SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1995
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to __________________
Commission file number 1-9516
American Real Estate Partners, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3398766
- - ---------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 South Bedford Road, Mt. Kisco, NY 10549
- - ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (914) 242-7700
--------------
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
----- ------
INDEX
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PART I. FINANCIAL INFORMATION Page No.
------------------------------ --------
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994........................1-2
Consolidated Statements of Earnings -
Three Months Ended September 30, 1995 and 1994....................3
Consolidated Statements of Earnings -
Nine Months Ended September 30 1995 and 1994......................4
Consolidated Statement of Partners' Equity -
Nine Months Ended September 30, 1995..............................5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994......................6-7
Notes to Consolidated
Financial Statements...............................................8-14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.........................................14-19
PART II. OTHER INFORMATION.......................................19-20
PART I. FINANCIAL INFORMATION
-----------------------------
The financial information contained herein is unaudited; however, in the
opinion of management, all adjustments necessary for a fair presentation
of such financial information have been included. All such adjustments
are of a normal recurring nature.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
ASSETS
Real estate leased to others:
Accounted for under the financing
method $284,486,254 $314,260,786
Accounted for under the operating
method, net of
accumulated depreciation 127,848,162 123,438,444
Cash and cash equivalents 153,417,795 18,615,572
Mortgages and note receivable 15,128,938 8,301,090
Hotel operating properties,
net of accumulated depreciation 13,448,700 13,654,442
Receivables and other assets 8,278,980 5,373,553
Construction in progress 8,119,503 6,681,333
Debt placement costs,
net of accumulated amortization 1,969,014 2,130,003
Property held for sale 706,929 412,717
------------ ------------
TOTAL $613,404,275 $492,867,940
See notes to consolidated financial statements
1
CONSOLIDATED BALANCE SHEETS - Continued
September 30, December 31,
1995 1994
------------- -----------
(unaudited)
LIABILITIES
Mortgages payable $157,338,916 $174,095,697
Senior indebtedness 33,923,329 45,231,106
Construction loans payable 13,738,097 2,393,954
Accounts payable, accrued expenses
and other liabilities 6,929,146 6,496,410
Deferred income 3,525,386 3,637,398
Distributions payable 1,688,416 1,776,482
----------- -----------
Total liabilities 217,143,290 233,631,047
----------- -----------
Commitments and Contingencies
(Notes 1 and 3)
PARTNERS' EQUITY
Limited partners:
Preferred units, $10 liquidation
preference, 5% cumulative pay-in-
kind redeemable; 4,200,000
authorized, 1,975,640 issued and
outstanding 20,250,310 -
Depositary units; 26,850,000
authorized; 25,666,640 and
13,812,800 outstanding
as of September 30, 1995 and
December 31, 1994 379,086,383 265,039,380
General partner 8,108,157 5,381,378
Treasury units at cost:
1,037,200 depositary units as
of September 30, 1995 and
December 31, 1994 (11,183,865) (11,183,865)
Total partners' equity (Note 8) 396,260,985 259,236,893
------------ -----------
TOTAL $613,404,275 $492,867,940
============ ============
See notes to consolidated financial statements
2
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended September 30,
--------------------------------
l995 1994
------------ ---------------
Revenues:
Interest income:
Financing leases $7,067,897 $ 7,884,402
Other 2,696,737 249,778
Rental income 4,991,946 4,784,287
Hotel operating income 2,009,954 1,831,923
Other income 2,478,785 -
---------- ----------
19,245,319 14,750,390
---------- ----------
Expenses:
Interest expense 4,507,040 5,487,214
Depreciation and amortization 1,322,489 1,241,671
General and administrative
expenses 716,138 700,866
Property expenses 892,237 1,245,869
Hotel operating expenses 1,841,441 1,663,865
---------- ----------
9,279,345 10,339,485
---------- ----------
Earnings before property
transactions 9,965,974 4,410,905
Provision for loss on real estate (611,552) (75,000)
Gain on sales and disposition
of real estate 176,223 237,607
----------- -----------
NET EARNINGS $ 9,530,645 $ 4,573,512
=========== ===========
Net earnings attributable to:
Limited partners $ 9,340,985 $ 4,482,499
General partner 189,660 91,013
----------- -----------
$ 9,530,645 $ 4,573,512
=========== ===========
Net earnings per limited
partnership unit (Note 9) $ .33 $ .32
=========== ===========
Weighted average limited partnership
units and equivalent partnership
units outstanding 28,250,316 13,812,800
=========== ===========
See notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Nine Months Ended September 30,
-------------------------------
l995 l994
------------ ----------------
Revenues:
Interest income:
Financing leases $22,467,147 $24,115,842
Other 5,408,546 1,062,677
Rental income 14,513,015 14,017,037
Hotel operating income 7,461,546 6,653,625
Other income 2,827,762 -
----------- -----------
52,678,016 45,849,181
----------- -----------
Expenses:
Interest expense 14,851,602 17,317,094
Depreciation and amortization 3,883,370 3,554,710
General and administrative
expenses 2,030,946 1,972,646
Property expenses 2,823,225 3,107,994
Hotel operating expenses 5,632,395 5,225,566
----------- -----------
29,221,538 31,178,010
----------- -----------
Earnings before property
transactions 23,456,478 14,671,171
Provision for loss on real estate (611,552) (387,000)
Gain on sales and
disposition of real estate 4,412,724 3,837,764
----------- -----------
NET EARNINGS $27,257,650 $18,121,935
=========== ===========
Net earnings attributable to:
Limited partners $26,715,223 $17,761,308
General partner 542,427 360,627
----------- -----------
$27,257,650 $18,121,935
=========== ===========
Net earnings per limited
partnership unit (Note 9) $ 1.06 $ 1.29
=========== ===========
Weighted average limited
partnership units and equivalent
partnership units outstanding
and subscribed 27,231,875 13,812,800
=========== ===========
See notes to consolidated financial statements
4
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
Nine Months Ended September 30, 1995
(unaudited)
General Limited Partners' Equity Depositary Total
Partner`s Depositary Preferred Units Held Partners'
Equity Units Units in Treasury Equity
------ ----------- ---------- ------------ ---------
Balance -
December 31, 1994 $5,381,378 $265,039,380 $ - $(11,183,865) $259,236,893
Net earnings 542,427 26,715,223 - - 27,257,650
Rights offering - 88,903,800 19,756,400 - 108,660,200
Expenses of
Rights Offering (21,890) (1,078,110) - - (1,100,000)
Capital
contribution 2,206,242 - - - 2,206,242
Pay-in-kind
distribution - (493,910) 493,910 - -
----------- ----------- ----------- ------------- ------------
Balance -
September 30, 1995 $8,108,157 $379,086,383 $ 20,250,310 $(11,183,865) $396,260,985
========== ============ ============ ============= ============
See notes to consolidated financial statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
----------------------------------
1995 1994
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 27,257,650 $18,121,935
Adjustments to reconcile earnings to net
cash provided by operating activities:
Depreciation and amortization 3,883,370 3,554,710
Amortization of deferred income (19,663) (19,663)
Gain on sales and
disposition of real estate (4,412,724) (3,837,764)
Provision for loss on real estate 611,552 387,000
Changes in:
Decrease in deferred income (2,730) (2,730)
Increase in receivables
and other assets (3,572,080) (301,706)
Increase in accounts payable
and accrued expenses 345,877 2,425,610
----------- ----------
Net cash provided by
operating activities 24,091,252 20,327,392
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in mortgages and note receivable (7,397,365) -
Net proceeds from the sale and
disposition of real estate 18,186,937 10,311,469
Principal payments received on leases
accounted for under the financing method 5,400,265 4,975,192
Principal receipts on mortgages receivable 223,407 204,264
Property acquisitions (3,104,338) (526,498)
Capitalized expenditures for real estate (722,155) (1,244,426)
Construction in progress (11,641,549) (5,950,521)
Balloon payment of mortgage receivable - 1,392,649
----------- ----------
Net cash provided by
investing activities 945,202 9,162,129
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Proceeds from Rights Offering 110,866,442 -
Expenses of the Rights Offering (468,380) -
Distributions to partners (88,066) (1,839,468)
Mortgages payable:
Increase in mortgages payable 9,800,000 282,931
Periodic principal payments (6,756,450) (6,907,589)
Balloon payments (3,632,696) (5,857,582)
Increase in construction loans payable 11,344,143 -
Debt placement costs 8,553 (652,742)
Senior debt principal payment (11,307,777) (10,000,000)
----------- ----------
Net cash provided by (used in)
financing activities 109,765,769 (24,974,450)
----------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 134,802,223 4,515,071
CASH AND CASH EQUIVALENTS, beginning of
period 18,615,572 14,932,560
----------- ----------
CASH AND CASH EQUIVALENTS, end of
period $153,417,795 $19,447,631
============ ===========
Continued.....
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) - Continued
Nine Months Ended September 30,
--------------------------------
1995 1994
------------ -------------
SUPPLEMENTAL INFORMATION:
Cash payments for interest $ 14,319,879 $15,877,347
============ ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Property acquired in satisfaction
of mortgages:
Addition to property accounted for
under the operating method $ 256,492 $ 6,660,065
Addition to property held for sale - 300,530
Decrease in mortgages receivable (365,774) (9,083,588)
Decrease in deferred income 109,282 2,122,993
------------- -----------
$ - $ -
============ ===========
Reclassification of real estate:
From financing lease $ (911,552) $(2,436,929)
To property held for sale 1,109,552 3,144,106
From construction in progress (11,184,623) -
To operating lease 11,184,623 206,107
From operating lease (198,000) (913,284)
------------- -----------
$ - $ -
============ ===========
Reclassification - Other:
From receivables and
other assets $ (544,761) $ -
To expenses of Rights Offering 544,761 -
------------- -----------
$ - $ -
============ ===========
See notes to consolidated financial statements
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
-------
The accompanying consolidated financial statements, footnotes and
discussions should be read in conjunction with the consolidated
financial statements, related footnotes and discussions contained in the
Company's annual report on Form 10-K for the year ended December 31,
1994.
The results of operations for the three and nine months ended September
30, 1995 are not necessarily indicative of the results to be expected
for the full year.
2. Conflicts of Interest and Transactions with Related Parties
-----------------------------------------------------------
a. From the commencement of the Exchange through September 30, 1995, the
Company (i) sold or disposed of an aggregate of 133 properties of the
Predecessor Partnerships for an aggregate amount of approximately
$66,420,000 net of associated indebtedness which encumbered such
properties at the consummation of the Exchange and (ii) refinanced 25
Predecessor Partnerships' properties with an aggregate appraised value,
net of the amount of the refinanced debt, of approximately $44,431,000
for a sum total of approximately $110,851,000. Aggregate appraised
values attributable to such properties for purposes of the Exchange were
approximately $102,582,000. Sixteen acquisitions have been made since
the commencement of the Exchange, including two joint ventures entered
into in 1994 to develop two apartment complexes, for an aggregate
investment of approximately $56,000,000. Reinvestment incentive fees of
approximately $354,000 have previously been paid to the General Partner,
and approximately $110,000 are payable to the General Partner for the
1994 acquisitions (two joint venture investments) upon completion of the
projects (see note 6). One property has been acquired in 1995. A
reinvestment incentive fee of approximately $15,000 may be payable to
the General Partner with respect to this property. The General Partner
will be entitled to receive this fee plus similar fees with respect to
other properties acquired during the remainder of 1995 provided that the
subordination requirements that are presently being met, are met as of
December 31, 1995 (see note 6).
b. The Company and certain affiliates of its General Partner entered
into an agreement with the third-party landlord of its leased executive
office space. The agreement provided for the Company and these
affiliates to relocate their offices to an adjacent building also owned
by the landlord which relocation occurred in September 1995. In
accordance with the agreement, the Company entered into a lease,
expiring in 2001, for 7,920 square feet of office space, at an annual
rental of approximately $153,000. The Company has sublet to certain
affiliates 3,205 square feet at an annual rental of approximately
$62,000, resulting in a net annual rental of approximately $91,000. The
prior lease, which was terminated, provided for approximately 6,900
square feet at an annual rental of $155,000.
In addition, the Company and an affiliate received a lease termination
fee of $350,000 which is presently intended to be allocated $175,000 to
the Company and $175,000 to the affiliate.
3. Commitments and Contingencies
-----------------------------
a. On July 31, 1992, Chipwich, Inc. ("Chipwich") parent of Peltz
Food Corporation, a tenant in a property owned by the Company, filed a
voluntary petition for reorganization pursuant to the provisions of
Chapter 11 of the Federal Bankruptcy Code. Chipwich then filed a motion
for rejection of the lease and pursuant to an order of the Bankruptcy
Court, the lease was rejected on September 29, 1992. There was a
8
guarantor of the lease and the Company agreed to settle its claim
against the guarantor. The guarantor paid the Company $2,200,000 in full
satisfaction of its leasehold obligation which, net of related costs,
resulted in approximately $2,034,000 of "Other income" in the three and
nine month periods ended September 30, 1995. The Company reclassified
this property to "Property held for sale" and reduced its carrying value
to net realizable value by recording a provision for loss of $611,552 in
the three and nine month periods ended September 30, 1995.
b. On January 26, 1993, Be-Mac Transport Company, Inc. ("Be-Mac"),
a tenant in a property owned by the Company, filed a voluntary petition
for reorganization pursuant to the provisions of Chapter 11 of the
Federal Bankruptcy Code. Be-Mac then filed a motion for rejection of
the lease and pursuant to an order of the Bankruptcy Court, the lease
was rejected on February 24, 1993. There was a guarantor of the lease
and the Company settled its unsecured proof of claim for $377,000. As a
result, $377,000 of "Other income" was recognized in the nine month
period ended September 30, 1995. The Company re-let the property
effective March 1, 1994 at an annual rental of $120,000. At September
30, 1995, the property has a carrying value of approximately $932,000
and is unencumbered by any mortgage.
c. On September 30, 1995, the Company held a mortgage note
receivable in the principal amount of approximately $258,000 which is in
default. The mortgage encumbers one property together with a collateral
assignment of the ground lease and rent. The property is tenanted by
Gino's. The mortgage had been taken back by a Predecessor Partnership in
connection with the sale of this property. The tenant remained current
in its lease obligations. As of September 30, 1995, the Company has
commenced foreclosure action on this property located in Pennsylvania.
No gain or loss is anticipated upon foreclosure because the estimated
fair value of the property exceeds its carrying value.
During the nine months ended September 30, 1995, the Company completed
foreclosure actions on three properties (one in Pennsylvania and two in
New Jersey), tenanted by Gino's and Foodarama. As a result, real estate
with a carrying value of approximately $256,000 was recorded. No gain
or loss was incurred upon foreclosure as the estimated fair value of the
properties exceeds their carrying value.
d. Lockheed Missile & Space Company, Inc. ("Lockheed"), a tenant of the
Company's leasehold property in Palo Alto, California, has entered into
a consent decree with the California Department of Toxic Substances
Control ("CDTS") to undertake certain environmental remediation at this
property. Lockheed has estimated that the environmental remediation
costs may be up to approximately $14,000,000. In a non-binding
determination by the CDTS, Lockheed was found responsible for
approximately 75% of such costs and the balance was allocated to other
parties. The Company was allocated no responsibility for any such
costs.
Lockheed has served a notice that it may exercise its statutory right to
have its liability reassessed in a binding arbitration proceeding. In
connection with this notice, Lockheed has stated that it will attempt to
have allocated to the Company and to the Company's ground-lessor (which
may claim a right of indemnity against the Company) approximately 9% and
17%, respectively, of the total remediation costs. The Company believes
that it has no liability for any of such costs and in any proceeding in
which such liability is asserted against it, the Company will vigorously
contest such liability. In the event any of such liability is allocated
to the Company, it will seek indemnification from Lockheed in accordance
with its lease.
e. On January 25, 1995, the Grand Union Company, a tenant leasing eight
properties owned by the Company, filed a prepackaged voluntary petition
for reorganization pursuant to the provisions of Chapter 11 of the
Federal Bankruptcy Code. These eight properties' annual rentals total
approximately $1,450,000 (including two properties which are sub-let,
representing approximately $58,000 in annual rentals). The tenant is
current in its obligations under the leases. The tenant rejected the
9
lease on one property located in Waterford, NY effective July 31, 1995
by order of the Bankruptcy Court on June 6, 1995. The annual rent for
this property was approximately $103,000, its carrying value at
September 30, 1995 is approximately $1,045,000 and it is unencumbered by
any mortgage. The Company believes the carrying value of this property
is fairly stated. In June 1995, the tenant emerged from Bankruptcy.
The tenant affirmed five of the seven remaining leases and allowed the
two sub-let properties' leases to remain in effect. At September 30,
1995, the carrying value of these seven properties is approximately
$11,270,000. One of these properties is encumbered by a nonrecourse
mortgage payable of approximately $4,694,000. The Company has filed a
proof of claim with the Bankruptcy Court for the rejected lease.
f. On June 23, 1995, Bradlees Stores, Inc., a tenant leasing four
properties owned by the Company, filed a voluntary petition for
reorganization pursuant to the provisions of Chapter 11 of the Federal
Bankruptcy Code. The annual rentals for these four properties is
approximately $1,320,000. The tenant is current in its obligations
under the leases. The tenant has not yet determined whether it will
exercise its right to reject or affirm the leases which will require an
order of the Bankruptcy Court. There are existing assignors who are
still obligated to fulfill all of the terms and conditions of the
leases.
At September 30, 1995, the carrying value of these four properties is
approximately $7,619,000. Two of the properties are encumbered by
nonrecourse mortgages payable of approximately $2,112,000.
g. On September 18, 1995, Caldor Corp., a tenant in a property owned by
the Company, filed a voluntary petition for reorganization pursuant to
the provisions of Chapter 11 of the Federal Bankruptcy Code. The annual
rental for this property is approximately $248,000. The tenant is
current in its obligations under the lease with the exception of
approximately $12,000 of pre-petition rent. The tenant has not yet
determined whether it will exercise its right to reject or affirm the
lease which will require an order of the Bankruptcy Court. At September
30, 1995, the property has a carrying value of approximately $2,019,000
and is unencumbered by any mortgage.
4. Mortgages and Note Receivable
-----------------------------
On August 15, 1995, the Company invested approximately $7.1 million in a
note receivable by purchasing a portion (approximately 1.85%) of an
unsecured Senior Term Facility Agreement ("Facility Agreement"). The
borrower is Queens Moat Houses P.L.C. ("Queens Moat") and certain
subsidiaries. Queens Moat is a United Kingdom based hotel operator with
properties in the U.K., Germany, Netherlands, France and Belgium. The
Company purchased its participation portion from Lazard Freres & Co.
LLC, defined as a Priority Lender in the Facility Agreement, at 71.75%
of the face amount of the Company's pro rata portion of the Facility
Agreement's outstanding senior advances on the acquisition date. The
Facility Agreement's advances are denominated in Pounds Sterling,
Deutsche Marks, Dutch Guilders, Belgian Francs and French Francs. The
discount at acquisition date, based on the then existing spot rate, was
approximately $2.8 million. The Facility Agreement matures December 31,
2000 and bears interest at LIBOR (London Interbank Offered Rate) plus
1.75% per annum for the relevant currencies. Interest will accrue from
July 1, 1995 to June 30, 1996 which will then be due and payable to the
Company. Subsequent to June 30, 1996 interest periods and payments can
vary from one month to two, three or six months at the discretion of the
borrower. There are scheduled repayments of the advances over the term
of the loan. In addition, repayments are required when certain
underlying assets are sold.
The discount at acquisition date will be amortized on a straight-line
basis over the term of the Facility Agreement. In accordance with
accounting policy, foreign exchange gains and losses will be recorded
each quarter based on the prevailing exchange rates at each balance
10
sheet date. Foreign exchange gains of approximately $216,000 have been
recognized and are included in "Other income" during the three and nine
month periods ended September 30, 1995.
5. Property Held For Sale
----------------------
At September 30, 1995, the Company owned five properties that were being
actively marketed for sale. At September 30, 1995, these properties
have been stated at the lower of their carrying value or net realizable
value. The aggregate net realizable value of the properties is
estimated to be approximately $ 707,000.
6. Significant Property Transactions
---------------------------------
a. The Company entered into two joint ventures in June 1994 with
unaffiliated co-venturers for the purpose of developing luxury garden
apartment complexes. Both of these joint ventures have been
consolidated in the accompanying financial statements.
1. The first joint venture, formed as an Alabama Limited Liability
Company, is developing a 240 unit multi-family project situated on
approximately twenty acres, currently owned by the joint venture,
located in Hoover, Alabama, a suburb of Birmingham. The Company, which
owns a seventy percent (70%) majority interest in the joint venture,
contributed $1,750,000 in June 1994 and the co-venturer contributed
$250,000. As of September 30, 1995, $250,000 representing the minority
interest of the co-venturer has been included in "Accounts payable,
accrued expenses, and other liabilities" in the accompanying financial
statements. The co-venturer will be credited with $500,000 of
additional capital in lieu of receiving a general contractor's fee.
Distributions will be made in proportion to ownership interests.
Construction financing has been obtained by the joint venture in the
amount of $8,760,000, which can be increased by $100,000, and is
guaranteed by the co-venturer and personally by its principals. The
Company has approved approximately $290,000 of additional improvements
and upgrades. Such additional costs will be funded by partners' capital
contributions in accordance with their pro rata partnership interests.
As of September 30, 1995, approximately $140,000 has been funded by the
Company. The development costs are expected to total approximately
$11,650,000. As of September 30, 1995, approximately $11,185,000 of
development costs have been incurred, including the acquisition of land
valued at approximately $1,138,000. Construction loan funding at
September 30, 1995 is approximately $8,528,000. As of September 30,
1995, all rental units were completed and available for occupancy with
70% of these units leased. An affiliate of the Company's co-venturer is
managing the property. Net rental operations to date have resulted in a
loss of approximately $69,000 including approximately $184,000 of
depreciation before consideration of the co-venturer's minority interest
in such loss of approximately $21,000.
A reinvestment incentive fee of approximately $40,000 will be due the
general partner upon completion of the project (see note 2).
2. The second joint venture, a Delaware limited partnership, is
developing a 288 unit multi-family project situated on approximately
thirty-three acres in Cary, North Carolina (Raleigh-Durham area). The
Company, which owns a ninety percent (90%) majority interest in the
partnership, has contributed approximately $4,022,000 as of September
30, 1995 and is a limited partner. The Company has fulfilled its
contribution obligation. The co-venturer is the general partner and has
a limited partner interest. The Company is entitled to a cumulative
annual preferred return of 12% on its investment before cash
distributions are made in proportion to ownership interests.
Construction financing has been obtained by the joint venture in the
amount of $12,205,000 and is guaranteed by the joint venture general
partner and personally by its principals. The development costs are
expected to total approximately $16,100,000. As of September 30, 1995,
approximately $9,451,000 of development costs have been incurred,
including the acquisition of land valued at $1,600,000. Construction
loan funding at September 30, 1995 is approximately $5,210,000. The
first units are expected to be available for occupancy in October 1995
and project completion is presently scheduled for May 1996. An
affiliate of the Company's co-venturer will manage the property.
11
A reinvestment incentive fee of approximately $70,000 will be due the
Company's general partner upon completion of the project (see note 2).
b. On February 1, 1995, the Penske Corp. exercised its purchase
option on three properties leased from the Company (two in New Jersey
and one in New York). The selling price was approximately $4,535,000
and a gain of approximately $1,019,000 was recognized in the nine months
ended September 30, 1995. Each property was encumbered by first and
second mortgages which totalled approximately $1,152,000 and which were
paid from the sales proceeds.
c. On March 24, 1995, the Company sold the property tenanted by Pace
Membership Warehouse, Inc. in Taylor, Michigan. The selling price was
$9,300,000 and a gain of approximately $3,307,000 was recognized in the
nine months ended September 30, 1995. The property was encumbered by a
nonrecourse mortgage payable of approximately $4,346,000 which the
purchaser assumed.
d. On May 18, 1995, the Company purchased approximately 248 acres
of partially improved land located in Armonk, New York. The purchase
price was approximately $3,044,000. The Company intends to construct
approximately 45 to 50 single-family detached luxury homes subject to
subdivision and other required approvals. No material development costs
have yet been incurred.
A reinvestment incentive fee of approximately $15,000 may be due the
Company's general partner (see note 2).
e. On June 28, 1995, General Signal Technology Corporation, a tenant of
a property located in Andover, Massachusetts exercised its rights under
the lease to purchase the property. The selling price was approximately
$19,857,000 and a loss of approximately $125,000 was recognized in the
nine months ended September 30, 1995. The property was encumbered by
two nonrecourse mortgages payable which totalled approximately
$10,718,000 and were paid from the sales proceeds.
7. Mortgages Payable
-----------------
On July 25, 1994 the Company obtained financing on the two apartment
complexes located in Lexington, Kentucky. The two nonrecourse mortgage
loans in the amount of $5,500,000 and $4,500,000 for Stoney Falls and
Stoney Brooke Apartments, respectively, bear interest at 8.375% and
mature in ten years when balloon payments totalling approximately
$8,150,000 will be due. Under the terms of the loans, $100,000 was
initially funded on each loan with the balance funded in January 1995.
Debt placement costs of approximately $250,000 have been incurred.
Annual debt service on the two loans is approximately $956,000.
8. Distributions Payable
---------------------
Distributions payable represent amounts accrued and unpaid due to non-
consenting investors ("Non-consents"). Non-consents are those investors
who have not yet exchanged their limited partnership interests in the
various Predecessor Partnerships for limited partnership units of
American Real Estate Partners, L.P.
9. Rights Offering
---------------
A registration statement on Form S-3 relating to the Rights Offering
(Registration No. 33-54767) was filed with the Securities and Exchange
Commission and declared effective February 23, 1995.
On March 1, 1995, the Company issued to record holders of its Depositary
Units one transferable subscription right (a "Right"), for each seven
Depositary Units of the Company held on February 24, 1995, the record
12
date. The Rights entitled the holders thereof (the "Rights Holders") to
acquire during the subscription period at a subscription price of $55,
six Depositary Units and one 5% cumulative pay-in-kind redeemable
preferred unit representing a limited partner interest ("Preferred
Units"). The subscription period commenced on March 1, 1995 and expired
at the close of business on March 30, 1995.
The Preferred Units have certain rights and designations, generally as
follows. Each Preferred Unit will have a liquidation preference of
$10.00 and will entitle the holder thereof to receive distributions
thereon, payable solely in additional Preferred Units, at the rate of
$.50 per Preferred Unit per annum (which is equal to a rate of 5% of the
liquidation preference thereof), payable annually on March 31 of each
year (each, a "Payment Date"), commencing March 31, 1996. On any
Payment Date commencing with the Payment Date on March 31, 2000, the
Company, with the approval of the Audit Committee of the Board of
Directors of the General Partner may opt to redeem all, but not less
than all, of the Preferred Units for a price, payable either in all cash
or by issuance of additional Depositary Units, equal to the liquidation
preference of the Preferred Units, plus any accrued but unpaid
distributions thereon. On March 31, 2010, the Company must redeem all,
but not less than all, of the Preferred Units on the same terms as any
optional redemption.
1,975,640 Rights were issued in the Rights Offering of which 418,307
were exercised. 190,554 Depositary Units and 31,759 Preferred Units
were subscribed for through the exercise of the Over-Subscription
Privilege by Rights Holders other than High Coast Limited Partnership
("High Coast"), a Delaware limited partnership.
High Coast acted as guarantor for the Rights Offering and is an
affiliate of Carl C. Icahn, ("Icahn"), the Chairman of American Property
Investors, Inc., ("API"), the general partner of the Company. API is
also the general partner of the guarantor and the two limited partners
are affiliates of and are controlled by Icahn. Pursuant to its
subscription guaranty, High Coast oversubscribed for a total of
9,343,998 Depositary Units and 1,557,333 Preferred Units. As a result,
the Rights Offering was fully subscribed. The proceeds received by the
Company, after deduction of expenses of approximately $1.1 million
incurred by the Company in connection with the Rights Offering, were
approximately $107.6 million.
In addition, in accordance with the terms of the Company's and its
subsidiary's partnership agreements, API was required to contribute
$2,206,242 in order to maintain its aggregate 1.99% general partnership
interest.
On April 12, 1995, the Company received $108,660,200, the gross proceeds
of the Rights Offering, from its subscription agent and $2,206,242 from
API. The Company issued 1,975,640 Preferred Units and an additional
11,853,840 Depositary Units. Trading in the Preferred Units commenced
March 31, 1995 on the New York Stock Exchange ("NYSE") under the symbol
"ACP PR". The Depositary Units trade on the NYSE under the symbol
"ACP".
As of November 7, 1995, High Coast owns 1,741,688 Preferred Units and
12,479,612 Depositary Units.
10. Earnings Per Share
------------------
Net earnings per limited partnership unit and equivalent partnership
units are computed using the weighted average number of units and
equivalent units outstanding during the period. The earnings per share
calculation for the nine months ended September 30, 1995 assumes the
Depositary and Preferred Units subscribed for in the Rights Offering
were outstanding at the beginning of the year. Also with respect to the
nine months ended September 30, 1995 calculation, net income has been
increased by approximately $2,100,000 in accordance with the modified
13
treasury stock method. The dilutive effect of preferred units and the
pro rata quarterly portion of the annual pay-in-kind distribution to
preferred unitholders have been included in the earnings per share
calculation, as calculated under the effective yield method, as
equivalent depositary units. (See note 9).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- - -------
Historically, substantially all of the Company's real estate assets have
been net leased to single corporate tenants under long-term leases.
With certain exceptions, these tenants are required to pay all expenses
relating to the leased property and therefore the Company is not
typically responsible for payment of expenses, such as maintenance,
utilities, taxes and insurance associated with such properties. The
Company has experienced an increase in its property expenses in recent
years, due principally to tenant bankruptcies and defaults as well as
the acquisition of operating properties.
Economic conditions in recent years led the General Partner to reexamine
the Company's cash needs and investment opportunities. Tenant defaults
and lease expirations caused rental revenues to decrease and property
management and operating expenses to increase and led to expenditures to
re-let. In addition, the availability of acceptable financing to
refinance maturing debt obligations including the Company's Senior
Unsecured Debt became increasingly scarce. Consequently the General
Partner determined it was necessary to conserve cash and establish
reserves from time to time. As a result, there was insufficient cash
flow from operations to pay distributions to unitholders and such
distributions were reduced and finally suspended.
By the end of the year 2000, net leases representing approximately 26%
of the Company's net annual rentals from its portfolio will be due for
renewal, and by the end of the year 2002, net leases representing
approximately 40% of the Company's net annual rentals will be due for
renewal. Since most of the Company's properties are net-leased to
single, corporate tenants, it is expected that it may be difficult and
time-consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and the Company may be required to
incur expenditures to renovate such properties for new tenants. In
addition, the Company may become responsible for the payment of certain
operating expenses, including maintenance, utilities, taxes, insurance
and environmental compliance costs associated with such properties,
which are presently the responsibility of the tenant. As a result, the
Company could experience an adverse impact on net cash flow from such
properties.
As a consequence of the foregoing, the Company decided to raise funds
through the Rights Offering to increase its assets available for
investment, take advantage of real estate investment opportunities,
further diversify its portfolio and mitigate against the impact of
potential lease expirations. The Rights Offering was successfully
completed during April 1995 and net proceeds of approximately $107.6
million were raised for investment purposes. In order to enhance the
Company's investment portfolio (and ultimately its asset values and cash
flow prospects), the Company is seeking to acquire investments in
undervalued properties, including commercial properties, land parcels,
residential development projects and non-performing loans. Such
properties may not be generating a positive cash flow in the near term;
however, the General Partner believes that the acquisition of properties
requiring some degree of management or development activity have the
greatest potential for growth, both in terms of capital appreciation and
the generation of cash flow. These types of investments may involve
debt restructuring, capital improvements and active asset management and
by their nature as under-performing assets may not be readily
financeable. As such, they require the Company to maintain a strong
capital base.
Expenses relating to environmental clean-up have not had a material
effect on the earnings, capital expenditures, or competitive position of
14
the Company. Management believes that substantially all such costs
would be the responsibility of the tenants pursuant to lease terms.
While most tenants have assumed responsibility for the environmental
conditions existing on their leased property, there can be no assurance
that the Company will not be deemed to be a responsible party or that
the tenant will bear the costs of remediation. Also, as the Company
acquires more operating properties, its exposure to environmental clean-
up costs may increase. The Company completed Phase I Environmental Site
Assessments of certain of its properties by a third-party consultant.
Based on the results of these Phase I Environmental Site Assessments,
the environmental consultant has recommended that limited Phase II
Environmental Site Investigations be conducted. The Company is seeking
to coordinate with the tenants to attempt to ensure that they undertake
any required investigation and/or remediation. As no Phase II
Environmental Site Investigations have been conducted by the consultant,
there can be no accurate estimation of the need for or extent of any
required remediation, or the costs thereof.
Results of Operations
- - ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994
- - --------------------------------------------------------------------
Gross revenues increased by approximately $4,495,000, or 30.5%, during
the three months ended September 30, 1995 as compared to the same period
in 1994. This increase reflects approximate increases of $2,479,000 in
other income, $2,447,000, or 979.7%, in other interest income,
$178,000, or 9.7%, in hotel operating income, and $208,000, or 4.3%, in
rental income partially offset by a decrease of approximately $817,000,
or 10.4%, in financing lease income. The increase in other interest
income is primarily due to an increase in the Company's short-term cash
investments as a result of the receipt of the Rights Offering proceeds
and the investment in the Facility Agreement. The increase in other
income is primarily due to the settlement of the Chipwich bankruptcy
claim. The hotel operating revenues were generated by two hotels
formerly leased to Integra, A Hotel and Restaurant Company. The Company
has been operating these hotel properties through a third party
management company since August 7, 1992. The decrease in financing
lease income is primarily attributable to normal lease amortization and
property sales. Due to the seasonal nature of the hotel properties, the
hotel revenues for the three months ended September 30, 1995 are not
necessarily indicative of the fourth quarter results.
Expenses decreased by approximately $1,060,000, or 10.3%, during the
three months ended September 30, 1995 compared to the same period in
1994. This decrease reflects decreases of approximately $980,000, or
17.9%, in interest expense and $354,000, or 28.4%, in property expenses,
partially offset by increases of approximately $178,000, or 10.7%, in
hotel operating expenses, $81,000, or 6.5%, in depreciation and
amortization and $15,000, or 2.2%, in general and administrative
expenses. The decrease in interest expense is primarily attributable to
normal loan amortization and reductions due to repayments of maturing
balloon debt obligations, including the Senior Unsecured Debt, as well
as the sale of encumbered properties. The hotel expenses were generated
from the hotels mentioned previously.
Earnings before property transactions increased during the three months
ended September 30, 1995 by approximately $5,555,000 primarily due to
increased interest income earned on the Rights Offering proceeds, other
income from the settlement of a bankruptcy claim and decreased interest
expense due to repayments of maturing debt obligations, partially offset
by a decrease in financing lease income.
Gain on property transactions decreased by approximately $62,000 during
the three months ended September 30, 1995 as compared to the same period
in 1994, due to the size and number of transactions.
During the three months ended September 30, 1995, the Company recorded a
provision for loss on real estate of approximately $612,000 as compared
to a $75,000 provision in the comparable period of 1994.
15
Net earnings for the three months ended September 30, 1995 increased by
approximately $4,957,000 as compared to the three months ended September
30, 1994. This increase was primarily due to increased interest income,
other income from the settlement of a bankruptcy claim and decreased
interest expense, partially offset by a decrease in financing lease
income. Due to the seasonal nature of the Company's two hotel
properties previously mentioned, results of hotel operations for the
three months ended September 30, 1995 are not necessarily indicative of
the fourth quarter results.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1994
Gross revenues increased by approximately $6,829,000, or 14.9%, during
the nine months ended September 30, 1995 as compared to the same period
in 1994. This increase reflects approximate increases of $4,346,000, or
409.0%, in other interest income, $2,828,000 in other income, $808,000,
or 12.1%, in hotel operating income, and $496,000, or 3.5%, in rental
income, partially offset by a decrease of approximately $1,649,000, or
6.8%, in financing lease income. The increase in other interest income
is primarily due to an increase in the Company's short-term cash
investments as a result of the receipt of the Rights Offering proceeds
and the investment in the Facility Agreement. The increase in other
income is primarily due to the settlement of the Chipwich and Be-Mac
bankruptcy claims. The hotel operating revenues were generated by two
hotels formerly leased to Integra, A Hotel and Restaurant Company. The
Company has been operating these hotel properties through a third party
management company since August 7, 1992. The decrease in financing
lease income is primarily attributable to normal lease amortization and
property sales. Due to the seasonal nature of the hotel properties, the
hotel revenues for the nine months ended September 30, 1995 are not
necessarily indicative of those expected for the remainder of 1995.
Expenses decreased by approximately $1,956,000, or 6.3%, during the nine
months ended September 30, 1995 compared to the same period in 1994.
This decrease reflects decreases of approximately $2,465,000, or 14.2%,
in interest expense and $285,000, or 9.2%, in property expenses
partially offset by increases of approximately $329,000, or 9.2%, in
depreciation and amortization, $407,000, or 7.8%, in hotel operating
expenses, and $58,000, or 3.0%, in general and administrative expenses.
The decrease in interest expense is primarily attributable to normal
loan amortization and reductions due to repayments of maturing balloon
debt obligations, including the Senior Unsecured Debt, certain loan
refinancings, as well as the sale of encumbered properties. The hotel
expenses were generated from the hotels mentioned previously.
Earnings before property transactions increased during the nine months
ended September 30, 1995 by approximately $8,785,000 primarily due to
increased interest income earned on the Rights Offering proceeds, other
income from the settlement of bankruptcy claims and decreased interest
expense due to refinancings and repayments of maturing debt obligations,
partially offset by a decrease in financing lease income.
Gain on property transactions increased by approximately $575,000 during
the nine months ended September 30, 1995 as compared to the same period
in 1994, due to the size and number of transactions.
During the nine months ended September 30, 1995, the Company recorded a
provision for loss on real estate of approximately $612,000 as compared
to a $387,000 provision in the comparable period of 1994.
16
Net earnings for the nine months ended September 30, 1995 increased by
approximately $9,136,000 as compared to the nine months ended September
30, 1994. This increase was primarily due to increased interest income,
other income from the settlement of bankruptcy claims and decreased
interest expense, partially offset by a decrease in financing lease
income. Due to the seasonal nature of the Company's two hotel
properties previously mentioned, results of hotel operations for the
nine months ended September 30, 1995 are not necessarily indicative of
those expected for the full year of 1995.
Capital Resources and Liquidity
- - -------------------------------
Generally, the cash needs of the Company for day-to-day operations have
been satisfied from cash flow generated from current operations. The
cash flow generated from day-to-day operations (before payment of
maturing debt obligations) has decreased in recent years, although it
improved in 1994 and is continuing to improve in 1995 due to among other
things the acquisition and foreclosure of certain operating properties
and the repayment of debt. The Company has had to apply a larger
portion of its cash flow to the repayment of maturing debt obligations.
Cash flow from day-to-day operations represents net cash provided by
operating activities (excluding working capital changes and non-
recurring other income) plus principal payments received on financing
leases as well as principal receipts on mortgages receivable reduced by
periodic principal payments on mortgage debt.
The Company may not be able to re-let certain of its properties at
current rentals. As previously discussed, net leases representing
approximately 40% of the Company's net annual rentals will be due for
renewal by the end of the year 2002. In 1995, seventeen leases covering
twenty-six properties and representing approximately $996,000 in annual
rentals are scheduled to expire. The Company anticipates that thirteen
of these twenty-six properties originally representing approximately
$656,000 in annual rental income have been or will be re-let or renewed
for approximately $671,000 in annual rentals. Eleven properties, with
an approximate annual rental income of $307,000, will be marketed for
sale or lease when the current lease terms expire. Two properties with
annual rentals of approximately $33,000 were sold in 1995.
There were no distributions due to Unitholders for the nine months ended
September 30, 1995. Distributions paid during the nine months ended
September 30, 1995 totalled approximately $88,000, representing
distributions due to Unitholders who exchanged their limited partner
interests during 1995. There were no distributions due to Unitholders
for the nine months ended September 30, 1994. Distributions paid during
the nine months ended September 30, 1994 totalled approximately $1.8
million, representing distributions due to Unitholders for the fourth
quarter of 1993 and to Unitholders who exchanged their limited partner
interests during 1994.
During the nine months ended September 30, 1995 the Company generated
approximately $20.3 million in cash flow from day-to-day operations
which excludes approximately $3 million in interest earned on the Rights
Offering proceeds which will be retained for future acquisitions. In
addition, approximately $2.6 million of non-recurring income, including
approximately $2 million from the Chipwich bankruptcy settlement, was
recorded. During the comparable period of 1994, the Company generated
approximately $16.5 million in cash flow from day-to-day operations.
Capital expenditures for real estate, excluding new acquisitions, were
approximately $722,000 during the nine months ended September 30, 1995.
During the comparable period of 1994, there were approximately
$1,244,000 of such expenditures.
In 1995 and 1996, the Company has approximately $11.3 million of
principal payments due each year on its Senior Unsecured Debt and
approximately $5.7 million and $16.9 million of maturing balloon
mortgages due, respectively. During the nine months ended September 30,
17
1995, approximately $14.9 million of balloon mortgages were repaid out
of the Company's cash flow, including the scheduled payment due on the
Company's Senior Unsecured Debt. During the comparable period of 1994,
approximately $15.9 million of balloon mortgages were repaid out of the
Company's cash flow, including the scheduled payment due on the
Company's Senior Unsecured Debt. The Company will seek to refinance a
portion of these maturing mortgages, although it does not expect to
refinance all of them and may be required to repay them from cash flow
and increase reserves from time to time, thereby reducing cash flow
otherwise available for other uses. During the nine months ended
September 30, 1995, net cash flow after payment of maturing debt
obligations and capital expenditures but before creation of cash
reserves was approximately $4.6 million, excluding non-recurring
income and interest earned on the Rights Offering proceeds which
will be retained for acquisitions. After the creation of such reserves
net cash flow for the nine months ended September 30, 1995 was approximately
break-even. The Company's operating cash reserves are approximately $17.5
million at September 30, 1995 which are being retained to meet maturing debt
obligations and capitalized expenditures for real estate. The Company
from time to time may increase its cash reserves to meet its maturing
debt obligations, tenant requirements and other capital expenditures and
to guard against scheduled lease expirations and other contingencies.
As a result, the Company does not anticipate the payment of cash
distributions to holders of Depositary Units in the near future.
Rights Offering proceeds and related interest income are being retained
for investment in undervalued properties including commercial
properties, land parcels, residential development projects and non-
performing loans.
The Company has significant maturing debt requirements under the Note
Agreements. As of September 30, 1995, the Company has $33,923,329 of
Senior Unsecured Debt outstanding. Pursuant to the Note Agreements, the
Company is required to make semi-annual interest payments and annual
principal payments. The interest rate charged on the Senior Unsecured
Debt is 9.6% per annum. Under the terms of the Note Agreements, the Company
deferred and capitalized 2% annually of its interest payment through May
1993. In May 1994 and 1995, the Company repaid $10 million and $11.3 million,
respectively, of its outstanding Senior Unsecured Debt under the Note
Agreements and principal payments of approximately $11,308,000 are due
annually from 1996 through the final payment date of May 27, 1998. As
of September 30, 1995, the Company was in compliance with the terms of
the Note Agreements.
The Note Agreements contain certain covenants restricting the activities
of the Company. Under the Note Agreements, the Company must maintain a
specified level of net annual rentals from unencumbered properties (as
defined in the Note Agreements) and is restricted, in certain respects,
in its ability to create liens and incur debts. Investment by the
Company in certain types of assets that may be regarded as non-income
producing, such as land or non-performing loans, is restricted under the
Note Agreements. The holders of the Senior Unsecured Debt have agreed,
however, to waive this restriction with respect to any capital raised by
the Company in the Rights Offering.
The Note Agreements contain certain prepayment penalties which the
Company would be required to pay if it extinguishes any portion of the
outstanding principal prior to its annual due date. The Note Agreements
require that such prepayment consist of 100% of the principal amount to
be prepaid plus a premium based on a formula described therein. As of
November 2, 1995 the premium required in order to prepay the Note
Agreement in full would have been approximately $2,578,000. Subject to
negotiating favorable terms the Company may prepay in full the Senior
Unsecured Debt. Prepayment would release the Company from certain
covenants which restrict its operating and investment activities,
including, among others, covenants relating to the level of net annual
rentals from unencumbered properties and the ability to create liens and
incur additional debt.
Sales proceeds from the sale or disposal of portfolio properties
totalled approximately $18.1 million in the nine months ended September
30, 1995. During the comparable period of 1994, sales proceeds totalled
approximately $11.7 million, including $1.4 million of net proceeds from
18
a balloon payment of a mortgage receivable. During the nine months
ended September 30, 1995, the Company received $9.8 million of mortgage
proceeds from the financing of its two apartment complexes located in
Lexington, Kentucky. The Company intends to use property sales,
financing and refinancing proceeds for new investments. In addition,
the Company successfully completed its Rights Offering in April 1995 and
net proceeds of approximately $107.6 million were raised for investment
purposes.
The Company entered into two joint ventures with unaffiliated co-
venturers in June 1994 for the purpose of developing luxury garden
apartment complexes in Hoover, Alabama, and Cary, North Carolina. In
the year ended December 31, 1994, the Company invested approximately
$5,500,000 in these joint ventures. During the nine months ended
September 30, 1995, the Company invested approximately an additional
$470,000. In May 1995, the Company acquired approximately 248 acres of
land for approximately $3,044,000. The company intends to develop and
construct 45 to 50 single-family detached luxury homes on this land. In
August 1995, the Company invested approximately $7.1 million by
purchasing a portion of an unsecured Senior Term Facility Agreement.
The borrower is Queens Moat Houses P.L.C., which is a United Kingdom
based hotel operator with properties located in various countries in
Europe.
The Company's cash and cash equivalents increased by approximately
$134.8 million during the nine months ended September 30, 1995,
primarily due to Rights Offering proceeds, and the interest earned
thereon, of $114 million, sales proceeds net of property acquisitions
and investments of approximately $8 million and financing proceeds of
approximately $9.8 million. These funds are being retained for
investment in undervalued properties including commercial properties,
land parcels, residential development projects and non-performing loans.
The Company announced in 1987 its intention to purchase up to one
million Units. On June 16, 1993 the Company announced it had increased
the unit repurchase program to 1,250,000 units. As of September 30,
1995, the Company had purchased 1,037,200 Units at an aggregate cost of
approximately $11,184,000, and the Company may from time to time acquire
additional Units.
Part II. Other information
Item 1. Legal Proceedings
-----------------
In August 1994, three class action complaints against the Company were
filed with the Delaware Court of Chancery, New Castle County, in
connection with the Rights Offering, ALLAN HAYMES, I.R.A V. AMERICAN
REAL ESTATE PARTNERS, L.P., AMERICAN PROPERTY INVESTORS, INC. AND CARL
C. ICAHN AND STEVEN YAVERS V. AMERICAN REAL ESTATE PARTNERS, L.P.,
AMERICAN PROPERTY INVESTORS, INC. AND CARL C. ICAHN AND WILBERT SCHOOMER
V. AMERICAN REAL ESTATE PARTNERS, L.P, AMERICAN PROPERTY INVESTORS, INC.
AND CARL C. ICAHN (the "Complaints"). The Complaints have all been
consolidated. The Complaints claim defendants have breached fiduciary
and common law duties owed to plaintiffs and plaintiffs' class by self
dealing and failing to disclose all relevant facts regarding the Rights
Offering, and seek declaratory and injunctive relief declaring the
action is properly maintainable as a class action, declaring the
defendants have breached their fiduciary and other duties, enjoining the
Rights Offering, ordering defendants to account for all damages suffered
by the class for alleged acts and transactions and awarding further
relief as the court deems appropriate. On April 7, 1995, defendants
moved to dismiss the consolidated complaint as moot. On July 28, 1995,
the parties submitted a stipulation of dismissal agreeing to dismiss the
action as moot. The plaintiffs have reserved their right to make
application to the Court for fees and expenses. On August 3, 1995, the
Court signed an order dismissing the plaintiffs' claims with prejudice
as moot. The Court retained jurisdiction with respect to any
application filed by the plaintiffs for fees and expenses.
19
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Financial Data Schedule is attached hereto as Exhibit EX-27
EXHIBIT INDEX
Exhibit Description
------- -----------
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None
20
SIGNATURES
----------
Pursuant to the requirements 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.
American Real Estate Partners, L.P.
By: American Property Investors, Inc.
General Partner
------------------------------
John P. Saldarelli
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: November 13, 1995
21
5
1,000
9-MOS
DEC-31-1995
SEP-30-1995
153,418
0
0
0
0
0
484,170
50,267
613,404
0
191,262
0
0
0
386,730
613,404
0
52,462
0
12,339
2,031
0
14,852
27,258
0
27,258
0
0
0
27,258
1.06
1.06
