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EXHIBIT 10.1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 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: 0-15463
MENDIK REAL ESTATE LIMITED PARTNERSHIP
Exact Name of Registrant as Specified in its Charter
New York 11-2774249
State or Other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3183
Registrant's Telephone Number, Including Area Code
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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CONSOLIDATED BALANCE SHEETS
At September 30, At December 31,
1998 1997
--------------- --------------
Assets
Properties held for disposition $123,611,589 $119,791,043
Cash and cash equivalents 5,168,539 4,786,697
Restricted cash 7,195,419 7,041,844
Rent and other receivables, net of allowance
for doubtful accounts of $118,611 in 1997 1,125,578 903,270
Deferred rent receivable 12,990,489 11,191,096
Other assets, net of accumulated amortization
of $4,886,815 in 1998 and $4,941,591 in 1997 12,814,407 8,426,941
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Total Assets $162,906,021 $152,140,891
============ ============
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 4,396,808 $ 1,572,939
Deferred income 5,196,287 5,904,654
Due to affiliates 2,874,256 2,956,140
Security deposits payable 1,195,419 1,116,249
Accrued interest payable 807,670 727,944
Mortgages payable 71,500,000 71,500,000
Notes payable to affiliates 2,230,000 2,230,000
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Total Liabilities 88,200,440 86,007,926
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Minority interest 24,159,722 21,445,577
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Partners' Capital (Deficit):
General Partners (361,198) (419,783)
Limited Partners (395,169 units outstanding) 50,907,057 45,107,171
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Total Partners' Capital 50,545,859 44,687,388
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Total Liabilities and Partners' Capital $162,906,021 $152,140,891
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CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the nine months ended September 30, 1998
Special
Limited General Limited
Partners Partners Partner Total
----------- --------- -------- -----------
Balance at
December 31, 1997 $45,107,171 $(419,783) $ -- $44,687,388
Net income 5,799,886 58,585 -- 5,858,471
----------- --------- -------- -----------
Balance at
September 30, 1998 $50,907,057 $(361,198) $ -- $50,545,859
=========== ========= ======== ===========
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
September 30, Nine months ended September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Income
Rent $10,069,140 $ 9,856,922 $28,444,487 $27,819,819
Interest 87,198 58,314 246,310 140,595
----------- ----------- ----------- -----------
Total Income 10,156,338 9,915,236 28,690,797 27,960,414
----------- ----------- ----------- -----------
Expenses
Property operating 5,520,553 5,834,010 15,391,129 15,856,654
Depreciation and
amortization 49,183 1,906,374 147,550 5,898,739
Interest 1,331,371 1,453,476 4,156,508 4,685,227
General and
administrative 206,161 171,763 422,994 438,948
----------- ----------- ----------- -----------
Total Expenses 7,107,268 9,365,623 20,118,181 26,879,568
----------- ----------- ----------- -----------
Income before
minority interest 3,049,070 549,613 8,572,616 1,080,846
Minority interest
in consolidated
venture (915,681) (297,233) (2,714,145) (698,896)
----------- ----------- ----------- -----------
Net Income $ 2,133,389 $ 252,380 $ 5,858,471 $ 381,950
=========== =========== =========== ===========
Net Income Allocated:
To the General
Partners $ 21,334 $ 2,524 $ 58,585 $ 3,820
To the Special
Limited Partner -- -- -- --
To the Limited
Partners 2,112,055 249,856 5,799,886 378,130
----------- ----------- ----------- -----------
$ 2,133,389 $ 252,380 $ 5,858,471 $ 381,950
=========== =========== =========== ===========
Per limited
partnership unit
(395,169)
outstanding: $ 5.35 $ 0.63 $ 14.68 $ 0.96
------ ------ ------- ------
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
1998 1997
----------- -----------
Cash Flows From Operating Activities
Net income $ 5,858,471 $ 381,950
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation -- 4,614,851
Amortization 147,550 1,283,888
Minority interest in consolidated venture 2,714,145 698,896
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash (153,575) (4,548,815)
Rent and other receivables (222,308) (160,681)
Deferred rent receivable (1,799,393) (821,827)
Other assets (4,535,016) (1,351,829)
Accounts payable and accrued expenses 2,823,869 450,897
Deferred income (708,367) (459,669)
Due to affiliates (81,884) (789,583)
Security deposits payable 79,170 71,444
Accrued interest payable 79,726 (116,884)
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Net cash provided by (used for)
operating activities 4,202,388 (747,362)
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Cash Flows From Investing Activities
Additions to real estate assets (3,820,546) (1,190,202)
Accounts payable - real estate assets -- (1,076,267)
U.S. Treasuries and Agencies -- 2,121,910
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Net cash used for investing activities (3,820,546) (144,559)
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Cash Flows From Financing Activities
Mortgage refinancing costs -- (565,609)
----------- -----------
Net cash used for financing activities -- (565,609)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 381,842 (1,457,530)
Cash and cash equivalents, beginning of period 4,786,697 4,727,720
----------- -----------
Cash and cash equivalents, end of period $ 5,168,539 $ 3,270,190
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 4,076,782 $ 4,802,111
----------- -----------
See accompanying notes to the consolidated financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements should be read in conjunction
with the Partnership's annual 1997 audited financial statements within Form
10-K.
The unaudited consolidated interim financial statements include all normal and
reoccurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of September 30, 1998 and the
results of operations for the three and nine months ended September 30, 1998 and
1997, statements of cash flows for the nine months ended September 30, 1998 and
1997 and the statement of partners' capital (deficit) for the nine months ended
September 30, 1998. Results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
The following significant events occurred subsequent to fiscal year 1997, and
no material contingency exists which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
ACQUISITION OR DISPOSITION OF ASSETS
The Partnership has previously discussed the existence of three purported class
action lawsuits that have been brought in the Supreme Court of the State of New
York for New York County (the "Court") against the General Partners of the
Partnership and certain affiliates of Mendik RELP Corporation by certain limited
partners of the Partnership (the "Actions"). The parties to the Actions entered
into a settlement of the Actions on June 24, 1998 that contemplates the sale of
the Partnership's interests in Saxon Woods Corporate Center, Two Park Avenue
and 330 West 34th Street (collectively, the "Properties"; the sale transaction
is referred to herein as the "Transaction"), the subsequent liquidation and
dissolution of the Partnership and the distribution of the Partnership's
remaining assets after the payment of the Partnership's liabilities. On July 9,
1998, the Court issued an order preliminarily approving the settlement,
certifying the proposed plaintiff class, and directing that notice of the
settlement be sent to members of the class, including to current limited
partners. The settlement was approved by the Court on September 23, 1998 and
that decision became final and subject to no further appeal on November 6, 1998.
The Transaction contemplates that the Partnership will sell the Properties for
approximately $64.5 million, net of existing mortgage debt on Two Park Avenue.
The Partnership's approximate 60% interest in Two Park Avenue is to be purchased
by an affiliate of Vornado Realty Trust for approximately $34.5 million, after
deducting $39 million of existing mortgage debt, to be paid in a combination of
cash and common stock of Vornado Realty Trust. Saxon Woods Corporate Center and
330 West 34th Street are to be purchased for an aggregate price of $30 million
in cash by Vornado Realty, L.P., or an affiliate thereof. Both Vornado Realty
Trust and Vornado Realty, L.P. are affiliates of Mendik RELP Corporation. The
Transaction is scheduled to close on or before December 7, 1998.
There can be no assurance that the Transaction will close as anticipated.
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Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
During the nine months ended September 30, 1998, the Partnership funded
operating costs, the cost of tenant improvements, leasing commissions, and
building capital improvements from four sources: (i) cash flow generated by the
property located at Two Park Avenue ("Two Park Avenue" or the "Park Avenue
Property"), the Partnership's leasehold interest in 550/600 Mamaroneck Avenue,
Harrison, New York (the "Saxon Woods Corporate Center") and the Partnership's
leasehold interest in the property located at 330 West 34th Street, New York,
New York (the "34th Street Property"), (ii) Partnership reserves, (iii) the
deferral of property management fees and leasing commissions with respect to
certain of the Properties by Mendik Management Company Inc., an affiliate of
Mendik RELP Corporation, and (iv) the deferral of interest payments on the
NYRES1 Loan.
The Partnership has previously discussed the existence of three purported class
action lawsuits that have been brought in the Supreme Court of the State of New
York for New York County (the "Court") against the General Partners of the
Partnership and certain affiliates of Mendik RELP Corporation by certain limited
partners of the Partnership (the "Actions"). The parties to the Actions entered
into a settlement of the Actions on June 24, 1998 that contemplates the sale of
the Partnership's interests in Saxon Woods Corporate Center, Two Park Avenue and
330 West 34th Street (collectively, the "Properties"; the sale transaction is
referred to herein as the "Transaction"), the subsequent liquidation and
dissolution of the Partnership and the distribution of the Partnership's
remaining assets after the payment of the Partnership's liabilities. On July 9,
1998, the Court issued an order preliminarily approving the settlement,
certifying the proposed plaintiff class, and directing that notice of the
settlement be sent to members of the class, including to current limited
partners. The settlement was approved by the Court on September 23, 1998 and
that decision became final and subject to no further appeal on November 6, 1998.
The Transaction contemplates that the Partnership will sell the Properties for
approximately $64.5 million, net of existing mortgage debt on Two Park Avenue.
The Partnership's approximate 60% interest in Two Park Avenue is to be purchased
by an affiliate of Vornado Realty Trust for approximately $34.5 million, after
deducting $39 million of existing mortgage debt, to be paid in a combination of
cash and common stock of Vornado Realty Trust. Saxon Woods Corporate Center and
330 West 34th Street are to be purchased for an aggregate price of $30 million
in cash by Vornado Realty, L.P., or an affiliate thereof. Both Vornado Realty
Trust and Vornado Realty, L.P. are affiliates of Mendik RELP Corporation. The
Transaction is scheduled to close on or before December 7, 1998.
There can be no assurance that the Transaction will close as anticipated.
Park Avenue Property - As of September 30, 1998, the Park Avenue Property was
approximately 98% leased. The costs of leasing space at the Property are being
funded with existing Property cash flow and reserves maintained by the joint
venture that owns the Park Avenue Property. Pursuant to the new Park Avenue
mortgage loan, as discussed below, as of September 30, 1998, the Partnership had
placed approximately $6.0 million in a reserve account to fund the costs of
future leasing commissions and tenant improvements.
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The Partnership refinanced the existing loan on the Park Avenue property in
April 1997. Under the new mortgage, which matures on March 1, 2000, interest is
payable at a floating rate (LIBOR plus 150 basis points), which should reduce
the Partnership's debt service costs (assuming short-term LIBOR rates remain
stable). Additionally, there will be no prepayment penalty (other than in
connection with breakage costs of any LIBOR contract), in the event the
Partnership repays the full amount due under the mortgage prior to maturity,
which should provide the Partnership with flexibility in connection with the
Partnership's plan to sell its approximate 60% interest in Two Park Avenue (see
above).
The remaining 40% interest in the Park Avenue Property is owned by B&B Park
Avenue L.P. ("B&B"), of which Mendik RELP Corporation was a general partner. On
December 13, 1996, FW/Mendik REIT LLC, an affiliate of Mendik RELP Corporation,
entered into a contract with the partners that owned substantially all of the
interest in B&B to acquire their interest in B&B. The closing under the contract
took place on April 15, 1997. Following the closing, FW/Mendik REIT LLC conveyed
its interest in B&B to an affiliate of Vornado Realty Trust ("Vornado"), a real
estate investment trust whose shares of stock are traded on the New York Stock
Exchange. The conveyance to the affiliate of Vornado was in connection with the
consolidation of Vornado and Mendik Realty Company, Inc. and certain of its
affiliates, which consolidation was also consummated on April 15, 1997. In
connection with this transaction, Mendik Management assumed all property
management and leasing responsibilities at the Properties, which were formerly
performed by Mendik Realty.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 292,000 square feet (approximately 31% of the total
leaseable area in the Property) under leases expiring on September 30, 2010, and
United Way. United Way leases approximately 61,000 square feet (approximately 6%
of the total leaseable area in the Property) under a lease expiring on November
30, 2013.
Saxon Woods Corporate Center - The Saxon Woods Corporate Center consists of two
office buildings, which had a combined leased rate of approximately 98% as of
September 30, 1998. Individually, the 550 Mamaroneck building was 97% leased and
the 600 Mamaroneck building was 98% leased.
During the third quarter of 1996, the Partnership obtained a one-year extension
of the mortgage indebtedness to September 1997. Subsequently, extensions of the
maturity date until December 26, 1998 were obtained to facilitate a sale of the
Property.
34th Street Property - As of September 30, 1998, the 34th Street Property was
100% leased. The largest tenant in the Property is the City of New York Human
Resources Administration (the "City") occupying approximately 48% of the total
leaseable area under a lease which is scheduled to expire in February 2007.
Information regarding the amendment and extension of the City's lease is
contained with the Partnership's annual report on Form 10-K for the year ended
December 31, 1997.
The 34th Street Property is no longer encumbered by a mortgage obligation. The
previous mortgage was paid off in June 1995. Funding for the payoff was provided
by an affiliate of NYRES1. The NYRES1 Loan bears interest at the prime rate less
one and one-quarter percent and matures upon the earlier of December 31, 2025 or
the termination of the Partnership. Accrued interest and principal are payable
on a current basis to the extent there is net cash flow available from the
property. The loan is an unsecured obligation of the Partnership. In connection
with the loan, Mendik Management agreed to continue to defer its management fees
and leasing commissions with respect to the property.
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Operating Cash Reserves and Other Assets
The Partnership's consolidated cash reserves were $5,168,539 at September 30,
1998, increased from $4,786,697 at December 31, 1997. The increase is due to
cash flow from operating activities exceeding real estate additions. Restricted
cash was $7,195,419 at September 30, 1998 and $7,041,844 at December 31, 1997.
Rent and other receivables totaled $1,125,578 at September 30, 1998, compared to
$903,270 at December 31, 1997. The $222,308 increase is primarily due to the
timing of rental payments made by certain tenants at the Partnership's
Properties. The increase in deferred rent receivable from $11,191,096 at
December 31, 1997 to $12,990,489 at September 30, 1998 is attributable to the
cumulative effect of new leases.
Other assets increased from $8,426,941 at December 31, 1997 to $12,814,407 at
September 30, 1998. The $4,387,466 increase is primarily attributable to prepaid
leasing commissions.
Short- and Long-term Liabilities
Accounts payable and accrued expenses increased by $2,823,869 to $4,396,808 at
September 30, 1998, compared to $1,572,939 at December 31, 1997. The increase is
primarily attributable to the accrual of leasing commissions with respect to the
330 West 34th Street property.
Results of Operations
For the three and nine months ended September 30, 1998, the Partnership
generated net income of $2,133,389 and $5,858,471, respectively, compared to
$252,380 and $381,950 for the corresponding periods in 1997. The increase in net
income is primarily attributable to a decrease of depreciation and amortization
expense as a result of the Two Park Avenue and 330 West 34th Street properties
being "held for sale" as of September 30, 1997.
Rental income for the three and nine months ended September 30, 1998 totaled
$10,069,140 and $28,444,487, respectively, compared to $9,856,922 and
$27,819,819 for the corresponding periods in 1997. The increase in the
three-month period is the result of increased base rent at the Two Park Avenue
Property, and the increase in the nine-month period is primarily attributable to
increased leasing activity.
Property operating expenses decreased slightly from the 1997 periods, totaling
$5,520,553 and $15,391,129 for the three and nine months ended September 30,
1998, respectively, compared to $5,834,010 and $15,856,654 for the corresponding
periods in 1997. The decrease is primarily attributable to decreases in real
estate tax, and repairs and maintenance expense.
Depreciation and amortization expense for the three and nine months ended
September 30, 1998 totaled $49,183, and $147,550, respectively, compared to
$1,906,374 and $5,898,739 for the corresponding periods in 1997. Since all of
the Properties were "held for sale," commencing September 30, 1997, the
Partnership ceased recording depreciation as required by Statement of Financial
Accounting Standards No. 121.
Interest expense declined from $1,453,476 and $4,685,227 for the three and nine
months ended September 30, 1997, respectively, to $1,331,371 and $4,156,508 for
the corresponding periods in 1998 as a result of the refinancing of the Two Park
Avenue mortgages as of April 15, 1997.
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General and administrative expenses totaled $206,161 and $422,994 for the three
and nine months ended September 30, 1998, respectively, compared to $171,763 and
$438,948 for the corresponding periods in 1997. The $34,398 increase for the
quarter was primarily the result of quarterly audit fee billing and legal
expenses. The $15,954 decrease for the nine-month period was primarily
attributable to reduced postage expenses.
Part II Other Information
Item 1 Not applicable.
Item 2 Not applicable.
Item 3 Legal.
The Partnership has previously discussed the existence of three purported class
action lawsuits that have been brought in the Supreme Court of the State of New
York for New York County (the "Court") against the General Partners of the
Partnership and certain affiliates of Mendik RELP Corporation by certain limited
partners of the Partnership (the "Actions"). The parties to the Actions entered
into a settlement of the Actions on June 24, 1998 that contemplates the sale of
the Partnership's interests in Saxon Woods Corporate Center, Two Park Avenue and
330 West 34th Street (collectively, the "Properties"; the sale transaction is
referred to herein as the "Transaction"), the subsequent liquidation and
dissolution of the Partnership and the distribution of the Partnership's
remaining assets after the payment of the Partnership's liabilities. On July 9,
1998, the Court issued an order preliminarily approving the settlement,
certifying the proposed plaintiff class, and directing that notice of the
settlement be sent to members of the class, including to current limited
partners. The settlement was approved by the Court on September 23, 1998 and
that decision became final and subject to no further appeal on November 6, 1998.
The Transaction contemplates that the Partnership will sell the Properties for
approximately $64.5 million, net of existing mortgage debt on Two Park Avenue.
The Partnership's approximate 60% interest in Two Park Avenue is to be purchased
by an affiliate of Vornado Realty Trust for approximately $34.5 million, after
deducting $39 million of existing mortgage debt, to be paid in a combination of
cash and common stock of Vornado Realty Trust. Saxon Woods Corporate Center and
330 West 34th Street are to be purchased for an aggregate price of $30 million
in cash by Vornado Realty, L.P., or an affiliate thereof. Both Vornado Realty
Trust and Vornado Realty, L.P. are affiliates of Mendik RELP Corporation. The
Transaction is scheduled to close on or before December 7, 1998.
There can be no assurance that the Transaction will close as anticipated.
Item 4 Not applicable.
Item 5 Not applicable.
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Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(2) Purchase and Sale Agreement between the Partnership
and Vornado relating to the sale of the Properties
(incorporated by reference to Exhibit 2 to the Form
8-K filed on October 9, 1998).
(27) Financial Data Schedule
(b) Reports on Form 8-K
On July 8, 1998 the Partnership filed a Current Report on
Form 8-K reporting that the Partnership had entered into
a settlement of certain class action lawsuits, which
settlement contemplates the sale of the Partnership's
interests in the Properties.
On October 9, 1998, the Partnership filed a Current
Report on Form 8-K reporting the execution of a
definitive Purchase and Sale Agreement regarding the
Transaction.
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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.
MENDIK REAL ESTATE LIMITED PARTNERSHIP
BY: NY REAL ESTATE SERVICES 1 INC.
General Partner
Date: November 16, 1998 BY: /s/Mark J. Marcucci
--------------------------
Mark J. Marcucci
President and
Chief Financial Officer