UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of
- ----- the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
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OR
Transition Report Pursuant to Section 13 or 15(d) of
- ----- the Securities Exchange Act of 1934
For the transition period from to to
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Commission file number: 0-15463
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MENDIK REAL ESTATE LIMITED PARTNERSHIP
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Exact name of registrant as specified in its charter
New York 11-2774249
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
Attn.: Andre Anderson
3 World Financial Center, 29th Floor, New York, New York 10285
- -------------------------------------------------------- -----
Address of principal executive offices Zip code
Registrant's telephone number, including area code: (212) 526-3183
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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Title of Class
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 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable.
Documents Incorporated by Reference: None
<PAGE>
2
PART I
Item 1. Business
General
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Mendik Real Estate Limited Partnership (the "Partnership" or "Registrant") is a
New York limited partnership formed in October 1985 pursuant to an agreement of
limited partnership (as amended, the "Partnership Agreement") for the purpose of
acquiring, maintaining and operating income-producing commercial office
buildings in the Greater New York Metropolitan Area. NY Real Estate Services 1
Inc., a Delaware corporation ("NYRES1") (formerly known as Hutton Real Estate
Services XV, Inc.), and Mendik RELP Corporation (formerly known as Mendik
Corporation), a New York corporation, are the general partners (together, the
"General Partners") of the Registrant. (See Item 10.)
Commencing May 7, 1986, the Partnership began offering up to a maximum of
1,000,000 units of limited partnership interest (the "Units") at $500 per Unit
with a minimum required purchase of 10 Units or $5,000 (four Units for an
Individual Retirement Account or Keogh Plan). The Partnership offered Class A
Units to taxable investors and Class B Units to tax-exempt investors. The
offering of Units was completed on September 18, 1987. The Partnership held
closings on June 18, 1986, September 4, 1986, January 22, 1987, March 31, 1987,
June 1, 1987 and September 18, 1987 at which time investors who purchased the
Units ("Investor Limited Partners") were admitted to the Partnership. Investor
Limited Partners are not required to make any further capital contributions to
the Partnership. Upon completion of the offering on September 18, 1987 the
Partnership had accepted subscriptions for 395,169 Units for gross aggregate
cash proceeds to the Partnership of $197,584,500. Net proceeds to the
Partnership after deducting selling commissions, organization expenses, and
other expenses of the offering were approximately $172,766,598. These proceeds
were used to: (i) repay the principal and interest of interim financing obtained
by the Partnership to fund the acquisition of a property located at 1351
Washington Boulevard, Stamford, Connecticut (the "Stamford Property"); (ii)
acquire the leasehold interests in a property located on Mamaroneck Avenue in
Harrison, New York (the "Saxon Woods Corporate Center") and in a property
located at 330 West 34th Street, New York, New York (the "34th Street Property")
and; (iii) acquire an approximate 60% interest in Two Park Company, the joint
venture which owns a property located at Two Park Avenue, New York, New York
(the "Park Avenue Property") (collectively, the "Properties"). The remaining 40%
interest in Two Park Company was owned by B&B Park Avenue L.P., of which Mendik
RELP Corporation was the general partner. On April 15, 1997, FW/Mendik REIT LLC,
an affiliate of Mendik RELP Corporation, acquired substantially all of the
interest in B&B Park Avenue L.P. Following this sale, FW/Mendik REIT LLC
conveyed its interest in B&B Park Avenue L.P. 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
Management Company, Inc. and certain of its affiliates, which consolidation was
also consummated on April 15, 1997. In connection with this transaction, Mendik
Management Company Inc. ("Mendik Management") assumed all property management
and leasing responsibilities at the Properties, which were formerly performed by
Mendik Realty Company, Inc. ("Mendik Realty"). On December 29, 1994, the
Partnership transferred title to the Stamford Property to the mortgage holder in
lieu of foreclosure. See Note 4 to the Consolidated Financial Statements under
Item 8 for a further discussion of the transfer of the Stamford Property.
The Partnership's primary investment objectives with respect to the Properties
(in no particular order of priority) are (i) capital appreciation, (ii)
distributions of Net Cash From Operations (as defined in the Partnership
Agreement), and (iii) preservation and protection of capital. The attainment of
the Partnership's investment objectives had been adversely affected by the
impact of the significant downturn in the commercial office real estate market
in the Greater New York metropolitan area which occurred during the late 1980s
and early 1990s.
<PAGE>
3
Property Sales
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In consideration of an 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 commenced efforts in early 1998 to sell their
interest in each of the three remaining Properties. On November 17, 1998, the
Partnership completed the sale of its ownership interests in the Properties (the
"Sale") to affiliates of Vornado, an affiliate of Mendik RELP Corporation, a
General Partner, for a selling price of $52,212,198, net of the Partnership's
share of existing mortgage debt on Two Park Avenue and Saxon Woods, litigation
settlement costs, and closing adjustments. The Sale was completed as part of the
settlement of three purported class action lawsuits that were 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 "Settlement").
See Item 3 and Item 7 for discussions of the Settlement and Sale. The General
Partners are currently in the process of winding up the Partnership's affairs,
and expect to dissolve the Partnership during 1999.
Employees
- ---------
The Partnership has no employees. For a discussion of transactions with
affiliates, see Item 13 and Note 7 to the Consolidated Financial Statements
under Item 8.
Item 2. Properties
The Partnership completed the Sale of the Properties on November 17, 1998 and
owned no real property at December 31, 1998. See Item 7 for discussions of the
Sale.
Item 3. Legal Proceedings
The Partnership has previously disclosed the existence of three purported class
action lawsuits that were 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 (the "Settlement") that
contemplated the sale of the Partnership's interests in its three remaining
Properties (the "Sale"), 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 was approved by the
Court on September 23, 1998 and that decision became final and subject to no
further appeal on November 6, 1998. Accordingly, on November 17, 1998, the
Partnership completed the Sale of the Properties. See Item 7 for a discussion of
the terms of the Sale. Under the terms of the Settlement, the Partnership
incurred total litigation settlement costs of $2,957,843 for plaintiffs'
attorneys' fees and expenses, and payment of claims of former limited partners.
These costs were paid from the proceeds from the Sale in accordance with the
Settlement.
The General Partners are currently in the process of winding up the
Partnership's affairs, and expect to dissolve the Partnership during 1999.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1998, no matter was submitted to a vote of security
holders through the solicitation of proxies or otherwise.
<PAGE>
4
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1998, there were 18,984 holders of Units. No established
public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future. The transfer of Units is subject
to significant restrictions, including the requirement that an Investor Limited
Partner may transfer his Units only with the consent of the General Partners,
which consent may be withheld in the sole and absolute discretion of the General
Partners.
For the years ended December 31, 1998 and 1997, no cash distributions were paid
to the partners. As a result of the completion of the Sale in November 1998, the
Partnership paid a cash distribution to the Limited Partners on February 2,
1999, in the amount of $82.45 per Class A Unit and $182.91 per Class B Unit.
Certain funds have been set aside to provide for the Partnership's ongoing
liabilities and expenses through dissolution. Any cash remaining after payment
of these expenses will be distributed to the Limited Partners when the
Partnership is dissolved.
In 1998, the Partnership distributed 36,971 shares of Vornado Realty Trust
common stock valued at $33.90 per share at a total value of $1,253,347.
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with the
Partnership's Consolidated Financial Statements and notes thereto included under
Item 7 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," also included elsewhere herein.
<TABLE>
<CAPTION>
At or for the Years Ended December 31,
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except for per Unit data)(1)
<S> <C> <C> <C> <C> <C>
Total income(2) $ 34,520 $ 36,434 $ 36,549 $ 33,549 $ 39,571(8)
Income (loss) before
other income 3,910 5,113(7) (47,092)(6)(7) (4,635) (6,174)(9)(10)
Other income 3,039(3) -- -- 16,248 --
Net income (loss)(4) 6,949 5,113(7) (47,092)(6)(7) 11,613(8) (6,174)(9)(10)
Total assets 51,804 152,141(2) 146,458(2) 213,013(2) 220,468(2)
Total mortgages and
notes payable -- 73,730(2) 73,730(2) 72,275(2) 95,161(2)
Net cash provided by (used for)
operating activities(2) (1,398) 7,628 4,348 15,247 4,279
Net income (loss) per Unit(4)(5) 17.41 12.81(7) (117.97)(6)(7) 24.43(8) (15.47)(9)(10)
Cash distributions
per Unit(5)
Class A 82.45 -- -- -- --
Class B 182.91 -- -- -- --
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<PAGE>
5
<FN>
Notes:
(1) Selected Financial Data and the Consolidated Financial Statements include
the accounts of Two Park Company, a joint venture of which the Partnership
owned an approximate 60% interest. The joint venture interest was sold by
the Partnership in November 1998.
(2) Includes the approximate 40% interest in Two Park Company not owned by the
Partnership.
(3) Represents the net gain from the sale of the Properties, consisting of a
gain on sale of real estate of $3,581,009 and a loss on sale of marketable
securities of $541,956.
(4) Excludes the approximate 40% interest in Two Park Company not owned by the
Partnership.
(5) 395,169 Units outstanding.
(6) Includes an unrealized loss on property held for disposition of $5,411,536
at December 31, 1996. See Item 7.
(7) Includes a write-down in 1996 of the carrying value of the Partnership's
Properties in the amount of $59,491,089 at December 31, 1996. In 1997,
includes a recovery of the valuation allowance on the Saxon Woods property
of $2,920,968. See Item 7.
(8) Includes a $16,247,734 gain on retirement of debt resulting from the
discounted payoff of the 34th Street Line of Credit in June 1995.
(9) Includes a $5,564,391 gain on transfer in lieu of foreclosure resulting
from the transfer of the Stamford Property on December 29, 1994.
(10) Includes an unrealized loss on properties held for disposition of
$4,010,962 at December 31, 1994.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
In consideration of an 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 commenced efforts to sell their interest in
each of the three remaining Properties. On November 17, 1998, the Partnership
completed the sale of its ownership interests in the Properties (the "Sale") to
affiliates of Vornado Realty Trust, a publicly-traded real estate investment
trust ("Vornado") and an affiliate of Mendik RELP Corporation, a General
Partner, for a selling price of $52,212,198, net of the Partnership's share of
existing mortgage debt on Two Park Avenue and Saxon Woods, litigation settlement
costs, and closing adjustments. The Partnership's approximate 60% interest in
Two Park Avenue was sold for approximately $34.6 million, after deducting $39
million of existing mortgage debt. The sales proceeds were a combination of cash
and common stock of Vornado. The remaining 40% interest in the Park Avenue
Property is owned by an affiliate of Vornado. Saxon Woods Corporate Center and
330 West 34th Street were purchased for an aggregate price of $30 million in
cash. The Sale resulted in a gain on sale of real estate of $3,581,009 which was
reflected in the Partnership's results of operations for the year ended December
31, 1998. Reference is made to the Definitive Purchase and Sale Agreement, filed
as an exhibit to the Registrant's Report on 8-K filed on October 9, 1998.
The Sale was completed as part of the settlement of three purported class action
lawsuits that were 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 "Settlement"). The Sale occurred following the Court's judgment
of approval of the Settlement, which became final on November 6, 1998. See Item
3 for a discussion of the Settlement.
<PAGE>
6
As a result of the completion of the Sale, the Partnership paid a cash
distribution to the Limited Partners on February 2, 1999, in the amount of
$82.45 per Class A Unit and $182.91 per Class B Unit. Certain funds have been
set aside to provide for the Partnership's ongoing liabilities and expenses
through dissolution. Any cash remaining after payment of these expenses will be
distributed to the Limited Partners when the Partnership is dissolved. The
General Partners are currently in the process of winding up the Partnership's
affairs, and expect to dissolve the Partnership during 1999.
The Partnership's cash and cash equivalents totaled $50,641,931 at December 31,
1998, compared with $4,786,697 at December 31, 1997. The increase in cash and
cash equivalents is primarily due to net proceeds received from the Sale of the
Properties on November 17, 1998 that were not distributed to Limited Partners
until February 2, 1999.
As a result of the Sale, the following balance sheet categories decreased to
$-0- at December 31, 1998: properties held for disposition, restricted cash,
deferred rent receivable, deferred income, security deposits payable, accrued
interest payable, mortgages payable and notes payable to affiliates.
Rent and other receivables increased to $1,157,368 at December 31, 1998,
compared to $903,270 at December 31, 1997. The increase is due to the timing
difference of collections of rental payments. Other assets decreased from
$8,426,941 at December 31, 1997 to $5,000 at December 31, 1998, primarily due to
the Sale.
At December 31, 1998, the Partnership had a distribution payable totaling
$47,456,352, which distribution was paid on February 2, 1999. A distribution of
Vornado common shares was made to the limited partners in 1998 for those
investors electing to receive Vornado common shares instead of cash. Such
distribution represents net proceeds from the Sale and a portion of the
Partnership's cash reserves. Certain funds have been set aside to provide for
the Partnership's ongoing liabilities and expenses through dissolution. Any cash
remaining after payment of these expenses will be distributed to the Limited
Partners when the Partnership is dissolved.
Market Risk
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The Partnership's principal market risk exposure is interest rate risk. The
Partnership has no long-term debt, and as a result of the Sale, the Partnership
no longer has any mortgage debt. Accordingly, the Partnership's interest risk
exposure is primarily limited to interest earned on the Partnership's cash and
cash equivalents which are invested at short-term rates. Such risk is not
considered material to the Partnership's operations.
Year 2000 Initiatives
- ---------------------
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
It is anticipated that the Partnership will be dissolved prior to December 31,
1999. In the event that the Partnership is not dissolved prior to December 31,
1999, potential Year 2000 issues relate to the outside vendors which provide the
Partnership's administrative services, including accounting, tax preparation and
transfer agent services. Such services are reliant on computer systems, software
products and equipment which are expected to be Year 2000 compliant by December
31, 1999. The General Partners continue to discuss Year 2000 compliance with
these outside vendors. It is anticipated that the cost of vendor compliance with
Year 2000 issues will be borne primarily by these vendors. Although it is not
possible at the present time to estimate the cost of this remediation work based
on available information, the General Partners do not expect such costs to have
a material adverse impact on the Partnership's business, results of operations
or financial condition.
Due to the General Partners' intent to dissolve the Partnership before December
31, 1999, the General Partners currently do not have Year 2000 contingency
plans. In the event it appears that the Partnership will not be dissolved during
1999, the General Partners intend to develop and implement contingency plans in
1999. However, there is no certainty such plans would fully mitigate any Year
2000 problems.
<PAGE>
7
Results of Operations
1998 vs. 1997
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For the year ended December 31, 1998, net cash used for operating activities
totaled $(1,398,312), compared to net cash provided of $7,627,599 for the year
ended December 31, 1997. The reduced cash flow in 1998 is primarily attributable
to the Sale and the payment of various Partnership liabilities. The Partnership
generated net income of $6,948,576 for the year ended December 31, 1998,
compared to net income of $5,113,351 for the year ended December 31, 1997. Net
income in 1998 includes a gain on the sale of real estate of $3,581,009 and a
loss on the sale of marketable securities of $541,956. Income before other
income totaled $3,909,523 in 1998 compared with $5,113,351 in 1997. The decrease
is primarily attributable to litigation settlement costs of $2,957,843 offset by
a decrease in depreciation and amortization expense as a result of the
reclassification of the Two Park Avenue and 330 West 34th Street properties as
"Properties held for disposition" as of September 30, 1997. In 1997 the
Partnership recorded a recovery of valuation allowance on Saxon Woods which was
then held for disposition of $2,920,968.
Rental income decreased from $36,189,134 for the year ended December 31, 1997 to
$33,934,007 for the year ended December 31, 1998, primarily due to the Sale on
November 17, 1998. Interest income totaled $585,704 for the year ended December
31, 1998 compared to $245,160 in 1997. The increase is due to the Partnership's
higher average cash balance, primarily as a result of the net proceeds from the
Sale.
Primarily as a result of the Sale, property operating expense and interest
expense decreased from 1997 to 1998. General and administrative expenses totaled
$639,287 for the year ended December 31, 1998, compared with $636,071 for the
year ended December 31, 1997. The slight increase primarily reflects increases
in audit, transfer agent and postage expenses, which were largely offset by
decreases in professional and administrative expenses.
1997 vs. 1996
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For the year ended December 31, 1997, the Partnership generated net cash from
operating activities of $7,627,599, compared to $4,347,586 for the year ended
December 31, 1996. The higher balance in the 1997 period is primarily
attributable to lower interest expense. The Partnership generated net income of
$5,113,351 for the year ended December 31, 1997, compared to a net loss of
$47,091,683 for the year ended December 31, 1996. In 1996 the Partnership
recorded write-downs in the value of its real estate totaling $64,902,625.
Rental income for the year ended December 31, 1997 totaled $36,189,134, compared
to $36,301,921 for the year ended December 31, 1996.
Property operating expenses totaled $20,827,352 for the year ended December 31,
1997, compared to $20,118,066 for the year ended December 31, 1996. The increase
in property operating expenses is due to higher cleaning and utility expenses at
Two Park Avenue and Saxon Woods properties.
Depreciation and amortization expense for the year ended December 31, 1997
totaled $5,246,432, compared to $11,257,102 for the year ended December 31,
1996. The $6,010,670 decrease is primarily due to the reclassification of the
Saxon Woods Property as "Property held for disposition" effective December 31,
1996, and the reclassification of Two Park Avenue and 34th Street as "Properties
held for disposition" effective September 30, 1997. The Partnership ceased
depreciation of the respective properties on the dates they were reclassified to
held for disposition in accordance with FAS 121.
Interest expense for the year ended December 31, 1997 totaled $6,162,361,
compared to $7,225,953 for the year ended December 31, 1996. The $1,063,592
decrease was due primarily to the refinancing of the Park Avenue Property
mortgage indebtedness in April 1997, which decreased the interest rate on the
outstanding principal balances.
Item 8. Financial Statements and Supplementary Data
See Index of the Consolidated Financial Statements and Financial Statement
Schedules at Item 14, filed as part of this Report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
<PAGE>
8
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. Mendik RELP Corporation and
NYRES1, as General Partners, jointly manage and control the affairs of the
Partnership and have general responsibility and authority in all matters
affecting its business.
Mendik RELP Corporation
- -----------------------
Mendik RELP Corporation was incorporated under the laws of the State of New York
on November 13, 1985. On January 16, 1997, the Mendik General Partner changed
its name from Mendik Corporation to Mendik RELP Corporation to avoid confusion
with the names of other Mendik entities.
All of the capital stock of Mendik RELP Corporation is owned by Bernard H.
Mendik. Pursuant to Section 22(b) of the Partnership Agreement, Mr. Mendik has
contributed to the capital of Mendik RELP Corporation $2.5 million in the form
of a demand promissory note, which represents the only substantial asset of
Mendik RELP Corporation. Mr. Mendik has a net worth in excess of such amount.
Mendik RELP Corporation maintains its principal office at 330 Madison Avenue,
New York, New York 10017.
The executive officers and sole director of Mendik RELP Corporation (none of
whom has a family relationship with another) are:
Name Age Office
---- --- ------
Bernard H. Mendik 69 Chairman and Director
David R. Greenbaum 47 President
Michael M. Downey 57 Senior Vice President
David L. Sims 52 Senior Vice President
Kevin R. Wang 41 Senior Vice President
All officers and directors of Mendik RELP Corporation have been officers or
directors of the corporation since its incorporation in November 1985. Prior to
April 15, 1997 all officers of Mendik RELP Corporation held the same position in
Mendik Realty, which transferred its property management and leasing
responsibilities to Mendik Management on that date (see Item 1).
Bernard H. Mendik has been an owner/manager and developer of office and
commercial properties since 1957. Mr. Mendik was named Chairman of Mendik Realty
in 1990. Prior to his appointment as Chairman, Mr. Mendik had served as
President of Mendik Realty since 1978. In April 1997, Mr. Mendik was named
Chairman of Mendik Management Inc. and Co-Chairman of the Board of Trustees of
Vornado. Mr. Mendik resigned his position with Mendik Management and Vornado in
October 1998.
David R. Greenbaum was appointed President of Mendik Realty in 1990. Prior to
his appointment as President, Mr. Greenbaum had served as Executive Vice
President of Mendik Realty since 1982. In April 1997, Mr. Greenbaum was
appointed President of Mendik Management, and in October 1998, he was appointed
Chief Executive Officer of Mendik Management.
Michael M. Downey had been with Mendik Realty since 1978, and then was Senior
Vice President of Operations. In April 1997, he was appointed Senior Vice
President of Operations of Mendik Management.
David L. Sims had been with Mendik Realty since 1984, and then was Senior Vice
President of Leasing. In April 1997, he was appointed Senior Vice President of
Leasing of Mendik Management.
Kevin R. Wang had been with Mendik Realty since 1985, and then was Senior Vice
President of Leasing. In April 1997, he was appointed Senior Vice President of
Leasing of Mendik Management.
NYRES1
- ------
NYRES1 is a Delaware Corporation formed on September 9, 1985, and is an
affiliate of Lehman Brothers Inc. ("Lehman").
<PAGE>
9
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not affect
the ownership of the Partnership or the General Partners. However, the assets
acquired by Smith Barney included the name "Hutton." Consequently, effective
October 22, 1993, Hutton Real Estate Services XV, Inc. changed its name to NY
Real Estate Services 1 Inc. to delete any references to "Hutton."
Certain officers and directors of NYRES1 are now serving (or in the past have
served) as officers or directors of entities which act as general partners of a
number of real estate limited partnerships which have sought protection under
the provisions of the Federal Bankruptcy Code. The partnerships which have filed
bankruptcy petitions own real estate which has been adversely affected by the
economic conditions in the markets in which the real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
The executive officers and directors of NYRES1 (none of whom has a family
relationship with another) are:
Name Age Office
---- --- ------
Rocco F. Andriola 40 Director
Mark J. Marcucci 36 Director, President and
Chief Financial Officer
Jaime Fuertes 32 Vice President
Rocco F. Andriola, 40, is a Managing Director of Lehman Brothers Inc. in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M
in Corporate Law from New York University's Graduate School of Law.
Mark J. Marcucci, 36, is a Senior Vice President of Lehman Brothers Inc. in its
Diversified Asset Group. Since joining Lehman Brothers in 1988, Mr. Marcucci's
responsibilities have been concentrated in the restructuring, asset management,
leasing, financing, refinancing and disposition of commercial office and
residential real estate. Prior to joining Lehman Brothers, Mr. Marcucci was
employed in a corporate lending capacity at Republic National Bank of New York.
Mr. Marcucci received a B.B.A. in Finance from Hofstra University and a Master
of Science in Real Estate from New York University. In addition, Mr. Marcucci
holds both Series 7 and Series 63 securities licenses.
Jaime Fuertes, 32, is a Senior Associate at Lehman Brothers Inc. He joined
Lehman in 1997 as the Controller of the Diversified Asset Group and since then
has also been engaged in the analysis and negotiation of Lehman's worldwide
lease commitments. Prior to joining Lehman, Mr. Fuertes held various positions
in Finance and Treasury at Chase Manhattan Bank between 1990 and 1996 and at GE
Capital Services between 1996 and 1997. Mr. Fuertes received Bachelor of Science
and Master of Science degrees in Finance from Fairfield University.
Item 11. Executive Compensation
Neither of the General Partners nor any of their officers or directors received
any compensation from the Partnership.
The General Partners are entitled to varying percentages of Net Cash Flow
distributed in any fiscal year and to varying percentages of the Net Proceeds of
capital transactions. See Note 3 "The Partnership Agreement" of the Notes to the
Consolidated Financial Statements, included in Item 8.
<PAGE>
10
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1998, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units.
Set forth below is a chart indicating, as of December 31, 1998, the name and the
amount and nature of beneficial ownership of Units held by the General Partners
and officers and directors thereof. Only those General Partners and officers and
directors thereof which beneficially own any Units are listed. No General
Partner or any officer or director thereof, or the officers and directors of the
General Partners as a group, beneficially owns in excess of 1% of the total
number of Units outstanding.
<TABLE>
<CAPTION>
Beneficial Ownership of Units
-----------------------------
Name of Beneficial Number of
Owner Units Owned
------------------ -----------
<S> <C>
Bernard H. Mendik 1,276(1)
David R. Greenbaum 525(2)
Kevin R. Wang 20(3)
Michael M. Downey 33
David L. Sims 16
-----
The General Partners and all officers and
directors thereof as a group (10 persons) 1,870(1)(2)(3)
-----
<FN>
(1) Includes 1,027 Units owned by Mr. Mendik, 200 Units held in trust for Mr.
Mendik's children and 49 Units owned by Mendik Realty. Does not include 40
Units owned by Mr. Mendik's wife, as to which he disclaims beneficial
ownership.
(2) Includes 325 Units owned by Mr. Greenbaum and 200 Units owned by Mr.
Greenbaum's wife.
(3) Does not include four Units owned by Mr. Wang's wife, as to which he
disclaims beneficial ownership.
</FN>
</TABLE>
Item 13. Certain Business Relationships and Related Transactions
As a result of the suspension of cash distributions, neither NYRES1 nor Mendik
RELP Corporation received net cash from operations with respect to the year
ended December 31, 1998. On February 2, 1999, a cash distribution was paid to
the Limited Partners, representing net sales proceeds from the Sale of the
Properties. NYRES1 received $-0- and Mendik RELP Corporation received $-0-,
representing their respective shares of such distribution pursuant to the terms
of the Partnership Agreement. For the 1998 fiscal year, $69,486 of the
Partnership's net income was allocated to NYRES1 and Mendik RELP Corporation.
For a description of the shares of Net Cash From Operations and Sale or
Refinancing Proceeds (as defined in the Partnership Agreement) and the
allocation of items of income and loss to which the General Partners, the
special limited partner, and the Investor Limited Partners are respectively
entitled, see Note 3 of Notes to the Consolidated Financial Statements.
Pursuant to Section 12 of the Partnership Agreement, Mendik Realty agreed to
limit its payment of leasing commissions at any Property in any year to not more
than 3% of the gross operating revenues of that Property in such year less
leasing commissions paid to other brokers in connection with that Property in
such year. Any excess will be deferred but is payable only if and to the extent
such limit is not exceeded in the year paid. On December 14, 1998, $402,803 was
paid to Mendik Management and $2,737,966 was paid to Mendik Realty in payment of
all deferred management, deferred commissions, and contributions to escrow plus
interest.
<PAGE>
11
B&B Park Avenue L.P. ("B&B"), a limited partnership of which Mendik RELP
Corporation was a general partner, owns the remaining 40% interest in Two Park
Company, the joint venture that owns the Park Avenue Property. 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 Management Company Inc. and certain of its
affiliates, which consolidation was also consummated on April 15, 1997.
On November 17, 1998, the Partnership completed the sale of its ownership
interests in the Properties to affiliates of Vornado, an affiliate of Mendik
RELP Corporation, a General Partner, for a selling price of $52,212,198, net of
the Partnership's share of existing mortgage debt on Two Park Avenue and Saxon
Woods, litigation settlement costs, and closing adjustments. See Item 1,
Property Sales.
Mendik Management receives fees for the management of the Partnership's
Properties and is reimbursed for the cost of on-site building management staff.
During 1998, Mendik Management earned management fees from the Partnership
totaling $785,829, and was reimbursed $528,699 for the cost of on-site building
management salaries.
Building Maintenance Service LLC ("BMS"), an affiliate of Mendik RELP
Corporation, performs cleaning and related services for the properties at cost
(plus an allocable share of overhead expenses). As of January 1, 1993, Guard
Management Service Corporation ("GMSC"), an affiliate of Mendik RELP
Corporation, began providing security services at the Park Avenue Property and
Saxon Woods Corporate Center, which services will be provided by GMSC at cost
(plus an allocable share of overhead expenses). During 1998, GMSC and BMS
received from the Partnership $4,040,392 for such services.
During 1998, certain expenses incurred by the NYRES1 general partner, its
affiliates, and an unaffiliated third party service provider in servicing the
Partnership were reimbursed in the amount of $251,323.
See Note 7 of the Notes to the Consolidated Financial Statements for additional
information concerning amounts paid or accrued to the General Partners and their
affiliates during the years ended December 31, 1998, 1997 and 1996 and all
balances unpaid at December 31, 1998.
<PAGE>
12
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Page
----
(a)(1) Financial Statements and Schedules
Independent Auditors' Report......................................F-1
Consolidated Balance Sheets at December 31, 1998 and 1997.........F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996..................................F-3
Consolidated Statements of Partners' Capital (Deficit) for
the years ended December 31, 1998, 1997 and 1996..................F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996..................................F-4
Notes to the Consolidated Financial Statements....................F-6
(a)(2) Financial Statement Schedule
----------------------------
Schedule III - Real Estate and Accumulated Depreciation...........F-15
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted since (1) the information required is disclosed in the
consolidated financial statements and the notes thereto; (2) the
schedules are not required under the related instructions; or (3) the
schedules are inapplicable.
(b) Reports on Form 8-K.
On June 24, 1998, the Partnership filed a Report on Form 8-K reporting
the settlement of the class action suit.
On October 9, 1998, the Partnership filed a Report on Form 8-K
reporting the execution of a sale purchase agreement.
On December 2, 1998, the Partnership filed a Report on Form 8-K
reporting the consummation of the Sale.
(c) Exhibits
--------
Subject to Rule 12b-32 of the Securities Exchange Act of 1934 regarding
incorporation by reference, listed below are the exhibits which are filed as
part of this report:
3 (a) Amended and Restated Certificate and Agreement of Limited
Partnership of the Partnership (included as Exhibit A to the
Prospectus of Registrant dated April 7, 1986 included as Exhibit 28(b)
to the 1986 Annual Report on Form 10-K of the Partnership and
incorporated herein by reference thereto).
(b) Amendments to Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership (included as Exhibit A to the
Prospectus Amendment of Registrant dated April 29, 1987 included as
Exhibit 29(c) to the 1989 Annual Report on Form 10-K of the
Partnership and incorporated herein by reference thereto).
<PAGE>
13
10 (a) Form of Property Management Agreement between the Partnership and
Mendik Management Company Inc. (included as Exhibit 10(a) to Amendment
No. 2 to the Registration Statement (Registration No. 33-01779) (the
"Registration Statement") and incorporated herein by reference
thereto).
(b) James Felt Realty Services appraisal of the Stamford Property
(included as Exhibit 10(b) to the Registration Statement and
incorporated herein by reference thereto).
(c) Contract of Sale, dated June 25, 1985, between 1351 Washington Blvd.
Limited Partnership, Bernard H. Mendik and Hutton Real Estate Services
XV, Inc. and related assignments (included as Exhibit 10(f) to
Amendment No. 1 to the Registration Statement and incorporated herein
by reference thereto).
(d) Cushman & Wakefield, Inc. appraisal of Saxon Woods Corporate Center
(included as Exhibit 10(g) to Amendment No. 2 to the Registration
Statement and incorporated herein by reference thereto).
(e) Copies of Ground Leases relating to Saxon Woods Corporate Center
(included as Exhibit 10(h) to Amendment No. 2 to the Registration
Statement and incorporated herein by reference thereto).
(f) Memorandum of Contract, dated December 24, 1985, between The
Prudential Insurance Company of America and 550/600 Mamaroneck Company
relating to the acquisition of Saxon Woods Corporate Center (included
as Exhibit 10(i) to Amendment No. 2 to the Registration Statement and
incorporated by reference thereto).
(g) The Weitzman Group, Inc. appraisal of the 330 West 34th Street
property (included as Exhibit 10(j) to Post-Effective Amendment No. 2
to the Registration Statement and incorporated herein by reference
thereto).
(h) Copy of Ground Lease relating to the 34th Street property (included as
Exhibit 10(k) to Post-Effective Amendment No. 1 to the Registration
Statement and incorporated herein by reference thereto).
(i) Agreement of Assignment of Contract of Sale, dated September 25, 1986,
between 330 West 34th Street Associates and M/H 34th Street Associates
(included as Exhibit 10(l) to Post-Effective Amendment No. 1 to the
Registration Statement and incorporated herein by reference thereto).
(j) Agreement, dated December 5, 1986, between Park Fee Associates, The
Mendik Company, Chase Investors Management Corporation New York and
M/H Two Park Associates relating to the acquisition of the Park Avenue
Property (included as Exhibit 10(m) to Post-Effective Amendment No. 1
to the Registration Statement and incorporated by reference thereto).
(k) James Felt Realty Services appraisal of the Park Avenue Property
(included as Exhibit 10(n) to Post-Effective Amendment No. 7 to the
Registration Statement and incorporated herein by reference thereto).
(l) Exhibits (l) through (aa) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1990 are incorporated herein by
reference thereto.
(m) Loan Agreement of $6,500,000 to Mendik Real Estate Limited Partnership
from Friesch-Groningsche Hypotheekbank Realty Credit Corporation dated
September 25, 1991 secured by the Saxon Woods Corporate Center
(included as Exhibit 10(m) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by
reference thereto).
(n) Appraisal of the 34th Street Property as of January 1992 by Cushman &
Wakefield, Inc. (included as Exhibit 10(n) to the Partnership's Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference thereto).
(o) Letter Opinion of Value of the Park Avenue Property as of January 1992
by Cushman & Wakefield, Inc. (included as Exhibit 10(o) to the
Partnership's Form 10-K for the fiscal year ended December 31, 1991
and incorporated herein by reference thereto).
<PAGE>
14
(p) Letter Opinion of Value of the Stamford Property as of January 1992 by
Cushman & Wakefield, Inc. (included as Exhibit 10(p) to the
Partnership's Form 10-K for the fiscal year ended December 31, 1991
and incorporated herein by reference thereto).
(q) Letter Opinion of Value of the Saxon Woods Corporate Center as of
January 1992 by Cushman & Wakefield, Inc. (included as Exhibit 10(q)
to the Partnership's Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference thereto).
(r) Modification effective January 1, 1991 of the $12,500,000 first
mortgage loan secured by the Stamford Property between New York Life
Insurance Company and the Partnership (included as Exhibit 10(r) to
the Partnership's Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference thereto).
(s) Reimbursement Agreement dated as of January 1, 1991 among the
Partnership, Mendik Management, Mendik RELP Corporation and SLH
Lending Corp. related to the deferral of management fees and loans
made to the Partnership with respect to the Stamford Property
(included as Exhibit 10(s) to the Partnership's Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by
reference thereto).
(t) Agreement dated as of January 1, 1992 among the Partnership, Mendik
Management, Mendik RELP Corporation and SLH Lending Corp. (included as
Exhibit 10(a) to the Partnership's Form 10-Q for the quarter ended
June 30, 1992 and incorporated herein by reference thereto).
(u) Appraisal of the 34th Street Property as of January 1993 by Cushman &
Wakefield, Inc. (included as Exhibit 10(u) to the Partnership's Form
10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference thereto).
(v) Letter Opinion of Value of the Park Avenue Property as of January 1993
by Cushman & Wakefield, Inc. (included as Exhibit 10(v) to the
Partnership's Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference thereto).
(w) Letter Opinion of Value of the Stamford Property as of January 1993 by
Cushman & Wakefield, Inc. (included as Exhibit 10(w) to the
Partnership's Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference thereto).
(x) Letter Opinion of Value of the Saxon Woods Corporate Center as of
January 1993 by Cushman & Wakefield, Inc. (included as Exhibit 10(x)
to the Partnership's Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by reference thereto).
(y) Promissory Note and Loan Agreement Modification and Extension
Agreement between Mendik Real Estate Limited Partnership and FGH
Realty Credit Corp. dated as of September 9, 1996 (included as Exhibit
10(y) to the Partnership's Form 10-Q for the quarter ended September
30, 1996 and incorporated herein by reference thereto).
(z) Leasehold Mortgage Modification and Extension Agreement between Mendik
Real Estate Limited Partnership and FGH Realty Credit Corp. dated as
of September 9, 1996 (included as Exhibit 10(z) to the Partnership's
Form 10-Q for the quarter ended September 30, 1996 and incorporated
herein by reference thereto).
(aa) Copy of Ground Lease extension dated October 21, 1997 relating to the
34th Street Property (included as Exhibit 10(aa) to the Partnership's
Form 10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference thereto).
(bb) Notice of settlement of class action suit incorporated by reference to
Exhibit 10 to a Report on For 8-K filed on June 24, 1998.
<PAGE>
15
(cc) Sale Purchase Agreement by and between Mendik RELP and Vornado by
reference to Exhibit 10 to a Report on Form 8-K filed on October 9,
1998.
(dd) Notice of closing of sale of properties to Vornado by reference to
Exhibit 10 to a Report on Form 8-K filed on November 17, 1998.
27 Financial Data Schedule.
<PAGE>
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: Mendik RELP Corporation
General Partner
Date: April 15, 1999 BY: /s/Bernard H. Mendik
-----------------------
Name: Bernard H. Mendik
Title: Chairman and Director
BY: NY Real Estate Services 1 Inc.
General Partner
Date: April 15, 1999 BY: /s/Mark J. Marcucci
-----------------------
Name: Mark J. Marcucci
Title: Director, President and
Chief Financial Officer
<PAGE>
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capabilities and on the dates indicated.
NY REAL ESTATE SERVICES 1 INC.
A General Partner
Date: April 15, 1999 BY: /s/Rocco F. Andriola
-----------------------
Name: Rocco F. Andriola
Title: Director
Date: April 15, 1999 BY: /s/Mark J. Marcucci
-----------------------
Name: Mark J. Marcucci
Title: Director, President and
Chief Financial Officer
Date: April 15, 1999 BY: /s/Jaime Fuertes
-----------------------
Name: Jaime Fuertes
Title: Vice President
<PAGE>
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capabilities and on the dates indicated.
MENDIK RELP CORPORATION
A General Partner
Date: April 15, 1999 BY: /s/Bernard H. Mendik
-------------------------
Name: Bernard H. Mendik
Title: Chairman and Director
Date: April 15, 1999 BY: /s/David R. Greenbaum
-------------------------
Name: David R. Greenbaum
Title: President
Date: April 15, 1999 BY: /s/Michael M. Downey
-------------------------
Name: Michael M. Downey
Title: Senior Vice President
Date: April 15, 1999 BY: /s/David L. Sims
-------------------------
Name: David L. Sims
Title: Senior Vice President
Date: April 15, 1999 BY: /s/Kevin R. Wang
-------------------------
Name: Kevin R. Wang
Title: Senior Vice President
<PAGE>
F-1
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Partners
Mendik Real Estate Limited Partnership:
We have audited the consolidated financial statements of Mendik Real Estate
Limited Partnership (a New York limited partnership) and consolidated venture as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mendik Real Estate
Limited Partnership and consolidated venture as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Partnership's properties were sold in 1998. As a result of the sale, the General
Partners intend to distribute the Partnership's remaining cash reserves, after
payment of liabilities and establishment of a reserve for contingencies, if any,
and dissolve the Partnership.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 24, 1999
<PAGE>
F-2
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At December 31, At December 31,
1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Properties held for disposition $ -- $119,791,043
Cash and cash equivalents 50,641,931 4,786,697
Restricted cash -- 7,041,844
Rent and other receivables
net of allowance for doubtful accounts of
$-0- in 1998 and $118,611 in 1997 1,157,368 903,270
Deferred rent receivable -- 11,191,096
Other assets, net of accumulated amortization of
$-0- in 1998 and $4,941,591 in 1997 5,000 8,426,941
- --------------------------------------------------------------------------------------
Total Assets $ 51,804,299 $152,140,891
======================================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 941,067 $ 1,572,939
Deferred income -- 5,904,654
Due to affiliates 480,615 2,956,140
Security deposits payable -- 1,116,249
Accrued interest payable -- 727,944
Distribution payable 47,456,352 --
Mortgages payable -- 71,500,000
Notes payable to affiliates -- 2,230,000
-------------------------------
Total Liabilities 48,878,034 86,007,926
-------------------------------
Minority interest -- 21,445,577
-------------------------------
Partners' Capital (Deficit):
General Partners (350,297) (419,783)
Limited Partners (395,169 units outstanding) 3,276,562 45,107,171
-------------------------------
Total Partners' Capital 2,926,265 44,687,388
- --------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 51,804,299 $152,140,891
======================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
F-3
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $ 33,934,007 $ 36,189,134 $ 36,301,921
Interest 585,704 245,160 247,094
--------------------------------------------
Total Income 34,519,711 36,434,294 36,549,015
- --------------------------------------------------------------------------------------
Expenses
Property operating 18,212,496 20,827,352 20,118,066
Depreciation and amortization 172,142 5,246,432 11,257,102
Interest 4,954,042 6,162,361 7,225,953
General and administrative 639,287 636,071 449,216
(Recovery of) provision for valuation
allowance on property held for
disposition -- (2,920,968) 5,411,536
Loss on write-down of real estate
investments -- -- 59,491,089
Litigation settlement costs 2,957,843 -- --
--------------------------------------------
Total Expenses 26,935,810 29,951,248 103,952,962
- --------------------------------------------------------------------------------------
Income (loss) before minority interest 7,583,901 6,483,046 (67,403,947)
Minority interest share of (income)
loss in consolidated venture (3,674,378) (1,369,695) 20,312,264
--------------------------------------------
Income (loss) before other income 3,909,523 5,113,351 (47,091,683)
- --------------------------------------------------------------------------------------
Other Income
Gain on sale of real estate 3,581,009 -- --
Loss on sale of marketable securities (541,956) -- --
- --------------------------------------------------------------------------------------
Net Income (Loss) $ 6,948,576 $ 5,113,351 $(47,091,683)
======================================================================================
Net Income (Loss) Allocated:
To the General Partners $ 69,486 $ 51,134 $ (470,917)
To the Special Limited Partner -- -- --
To the Limited Partners 6,879,090 5,062,217 (46,620,766)
- --------------------------------------------------------------------------------------
$ 6,948,576 $ 5,113,351 $(47,091,683)
======================================================================================
Net income (loss) per limited
partnership unit (395,169 outstanding) $ 17.41 $ 12.81 $ (117.97)
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1998, 1997 and 1996
Special
Limited General Limited
Partners Partners Partner Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 86,665,720 $ -- $ -- $ 86,665,720
Net loss (46,620,766) (470,917) -- (47,091,683)
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 40,044,954 (470,917) -- 39,574,037
Net income 5,062,217 51,134 -- 5,113,351
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 45,107,171 (419,783) -- 44,687,388
Net income 6,879,090 69,486 -- 6,948,576
Distributions (48,709,699) -- -- (48,709,699)
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 3,276,562 $ (350,297) $ -- $ 2,926,265
======================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
F-4
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income (loss) $ 6,948,576 $ 5,113,351 $(47,091,683)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Loss on write-down of real
estate investments -- -- 59,491,089
Depreciation -- 3,913,361 9,602,450
Amortization 172,142 1,333,071 1,654,652
Gain on sale of property (3,581,009) -- --
Loss on sale of marketable securities 541,956 -- --
Minority interest share of income
(loss) in consolidated venture 3,674,378 1,369,695 (20,312,264)
(Recovery of) provision for valuation
allowance on property held for
disposition -- (2,920,968) 5,411,536
Net premium (discount) amortization -
U.S. Treasuries and Agencies -- 53,777 (25,350)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash 1,116,248 (155,760) 104,966
Rent and other receivables (528,028) 288,844 (254,013)
Deferred rent receivable (2,007,783) (737,894) (2,750,852)
Other assets (918,943) (1,199,438) (872,529)
Accounts payable and accrued expenses (643,234) 1,082,764 19,797
Deferred income (1,852,888) (645,996) (980,097)
Due to affiliates (2,475,535) 48,403 277,389
Security deposits payable (1,116,248) 155,760 (104,966)
Accrued interest payable (727,944) (71,371) 177,461
--------------------------------------------
Net cash provided by (used for)
operating activities (1,398,312) 7,627,599 4,347,586
- --------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Restricted cash - replacement reserve 3,525,595 (5,925,595) --
Additions to real estate (6,254,247) (1,775,765) (6,391,539)
Cash proceeds from sale of stock 27,297,264 -- --
Cash proceeds from sale of real
estate, net 24,914,934 -- --
Accounts payable - real estate assets -- (1,369,786) 280,402
Acquisition of U.S. Treasuries
and Agencies -- (492,602) (3,021,038)
Redemption of U.S. Treasuries
and Agencies -- 2,560,735 3,383,272
--------------------------------------------
Net cash provided by (used for)
investing activities 49,483,546 (7,003,013) (5,748,903)
- --------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from mortgage and notes payable -- 65,000,000 1,455,476
Payments of principal on mortgage and
notes payable (2,230,000) (65,000,000) --
Mortgage refinancing costs -- (565,609) --
--------------------------------------------
Net cash provided by (used for)
financing activities (2,230,000) (565,609) 1,455,476
- --------------------------------------------------------------------------------------
Net increase in cash and
cash equivalents 45,855,234 58,977 54,159
Cash and cash equivalents,
beginning of period 4,786,697 4,727,720 4,673,561
--------------------------------------------
Cash and cash equivalents,
end of period $ 50,641,931 $ 4,786,697 $ 4,727,720
======================================================================================
</TABLE>
(Continued)
See accompanying notes to the consolidated financial statements.
<PAGE>
F-5
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosure of
Cash Flow Information
Cash paid during the period for interest $ 5,681,986 $ 6,233,732 $ 7,048,492
- --------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Activities:
The Partnership sold its interest in Two Park Avenue, New York, New York, 330
West 34th Street, New York, New York and 550/600 Mamaroneck Avenue, Harrison,
New York for a selling price of $52,212,198, net of the Partnership's share of
existing mortgage debt on Two Park Avenue and Saxon Woods, litigation settlement
costs, and closing adjustments. In conjunction with the sale, a distribution of
shares received from the buyer to limited partners, as part of the proceeds of
the sale, was accounted for as follows:
Distribution of 36,971 shares of Vornado common
stock to limited partners $ 1,277,137
Loss on valuation of stock (Valuation of stock
was established by the selling price received
for other stock sold on the open market at
$33.90 per share.) (23,790)
- --------------------------------------------------------------------------------------
Fair value of stock distributed $ 1,253,347
======================================================================================
In connection with the sale of the Partnership's interest in the Properties,
deferred rent receivable and prepaid leasing commissions in the amounts of
$7,879,731 and $5,239,177, respectively, were netted against the gain on sale of
real estate.
- --------------------------------------------------------------------------------------
In connection with the sale of the Partnership's interest in the Properties,
$2,150,142 was assumed by the buyer from sales proceeds to pay for additions to
real estate.
- --------------------------------------------------------------------------------------
In connection with the sale of the Partnership's interest in the Properties, the
$65,000,000 mortgage obligation of Two Park Avenue and the $6,500,000 mortgage
obligation of Saxon Woods were assumed by the buyers.
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
F-6
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Organization
Mendik Real Estate Limited Partnership (the "Partnership") was organized as a
limited partnership under the laws of the State of New York pursuant to a
Certificate and Agreement of Limited Partnership dated and filed October 30,
1985 (the "Partnership Agreement"), as amended, and subsequently amended and
restated on February 25, 1986. The Partnership was formed for the purpose of
acquiring, maintaining and operating income producing commercial office
buildings in the Greater New York metropolitan area. The general partners of the
Partnership are Mendik RELP Corporation and NYRES1 (see below). The Partnership
will continue until December 31, 2025, unless sooner terminated in accordance
with the terms of the Partnership Agreement. The Partnership offered Class A
units to taxable investors and Class B units to tax exempt investors.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham &
Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the general partners. However, the assets acquired by
Smith Barney included the name "Hutton." Consequently, effective October 22,
1993, Hutton Real Estate Services XV, Inc., a general partner, changed its name
to NY Real Estate Services 1 Inc. ("NYRES1") to delete any reference to
"Hutton." On January 16, 1997, Mendik Corporation, a general partner, was
renamed Mendik RELP Corporation.
On November 17, 1998, the Partnership completed the sale of its ownership
interests in the Partnership's Properties. As a result of the sale, the General
Partners distributed $47,456,352 of the net proceeds therefrom to Limited
Partners in 1999. The General Partners intend to distribute the Partnership's
remaining cash reserves (after payment of or provision for the Partnership's
liabilities and expenses, and establishment of a reserve for contingencies, if
any) and dissolve the Partnership in 1999.
2. Summary of Significant Accounting Policies
Basis of Accounting The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles. Income is recognized as earned and expenses are recorded as
obligations are incurred.
Consolidation The consolidated financial statements include the accounts of the
Partnership and of Two Park Company, a joint venture in which the Partnership
owned an approximate 60% general partnership interest through November 17, 1998.
The joint venture was formed to own and operate a commercial office building.
Intercompany accounts and transactions between the Partnership and the venture
have been eliminated in consolidation.
Real Estate Investments Prior to September 30, 1997, real estate investments
which consist of buildings, were recorded at cost, less accumulated depreciation
and impairment writedowns. Cost included the initial purchase price of the
properties plus closing costs, acquisition and legal fees, and capital
improvements. Depreciation of the buildings was computed using the straight-line
method over an estimated useful life of 20 to 35 years. Depreciation of personal
property was computed using the straight-line method over an estimated useful
life ranging from 5 to 10 years. Tenant improvements were amortized using the
straight-line method over the respective lease terms.
At December 31, 1997 and 1996, the Partnership completed reviews of
recoverability of the carrying amount of each property and related accounts
based upon an estimate of undiscounted cash flows expected to result from each
property's use and eventual disposition. Based upon the reviews completed at
December 31, 1996, the Partnership wrote down the value of its real estate
investments and related assets in accordance with FAS 121.
<PAGE>
F-7
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
Property Held for Disposition The Saxon Woods property, Two Park Avenue
property, and 330 West 34th Street property were reclassified as "properties
held for disposition" following the decision to pursue negotiations for a
potential sale of these properties. The properties are recorded at the lower of
amortized cost or their estimated fair value less costs to sell at December 31,
1997. Based upon the reviews completed at December 31, 1997, the Partnership
recovered part of the previously established provision for valuation allowance
on the property held for disposition (Saxon Woods). (See Note 4.)
Since all of the properties were reclassified as "Properties held for
disposition" effective September 30, 1997, the Partnership ceased depreciation
as required by Statement of Financial Accounting Standards No. 121.
Cash Equivalents Cash equivalents consist of short-term, highly liquid
investments which have maturities of three months or less from the date of
issuance. The carrying amount approximates fair value because of the short
maturity of these instruments.
Restricted Cash Restricted cash consisted of a reserve to fund certain Two Park
Avenue property leasing costs and tenant security deposits pursuant to its
mortgage loan on the Two Park Avenue property. The restricted cash and security
deposits were transferred to the buyer on November 17, 1998.
Rental Income Rental income was recognized as earned under the leases.
Accordingly, as certain leases of the Partnership provided for tenant occupancy
during periods for which no rent or reduced rent is due, the Partnership accrues
rental income for the full period of occupancy on a straight-line basis over the
related lease terms.
The Partnership determined that all leases associated with the rental of space
at the investment properties were operating leases.
Leasing Costs Leasing costs were capitalized and amortized using the straight
line-method over the respective lease terms.
Mortgage Costs Mortgage costs were capitalized and amortized over the term of
the mortgage notes payable.
Fair Value of Financial Instruments Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires that the Partnership disclose the estimated fair values of its
financial instruments. Fair values generally represent estimates of amounts at
which a financial instrument could be exchanged between willing parties in a
current transaction other than in forced liquidation.
The carrying amount of cash and cash equivalents, rent and other receivables,
other assets, accounts payable and accrued expenses, due to affiliates and
distribution payable are estimates of their fair value due to the short-term
nature of those instruments.
Income Taxes The Partnership allocates all profits, losses and other taxable
items to the individual partners. No provision for income taxes is made in the
financial statements as the liabilities for such taxes are those of the partners
rather than the Partnership.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Management's review of recoverability of the carrying amounts of real
estate investments and related accounts is one such estimate. Actual results
could differ from those estimates.
<PAGE>
F-8
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
Net Income (Loss) Per Limited Partnership Unit Net income (loss) per limited
partnership unit is based upon the limited partnership units outstanding during
the year and the net income (loss) allocated to the limited partners in
accordance with the terms of the Partnership Agreement.
3. The Partnership Agreement
Taxable income for any fiscal year shall be generally allocated in substantially
the same manner as net cash from operations then 85% to the limited partners,
14% to the special limited partner and 1% to the general partners, except that
depreciation allocated to the limited partners will be allocated solely to the
Class A units. Tax losses for any fiscal year will generally be allocated to the
limited partners and special limited partner to the extent of their positive
capital accounts and then 99% to the limited partners and 1% to the general
partners.
Losses on the sale of the Properties have been allocated pro-rata to the
positive capital accounts of the partners in accordance with the Partnership
Agreement. The Partnership Agreement provides that the net cash from operations,
as defined, for each fiscal year will be distributed on a quarterly basis, 99%
to the limited partners and 1% to the general partners (as defined) until each
limited partner has received an amount equal to an 8% annual preferred return.
The net cash from operations will then be distributed, 99% to the special
limited partner, Bernard H. Mendik, and 1% to Mendik RELP Corporation until the
special limited partner has received his special preferred return (as defined).
Thereafter, net cash from operations will be distributed 85% to the limited
partners, 14% to the special limited partner and 1% to the general partners.
Net proceeds from the Sale will be distributed first to the limited partners
until each limited partner has received an 8% cumulative annual return (as
defined) and then an additional amount equal to his adjusted capital
contribution (as defined). Second, the net proceeds from the Sale will be
distributed 99% to the special limited partner and 1% to the Mendik RELP
Corporation until the special limited partner has received any shortfall on his
special cumulative return (as defined). It is currently anticipated that no
sales proceeds will be distributed to the general partners or the special
limited partner.
As a result of the sale of the Properties, the Partnership paid a partial
distribution of $82.45 to Class A Unitholders and $182.91 to Class B Unitholders
on February 2, 1999.
Upon dissolution of the Partnership, it is anticipated that the general partners
will have a negative capital account, and shall be required to make a deficit
restoration contribution no more than 1.01% of the total capital contributed by
the limited partners less all prior contributions by the general partners.
4. Real Estate Investments
The Park Avenue Property In 1987, the Partnership indirectly acquired from an
affiliate an approximate 60% general partnership interest in a joint venture,
Two Park Company, formed in 1986 for the purpose of acquiring and operating a
parcel of land located at Two Park Avenue, New York, New York, together with the
28-story office building and related improvements located thereon containing
approximately 947,000 net rentable square feet (based on current standards of
measurement). The affiliate acquired such interest to facilitate the acquisition
by the Partnership. Two Park Company acquired the Park Avenue Property in 1986
from an unaffiliated seller for approximately $151.5 million, $60 million of
which was financed by a first mortgage loan. The Partnership acquired its
interest by contributing $61,868,264 in cash, and assuming its share of the $60
million loan secured by a first mortgage on the property. The remaining 40%
interest in Two Park Company is currently owned by B & B Park Avenue L.P., of
which Mendik RELP Corporation was a general partner. The sole stockholder of the
other general partner was also the lender of the mortgages secured by the Park
Avenue Property. Pursuant to the partnership agreement of Two Park Company, each
partner has the right to implement "buy-sell" provisions. If either one of the
partners in Two Park Company exercises its buy-sell rights, then the other
partner could be compelled either to sell its interest in Two Park Company to
such other partner, for the purchase price set forth in the partnership
agreement of Two Park Company. In addition, under the partnership agreement of
Two Park Company, if either partner receives a bona fide offer to purchase its
interest in Two Park Company (which such partner is willing to accept), such
partner must give the other partner a right of first refusal to purchase its
partnership interest on the same terms and conditions as the bona fide offer.
<PAGE>
F-9
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
On December 13, 1996, FW/Mendik REIT LLC, an affiliate of Mendik RELP
Corporation, entered into a contract with the partners that own substantially
all of the interest in B & B Park Avenue L.P. to acquire their interest in B & B
Park Avenue L.P. The closing under the contract took place on April 15, 1997.
Following the closing, FW/Mendik REIT LLC conveyed its interest in B&B Park
Avenue L.P. 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.
At December 31, 1997 and 1996, the Partnership completed reviews of
recoverability of the carrying amount of the Park Avenue Property and related
accounts based upon estimated undiscounted cash flows expected to result from
the property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the property for long-term investment and,
therefore, management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. In light of the continued improvements in the Midtown
Manhattan commercial real estate market during 1996, management anticipated
positioning the property for sale over the next 12 to 24 months, and concluded
that the sum of the undiscounted future cash flow estimated to be generated by
the property over this shorter holding period was less than its carrying value.
As a result, the Partnership recorded a write-down in 1996, before consideration
of the minority interest's share of the write-down, of approximately $54,800,000
to reduce the property's carrying value to its 1996 estimated fair value of
$110,000,000. The fair value was obtained from an appraisal report prepared by
an independent appraiser.
Due to the Partnership's intention to market the Park Avenue Property for sale,
the Property was reclassified as "Property held for disposition," effective
September 30, 1997, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
The 34th Street Property In 1987, the Partnership acquired the leasehold
interest in the 34th Street Property, an eighteen-story structure containing
approximately 637,000 net rentable square feet (based on current standards of
measurement) from an affiliate of the Partnership. The building was purchased
from the affiliate for the purpose of facilitating the acquisition by the
Partnership. The purchase price of $35,611,400 consisted of the purchase price
to the affiliate plus the acquisition and closing costs and costs associated
with carrying the property. The building is situated on a 46,413 square foot
site.
At December 31, 1997 and 1996, the Partnership completed reviews of
recoverability of the carrying amount of the 34th Street Property and related
accounts based upon estimated undiscounted cash flows expected to result from
the property's use and eventual disposition. As of December 31, 1995, it was
management's intention to hold the property for long-term investment and,
therefore, management concluded that the sum of the undiscounted future cash
flow estimated to be generated over the investment's holding period was greater
than its carrying value. In 1996, management anticipated holding the property
for 12 to 24 months and concluded that the sum of the undiscounted future cash
flow estimated to be generated by the property over this shorter holding period
was less than its carrying value. As a result, the Partnership recorded a
write-down of approximately $4,700,000 to reduce the property's carrying value
to its estimated value of $4,000,000, which represents the property's appraised
value as of December 31, 1996. The value was obtained from an appraisal report
prepared by an independent appraiser.
Due to the Partnership' s intention to market the 34th Street Property for sale,
the Property was reclassified as "Property held for disposition," effective
September 30, 1997, in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
<PAGE>
F-10
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
The Saxon Woods Corporate Center In 1986, the Partnership acquired the
leasehold interest in Saxon Woods Corporate Center, two office buildings located
in Harrison, New York containing an aggregate of approximately 232,000 net
rentable square feet (based on current standards of measurement) from an
affiliate of the Partnership. The building was purchased from the affiliate for
the purpose of facilitating the acquisition by the Partnership. The purchase
price of $21,282,805 was paid from the proceeds of the Partnership's offering
and consisted of the purchase price to the affiliate plus the acquisition and
closing costs and costs associated with carrying the property. The buildings are
situated on a 15.28 acre site which is subject to two ground leases, each of
which terminates in September 2027 and provides the lessee with the option to
renew for two 25-year periods and one 39-year period. Each ground lease provides
for an annual net rental of $170,000 with an increase of $20,000 every five
years, commencing January 2001.
At December 31, 1997 and 1996, the Partnership completed reviews of
recoverability of the carrying amount of the property and related accounts based
upon estimated undiscounted cash flows expected to result from the property's
use and eventual disposition. As of December 31, 1995, it was management's
intention to hold the property for long-term investment and therefore management
concluded that the sum of the undiscounted future cash flow estimated to be
generated over the investment's holding period was greater than its carrying
value. As a result of the Partnership's intention to pursue a sale of the
property during 1997 and in accordance with FAS 121, the Partnership
reclassified the property on the Partnership's balance sheet as property held
for disposition at December 31, 1996. The carrying value of the property was
reduced as of December 31, 1996 from the prior carrying value of approximately
$21,600,000 to $16,200,000. The valuation allowance was based on management's
assessment of the estimated fair market value of the property as of December 31,
1996. The determination of fair market value of the property as of that date was
based upon the most recent independent appraisal of the property, less estimated
costs to sell. As of December 31, 1997, the Partnership recorded a recovery of
the provision for valuation allowance to increase the carrying value of the
property held for disposition to $20,000,000, the property's appraised value
less estimated costs to sell at December 31, 1997.
5. Mortgage and Notes Payable
The Park Avenue Property On September 18, 1987, the Partnership acquired its
interest in the Park Avenue Property by contributing $61,868,264 in cash, and
assuming its share of the $60 million loan secured by a first mortgage on the
property. On June 15, 1989, Two Park Company placed a second mortgage on the
Park Avenue Property in the amount of $10,000,000. Interest only was payable in
monthly installments at a rate of 10.791% through June 15, 1992 and thereafter
at the rate of 10.625% through December 19, 1998 at which time the full amount
of principal and any accrued interest would have been due and payable. In
November 1995, the Partnership prepaid, without penalty, the $10,000,000 second
mortgage. On December 26, 1990, Two Park Company placed a third mortgage on the
Park Avenue Property in the amount of $5,000,000. Interest only was payable in
full monthly installments at a rate of 11.5% through its maturity date of
December 19, 1998 at which time the full amount of principal and any accrued
interest was due and payable. In April 1997, Two Park Company refinanced the
existing mortgage loans. Under the new mortgage, which matures on March 1, 2000,
interest is payable at a floating rate (LIBOR plus 150 basis points). These
loans were assumed by the buyer upon the sale of the interest in the Park Avenue
Property.
The 34th Street Property The Partnership had a $30,000,000 credit facility in
the form of a first mortgage secured by the Partnership's leasehold interest on
the 34th Street Property (the "34th Street Line of Credit") with the First
National Bank of Chicago ("FNBC"). The lender agreed to advance amounts under
the credit facility up to 40% of the lesser of the appraised value of the 34th
Street Property or the value thereof as determined by the lender. The credit
facility was scheduled to mature on May 31, 1997. As of December 31, 1992,
$15,000,000 had been advanced under the 34th Street Line of Credit. As a result
of the default on the loan and the decline in the appraised value of the 34th
Street Property, the Partnership was prevented from borrowing any additional
funds.
<PAGE>
F-11
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
On June 26, 1995, the Partnership completed the payoff of the 34th Street Line
of Credit and the Partnership retained its interest in the property. FNBC agreed
to reduce the amount needed to pay off the 34th Street Line of Credit to $1.75
million compared to the property's outstanding debt balance of approximately $18
million, including accrued interest. Concurrently, an agreement was entered into
with an affiliate of NYRES1 to lend the Partnership the $1.75 million unsecured
loan needed to complete the payoff of the 34th Street Line of Credit (the
"NYRES1 Loan"). FNBC agreed to accept only $1.75 million in full satisfaction of
the 34th Street Line of Credit.
The NYRES1 Loan bore interest at the prime rate less one and one-quarter
percent. Payments of accrued interest and principal were payable to the extent
there was current net cash flow available from the 34th Street property or net
proceeds realized from the conveyance or refinancing of the 34th Street Property
or any of the Partnership's other properties. No cash flow payments have been
made on the NYRES1 Loan during the term of the loan. The NYRES1 Loan was
scheduled to mature upon the earlier of December 31, 2025 or the termination of
the Partnership. In connection with the NYRES1 Loan, Mendik Realty agreed to
defer collection of its management fees and leasing commissions associated with
any additional leasing activity that would otherwise have been payable with
respect to the property. The loan principal, accrued interest, and deferred fees
thereon were repaid from proceeds from the sale.
The Saxon Woods Corporate Center In September 1991, the Partnership established
a non-recourse line of credit of $6,500,000 secured by a first leasehold
mortgage on the property located at 550/600 Mamaroneck Avenue, Harrison, New
York (the "Saxon Woods Property"). The Saxon Woods Line of Credit had an
original term of five years at the rate of 2.5% per annum in excess of LIBOR.
The Partnership obtained from the lender extensions of the maturity of the
mortgage to the sale date. In addition, the Partnership was required to pay 1/2%
per annum on the undrawn balance of the Saxon Woods Line of Credit. As
additional security for the repayment of the Saxon Woods Line of Credit, the
Partnership deposited $500,000 with the lender, which deposit was used by the
Partnership to pay operating expenses in connection with the Saxon Woods
Property prior to borrowing any sums under the Saxon Woods Line of Credit for
operating expenses. The loan principal was assumed by the buyer upon the sale of
the Saxon Woods Property.
Mortgage and notes payable at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Secured by Park Avenue Property, bearing interest at a blended
rate of 8.16% in 1997 $65,000,000
Secured by Saxon Wood Corporate Center, bearing interest at
a blended rate of 8.72% in 1997 6,500,000
- --------------------------------------------------------------------------------
$71,500,000
===========
</TABLE>
Notes payable at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
Note payable to an affiliate of NYRES1, unsecured, bearing
interest at prime rate less 1.25% $ 1,750,000
Note payable to NYRES1, unsecured, bearing interest at
prime rate less 1.25% 330,000
Note payable to Mendik RELP Corporation, unsecured,
bearing interest at prime rate less 1.25% 150,000
- --------------------------------------------------------------------------------
$ 2,230,000
===========
</TABLE>
<PAGE>
F-12
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
6. Rental Income under Operating Leases
Substantially all of the operating leases of the Partnership's properties
provided for escalation charges to tenants for operating costs, real estate
taxes and electricity. For the years ended December 31, 1998, 1997 and 1996,
these amounts were $2,462,158, $2,790,259 and $2,793,437, respectively, which
amounts are included in rental income.
7. Transactions with General Partners and Affiliates
As of December 31, 1996 and throughout 1997, no cash and cash equivalents were
on deposit with an affiliate of a general partner or the Partnership. For the
fiscal year ended December 31, 1998, cash and cash equivalents were on deposit
with an affiliate of a General Partner of the Partnership in the amount of
$49,771,573.
The following is a summary of the amounts paid or accrued to the general
partners and their affiliates during the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
Paid or Accrued
--------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees and building
personnel salaries (A) $1,314,528 $1,459,012 $1,279,660
Leasing commissions (B) -- 310,557 170,981
Cleaning and related services (C)(D) 3,711,102 4,660,182 4,106,631
Security (E) 329,290 389,606 425,855
Administrative salaries and expenses (F) 251,323 206,431 --
- --------------------------------------------------------------------------------
$5,606,243 $7,025,788 $5,983,127
================================================================================
<FN>
(A) Mendik Realty and subsequent to April 15, 1997 Mendik Management ("Mendik")
received fees for the management of the Partnership's Properties and is
reimbursed for the cost of on-site building management staff. Salaries and
benefits for building personnel, which have remained under the payroll of
Mendik, for the years ended December 31, 1998, 1997 and 1996 totaled
$528,699, $498,232 and $487,796, respectively. Management fees paid or
payable to Mendik totaled $785,829, $960,780 and $791,864 for the years
ended December 31, 1998, 1997 and 1996, respectively. These amounts are
included in the table. Certain management fees included in the above amounts
were being deferred as discussed in Note 5.
(B) Mendik had agreed to limit the payment of leasing commissions at any
property in any year to not more than 3% of the gross operating revenues of
the property in such year less leasing commissions paid to other brokers in
connection with that property in such year. Any excess was deferred and
payable only if and to the extent such limit is not exceeded in the year
paid. As of December 31, 1998 all unpaid commissions and accrued interest
were paid.
(C) Building Maintenance Service LLC ("BMS"), an affiliate of Mendik RELP
Corporation, performed cleaning and related services at the properties. Such
cleaning and related services were provided by BMS at its cost plus an
allocable share of overhead expenses. Cleaning and related services payable
to BMS totaled $3,072,520, $3,625,689, and $3,185,018 for the years ended
December 31, 1998, 1997 and 1996, respectively. The salaries and benefits
for the property engineering staff were $495,886, $847,191 and $778,884 in
1998, 1997 and 1996, respectively. These amounts are included in the table.
<PAGE>
F-13
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
(D) BMS provides metal and marble cleaning services to the Partnership at its
cost plus an allocable share of overhead expenses, which were $142,696,
$187,302 and $142,729 in 1998, 1997 and 1996, respectively. These amounts
are included in the table.
(E) Guard Management Service Corporation, an affiliate of Mendik Corporation,
provided security services to the Partnership at its cost plus an allocable
share of overhead expenses, which in 1998, 1997 and 1996 totaled $329,290,
$389,606 and $425,855, respectively. These amounts are included in the
table.
(F) Commencing January 1, 1997, NYRES1, a general partner, was reimbursed for
certain administrative salaries and expenses, which in 1998 and 1997 totaled
$251,323 and $206,431, respectively. These amounts are included in the
table. NYRES1 prior to January 1, 1997 voluntarily absorbed these expenses.
(G) In conjunction with the sale of the Properties Mendik Realty/Management and
Lehman received payments of all deferred fees, reimbursements, escrow, loans
and accrued interest in the amount of $5,871,467.
(H) The Partnership owed to the General Partners $480,615 and $2,956,140 for the
years ended December 31, 1998 and 1997, respectively.
</FN>
</TABLE>
8. Litigation
Three purported class action lawsuits had 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
contemplated the sale of the Partnership's interests in Saxon Woods Corporate
Center, Two Park Avenue and 330 West 34th Street (collectively, the
"Properties"; the sale transaction is referred to herein as the "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 was approved by the Court
on September 23, 1998 and that decision became final and subject to no further
appeal on November 6, 1998. The Transaction closed on November 17, 1998.
Under the terms of the Settlement, the Partnership sold 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 was purchased by
an affiliate of Vornado Realty Trust for approximately $34.6 million, after
deducting $39 million of existing mortgage debt, paid in common stock of Vornado
Realty Trust. Saxon Woods Corporate Center and 330 West 34th Street were sold
for an aggregate price of $30 million in cash. The Partnership realized a gain
on sale of the Properties of $3,581,009.
Under the terms of the Settlement, the Partnership incurred total litigation
settlement costs of $2,957,843 for plaintiffs' attorneys' fees and expenses, and
payment of claims of former limited partners. These costs were paid from the
proceeds from the Sale in accordance with the Settlement.
<PAGE>
F-14
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
9. Reconciliation of Consolidated Financial Statement Net Income (Loss) and
Partners' Capital to Federal Income Tax Basis Net Income (Loss) and Partners'
Capital
Reconciliation of consolidated financial statement net income (loss) to federal
income tax basis net income (loss) follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial statement consolidated
net income (loss) $ 6,948,576 $ 5,113,351 $(47,091,683)
Financial statement writedown (recovery) adjustments
to real estate -- (2,920,968) 42,988,230
Tax basis depreciation over
financial statement depreciation (2,263,322) (1,830,341) (72,357)
Tax basis rental income over (under)
financial statement rental income 2,230,916 2,055,349 (819,983)
Tax basis recognition of net income (loss) of
consolidated venture (under) over
financial statement recognition of income (loss) of
consolidated venture (3,447,520) (2,568,478) 1,033,441
Tax basis recognition of loss on property sale
over financial statement gain on sale (34,990,924) -- --
Tax basis recognition of loss on sale of joint
venture over financial statement gain on sale (25,367,259) -- --
Other 23,797 -- --
- ---------------------------------------------------------------------------------------------------
Federal income tax basis net income (loss) $(56,865,736) $ (151,087) $ (3,962,352)
===================================================================================================
</TABLE>
Reconciliation of financial statement partners' capital to federal income tax
basis partners' capital:
<TABLE>
<CAPTION>
As of December 31,
------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial statement basis partners' capital $ 2,926,265 $ 44,687,388 $ 39,574,037
Current year financial statement net
income (loss) over (under) Federal income
tax basis net income (loss) (63,814,312) (5,264,438) 43,129,331
Cumulative financial statement
net income (loss) over cumulative Federal
income tax basis net income (loss) 86,691,415 91,955,853 48,826,522
- ---------------------------------------------------------------------------------------------------
Federal income tax basis partners' capital $ 25,803,368 $131,378,803 $131,529,890
===================================================================================================
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under Federal and state tax laws and regulations, the amounts reported above may
be subject to change at a later date upon final determination by the taxing
authorities.
<PAGE>
F-15
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1998
<TABLE>
<CAPTION>
Consolidated
Venture:
500/600 330 West Two Park
Description: Mamaroneck Ave 34th Street Avenue Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Location Harrison, NY New York, NY New York, NY na
Construction date 1969-1972 1925 1930 na
Acquisition date 09-04-86 04-23-87 09-18-87 na
Life on which depreciation in latest
income statements is computed 25 yrs. 20 yrs. 35 yrs. na
Encumbrances $ -- $ -- $ -- $ --
----------------------------------------------------------------
Initial cost to Partnership:
Land $ -- $ -- $ 27,140,745 $ 27,140,745
Buildings and improvements 21,282,805 35,611,400 130,411,744 187,305,949
----------------------------------------------------------------
Costs capitalized subsequent to acquisition:
Land -- -- (3,661) (3,661)
Buildings and improvements 12,353,260 11,609,330 50,638,485 74,601,075
Accumulated depreciation (13,508,629) (1,478,857) (55,968,836) (70,956,322)
Write-down adjustments:
Land -- -- (9,608,921) (9,608,921)
Buildings and improvements (127,436) (43,401,058) (45,159,328) (88,687,822)
----------------------------------------------------------------
Gross amount at which
carried at close of period:
Adjusted Basis of Properties
held for disposition at 12/31/97 $ 20,000,000 $ 2,340,815 $ 97,450,228 $ 119,791,043
1998 Improvements 197,598 260,977 7,945,814 8,404,389
1998 Deletions (20,197,598) (2,601,792) (105,396,042) (128,195,432)
----------------------------------------------------------------
Property held for disposition
at 12/31/98 $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------
</TABLE>
For Federal income tax purposes, the basis of land, building and improvements
wholly owned by the Partnership at December 31, 1997 is $80,159,059.
<PAGE>
F-16
MENDIK REAL ESTATE LIMITED PARTNERSHIP
AND CONSOLIDATED VENTURE
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Beginning of year $ -- $102,807,671 $ 241,634,143
Additions -- 896,733 6,391,539
Deletions -- (71,238) (660,870)
Write down adjustment -- -- (128,357,141)
Accumulated depreciation -- (3,842,123) --
Reclass to held for disposition -- (99,791,043) (16,200,000)
----------------------------------------------
End of year $ -- $ -- $ 102,807,671
----------------------------------------------
Properties held for disposition (1)
Beginning of year $ 119,791,043 $ 16,200,000 $ --
Additions 8,404,389 879,032 --
Recovery of provision for valuation allowance -- 2,920,968 --
Cost of properties sold (128,195,432) -- --
Reclass to held for disposition -- 99,791,043 16,200,000
----------------------------------------------
Total $ -- $119,791,043 $ 16,200,000
----------------------------------------------
Accumulated depreciation:
Beginning of year $ -- $ -- $ 58,172,619
Depreciation expense -- 3,913,361 9,602,450
Deletions -- (71,238) (660,870)
Write down adjustment -- (3,842,123) (67,114,199)
----------------------------------------------
End of year $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------
<FN>
(1): As of December 31, 1996, the Partnership accounted for the Saxon Woods
Property as held for disposition. Additionally, as of September 30, 1997, the
Partnership accounted for the Park Avenue Property and the 330 West 34th Street
Property as held for disposition.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 50,641,931
<SECURITIES> 000
<RECEIVABLES> 1,157,368
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 5,000
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 51,804,299
<CURRENT-LIABILITIES> 941,067
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 2,926,265
<TOTAL-LIABILITY-AND-EQUITY> 51,804,299
<SALES> 000
<TOTAL-REVENUES> 34,519,711
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 21,981,768
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 4,954,042
<INCOME-PRETAX> 3,909,523
<INCOME-TAX> 000
<INCOME-CONTINUING> 3,909,523
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 6,948,576
<EPS-PRIMARY> 17.41
<EPS-DILUTED> 17.41
</TABLE>
