U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-13500
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1626 New York Associates Limited Partnership
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-2808184
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
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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
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FORM 10-Q JUNE 30, 1998
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PART 1 - FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Unit Data)
June 30, December 31,
1998 1997
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ASSETS
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Real estate:
Land $ 20,142 $ 24,440
Buildings and improvements, net of accumulated
depreciation of $106,483 and $141,658 as of
June 30, 1998 and December 31, 1997, respectively 88,493 114,383
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108,635 138,823
Other Assets:
Cash and cash equivalents 126 221
Restricted cash 5,964 3,354
Accounts receivable, net of reserves of $315 and $259
as of June 30, 1998 and December 31, 1997, respectively 369 489
Prepaid expenses and other assets 6,538 8,617
Deferred rent receivable 11,178 12,306
Deferred costs, net of accumulated amortization of
$17,831 and $23,749 as of June 30, 1998
and December 31, 1997, respectively 7,486 7,698
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Total Assets $ 140,296 $ 171,508
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See notes to consolidated financial statements.
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FORM 10-Q JUNE 30, 1998
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Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Unit Data)
(Continued)
LIABILITIES AND PARTNERS' DEFICIT
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June 30, December 31,
1998 1997
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Liabilities:
Mortgage notes payable to affiliates $ 159,266 $ 166,536
Other mortgage notes payable 24,000 61,867
Notes payable and accrued interest
to general partners and affiliates 30,634 24,739
Accounts payable, accrued expenses, security
deposits and other liabilities 7,743 10,085
Accrued interest on mortgage notes to affiliates 54,036 52,135
Accrued interest on other mortgage notes 83 98
Deferred purchase price obligation 1,289 1,498
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Total Liabilities 277,051 316,958
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Commitments and Contingencies
Partners' Deficit:
Limited Partners' Deficit - Units of Investor Limited Partnership
Interest $250,000 stated value per unit; authorized, issued and
outstanding -1,340 as of June 30, 1998 and
December 31, 1997 (140,962) (149,968)
Less: investor notes (68) (68)
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(141,030) (150,036)
General Partners' Equity 4,275 4,586
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Total Partners' Deficit (136,755) (145,450)
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Total Liabilities and Partners' Deficit $ 140,296 $ 171,508
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See notes to consolidated financial statements.
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FORM 10-Q JUNE 30, 1998
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Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
For the Six Months Ended
June 30, June 30,
1998 1997
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Revenues:
Rent and escalation income $ 18,246 $ 18,719
Interest and other income 224 678
Gain on sale of property 17,046 --
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Total revenues 35,516 19,397
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Expenses:
Interest on obligations to affiliates 11,429 12,799
Interest 1,115 710
Depreciation and amortization 5,327 6,803
Real estate and other taxes 3,530 4,697
Utilities 1,458 2,066
Cleaning and security 1,758 2,000
Asset and property management fees 226 267
Repairs and maintenance 609 681
Payroll 531 645
General and administrative 527 639
Professional fees 251 302
Provision for doubtful accounts 60 50
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Total expenses 26,821 31,659
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Net income (loss) $ 8,695 $ (12,262)
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Net loss allocated to general partners $ (311) $ (537)
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Net income (loss) allocated to investor limited partners $ 9,006 $ (11,725)
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Net income (loss) per unit of investor limited
partnership interest $ 6,720.90 $ (8,750.00)
==================== =====================
See notes to consolidated financial statements.
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FORM 10-Q JUNE 30, 1998
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Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
For the Three Months Ended
June 30, June 30,
1998 1997
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Revenues:
Rental and escalation income $ 8,221 $ 8,892
Interest and other income 115 313
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Total revenues 8,336 9,205
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Expenses:
Interest on obligations to affiliates 5,618 6,443
Interest 563 302
Depreciation and amortization 2,646 3,498
Real estate and other taxes 1,780 2,351
Utilities 755 981
Cleaning and security 899 966
Asset and property management fees 119 132
Repairs and maintenance 354 401
Payroll 274 335
General and administrative 300 343
Professional fees 135 148
Provision for doubtful accounts - 50
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Total expenses 13,443 15,950
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Net loss (5,107) (6,745)
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Net loss allocated to general partners $ (221) $ (307)
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Net loss allocated to investor limited partners $ (4,886) $ (6,438)
==================== =====================
Net loss per unit of investor limited partnership
interest $ (3,646.27) $ (4,804.48)
==================== =====================
See notes to consolidated financial statements.
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FORM 10-Q JUNE 30, 1998
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Consolidated Statement of Partners' Deficit (Unaudited)
(In Thousands, Except Unit Data)
Units of
Investor Investor
Limited Limited General Total
Partnership Partners' Partners' Partners'
Interest Deficit Equity Deficit
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Balance - December 31, 1997 1,340 $ (150,036) $ 4,586 $ (145,450)
Net income (loss) -- 9,006 (311) 8,695
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.
Balance - June 30, 1998 1,340 $ (141,030) $ 4,275 $ (136,755)
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See notes to consolidated financial statements.
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FORM 10-Q JUNE 30, 1998
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Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended
(In Thousands) June 30, June 30,
1998 1997
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Cash Flows from Operating Activities:
Net income (loss) $ 8,695 $ (12,262)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 4,527 5,276
Amortization 800 1,527
Change in deferred rent receivable (2,091) (508)
Gain on sale of property (17,046) -
Provision for doubtful accounts 56 50
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid
expenses and other assets 2,143 (311)
(Decrease) increase in accounts payable, accrued expenses,
security deposits and other liabilities (2,342) 477
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Net cash used in operating activities (5,258) (5,751)
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Cash Flows from Investing Activities:
Net proceeds from sale of property 50,389 --
Additions to buildings and improvements (3,293) (4,596)
Increase in deferred leasing costs (1,581) (2,399)
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Net cash provided by (used in) investing activities 45,515 (6,995)
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Cash Flows from Financing Activities:
Payment of accrued interest on mortgage notes to affiliates (5,252) --
Increase in accrued mortgage interest 7,138 7,164
Principal payments on mortgage notes to affiliates (7,270) (481)
Increase in notes payable and accrued interest to
general partners and affiliates 5,895 4,506
Principal payments on other mortgage notes (37,867) (59)
(Increase) decrease in restricted cash (2,610) 1,873
Payment of deferred financing costs (177) --
Deferred purchase price obligation payment (209) --
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Net cash (used in) provided by financing activities (40,352) 13,003
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Net (decrease) increase in cash and cash equivalents (95) 257
Cash and cash equivalents, beginning of year 221 125
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Cash and cash equivalents, end of year $ 126 $ 382
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Supplemental Disclosure of Cash Flow Information:
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Cash paid for interest $ 9,254 $ 5,876
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Supplemental Disclosure of Non-Cash Investing Activities:
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Sale of property in 1998 - See Note 4
See notes to consolidated financial statements.
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FORM 10-Q JUNE 30, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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
Partnership's Annual Report on Form 10-K for the year ended December 31,
1997.
The financial information contained herein is unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of such
financial information have been included. All adjustments are of a
normal recurring nature except as discussed in Notes 3 and 4. Certain
amounts have been reclassified to conform to the June 30, 1998
presentation. The balance sheet at December 31, 1997 was derived from
audited financial statements at such date.
1626 New York Associates Limited Partnership (the "Registrant") was
organized to acquire and own a 99% general partnership interest in and
serve as a general partner of Nineteen New York Properties Limited
Partnership (the "Operating Partnership"). The Registrant and the
Operating Partnership are collectively referred to as the
"Partnerships."
The results of operations for the three and six months ended June 30,
1998 and 1997, are not necessarily indicative of the results to be
expected for the full year.
2. Plan of Operation
The Partnerships have maturing mortgage debt, totaling approximately
$81,816,000 due in 1998. Based on the current value of the Properties,
it is highly unlikely the Partnerships will be able to meet their 1998
obligations. Accordingly, it appears there is a substantial likelihood
that some or all of the Properties, if not sold, will be lost through
foreclosure in 1998. In the event that Properties are sold, all proceeds
would be used to satisfy any related outstanding indebtedness. This
raises substantial doubt about the Partnerships' ability to continue as
a going concern.
3. Debt Modification with Related Parties
The senior component of the Modified Loan consists of secured notes in
the aggregate principal amount of $56,816,000 (the "Secured A Notes").
These notes, which have an annual interest rate of 295 basis points over
30-day LIBOR (8.61% at June 30, 1998), were scheduled to mature on
February 28, 1998, but were extended to August 31, 1998. The junior
component consists of secured notes in the aggregate principal amount of
$102,450,000 (the "Secured B Notes"). These notes have a fixed annual
interest rate of 14% through February 28, 1999 and then 16.75%
thereafter, maturing on February 28, 2016. A mandatory prepayment of $25
million against the Secured B Notes was scheduled to be made on March
15, 1998, but was extended to August 31, 1998. A third component of the
Modified Loan is an unsecured $19,550,000 note (the "Unsecured Note")
representing the additional financing expected to be drawn upon by the
Operating Partnership to fund capital improvements and tenant lease-up
costs.
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FORM 10-Q JUNE 30, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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3. Debt Modification with Related Parties (Continued)
However, any borrowings under this credit line are subject to the
lender's discretion. Accordingly, it is possible that the Operating
Partnership may not be able to borrow against this credit line each time
it deems it necessary. The Unsecured Note was scheduled to mature on
February 28, 1998, but was extended to August 31, 1998. The Unsecured
Note, if outstanding, bears interest at a fixed annual rate of 14%
through February 28, 1999 and then 16.75% thereafter. As of June 30,
1998, the outstanding balance against the Unsecured Note was
$17,040,000, which is included in notes payable and accrued interest to
general partners and affiliates.
In addition, the $10,000,000 Receivables Note has an annual base
interest rate of 6% and an additional annual contingent interest rate of
9%. Interest, to the extent that it cannot be paid currently, accrues
until maturity. The Note is scheduled to mature on the earlier of August
31, 1999, or such time that the loans encumbering the Partnership's 300
Park Avenue South and 509 Fifth Avenue properties become due.
In connection with the extension of the Modified Loan in February 1998,
the Partnership paid $177,000 in financing fees.
4. Sale of Property
On January 13, 1998, the Partnership sold its 1372 Broadway property to
an unaffiliated third party for $52,000,000. All of the proceeds were
used to partially satisfy the approximately $94,000,000 allocated
portion of the Modified Loan (including accrued and unpaid interest),
with the unsatisfied portion of the Modified Loan being reallocated
among the remaining Fuji Properties. For financial reporting purposes,
the sale resulted in a gain of approximately $17,046,000.
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FORM 10-Q JUNE 30, 1998
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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The matters discussed in this Form 10-Q contain certain
forward-looking statements and involve risks and uncertainties
(including changing market conditions, competitive and regulatory
matters, etc.) detailed in the disclosure contained in this Form
10-Q and the other filings with the Securities and Exchange
Commission made by the Registrant from time to time. The discussion
of the Registrant's liquidity, capital resources and results of
operations, including forward-looking statements pertaining to such
matters, does not take into account the effects of any changes to
the Registrant's operations. Accordingly, actual results could
differ materially from those projected in the forward-looking
statements as a result of a number of factors, including those
identified herein.
This Item should be read in conjunction with the Consolidated
Financial Statements and other items contained elsewhere in this
Report.
Liquidity and Capital Resources
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The Registrant serves as the general partner of Nineteen New York
Properties Limited Partnership (the "Partnership"). All of the
Partnership's five remaining properties (the "Properties") are
office buildings located in New York City. The Registrant's sole
source of revenue is from distributions from the Partnership and
interest income on cash reserves. The Registrant is responsible for
its operating expenses. The Partnership receives rental revenue
from tenants and is responsible for operating expenses,
administrative expenses, capital improvements and debt service
payments.
The Registrant has maturing mortgage debt, totaling approximately
$81,816,000 due in 1998. On February 15, 1998, the lender extended
the maturity date of the Secured A Notes and the $25 million
prepayment against the Secured B Notes until March 31, 1998, and
further extended the maturity date until August 31, 1998. Although
there can be no assurance the lender will do so, it is anticipated
that the lender will continue to extend the maturity date on a
month to month basis for the near future. Based on the current
value of the Properties, it is highly unlikely the Registrant will
be able to meet its 1998 obligations. Accordingly, there is a
substantial likelihood that some or all of the Properties will be
sold or lost through foreclosure in 1998. This raises substantial
doubt about the Registrant's ability to continue as a going
concern. In the event that Properties are sold, all proceeds would
be used to satisfy any related outstanding indebtedness.
The Registrant's original objective of capital appreciation will
not be achieved and it is anticipated that the Registrant's
partners will not receive any future distributions. Accordingly,
the Registrant's partners will not receive a return of their
original investment.
The Registrant and the Partnership had $126,000 of cash and cash
equivalents and $5,964,000 of restricted cash at June 30, 1998, as
compared to $221,000 and $3,354,000 respectively, at December 31,
1997. Restricted cash primarily includes amounts held in mortgage
collateral accounts. The $95,000 decrease in cash and cash
equivalents at June 30, 1998, as compared to December 31, 1997, was
due to $45,515,000 of cash provided by investing activities, which
was offset by $40,352,000 of cash used in financing activities and
$5,258,000 of cash used in operating
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FORM 10-Q JUNE 30, 1998
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations (Continued)
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Liquidity and Capital Resources (Continued)
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activities. Cash provided by investing activities included
$50,389,000 of net proceeds received from the sale of the
Registrant's 1372 Broadway property, which was partially offset by
$3,293,000 of improvements to real estate, the majority of which
were tenant improvements, and $1,581,000 of cash expended on
leasing activities. Cash used in financing activities included
$37,867,000 of cash used for the partial principal repayment and
$5,252,000 of cash used for the partial repayment of accrued
interest on the allocated portion of the loan encumbering the
Registrant's 1372 Broadway property. Cash used in financing
activities also included a $7,270,000 principal payment on mortgage
notes payable to affiliates, which was offset by a $7,138,000
increase in accrued interest and a $5,895,000 increase in notes
payable and accrued interest to general partners and affiliates. In
addition, Registrant's restricted cash increased by $2,610,000, due
to an increase in restricted cash operating accounts. All other
increases (decreases) in certain assets and liabilities are the
result of the timing of receipt and payment of various activities.
The Partnership's only other source of liquidity is a $19,550,000
unsecured credit line provided by Zeus Property LLC ("Zeus"), that
had an outstanding balance of $17,040,000 at June 30, 1998. This
credit line can be used by the Partnership to fund capital
improvements and tenant lease-up costs at the Fuji Properties.
However, any borrowings under this credit line are subject to Zeus'
discretion. Accordingly, it is possible that the Operating
Partnership may not be able to borrow against this credit line each
time it deems it necessary.
On January 13, 1998, the Partnership sold its 1372 Broadway
property to an unaffiliated third party for $52,000,000. All of the
proceeds were used to partially satisfy the $94,000,000 allocated
portion of the Modified Loan (including accrued and unpaid
interest), with the unsatisfied portion of the Modified Loan being
reallocated among the remaining Fuji Properties. For financial
reporting purposes, the sale resulted in a gain of approximately
$17,046,000. For tax reporting purposes, the Registrant's partners
will be allocated a substantial gain in 1998 due to recapture of
tax benefits received in prior years.
There have been, and it is possible there may be other Federal,
state and local legislation and regulations enacted relating to the
protection of the environment and individual rights (such as the
American with Disabilities Act). The Registrant is unable to
predict the extent, if any, to which such new legislation or
regulation might occur and the degree to which such existing or new
legislation or regulations might adversely affect the Registrant?s
liquidity and capital resources.
Real Estate Market
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The income and expenses of operating the Properties owned by the
Partnership are subject to factors outside its control, such as the
over-supply of similar properties, increases in unemployment,
population shifts, or changes in patterns or needs of users.
Expenses, such as local real estate taxes and miscellaneous
expenses, are subject to change and cannot always be reflected in
rental rate increases due to market conditions. In addition, there
are risks inherent in owning and operating office buildings because
such properties are labor intensive and are susceptible to the
impact of economic and other conditions outside the control of the
Registrant.
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FORM 10-Q JUNE 30, 1998
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations (Continued)
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Results of Operations
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Six Months ended June 30, 1998 vs. June 30, 1997
The Partnership generated net income of approximately $8.7 million
for the six months ended June 30, 1998, as compared to a net loss
of approximately $12.3 million for the six months ended June 30,
1997. Net income for the six months ended June 30, 1998 increased
primarily due to the $17.0 million gain on sale of the
Partnership's 1372 Broadway property.
Rent and escalation income decreased to approximately $18.2 million
for the six months ended June 30, 1998, as compared to
approximately $18.7 million for the six months ended June 30, 1997.
With respect to the remaining properties, rent and escalation
income increased to approximately $16.7 million for the six months
ended June 30, 1998, as compared to approximately $14.0 million for
the six months ended June 30, 1997. Rent and escalation income
increased due to an increase in rental revenues at 757 Third
Avenue, 545 Fifth Avenue and 300 Park Avenue South for the six
months ended June 30, 1998, as compared to 1997. The higher rental
revenues were the result of higher effective rental rates and an
increase in occupancy. The increases in rent and escalation income
were slightly offset by a decrease in rental revenues at 535 Fifth
Avenue, primarily due to a decline in occupancy. Rent and
escalation income at 509 Fifth Avenue remained relatively constant.
Expenses decreased by approximately $4.8 million for the six months
ended June 30, 1998, as compared to 1997. With respect to the
remaining properties, expenses increased by approximately $1.2
million for the six months ended June 30, 1998, as compared to
1997. The increase in interest, depreciation and amortization
expenses were only slightly offset by a decrease in overall
operating expenses (i.e., real estate and other taxes, payroll,
utilities, repairs and maintenance, and cleaning and security).
Interest expense increased primarily due to an increase in the
principal indebtedness on the Unsecured Note and the Modified Loan
incurring interest at an overall higher interest rate, due to an
increase in interest rates. Depreciation and amortization expenses
increased due to the effect of the current and prior years
additions to fixed assets, primarily tenant improvements, and an
increase in the amortization of leasing costs.
As of June 30, 1998 and 1997, the current portfolio's occupancy was
91% and 86%, respectively. During the first six months of 1998, the
Partnership signed new, renewal, extension, and expansion leases
totaling approximately 148,000 square feet at rental terms
comparable to buildings of similar quality in the market. The
increase in occupancy and the ability to retain tenants is a direct
result of the improved economy.
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FORM 10-Q JUNE 30, 1998
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Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations (Continued)
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Results of Operations
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Three Months ended June 30, 1998 vs. June 30, 1997
The Partnership generated a net loss of approximately $5.1 million
for the three months ended June 30, 1998, as compared to a net loss
of approximately $6.7 million for the three months ended June 30,
1997.
Rental and escalation income decreased to approximately $8.2
million for the three months ended June 30, 1998 as compared to
approximately $8.9 million for the three months ended June 30,
1997. With respect to the remaining properties, rent and escalation
income increased to approximately $8.2 million for the three months
ended June 30, 1998, as compared to approximately $6.5 million for
the three months ended June 30, 1997. Rent and escalation income
increased due to an increase in rental revenues at 757 Third
Avenue, 545 Fifth Avenue and 300 Park Avenue South for the three
months ended June 30, 1998, as compared to 1997. The higher rental
revenues were the result of higher effective rental rates and an
increase in occupancy. The increases in rent and escalation income
were slightly offset by a decrease in rental revenues at 535 Fifth
Avenue, primarily due to a decline in occupancy. Rent and
escalation income at 509 Fifth Avenue remained relatively constant.
Expenses decreased by approximately $2.5 million for the three
months ended June 30, 1998, as compared to 1997. With respect to
the remaining properties, expenses increased by approximately
$400,000 for the three months ended June 30, 1998, as compared to
1997. The increase in interest, depreciation and amortization
expenses were only slightly offset by a decrease in overall
operating expenses (i.e., real estate and other taxes, payroll,
utilities, repairs and maintenance, and cleaning and security).
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FORM 10-Q JUNE 30, 1998
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Part II - Other Information
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Item 6. Exhibits and Reports on Form 8-K
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a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8K:
No report on Form 8-K was filed during the period.
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FORM 10-Q JUNE 30, 1998
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
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BY: TWO WINTHROP PROPERTIES, INC.
MANAGING GENERAL PARTNER
BY: /s/ Michael L. Ashner
Michael L. Ashner
Chief Executive Officer
BY: /s/ Edward V. Williams
Edward V. Williams
Chief Financial Officer
DATED: August 14, 1998
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