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 September 30, 1999
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
60 East 42nd St. Associates
Condensed Statements of Income
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Income:
Basic rent, from a
related party (Note B) $ 271,961 $ 271,961 $ 815,881 $ 815,881
Additional rent from a
related party (Note B) 263,450 263,450 790,350 790,350
Further additional rent
income from a related
party (Note B) 3,091,366 1,529,651 3,091,366 1,529,651
---------- ---------- ---------- ----------
Total rent income 3,626,777 2,065,062 4,697,597 3,135,882
---------- ---------- ---------- ----------
Expenses:
Interest on mortgage (Note B) 265,961 265,961 797,881 797,881
Supervisory services,
to a related party (Note C) 316,982 160,810 332,672 176,500
Fees and Expenses -0- -0- -0- -0-
Amortization of mortgage
refinancing costs 6,194 6,194 18,582 18,582
---------- ---------- ---------- ----------
Total expenses 589,137 432,965 1,149,135 992,963
---------- ---------- ---------- ----------
Net Income $3,037,640 $1,632,097 $3,548,462 $2,142,919
========== ========== ========== ==========
Earnings per $10,000
participation unit, based
on 700 participation units
outstanding during the year $ 4,339.49 $ 2,331.57 $ 5,069.23 $ 3,061.31
========== ========== ========== ==========
Distributions per $10,000
participation consisted
of the following:
Income $ 4,339.49 $ 2,331.57 $ 5,069.23 $ 3,061.31
Increase (Decrease) in
capital deficit (3,965.77) (1,957.85) (3,948.07) (1,940.15)
---------- ---------- ---------- ----------
Total distributions $ 373.72 $ 373.72 $ 1,121.16 $ 1,121.16
========== ========== ========== ==========
At September 30, 1999 and 1998, there were $7,000,000 of participations outstanding.
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
Assets September 30, 1999 December 31, 1998
Current assets:
Cash $ 87,879 $ 87,879
Further Additional Rent Due
from a related party (Note B) 3,091,366 -0-
----------- -----------
Total current assets 3,179,245 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-
Mortgage refinancing costs 249,522 249,522
Less, allowance for depreciation 123,591 105,009
----------- -----------
125,931 144,513
Capitalized improvements 721,146 -0-
----------- -----------
Total assets $11,266,322 $ 7,472,392
=========== ===========
Liabilities and Capital
Current Liabilities:
Accrued Supervisory fees, to a
related party (Note C) $ 309,137 $ -0-
Due to Lessee 721,146 -0-
----------- -----------
Total Current liabilities $ 1,030,283 $ -0-
Long-term debt $12,020,814 12,020,814
Capital
Capital deficit, January 1, (4,548,422) (4,523,646)
Add, Net income:
January 1, 1999 through September 30, 1999 3,548,462 -0-
January 1, 1998 through December 31, 1998 -0- 2,390,776
----------- -----------
(999,960) (2,132,870)
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
Less Distributions:
Monthly distributions,
January 1, 1999 through September 30, 1999 784,815 -0-
January 1, 1998 through December 31, 1998 -0- 1,046,420
Distribution on November 30, 1998 of
Additional Rent for the lease year
ended September 30, 1998 -0- 1,369,132
----------- -----------
Total distributions 784,815 2,415,552
----------- -----------
Capital (deficit)
September 30, 1999 (1,784,775) -0-
December 31, 1998 -0- (4,548,422)
Total liabilities and capital:
September 30, 1999 11,266,322
December 31, 1998 =========== 7,472,392
===========
60 East 42nd St. Associates
Statement of Cash Flow
(Unaudited)
January 1, 1999 January 1, 1998
through through
September 30, 1999 September 30, 1998
Cash flows from operating activities:
Net income $ 3,548,462 $2,142,919
Adjustments to reconcile net income
to cash provided by operating
activities:
Change in capitalized improvements $ (721,146) $ -0-
Amortization of mortgage
refinancing costs 18,582 18,582
Change in accrued expenses 309,137 152,965
Change in payable to lessee 721,146 -0-
Change in additional rent due (3,091,366) (1,529,651)
----------- ----------
Net cash provided by operating
activities 784,815 784,815
----------- ----------
Cash flows from financing activities:
Cash distributions (784,815) (784,815)
----------- ----------
Net cash used in financing
activities (784,815) (784,815)
----------- ----------
Net increase (decrease) in cash -0- -0-
Cash, beginning of quarter 87,879 87,879
----------- ----------
Cash, end of quarter $ 87,879 $ 87,879
=========== ==========
January 1, 1999 January 1, 1998
through through
September 30, 1999 September 30, 1998
Cash paid for:
Interest $ 797,881 $ 797,881
=========== ==========
Notes to Condensed Financial Statements (Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and statement of cash flows in conformity with generally accepted accounting principles. The accompanying unaudited condensed financial statements include all adjustments (consisting only of normal recurring accruals) which are, in the opinion of the partners in Registrant, necessary for a fair statement of the results for such interim periods. The partners in Registrant believe that the accompanying unaudited condensed financial statements and the notes thereto fairly disclose the financial condition and results of Registrant's operations for the periods indicated and are adequate to make the information presented therein not misleading.
Note B - Interim Period Reporting
The results for the interim periods are not necessarily indicative of the results to be expected for a full year.
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.) Trusts created by Peter L. Malkin for family members are beneficial owners of an interest in the Lessee. Five of the seven Partners in Registrant are members of the law firm of Wien & Malkin LLP, 60 East 42nd Street, New York, New York, counsel to Registrant and Lessee ("Counsel"). See Note C of this Item 1 ("Note C").
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 Counsel.
(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.
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 report on the operation of the Property. Further Additional Rent for the lease year ended September 30, 1999 was $3,091,366. After deducting payment of $309,137 to Counsel as an additional payment for supervisory services, the balance of $2,782,229 will be 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.
Note C - Supervisory Services
Registrant pays Counsel for special legal services at hourly rates and for supervisory services and disbursements. The supervisory fees are $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 September 30, 1999, such remaining cash investment was $7,000,000 representing the original cash investment of Participants in Registrant.
No remuneration was paid during the nine month period ended September 30, 1999 by Registrant to any of the Partners as such. Pursuant to the fee arrangements described herein, Registrant paid Counsel $18,000 of the Basic Payment and $5,535 on account of the Additional Payment, for supervisory services for the nine month period ended September 30, 1999. The supervisory services provided to Registrant by Counsel include legal, administrative and financial services. The legal and administrative services include acting as general counsel to Registrant, maintaining all of its partnership records, performing physical inspections of the Building, reviewing insurance coverage and conducting annual partnership meetings. Financial services include monthly receipt of rent from Lessee, 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 the Lessee and financial statements audited by and tax information prepared by Registrants' independent certified public accountant, and distribution of such materials to the Participants. Counsel also prepares quarterly, annual and other periodic filings with the Securities and Exchange Commission and applicable state authorities.
Reference is made to Note B of Item 1 ("Note B") for a description of the terms of the Lease between Registrant and 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, the ownership of a partnership interest in Lessee by the trusts Mr. Peter L. Malkin created for family members. The Partners receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or partners in Lessee. However, each of the five Partners who is a member of Counsel, by reason of their respective partnership interests in Counsel, is entitled to receive his share of any fees or other remuneration paid to Counsel for services rendered to Registrant and Lessee.
As of September 30, 1999, the Partners owned of record and beneficially an aggregate $61,667 of participations in Registrant, representing 8.8% of the currently outstanding participations therein.
In addition, as of September 30, 1999, certain of the Partners in Registrant (or their respective spouses) held additional Participations in Registrant as follows:
Anthony E. Malkin owned of record as co-trustee an aggregate of $5,000 of Participations. Mr. Anthony E. Malkin disclaims any beneficial ownership of such Participations.
Peter L. Malkin owned of record as trustee or co-trustee, an aggregate of $45,714 of Participations. Mr. Malkin disclaims any beneficial ownership of such Participations.
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.
Richard A. Shapiro owned of record as custodian, but not beneficially, a $5,000 Participation. Mr. Shapiro disclaims any beneficial ownership of such Participation.
In accordance with the provisions of the respective participating agreements, Peter L. Malkin, Mark Labell and Richard A. Shapiro, in their capacity as agents, purchased from non-consenting Participants in October, 1999, an aggregate of $31,667 of participations for the benefit of consenting Participants, all on the terms described in the Agents Consent Solicitations dated June 30, 1999 (See Part II, Item 4). Each such purchase may be reversed 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 the annual mortgage charges due under the Mortgage and the Basic Payment to Counsel for supervisory services. The balance of such Basic Rent is distributed to the Participants. Additional Rent and Further Additional Rent are distributed to the Participants after the Additional Payment to Counsel. See Note C of Item 1 above. 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 nine month period ended September 30, 1999, 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 depends solely on the ability of Lessee to make payments of Basic Rent, Additional Rent and Further Additional Rent to Registrant in accordance with the terms of the Lease. Registrant expects to make distributions so long as it receives the payments provided for under the Lease.
On November 30, 1999, Registrant will make 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 counsel. 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 and nine month periods ended September 30, 1999, as compared with the three and nine month periods ended September 30, 1998. Such increase was the result of an increase in Further Additional Rent payable by the Lessee for the lease year ended September 30, 1999. See Note B.
Total expenses increased for the three and nine month periods ended September 30, 1999, as compared with the three and nine month periods ended September 30, 1998. Such increase was attributable to an increase in the Additional Payment for supervisory services to be made to Counsel based on Further Additional Rent for the lease year ended September 30, 1999 as compared with payments for supervisory services with respect to Further Additional Rent for the lease year ended September 30, 1998. See Note B.
Liquidity and Capital Resources
There has been no significant change in Registrant's liquidity for the nine month period ended September 30, 1999, as compared with the nine month period ended September 30, 1998.
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.
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 4. Submission of Matters to a Vote of Participants.
On June 30, 1999, the Partners mailed to the Participants a STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS (the "Statement") requesting their authorization for a program to complete and finance improvements and grant lease extensions in the form of the Definitive Proxy Statement which was filed with the Securities and Exchange Commission as Schedule 14-A on July 1, 1999, and is incorporated by reference. Supplementary letters consistent with such Statement were subsequently mailed to the Participants, have been filed with the Securities and Exchange Commission, and are also incorporated by reference.
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*
Date: November 16, 1999
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*
Date: November 16, 1999
__________________________
* 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: 16 Nov 99, 12:00am