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 September 30, 1998
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 0-13500
1626 New York Associates Limited Partnership
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2808184
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
- --------------------------------------- -------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
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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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Unit Data)
September 30, December 31,
1998 1997
--------------------- ---------------------
ASSETS
Real estate:
Land $ 20,142 $ 24,440
Buildings and improvements, net of accumulated
depreciation of $108,762 and $141,658 as of
September 30, 1998 and December 31, 1997, respectively 87,448 114,383
--------------------- ---------------------
107,590 138,823
Other Assets:
Cash and cash equivalents 139 221
Restricted cash 6,701 3,354
Accounts receivable, net of reserves of $315 and $259
as of September 30, 1998 and December 31, 1997, respectively 515 489
Prepaid expenses and other assets 7,274 8,617
Deferred rent receivable 12,100 12,306
Deferred costs, net of accumulated amortization of
$18,399 and $23,749 as of September 30, 1998
and December 31, 1997, respectively 7,482 7,698
--------------------- ---------------------
Total Assets $ 141,801 $ 171,508
===================== =====================
See notes to consolidated financial statements.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Unit Data)
(Continued)
LIABILITIES AND PARTNERS' DEFICIT
September 30, December 31,
1998 1997
--------------------- ---------------------
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 34,022 24,739
Accounts payable, accrued expenses, security
deposits and other liabilities 7,702 10,085
Accrued interest on mortgage notes to affiliates 57,701 52,135
Accrued interest on other mortgage notes 83 98
Deferred purchase price obligation 1,289 1,498
--------------------- ---------------------
Total Liabilities 284,063 316,958
--------------------- ---------------------
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 September 30, 1998 and
December 31, 1997 (146,222) (149,968)
Less: investor notes (68) (68)
--------------------- ---------------------
(146,290) (150,036)
General Partners' Equity 4,028 4,586
--------------------- ---------------------
Total Partners' Deficit (142,262) (145,450)
--------------------- ---------------------
Total Liabilities and Partners' Deficit $ 141,801 $ 171,508
===================== =====================
See notes to consolidated financial statements.
3 of 18
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
For the Nine Months Ended
September 30, September 30,
1998 1997
--------------------- ---------------------
Revenues:
Rent and escalation income $ 26,775 $ 31,432
Interest and other income 328 1,026
Gain on sale of property 17,046 -
--------------------- ---------------------
Total revenues 44,149 32,458
--------------------- ---------------------
Expenses:
Interest on obligations to affiliates 17,541 18,558
Interest 1,682 1,902
Depreciation and amortization 8,002 11,214
Real estate and other taxes 5,281 7,195
Utilities 2,575 3,491
Cleaning and security 2,499 3,011
Asset and property management fees 385 375
Repairs and maintenance 778 1,004
Payroll 919 984
General and administrative 847 981
Professional fees 392 413
Provision for doubtful accounts 60 50
--------------------- ---------------------
Total expenses 40,961 49,178
--------------------- ---------------------
Net income (loss) $ 3,188 $ (16,720)
===================== =====================
Net loss allocated to general partners $ (558) $ (684)
===================== =====================
Net income (loss) allocated to investor limited partners $ 3,746 $ (16,036)
===================== =====================
Net income (loss) per unit of investor limited
partnership interest $ 2,795.52 $ (11,967.16)
===================== =====================
See notes to consolidated financial statements.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
For the Three Months Ended
September 30, September 30,
1998 1997
--------------------- ---------------------
Revenues:
Rental and escalation income $ 8,529 $ 12,713
Interest and other income 104 348
--------------------- ---------------------
Total revenues 8,633 13,061
--------------------- ---------------------
Expenses:
Interest on obligations to affiliates 6,112 5,759
Interest 567 1,192
Depreciation and amortization 2,675 4,411
Real estate and other taxes 1,751 2,498
Utilities 1,117 1,425
Cleaning and security 741 1,011
Asset and property management fees 159 108
Repairs and maintenance 169 323
Payroll 388 339
General and administrative 320 342
Professional fees 141 111
--------------------- ---------------------
Total expenses 14,140 17,519
--------------------- ---------------------
Net loss $ (5,507) $ (4,458)
===================== =====================
Net loss allocated to general partners $ (247) $ (147)
===================== =====================
Net loss allocated to investor limited partners $ (5,260) $ (4,311)
===================== =====================
Net loss per unit of investor limited partnership
interest $ (3,925.37) $ (3,217.16)
===================== =====================
See notes to consolidated financial statements.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
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
------------------ ---------------------- --------------------- --------------------
Balance - December 31, 1997 1,340 $ (150,036) $ 4,586 $ (145,450)
Net income (loss) - 3,746 (558) 3,188
------------------ ---------------------- --------------------- --------------------
Balance - September 30, 1998 1,340 $ (146,290) $ 4,028 $ (142,262)
================== ====================== ===================== ====================
See notes to consolidated financial statements.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended
(In Thousands) September 30, September 30,
1998 1997
-------------------- ---------------------
Cash Flows from Operating Activities:
Net income (loss) $ 3,188 $ (16,720)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 6,806 8,024
Amortization 1,368 3,190
Change in deferred rent receivable (3,013) (3,559)
Gain on sale of property (17,046) -
Provision for doubtful accounts 56 (110)
Changes in operating assets and liabilities:
Decrease in accounts receivable, prepaid
expenses and other assets 1,261 1,262
(Decrease) increase in accounts payable, accrued expenses,
security deposits and other liabilities (2,383) 337
-------------------- ---------------------
Net cash used in operating activities (9,763) (7,576)
-------------------- ---------------------
Cash Flows from Investing Activities:
Net proceeds from sale of property 50,389 -
Additions to buildings and improvements (4,527) (5,807)
Increase in deferred leasing costs (1,923) (3,080)
-------------------- ---------------------
Net cash provided by (used in) investing activities 43,939 (8,887)
-------------------- ---------------------
Cash Flows from Financing Activities:
Proceeds from other mortgage notes payable - 24,000
Repayment of other mortgage notes payable - (19,091)
Payment of accrued interest on mortgage notes to affiliates (5,252) -
Increase in accrued mortgage interest 10,803 10,340
Principal payments on mortgage notes to affiliates (7,270) (548)
Increase in notes payable and accrued interest to
general partners and affiliates 9,283 6,411
Principal payments on other mortgage notes (37,867) (80)
Increase in restricted cash (3,347) (3,457)
Payment of deferred financing costs (399) (944)
Deferred purchase price obligation payment (209) -
-------------------- ---------------------
Net cash (used in) provided by financing activities (34,258) 16,631
-------------------- ---------------------
Net (decrease) increase in cash and cash equivalents (82) 168
Cash and cash equivalents, beginning of year 221 125
-------------------- ---------------------
Cash and cash equivalents, end of year $ 139 $ 293
==================== =====================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 11,307 $ 9,619
==================== =====================
Supplemental Disclosure of Non-Cash Investing Activities:
Sale of property in 1998 - See Note 4
See notes to consolidated financial statements.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 September 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 nine months ended September
30, 1998 and 1997, are not indicative of the results to be expected for
the full year.
2. Plan of Operation and Foreclosure of Properties
The Partnerships had maturing mortgage debt totaling approximately
$81,816,000 due in 1998. On October 22, 1998, four of the Partnerships
five remaining properties were disposed of and the debt encumbering the
remaining property was modified (see Note 5). As of October 22, 1998,
the Partnerships have maturing debt, totaling approximately $34,693,000
due in February 1999. It is highly unlikely that the Partnerships will
be able to meet their remaining obligation. Accordingly, it appears
there is a substantial likelihood that the remaining Property, if not
sold, will be lost through foreclosure in early 1999. In the event that
the Property is 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 consisted of secured notes in
the aggregate principal amount of $56,816,000 (the "Secured A Notes").
These notes, which had an annual interest rate of 295 basis points over
30-day LIBOR (8.59% at September 30, 1998), were scheduled to mature on
February 28, 1998, but were extended to September 30, 1998. The junior
component consisted of secured notes in the aggregate principal amount
of $102,450,000 (the "Secured B Notes"). These notes had a fixed annual
interest rate of 14% through February 28, 1999 and then 16.75%
thereafter, and were scheduled to mature 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 September
30, 1998. On October 22, 1998 these notes were modified in conjunction
with the foreclosure of certain properties (see Note 5). 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.
8 of 18
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 November 30, 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 September
30, 1998, the outstanding balance against the Unsecured Note was
$19,851,000, 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 was 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 (see Note 5).
In connection with the extension of the Modified Loan during 1998, the
Partnership has paid $399,000 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 Properties. For financial reporting purposes, the
sale resulted in a gain of approximately $17,046,000.
5. Subsequent Events
On October 22, 1998, in order to settle the default on the mortgage debt
encumbering the properties located at 535 Fifth Avenue, 545 Fifth Avenue
and 757 Third Avenue, the Partnerships entered into a settlement
agreement with Zeus and affiliates pursuant to which the Partnerships
535 Fifth Avenue and 545 Fifth Avenue properties were conveyed to the
lender in satisfaction of the mortgage debt encumbering these
properties. Simultaneously, the Partnerships conveyed title (subject to
the existing mortgages) in their 509 Fifth Avenue and 300 Park Avenue
South properties to Zeus. For financial statement purposes, the property
dispositions will result in a gain in 1998.
In addition, the debt securing the Partnerships remaining property, 757
Third Avenue, was restructured into two non-recourse loans. The first
component in the amount of $27,193,000, bears interest at 295 basis
points over 30-day LIBOR and matures on February 1, 1999. The second
component in the amount of $48,257,000, bears interest at 9% and matures
on February 28, 2016. A mandatory prepayment of $7,500,000 against the
second component is due on February 1, 1999.
In connection with the above transactions, the $10,000,000 Receivables
Note has been modified. The Receivables Note, which was payable from the
excess cash flow from 509 Fifth Avenue and 300 Park Avenue South, is now
secured by a pledge of the Partnerships' interest in their 757 Third
Avenue property.
9 of 18
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Pro Forma Financial Information
The following pro forma consolidated balance sheet as of September 30,
1998 and the pro forma consolidated statement of operations for the nine
months then ended give effect to the disposition of the Partnerships'
535 Fifth Avenue, 545 Fifth Avenue, 509 Fifth Avenue and 300 Park Avenue
South properties and the sale of its 1372 Broadway property. The
adjustments related to the pro forma consolidated balance sheet assume
the transaction was consummated at the end of the most recent period
presented, while the adjustments related to the pro forma consolidated
income statement assume the transactions were consummated at the
beginning of the period presented. The conveyance of properties occurred
on October 22, 1998 and the sale occurred on January 13, 1998. The pro
forma adjustments required are to eliminate the assets, liabilities and
operating activity of the aforementioned properties.
These pro forma adjustments are not necessarily reflective of the
results that actually would have occurred if the transactions had been
in effect, as of, and for the period presented or what may be achieved
in the future.
10 of 18
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Pro Forma Financial Information (Continued)
Pro Forma Consolidated Balance Sheet
September 30, 1998
(In Thousands, Except Unit Data)
Pro Forma
Historical Adjustments Pro Forma
--------------- ---------------- ----------------
ASSETS
Real Estate:
Land $ 20,142 $ (9,872) $ 10,270
Buildings and improvements 196,210 (107,574) 88,636
Accumulated depreciation (108,762) 58,852 (49,910)
------------- -------------- ---------------
107,590 (58,594) 48,996
Other Assets:
Cash and cash equivalents 139 - 139
Restricted cash 6,701 (4,706) 1,995
Accounts receivable, net 515 (356) 159
Prepaid expenses and other assets 7,274 (4,808) 2,466
Deferred rent receivable 12,100 (4,797) 7,303
Deferred costs, net 7,482 (3,524) 3,958
-------------- --------------- ---------------
Total Assets $ 141,801 $ (76,785) $ 65,016
============== =============== ===============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable to affiliates $ 159,266 $ (83,816) $ 75,450
Other mortgage notes payable 24,000 (24,000) -
Notes payable and accrued interest to
general partners and affiliates 34,022 - 34,022
Accounts payable, accrued expenses, security
deposits and other liabilities 7,702 (5,018) 2,684
Accrued interest on mortgage notes to affiliates 57,701 - 57,701
Accrued interest on other mortgage notes 83 (83) -
Deferred purchase price obligation 1,289 - 1,289
-------------- --------------- --------------
Total Liabilities 284,063 (112,917) 171,146
-------------- --------------- --------------
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
September 30, 1998 (146,222) 33,500 (112,722)
Less: investor notes (68) - (68)
-------------- -------------- --------------
(146,290) 33,500 (112,790)
General Partners' Equity 4,028 2,632 6,660
-------------- --------------- --------------
Total Partners' Deficit (142,262) 36,132 (106,130)
-------------- --------------- --------------
Total Liabilities and Partners' Deficit $ 141,801 $ (76,785) $ 65,016
============== ============== ===============
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Pro Forma Financial Information (Continued)
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 1998
(In Thousands, Except Unit Data)
Pro Forma
Historical Adjustments Pro Forma
------------------- ------------------ -----------------
Revenues:
Base rent and escalation income $ 26,775 $ (15,139) $ 11,636
Interest and other income 328 (135) 193
Gain on sale of property 17,046 (17,046) -
------------------- ------------------ -----------------
Total revenues 44,149 (32,320) 11,829
------------------- ------------------ -----------------
Expenses:
Interest on obligations to affiliates 17,541 (9,530) 8,011
Interest 1,682 (1,682) -
Depreciation and amortization 8,002 (5,505) 2,497
Real estate and other taxes 5,281 (2,604) 2,677
Utilities 2,575 (1,597) 978
Cleaning and security 2,499 (1,482) 1,017
Asset and property management fees 385 (237) 148
Repairs and maintenance 778 (474) 304
Payroll 919 (443) 476
General and administrative 847 (575) 272
Professional fees 392 (116) 276
Provision for doubtful accounts 60 (60) -
------------------- ------------------ -----------------
Total expenses 40,961 (24,305) 16,656
------------------- ------------------ -----------------
Net income (loss) $ 3,188 $ (8,015) $ (4,827)
=================== ================== =================
Net income (loss) allocated to general partners $ (558) $ 348 $ (210)
=================== ================== =================
Net income (loss) allocated to investor limited
partners $ 3,746 $ (8,363) $ (4,617)
=================== ================== =================
Net income (loss) per unit of investor limited
partnership interest $ 2,795.52 $ (6,241.04) $ (3,445.52)
=================== ================== =================
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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
The Registrant serves as the general partner of Nineteen New York
Properties Limited Partnership (the "Partnership"). As of October
22, 1998, the Partnership's remaining property is an office
building located in New York City (see below). 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 Partnership had maturing mortgage debt, totaling approximately
$81,816,000 due in 1998. On October 22, 1998, in order to settle
the default on the mortgage debt encumbering the properties located
at 535 Fifth Avenue, 545 Fifth Avenue and 757 Third Avenue, the
Partnership entered into a settlement agreement with Zeus pursuant
to which the Partnership's 535 Fifth Avenue and 545 Fifth Avenue
properties were conveyed to the lender in satisfaction of the
mortgage debt encumbering these properties. Simultaneously, the
Partnership conveyed title (subject to the existing mortgages) in
their 509 Fifth Avenue and 300 Park Avenue South properties to
Zeus. For financial statement purposes, the property dispositions
will result in a gain in 1998.
In addition, the debt securing the Partnership's remaining
property, 757 Third Avenue, was restructured into two non-recourse
loans. The first component in the amount of $27,193,000, bears
interest at 295 basis points over 30-day LIBOR and matures on
February 1, 1999. The second component in the amount of
$48,257,000, bears interest at 9% and matures on February 28, 2016.
A mandatory prepayment of $7,500,000 against the second component
is due on February 1, 1999.
In connection with the above transactions, the $10,000,000
Receivables Note has been modified. The Receivables Note, which was
payable from the excess cash flow from 509 Fifth Avenue and 300
Park Avenue South, is now secured by a pledge of the Partnership's
interest in their 757 Third Avenue property.
13 of 18
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Liquidity and Capital Resources (Continued)
As of October 22, 1998, the Partnership has maturing debt, totaling
approximately $34,693,000, due in February 1999. It is highly
unlikely that the Partnership will be able to meet their remaining
obligation. Accordingly, it appears there is a substantial
likelihood that the remaining Property, if not sold, will be lost
through foreclosure in early 1999. In the event that the Property
is sold, all proceeds would be used to satisfy any related
outstanding indebtedness. This raises substantial doubt about the
Partnership's ability to continue as a going concern. For tax
reporting purposes, the Registrant's partners will be allocated
substantial gains in 1998 and 1999 due to recapture of tax benefits
received in prior years.
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 $139,000 of cash and cash
equivalents and $6,701,000 of restricted cash at September 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 $82,000 decrease in cash and
cash equivalents at September 30, 1998, as compared to December 31,
1997, was due to $43,939,000 of cash provided by investing
activities, which was offset by $34,258,000 of cash used in
financing activities and $9,763,000 of cash used in operating
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
$4,527,000 of improvements to real estate, the majority of which
were tenant improvements, and $1,923,000 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 $10,803,000
increase in accrued interest and a $9,283,000 increase in notes
payable and accrued interest to general partners and affiliates. In
addition, Registrant's restricted cash increased by $3,347,000. 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 unsecured credit line provided by Zeus Property
LLC ("Zeus") had an outstanding balance of $19,851,000 at September
30, 1998. This credit line has been used by the Partnership to fund
capital improvements and tenant lease-up costs at the Fuji
Properties. Borrowings under this credit line are subject to Zeus'
discretion. It is anticipated that Zeus will continue to fund
capital improvements and tenant lease-up costs at the remaining
property.
14 of 18
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
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.
Results of Operations
Nine Months ended September 30, 1998 vs. September 30, 1997
The Partnership generated net income of approximately $3.2 million
for the nine months ended September 30, 1998, as compared to a net
loss of approximately $16.7 million for the nine months ended
September 30, 1997. Net income for the nine months ended September
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 $26.8 million
for the nine months ended September 30, 1998, as compared to
approximately $31.4 million for the nine months ended September 30,
1997. With respect to the remaining properties at September 30,
1998, rent and escalation income increased to approximately $25.1
million for the nine months ended September 30, 1998, as compared
to approximately $22.9 million for the nine months ended September
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 nine months ended September 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 $8.2 million for the nine
months ended September 30, 1998, as compared to 1997. With respect
to the remaining properties at September 30, 1998, expenses
increased by approximately $4.1 million for the nine months ended
September 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). Operating expenses remained relatively
constant at the Partnership's 757 Third Avenue property.
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.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Continued)
Results of Operations
Nine Months ended September 30, 1998 vs. September 30, 1997
(Continued)
As of September 30, 1998 and 1997, the portfolio's occupancy was
91% and 89%, respectively, with occupancy at 757 Third Avenue at
94% and 93%, respectively. The increase in occupancy and the
ability to retain tenants is a direct result of the improved
economy.
Three Months ended September 30, 1998 vs. September 30, 1997
The Partnership generated a net loss of approximately $5.5 million
for the three months ended September 30, 1998, as compared to a net
loss of approximately $4.5 million for the three months ended
September 30, 1997.
Rental and escalation income decreased to approximately $8.5
million for the three months ended September 30, 1998, as compared
to approximately $12.7 million for the three months ended September
30, 1997. With respect to the remaining properties at September 30,
1998, rent and escalation income increased to approximately $8.5
million for the three months ended September 30, 1998, as compared
to approximately $8.0 million for the three months ended September
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, which were partially offset by a decrease in
rental revenues at 535 Fifth Avenue for the three months ended
September 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 $3.4 million for the three
months ended September 30, 1998, as compared to 1997. With respect
to the remaining properties at September 30, 1998, expenses
increased by approximately $2.8 for the three months ended
September 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). Operating expenses remained relatively
constant at the Partnership's 757 Third Avenue property.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8K:
On November 4, 1998, the Registrant filed Form 8K to disclose
the disposition of assets.
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1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 1998
SIGNATURES
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
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: November 16, 1998
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