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, 1998
or
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 0-15463
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,
New York, NY
Attn.: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3183
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,
1998 1997
Assets
Properties held for disposition $ 120,524,331 $ 119,791,043
Cash and cash equivalents 7,269,694 4,786,697
Restricted cash 7,207,806 7,041,844
Rent and other receivables,
net of allowance for doubtful
accounts of $118,611 in 1997 713,067 903,270
Deferred rent receivable 12,102,471 11,191,096
Other assets, net of accumulated
amortization of $4,409,912 in 1998
and $4,941,591 in 1997 11,444,532 8,426,941
Total Assets $ 159,261,901 $ 152,140,891
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 3,678,934 $ 1,572,939
Deferred income 5,414,180 5,904,654
Due to affiliates 2,822,981 2,956,140
Security deposits payable 1,185,306 1,116,249
Accrued interest payable 773,989 727,944
Mortgages payable 71,500,000 71,500,000
Notes payable to affiliates 2,230,000 2,230,000
Total Liabilities 87,605,390 86,007,926
Minority interest 23,244,041 21,445,577
Partners' Capital (Deficit):
General Partners (382,532) (419,783)
Limited Partners (395,169 units outstanding) 48,795,002 45,107,171
Total Partners' Capital 48,412,470 44,687,388
Total Liabilities and Partners' Capital $ 159,261,901 $ 152,140,891
Consolidated Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1998
Special
Limited General Limited
Partners Partners Partner Total
Balance at December 31, 1997 $45,107,171 $ (419,783) $ _ $44,687,388
Net income 3,687,831 37,251 _ 3,725,082
Balance at June 30, 1998 $48,795,002 $ (382,532) $ _ $48,412,470
Consolidated Statements of Operations
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
Income
Rent $ 9,113,859 $ 9,538,712 $ 18,375,347 $ 18,146,123
Interest 96,103 69,373 159,112 82,281
Total Income 9,209,962 9,608,085 18,534,459 18,228,404
Expenses
Property operating 5,073,012 4,977,212 9,870,576 10,022,644
Depreciation and
amortization 49,184 2,156,062 98,367 3,992,365
Interest 1,437,743 1,486,759 2,825,137 3,231,751
General and administrative 174,317 146,578 216,833 267,185
Total Expenses 6,734,256 8,766,611 13,010,913 17,513,945
Income before
minority interest 2,475,706 841,474 5,523,546 714,459
Minority interest in
consolidated venture (843,858) (372,420) (1,798,464) (401,663)
Net Income $1,631,848 $ 469,054 $ 3,725,082 $ 312,796
Net Income Allocated:
To the General Partners $ 16,319 $ 4,691 $ 37,251 $ 3,128
To the Special
Limited Partner _ _ _ _
To the Limited Partners 1,615,529 464,363 3,687,831 309,668
$1,631,848 $ 469,054 $ 3,725,082 $ 312,796
Per limited partnership
unit (395,169)
outstanding: $ 4.09 $ 1.18 $ 9.33 $ .78
Consolidated Statements of Cash Flows
For the six months ended June 30, 1998 1997
Cash Flows From Operating Activities
Net income $ 3,725,082 $ 312,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation _ 3,044,792
Amortization 98,367 947,573
Minority interest in consolidated venture 1,798,464 401,663
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Restricted cash (165,962) (2,712,576)
Rent and other receivables 190,203 (328,199)
Deferred rent receivable (911,375) (655,803)
Other assets (3,115,958) (309,545)
Accounts payable and accrued expenses 2,105,995 520,281
Deferred income (490,474) (196,685)
Due to affiliates (133,159) (861,786)
Security deposits payable 69,057 13,777
Accrued interest payable 46,045 (144,230)
Net cash provided by operating activities 3,216,285 32,058
Cash Flows From Investing Activities
Additions to real estate assets (733,288) (909,725)
Accounts payable - real estate assets _ (812,845)
U.S. Treasuries and Agencies _ 2,121,910
Net cash provided by (used for)
investing activities (733,288) 399,340
Cash Flows From Financing Activities
Mortgage refinancing costs _ (565,609)
Net cash used for financing activities _ (565,609)
Net increase (decrease) in cash and
cash equivalents 2,482,997 (134,211)
Cash and cash equivalents, beginning of period 4,786,697 4,727,720
Cash and cash equivalents, end of period $ 7,269,694 $ 4,593,509
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 2,752,775 $ 3,375,981
Notes to the Consolidated Financial Statements
The unaudited consolidated financial statements should be read in conjunction
with the Partnership's annual 1997 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, 1998 and the
results of operations for the three and six months ended June 30, 1998 and
1997, statements of cash flows for the six months ended June 30, 1998 and 1997
and the statement of partners' capital (deficit) for the six months ended June
30, 1998. Results of operations for the period are not necessarily indicative
of the results to be expected for the full year.
The following significant events occurred subsequent to fiscal year 1997, and
no material contingency exists which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
ACQUISITION OR DISPOSITION OF ASSETS
The Partnership has previously discussed the existence of three purported class
action lawsuits that have been brought in the Supreme Court of the State of New
York for New York County (the "Court") against the General Partners of the
Partnership and certain affiliates of Mendik RELP Corporation by certain
limited partners of the Partnership (the "Actions"). The parties to the
Actions entered into a settlement of the Actions on June 24, 1998 that
contemplates the sale of the Partnership's interests in Saxon Woods Corporate
Center, Two Park Avenue and 330 West 34th Street (collectively, the
"Properties"; the proposed sale transaction is referred to herein as the
"Proposed Transaction"), the subsequent liquidation and dissolution of the
Partnership and the distribution of the Partnership's remaining assets after
the payment of the Partnership's liabilities. On July 9, 1998, the Court
issued an order preliminarily approving the settlement, certifying the proposed
plaintiff class, and directing that notice of the settlement be sent to members
of the class, including to current limited partners. The settlement is subject
to the final approval of the Court. A final approval hearing will be held in
the Court on September 23, 1998.
The Proposed Transaction contemplates that the Partnership will sell the
Properties for approximately $64.5 million, net of existing mortgage debt on
Two Park Avenue. The Partnership's approximate 60% interest in Two Park Avenue
is to be purchased by an affiliate of Vornado Realty Trust for approximately
$34.5 million, after deducting $39 million of existing mortgage debt, to be
paid in a combination of cash and common stock of Vornado Realty Trust. Saxon
Woods Corporate Center and 330 West 34th Street are to be purchased for an
aggregate price of $30 million in cash by Vornado Realty, L.P., or an affiliate
thereof. Both Vornado Realty Trust and Vornado Realty, L.P. are affiliates of
Mendik RELP Corporation. The Proposed Transaction has been agreed to in
principle, but remains subject to final negotiation and execution of a
definitive purchase and sale agreement. The Proposed Transaction is also
conditioned upon final Court approval of the settlement.
There can be no assurance that the settlement will be approved by the Court or
that the Proposed Transaction will close as anticipated.
Part I, Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
During the six months ended June 30, 1998, 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 ("Two Park Avenue" or 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 Management Company Inc., an affiliate of Mendik RELP
Corporation, and (iv) the deferral of interest payments on the NYRES1 Loan.
Because certain Properties may be sold, it is expected that funds from certain
of these sources may be reduced or unavailable in the future.
The Partnership has previously discussed the existence of three purported class
action lawsuits that have been brought in the Supreme Court of the State of New
York for New York County (the "Court") against the General Partners of the
Partnership and certain affiliates of Mendik RELP Corporation by certain
limited partners of the Partnership (the "Actions"). The parties to the
Actions entered into a settlement of the Actions on June 24, 1998 that
contemplates the sale of the Partnership's interests in Saxon Woods Corporate
Center, Two Park Avenue and 330 West 34th Street (collectively, the
"Properties"; the proposed sale transaction is referred to herein as the
"Proposed Transaction"), the subsequent liquidation and dissolution of the
Partnership and the distribution of the Partnership's remaining assets after
the payment of the Partnership's liabilities. On July 9, 1998, the Court
issued an order preliminarily approving the settlement, certifying the proposed
plaintiff class, and directing that notice of the settlement be sent to members
of the class, including to current limited partners. The settlement is subject
to the final approval of the Court. A final approval hearing will be held in
the Court on September 23, 1998.
The Proposed Transaction contemplates that the Partnership will sell the
Properties for approximately $64.5 million, net of existing mortgage debt on
Two Park Avenue. The Partnership's approximate 60% interest in Two Park Avenue
is to be purchased by an affiliate of Vornado Realty Trust for approximately
$34.5 million, after deducting $39 million of existing mortgage debt, to be
paid in a combination of cash and common stock of Vornado Realty Trust. Saxon
Woods Corporate Center and 330 West 34th Street are to be purchased for an
aggregate price of $30 million in cash by Vornado Realty, L.P., or an affiliate
thereof. Both Vornado Realty Trust and Vornado Realty, L.P. are affiliates of
Mendik RELP Corporation. The Proposed Transaction has been agreed to in
principle, but remains subject to final negotiation and execution of a
definitive purchase and sale agreement. The Proposed Transaction is also
conditioned upon final Court approval of the settlement.
There can be no assurance that the settlement will be approved by the Court or
that the Proposed Transaction will close as anticipated.
Park Avenue Property - As of June 30, 1998, 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 the joint
venture that owns the Park Avenue Property. Pursuant to the new Park Avenue
mortgage loan, as discussed below, as of June 30, 1998, the Partnership had
placed approximately $6.0 million in a reserve account to fund the costs of
future leasing commissions and tenant improvements.
The Partnership refinanced the existing loan on the Park Avenue property in
April 1997. Under the new mortgage, which matures on March 1, 2000, interest
is payable at a floating rate (LIBOR plus 150 basis points), which should
reduce the Partnership's 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 the
Partnership repays the full amount due under the mortgage prior to maturity,
which should provide the Partnership with flexibility in connection with the
Partnership's plan to sell its approximate 60% interest in Two Park Company
(see above).
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. In connection with this transaction, Mendik Management assumed
all property management and leasing responsibilities at the Properties, which
were formerly performed by Mendik Realty.
Major tenants at the Park Avenue Property are The Times Mirror Company Inc.,
which leases approximately 292,000 square feet (approximately 31% of the total
leaseable area in the Property) under leases expiring on September 30, 2010,
and United Way. United Way leases approximately 61,000 square feet
(approximately 6% of the total leaseable area in the Property) under a lease
expiring on November 30, 2013.
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
June 30, 1998. Individually, the 550 Mamaroneck building was 97% leased and
the 600 Mamaroneck building was 98% leased.
During the third quarter of 1996, the Partnership obtained a one- year
extension of the mortgage indebtedness to September 1997. Subsequently,
extensions of the maturity date until September 30, 1998 were obtained to
facilitate a sale of the Property.
34th Street Property - As of June 30, 1998, the 34th Street Property was 100%
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 is scheduled to expire in February 2007.
Information regarding the amendment and extension of the City's lease is
contained with the Partnership's annual report on Form 10-K for the year ended
December 31, 1997.
The 34th Street Property is no longer encumbered by a mortgage obligation. The
previous mortgage was paid off in June 1995. 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 Management 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 consolidated cash reserves were $7,269,694 at June 30, 1998,
increased from $4,786,697 at December 31, 1997. The increase is due to cash
flow from operating activities exceeding real estate additions. Restricted
cash was $7,207,806 at June 30, 1998 and $7,041,844 at December 31, 1997.
Rent and other receivables totalled $713,067 at June 30, 1998, compared to
$903,270 at December 31, 1997. The $190,203 decrease is primarily due to the
timing of rental payments made by certain tenants at the Partnership's
properties. The increase in deferred rent receivable from $11,191,096 at
December 31, 1997 to $12,102,471 at June 30, 1998 is attributable to the
cumulative effect of new leases.
Other assets increased from $8,426,941 at December 31, 1997 to $11,444,532 at
June 30, 1998. The $3,017,591 increase is primarily attributable to prepaid
leasing commissions.
Short- and Long-term Liabilities
Accounts payable and accrued expenses increased by $2,105,995 to $3,678,934 at
June 30, 1998, compared to $1,572,939 at December 31, 1997. The increase is
primarily attributable to the accrual of leasing commissions with respect to
the 330 West 34th Street property.
Results of Operations
For the three and six months ended June 30, 1998, the Partnership generated net
income of $1,631,848 and $3,725,082, respectively, compared to $469,054 and
$312,796 for the corresponding periods in 1997. The increase in net income is
primarily attributable to a decrease of depreciation and amortization expense
as a result of the Two Park Avenue and 330 West 34th Street properties being
"held for sale" as of September 30, 1997.
Rental income for the three and six months ended June 30, 1998 totalled
$9,113,859 and $18,375,347, respectively, compared to $9,538,712 and
$18,146,123 for the corresponding periods in 1997. The decrease in the three
month period is the result of reduced base rent at the Two Park Property and
the increase in the six month period is primarily attributable to increased
occupancy and leasing activity.
Property operating expenses were largely unchanged during the period, totalling
$5,073,012 and $9,870,576 for the three and six months ended June 30, 1998,
respectively, compared to $4,977,212 and $10,022,644 for the corresponding
periods in 1997.
Depreciation and amortization expense for the three and six months ended June
30, 1998 totalled $49,184, and $98,367, respectively, compared to $2,156,062
and $3,992,365 for the corresponding periods in 1997. Since all of the
Properties were "held for sale," as of September 30, 1997, the Partnership
ceased recording depreciation as required by Statement of Financial Accounting
Standards No. 121.
Interest expense declined from $1,486,759 and $3,231,751 for the three and six
months ended June 30, 1997, respectively, to $1,437,743 and $2,825,137 for the
corresponding periods in 1998 as a result of the refinancing of the Two Park
Avenue mortgages as of April 15, 1997.
General and administrative expenses totalled $174,317 and $216,833 for the
three and six months ended June 30, 1998, respectively, compared to $146,578
and $267,185 for the corresponding periods in 1997. The $27,739 increase for
the quarter ended June 30, 1998 was the result of quarterly audit fee billing
and legal expenses. The $50,352 decrease for the six- month period was
primarily attributable to reduced postage expenses.
Part II Other Information
Item 1 Not applicable.
Item 2 Not applicable.
Item 3 Legal.
The Partnership has previously discussed the existence of three purported class
action lawsuits that have been brought in the Supreme Court of the State of New
York for New York County (the "Court") against the General Partners of the
Partnership and certain affiliates of Mendik RELP Corporation by certain
limited partners of the Partnership (the "Actions"). The parties to the
Actions entered into a settlement of the Actions on June 24, 1998 that
contemplates the sale of the Partnership's interests in Saxon Woods Corporate
Center, Two Park Avenue and 330 West 34th Street (collectively, the
"Properties"; the proposed sale transaction is referred to herein as the
"Proposed Transaction"), the subsequent liquidation and dissolution of the
Partnership and the distribution of the Partnership's remaining assets after
the payment of the Partnership's liabilities. On July 9, 1998, the Court
issued an order preliminarily approving the settlement, certifying the proposed
plaintiff class, and directing that notice of the settlement be sent to members
of the class, including to current limited partners. The settlement is subject
to the final approval of the Court. A final approval hearing will be held in
the Court on September 23, 1998.
The Proposed Transaction contemplates that the Partnership will sell the
Properties for approximately $64.5 million, net of existing mortgage debt on
Two Park Avenue. The Partnership's approximate 60% interest in Two Park Avenue
is to be purchased by an affiliate of Vornado Realty Trust for approximately
$34.5 million, after deducting $39 million of existing mortgage debt, to be
paid in a combination of cash and common stock of Vornado Realty Trust. Saxon
Woods Corporate Center and 330 West 34th Street are to be purchased for an
aggregate price of $30 million in cash by Vornado Realty, L.P., or an affiliate
thereof. Both Vornado Realty Trust and Vornado Realty, L.P. are affiliates of
Mendik RELP Corporation. The Proposed Transaction has been agreed to in
principle, but remains subject to final negotiation and execution of a
definitive purchase and sale agreement. The Proposed Transaction is also
conditioned upon final Court approval of the settlement.
There can be no assurance that the settlement will be approved by the Court or
that the Proposed Transaction will close as anticipated.
Item 4 Not applicable.
Item 5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - On July 8, 1998 the Partnership filed a
Current Report on Form 8-K reporting that the Partnership had entered
into a settlement of certain class action lawsuits, which settlement
contemplates the sale of the Partnership's interests in the
Properties.
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, 1998 BY: /s/ Mark Marcucci
Name: Mark Marcucci
Title: President and Chief Financial Officer
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