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 September 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 I.R.S. Employer Identification No.
Incorporation or Organization
3 World Financial Center, 29th Floor, 10285
New York, NY Attn: Andre Anderson Zip Code
Address of Principal Executive Offices
(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 September 30, At December 31,
1997 1996
Assets
Real estate investments:
Land $ _ $ 17,528,163
Building and improvements _ 85,279,508
------------ ------------
_ 102,807,671
Less accumulated depreciation _ _
------------ ------------
_ 102,807,671
Properties held for disposition 115,630,687 16,200,000
Cash and cash equivalents 3,270,190 4,727,720
Restricted cash 5,509,304 960,489
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 1,352,795 1,192,114
Deferred rent receivable 11,275,029 10,453,202
Other assets, net of accumulated amortization
of $4,879,732 in 1997 and $6,577,521 in 1996 8,580,850 7,994,965
Total Assets $145,618,855 $146,458,071
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 1,234,591 $ 1,859,961
Deferred income 6,090,981 6,550,650
Due to affiliates 2,118,154 2,907,737
Security deposits payable 1,031,933 960,489
Accrued interest payable 682,431 799,315
Mortgages payable 71,500,000 71,500,000
Notes payable to affiliates 2,230,000 2,230,000
Total Liabilities 84,888,090 86,808,152
Minority interest 20,774,778 20,075,882
Partners' Capital (Deficit):
General Partners (467,097) (470,917)
Limited Partners (395,169 units outstanding) 40,423,084 40,044,954
Total Partners' Capital 39,955,987 39,574,037
Total Liabilities and Partners' Capital $145,618,855 $146,458,071
Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended September 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 378,130 3,820 _ 381,950
Balance at September 30, 1997 $40,423,084 $(467,097) $ _ $39,955,987
Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income
Rent $9,856,922 $9,726,397 $27,819,819 $26,703,367
Interest 58,314 17,361 140,595 134,541
Total Income 9,915,236 9,743,758 27,960,414 26,837,908
Expenses
Property operating 5,834,010 5,212,057 15,856,654 15,171,839
Depreciation and amortization 1,906,374 2,791,631 5,898,739 8,131,046
Interest 1,453,476 1,821,107 4,685,227 5,393,089
General and administrative 171,763 87,655 438,948 351,281
Total Expenses 9,365,623 9,912,450 26,879,568 29,047,255
Income (loss) before minority
interest 549,613 (168,692) 1,080,846 (2,209,347)
Minority interest share of
(income) loss of consolidated
venture (297,233) (31,211) (698,896) 504,591
Net Income (Loss) $ 252,380 $(199,903) $ 381,950 $(1,704,756)
Net Income (Loss) Allocated:
To the General Partners $ 2,524 $ (1,999) $ 3,820 $(17,048)
To the Special Limited Partner _ _ _ _
To the Limited Partners 249,856 (197,904) 378,130 (1,687,708)
Net Income (Loss) $252,380 $(199,903) $381,950 $(1,704,756)
Per limited partnership unit
(395,169) outstanding: $0.63 $(0.50) $0.96 $(4.28)
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities
Net income (loss) $ 381,950 $(1,704,756)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation 4,614,851 7,033,371
Amortization 1,283,888 1,097,675
Minority interest share of income (loss)
of consolidated venture 698,896 (504,591)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (4,548,815) 130,953
Rent and other receivables (160,681) (418,640)
Deferred rent receivable (821,827) (1,635,458)
Other assets (1,351,829) (2,069,944)
Accounts payable and accrued expenses 450,897 (458,549)
Deferred income (459,669) (787,872)
Due to affiliates (789,583) (384,120)
Security deposits payable 71,444 (130,953)
Accrued interest payable (116,884) 82,049
Net cash provided by (used for) operating activities (747,362) 249,165
Cash Flows From Investing Activities
Additions to real estate assets (1,190,202) (4,206,690)
Accounts payable - real estate assets (1,076,267) 1,363,075
U.S. Treasuries and agencies 2,121,910 418,262
Net cash used for investing activities (144,559) (2,425,353)
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 decrease in cash and cash equivalents (1,457,530) (1,997,427)
Cash and cash equivalents, beginning of period 4,727,720 4,673,561
Cash and cash equivalents, end of period $3,270,190 $2,676,134
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $4,802,111 $5,311,040
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 September 30, 1997 and the
results of operations for the three and nine months ended September 30, 1997
and 1996, statements of cash flows for the nine months ended September 30, 1997
and 1996 and the statement of partners' capital (deficit) for the nine months
ended September 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.
Due to the Partnership's intention to market the Saxon Woods Corporate Center
for sale, the property was reclassified as "property held for disposition",
effective December 31, 1996, in accordance with Statement of Financial
Accounting Standards No. 121. Subsequently, the Two Park Avenue and 330 West
34th Street properties were also reclassified as "properties held for
disposition", effective September 30, 1997, following the decision to pursue
negotiations for a potential sale of the properties.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
During the nine months ended September 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
General Partners believe that it is an opportune time to sell its interest in
each of the properties. Accordingly, the General Partners are currently
negotiating a potential sale of the Partnership's three properties. While the
General Partners believe the negotiations will result in an eventual sale,
there can be no assurance that the properties will be sold, that certain prices
will be achieved or that the properties will be sold in the near-term. If all
three properties are sold, the Partnership will be liquidated and the sale
proceeds will be distributed to Unitholders.
As a result of the Partnership's intention to sell the Saxon Woods Corporate
Center, and the decision to pursue negotiations for a potential sale of Two
Park Avenue and 330 West 34th Street, all three properties are classified on
the Partnership's consolidated balance sheet as properties held for
disposition, as of September 30, 1997.
Park Avenue Property - As of September 30, 1997, the Park Avenue Property was
approximately 97% 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 September 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 Two Park Company 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 98% as of
September 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 a potential sale of the property. In the
fourth quarter of 1997, the General Partners commenced discussions with the
lender in order to obtain an additional three-month extension, under the same
terms, if the Partnership does not sell the property prior to the December 1997
maturity.
34th Street Property - As of September 30, 1997, the 34th Street Property was
97% 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. The tenant began paying rent under the new lease on October 1,
1997.
During the second quarter of 1997, the Partnership executed a long-term lease
with B&H Foto and Electronics Corporation encompassing 5,550 square feet of
basement space and 4,000 square feet of parking space. The tenant began paying
rent on August 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 $3,270,190 at September 30,
1997, compared to $4,727,720 at December 31, 1996. The decrease is primarily
attributable to the transfer of funds to restricted cash, as discussed below,
and is partially offset by an increase in rental income.
Rent and other receivables totaled $1,352,795 at September 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 $5,509,304 at September 30, 1997, compared to $960,489 at
December 31, 1996. The increase is primarily attributable to the transfer of
funds from U.S. Treasuries to a money market reserve account. Pursuant to the
new Park Avenue mortgage loan, the Partnership 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.
At September 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 $1,234,591 at September 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 $2,118,154
at September 30, 1997. The decrease is primarily due to the payment of
deferred leasing commissions attributable to leasing activity at the Park
Avenue Property, and the prepayment of cleaning and related service charges.
Accrued interest payable was $682,431 at September 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 nine months ended September 30, 1997, net cash used for operating
activities was $747,362, compared to net cash provided by operating activities
totaling $249,165 for the corresponding period in 1996. The decrease in net
cash provided by operating activities is primarily due to the increase in
restricted cash. The decrease was partially offset by the change from a net
loss to net income in the 1997 period resulting from an increase in rental
income for the nine months ended September 30, 1997. The Partnership generated
net income of $252,380 and $381,950 for the three and nine months ended
September 30, 1997, respectively, compared to net losses of $199,903 and
$1,704,756 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 nine months ended September 30, 1997 totaled
$9,856,922 and $27,819,819, respectively, compared to $9,726,397 and
$26,703,367 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 $5,834,010 and $15,856,654 for the three
and nine months ended September 30, 1997, respectively, compared to $5,212,057
and $15,171,839 for the corresponding periods in 1996. The increases are
primarily attributable to an increase in utilities expense and higher real
estate taxes.
Interest expense for the three and nine months ended September 30, 1997 totaled
$1,453,476 and $4,685,227, respectively, compared to $1,821,107 and $5,393,089
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 nine months ended
September 30, 1997 totaled $1,906,374, and $5,898,739, compared to $2,791,631
and $8,131,046 for the corresponding periods in 1996. The decreases are
primarily due to the write-down in the carrying value of the properties as of
December 31, 1996. Additionally, the Partnership ceased recording depreciation
of the Saxon Woods Corporate Center effective December 31, 1996 in accordance
with the decision to market the property for sale, and the reclassification of
the property as "property held for disposition." Subsequently, the Two Park
Avenue and 330 West 34th Street properties were also reclassified as
"properties held for disposition", effective September 30, 1997, following the
decision to pursue negotiations for a potential sale of the properties.
General and administrative expenses were $171,763 and $438,948 for the three
and nine months ended September 30, 1997, compared to $87,655 and $351,281 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 September 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: November 14, 1997 BY: /s/ Mark Marcucci
President and Director
Date: November 14, 1997 BY: /s/ Moshe Braver
Chief Financial Officer
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