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, 1997
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 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,
1997 1996
Assets
Real estate investments:
Land $ 17,389,411 $ 17,528,163
Building and improvements 85,841,855 85,279,508
103,231,266 102,807,671
Less accumulated depreciation 2,606,327 --
100,624,939 102,807,671
Property held for disposition 16,247,665 16,200,000
Cash and cash equivalents 4,593,509 4,727,720
Restricted cash 3,673,065 960,489
U.S. Treasuries and Agencies -- 2,121,910
Rent and other receivables, net of allowance
for doubtful accounts of $118,611 in 1997 and 1996 1,520,313 1,192,114
Deferred rent receivable 11,109,005 10,453,202
Other assets, net of accumulated amortization
of $5,066,159 in 1997 and $6,577,521 in 1996 7,922,546 7,994,965
Total Assets $145,691,042 $146,458,071
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 1,567,397 $ 1,859,961
Deferred income 6,353,965 6,550,650
Due to affiliates 2,045,951 2,907,737
Security deposits payable 974,266 960,489
Accrued interest payable 655,085 799,315
Mortgages payable 71,500,000 71,500,000
Notes payable to affiliates 2,230,000 2,230,000
Total Liabilities 85,326,664 86,808,152
Minority interest 20,477,545 20,075,882
Partners' Capital (Deficit):
General Partners (467,789) (470,917)
Limited Partners (395,169 units outstanding) 40,354,622 40,044,954
Total Partners' Capital 39,886,833 39,574,037
Total Liabilities and Partners' Capital $145,691,042 $146,458,071
Consolidated Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1997
Special
Limited General Limited
Partners Partners Partner Total
Balance at December 31, 1996 $40,044,954 $(470,917) $ -- $39,574,037
Net income 309,668 3,128 -- 312,796
Balance at June 30, 1997 $40,354,622 $(467,789) $ -- $39,886,833
Consolidated Statements of Operations
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Income
Rent $9,538,712 $8,975,337 $18,146,123 $16,976,970
Interest 69,373 89,281 82,281 117,180
Total Income 9,608,085 9,064,618 18,228,404 17,094,150
Expenses
Property operating 4,977,212 5,238,183 10,022,644 9,959,782
Depreciation and amortization 2,156,062 2,640,783 3,992,365 5,339,415
Interest 1,486,759 1,746,844 3,231,751 3,571,982
General and administrative 146,578 183,456 267,185 263,626
Total Expenses 8,766,611 9,809,266 17,513,945 19,134,805
Income (loss) before
minority interest 841,474 (744,648) 714,459 (2,040,655)
Minority interest in
consolidated venture (372,420) 275,474 (401,663) 535,802
Net Income (Loss) $ 469,054 $ (469,174) $ 312,796 $(1,504,853)
Net Income (Loss) Allocated:
To the General Partners $ 4,691 $ (4,692) $ 3,128 $ (15,049)
To the Special Limited Partner -- -- -- --
To the Limited Partners 464,363 (464,482) 309,668 (1,489,804)
$ 469,054 $(469,174) $ 312,796 $(1,504,853)
Per limited partnership unit
(395,169) outstanding: $1.18 $(1.18) $.78 $(3.77)
Consolidated Statements of Cash Flows
For the six months ended June 30, 1997 1996
Cash Flows From Operating Activities
Net income (loss) $ 312,796 $(1,504,853)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation 3,044,792 4,537,000
Amortization 947,573 802,415
Minority interest in consolidated venture 401,663 (535,802)
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Restricted cash (2,712,576) 160,649
Rent and other receivables (328,199) 383,041
Deferred rent receivable (655,803) (1,065,256)
Other assets (309,545) (2,997,489)
Accounts payable and accrued expenses 520,281 (457,990)
Deferred income (196,685) (510,235)
Due to affiliates (861,786) (637,848)
Security deposits payable 13,777 (160,649)
Accrued interest payable (144,230) 48,507
Net cash provided by (used for) operating activities 32,058 (1,938,510)
Cash Flows From Investing Activities
Additions to real estate assets (909,725) (2,988,830)
Accounts payable - real estate assets (812,845) 1,044,623
U.S. Treasuries and Agencies 2,121,910 422,696
Net cash provided by (used for) investing activities 399,340 (1,521,511)
Cash Flows From Financing Activities
Proceeds from mortgage and notes payable -- 178,761
Mortgage refinancing costs (565,609) --
Net cash provided by (used for) financing activities (565,609) 178,761
Net increase (decrease) in cash and cash equivalents (134,211) (3,281,260)
Cash and cash equivalents, beginning of period 4,727,720 4,673,561
Cash and cash equivalents, end of period $4,593,509 $1,392,301
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $3,375,981 $3,523,475
Notes to the Consolidated Financial Statements
The unaudited consolidated financial statements should be read in
conjunction with the Partnership's annual 1996 audited financial
statements within Form 10-K.
The unaudited consolidated interim financial statements include
all normal and reoccurring adjustments which are, in the opinion
of management, necessary to present a fair statement of financial
position as of June 30, 1997 and the results of operations for
the three and six months ended June 30, 1997 and 1996, statements
of cash flows for the six months ended June 30, 1997 and 1996 and
the statement of partners' capital (deficit) for the six months
ended June 30, 1997. Results of operations for the period are
not necessarily indicative of the results to be expected for the
full year.
Reclassification Certain 1996 amounts have been reclassified to
conform with the financial statement presentation used in 1997.
The following significant events occurred subsequent to fiscal
year 1996, and no material contingency exists which would require
disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
The Park Avenue Property was subject to nonrecourse financing
totaling $65 million in principal which was scheduled to mature
in December 1998, however, the lender had the right to accelerate
the maturity upon six-months notice. In order to address the
risk of such acceleration, Two Park Company, the partnership that
owns the Two Park Avenue Property, refinanced the existing loan,
which refinancing closed in April 1997. Under the new mortgage,
which matures in April 2000, interest is payable at a floating
rate (LIBOR plus 150 basis points). Additionally, there will be
no prepayment penalty (other than in connection with breakage
costs of any LIBOR contract), in the event Two Park Company
repays the full amount due under the mortgage prior to maturity.
Pursuant to this new mortgage loan, Two Park Company pledged
approximately $2 million plus additional future cash flows to the
new lender as a reserve to fund the cost of releasing certain
space at the property.
During the 1997 period, certain expenses incurred by NY Real
Estate Services 1 Inc. ("NYRES1") and its affiliates in servicing
the Partnership, which were voluntarily absorbed by affiliates of
NYRES1 in prior periods, were reimbursable to NYRES1 and its
affiliates.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
During the three months ended June 30, 1997, 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
(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, an affiliate
of Mendik RELP Corporation, (iv) the deferral of interest payments
on the NYRES1 Loan. Because certain of the properties may be sold,
it is expected that funds from certain of these sources may be
reduced or unavailable in the future.
With the improvement in the real estate markets in which the
properties are located, as well as the high occupancy rates of each
of the properties, the Partnership believes that it is an opportune
time to sell its interest in each of the properties. Accordingly,
the Partnership is developing a plan to dispose of its assets over
the near term.
Park Avenue Property - As of June 30, 1997, the Park Avenue Property
was approximately 98% leased. The costs of leasing space at the
property are being funded with existing property cash flow and
reserves maintained by Two Park Company, the partnership that owns
the Park Avenue Property. In order to fund tenant improvements and
leasing commissions for recent leases, Two Park Company utilized or
committed to utilize substantially all of the property's cash
reserves. In addition, at June 30, 1997, Two Park Company had a
reserve for real estate taxes and had pledged approximately $2
million plus additional future cash flows to the new lender as a
reserve to fund the cost of certain new leasing activity pursuant
to the new Park Avenue mortgage loan which is described below.
The Park Avenue Property was subject to nonrecourse financing totaling
$65 million in principal which was scheduled to mature in December
1998, however, the lender had the right to accelerate the maturity
upon six-months notice. In order to address the risk of such
acceleration, Two Park Company refinanced the existing loan, which
refinancing closed in April 1997. Under the new mortgage, which
matures in April 2000, interest is payable at a floating rate
(LIBOR plus 150 basis points), which should reduce debt service
costs (assuming short-term LIBOR rates remain stable).
Additionally, there will be no prepayment penalty (other than in
connection with breakage costs of any LIBOR contract), in the event
Two Park Company repays the full amount due under the mortgage
prior to maturity, which should provide the Partnership with
flexibility in connection with its plan to sell its 60% interest in
Two Park Company within the next 12 months.
The remaining 40% interest in the Park Avenue Property is owned by B &
B Park Avenue L.P. ("B&B"), of which Mendik RELP Corporation was a
general partner. On December 13, 1996, FW/Mendik REIT LLC, an
affiliate of Mendik RELP Corporation, entered into a contract with
the partners that owned substantially all of the interest in B&B to
acquire their interest in B&B. The closing under the contract took
place on April 15, 1997. Following the closing, FW/Mendik REIT LLC
conveyed its interest in B&B to an affiliate of Vornado Realty
Trust ("Vornado"), a real estate investment trust whose shares of
stock are traded on the New York Stock Exchange. The conveyance to
the affiliate of Vornado was in connection with the consolidation
of Vornado and Mendik Realty Company, Inc. and certain of its
affiliates, which consolidation was also consummated on April 15,
1997.
Major tenants at the Park Avenue Property are The Times Mirror Company
Inc., which leases approximately 287,000 square feet (29% of the
total leaseable area in the Property) under leases which expire on
September 30, 2010, and Smith Barney, which leases 99,839 square
feet (11% of the total leaseable area in the property) under a
lease expiring May 30, 1998. During 1996, Smith Barney vacated its
space, and, as a result, the Partnership has commenced efforts to
re-lease such space and recently entered into a lease for 20,000
square feet with a subtenant of Smith Barney, which lease will take
effect upon the expiration of the Smith Barney lease. Smith Barney
continues to remain current on its rental payments to the
Partnership in accordance with the terms of the existing lease.
Saxon Woods Corporate Center - The Saxon Woods Corporate Center
consists of two office buildings, which had a combined leased rate
of approximately 99% as of June 30, 1997. The Partnership signed a
lease amendment during the first quarter of 1997 with Commodity
Quotations, pursuant to which the tenant agreed not to exercise its
cancellation option and also extended its lease at the property for
approximately 24,000 square feet. Commodity Quotations also
expanded the amount of its leased space by approximately 3,300
square feet for a five-year term through August 30, 2002,
coterminous with the lease for 24,000 square feet.
During the third quarter of 1996, the Partnership finalized an
agreement with the lender of the $6.5 million non-recourse credit
financing secured by a first leasehold mortgage in the
Partnership's leasehold interest in the Saxon Woods Corporate
Center (the "Saxon Woods Line of Credit") for a one-year extension
of the mortgage indebtedness, which was previously scheduled to
mature in September 1997. A three-month extension was subsequently
obtained until December 1997 in order to complete the sale of the
property, as discussed below.
In light of the property's increased occupancy level and its reduced
exposure to near-term lease expirations, the Partnership believes
that the property is now positioned for a potential sale and has
engaged the services of a major New York metropolitan real estate
broker to market the property. As discussed below, in order to
enhance the Partnership's flexibility in selling the property, the
Partnership has obtained a three month extension of the maturity of
the Saxon Woods Line of Credit until December 1997. However, there
can be no assurances that such sales efforts will be successful.
As a result of the Partnership's intention to sell the property
during 1997, the property has been reclassified on the
Partnership's balance sheet as property held for disposition as of
December 31, 1996.
34th Street Property - As of June 30, 1997, the 34th Street Property
was 96% leased. The largest tenant in the property is the City of
New York Human Resources Administration (the "City") occupying
approximately 48% of the total leaseable area under a lease which
was originally scheduled to expire in February 2001.
During the first quarter of 1997, the Partnership reached an agreement
with the City of New York to amend and extend its existing lease at
the property for approximately 300,000 square feet for a term of
approximately ten years from the previous scheduled expiration date
of February 28, 2001. In accordance with the terms of the lease
amendment, the City will have the right to terminate its lease in
whole or in part at any time after the fifth anniversary (March 21,
2002) of the signing of the lease amendment, with a cancellation
fee equal to the then unamortized brokerage commissions and
architectural fees paid in connection with the lease amendment.
Also in connection with the lease amendment, the ground lessor has
agreed to fund up to $100,000 in costs associated with tenant
improvement work that will be completed on the space occupied by
the City. The terms of the amended lease call for the City to make
annual base rental payments of approximately $5.4 million for the
first five years of the amended lease, approximately $5.9 million
for years six through ten of the amended lease, and approximately
$6.5 million for years eleven through fifteen of the amended lease.
In addition, the City is required to pay its proportionate share of
increases in real estate taxes and operating expenses over a
predetermined base year amount. Substantially all of the
property's cash flow will be used over the next several years to
fund the costs associated with the City's lease amendment,
including the third party brokerage commission, as well as costs
associated with leases that were previously entered into.
During the first quarter of 1997, the Partnership also entered into a
long-term lease with Information Builders Inc. for approximately
30,000 square feet, including 5,000 square feet of basement space,
of the available leaseable space at the property. Rent under this
new lease is scheduled to commence on October 1, 1997.
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. Funding for the payoff
was provided by an affiliate of NYRES1. The NYRES1 Loan bears
interest at the prime rate less one and one-quarter percent and
matures upon the earlier of December 31, 2025 or the termination of
the Partnership. Accrued interest and principal are payable on a
current basis to the extent there is net cash flow available from
the property. The loan is an unsecured obligation of the
Partnership. In connection with the loan, Mendik Realty agreed to
continue to defer its management fees and leasing commissions with
respect to the property.
Operating Cash Reserves and Other Assets
The Partnership's cash and cash equivalents were $4,593,509 at June
30, 1997, largely unchanged from $4,727,720 at December 31, 1996.
Rent and other receivables totaled $1,520,313 at June 30, 1997,
compared to $1,192,114 at December 31, 1996. The increase is
primarily due to the timing of rental payments made by certain
tenants at the Partnership's properties.
Restricted cash was $3,673,065 at June 30, 1997, compared to $960,489
at December 31, 1996. The increase is mainly due to the pledge of
approximately $2 million to the new lender associated with the new
Park Avenue mortgage loan as described above. At June 30, 1997,
U.S. Treasuries and Agencies were zero compared to $2,121,910 at
December 31, 1996. The majority of U.S. Treasuries and Agencies
funds were used to fund the $2 million reserve for the cost of new
leasing at the Park Avenue Property.
Short- and Long-term Liabilities
Accounts payable and accrued expenses were $1,567,397 at June 30,
1997, compared to $1,859,961 at December 31, 1996. The decrease is
primarily attributable to the payment of leasing commissions and
administrative costs in the first quarter of 1997 that had been
accrued during 1996.
Due to affiliates decreased from $2,907,737 at December 31, 1996 to
$2,045,951 at June 30, 1997. The decrease is primarily due to the
payment of deferred leasing commissions attributable to leasing
activity at the Park Avenue Property, and an increase in the
prepayment of cleaning and related service charges.
Accrued interest payable was $655,085 at June 30, 1997 compared to
$799,315 at December 31, 1996. The decrease is primarily the
result of the refinancing of the Park Avenue Property's mortgage
note in April 1997.
Results of Operations
For the six months ended June 30, 1997, net cash provided by operating
activities was $32,058, compared to net cash used for operating
activities totaling $1,938,510 for the corresponding period in
1996. The Partnership generated operating cash in the 1997 period
primarily due to the change from net loss to net income as a result
of higher rental income for the six months ended June 30, 1997.
The Partnership generated net income after depreciation and
amortization of $469,054 and $312,796 for the three and six months
ended June 30, 1997, respectively, compared to net losses of
$469,174 and $1,504,853 for the corresponding periods in 1996. The
change from net loss to net income for both periods is primarily
attributable to an increase in rental income and a decrease in
depreciation and amortization expense.
Rental income for the three and six months ended June 30, 1997 totaled
$9,538,712 and $18,146,123, respectively, compared to $8,975,337
and $16,976,970 for the corresponding periods in 1996. The
increase for both periods is due primarily to leasing activity at
the Park Avenue and Saxon Woods properties during the fourth
quarter of 1996 and first quarter of 1997.
Property operating expenses totaled $4,977,212 and $10,022,644 for the
three and six months ended June 30, 1997, respectively, compared to
$5,238,183 and $9,959,782 for the corresponding periods in 1996.
The decrease in the three-month period is primarily attributable to
the timing of accruals for cleaning costs in the first three and
six months of 1996 when there was a strike by union employees.
Interest expense for the three and six months ended June 30, 1997
totaled $1,486,759 and $3,231,751, respectively, compared to
$1,746,844 and $3,571,982 for the corresponding periods in 1996.
The decrease for both periods is primarily due to the refinancing
of the Two Park mortgage note in April 1997, which resulted in a
lower interest rate charged on the mortgage balance.
Depreciation and amortization expense for the three and six months
ended June 30, 1997 totaled $2,156,062, and $3,992,365, compared to
$2,640,783 and $5,339,415 for the corresponding periods in 1996.
The decrease is primarily due to the write-down in the carrying
value of the properties as of December 31, 1996. Effective
December 31, 1996, the Partnership ceased recording depreciation of
the Saxon Woods Corporate Center as a result of the classification
of the property as real estate held for sale in accordance with
Statement of Financial Accounting Standards No. 121.
General and administrative expenses were $146,578 and $267,185 for the
three and six months ended June 30, 1997, compared to $183,456 and
$263,626 for the corresponding periods in 1996. During the 1997
periods, certain expenses incurred by the NYRES1 general partner,
its affiliates, and an unaffiliated third party service provider in
servicing the Partnership, which were voluntarily absorbed by
affiliates of the NYRES1 general partner in prior periods, were
reimbursable to the NYRES1 general partner and its affiliates.
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, 1997.
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 18, 1997 BY: /s/Mark Marcucci
Name: Mark Marcucci
Title: President and Director
Date: August 18, 1997 BY: /s/Lawrence Ostow
Name: Lawrence Ostow
Title: Vice President and Chief Financial Officer
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<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
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<RECEIVABLES> 12,747,929
<ALLOWANCES> 118,611
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<OTHER-SE> 39,886,833
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