the aforementioned fees and expenses.
The August 29, 2006 settlement agreement terminated Helmsley-Spear, Inc. as managing and leasing agent at the Property as of August 30, 2006. CB Richard Ellis had been engaged by the Sublessee as the new leasing agent, and Sublessee self-manages the Property.
Effective October 21, 2009, Newmark Knight Frank has been appointed leasing agent for all non-retail space at the Building, replacing CB Richard Ellis which will continue as leasing agent only for retail space.
Item 6.
Exhibits
EXHIBIT INDEX
Number | Document | Page* |
3(a) | Attached hereto as Exhibit 3(c) is Registrant's Consent and Operating Agreement dated as of September 30, 2001 as a Limited Liability Company, which incorporates by reference the Registrants prior Partnership Agreement dated July 11, 1961, filed as Exhibit No. 1 to Registrant's Registration Statement on Form S-1 as amended (the "Registration Statement") by letter dated August 8, 1962 and assigned File No. 2-18741 and, is itself incorporated by reference as an exhibit hereto.
|
|
3(b) | Amended Business Certificate of Registrant filed with the Clerk of New York County on August 19, 1996 reflecting a change in the Partners of Registrant which was filed as Exhibit 3(b) to Registrant's Annual Report on 10-K for the fiscal year ended December 31, 1996 and is incorporated by reference as an exhibit hereto.
|
|
3(c) | Registrants Consent and Operating Agreement dated as of September 30, 2001
|
|
3(d) | Certificate of Conversion of Registrant to a limited liability company dated October 1, 2001 filed with the New York Secretary of State on October 3, 2001.
|
|
4 | Registrant's form of Participating Agreement, filed as Exhibit No. 6 to the Registration Statement by letter dated August 8, 1962 and assigned File No. 2-18741, is incorporated by reference as an exhibit hereto.
|
|
10(d) | Second Modification of Lease Agreement, dated February 25, 2009, which was filed under Item 10(d) of Registrant's Form 10-K for the fiscal year ended December 31, 2008 and is incorporated by reference as an exhibit hereto. | |
10 (e) | Exercise of lease renewal options as of January 1, 2010 by Registrant and February 11, 2010 by Sublessee for the period January 5, 2013 to January 5, 2076 which was filed as Exhibit 10 (e) to Registrants Form 10-k for the fiscal year ended December 31, 2009 and is incorporated by reference as an exhibit hereto.
| |
10 (f) | Agreement of Members of Registrant as of July 1, 2010 which was filed as Exhibit 10 (f) to Registrants Form 10-k for the fiscal year ended December 31, 2009 and is incorporated by reference as an exhibit hereto. |
|
24 | Powers of Attorney dated October 13, 2003 between the Partners of Registrant and Mark Labell which was filed as Exhibit 24 to Registrant's 10-Q for the quarter ended September 30, 2003 and is incorporated herein by reference.
|
|
31.1 | Certification of Mark Labell, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2 | Certification of Mark Labell, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1 | Certification of Mark Labell, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2 | Certification of Mark Labell, Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
________________________________
* Page references are based on sequential numbering system.
Empire State Building Associates L.L.C.
September 30, 2010
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Members in Registrant, pursuant to Powers of Attorney, dated October 13, 2003 (collectively, the Power).
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(Registrant)
By:
/s/ Mark Labell
Mark Labell*, Attorney-in-Fact on behalf of:
Peter L. Malkin, Member
Anthony E. Malkin, Member
Thomas N. Keltner, Jr., Member
Date: December 20, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned as Attorney-in-Fact for each of the Members in Registrant, pursuant to the Power, on behalf of Registrant and as a Member in Registrant on the date indicated.
By:
/s/ Mark Labell
Mark Labell*, Attorney-in-Fact on behalf of:
Peter L. Malkin, Member
Anthony E. Malkin, Member
Thomas N. Keltner, Jr., Member
Date: December 20, 2010
____________________________________________________________________
*Mr. Labell supervises accounting functions for Registrant.
Empire State Building Associates L.L.C.
September 30, 2010
Exhibit 31.1
CERTIFICATIONS
I, Mark Labell, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Empire State Building Associates L.L.C.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.
The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:
(a)
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and
5.
The Registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of Registrants board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal controls over financial reporting.
Date: December 20, 2010
By /s/ Mark Labell
Name: Mark Labell
Title: Senior Vice President, Finance
Malkin Holdings LLC, Supervisor of Empire State Building Associates L.L.C.
Registrants organizational documents do not provide for a Chief Executive Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC. Accordingly, this Chief Executive Officer certification is being signed by a senior executive of Registrants supervisor.
Empire State Building Associates L.L.C.
September 30, 2010
Exhibit 31.2
CERTIFICATIONS
I, Mark Labell, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Empire State Building Associates L.L.C.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.
The Registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:
(a)
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and
5.
The Registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of Registrants board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal controls over financial reporting.
Date: December 20, 2010
By /s/ Mark Labell
Name: Mark Labell
Title: Senior Vice President, Finance
Malkin Holdings LLC, Supervisor of Empire State Building Associates L.L.C.
Registrants organizational documents do not provide for a Chief Financial Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC. Accordingly, this Chief Financial Officer certification is being signed by a senior member of the financial/accounting staff of Registrants supervisor.
Empire State Building Associates L.L.C.
September 30, 2010
Exhibit 32.1
Empire State Building Associates L.L.C.
Certification Pursuant to 18 U.S.C., Section 1350 as adopted
Pursuant to Section 906
of Sarbanes Oxley Act of 2002
The undersigned, Mark Labell, is signing this Chief Executive Officer certification as Senior Vice President, Finance of Malkin Holdings LLC, the supervisor* of Empire State Building Associates L.L.C. (Registrant) to certify that:
1.
the Quarterly Report on Form 10-Q of Registrant for the period ended September 30, 2010 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934(15 U.S.C. 78m or 78o(d)); and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
Dated: December 20, 2010
By /s/ Mark Labell
Mark Labell
Senior Vice President, Finance
Malkin Holdings LLC, Supervisor
*Registrants organizational documents do not provide for a Chief Executive Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC. Accordingly, this Chief Executive Officer certification is being signed by a senior executive of Registrants supervisor.
Empire State Building Associates L.L.C.
September 30, 2010
Exhibit 32.2
Empire State Building Associates L.L.C.
Certification Pursuant to 18 U.S.C., Section 1350 as adopted
Pursuant to Section 906
of Sarbanes Oxley Act of 2002
The undersigned, Mark Labell, is signing this Chief Financial Officer certification as a senior member of the financial/accounting staff of Malkin Holdings LLC, the supervisor* of Empire State Building Associates L.L.C. (Registrant), to certify that:
1.
the Quarterly Report on Form 10-Q of Registrant for the period ended September 30, 2010 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934(15 U.S.C. 78m or 78o(d)); and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
Dated: December 20, 2010
By /s/ Mark Labell
Mark Labell
Senior Vice President, Finance
Malkin Holdings LLC, Supervisor
*Registrants organizational documents do not provide for a Chief Financial Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Malkin Holdings LLC. Accordingly, this Chief Financial Officer certification is being signed by a senior member of the financial/accounting staff of Registrants supervisor.