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 March 31, 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: 0-15463
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
Incorporation or organization) identification No.)
3 World Financial Center, New York, NY 10285
(Address of principal executive offices) (Zip code)
(212) 526-3237
(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
Consolidated Balance Sheets
March 31, December 31,
Assets 1995 1994
Real estate investments, at cost:
Land $ 27,137,084 $ 27,137,084
Buildings and improvements 204,285,584 203,335,698
231,422,668 230,472,782
Less-accumulated depreciation (51,665,940) (49,536,517)
179,756,728 180,936,265
Properties held for disposition 5,700,000 5,700,000
Less-accumulated depreciation (71,548) --
5,628,452 5,700,000
Cash and cash equivalents 4,935,377 8,347,080
Restricted cash 1,564,008 2,111,117
Rents and other receivables (net
of allowance for doubtful
accounts of $65,009 in 1995
and $618,832 in 1994) 422,386 774,028
Deferred rent receivable 14,249,080 14,508,937
Other assets, net of accumulated
amortization of $6,892,250 in
1995 and $5,038,398 in 1994 9,637,677 8,090,275
Total Assets $ 216,193,708 $ 220,467,702
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and
accrued expenses $ 1,021,948 $ 2,781,817
Due to affiliates 1,641,604 2,168,718
Security deposits payable 997,444 1,168,590
Accrued interest payable 3,417,679 3,080,034
Mortgage and notes payable 94,680,836 94,680,836
Total Liabilities 101,759,511 103,879,995
Minority interest 41,130,742 41,535,027
Partners' Capital (Deficit):
General Partners (1,504,588) (1,487,096)
Special Limited Partner (471,998) (471,998)
Limited Partners 75,280,041 77,011,774
Total Partners' Capital 73,303,455 75,052,680
Total Liabilities and
Partners' Capital $ 216,193,708 $ 220,467,702
Consolidated Statement of Partners' Capital (Deficit)
For the three months ended March 31, 1995
Special
Limited General Limited
Partners Partners Partner Total
Balance at
December 31, 1994 $ 77,011,774 $ (1,487,096) $ (471,998) $ 75,052,680
Net loss (1,731,733) (17,492) -- (1,749,225)
Balance at
March 31, 1995 $ 75,280,041 $ (1,504,588) $ (471,998) $ 73,303,455
Consolidated Statements of Operations
For the three months ended March 31, 1995 and 1994
Income 1995 1994
Rent $ 7,654,405 $ 8,355,166
Interest 17,797 68,123
Total Income 7,672,202 8,423,289
Expenses
Property operating 4,800,180 5,369,103
Depreciation and amortization 2,587,884 2,666,723
Interest 2,338,541 2,418,345
General and administrative 99,107 94,803
Total Expenses 9,825,712 10,548,974
Loss before minority interest (2,153,510) (2,125,685)
Minority interest in loss of
consolidated venture 404,285 427,144
Net Loss $ (1,749,225) $ (1,698,541)
Net Loss Allocated:
To the General Partners $ (17,492) $ (16,985)
To the Limited Partners (1,731,733) (1,681,556)
$ (1,749,225) $ (1,698,541)
Per limited partnership unit
(395,169) outstanding $ (4.38) $ (4.26)
Consolidated Statements of Cash Flows
For the three months ended March 31, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net loss $ (1,749,225) $ (1,698,541)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depreciation and amortization 2,587,884 2,666,723
Minority interest in loss of
consolidated venture (404,285) (427,144)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash 547,109 1,358,305
Rent and other receivables 351,642 (58,842)
Deferred rent receivable 259,857 (53,466)
Other assets (1,934,315) (2,379,275)
Accounts payable and
accrued expenses (1,759,869) 741,223
Due to affiliates (527,114) (454,120)
Security deposits payable (171,146) (8,339)
Accrued interest payable 337,645 362,709
Net cash provided by (used for)
operating activities (2,461,817) 49,233
Cash Flows from Investing Activities:
Additions to real estate assets (949,886) (907,010)
Net cash used for investing activities (949,886) (907,010)
Cash Flows from Financing Activities:
Proceeds from mortgage note payable -- 138,159
Net cash provided by financing activities -- 138,159
Net decrease in cash and cash equivalents (3,411,703) (719,618)
Cash and cash equivalents at beginning
of period 8,347,080 10,346,684
Cash and cash equivalents at end
of period $ 4,935,377 $ 9,627,066
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 2,000,896 $ 2,055,636
Notes to the Consolidated Financial Statements
The unaudited financial statements presented should be read in conjunction with
the Partnership's annual 1994 audited financial statements within form 10-K.
The unaudited interim financial statements include all adjustments consisting
of only normal recurring accruals which are, in the opinion of management,
necessary to fairly present the statement of financial position as of March 31,
1995 and the results of operations and cash flows for the three months ended
March 31, 1995 and 1994 and the statement of changes in partners' capital
(deficit) for the three months ended March 31, 1995. Results of operations for
the period are not necessarily indicative of the results to be expected for the
full year.
The following significant events have occurred, subsequent to fiscal year 1994,
or the following material contingencies exist, and require disclosure in this
interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
34th Street Property - In May 1995, the Partnership successfully negotiated an
agreement in principle with The First National Bank of Chicago ("FNBC"), the
property's lender, to reduce the amount needed to pay off the loan to $1.75
million compared to the property's outstanding debt balance of approximately
$17.3 million including accrued interest. Concurrently, since the Partnership
was not able to obtain financing from a third party, an agreement was entered
into with an affiliate of NY Real Estate Services 1 Inc. to lend the
Partnership the $1.75 million needed to complete the buy out of the mortgage
on an unsecured basis prior to June 30, 1995. The loan will bear interest at
the prime rate less one and one-quarter percent. Payments of accrued interest
and principal will be payable on a current basis to the extent there is net
cash flow available from the 34th Street Property. In addition, any net
proceeds realized from the conveyance or refinancing of the 34th Street Prop
any of the Partnership's other properties will be used to pay accrued interest
and principal on the loan. The loan will mature upon the earlier of December
31, 2025 or the termination of the Partnership and will not be secured by a
mortgage on the property, but will remain an unsecured obligation of the
Partnership. In connection with the loan, Mendik Realty Company, Inc., an
affiliate of Mendik Corporation, agreed to continue to defer its management
fees of approximately $170,000 a year and leasing commissions associated with
any additional leasing activity that would otherwise have been payable with
respect to the property. FNBC's agreement to accept only $1.75 million in
full satisfaction of the mortgage effectively means that substantially all of
the outstanding principal balance was forgiven by FNBC. As a result of the
successful buy out, the Partnership will be able to retain its interest in the
property and have the opportunity to benefit from any improvement in the
market.
Reclassifications - Certain 1994 amounts have been reclassified to conform with
the financial statement presentation used in 1995.
Part I., Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The commercial real estate market in the Greater New York Metropolitan Area has
shown some limited signs of improvement. However, the significant cost of
tenant improvements required to be funded under both new and renewal leases has
sharply increased the demand for capital by landlords, including the
Partnership. Expenditures for tenant improvements have contributed to the
Partnership's reduced liquidity. In order to conserve its limited resources,
the Partnership has pursued a strategy intended to position each of the
Partnership's Properties, to the extent possible, to meet its operating and
other expenses as they come due using only the operating income generated by
that Property, and, if necessary, proceeds from borrowings secured by such
Property.
During the three months ended March 31, 1995, 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, New York, New York (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, and (iii) the
deferral of property management fees and leasing commissions by certain
affiliates of the General Partners with respect to certain of the Properties.
It is expected that funds from each of these sources may be reduced or
unavailable in the future.
Park Avenue Property - Since January 1, 1995, the Partnership has signed new
and renewal leases for approximately 33,000 square feet or approximately 3% of
the leasable area in the property. Although the Partnership continues to lease
space at the property, new and renewal leases generally have been signed at
rental rates significantly less than the rental rates received on leases signed
in the mid-1980s, due to the continuing softness in the real estate market.
The property's cash flow, however, is expected to remain stable over the near
term because rental rate increases negotiated in leases signed in earlier years
have offset the lower market rental rates reflected in the leases recently
signed by the Partnership. 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. In order to fund tenant
improvements and leasing commissions for the new leases as well as cert ain
other leases currently under negotiation, the Partnership utilized or committed
to utilize substantially all of the property's cash reserves which at March 31,
1995 were approximately $3.7 million. However, it is expected that these
leases will increase the property's cash flow, which cash flow will be
available to re-establish reserves.
The Park Avenue Property currently generates, and is expected to generate over
the near term, sufficient cash flow to cover operating expenses and current
debt service charges. The indebtedness secured by the Park Avenue Property
currently matures in December 1998 (or December 1996 at the option of the
lender and with 180 days written notice). The Partnership expects, as the
maturity of the loan approaches, to commence negotiations to extend the
existing loan, to seek refinancing or sell the property. However, as a result
of the current lack of liquidity in the financial marketplace, no assurances
can be made that the Partnership will be able to obtain an extension with the
existing lender or refinance with a new lender, on terms acceptable to the
Partnership or at all. Additionally, the lack of liquidity may hamper the
Partnership's ability to secure a buyer for the property at a price acceptable
to the Partnership.
Saxon Woods Corporate Center - The Partnership expects that cash flow from the
Saxon Woods Corporate Center will cover operating expenses and debt service
obligations over the remainder of 1995. Although the non-recourse line of
credit secured by a first leasehold mortgage on the Partnership's leasehold
interest in the Saxon Woods Corporate Center (the "Saxon Woods Line of Credit")
is in the amount of up to $6.5 million, as a result of Section 13(d) (xviii) of
the Partnership Agreement, which prohibits the Partnership from incurring
indebtedness secured by a property in excess of 40% of the then-appraised value
of such property (or 40% of the value of such property as determined by the
lender as of the date of financing or refinancing, if such value is lower) (the
"Borrowing Limitation"), the Partnership is permitted to borrow only $6 million
based on the most recent appraisal of the Saxon Woods Corporate Center which
was $15 million as of December 31, 1994. The loan agreement provid es that all
available cash flow from the property will be used for expenses incurred at the
property prior to borrowing any additional funds under the Saxon Woods Line of
Credit. The General Partners expect that additional leasing activity, the
costs of which will be funded in part by borrowing amounts remaining available
under the Saxon Woods Line of Credit, may result in an increase in the
appraised value of the property thereby enabling the Partnership to borrow the
additional amounts available under the Saxon Woods Line of Credit up to the
full amount of $6.5 million. However, there can be no assurance that the
property's appraised value will increase in the future. As of March 31, 1995,
the Partnership had borrowed $4,680,836 under the Saxon Woods Line of Credit.
The Partnership has made commitments to borrow an additional $364,000 which
would increase the total borrowings on the Saxon Woods Line of Credit to
$5,044,836.
The indebtedness secured by the Saxon Woods Corporate Center currently matures
in September 1996. The Partnership expects, as the maturity of the loan
approaches, to commence negotiations to extend the existing loan, seek
refinancing, or sell the Property. However, as a result of the current lack of
liquidity in the financial marketplace, no assurances can be made that the
Partnership will be able to sell the property, obtain an extension with the
existing lender, or refinance with a new lender, on terms acceptable to the
Partnership or at all.
34th Street Property - On February 17, 1993, the Partnership signed a long-term
lease with the City of New York (the "City") effective August 1, 1992 for
approximately 300,000 square feet (48% of the property's total leasable space)
in the 34th Street Property. The City has the right to terminate the lease on
a floor by floor basis, provided the City gives the Partnership one year's
prior notice. However, should it terminate the lease with respect to one or
more floors, the City would be required to pay the Partnership for certain
improvement costs as defined in the lease. The terms of the lease call for the
City to make annual base rental payments of approximately $5.4 million and pay
its proportionate share of increases in real estate taxes and operating
expenses. Per the terms of the lease, approximately $1.25 million was spent by
the Partnership for required tenant improvements. In order to fund the tenant
improvements required by the City lease, the Partnership negotiated an
agreement with the unaffiliated ground lessor pursuant to which the ground
lessor agreed to make available the $1.25 million that was being held as
security under the ground lease. The ground lessor also agreed to waive the
lease requirement that the Partnership deposit an additional $1 million as
security with the ground lessor which would otherwise have been required in
connection with the increase in the annual ground rent in 1992 to $2.25
million.
During 1992, the cash flow from the 34th Street Property did not cover its debt
service obligations after payment of operating expenses, and it was not
expected to meet its debt service obligations in 1993. As a result, in order
to conserve the Partnership's limited working capital reserves and induce The
First National Bank of Chicago ("FNBC"), the Property's lender, to modify the
mortgage's terms, the Partnership suspended its interest payments to FNBC
beginning in September 1992. On August 12, 1993, the Partnership entered into
a forbearance agreement which modified the 34th Street Line of Credit (the
"Forbearance Agreement"). Pursuant to the Forbearance Agreement, FNBC agreed
to forbear from exercising its remedies under the loan agreement as a result of
the Partnership's failure to pay interest. In addition, the Forbearance
Agreement provided the Partnership with an opportunity to pay off the 34th
Street Line of Credit at a substantial discount to the 34th Street Line of
Credi t's outstanding balance, and permitted the Partnership to make interest
payments to FNBC only to the extent of available cash flow from the 34th Street
Property. Since the Forbearance Agreement went into effect, the Partnership
has not made any interest payments to FNBC. On August 15, 1994 an extension of
the Forbearance Agreement was entered into with FNBC extending the forbearance
period from June 30, 1994 to December 31, 1994. At the end of 1994, the
Partnership obtained a further extension of the forbearance period to June 30,
1995.
In May 1995, the Partnership successfully negotiated an agreement in principle
with FNBC to reduce the amount needed to pay off the loan to $1.75 million
compared to the property's outstanding debt balance of approximately $17.3
million including accrued interest. Concurrently, since the Partnership was
not able to obtain financing from a third party, an agreement was entered into
with an affiliate of NY Real Estate Services 1 Inc. to lend the Partnership
the $1.75 million needed to complete the buy out of the mortgage prior to June
30, 1995. The loan will bear interest at the prime rate less one and
one-quarter percent. Payments of accrued interest and principal will be
payable on a current basis to the extent there is net cash flow available from
the 34th Street Property. In addition, any net proceeds realized from the
conveyance or refinancing of the 34th Street Property or any of the
Partnership's other properties will be used to pay accrued interest and
principal on the loan. The loan will mature upon the earlier of December 31,
2025 or the termination of the Partnership and will not be secured by a
mortgage on the property, but will remain an unsecured obligation of the
Partnership. In connection with the loan, Mendik Realty Company, Inc., an
affiliate of Mendik Corporation, agreed to continue to defer its management
fees of approximately $170,000 a year and leasing commissions associated with
any additional leasing activity that would otherwise have been payable with
respect to the property. FNBC's agreement to accept only $1.75 million in
full satisfaction of the mortgage effectively means that substantially all of
the outstanding principal balance was forgiven by FNBC. As a result of the
successful buy out, the Partnership will be able to retain its interest in the
property and have the opportunity to benefit from any improvement in the
market.
The Forbearance Agreement required the Partnership to deposit all receipts from
the Property into a lockbox at FNBC. FNBC approved all releases from the
lockbox to fund property costs. As of March 31, 1995, approximately $567,000
was in the lockbox account maintained at FNBC.
During the latter part of 1992, the General Partners concluded that the
Partnership may be unable to hold the 34th Street Property on a long-term
basis. As a result, the Partnership accounted for the property as held for
disposition. Accordingly, the carrying value of the property was reduced to
the lower of its depreciated cost or estimated market value on December 31,
1994.
Cash Reserves - The Partnership's consolidated cash reserves decreased by
$3,411,703 to $4,935,377 at March 31, 1995 from $8,347,080 at December 31, 1994
primarily as a result of the payment of real estate taxes in January and
significant reductions in accounts payable at the Park Avenue Property. During
the three months ended March 31, 1995, approximately $1 million was expended
for property improvements at the Park Avenue Property and Saxon Woods Corporate
Center in connection with leasing activity and other building improvements.
These expenditures were funded by cash flow from operations generated during
the three months ended March 31, 1995 and Partnership cash reserves.
Other assets at March 31, 1995 were $9,637,677, an increase of $1,547,402 from
the balance of $8,090,275 at December 31, 1994. The increase primarily is
attributable to prepaid real estate taxes.
Accounts payable and accrued expenses decreased $1,759,869 to $1,021,948 at
March 31, 1995 from $2,781,817 at December 31, 1994 primarily due to payments
made related to building and tenant improvement work at the Park Avenue
Property. Accrued interest payable increased primarily due to first quarter
1995 interest on the 34th Street Property.
Due to affiliates decreased $527,114 to $1,641,604 at March 31, 1995 from
$2,168,718 at December 31, 1994, reflecting prepaid cleaning and related
service charges netted against other amounts due to affiliates primarily
consisting of deferred management fees and leasing commissions, and loans.
Results of Operations
For the three months ended March 31, 1995, the Partnership used $2,461,817 in
net cash for operating activities compared to generating net cash from
operating activities of $49,233 during the corresponding period in 1994. The
difference is primarily attributable to the decrease in accounts payable. The
Partnership sustained a net loss of $1,749,225 for the three months ended March
31, 1995 as compared to $1,698,541 for the three months ended March 31, 1994 as
a reduction in rental income was partially offset by declines in property
operating expenses, and depreciation and amortization.
Rental income for the three months ended March 31, 1995 was $7,654,405 compared
to $8,355,166 for the three months ended March 31, 1994. Rental income
declined primarily due to the absence of rental income from the property
located at 1351 Washington Boulevard, Stamford, Connecticut (the "Stamford
Property") as a result of the Partnership transferring title to the property to
the lender on December 29, 1994 in lieu of foreclosure. In addition, the
Partnership wrote off deferred rent receivable for a tenant that prematurely
abandoned its space in the 34th Street Property.
Property operating expenses and depreciation and amortization for the three
months ended March 31, 1995 declined from the corresponding period in 1994 due
to the transfer of the Stamford Property. Also contributing to the decline in
property operating expenses was a reduction in utilities and real estate taxes
at the Park Avenue Property.
Leased space at each of the properties as of March 31, 1995 and 1994 was as
follows: Park Avenue Property - 94% vs. 92%; Saxon Woods Corporate Center, 550
Mamaroneck Avenue - 99% vs. 94%, 600 Mamaroneck Avenue - 64% vs. 56%; 34th
Street Property - 65% vs. 64%.
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended March 31, 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.
MENDIK REAL ESTATE LIMITED PARTNERSHIP
BY: NY REAL ESTATE SERVICES 1 INC.
General Partner
Date: May 15, 1995 BY: s/Kenneth L. Zakin/
Name: Kenneth L. Zakin
Title: President and Director
Date: May 15, 1995 BY: s/Mark Sawicki/
Name: Mark Sawicki
Title: Vice President and Chief Financial
Officer
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