FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
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 0-768
GARMENT CAPITOL ASSOCIATES
(Exact name of registrant as specified in its charter)
A New York Partnership 13-6083208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices)
(Zip Code)
(212) 687-8700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ]. No [ ].
An Exhibit Index is located on Page 13 of this Report.
Number of pages (including exhibits) in this filing: 13<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Garment Capitol Associates
Condensed Statement of Income
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Income:
Rent income, from a related
party (Note B) $272,500 $272,500 $817,500 $817,500
Dividend income 76 2,250 3,002 5,029
-------- -------- -------- --------
Total income 272,576 274,750 820,502 822,529
-------- -------- -------- --------
Expenses:
Interest on mortgage (Note B) 81,813 83,097 247,807 257,637
Supervisory services, to a
related party (Note C) 10,625 10,625 31,875 31,875
Amortization of mortgage
refinancing costs 7,042 -0- 21,127 -0-
-------- -------- -------- --------
Total expenses 99,480 93,722 300,809 289,512
-------- -------- -------- --------
Net income $173,096 $181,028 $519,693 $533,017
======== ======== ======== ========
Earnings per $5,000 partici-
pation unit, based on 1,050
participation units outstand-
ing during the year $ 164.85 $ 172.41 $ 494.95 $ 507.64
======== ======== ======== ========
Distributions per $5,000
participation consisted
of the following:
Income $ 164.85 $ 172.41 $ 494.95 $ 507.64
Increase in capital (19.11) (26.67) (57.73) (70.42)
-------- -------- -------- --------
Total distributions $ 145.74 $ 145.74 $ 437.22 $ 437.22
======== ======== ======== ========
At September 30, 1995 and 1994, there were $5,250,000 of participations
outstanding.<PAGE>
Garment Capitol Associates 3.
September 30, 1995
Garment Capitol Associates
Condensed Balance Sheet
(Unaudited)
Assets September 30, 1995 December 31, 1994
Current assets
Cash $ 91,723 $ 321,323
---------- ----------
Total current assets 91,723 321,323
Real Estate
Land 2,500,000 2,500,000
Building 8,000,000 8,000,000
Less, allowance for depreciation 8,000,000 8,000,000
---------- ----------
-0- -0-
Intangible assets
Mortgage refinancing costs 107,050 69,482
Less, allowance for amortization 45,965 24,838
---------- ----------
61,085 44,644
---------- ----------
Total assets $2,652,808 $2,865,967
========== ==========
Liabilities and Capital
Current liabilities
Accrued interest payable $ 27,181 $ 65,371
Principal payments of first mortgage
payable within one year (Note B) 129,588 -0-
---------- ----------
Total current liabilities 156,769 65,371
---------- ----------
Long-term debt (Note B) 2,947,526 3,312,692
Capital ---------- ----------
Capital deficit, January 1, (512,096) (591,692)
Add, Net income:
January 1, 1995 through Sept. 30, 1995 519,693 -0-
January 1, 1994 through December 31, 1994 -0- 691,708
---------- ----------
7,597 100,016
---------- ----------
Less, Distributions:
Monthly distributions,
January 1, 1995 through Sept. 30, 1995 459,084 -0-
January 1, 1994 through
December 31, 1994 -0- 612,112
----------- -----------
Total distributions 459,084 612,112
---------- ----------
Capital deficit:
September 30, 1995 (451,487) -0-
December 31, 1994 -0- (512,096)
---------- ----------
Total liabilities and capital
deficit:
September 30, 1995 $2,652,808
December 31, 1994 ========== $2,865,967
========== <PAGE>
Garment Capitol Associates 4.
September 30, 1995
Garment Capitol Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 1995 January 1, 1994
through through
September 30, 1995 September 30, 1994
Cash flows from operating activities:
Net income $ 519,693 $ 533,017
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of mortgage refinancing
costs 21,127 -0-
Change in accrued interest payable (38,190) 20,063
--------- ---------
Net cash provided by
operating activities 502,630 553,080
--------- ---------
Cash flows from financing activities:
Cash distributions (459,084) (459,084)
Principal payments on first mortgage (235,578) (23,801)
Mortgage refinancing costs (37,568) (493)
--------- ---------
Net cash used in financing activities (732,230) (483,378)
--------- ---------
Net decrease in cash (229,600) 69,702
Cash, beginning of period 321,323 251,940
--------- ---------
Cash, end of period $ 91,723 $ 321,642
========= =========
January 1, 1995 January 1, 1994
through through
September 30, 1995 September 30, 1994
Cash paid for:
Interest $ 285,997 $257,826
========= ======== <PAGE>
Garment Capitol Associates 5.
September 30, 1995
Notes to Condensed Financial Statements (Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q and therefore do not include all information and
footnotes necessary for a fair presentation of financial position,
results of operations and statement of cash flows in conformity
with generally accepted accounting principles. The accompanying
unaudited condensed financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of the partners in Registrant, necessary for a fair
statement of the results for such interim periods. The partners
in Registrant believe that the accompanying unaudited condensed
financial statements and the notes thereto fairly disclose the
financial condition and results of Registrant's operations for the
periods indicated and are adequate to make the information pre-
sented therein not misleading.
Note B - Interim Period Reporting
The results for interim periods are not necessarily
indicative of the results to be expected for a full year.
Registrant was organized on January 10, 1957. On May 1,
1957, Registrant acquired fee title to the Garment Capitol
Building (the "Building") and the land thereunder, located at 498
Seventh Avenue, New York, New York (the "Property"). Registrant's
partners are Donald A. Bettex, Peter L. Malkin and Martin D.
Newman (collectively the "Partners"), each of whom also acts as an
agent for holders of participations in their respective
partnership interests in Registrant (the "Participants").
Registrant does not operate the Property. Registrant
leases the Property to 498 Seventh Avenue Associates (the
"Lessee") under a net operating lease (the "Lease") which
commenced as of May 1, 1957 and currently expires on April 30,
2007. Lessee has one 25-year renewal option which has not been
exercised and which, if exercised, will extend the Lease to April
30, 2032.
Lessee is a partnership in which Mr. Malkin is among the
partners. The Partners in Registrant are also members of the law
firm of Wien, Malkin & Bettex, 60 East 42nd Street, New York, New
York, counsel to Registrant and to Lessee (the "Counsel"). See
Note C of this Item 1 ("Note C").
Under the Lease, Lessee must pay (i) annual basic rent
of $1,090,000 (the "Basic Rent") to Registrant and (ii) additional
rent equal to 50% of Lessee's net operating profit in excess of
$200,000 for each Lease year (the "Additional Rent").
Additional Rent income is recognized when earned from
the Lessee, at the close of the lease year ending April 30. Such<PAGE>
Garment Capitol Associates 6.
September 30, 1995
income, if any, is not determinable until the Lessee, pursuant to
the Lease, renders to Registrant a certified report on the
operation of the Property. The Lease does not provide for the
Lessee to render interim reports to Registrant, so no Additional
Rent income is reflected for the period between the end of the
lease year and the end of Registrant's fiscal year.
The current term of the Lease expires on April 30, 2007,
and the Lease is subject to the renewal option described above.
Pursuant to the Lease, Lessee has the option of surrendering its
leasehold interest, at any time, upon 60 days' prior written
notice without further liability after the date of surrender. In
addition, Lessee has the right to assign the Lease, without
Registrant's consent, so long as the assignee assumes, in writing,
all of the obligations of the Lease.
On March 23, 1995, Registrant entered into a
Modification and Extension Agreement (the "Modification"), as of
December 1, 1992, with Apple Bank for Savings (the "Apple Bank")
concerning the mortgage loan (the "Mortgage Loan"), which was
originally made on November 30, 1987 in the principal amount of
$3,485,000. See Exhibit 10(c) hereof for the terms of such
Modification. The Mortgage Loan is secured by a first mortgage on
the Property.
The principal terms of the Modification are as follows:
Date: As of December 1, 1992.
Amount: $3,376,340.61.
Term: Five years, maturing on December 1, 1997.
Unpaid Principal
Balance: $3,127,201.30 (after the April 1, 1995
payment).
Interest Rates: 10.0% per annum from December 1, 1992
through October 31, 1993;
10.50% per annum from November 1, 1993
through November 30, 1994; and
10.60% per annum from December 1, 1994
through December 1, 1997.
Monthly
Payments: $36,282.33 from January 1, 1993 through
November 1, 1993;
$37,276.35 from December 1, 1993 through
December 1, 1994; and
$37,465.52 from January 1, 1995 through
December 1, 1997.
Prepayment
Privilege: The Mortgage Loan is prepayable at any time in
whole only, without penalty on 60 days' prior
written notice.<PAGE>
Garment Capitol Associates 7.
September 30, 1995
The following provisions from the Mortgage Loan before
the Modification continue to be applicable:
Liability: No partner has personal liability for the
obligation under the Mortgage Loan to pay
principal and interest;
Due on Sale: Upon a sale or further encumbrance of the
Property without Apple Bank's consent, the
Mortgage Loan will become immediately due and
payable; and
Lease: No modification or cancellation of the Lease
is permitted without Apple Bank's consent.
At the closing of the Modification, Registrant paid
Apple Bank $247,122.87 for principal and interest due from
December 1, 1992 to September 30, 1995 (including the April 1,
1995 monthly payment); $8,450.00 in payment of Apple Bank's legal
fees, and $5,913.00 in payment of miscellaneous closing charges
(including mortgage insurance, recording fees and searches).
Prior to the Modification, the Mortgage Loan provided
for constant annual payments of $348,500, applicable first to
interest and then to principal. The Mortgage Loan matured on
December 1, 1992 and had been the subject of various extensions at
various interest rates.
Lessee reported net loss of $2,222,031 for the lease
year ended April 30, 1995; therefore, there was no additional rent
payable for such lease year. Consequently, no additional payments
for supervisory services were payable to Counsel for the lease
year ended April 30, 1995.
Note C - Supervisory Services
Registrant pays Counsel for supervisory services and
disbursements (i) the basic payment of $42,500 per annum ("Basic
Payment"); (ii) an additional annual basic payment of the first
$37,500 of Additional Rent paid by Lessee in any lease year
("Additional Basic Payment"); and (iii) an additional payment of
10% of all distributions to Participants in any year in excess of
the amount representing a return at the rate of 18% per annum on
their remaining cash investment in any year (the "Additional
Payment"). The Additional Payment will be payable in each year
only from Additional Rent received by Registrant from Lessee. If
Additional Rent in any year is inadequate to cover the Additional
Payment, such deficiency shall be payable in the following year in
which Additional Rent is sufficient.
No remuneration was paid during the three and nine month
periods ended September 30, 1995 by Registrant to any of the
Partners as such. Pursuant to the fee arrangements described
herein, Registrant paid Counsel $42,500 during the fiscal year
ended December 31, 1994. Registrant also paid Counsel $10,625 and<PAGE>
Garment Capitol Associates 8.
September 30, 1995
$31,875, respectively, of the Basic Payment for supervisory
services for the three and nine month periods ended September 30,
1995.
The supervisory services provided to Registrant by
Counsel include legal, administrative services and financial
services. The legal and administrative services include acting as
general counsel to Registrant, maintaining all of its partnership
records, performing physical inspections of the Building,
reviewing insurance coverage and conducting annual partnership
meetings. Financial services include monthly receipt of rent from
the Lessee, payment of monthly and additional distributions to the
Participants, payment of all other disbursements, confirmation of
the payment of real estate taxes, and active review of financial
statements submitted to Registrant by the Lessee and financial
statements audited by and tax information prepared by Registrants'
independent certified public accountant, and distribution of such
materials to the Participants. Counsel also prepares quarterly,
annual and other periodic filings with the Securities and Exchange
Commission and applicable state authorities.
Reference is made to Note B for a description of the
terms of the Lease between Registrant and Lessee. As of September
30, 1995, Mr. Malkin owned Partnership interests in Lessee. The
respective interests of Messrs. Bettex, Malkin and Newman, if any,
in Registrant arise solely from the ownership of their respective
participations in Registrant and Mr. Malkin's partnership
interests in Lessee. The Partners receive no extra or special
benefit not shared on a pro rata basis with all other Participants
in Registrant or partners in Lessee. However, each of the
Partners, by reason of his respective interest in Counsel, is
entitled to receive his pro rata share of any legal fees or other
remuneration paid to Counsel for legal services rendered to
Registrant and Lessee.
As of September 30, 1995, the Partners owned of record
and beneficially an aggregate $50,625 of Participations,
representing less than 1% of the currently outstanding
Participations in Registrant.
In addition, as of September 30, 1995, certain of the
Partners in Registrant (or their respective spouses) held
additional Participations in Registrant as follows:
Peter L. Malkin owned of record as trustee, but not
beneficially, $5,000 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
Isabel Malkin, the wife of Peter L. Malkin, owned of
record and beneficially, $16,250 of Participations.
Mr. Malkin disclaims any beneficial ownership of such
Participations. <PAGE>
Garment Capitol Associates 9.
September 30, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Registrant was organized solely for the purpose of
acquiring the Property subject to the Lease. Registrant is
required to pay from Basic Rent the annual charges due under the
Mortgage Loan and the Basic Payment for supervisory services, and
to distribute the balance to the Participants. Additional Rent is
distributed to the Participants after the Additional Basic Payment
and the Additional Payment is made to Counsel. See Note C.
Pursuant to the Lease, Lessee has assumed sole responsibility for
the condition, operation, repair, maintenance and management of
the Property. Registrant need not maintain substantial reserves
or otherwise maintain liquid assets to defray any operating
expenses of the Property.
Registrant does not pay dividends. During the three and
nine month periods ended September 30, 1995, Registrant made
regular monthly distributions of $48.58 for each $5,000
participation ($582.96 per annum for each $5,000 participation).
As a result of no additional rent being payable to Registrant for
the lease year ended April 30, 1995, there was no additional
distribution for 1995. There are no restrictions on Registrant's
present or future ability to make distributions; however, the
amount of such distributions, particularly distributions of
Additional Rent, depends solely on the ability of Lessee to make
monthly payments of Basic Rent and Additional Rent to Registrant
in accordance with the terms of the Lease. Registrant expects to
make distributions so long as it receives the payments provided
for under the Lease. See Note B.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Lease.
The following summarizes, with respect to the current period and
the corresponding period of the previous year, the material
factors affecting Registrant's results of operations for such
periods:
Total income decreased for the three-month period
ended September 30, 1995, as compared with the
three-month period ended September 30, 1994. Such
decrease resulted from a decrease in dividend
income earned on funds temporarily invested with
Fidelity U.S. Treasury Income Portfolio. Total
income decreased for the nine-month period ended
September 30, 1995 as compared with the nine-month
period ended September 30, 1994. Such decrease
resulted from a decrease in dividend income earned
on funds temporarily invested in Fidelity U.S.
Treasury Income Portfolio for the nine-month period
ended September 30, 1995. See Note B. Total
expenses increased for the three and nine month
periods ended September 30, 1995, as compared with
the three and nine month periods ended September
30, 1994. Such increase resulted from the net of a<PAGE>
Garment Capitol Associates 10.
September 30, 1995
decrease in interest expense and an increase in
amortization under the Mortgage Loan. See Note B.
The downturn in the garment industry has had a major
impact on the Property. Registrant has been advised that Lessee
is operating the Property at a substantial loss.
Lessee has the right to abandon or assign its interest
in the Lease. See Note B. No assurance can be provided that
Lessee will not exercise its right to terminate the Lease in the
future. Nevertheless, Registrant believes that if the Lease is
terminated for any reason, Registrant will be able either to (i)
locate a suitable lessee and negotiate a lease providing for an
annual payment in excess of the annual expense of owning the
Property, or (ii) sell the Property for an amount in excess of the
Mortgage Loan.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the three and nine month periods ended September 30,
1995 as compared with the three and nine month periods ended
September 30, 1994. As stated in Note B, Apple Bank has extended
the Mortgage Loan until December 1, 1997.
Registrant believes that the value of the Property is
currently in excess of the amount of the mortgage balance and
anticipates that the value of the Property will be in excess of
the mortgage balance at maturity. Changes in the short-term or
long-term financial liquidity position of Registrant are dependent
on the payments made by Lessee under the Lease. Registrant
foresees no need for it to make material commitments for capital
expenditures while the Lease is in effect.
Inflation
Registrant believes that there has been no material
change in the impact of inflation on its operations since the
filing of its report on Form 10-K for the year ended December 31,
1994, which report and all exhibits thereto are incorporated
herein by reference and made a part hereof.
PART II. OTHER INFORMATION
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibit hereto is being incorporated by
reference.
(b) Registrant has not filed any report on Form 8-K
during the quarter for which this report is being filed.<PAGE>
Garment Capitol Associates 11.
September 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to a Power of Attorney, dated
March 30, 1989 (the "Power").
GARMENT CAPITOL ASSOCIATES
(Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-fact*
Date: November 9, 1995
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-fact*
Date: November 9, 1995
______________________
* Mr. Katzman supervises accounting functions for
Registrant.<PAGE>
Garment Capitol Associates 12.
September 30, 1995
EXHIBIT INDEX
Registrant is not filing any exhibit as part of this
quarterly report on Form 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 91,723
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 91,723
<PP&E> 10,500,000
<DEPRECIATION> 8,000,000
<TOTAL-ASSETS> 2,652,808<F1>
<CURRENT-LIABILITIES> 156,769<F2>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (451,487)
<TOTAL-LIABILITY-AND-EQUITY> 2,652,808<F3>
<SALES> 817,500<F4>
<TOTAL-REVENUES> 820,502<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 53,002<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,807
<INCOME-PRETAX> 519,693
<INCOME-TAX> 0
<INCOME-CONTINUING> 519,693
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 519,693
<EPS-PRIMARY> 494.95<F7>
<EPS-DILUTED> 494.95<F7>
<FN>
<F1>Includes unamortized mortgage refinance costs of $61,085
<F2>Accrued interest of $27,181 and first mortgage principal payment due
within one year of $129,588
<F3>Include long-term debt of $2,947,526
<F4>Rental income
<F5>Includes dividend income of $3,002
<F6>Supervisory services of $31,875 and amortization of mortgage refinance
costs of $21,127
<F7>Earnings per $5,000 participation unit, based on 1,050 participation
units outstanding during the period
</FN>
</TABLE>
