FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 0-2670
60 EAST 42ND ST. ASSOCIATES
(Exact name of registrant as specified in its charter)
A New York Partnership 13-6077181
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices)
(Zip Code)
(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 [ ].
An Exhibit Index is located on Page 13 of this Report.
Number of pages (including exhibits) in this filing: 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statments
60 East 42nd St. Associates
Condensed Statements of Income
(Unaudited)
For the Three Months
Ended March 31,
2000 1999
Income:
Basic rent, from a
related party (Note B) $ 277,433 $ 271,960
Additional rent from a
related party (Note B) 263,450 263,450
Interest Income 53 -0-
---------- ----------
Total rent income 540,936 535,410
---------- ----------
Expenses:
Interest on mortgages (Note B) 271,434 265,960
Supervisory services, to
a related party (Note C) 7,845 7,845
Professional Fees 79,896 -0-
Amortization of mortgage
refinancing costs 18,760 6,194
---------- ----------
Total expenses 377,935 279,999
---------- ----------
Net Income $ 163,001 $ 255,411
========== ==========
Earnings per $10,000
participation unit, based
on 700 participation units
outstanding during the year $ 232.86 $ 364.87
========== ==========
Distributions per $10,000
participation consisted
of the following:
Income $ 232.86 $ 364.87
Return of Capital $ 140.86 8.85
========== ==========
Total distributions $ 373.72 $ 373.72
========== ==========
At March 31, 2000 and 1999, there were $7,000,000 of participations outstanding.
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
Assets March 31, 2000 December 31, 1999
Current assets:
Cash $ 90,859 $ 87,879
Rent Receivable 5,473 -0-
----------- -----------
Total current assets 96,332 87,879
Real estate
Land 7,240,000 7,240,000
Buildings and Building Improvements 18,534,135 18,534,135
Less, allowance for depreciation 18,534,135 18,534,135
----------- -----------
-0- -0-
Building improvements, construction
in progress 1,391,776 1,062,568
Second Mortgage Costs 946,574 -0-
Less, allowance for amortization 12,565 -0-
----------- ---------
934,009 -0-
Mortgage refinancing costs 249,522 249,522
Less, allowance for amortization 135,979 129,785
----------- -----------
113,543 119,737
----------- -----------
Total assets $ 9,775,660 $ 8,510,184
=========== ===========
Liabilities and Capital (deficit):
Current Liabilities:
Due to Lessee $ 1,391,776 1,062,568
Accrued Expense 80,125 45,253
----------- -----------
Total Current Liabilities 1,471,901 1,107,821
Long-term debt $13,020,814 12,020,814
Capital (deficit)
Capital (deficit), January 1, (4,618,451) (4,548,422)
Add, Net income:
January 1, 2000 through March 31, 2000 163,001 -0-
January 1, 1999 through December 31, 1999 -0- 3,758,620
----------- -----------
(4,455,450) (789,802)
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
(CONTINUED)
Less Distributions: March 31, 2000 December 31, 1999
Monthly distributions,
January 1, 2000 through March 31, 2000 261,605 -0-
January 1, 1999 through December 31, 1999 -0- 1,046,420
Distribution on November 30, 1999 of
Additional Rent for the lease year
ended September 30, 1999 -0- 2,782,229
----------- -----------
Total distributions 261,605 3,828,649
----------- -----------
Capital (deficit)
March 31, 2000 (4,717,055) -0-
December 31, 1999 -0- (4,618,451)
----------- -----------
Total liabilities and capital (deficit):
March 31, 2000 9,775,660 -0-
December 31, 1999 -0- 8,510,184
=========== ==========
60 East 42nd St. Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 2000 January 1, 1999
through through
March 31, 2000 March 31, 1999
Cash flows from operating activities:
Net income $ 163,001 $ 255,411
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage
refinancing costs 18,760 6,194
Increase in Rent Receivable (5,473) -0-
Building Improvements in progress (329,208) -0-
Due to Lessee 329,208 -0-
Accrued Expense 34,871 -0-
--------- ---------
Net cash provided by operating
activities 211,159 261,605
----------- ----------
Cash flows from financing activities:
Increase in Second Mortgage Costs (946,574) -0-
Proceeds from Second Mortgage 1,000,000 -0-
Cash distributions (261,605) (261,605)
----------- ----------
Net cash used in financing
activities (208,179) (261,605)
----------- ----------
Net increase in cash 2,980 -0-
Cash, beginning of period 87,879 87,879
----------- ----------
Cash, end of period $ 90,859 $ 87,879
=========== ==========
January 1, 2000 January 1, 1999
through through
March 31, 2000 March 31, 1999
Cash paid for:
Interest $ 271,434 $ 265,960
=========== ==========
Notes to Condensed Financial Statements (Unaudited)
Note A Organization and basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of Registrant as of March 31, 2000, its results of operations and cash flows for the three months ended March 31, 2000 and 1999 and its changes in Partners' capital for the three months ended March 31, 2000. Information included in the condensed balance sheet as of December 31, 1999 has been derived from the audited balance sheet included in Registrant's, Form 10-K for the year ended December 31, 1999 (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 generally accepted accounting principles have been condensed or omitted from these financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed financial statements should be read in conjunction with the financial statements, notes to financial statements and the other information in the 10-K. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year.
Note B Interim Period Reporting
Registrant is a partnership which was organized on September 25, 1958. On October 1, 1958, Registrant acquired fee title to the Lincoln Building (the "Building") and the land thereunder, located at 60 East 42nd Street, New York, New York (the "Property"). Registrant's partners are Peter L. Malkin, Anthony E. Malkin, Scott D. Malkin, Thomas N. Keltner, Jr., Richard A. Shapiro, Jack Feirman and Mark Labell, respectively (individually, a "Partner" and, collectively, the "Partners"), each of whom also acts as an agent for holders of participations in the Registrant (each holder of a participation, individually, a "Participant" and, collectively, "Participants").
Registrant leases the Property to Lincoln Building Associates ("Lessee") under a long-term net operating lease (the "Lease"), the current term of which expires on September 30, 2008. (There is one additional 25-year term which, if exercised, will extend the Lease until September 30, 2033.) Lessee is a partnership whose partners consist of, among others, Trusts for the benefit of Members of Peter L. Malkin's family. Five of the seven Partners in Registrant are current members of Wien & Malkin LLP, 60 East 42nd Street, New York, New York, which provides supervisory and other services to Registrant and to Lessee (the "Supervisor"). See Note C of this Item 1 ("Note C").
In 1999, the participants of Associates and the Lessee consented to a building improvement program (the "Program") estimated to cost approximately $22,800,000 and expected to take two to three years to complete. To induce the Lessee to approve the Program, Associates agreed to grant to the Lessee, upon completion of the Program, an extension of the lease for an additional 50 years to 2083.
The Lease, as modified, provides that Lessee
is required to pay Registrant:
(i) An annual basic rent of $1,087,842 (the "Basic Rent"), which is equal to the sum of $1,063,842, the constant annual charges on the first mortgage calculated in accordance with the terms of the Lease, plus $24,000 for supervisory services payable to Supervisor.
(ii) (A) additional rent (the "Additional Rent") equal to the lesser of (x) Lessee's net operating income for the lease year or (y) $1,053,800 and (B) further additional rent ("Further Additional Rent") equal to 50% of any remaining balance of Lessee's net operating income for such lease year. (Lessee has no obligation to make any payment of Additional Rent or Further Additional Rent until after Lessee has recouped any cumulative operating loss accruing from and after September 30, 1977. There is currently no accumulated operating loss against which to offset payment of Additional Rent or Further Additional Rent.)
(iii) An advance against Additional Rent equal to the lesser of (x) Lessee's net operating income for the preceding lease year or (y) $1,053,800, which, in the latter amount, will permit basic distributions to Participants at an annual rate of approximately 14.95% per annum on their remaining cash investment in Registrant; provided, however, if such advances exceed Lessee's net operating income for any Lease year, advances otherwise required during the subsequent lease year shall be reduced by an amount equal to such excess until Lessee shall have recovered, through retention of net operating income, the full amount of such excess. After the participants have received distributions equal to a return of 14%per annum, $73.80 is paid to Supervisor from the advances against Additional Rent.
Further Additional Rent income is recognized when earned from the Lessee, at the close of the lease year ending September 30. Such income is not determinable until the Lessee, pursuant to the Lease, renders to Registrant a compilation report on the operation of the Property. Further Additional Rent for the lease year ended September 30, 1999 was $3,091,366. After the payment of $309,137 to Supervisor as an additional payment for supervisory services, the balance of $2,782,229 was distributed to the Participants on November 30, 1999.
A refinancing of the existing first mortgage loan on the Property in the original principal amount of $12,020,814 was closed on October 6, 1994 (the "Mortgage"). Annual Mortgage charges are $1,063,842, payable in equal monthly installments of $88,654, representing interest only at the rate of 8.85% per annum. The Mortgage will mature on October 31, 2004 and is prepayable in whole after October 6, 1995 with a penalty providing interest protection to the mortgagee. The Mortgage is prepayable in whole without penalty during the 90-day period prior to its maturity date.
The refinancing costs were capitalized by Registrant and are being expensed ratably during the period of the mortgage extension from October 6, 1994 to October 31, 2004.
If the Mortgage is modified, upon the first refinancing which would result in an increase in the amount of the outstanding principal balance of the mortgage, the Basic Rent shall be equal to the Wien & Malkin LLP annual supervisory fee of $24,000 plus an amount equal to the product of the new debt service percentage rate under the refinanced mortgage multiplied by the principal balance of the mortgage immediately prior to such refinancing. If there are subsequent refinancings which result in an increase in the amount of the outstanding principal balance of the mortgage, the principal balance referred to above shall be reduced by the amount of the mortgage amortization payable from Basic Rent subsequent to the first refinancing. A second mortgage loan with Emigrant Savings Bank in the amount of $27,979,186 was approved and an initial advance of $1,000,000 was taken on March 8, 2000. Monthly payments of interest only at the rate of 8.21% apply to the initial advance and additional advances of up to $6,000,000 made through September 30, 2000. Amounts advanced from October 1, 2000 through September 30, 2002 and amounts in excess of $7,000,000 are of interest only at the 30 day LIBOR rate. Amounts advanced after October 1, 2002 require interest only payments at 1.65 points in excess of the yield on U.S. Treasury Securities. Maturity is October 31, 2004.
During Prepayment Period, Borrower has the option to prepay the Note in whole only, on the first day of any month upon (i) prior written notice given by prepaid registered or certified mail at least sixty (60) days prior to the date fixed for prepayment and (ii) the payment of the Prepayment Premium plus accrued interest. There shall be no Prepayment Premium after October 1, 2004 to and including the Maturity Date.
During Prepayment Period, Borrower has the option to prepay the Note in whole only, on the first day of any month upon (i) prior written notice given by prepaid registered or certified mail at least sixty (60) days prior to the date fixed for prepayment and (ii) the payment of the Prepayment Premium plus accrued interest. There shall be no Prepayment Premium after October 1, 2004 to and including the Maturity Date.
Note C - Supervisory Services
Registrant pays Supervisor for supervisory services and disbursements $24,000 per annum (the "Basic Payment"), plus an additional payment of 10% of all distributions to Participants in Registrant in any year in excess of the amount representing a return at the rate of 14% per annum on their remaining cash investment (the "Additional Payment"). At March 31, 2000, such remaining cash investment was $7,000,000 representing the original cash investment of Participants in Registrant.
No remuneration was paid during the three month period ended March 31, 2000 by Registrant to any of the Partners as such. Pursuant to the fee arrangements described herein, Registrant paid Supervisor $6,000 of the Basic Payment and $1,845 on account of the Additional Payment, for supervisory services for the three month period ended March 31, 2000. The Supervisory services included, among other things, the preparation of certain reports required by the Securities and Exchange Commission, the moni
Reference is made to Note B of Item 1 ("Note B") for a description of the terms of the Lease between Registrant and Lessee. As of March 31, 2000, Peter L. Malkin owned a partnership interest in Lessee. The respective interests, if any, of the Partners in Registrant and Lessee arise solely from ownership of their respective participations in Registrant and, in the case of Peter L. Malkin, his individual ownership of a partnership interest in Lessee. The Partners receive no extra or special benefit ership interests in Supervisor, is entitled to receive his share of any supervisory, service, legal or other remuneration paid to Supervisor for services rendered to Registrant and Lessee.
As of March 31, 2000, the Partners owned of record and beneficially an aggregate $61,667 of participations in Registrant, representing .88% of the currently outstanding participations therein.
In addition, as of March 31, 2000, certain of the Partners in Registrant (or their respective spouses) held additional Participations in Registrant as follows:
laims any beneficial ownership of such Participations. Peter L. Malkin owned of record as trustee or co-trustee, an aggregate of $55,714 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations.
Richard A. Shapiro owned of record as custodian, but not beneficially, a $5,000 Participation. Mr. Shapiro disclaims any beneficial ownership of such Participation.
Entities for the benefit of members of Peter L. Malkin's family owned of record and beneficially $107,500 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations, except that related Trusts are required to complete scheduled payments to Mr. Malkin.
In accordance with the provisions of the respective participating agreements, Mark Labell and Scott D. Malkin, in their capacity as agent, purchased from non-consenting Participants an aggregate of $10,000 of participations for the benefit of consenting Participants, all on the terms described in the Agents' Consent Solicitations dated June 30, 1999. Each such purchase may be revised at the discretion of the Agents upon receipt of the consent from the applicable non-consenting Participant.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
As stated in Note B, Registrant was organized solely for the purpose of acquiring the Property subject to a net operating lease held by Lessee. Registrant is required to pay, from Basic Rent under the Lease, mortgage charges and amounts for supervisory services. Registrant is required to pay from Additional Rent and Further Additional Rent additional amounts for supervisory services and then to distribute the balance of such Additional Rent and Further Additional Rent to the Participants. Under the Lease, Lessee has assumed sole responsibility for the condition, operation, repair, maintenance and management of the Property. Registrant is not required to maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property.
Registrant does not pay dividends. During the three month period ended March 31, 2000, Registrant made regular monthly distributions of $124.57 for each $10,000 participation ($1,494.89 per annum for each $10,000 participation). There are no restrictions on Registrant's present or future ability to make distributions; however, the amount of such distributions particularly distributions of Additional Rent and Further Additional Rent, depends solely on the ability of Lessee to make payments of Basic Rent, Additional Rent and Further Additional Rent to Registrant. Registrant expects to make distributions so long as it receives the payments provided for under the Lease.
On November 30, 1999, Registrant made an additional distribution of $3,974.61 for each $10,000 participation. Such distribution represents Further Additional Rent paid by the Lessee in accordance with the terms of the Lease after the Additional Payment to Supervisor. See Notes B and C.
Registrant's results of operations are affected primarily by the amount of rent payable to it under the Lease. The amount of Overage Rent payable to Registrant is affected by the cycles in the New York City economy and real estate rental market. It is difficult for management to forecast the New York City real estate market over the next few years. 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 income increased for the three month period ended March 31, 2000, as compared with the three month period ended March 31, 1999. Such increase is attributable to an increase in basic rent to cover an increase in debt service and interest income received be Registrant in the period ended March 31, 2000 as compared with the period ended March 31, 1999.
Total expenses increased for the three month period ended March 31, 2000, as compared with the three month period ended March 31, 1999. Such increase is attributable to an increase in interest on the second mortgage paid by Registrant in the period ended March 31, 2000 as compared with the period ended March 31, 1999.
Liquidity and Capital Resources
There has been no significant change in Registrant's liquidity for the three month period ended March 31, 2000, as compared with the three month period ended March 31, 1999.
No amortization payments are due under the Mortgage to fully satisfy the outstanding principal balance at maturity, and furthermore Registrant does not maintain any reserve to cover the payment of such Mortgage indebtedness at maturity. Therefore, repayment of the Mortgage will depend on Registrant's ability to arrange a refinancing. Assuming that the Property continues to generate an annual net profit in future years comparable to that in past years, and assuming further that current real estate trends continue in the geographic area in which the Property is located, Registrant anticipates that the value of the Property would be in excess of the amount of the Mortgage balance at maturity.
Registrant anticipates that funds for working capital for the Property will be provided by rental payments received from Lessee and, to the extent necessary, from additional capital investment by the partners in Lessee and/or external financing. However, as noted above, Registrant has no requirement to maintain substantial reserves to defray any operating expenses of the Property. Registrant foresees no need to make material commitments for capital expenditures while the Lease is in effect.
Inflation
Registrant has been advised that there has been no material change in the impact of inflation on its operations since the filing of its report on Form 10-K for the year ended December 31, 1998, which report and all exhibits thereto are incorporated herein by reference and made a part hereof.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The property of Registrant is the subject of the following material pending litigation:
Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et. al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed an action in the Supreme Court of the State of New York, against Helmsley-Spear, Inc. and Leona Helmsley concerning various partnerships which own, lease or operate buildings managed by Helmsley-Spear, Inc., including Registrant's property. In their complaint, plaintiffs sought the removal of Helmsley-Spear, Inc. as managing and leasing agent for all of the buildings. Plaintiffs also sought an order precluding Leona Helmsley from exercising any partner management powers in the partnerships. In August, 1997, the Supreme Court directed that the foregoing claims proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin LLP filed an arbitration complaint against Helmsley-Spear, Inc. and Mrs. Helmsley before the American Arbitration Association. Helmsley-Spear, Inc. and Mrs. Helmsley served answers denying liability and asserting various affirmative defenses and counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply denying the counterclaims. By agreement dated December 16, 1997, Mr. Malkin and Wien & Malkin LLP (each for their own account and not in any representative capacity) reached a settlement with Mrs. Helmsley of the claims and counterclaims in the arbitration and litigation between them. Mr. Malkin and Wien & Malkin LLP are continuing their prosecution of claims in the arbitration for relief against Helmsley-Spear, Inc., including its termination as the leasing and managing agent for various entities and properties, including the Registrant's Lessee.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits hereto are being incorporated by reference.
(b) Registrant has not filed any report on Form 8-K during the quarter for which this report is being filed.
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.
The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Partners in Registrant, pursuant to Powers of Attorney, dated March 18, 1998, March 20, 1998 and May 14, 1998 (collectively, the "Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Dated: May 23, 2000
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 Partners in Registrant, pursuant to the Power, on behalf of Registrant on the date indicated.
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Dated: May 23, 2000
__________________________
* Mr. Katzman supervises accounting functions for Registrant.
EXHIBIT INDEX
Number Document Page*
3(a) Partnership Agreement, dated September 25, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 3 to Registrant's Form 10-K for the fiscal year ended December 31, 1980, and is incorporated by reference as an exhibit hereto.
3(b) Amended Business Certificate of Registrant filed with the Clerk of New York County on November 28, 1997, reflecting a change in the Partners of Registrant, was filed as Exhibit 3(b) to Registrant's 10-Q for the quarter ended March 31, 1998, and is incorporated by reference as an exhibit hereto.
24 Powers of Attorney dated
March 18, 1998, March 20, 1998 and May 14, 1998 between the Partners of Registrant and Stanley Katzman and Richard A. Shapiro which were filed as Exhibit 24 to Registrant's 10-Q for the quarter ended March 31, 1998 and is incorporated by reference as an exhibit hereto.
__________________________
* Page references are based on sequential numbering system.
60 East 42ND Street Associates L.L.C. Inactive
Filed: 23 May 00, 12:00am