<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-16865
Nantucket Island Associates Limited Partnership
-----------------------------------------------
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2948435
------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
------------------------------------ ------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
--------------
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
1 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 175 $ 10,396
Restricted cash 5,085 742
Accounts receivable less allowance for doubtful
accounts of $22 (1997) and $23 (1996) 1,121 496
Inventory 343 272
Escrows and other current assets 1,303 469
------------- ------------
Total current assets 8,027 12,375
Property and equipment, net of accumulated deprecation
of $22,709 (1997) and $20,906 (1996) 51,326 48,115
Deferred rent receivable 408 392
Deferred costs, net of accumulated amortization of
$2,344 (1997) and $2,065 (1996) 1,880 1,457
Deposits -- 179
------------- ------------
Total assets $ 61,641 $ 62,518
============= =============
Liabilities and Partners' Equity
Accounts payable $ 238 $ 146
Accrued expenses and other liabilities 722 796
Advance deposits 473 150
Current maturity of long-term debt 463 26,053
Accrued interest 398 428
------------- ------------
Total current liabilities 2,294 27,573
Long-term debt 23,152 202
------------- ------------
Total liabilities 25,446 27,775
------------- ------------
Commitments
Partners' equity:
Limited partners' equity, 785 units authorized, issued,
and outstanding 35,534 35,199
Preferred limited partners' equity, 785 units
authorized, issued, and outstanding 11,015 9,921
General partners' (deficit) (10,354) (10,377)
------------- ------------
Total partners' equity 36,195 34,743
------------- ------------
Total liabilities and partners' equity $ 61,641 $ 62,518
============= =============
</TABLE>
See notes to consolidated financial statements.
2 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Nine Months Ended
September 30, September 30,
1997 1996
------------- ------------
<S> <C> <C>
Revenue:
Hotel operations $ 6,163 $ 5,772
Restaurant operations 2,325 1,724
Commercial rental operations 3,287 3,109
Boat basin operations 2,547 2,387
------------- ------------
Total revenue 14,322 12,992
------------- ------------
Operating expenses:
Hotel 1,429 1,480
Restaurant 2,022 1,560
Commercial rental 229 244
Boat basin 912 817
Other 392 311
Real estate taxes and insurance 951 1,031
General and administrative 1,425 1,667
Marketing and promotion 461 564
Repairs and maintenance 985 828
Utilities 516 466
Management fees 497 452
Amortization 279 225
Depreciation 1,803 1,692
------------- ------------
Total operating expenses 11,901 11,337
------------- ------------
Income from operations 2,421 1,655
------------- ------------
Other income (expense):
Interest income 180 44
Other income 800 674
Interest expense (1,949) (1,847)
------------- ------------
Total other (expense), net (969) (1,129)
------------- ------------
Net income $ 1,452 $ 526
============= =============
Net income allocated to general partners $ 23 $ 26
============= =============
Net income allocated to limited partners $ 335 $ 500
============= =============
Net income allocated to preferred limited partners $ 1,094 $ --
============= =============
Net income per Limited Partnership Unit $ 426.75 $ 636.94
============= =============
Net income per Limited Partnership Preferred Unit $ 1,393.63 $ --
============= =============
</TABLE>
See notes to consolidated financial statements.
3 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Three Months Ended
September 30, September 30,
1997 1996
------------- ------------
<S> <C> <C>
Revenue:
Hotel operations $ 4,691 $ 4,329
Restaurant operations 1,671 1,109
Commercial rental operations 1,970 1,790
Boat basin operations 2,224 2,022
------------- ------------
Total revenue 10,556 9,250
------------- ------------
Operating expenses:
Hotel 830 844
Restaurant 1,282 901
Commercial rental 78 100
Boat basin 699 598
Other 224 159
Real estate taxes and insurance 337 268
General and administrative 631 666
Marketing and promotion 171 162
Repairs and maintenance 323 267
Utilities 228 195
Management fees 287 254
Amortization 98 75
Depreciation 653 564
------------- ------------
Total operating expenses 5,841 5,053
------------- ------------
Income from operations 4,715 4,197
------------- ------------
Other income (expense):
Interest income 48 25
Other income 523 448
Interest expense (555) (642)
------------- ------------
Total other (expense), net 16 (169)
------------- ------------
Net income $ 4,731 $ 4,028
============= =============
Net income allocated to general partners $ 187 $ 201
============= =============
Net income allocated to limited partners $ 2,765 $ 3,827
============= =============
Net income allocated to preferred limited partners $ 1,779 $ --
============= =============
Net Income per Limited Partnership Unit $ 3,522.29 $ 4,875.16
============= =============
Net Income per Limited Partnership Preferred Unit $ 2,266.24 $ --
============= =============
</TABLE>
See notes to consolidated financial statements.
4 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Consolidated Statement of Changes in Partners' Equity (Deficit) (Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
Preferred
Units of Preferred Units Investor Investor
Limited of Limited Limited Limited General Total
Partnership Partnership Partners' Partners' Partners' Partners'
Interest Interest Equity Equity Deficit Equity
----------- -------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 785 785 $ 35,199 $ 9,921 $ (10,377) $ 34,743
Net income - - 335 1,094 23 1,452
----------- ------------ ------------ ------------- ------------- ------------
Balance - September 30, 1997 785 785 $ 35,534 $ 11,015 $ (10,354) $ 36,195
=========== =========== ============ ============ ============= ============
</TABLE>
See notes to consolidated financial statements.
5 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In thousands) For the Nine Months Ended
September 30, September 30,
1997 1996
------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,452 $ 344
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,803 1,692
Amortization 279 225
Changes in assets and liabilities:
Accounts receivable (624) (280)
Provision for doubtful accounts (1) (36)
Inventory (71) 69
Escrows and other current assets (834) (131)
Deferred rent receivable (16) (43)
Deposits 179 (5)
Accrued interest (30) (17)
Accounts payable 92 9
Accrued expenses and other liabilities (74) (152)
Advance deposits 323 99
------------- ------------
Net cash provided by operating activities 2,478 1,774
------------- ------------
Cash Flows from Investing Activities:
Expenditures for property and equipment (5,014) (452)
(Increase) in restricted cash reserves (4,343) (1,210)
------------- ------------
Cash used in investing activities (9,357) (1,662)
------------- ------------
Cash Flows from Financing Activities:
Loan from related party - 600
Satisfaction of mortgage (26,000) (138)
Proceeds from mortgage refinancing 23,600 -
Principal payments on long-term debt (240) -
Deferred costs paid at refinancing (702) -
------------- ------------
Net cash (used in) provided by financing
activities (3,342) 462
------------- ------------
Net (decrease) increase in cash and cash equivalents (10,221) 574
Cash and cash equivalents, beginning of period 10,396 279
------------- ------------
Cash and cash equivalents, end of period $ 175 $ 853
============= =============
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest $ 1,979 $ 1,838
============= =============
</TABLE>
See notes to consolidated financial statements.
6 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying financial statements, footnotes and discussions should
be read in conjunction with the financial statements, related footnotes
and discussions contained in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1996.
The financial information contained herein is unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of
such financial information have been included. All adjustments are of a
normal recurring nature. Certain amounts have been reclassified to
conform to the September 30, 1997 presentation. The balance sheet at
December 31, 1996 was derived from audited financial statements at such
date.
The results of operations for the nine months ended September 30, 1997
and 1996 are not indicative of the results to be expected for the full
year, due to the seasonal nature of the Partnership's business.
2. Related Party Transactions
The following transactions with affiliates of the General Partner were
charged to expense during the nine month periods ended September 30,
1997 and 1996:
For the Nine Months Ended
September 30,
--------------------------
1997 1996
----------- ------------
Partnership administration fee $ 190,000 $ 179,000
Management fee 70,000 62,000
Reimbursement of administration expenses 32,000 36,000
The Partnership also rents certain facilities from affiliates of the
general partner. These rents amounted to approximately $60,000 for each
of the periods ended September 30, 1997 and 1996.
3. Mortgage Refinancing
The mortgage loan encumbering the property was refinanced in February
1997. The new $23,600,000 floating rate note adjusts annually,
depending on debt service coverage, to a rate between LIBOR plus 3.25%
and LIBOR plus 3.75%. The rate at September 30, 1997 is approximately
9% (LIBOR plus 3.5%). The loan requires monthly payments of interest
and principal based on a twenty year amortization schedule and matures
in February 2000 with a balloon payment of approximately $22,343,000.
The Partnership has two one year options to extend the debt. The
Partnership paid approximately $702,000 in fees and expenses, including
the purchase of an interest rate collar. The loan agreement also
provides for an additional $600,000 draw down to be used for the
construction of four cottages at the properties.
7 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Allocation of Income
In accordance with the amended partnership agreement, net income has
been allocated, first, to the Preferred Unitholders, in an amount equal
to the excess of the cumulative distributions made or to be made;
second, to restore net loss previously allocated to the Preferred
Unitholders; and the balance to the Unitholders and to the General
Partner, to restore net loss previously allocated to them during the
period that the Preferred Units were outstanding.
8 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation
This item should be read in conjunction with the financial statements and other
items contained elsewhere in the report.
Liquidity and Capital Resources
The Registrant requires cash to pay operating expenses, debt service payments
and capital improvements. The seasonal nature of the Registrant's business
results in the Registrant having to supplement deficiencies in its cash flows
with its reserves during the first and second quarters of each year.
The level of liquidity based upon the Registrant's cash and cash equivalents
experienced a $10,221,000 decrease at September 30, 1997, as compared to
December 31, 1996. The decrease was due to $9,357,000 used in investing
activities and $3,342,000 used in financing activities which was partially
offset by $2,478,000 of cash provided by operating activities. Investing
activities consisted of $5,014,000 of improvements to property and equipment and
$4,343,000 of cash transferred to restricted reserve accounts to be used for
major capital improvements and to fund future operating deficits. Financing
activities consisted of the satisfaction of the mortgage of $26,000,000 and
payment of deferred costs of $702,000, associated with the mortgage refinancing.
These payments were partially offset by $23,600,000 of proceeds from the
mortgage refinancing. At September 30, 1997, the Registrant's unrestricted cash
reserves were $175,000 and the restricted cash balance was $5,085,000. Included
in cash used in operating activities is $270,000 of additional interest paid to
the previous lender upon satisfaction of the mortgage in accordance with the
loan agreement.
In 1996, the Registrant initiated an extensive capital improvements program.
This program includes bulkhead improvements, refurbishing hotel guest rooms at
the White Elephant, Breakers and the Wharf Cottages; exterior painting of the
Wharf Cottages; employee housing roof repairs; awning replacement; renovations
of the hotel restaurants, lounges and meeting rooms; minor improvements to the
commercial properties and construction of four new cottages containing twelve
guest rooms. As of September 30, 1997 the renovation of the restaurant and the
common areas at the White Elephant and Breakers has been completed, together
with the refurbishment of most of the guestrooms. A substantial portion of the
bulkhead improvement work was completed prior to the 1997 summer season. The
balance of the bulkhead improvements are anticipated to be completed in early
1998. Zoning approval necessary to construct the four new cottages was obtained
in September, 1997. Construction of the cottages is being deferred until after
the 1998 summer season. For the nine months ended September 30, 1997, $5,014,000
was spent on construction and capital improvements. The cost of these capital
improvements is being financed from the net proceeds from the offering of
subscription rights completed in 1996.
The Registrant's $26,000,000 mortgage note, which was scheduled to mature on
February 28, 1997, was refinanced in February 1997. The new $23,600,000 floating
rate note adjusts annually, depending on debt service coverage, to a rate
between LIBOR plus 3.25% and LIBOR plus 3.75%. The rate at September 30, 1997 is
approximately 9% (LIBOR plus 3.5%). The loan requires monthly payments of
interest and principal based on a twenty year amortization schedule and matures
in February 2000 with a balloon payment of approximately $22,343,000. The
Registrant has two one year options to extend the debt. The Registrant
9 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
paid approximately $702,000 in fees and expenses, including the purchase of an
interest rate collar. The loan agreement also provides for an additional
$600,000 draw down to be used for the construction of new cottages.
Pursuant to the terms of the new loan, Sherburne is prohibited from making any
distributions to its partners (including the Registrant) except for
distributions by Sherburne to the Registrant from funds from operations of such
amounts necessary to pay the Registrant's administrative fees, expenses and
reimbursements as well as the General Partner's legal fees associated with
Sherburne's properties. Upon a sale of a property, which is approved by the
lender, Sherburne is permitted to distribute to its partners a portion of the
net proceeds of such sale so long as certain loan to value ratios and other
conditions are satisfied. As a result of the restrictions set forth in the loan
agreement, the expansive capital improvement program instituted at the
properties and the preferred return to be paid to the Preferred Unitholders, it
is not expected that any distributions will be made to the Unitholders in the
foreseeable future.
Results of Operations
The Partnerships total net income increased by $926,000 for the nine months
ended September 30, 1997, as compared to 1996.
Total revenue increased by $1,330,000 for the nine months ended September 30,
1997, as compared to 1996, due to increases in hotel and restaurant operations
of $992,000, commercial rental operations of $178,000 and boat basin operations
of $160,000. Hotel operations increased due to an overall increase in the
average room rate, while occupancy remained relatively constant. Restaurant
revenue increased due to increased food and beverage prices and substantially
higher volume of business following the renovation of the restaurant facilities.
Commercial rental revenue increased due to an increase in rental rates. Boat
basin revenue increased due to favorable weather, as compared to 1996.
Operating expenses increased by $564,000 for the nine months ended September 30,
1997, as compared to 1996, primarily due to increases in restaurant expenses of
$462,000, boat basin expenses of $95,000, other expenses of $81,000,
depreciation expense of $111,000, and repairs and maintenance of $157,000 which
were partially offset by decreases in real estate taxes and insurance of
$80,000, general and administrative of $242,000 and marketing and promotion of
$103,000.
Restaurant expenses increased due to increases in labor and associated costs
associated with repositioning of the restaurant at the White Elephant. Boat
basin expenses increased due to an increase in fuel and oil costs. Other
expenses increased due to increases in employee housing costs. Repairs and
maintenance increased due to general repairs and maintenance on employee
housing. The increase in depreciation expense is due to fixed asset improvements
of $5,014,000 being made in the period ended September 30, 1997. Real estate
taxes and insurance declined due to a tax refund received in 1997. General and
administrative expenses declined due to a decrease in administrative salaries.
Marketing and promotion expenses declined due to a phase out of the marketing
director position and a reduction in advertising expense.
10 of 13
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
Interest income increased by $136,000 due to an increase in restricted cash
reserves available for investment. Other income increased by $126,000 primarily
due to the receipt of $49,000 for an easement and due to an increase in employee
housing reimbursement received of $16,000. Interest expense increased due to a
one time payment of additional interest of $270,000 made to the previous lender
in accordance with the prior loan agreement, which was partially offset by a
reduction in mortgage principal balance.
The results of operations in future periods will differ from the results of
operations for the period ended September 30, 1997, due to the seasonal nature
of the Registrant's business. Inflation and changing economic conditions, as
well as weather conditions, could also affect occupancy levels, rental rates and
operating expenses.
11 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
(b) Reports on Form 8K: No report on Form 8-K was filed during the
period.
12 of 13
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BY: THREE WINTHROP PROPERTIES, INC.
________________________________________
Managing General Partner
BY: /s/ Michael L. Ashner
________________________________________
Chief Executive Officer
BY: /s/ Edward V. Williams
________________________________________
Chief Financial Officer
Dated: November 12, 1997
13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Nantucket
Island Associates Limited Partnership and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,260,000 <F1>
<SECURITIES> 0
<RECEIVABLES> 1,143,000
<ALLOWANCES> (22,000)
<INVENTORY> 343,000
<CURRENT-ASSETS> 8,027,000
<PP&E> 74,035,000
<DEPRECIATION> (22,709,000)
<TOTAL-ASSETS> 61,641,000
<CURRENT-LIABILITIES> 2,294,000
<BONDS> 23,152,000
<COMMON> 0
0
0
<OTHER-SE> 36,195,000
<TOTAL-LIABILITY-AND-EQUITY> 61,641,000
<SALES> 0
<TOTAL-REVENUES> 15,122,000
<CGS> 0
<TOTAL-COSTS> 11,901,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,949,000
<INCOME-PRETAX> 1,452,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,452,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452,000
<EPS-PRIMARY> 426.75 <F2>
<EPS-DILUTED> 426.75 <F2>
<FN>
<F1>Cash includes $5,085,000 of restricted cash
<F2>Primary EPS and Diluted EPS are $1,393.63 per Limited Partnership
Preferred Unit
</FN>
</TABLE>
