<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-16865
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 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1998
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
(In thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1998 1997
--------------------- ---------------------
<S> <C> <C>
Cash and cash equivalents $ 100 $ 175
Restricted cash 1,692 4,837
Accounts receivable less allowance for doubtful
accounts of $2 (1998) and $42 (1997) 81 248
Inventories - 313
Real estate tax escrow and other current assets 443 978
--------------------- ---------------------
Total current assets 2,316 6,551
Property and equipment, net of accumulated depreciation
of $7,014 (1998) and $23,269 (1997) 18,641 50,883
Deferred rent receivable 262 386
Deferred costs, net of accumulated amortization of
$1,198 (1998) and $2,443 (1997) 714 1,782
--------------------- ---------------------
Total assets $ 21,933 $ 59,602
===================== =====================
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 417 $ 1,377
Current maturity of long-term debt 278 470
Related party note payable 1,300 -
--------------------- ---------------------
Total current liabilities 1,995 1,847
Long-term debt 11,815 23,031
--------------------- ---------------------
Total liabilities 13,810 24,878
--------------------- ---------------------
Commitments
Partners' equity:
Limited partners' equity, 785 units authorized, issued,
and outstanding 19,368 35,186
Preferred limited partners' equity, 785 units
authorized, issued, and outstanding at December 31, 1997 - 9,916
General partners' (deficit) (11,245) (10,378)
--------------------- ---------------------
Total partners' equity 8,123 34,724
--------------------- ---------------------
Total liabilities and partners' equity $ 21,933 $ 59,602
===================== =====================
</TABLE>
See notes to consolidated financial statements.
2 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1998
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Nine Months Ended
September 30, September 30,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Revenue:
Hotel operations $ 761 $ 6,163
Restaurant operations 409 2,325
Commercial rental operations 3,266 3,205
Boat basin operations 167 2,547
--------------------- ---------------------
Total revenue 4,603 14,240
--------------------- ---------------------
Operating expenses:
Hotel 447 1,429
Restaurant 595 2,022
Commercial rental 241 229
Boat basin 129 912
Other 135 392
Real estate taxes and insurance 669 869
General and administrative 730 1,425
Marketing and promotion 290 461
Repairs and maintenance 877 985
Utilities 159 516
Management fees 302 497
Amortization 139 170
Depreciation 420 1,803
--------------------- ---------------------
Total operating expenses 5,133 11,710
--------------------- ---------------------
(Loss) income from operations (530) 2,530
--------------------- ---------------------
Other income (expense):
Interest income 137 180
Other income 180 800
Interest expense (1,375) (2,058)
Gain on sale of properties 2,928 -
--------------------- ---------------------
Total other income (expense), net 1,870 (1,078)
--------------------- ---------------------
Net income before extraordinary loss 1,340 1,452
Extraordinary loss on extinguishment of debt (403) -
--------------------- ---------------------
Net income $ 937 $ 1,452
===================== =====================
Net (loss) income allocated to general partners $ (100) $ 23
===================== =====================
Net (loss) income allocated to limited partners $ (1,247) $ 335
===================== =====================
Net income allocated to preferred limited partners $ 2,284 $ 1,094
===================== =====================
Net (loss) income per limited partnership unit:
(Loss) income before extraordinary item $ (1,207.64) $ 426.75
Extraordinary item - loss on extinguishment of debt (380.89) -
--------------------- ---------------------
Net loss (income) $ (1,588.53) $ 426.75
===================== =====================
Net income per preferred limited partnership unit:
Income before extraordinary item $ 3,016.56 $ 1,393.63
Extraordinary item - loss on extinguishment of debt (107.01) -
--------------------- ---------------------
Net income $ 2,909.55 $ 1,393.63
===================== =====================
</TABLE>
See notes to consolidated financial statements.
3 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1998
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data) For the Three Months Ended
September 30, September 30,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Revenue:
Hotel operations $ - $ 4,691
Restaurant operations - 1,671
Commercial rental operations 1,969 1,943
Boat basin operations - 2,224
--------------------- ---------------------
Total revenue 1,969 10,529
--------------------- ---------------------
Operating expenses:
Hotel - 830
Restaurant - 1,282
Commercial rental 95 78
Boat basin - 699
Other - 224
Real estate taxes and insurance 161 310
General and administrative 109 631
Marketing and promotion 2 171
Repairs and maintenance 43 323
Utilities 8 228
Management fees 109 287
Amortization 25 60
Depreciation 140 653
--------------------- ---------------------
Total operating expenses 692 5,776
--------------------- ---------------------
Income from operations 1,277 4,753
--------------------- ---------------------
Other income (expense):
Interest income 14 48
Other income - 523
Interest expense (263) (593)
--------------------- ---------------------
Total other (expense), net (249) (22)
--------------------- ---------------------
Net income $ 1,028 $ 4,731
===================== =====================
Net income allocated to general partners $ 54 $ 187
===================== =====================
Net income allocated to limited partners $ 974 $ 2,765
===================== =====================
Net (loss) income allocated to preferred limited partners $ - $ 1,779
===================== =====================
Net income per limited partnership unit $ 1,240.76 $ 3,522.29
===================== =====================
Net income per preferred limited partnership unit $ - $ 2,266.24
===================== =====================
</TABLE>
See notes to consolidated financial statements.
4 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
Consolidated Statement of Changes in Partners' Equity (Deficit) (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except unit data)
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, 1998 785 785 $ 35,186 $ 9,916 $ (10,378) $ 34,724
Distribution - - - (27,538) - (27,538)
Net (loss) income - - (1,247) 2,284 (100) 937
Redemption of Preferred
Limited Partners' Equity - (785) (14,571) 15,338 (767) -
------------- -------------- ------------- ------------- ------------- -------------
Balance - September 30, 1998 785 - $ 19,368 $ - $ (11,245) $ 8,123
============= ============== ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
5 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10-QSB SEPTEMBER 30, 1998
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In thousands) For the Nine Months Ended
September 30, September 30,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 937 $ 1,452
Adjustments to reconcile net income to net cash
used in (provided by) operating activities:
Depreciation and amortization 638 2,082
Gain on sale of properties (2,928) -
Extraordinary loss on extinguishment of debt 403 -
Provision for bad debts (40) (1)
Changes in assets and liabilities:
Accounts receivable 207 (624)
Inventories 35 (71)
Real estate tax escrow and other current assets 535 (655)
Deferred rent receivable 124 (16)
Accounts payable and other liabilities (1,010) 311
--------------------- ---------------------
Net cash used in (provided by) operating activities (1,099) 2,478
--------------------- ---------------------
Cash Flows from Investing Activities:
Expenditures for property and equipment (824) (5,014)
Decrease (increase) in restricted cash reserves 3,145 (4,343)
Net proceeds from sale of properties 36,540 -
--------------------- ---------------------
Net cash provided by (used in) investing activities 38,861 (9,357)
--------------------- ---------------------
Cash Flows from Financing Activities:
Related party note payable 1,300 -
Satisfaction of mortgage payable (23,140) (26,000)
Proceeds from mortgage refinancing 12,000 23,600
Principal payments on long-term debt (268) (240)
Deferred costs paid at refinancing (191) (702)
Distribution to partners (27,538) -
--------------------- ---------------------
Net cash used in financing activities (37,837) (3,342)
--------------------- ---------------------
Net (decrease) in cash and cash equivalents (75) (10,221)
Cash and cash equivalents, beginning of period 175 10,396
--------------------- ---------------------
Cash and cash equivalents, end of period $ 100 $ 175
===================== =====================
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest $ 1,393 $ 1,979
---------------------- ===================== =====================
Supplemental Disclosure of Non-Cash Investing Activities:
Accrued expenses on sale of the properties $ 50 $ -
===================== =====================
</TABLE>
See notes to consolidated financial statements.
6 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
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, 1997.
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 except for items
described in notes 2 and 4. Certain amounts have been reclassified to
conform to the September 30, 1998 presentation. The balance sheet at
December 31, 1997 was derived from audited financial statements at
such date.
The results of operations for the three and nine months ended
September 30, 1998 and 1997, are not indicative of the results to be
expected for the full year, due to the seasonal nature of the
Partnership's business and the sale of properties.
2. Gain on Sale of Properties
On June 10, 1998, the Partnership sold to an unaffiliated third party
all the Partnership's properties (the "Properties") with the exception
of the retail buildings for approximately $38,425,000. As a condition
of the sale, an affiliate of the general partner was required to sell
properties consisting of a tennis club, employee housing and a
maintenance facility. The affiliate received approximately $1,300,000
for the sale of the properties. The affiliate subsequently loaned the
proceeds of the sale to the Partnership for distribution. The
Partnership received net sale proceeds of approximately $13,350,000
after mortgage satisfaction and closing costs of approximately
$1,935,000. The carrying value of the properties sold was
approximately $33,562,000 and the Partnership realized a gain of
approximately $2,928,000. In addition, the Partnership recognized an
extraordinary loss on extinguishment of debt of $403,000.
3. Related Party Transactions
The following transactions with affiliates of the General Partner were
charged to expense during the nine month periods ended September 30,
1998 and 1997:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Partnership administration fee $ 201,000 $ 190,000
Management fee 70,000 70,000
Reimbursement for administrative expenses 39,000 32,000
</TABLE>
7 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Related Party Transactions (Continued)
The Partnership previously rented certain facilities from affiliates
of WFA. These rents amounted to approximately $9,000 and $60,000, for
each of the nine months ended September 30, 1998 and 1997.
As discussed in Note 2, an affiliate of the general partner loaned
approximately $1,300,000 to the Partnership in connection with the
sale of the Properties. The note, which is payable on demand, bears
interest at six percent. The interest accrued for the period ended
September 30, 1998 amounted to $24,000.
4. Notes Payable
The mortgage loan encumbering the Partnership's properties was
refinanced upon the sale of the Properties. The new $12,000,000
floating rate note adjusts to the lower of the bank's base rate or the
Euro dollar rate plus 1.75%. The rate at September 30, 1998 was
approximately 7.39%. The loan requires monthly payments of interest
and principal based on a 20 year amortization schedule and matures in
June 2001, with a balloon payment of approximately $11,264,000. The
Partnership incurred $191,000 in fees and expenses in connection with
the refinancing.
Pursuant to the terms of the new loan, Sherburne is prohibited from
making any distributions to its partners (including the Partnership)
except for distributions by Sherburne to the Partnership from funds
from operations of such amounts necessary to pay the Partnership's
administrative fees, expenses and reimbursements, as well as the
General Partner's legal fees associated with Sherburne's properties.
An affiliate of the General Partner has guaranteed approximately
$5,000,000 of the loan.
5. Distribution
In accordance with the Amended and Restated Partnership Agreement, the
Partnership distributed approximately $27,538,000 ($35,080 per
Preferred Unit) to the Preferred Unitholders. The distributions were
funded by sale and refinancing proceeds, a loan of $1,300,000 from an
affiliate of the Partnership's general partner (see note 3) and the
release of restricted cash. Since the Preferred Unitholders have been
paid in full, their units have been redeemed and they will receive no
future distributions or income/loss allocations.
8 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
Item 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain
forward-looking statements and involve risks and uncertainties
(including changing market conditions, competitive and regulatory
matters, etc.) detailed in the disclosure contained in this Form
10-QSB and the other filings with the Securities and Exchange
Commission made by Nantucket Island Associates Limited Partnership
(the "Registrant") from time to time. The discussion of the
Registrant's liquidity, capital resources and results of operations,
including forward-looking statements pertaining to such matters,
does not take into account the effects of any changes to the
Registrant's operations. Accordingly, actual results could differ
materially from those projected in the forward-looking statements as
a result of a number of factors, including those identified herein.
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
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, second and
fourth quarters of each year.
On June 10, 1998, the Registrant sold to an unaffiliated third party
all the Registrant's properties (the "Properties"), with the
exception of the retail buildings, for approximately $38,425,000.
(The Registrant incurred closing costs of approximately $1,935,000).
As a condition of the sale, an affiliate of the general partner was
also required to sell properties consisting of a tennis club,
employee housing and a maintenance facility. The affiliate received
approximately $1,300,000 for the sale of the properties. The
affiliate subsequently loaned the proceeds of the sale to the
Registrant at 6% simple interest. The Registrant recognized a gain
of $2,928,000, as a result of the sale of the properties. The rest
of the commercial rental properties owned by the Registrant are not
currently being marketed for sale, as the General Partner believes
that the rental market will continue to improve and that marketing
the commercial rental properties today would be premature.
The level of liquidity based upon the Registrant's cash and cash
equivalents experienced a decrease of $75,000 at September 30, 1998,
as compared to December 31, 1997. The decrease was due to
$38,861,000 of cash provided by investing activities, which was more
than offset by $37,837,000 of cash used in financing activities and
$1,099,000 of cash used in operating activities. Investing
activities consisted of net sales proceeds of approximately
$36,540,000 and a decrease in restricted cash reserves of
$3,145,000, which was partially offset by improvements to property
and equipment
9 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources (Continued)
of $808,000. Financing activities consisted primarily of
distributions of $27,538,000 ($35,080 per preferred unit) made to
preferred investor limited partners and $23,140,000 paid in
satisfaction of a mortgage loan, which was partially offset by
refinancing proceeds of $12,000,000 and a loan from an affiliate of
$1,300,000. At September 30, 1998, the Registrant's unrestricted
cash reserves were $100,000 and the restricted cash balance was
$1,692,000. The unrestricted and restricted cash reserves are
invested in money market accounts.
The mortgage loan encumbering the Registrant's properties was
refinanced on sale of the Properties. The new $12,000,000 floating
rate note adjusts to the lower of the bank's base rate or Euro
dollar rate plus 1.75%. The rate at September 30, 1998, was
approximately 7.39%. The loan requires monthly payments of interest
and principal based on a 20 year amortization schedule and matures
in June 2001, with a balloon payment of approximately $11,264,000.
The Registrant incurred $191,000 in fees and expenses, in
connection with the refinancing.
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.
Results of Operations
The Registrant's net income before extraordinary loss on
extinguishment of debt decreased by $112,000 for the nine months
ended September 30, 1998 as compared to 1997. This decrease in
income is primarily attributable to the sale of properties on June
10, 1998. Although total revenue decreased by $9,637,000 for the
nine months ended September 30, 1998, as compared to 1997, primarily
due to the sale of the Properties on June 10, 1998, income from the
commercial properties which have not been sold increased by $61,000
due to an increase in rental rates.
Operating expenses decreased by $6,577,000 for the nine months ended
September 30, 1998, as compared to 1997, primarily due to the sale
of the properties. With respect to the commercial properties which
have not been sold, expenses remained relatively constant.
Interest expense decreased by approximately $683,000, primarily due
to a $270,000 payment in 1997 of additional interest to a previous
lender and due to the sale of the properties and reduction in
mortgage principal balance. Other income decreased by $620,000
primarily due to the sale of the Properties and proceeds of $46,000
received for an easement in 1997. Interest income decreased by
$43,000 due to a decrease in restricted cash available for
investment.
The results of operations in future quarters will differ from the
results of operations for the nine months ended September 30, 1998,
due to the seasonal nature of the Registrant's business and the sale
of the Properties. Inflation and changing economic conditions could
also affect occupancy levels, rental and operating expenses.
10 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
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 was filed during the period.
11 of 12
<PAGE>
NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
FORM 10 - QSB SEPTEMBER 30, 1998
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 9, 1998
12 of 12
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,792,000 <F1>
<SECURITIES> 0
<RECEIVABLES> 83,000
<ALLOWANCES> (2,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,316,000
<PP&E> 25,655,000
<DEPRECIATION> (7,014,000)
<TOTAL-ASSETS> 21,933,000
<CURRENT-LIABILITIES> 1,717,000
<BONDS> 12,093,000
<COMMON> 0
0
0
<OTHER-SE> 8,123,000
<TOTAL-LIABILITY-AND-EQUITY> 21,933,000
<SALES> 0
<TOTAL-REVENUES> 4,603,000
<CGS> 0
<TOTAL-COSTS> 5,133,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,375,000
<INCOME-PRETAX> 1,340,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,340,000
<DISCONTINUED> 0
<EXTRAORDINARY> (403,000)
<CHANGES> 0
<NET-INCOME> 937,000
<EPS-PRIMARY> (1,588.53) <F2>
<EPS-DILUTED> (1,588.53) <F2>
<FN>
<F1>Cash includes $1,692,000 of restricted cash
<F2>Primary EPS and Diluted EPS are $2,909.55 per Limited Partnership Preferred
Unit
</FN>
</TABLE>
