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, 1997
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 2.
Item 1. Financial Statements
60 East 42nd St. Associates
Condensed Statement of Income
(Unaudited)
For the Three Months Ended
March 31,
1997 1996
Rent Income:
Basic rent, from a related
party (Note B) $ 271,960 $ 271,960
Additional rent from a
related party (Note B) 263,450 263,450
---------- ----------
Total rent income 535,410 535,410
---------- ----------
Expenses:
Interest on mortgage (Note B) 265,960 265,960
Supervisory services, to a
related party (Note C) 7,845 7,845
Amortization of mortgage
refinancing costs 6,194 6,194
---------- ----------
Total expenses 279,999 279,999
---------- ----------
Net income $ 255,411 $ 255,411
========== ==========
Earnings per $10,000 participation
unit, based on 700 participation
units outstanding during the year $ 364.87 $ 364.87
========== ==========
Distributions per $10,000
participation:
Distributions per $10,000 parti-
cipation consisted of the
following:
Income $ 364.87 $ 364.87
Return of capital 8.85 8.85
---------- ----------
Total distributions $ 373.72 $ 373.72
========== ==========
At March 31, 1997 and 1996, there were $7,000,000 of participations
outstanding.
3.
60 East 42nd St. Associates
Condensed Balance Sheet
(Unaudited)
March 31, 1997 December 31, 1996
Assets
Current assets:
Cash $ 87,879 $ 87,879
--------- -----------
Total current assets 87,879 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 amortization 61,651 55,457
------------ -----------
187,871 194,065
----------- -----------
Total assets $ 7,515,750 $ 7,521,944
=========== ===========
Liabilities and Capital
Long-term debt 12,020,814 12,020,814
Capital
Capital deficit, January 1, (4,498,870) (4,474,094)
Add, Net income:
January 1, 1997 through March 31, 1997 255,411 -0-
January 1, 1996 through December 31, 1996 -0- 2,867,971
----------- -----------
(4,243,459) (1,606,123)
----------- -----------
Less, Distributions:
Monthly distributions,
January 1, 1997 through March 31, 1997 261,605 -0-
January 1, 1996 through December 31, 1996 -0- 1,046,420
Distribution on November 30, 1996 of
Additional Rent for the lease year
ended September 30, 1996 -0- 1,846,327
----------- -----------
Total distributions 261,605 2,892,747
----------- -----------
Capital (deficit)
March 31, 1997 (4,505,064) -0-
December 31, 1996 -0- (4,498,870)
----------- -----------
Total liabilities and capital:
March 31, 1997 $ 7,515,750 -0-
December 31, 1996 -0- $ 7,521,944
=========== ===========
4.
60 East 42nd St. Associates
Condensed Statements of Cash Flows
(Unaudited)
January 1, 1997 January 1, 1996
through through
March 31, 1997 March 31, 1996
Cash flows from operating activities:
Net income $ 255,411 $ 255,411
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage refinancing
costs 6,194 6,194
----------- -----------
Net cash provided by operating
activities 261,605 261,605
----------- -----------
Cash flows from financing activities:
Cash distributions (261,605) (261,605)
----------- -----------
Net cash used in financing
activities (261,605) (261,605)
----------- -----------
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, 1997 January 1, 1996
through through
March 31, 1997 March 31, 1996
Cash paid for:
Interest $ 265,960 $ 265,960
=========== ===========
60 East 42nd St. Associates 5.
March 31, 1997
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 period are not necessarily
indicative of the results to be expected for a full year.
Registrant is a New York partnership which was organized
on September 25, 1958 and which owns fee title to the Lincoln
Building and the land thereunder, located at 60 East 42nd Street,
New York, New York 10165 (the "Property"). Registrant's partners
are Donald A. Bettex, Ralph W. Felsten, Stanley Katzman, Peter L.
Malkin, John L. Loehr, Richard A. Shapiro and Thomas N. Keltner,
Jr., (collectively the "Partners"), each of whom also acts as an
agent for holders of participations (the "Participants") in their
respective partnership interests in Registrant.
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, Mr. Malkin.
Five of the seven Partners in Registrant are also current members,
and two are retired, former 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:
60 East 42nd St. Associates 6.
March 31, 1997
(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 (the
"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 the 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 certified report on the
operation of the Property. Further Additional Rent for the lease
year ended September 30, 1996 was $2,051,475. After payment of
$205,148 to Counsel as an additional payment for supervisory
services, the balance of $1,846,327 was distributed to the
Participants on November 30, 1996.
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.
60 East 42nd St. Associates 7.
March 31, 1997
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 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 original
cash investment (the "Additional Payment"). At March 31, 1997,
such remaining original 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, 1997 by Registrant to any of the Partners as such.
Pursuant to the fee arrangements described herein, Registrant paid
Counsel $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, 1997.
The supervisory services provided to Registrant by
Counsel include legal, administrative services 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, and active review of financial
statements submitted to Registrant by 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.
60 East 42nd St. Associates 8.
March 31, 1997
Reference is made to Note B for a description of the
terms of the Lease between Registrant and Lessee. As of March 31,
1997, Mr. 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 Mr. Malkin, his
individual ownership of a partnership interest in Lessee. 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 currently a
member of Counsel, by reason of their respective partnership
interests in Counsel, are entitled to receive their pro rata share
of any legal fees or other remuneration paid to Counsel for legal
services rendered to Registrant and Lessee.
As of March 31, 1997, the Partners owned of record and
beneficially an aggregate $53,333 of participations in Registrant,
representing less than 1% of the currently outstanding
participations therein.
In addition, as of March 31, 1997, certain of the
Partners in Registrant (or their respective spouses) held
additional Participations in Registrant as follows:
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.
Isabel Malkin, the wife of Peter L. Malkin, individually
and beneficially, owned $35,000 of Participations.
Mr. Malkin disclaims any beneficial ownership of such
Participations.
Richard A. Shapiro owned of record, as custodian, $5,000
of Participations. Mr. Shapiro disclaims any beneficial
ownership of such Participations.
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
60 East 42nd St. Associates 9.
March 31, 1997
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, 1997, 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.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Sublease.
The amount of Overage Rent payable to Registrant is affected by
(i) the cycles in the New York City economy and real estate rental
market and (ii) the cost of the Property improvement program
described herein under Item 4 of Other Information. It is
difficult for management to forecast whether the New York City
real estate market will improve or deteriorate over the next few
years.
On November 30, 1996, Registrant made an additional
distribution of $2,637.61 for each $10,000 participation. Such
distribution represented the balance of Further Additional Rent
paid by the Lessee in accordance with the terms of the Lease after
deducting the Additional Payment to Counsel.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Lease.
The following summarizes, with respect to the current period and
the corresponding period of the previous year, the material
factors affecting Registrant's results of operations for such
periods:
Total income remained the same for the three month
period ended March 31, 1997, as compared with the
three month period ended March 31, 1996. Total
expenses remained the same for the three month period
ended March 31, 1997, as compared with the three month
period ended March 31, 1996.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the three month period ended March 31, 1997, as
compared with the three month period ended March 31, 1996.
60 East 42nd St. Associates 10.
March 31, 1997
No amortization payments are due under the Mortgage to
fully satisfy the outstanding principal balance at maturity, and
furthermore, the 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 Building 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 foresees no need to make material
commitments for capital expenditures while the Lease is in effect.
Registrant anticipates that funds for working capital
for the Property will be provided by rental payments received from
the 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 commit-
ments 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, 1996, which report and all exhibits thereto are incorporated
herein by reference and made a part hereof.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which
Registrant is a party.
Item 4. Submission of Matters to a Vote of Participants.
The Partners are in the process of preparing a
solicitation of consents of the Participants to consider certain
governance issues, including the designation of additional
Successor Agents, and certain operations issues, including the
granting to the Partners the authority, in consideration of the
undertaking by Lessee of certain improvements to the Property and
an increase in Basic Rent and Primary Additional Rent, to grant to
Lessee two lease extension periods. A portion of the costs of the
proposed improvement program would be shared between Registrant
and Lessee but the details of this proposal are not yet complete.
60 East 42nd St. Associates 11.
March 31, 1997
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) Registrant has not filed any report on Form 8-K
during the quarter for which this report is being filed.
60 East 42nd St. Associates 12.
March 31, 1997
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 a Power of Attorney, dated
August 6, 1996 (the "Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: May 13, 1997
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 and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: May 13, 1997
______________________
* Mr. Katzman supervises accounting functions for
Registrant.
60 East 42nd St. Associates 13.
March 31, 1997
EXHIBIT INDEX
Number Document Page*
25 Power of Attorney dated August 6, 1996,
which was filed as Exhibit 25 to
Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996
and is incorporated by reference as an
exhibit hereto.
______________________
* Page references are based on a sequential numbering system.