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 June 30, 1996
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
11-2774249
State or Other Jurisdiction of New York
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 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 At June 30, At December 31,
1996 1995
Assets
Real estate investments:
Land $ 27,137,084 $ 27,137,084
Buildings and improvements 217,485,888 214,497,059
244,622,972 241,634,143
Less accumulated depreciation (62,709,618) (58,172,619)
181,913,354 183,461,524
Cash and cash equivalents 1,392,301 4,673,561
Restricted cash 904,806 1,065,455
U.S. Treasuries and Agencies 2,036,098 2,458,794
Rent and other receivables (net of
allowance for doubtful accounts of
$159,029 in 1996 and $150,880 in 1995) 555,060 938,101
Deferred rent receivable 10,663,155 9,597,899
Other assets, net of accumulated
amortization of $7,031,930 in 1996
and $6,513,970 in 1995 13,013,077 10,818,003
Total Assets $210,477,851 $213,013,337
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 2,315,595 $ 1,816,543
Deferred income 7,020,512 7,530,747
Due to affiliates 2,100,081 2,650,348
Security deposits payable 904,806 1,065,455
Accrued interest payable 670,361 621,854
Mortgages payable 70,223,285 70,044,524
Notes payable to affiliates 2,230,000 2,230,000
Total Liabilities 85,464,640 85,959,471
Minority interest 39,852,344 40,388,146
Partners' Capital (Deficit):
General Partners (15,049) _
Special Limited Partner _ _
Limited Partners
(395,169 units outstanding) 85,175,916 86,665,720
Total Partners' Capital 85,160,867 86,665,720
Total Liabilities and Partners'
Capital $210,477,851 $213,013,337
Consolidated Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1996
Special
Limited General Limited
Partners Partners Partner Total
Balance at December 31, 1995 $ 86,665,720 $ _ $ _ $86,665,720
Net loss (1,489,804) (15,049) _ (1,504,853)
Balance at June 30, 1996 $ 85,175,916 $(15,049) $ _ $85,160,867
Consolidated Statements of Operations
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
Income
Rent $8,975,337 $8,398,886 $16,976,970 $16,053,291
Interest 89,281 65,440 117,180 83,237
Total Income 9,064,618 8,464,326 17,094,150 16,136,528
Expenses
Property operating 5,238,183 4,600,526 9,959,782 9,400,706
Depreciation and amortization 2,640,783 2,445,132 5,339,415 5,033,016
Interest 1,746,844 2,383,604 3,571,982 4,722,145
General and administrative 183,456 95,009 263,626 194,116
Total Expenses 9,809,266 9,524,271 19,134,805 19,349,983
Loss before minority interest
and extraordinary item (744,648) (1,059,945) (2,040,655) (3,213,455)
Minority interest in loss of
consolidated venture 275,474 169,494 535,802 573,779
Loss before extraordinary item (469,174) (890,451) (1,504,853) (2,639,676)
Extraordinary Item
Gain on retirement of debt _ 16,247,734 _ 16,247,734
Net Income (Loss) $ (469,174) $15,357,283 $(1,504,853) $13,608,058
Net Income (Loss) Allocated:
To the General Partners $ (4,692) $ 1,504,588 $ (15,049) $ 1,487,096
To the Special Limited Partner _ 471,998 _ 471,998
To the Limited Partners (464,482) 13,380,697 (1,489,804) 11,648,964
$ (469,174) $15,357,283 $(1,504,853) $13,608,058
Per limited partnership unit
(395,169) outstanding:
Net loss before
extraordinary item $(1.18) $(2.23) $(3.77) $(6.61)
Net Income (Loss) $(1.18) $33.86 $(3.77) $29.48
Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 1995
Cash Flows From Operating Activities
Net income (loss) $(1,504,853) $13,608,058
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 5,339,415 5,033,016
Minority interest in loss of
consolidated venture (535,802) (573,779)
Gain on retirement of debt _ (16,247,734)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash 160,649 1,095,944
U.S. Treasuries and Agencies 422,696 _
Rent and other receivables 383,041 364,093
Deferred rent receivable (1,065,256) (35,931)
Other assets (2,997,489) (625,593)
Accounts payable and accrued expenses (545,571) (539,527)
Deferred income (510,235) _
Due to affiliates (550,267) (375,852)
Security deposits payable (160,649) (153,228)
Accrued interest payable 48,507 638,000
Net cash provided by (used for)
operating activities (1,515,814) 2,187,467
Cash Flows From Investing Activities
Additions to real estate assets (2,988,830) (2,428,907)
Accounts payable - real estate assets 1,044,623 (1,559,085)
Net cash used for investing activities (1,944,207) (3,987,992)
Cash Flows From Financing Activities
Proceeds from mortgage and notes payable 178,761 2,113,688
Payments of principal on notes payable _ (1,750,000)
Net cash provided by financing activities 178,761 363,688
Net decrease in cash and cash equivalents (3,281,260) (1,436,837)
Cash and cash equivalents, beginning of period 4,673,561 8,347,080
Cash and cash equivalents, end of period $1,392,301 $6,910,243
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $3,523,475 $4,084,145
Notes to the Consolidated Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1995 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 present a fair statement of financial position as of June 30, 1996
and the results of operations for the three and six months ended June 30, 1996
and 1995, cash flows for the six months ended June 30, 1996 and 1995 and the
statement of partners' capital (deficit) for the six months ended June 30,
1996. Results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1995, and no
material contingency exists which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Reclassification Certain 1995 amounts have been reclassified to conform with
the financial statement presentation used in 1996.
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 in recent years after a prolonged
period of depressed conditions beginning in 1988 and into the early 1990s.
However, the significant cost of tenant improvements required to be funded
under both new and renewal leases and the resulting demand for capital by
landlords, including the Partnership, has remained high. 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 six months ended June 30, 1996, 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, (iii) the deferral of
property management fees and leasing commissions with respect to certain of the
properties by Mendik Realty Company, Inc., an affiliate of Mendik Corporation,
and (iv) proceeds from 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"). It is expected that funds
from each of these sources may be reduced or unavailable in the future.
Park Avenue Property - As of June 30, 1996, the Park Avenue Property was
approximately 97% leased. In order to fund tenant improvements and leasing
commissions for leases signed in recent years as well as certain other leases
currently under negotiation, the Partnership utilized or committed to utilize
substantially all of the property's cash reserves which at June 30, 1996
totalled approximately $547,000. 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. Although the lender has the option to
accelerate the maturity of the loans upon 180 days written notice, the lender
has, to date, given neither formal notice nor any indication that it will or
intends to accelerate the maturity date of the loans. In light of the possible
acceleration of the maturity date of the loans, the Partnership is exploring
other options, including either a refinancing with a new lender or a possible
sale of the property. However, no assurances can be given that the Partnership
would be able to refinance or sell the property on terms acceptable to the
Partnership.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.
which leases 271,850 square feet (29% of total leasable area in the property)
under a lease which expires on September 30, 2010 and Smith Barney which leases
99,839 square feet (11% of total leasable area in the property) under a lease
expiring May 30, 1998. Smith Barney assumed the lease for this space from its
affiliate, National Benefit Life Insurance Company, in December 1995. Although
Smith Barney has notified the Partnership that it intends to vacate its space
once the current lease expires, the Partnership has been negotiating with a
subtenant of Smith Barney, which occupies approximately 20,000 square feet, to
continue its occupancy under a direct lease after May 1998.
34th Street Property - As of June 30, 1996, the 34th Street Property was
approximately 92% leased. The largest tenant in the property is the City of
New York Human Resources Administration (the "City") occupying approximately
47% of the total leasable area under a lease which is scheduled to expire in
February 2001. 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 over a base year. As
with most leases with the City of New York, the tenant has the right to
terminate its lease on a floor by floor basis upon one year's notice although
it must reimburse the Partnership's unamortized costs of tenant improvements
associated with the lease. To date, the Partnership has not received any
indication that the City intends to terminate any portion of the lease.
Recently, the City retained a real estate brokerage firm to evaluate its space
needs at various locations in New York City, including the 34th Street
Property. In that regard, the Partnership has had preliminary discussions with
the City and its broker in connection with an extension of the City's lease.
The 34th Street Property is no longer encumbered by a mortgage obligation. The
previous mortgage was paid off in June 1995 for a discounted amount of $1.75
million, or approximately 10% of the property's outstanding debt balance of
approximately $18 million, including principal and accrued interest. The
successful payoff of the mortgage allowed the Partnership to retain its
interest in the property and have the opportunity to benefit from any
improvement in the market. Funding for the payoff was provided by an affiliate
of the Partnership's NY Real Estate Services 1 Inc. general partner (the "NYRES
1 Loan"). The NYRES 1 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 not secured by a mortgage on the property, but is an
unsecured obligation of the Partnership. In connection with the loan, Mendik
Realty Company Inc., an affiliate of the Mendik Corporation general partner,
agreed to continue to defer its management fees and leasing commissions with
respect to the property. At present, the property is generating sufficient
cash flow to meet operating expenses.
Saxon Woods Corporate Center - The Saxon Woods Corporate Center consists of two
office buildings, which had a combined leased rate of approximately 83% as of
June 30, 1996. Individually, the 550 Mamaroneck building was 95% leased and
the 600 Mamaroneck building was 73% leased. Subsequent to the end of the
second quarter, the Partnership reached a tentative long-term agreement with a
new tenant to lease an additional 28,000 square feet or approximately 23% of
the available leasable space at the 600 Mamaroneck building, which would
increase the building's leased rate to 96% and the combined leased rate of both
properties to in excess of 95%. It is currently anticipated that the lease
will be executed prior to the end of the third quarter of 1996. The
Partnership expects to fund leasing and tenant improvement costs associated
with the new lease with cash flow generated by the property and the $6.5
million Saxon Woods Line of Credit secured by the Partnership's leasehold
interest in the property. In connection with the anticipated execution of this
lease, an updated independent appraisal of the property was completed during
the second quarter, at which time the new appraised value of the property
increased from $15.2 million at year-end 1995 to $16.6 million (excluding the
costs of the new lease which are expected to be funded using proceeds from the
Saxon Woods Line of Credit). With the increase in the appraised value, the
Partnership may draw down the full amount of the credit facility without
exceeding the limitation contained in Section 13(d) the Partnership Agreement
which restricts the Partnership from borrowing in excess of 40% of the
property's appraised value. As of June 30, 1996, the Partnership had borrowed
$5,223,285 under the Saxon Woods Line of Credit. The Partnership expects that
cash flow from the Saxon Woods Corporate Center will cover operating expenses
and current debt service obligations over the remainder of 1996.
The Partnership is also negotiating with the lender in connection with a
one-year extension of the maturity of the mortgage, which is scheduled to
mature in September 1996. It is currently anticipated that an agreement to
extend the maturity of the mortgage will be executed by the end of the third
quarter of 1996. However, in the event an agreement with the lender cannot be
finalized prior to the scheduled maturity of the mortgage, the Partnership will
pursue other options, including a refinancing with a new lender or a possible
sale of the property. There can be no assurance, however, that such efforts
would be successful.
Operating Cash Reserves and Other Assets
The Partnership's consolidated cash reserves decreased by $3,281,260 to
$1,392,301 at June 30, 1996 from $4,673,561 at December 31, 1995. The decrease
is primarily attributable to payments for tenant improvements at the Park
Avenue Property and the 34th Street Property, and also the prepayment of real
estate taxes for the second half of 1996. During the six months ended June 30,
1996, approximately $1.9 million of cash was utilized for property improvements
at the Park Avenue Property, the 34th Street Property and Saxon Woods Corporate
Center in connection with leasing activity and other building improvements.
The Partnership's restricted cash balance at June 30, 1996, which is comprised
of tenant security deposits, was $904,806, compared to $1,065,455 at December
31, 1995. The $160,649 decrease is primarily attributable to a scheduled
reduction in a tenant's security deposit and the eviction of a tenant at the
Park Avenue Property in May 1996. The security deposit for the evicted tenant
was applied to its outstanding accounts receivable balances.
The Partnership's U.S. Treasuries and Agencies balance totalled $2,036,098 at
June 30, 1996, compared to $2,458,794 at December 31, 1995. The $422,696
decrease is primarily attributable to the redemption of certain of the
Partnership's investments during the first six months of 1996 in order to fund
operating costs and capital improvements at the Park Avenue Property.
Deferred rent receivable totalled $10,663,155 at June 30, 1996, compared to
$9,597,899 at December 31, 1995. The $1,065,256 increase is primarily
attributable to the addition of several new tenants at the 34th Street Property
in the fourth quarter of 1995 with free rent periods and the modification of
the lease with The Times Mirror Company Inc. at the Park Avenue Property in the
fourth quarter of 1995, as discussed further in the Partnership's 1995 Form
10-K.
Other assets increased from $10,818,003 at December 31, 1995 to $13,013,077 at
June 30, 1996. The $2,195,074 increase is primarily attributable to the
prepayment of real estate taxes through December 31, 1996.
Short- and Long-term Liabilities
Accounts payable and accrued expenses increased by $499,052 to $2,315,595 at
June 30, 1996, compared to $1,816,543 at December 31, 1995. The increase is
primarily attributable to expenses incurred by the Partnership in connection
with property improvements completed at the 34th Street Property as a result of
the execution of several new leases during the fourth quarter of 1995.
Due to affiliates decreased from $2,650,348 at December 31, 1995 to $2,100,081
at June 30, 1996. The $550,267 decrease is primarily attributable to prepaid
cleaning and related service charges netted against other amounts due to
affiliates primarily consisting of deferred management fees and leasing
commissions.
Security deposits payable totalled $904,806 as of June 30, 1996, compared to
$1,065,455 at December 31, 1995. The $160,649 decrease is primarily
attributable to a scheduled reduction in a tenant's security deposit and the
eviction of a tenant at the Park Avenue Property in May 1996. The security
deposit for the evicted tenant was applied to its outstanding accounts
receivable balance as discussed above.
Results of Operations
For the six months ended June 30, 1996, the Partnership used $1,515,814 in net
cash for operating activities, compared to net cash provided by operating
activities totalling $2,187,467 for the corresponding period in 1995. The
Partnership utilized cash in the 1996 period primarily due to an increase in
property operating expenses and the prepayment of real estate taxes through
December 31, 1996. The Partnership generated a net loss after depreciation and
amortization of $469,174 and $1,504,853 for the three and six months ended June
30, 1996, respectively, compared to net income of $15,357,283 and $13,608,058
for the corresponding periods in 1995. The change from net income to net loss
for both periods is primarily attributable to the $16,247,734 extraordinary
gain recognized on the retirement of the 34th Street Line of Credit in June
1995. Excluding the gain, the Partnership generated a loss before
extraordinary item of $469,174 and $1,504,853 for the three and six months
ended June 30, 1996, compared to $890,451 and $2,639,676 for the corresponding
periods in 1995. The decrease in both periods is primarily attributable to an
increase in rental income and a decrease in interest expense, partially offset
by an increase in property operating expenses.
Rental income for the three and six months ended June 30, 1996 totalled
$8,975,337 and $16,976,970, respectively, compared to $8,398,886 and
$16,053,291 for the corresponding periods in 1995. The increase for both
periods is due primarily to significant leasing activity at the 34th Street
property during the fourth quarter of 1995.
Property operating expenses totalled $5,238,183 and $9,959,782 for the three
and six months ended June 30, 1996, respectively, compared to $4,600,526 and
$9,400,706 for the corresponding periods in 1995. The increase in both periods
is primary attributable to an increase in occupancy at the 34th Street Property
due to significant leasing activity during the fourth quarter of 1995 and an
increase in operating costs at certain of the Partnership's properties which
resulted from severe weather conditions during the first quarter of 1996.
Interest expense for the three and six months ended June 30, 1996 totalled
$1,746,844 and $3,571,982, respectively, compared to $2,383,604 and $4,722,145
for the corresponding periods in 1995. The decrease for both periods is due
primarily to: (i) the $10 million paydown of the outstanding principal balance
of the mortgages secured by the Park Avenue Property in the fourth quarter of
1995 and (ii) the June 1995 discounted payoff of the 34 Street Property
mortgage.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended June 30, 1996.
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: August 14, 1996 BY: /s/ Kenneth L Zakin
Name: Kenneth L. Zakin
Title: President and Director
Date: August 14, 1996 BY: /s/ Mark Sawicki
Name: Mark Sawicki
Title: Vice President and
Chief Financial Officer
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 1,392,301
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<RECEIVABLES> 11,377,244
<ALLOWANCES> 159,029
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<OTHER-SE> 85,160,867
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