<PAGE>
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 March 31, 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 [ ]
1 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Real estate:
Land ....................................................... $ 20,142 $ 24,440
Buildings and improvements, net of accumulated
depreciation of $104,239 and $141,658 as of
March 31, 1998 and December 31, 1997, respectively ...... 89,118 114,383
-------- --------
109,260 138,823
Other Assets:
Cash and cash equivalents .................................. 125 221
Restricted cash ............................................ 7,865 3,354
Accounts receivable, net of reserves of $315 and $259
as of March 31, 1998 and December 31, 1997, respectively 376 489
Prepaid expenses and other assets .......................... 6,128 8,617
Deferred rent receivable ................................... 10,151 12,306
Deferred costs, net of accumulated amortization of
$17,429 and $23,749 as of March 31, 1998
and December 31, 1997, respectively .................... 6,759 7,698
-------- --------
Total Assets .................................................... $140,664 $171,508
======== ========
</TABLE>
See notes to consolidated financial statements.
2 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
Consolidated Balance Sheets (Unaudited)
(In Thousands, Except Unit Data)
(Continued)
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
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 .................................................. 29,889 24,739
Accounts payable, accrued expenses, security
deposits and other liabilities ...................................................... 7,141 10,085
Accrued interest on mortgage notes to affiliates ........................................ 50,638 52,135
Accrued interest on other mortgage notes ................................................ 89 98
Deferred purchase price obligation ...................................................... 1,289 1,498
--------- ---------
Total Liabilities ............................................................................ 272,312 316,958
--------- ---------
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 March 31, 1998 and
December 31, 1997 ................................................................... (136,076) (149,968)
Less: investor notes .................................................................... (68) (68)
--------- ---------
(136,144) (150,036)
General Partners' Equity ................................................................ 4,496 4,586
--------- ---------
Total Partners' Deficit ............................................................. (131,648) (145,450)
--------- ---------
Total Liabilities and Partners' Deficit ...................................................... $ 140,664 $ 171,508
========= =========
</TABLE>
See notes to consolidated financial statements.
3 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rent and escalation income ................................................ $ 10,025 $ 9,827
Interest and other income ................................................. 109 365
Gain on sale of property .................................................. 17,046 --
-------- --------
Total revenues ........................................................ 27,180 10,192
-------- --------
Expenses:
Interest on obligations to affiliates ..................................... 5,811 6,356
Interest .................................................................. 552 408
Depreciation and amortization ............................................. 2,681 3,305
Real estate and other taxes ............................................... 1,750 2,346
Utilities ................................................................. 703 1,085
Cleaning and security ..................................................... 859 1,034
Asset and property management fees ........................................ 107 135
Repairs and maintenance ................................................... 255 280
Payroll ................................................................... 257 310
General and administrative ................................................ 227 296
Professional fees ......................................................... 116 154
Provision for doubtful accounts ........................................... 60 --
-------- --------
Total expenses ........................................................ 13,378 15,709
-------- --------
Net income (loss) .............................................................. $ 13,802 $ (5,517)
======== ========
Net (loss) allocated to general partners ....................................... $ (90) $ (230)
======== ========
Net income (loss) allocated to investor
limited partners ........................................................... $ 13,892 $ (5,287)
======== ========
Net income (loss) per unit of investor
limited partnership interest ................................................ $10,367.16 $(3,945.52)
======== ========
</TABLE>
See notes to consolidated financial statements.
4 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
Consolidated Statement of Partners' Deficit (Unaudited)
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
Units of
Investor Investor
Limited Limited General Total
Partnership Partners' Partners' Partners'
Interest (Deficit) Equity Deficit
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance - December 31, 1997 ..................... 1,340 $(150,036) $ 4,586 $(145,450)
Net income (loss) ........................... -- 13,892 (90) 13,802
--------- --------- --------- ---------
Balance - March 31, 1998 ........................ 1,340 $(136,144) $ 4,496 $(131,648)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
5 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
(In Thousands) March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ........................................................................ $ 13,802 $ (5,517)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation ........................................................................ 2,283 2,581
Amortization ........................................................................ 398 724
Change in deferred rent receivable .................................................. (1,064) (153)
Gain on sale of property ............................................................ (17,046) --
Provision for doubtful accounts ..................................................... 56 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, prepaid
expenses and other assets ........................................................ 2,546 (360)
(Decrease) increase in accounts payable, accrued expenses,
security deposits and other liabilities .......................................... (2,944) 722
-------- --------
Net cash used in operating activities ........................................... (1,969) (2,003)
-------- --------
Cash Flows from Investing Activities:
Net proceeds from sale of property .................................................. 50,389 --
Additions to buildings and improvements ............................................. (1,674) (2,554)
Increase in deferred leasing costs .................................................. (452) (101)
-------- --------
Net cash provided by (used in) investing activities ............................. 48,263 (2,655)
-------- --------
Cash Flows from Financing Activities:
Payment of accrued interest on mortgage notes to affiliates ......................... (5,252) --
Increase in accrued mortgage interest ............................................... 3,746 3,625
Principal payments on mortgage notes to affiliates .................................. (7,270) (469)
Increase in notes payable and accrued interest to
general partners and affiliates .................................................. 5,150 2,519
Principal payments on other mortgage notes .......................................... (37,867) (29)
Increase in restricted cash ......................................................... (4,511) (740)
Payment of deferred financing costs ................................................. (177) --
Deferred purchase price obligation payment .......................................... (209) --
-------- --------
Net cash (used in) provided by financing activities ............................. (46,390) 4,906
-------- --------
Net (decrease) increase in cash and cash equivalents ............................ (96) 248
Cash and cash equivalents, beginning of year ............................................. 221 125
-------- --------
Cash and cash equivalents, end of year ................................................... $ 125 $ 373
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest .............................................................. $ 14,267 $ 2,780
======== ========
Supplemental Disclosure of Non-Cash Investing Activities:
Sale of property in 1998 - See Note 4
</TABLE>
See notes to consolidated financial statements.
6 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 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 March 31, 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 "Investor
Partnership") 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
Investor Partnership and the Operating Partnership are collectively
referred to as the "Partnerships."
The results of operations for the three months ended March 31, 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 have an annual interest rate of 295 basis points over 30-day
LIBOR (8.58% at March 31, 1998), were scheduled to mature on February
28, 1998, but were extended to May 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 May 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. However,
7 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Debt Modification with Related Parties (Continued)
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 bears interest at a fixed annual rate of
14% through February 28, 1999 and then 16.75% thereafter and was
scheduled to mature on February 28, 1998, but was extended to May 31,
1998. As of March 31, 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.
The 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 becomes 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.
8 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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"). 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 May 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 by 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 $125,000 of cash and cash
equivalents and $7,865,000 of restricted cash at March 31, 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 $96,000 decrease in cash and cash
equivalents at March 31, 1998, as compared to December 31, 1997,
was due to $48,263,000 of cash provided by investing activities,
which was offset by $46,390,000 of cash used in financing
activities and $1,969,000 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 offset by $1,674,000 of improvements to real
estate, the majority of which were tenant improvements, and
$452,000 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. In addition,
Registrant's restricted cash increased by $4,511,000, due to an
9 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q-MARCH 31, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
increase in restricted cash operating accounts and borrowings
against the Unsecured Note, that had not yet been expended on
tenant improvements as of March 31, 1998. 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, that had an outstanding
balance of $17,040,000 at March 31, 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
The income and expenses of operating the Properties owned by the
Partnership are subject to factor's 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.
10 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q-MARCH 31, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Results of Operations
Three Months ended March 31, 1998 vs. March 31, 1997
The Partnership generated net income of approximately $13.8 million
for the three months ended March 31, 1998, as compared to a net
loss of approximately $5.5 million for the three months ended March
31, 1997. Net income for the three months ended March 31, 1998
increased due to the $17.0 million gain on sale of the
Partnership's 1372 Broadway property.
Rent and escalation income increased to approximately $10.0 million
for the three months ended March 31, 1998, as compared to
approximately $9.8 million for the three months ended March 31,
1997. With respect to the remaining properties, rent and escalation
income increased to approximately $9.5 million for the three months
ended March 31, 1998, as compared to approximately $7.7 million for
the three months ended March 31, 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 March 31, 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 $2.3 million for the three
months ended March 31, 1998, as compared to 1997. With respect to
the remaining properties, expenses increased by approximately
$800,000 for the three months ended March 31, 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 May 1, 1998 and 1997, the current portfolio's occupancy was
90% and 79%, respectively. During the first three months of 1998,
the Partnership signed new, renewal, extension, and expansion
leases totaling approximately 100,000 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.
11 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q-MARCH 31, 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:
No report on Form 8-K was filed during the period.
12 of 13
<PAGE>
1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
FORM 10-Q-MARCH 31, 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: May 19, 1998
13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 1626 New
York Associates Limited Partnership and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,990,000 <F1>
<SECURITIES> 0
<RECEIVABLES> 691,000
<ALLOWANCES> (315,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 213,499,000
<DEPRECIATION> (104,239,000)
<TOTAL-ASSETS> 140,664,000
<CURRENT-LIABILITIES> 0
<BONDS> 263,883,000 <F2>
<COMMON> 0
0
0
<OTHER-SE> (131,648,000)
<TOTAL-LIABILITY-AND-EQUITY> 140,664,000
<SALES> 0
<TOTAL-REVENUES> 27,071,000 <F3>
<CGS> 0
<TOTAL-COSTS> 6,788,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,363,000
<INCOME-PRETAX> 13,802,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,802,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,802,000
<EPS-PRIMARY> 10,367.16
<EPS-DILUTED> 10,367.16
<FN>
<F1> Cash includes $7,865,000 of restricted cash.
<F2> Includes accrued interest of $53,577,000.
<F3> Revenues include gain on sale of property of $17,046,000.
</TABLE>
