United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the Quarterly Period Ended September 30, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 33-8105
STAMFORD TOWERS LIMITED PARTNERSHIP
AND
STAMFORD TOWERS DEPOSITARY CORP.
----------------------------------------------------
Exact Name of Registrant as Specified in its Charter
Stamford Towers Limited Partnership
is a Delaware limited partnership 13-3392080
Stamford Towers Depositary Corp.
is a Delaware corporation 13-3392081
- ------------------------------- --------------------
State or Other Jurisdiction I.R.S. Employer Identification No.
of Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- ------------------------------------- --------
Address of Principal Executive Offices Zip Code
(212) 526-3237
------------------------
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Balance Sheets At September 30, At December 31,
1997 1996
Assets
Real estate, at cost:
Land $ -- $14,714,483
Buildings and improvements -- 52,933,678
Tenant improvements -- 8,191,558
Furniture, fixtures and equipment -- 293,864
-- 76,133,583
Less accumulated depreciation -- (16,104,668)
-- 60,028,915
Real estate assets held for disposition 45,575,000 --
Cash and cash equivalents 5,252,557 5,668,459
Restricted cash 970,004 337,676
Accounts receivable 73,445 80,245
Deferred rent receivable -- 1,843,289
Deferred charges, net of accumulated amortization
of $7,238 in 1997 and $701,187 in 1996 144,765 53,896
Prepaid expenses, net of accumulated amortization
of $934,564 in 1996 194,317 1,632,689
Total Assets $52,210,088 $69,645,169
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 2,564,086 $ 2,793,018
Interest payable 117,179 134,080
Due to affiliates 40,110 128,262
Revolving loan payable 18,429,150 17,798,291
Total Liabilities 21,150,525 20,853,651
Partners' Capital (Deficit):
General Partner (407,390) (230,070)
Limited Partners (7,826,300 units outstanding) 31,466,953 49,021,588
Total Partners' Capital 31,059,563 48,791,518
Total Liabilities and Partners' Capital $52,210,088 $69,645,169
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1997
General Limited
Partner Partners Total
Balance at December 31, 1996 $(230,070) $ 49,021,588 $ 48,791,518
Net loss (177,320) (17,554,635) (17,731,955)
Balance at September 30, 1997 $(407,390) $ 31,466,953 $ 31,059,563
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income
Rental $1,260,087 $ 995,276 $ 3,701,414 $ 2,876,973
Interest 66,802 67,833 192,511 197,488
Other 98,081 53,978 314,348 168,952
Total income 1,424,970 1,117,087 4,208,273 3,243,413
Expenses
Property operating 596,436 657,837 1,881,197 1,871,648
Depreciation and amortization 537,474 522,972 1,628,519 1,544,592
Interest 351,934 397,915 1,133,138 1,144,275
Professional fees 54,254 84,346 111,882 225,141
General and administrative 113,855 42,554 292,487 110,663
Provision for loss on real estate
held for disposition 16,893,005 -- 16,893,005 --
Total expenses 18,546,958 1,705,624 21,940,228 4,896,319
Net Loss $(17,121,988) $(588,537) $(17,731,955) $(1,652,906)
Net Loss Allocated:
To the General Partner $ (171,220) $ (5,885) $ (177,320) $ (16,529)
To the Limited Partners (16,950,768) (582,652) (17,554,635) (1,636,377)
$(17,121,988) $(588,537) $(17,731,955) $(1,652,906)
Per limited partnership unit
(7,826,300 outstanding) $(2.17) $(.07) $(2.24) $(.21)
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities
Net loss $(17,731,955) $(1,652,906)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 1,420,092 1,331,353
Amortization 208,427 213,239
Provision for loss on real estate held
for disposition 16,893,005 --
Increase (decrease) in cash arising from changes in
operating assets and liabilities
Restricted cash (632,328) (246,185)
Accounts receivable 6,800 22,309
Deferred rent receivable 107,381 60,353
Deferred charges (152,003) --
Prepaid expenses (331,676) (565,920)
Accounts payable and accrued expenses (314,275) (147,240)
Interest payable (16,901) 7,037
Due to affiliates (88,152) (525)
Net cash used for operating activities (631,585) (978,485)
Cash Flows From Investing Activities
Additions to real estate (415,176) (1,161,343)
Net cash used for investing activities (415,176) (1,161,343)
Cash Flows From Financing Activities
Borrowings under the revolving loan payable 630,859 1,315,139
Net cash provided by financing activities 630,859 1,315,139
Net decrease in cash and cash equivalents (415,902) (824,689)
Cash and cash equivalents, beginning of period 5,668,459 5,873,982
Cash and cash equivalents, end of period $5,252,557 $5,049,293
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $1,015,959 $1,137,238
Supplemental Disclosure of Non-Cash Investing Activities
Write-off of fully depreciated
furniture, fixtures and equipment $ 61,911 $ 84,926
Write-off of fully depreciated tenant improvements 76,285 --
Write-off of fully amortized mortgage costs 755,083 --
Building improvements funded through accounts payable 1,293 --
Tenant improvements funded through accounts payable 84,050 --
Supplemental Disclosure of Non-Cash Operating Activities
In connection with the General Partner's intent to sell the Property in 1997,
deferred rent receivable and prepaid leasing commissions in the amounts of
$1,735,908 and $1,622,755, respectively, were reclassified to Real estate
assets held for disposition.
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1996 audited financial statements within Form 10-K.
The unaudited interim financial statements include all adjustments which are,
in the opinion of management, necessary to present a fair statement of
financial position as of September 30, 1997 and the results of operations for
the three and nine months ended September 30, 1997 and 1996, cash flows for
the nine months ended September 30, 1997 and 1996, and the statement of
partners' capital (deficit) for the nine months ended September 30, 1997.
Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
The following significant event has occurred subsequent to fiscal year 1996,
which requires disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
Effective as of January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the partnership agreement. In prior
years, affiliates of the General Partner had voluntarily absorbed these
expenses.
Mortgage Note Payable
On May 15, 1997, the Partnership entered into a second modification of the
First Mortgage Loan with People's Bank (the "Lender") which extends the
maturity date until June 1, 2004 (the "Modified Mortgage"). The Modified
Mortgage is split into two components: (i) the permanent portion (the
"Permanent Portion") which is comprised of the existing balance of the First
Mortgage Loan, closing costs associated with the Modified Mortgage and any
future drawdowns, and (ii) the development portion (the "Development Portion")
from which the Partnership may request the drawdown of funds with the Lender's
approval to fund the costs of leasing the Property. At closing, the balance of
the Permanent Portion was $18,491,473 which included recent drawdowns for
leasing costs and the closing costs associated with the Modified Mortgage and
the balance of the Development Portion was $5,958,322. Annually, any
borrowings under the Development Portion of the Modified Mortgage will be added
to the Permanent Portion and reduce the funds available for future drawdowns by
a commensurate amount. The Permanent Portion currently bears interest at an
initial rate of 7.63% and is amortized over a 25 year period and the
Development Portion currently bears interest at an initial rate of 7.83%.
Interest rates on both the Permanent Portion and the Development Portion are
adjusted annually on June 1, beginning June 1, 1998.
Another condition of the Financing is the establishment of a real estate tax
escrow account set up with People's Bank (the "Lender") into which monthly
deposits equal to 1/12th of the annual real estate taxes will be made. In
addition, a deposit representing an amount equal to the 10% holdback on the
contested tax years of July 1994 through May 31, 1997 was made prior to the
closing. As of September 30, 1997 the balance in the real estate tax escrow
account was $467,395.
Real Estate Assets Held For Disposition
The Partnership's real estate assets, deferred rent receivable and prepaid
leasing commissions were reclassified on the balance sheet at September 30,
1997 to "Real estate assets held for disposition." Effective October 1, 1997,
the Partnership will suspend depreciation and amortization in accordance with
the Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
In addition, the Partnership recognized a one-time expense of $16,893,005 as
provision for loss on real estate held for disposition.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Partnership is currently preserving its funds to lease and operate two
parcels of land located in Stamford, Connecticut with two commercial office
buildings constructed thereon containing a total of 325,416 RSF (the
"Project"). Through September 30, 1997, the Partnership's sources of liquidity
have been net proceeds from the public offering of limited partnership units,
rental receipts, proceeds from the mortgage loan discussed below and interest
earned on the Partnership's cash balance.
In order to meet the Partnership's liquidity requirements during the Project's
leasing phase, the Partnership obtained a revolving first mortgage loan from
People's Bank ("People's") in July 1990. On February 17, 1994, the Partnership
entered into a modification of the loan's terms with People's which, among
other things, reduced the principal balance of the loan from $25 million to
$24,449,795, and eliminated the interest reserve line item. Another provision
of the loan provided that when occupancy at the Project reached 50% or greater,
the interest rate on the loan would be reduced by 25 basis points. During the
first quarter of 1996, the Partnership signed a 10-year lease with Cardmember
Publishing Corporation ("Cardmember Publishing") for approximately 18,650
square feet in the South Tower. The Cardmember Publishing lease in the South
Tower commenced on March 15, 1996 which brought the Project's overall occupancy
to approximately 54%. Payments of interest are due monthly in arrears and are
required to be paid from the Partnership's own funds. Loan proceeds may
continue to be used on an "as needed" basis to fund all other approved leasing
costs.
On May 15, 1997, the Partnership entered into a second modification of the
First Mortgage Loan with People's Bank (the "Lender") which extends the
maturity date until June 1, 2004 (the "Modified Mortgage"). The Modified
Mortgage is split into two components: (i) the permanent portion (the
"Permanent Portion") which is comprised of the existing balance of the First
Mortgage Loan, closing costs associated with the Modified Mortgage and any
future drawdowns, and (ii) the development portion (the "Development Portion")
from which the Partnership may request the drawdown of funds with the Lender's
approval to fund the costs of leasing the Property. At closing, the balance of
the Permanent Portion was $18,491,473 which included recent drawdowns for
leasing costs and the closing costs associated with the Modified Mortgage and
the balance of the Development Portion was $5,958,322. Annually, any
borrowings under the Development Portion of the Modified Mortgage will be added
to the Permanent Portion and reduce the funds available for future drawdowns by
a commensurate amount. The Permanent Portion currently bears interest at an
initial rate of 7.63% and is amortized over a 25 year period and the
Development Portion currently bears interest at an initial rate of 7.83%.
Interest rates on both the Permanent Portion and the Development Portion are
adjusted annually on June 1, beginning June 1, 1998.
Another condition of the Financing is the establishment of a real estate tax
escrow account set up with the Lender into which monthly deposits equal to
1/12th of the annual real estate taxes will be made. In addition a deposit
representing an amount equal to the 10% holdback on the contested tax years of
July 1994 through May 31, 1997 was made prior to the closing. As of September
30, 1997 the balance in the real estate tax escrow account is $467,395.
The Project's overall occupancy remained at 78% as of September 30, 1997,
compared to 72% as of year-end 1996. However, to date in the fourth quarter of
1997, one new lease totaling 5,238 square feet was executed. As a result, the
Project is currently 79% leased.
The General Partner has decided to commence marketing the Project for sale.
This determination was made after carefully considering a number of factors
including, among others, the following: the recently improved operating
performance of the Project; the overall health of the economy; the
strengthening of national real estate and capital markets; and a number of
proposals for the new development of buildings in Stamford that, if completed,
would directly compete with the Project. Although the Partnership has retained
the services of Insignia Capital Advisors Inc., a nationally recognized real
estate broker, to assist in its marketing efforts, there can be no assurance
that these efforts will result in a sale, or that a sale, if completed, will
result in any particular level of net sales proceeds. Upon completion of the
sale of the Project and resolution of the Partnership litigation, the General
Partner intends to dissolve the Partnership and will make one or more
liquidating distributions in accordance with the terms of the Partnership
Agreement. It is anticipated, however, that certain reserves will need to be
maintained for a period of time following the sale of the Project for certain
contingent liabilities of the Partnership.
In light of the Partnership's marketing efforts, the Partnership's real estate
assets, deferred rent receivable and prepaid leasing commissions were
reclassified on the balance sheet at September 30, 1997 to "Real estate assets
held for disposition." Effective October 1, 1997, the Partnership will suspend
depreciation and amortization in accordance with the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In addition, the
partnership recognized a one time expense of $16,893,005 as provision for loss
on real estate held for disposition.
Cash and cash equivalents totaled $5,252,557 at September 30, 1997 as compared
to $5,668,459 at December 31, 1996. The decrease was primarily due to net cash
used for real estate additions.
Restricted cash at September 30, 1997 totaled $970,004 as compared to $337,676
at December 31, 1996. The increase is primarily the result of the funding of
the real estate tax escrow with People's Bank as required by the Modified
Mortgage, and security deposits received by the Partnership from Life Extension
Institute, a tenant in the North Tower, and Tradition Financial Services, a
tenant in the South Tower.
At September 30, 1997, deferred charges net of accumulated amortization was
$144,765, compared to $53,896 at December 31, 1996. The increase is the result
of capitalized fees associated with the modification of the revolving loan
agreement with People's Bank, offset by amortization of these fees.
Prepaid expenses totaled $194,317 at September 30, 1997 as compared to
$1,632,689 at December 31, 1996. The decrease is primarily due to the
reclassification of prepaid leasing commissions to "Real estate assets held for
disposition" as discussed above. The remaining balance consists of prepaid
real estate taxes and insurance.
At September 30, 1997, interest payable was $117,179 as compared to $134,080 at
December 31, 1996. The decrease is the due to a lower monthly interest rate
and amortization of the mortgage in accordance with the loan modification.
Due to affiliates totaled $40,110 at September 30, 1997 as compared to $128,262
at December 31, 1996. The decrease is primarily due to the payment of fees and
compensation in connection with the organization, syndication and acquisition
services rendered at the inception of the Partnership which were earned, but
had remained unpaid.
Results of Operations
The Partnership incurred net losses of $17,121,988 and $17,731,955,
respectively, for the three and nine months ended September 30, 1997, as
compared with net losses of $588,537 and $1,652,906, respectively, for the
corresponding periods in 1996. The higher net losses are primarily the result
of a loss in the amount of $16,893,005 recognized in 1997 in compliance with
Financial Accounting Standard No. 121. Excluding this loss, the Partnership
incurred adjusted net losses of $228,983 and $838,950, respectively, for the
three and nine months ended September 30, 1997. The lower adjusted net losses
in 1997 were primarily the result of higher rental income.
Rental income totaled $1,260,087 and $3,701,414, respectively, for the three
and nine months ended September 30, 1997 as compared to $995,276 and
$2,876,973, respectively, for the corresponding periods in 1996. The increase
is primarily due to the addition of new tenants to the North Tower and South
Tower.
For the three and nine months ended September 30, 1997, other income was
$98,081 and $314,348, respectively, compared to $53,978 and $168,952 for the
corresponding periods in 1996. The increase is the result of higher tenant
reimbursements attributable to the increase in occupancy during the 1997
period.
Property operating expenses were $596,436 and $1,881,197, respectively, for the
three and nine months ended September 30, 1997, largely unchanged from $657,837
and $1,871,648, respectively, for the corresponding periods in 1996, as
increases in utilities, cleaning and security costs were offset by lower
repairs and maintenance and payroll costs.
Professional fees totaled $54,254 and $111,882 for the three and nine months
ended September 30, 1997 compared with $84,346 and $225,141 for the 1996
periods. The decrease is attributable to lower engineering consulting fees
associated with the Gilbane litigation (See Part II, Item 1), and lower legal
fees associated with leasing activity in the South Tower during the second
quarter of 1996.
For the three and nine months ended September 30, 1997, general and
administrative expenses were $113,855 and $292,487, respectively, compared to
$42,554 and $110,663 for the corresponding 1996 periods. During the 1997
periods, certain expenses incurred by the General Partner, its affiliates and
an unaffiliated third party service provider in servicing the Partnership,
which were voluntarily absorbed by affiliates of the General Partner in prior
periods, were reimbursable to the General Partner and its affiliates. The
increase is also partially the result of increased costs associated with the
printing and mailing of investor correspondence.
Part II Other Information
Item 1 Legal proceedings.
In February 1991, Gilbane filed a mechanic's lien against the
Property in the sum of $4,583,481. This amount was subsequently
reduced to $2,650,018 at the request of the Partnership. In August
1991, Gilbane commenced an action entitled Gilbane Building Co. v.
Stamford Towers Limited Partnership, et. al., in the Connecticut
Superior Court for the Judicial District of Stamford/Norwalk at
Stamford (the "Gilbane Action"). The defendants include the
Partnership. Gilbane alleges breach of various contracts and unfair
trade practices and seeks foreclosure of its mechanic's lien,
approximately $2.65 million in monetary damages, interest, costs,
attorneys' fees, punitive damages, possession of the Property, and
the appointment of a receiver.
In October 1993, the Partnership filed its Answer, Special Defenses
and Counterclaims to Gilbane's Action, which alleged breach of
various contracts, unfair trade practices and slander of title. In
September 1995, the Partnership filed a Substituted Answer, Special
Defenses, Counterclaims, Set-offs and Recoupment which, in addition
to the allegations of its original counterclaim, brought additional
claims of negligence, breach of warranty, breach of contract,
products liability and unfair trade practices. The Partnership, by
way of its counterclaims, seeks approximately $1.7 million in damages
in addition to interest, costs, punitive damages and attorneys' fees.
In December 1990, a subcontractor of the Project, Moliterno Stone
Sales, Inc. ("Moliterno") filed a mechanic's lien against the
Property in the sum of $155,936. On December 11, 1991, Moliterno
filed a cross-claim against the Partnership in the Gilbane Action.
Moliterno seeks foreclosure on its mechanic's lien, monetary damages,
and possession of the Project. An application to discharge
Moliterno's mechanic's lien was filed by the Partnership on April 30,
1993. In September 1995, the Partnership filed its answer, special
defenses and counterclaims to Moliterno's cross- claim, alleging that
Moliterno was negligent, breached its contract and an implied
warranty, and engaged in unfair trade practices in performing its
work on the Property.
The Partnership, Gilbane and Moliterno (collectively, the "Parties")
participated in the trial of the Gilbane Action over the course of
approximately 20 trial days in late 1995. A final trial day was held
and the evidentiary portion of the trial was completed in April 1996.
At that time, the court ordered the Parties to file initial
post-trial briefs within three weeks. Subsequently, Gilbane
requested two extensions of this deadline. The Parties exchanged
post trial briefs in June 1996, followed by reply briefs in July
1996. Under the court's current order, all submissions to the court
have been completed.
In November 1996, Judge Ryan of the Connecticut Superior Court (the
"Court") entered a decision in this proceeding. The decision awarded
Gilbane $770,070 without interest on one of its claims against the
Partnership and dismissed Gilbane's remaining claims. The Court also
awarded Moliterno $155,000 without interest on its claim against the
Partnership. All remaining claims, including the Partnership's
counterclaims, were dismissed.
Motions to alter the decision were denied by the Court on March 13,
1997. On October 24, 1997, the Court entered a final judgment
confirming the foregoing awards and further awarding Gilbane and
Moliterno interest and attorneys' fees of approximately $397,000 and
$72,000, respectively. It is anticipated that both the Partnership
and Gilbane will appeal.
Given the outcome of the November 1996 judgment, the Partnership has
accrued the Gilbane and Moliterno awards of $770,070 and $155,000,
respectively. The amounts are currently reflected within accounts
payable and accrued expenses on the Partnership's September 30, 1997
balance sheet.
As previously reported, the Partnership entered into a development
agreement dated September 17, 1986, as modified (the "Development
Agreement"), with an unaffiliated party, Edlar, Inc. (the
"Developer"), pursuant to which the Developer conveyed to the
Partnership the land in Stamford, Connecticut, which has been
improved with two commercial buildings. Edward Feldman ("Feldman"),
the principal shareholder of the Developer, had executed a personal
guaranty (the "Guaranty") in favor of the Partnership guaranteeing
the Developer's payment obligations under the Development Agreement.
Following the construction of such buildings, the Partnership
commenced an arbitration proceeding in January 1989 against the
Developer to resolve various disputes and seeking certain monetary
recoveries. On January 24, 1993, the arbitration panel issued its
decision awarding approximately $8.1 million to the Partnership, as
well as certain declaratory relief. Subsequently, the Partnership
obtained a judgment from a court of the State of New York for the
full amount of arbitration award in the sum of approximately $8.1
million against the Developer and also against Feldman pursuant to
his Guaranty. The General Partner's investigation, however,
indicated that the Developer has no significant assets from which the
arbitration award in favor of the Partnership could be satisfied.
Moreover, Feldman advised the Partnership that he has no significant
liquid assets with which to satisfy the judgment against him and that
he has outstanding debts to other creditors of approximately $53
million. The foregoing information is set forth in the Partnership's
Form 10-K for the fiscal year ended December 31, 1996, in Item 1
"Business" and Item 3 "Legal Proceedings."
During May 1997, the Partnership learned that on or about January 21,
1997, Feldman commenced a voluntary case for liquidation pursuant to
chapter 7 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of New York. On July 31,
1997, the Partnership filed a Proof of Claim in Feldman's chapter
7 case in the amount of $11,313,231.76, which includes interest of
approximately $2.7 million on the $8.1 million judgment. Feldman's
chapter 7 case is jointly administered with the chapter 7 case of his
wife. A chapter 7 trustee has been appointed for the chapter 7
estates of Feldman and his wife. The summary of the assets and
liabilities filed by Feldman and his wife with the Bankruptcy Court
in their chapter 7 case indicates that their assets are less than
1.5% of the scheduled liabilities. Based upon such schedules, it is
likely that after payment of the expenses of the administration of
Feldman's chapter 7 case, little or no distribution will be made to
the Partnership as a holder of a general unsecured claim.
Items 2-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STAMFORD TOWERS LIMITED PARTNERSHIP
BY: STAMFORD TOWERS, INC.
General Partner
Date: November 14, 1997 BY: /s/Jeffrey C. Carter
Name: Jeffrey C. Carter
Title: Director, President and
Chief Financial Officer
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<RECEIVABLES> 73,445
<ALLOWANCES> 000
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