Audit Report On The Compliance Of Astoria Studios Limited Partnership II With Its License Agreement

This audit determined whether Astoria Studio Limited Partnership II (Astoria) accurately reported its net income, paid all rent due, and complied with certain major non-revenue terms of the lease agreement.

On September 1, 1982, the City of New York entered into a lease agreement with Astoria Studios Inc., through the City’s Public Development Corporation, now known as the Economic Development Corporation (EDC), to restore, expand, and manage motion picture and television studios in Astoria, Queens. The lease was assigned to Astoria on November 27, 1985.

Astoria generates most of its operating revenues from leasing offices and stages at the Astoria Studios to film industries and commercial businesses. In calendar year 2005, Astoria generated approximately $6.9 million in revenues and reported a net loss of $3.2 million; net income is the basis for ascertaining additional rent due the City, as defined by the lease agreement. EDC is responsible for overseeing the lease agreement.

For calendar year 2005, the lease agreement requires Astoria to pay the City $350,004 in base rent and $645,643 in tax rent. The agreement also requires Astoria to pay an additional rent equivalent to 17.5 percent of net income. The additional rent is payable within 120 days after the end of each year.

Audit Findings and Conclusions

Astoria paid all rents due in a timely manner and maintained sufficient insurance coverage. However, Astoria underreported its net income by $591,704. The underreporting was the result of reporting improper deductions and by including administrative expenses pertaining to other businesses and attributing them to the Astoria Studios. Since Astoria reported a net loss of $3.2 million on its schedule of Calculation of Additional Rent submitted to EDC, the underreported net income did not result in any additional rents due the City. In addition, Astoria did not pay water and sewer charges since 1995, or name the City and EDC as additional insureds under its excess liability policy as require; nor did it submit audited financial statements and additional-rent-due calculations to EDC in a timely manner.

Audit Recommendations

The audit recommended that Astoria should:

• Accurately calculate net income and additional rent payments in accordance with the terms of the lease agreement.
• Develop a formalized method of allocating administrative expenses incurred by Kaufman Astoria Studios Inc. (KASI) for managing the Astoria Studios.
• Maintain documentation to support the allocation of administrative expenses incurred by KASI.
• Ensure that any retroactive and subsequent water and sewer charges are promptly paid.
• Ensure that all liability insurance policies continue to name the City and EDC as additional insureds.
• Submit audited financial statements and additional rent calculation to EDC within 120 days from the close of its fiscal year.

EDC should:

• Review the allocation method developed by KASI to ensure its administrative expenses are properly allocated to Astoria Studios.
• Ensure that Astoria complies with the recommendations in this report.