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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, 2000
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
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(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2948435
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
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(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 [ ]
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NANTUCKET ISLAND ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
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FORM 10-QSB SEPTEMBER 30, 2000
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
Assets 2000 1999
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 5,746 $ 100
Restricted cash -- 3,077
Accounts receivable 60 54
Real estate tax escrow and other current assets 318 574
------------- ------------
Total current assets 6,124 3,805
Property and equipment, net of accumulated depreciation
of $7,663 (2000) and $7,238 (1999) 17,389 17,757
Deferred rent receivable 371 353
Deferred costs, net of accumulated amortization of
$1,275 (2000) and $1,072 (1999) 1,161 619
------------- ------------
Total assets $ 25,045 $ 22,534
============= ============
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 780 $ 729
Current maturity of long-term debt 121 296
Related party note payable 1,300 1,300
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Total current liabilities 2,201 2,325
Long-term debt 18,608 11,647
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Total liabilities 20,809 13,972
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Commitments
Partners' equity:
Limited partners equity, 785 units authorized, issued,
and outstanding 15,195 19,625
General partners' deficit (10,959) (11,063)
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Total partners' equity 4,236 8,562
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Total liabilities and partners' equity $ 25,045 $ 22,534
============= ============
</TABLE>
See notes to consolidated financial statements.
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FORM 10-QSB SEPTEMBER 30, 2000
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT UNIT DATA) FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------------- -----------------
<S> <C> <C>
Revenue:
Commercial rental operations $ 3,568 $ 3,531
----------------- -----------------
Total revenue 3,568 3,531
----------------- -----------------
Operating expenses:
Commercial rental 243 258
Real estate taxes and insurance 478 538
General and administrative 282 250
Repairs and maintenance 95 113
Utilities 40 32
Management fees 296 281
Amortization 99 74
Depreciation 425 430
----------------- -----------------
Total operating expenses 1,958 1,976
----------------- -----------------
Income from operations 1,610 1,555
----------------- -----------------
Other income (expense):
Interest income 205 82
Interest expense (1,276) (705)
Gain on sale of properties 131 142
----------------- -----------------
Total other (expense) income, net (940) (481)
----------------- -----------------
Net income before extraordinary loss 670 1,074
Extraordinary loss on extinguishment of debt (92) -
----------------- -----------------
Net income $ 578 $ 1,074
================= =================
Net income allocated to general partners $ 153 $ 189
================= =================
Net income allocated to limited partners $ 425 $ 885
================= =================
Net income (loss) per limited partnership unit:
Income before extraordinary item $ 652.74 $ 1,127.39
Extraordinary item - loss on extinguishment of debt (111.34) -
----------------- -----------------
Net income $ 541.40 $ 1,127.39
================= =================
Distributions per unit of Limited Partnership Interest $ 6,184.71 $ -
================= =================
</TABLE>
See notes to consolidated financial statements.
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FORM 10-QSB SEPTEMBER 30, 2000
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT UNIT DATA) FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------------- -----------------
<S> <C> <C>
Revenue:
Commercial rental operations $ 2,123 $ 2,070
----------------- -----------------
Total revenue 2,123 2,070
----------------- -----------------
Operating expenses:
Commercial rental 92 98
Real estate taxes and insurance 161 170
General and administrative 87 129
Repairs and maintenance 26 28
Utilities 13 10
Management fees 121 115
Amortization 35 25
Depreciation 142 144
----------------- -----------------
Total operating expenses 677 719
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Income from operations 1,446 1,351
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Other income (expense):
Interest income 60 33
Interest expense (451) (241)
Gain on sale of properties 131 19
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Total other (expense) income, net (260) (189)
----------------- -----------------
Net income $ 1,186 $ 1,162
================= =================
Net income allocated to general partners $ 183 $ 76
================= =================
Net income allocated to limited partners $ 1,003 $ 1,086
================= =================
Net income per limited partnership unit $ 1,277.70 $ 1,383.44
================= =================
</TABLE>
See notes to consolidated financial statements.
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FORM 10 - QSB SEPTEMBER 30, 2000
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CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
UNITS OF INVESTOR
LIMITED LIMITED GENERAL TOTAL
PARTNERSHIP PARTNERS' PARTNERS' PARTNERS'
INTEREST EQUITY DEFICIT EQUITY
----------------- ---------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Balance - January 1, 2000 785 $ 19,625 $ (11,063) $ 8,562
Distribution (4,855) (49) (4,904)
Net income 425 153 578
----------------- ---------------------- ------------------- ----------------------
Balance - September 30, 2000 785 $ 15,195 $ (10,959) $ 4,236
================= ====================== =================== ======================
</TABLE>
See notes to consolidated financial statements.
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FORM 10-QSB SEPTEMBER 30, 2000
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 578 $ 1,074
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 536 533
Gain on sale of properties (131) (142)
Extraordinary loss on extinguishment of debt 92 -
Changes in assets and liabilities:
Accounts receivable (6) 13
Real estate tax escrow and other current assets 256 (105)
Deferred rent receivable (18) (91)
Accounts payable and other liabilities 51 (87)
-------------------- --------------------
Net cash provided by operating activities 1,358 1,195
-------------------- --------------------
Cash Flows from Investing Activities:
Expenditures for property and equipment (57) (49)
Decrease (increase) in restricted cash reserves 3,077 (1,345)
Net proceeds from sale of properties 131 410
-------------------- --------------------
Net cash provided by (used in) investing activities 3,151 (984)
-------------------- --------------------
Cash Flows from Financing Activities:
Satisfaction of mortgage payable (11,624) -
Proceeds from mortgage refinancing 18,500 -
Principal payments on long-term debt (90) (211)
Deferred costs paid (745) -
Distribution to partners (4,904) -
-------------------- --------------------
Net cash provided by (used in) financing activities 1,137 (211)
-------------------- --------------------
Net increase in cash and cash equivalents 5,646 -
Cash and cash equivalents, beginning of period 100 100
==================== ====================
Cash and cash equivalents, end of period $ 5,746 $ 100
==================== ====================
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest $ 1,155 $ 624
==================== ====================
</TABLE>
See notes to consolidated financial statements.
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FORM 10 - QSB SEPTEMBER 30, 2000
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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, 1999.
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, 2000 presentation. The balance sheet at December 31, 1999 was
derived from audited financial statements at such date.
Income and losses of the Partnership from operations are allocated 95% to
the limited partners and 5% to the General Partner. Income from a
non-terminating capital transaction is allocated first, to each partner who
has received or will receive a distribution out of capital proceeds; and
second, to any partner having a negative balance in their capital account.
The results of operations for the three and nine months ended September 30,
2000 and 1999 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. RELATED PARTY TRANSACTIONS
The following transactions with affiliates of the General Partner were
charged to expense during the nine month periods ended September 30, 2000
and 1999:
For the Nine Months Ended
September 30,
-------------------------
2000 1999
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Asset management fee $ 226,000 $ 214,000
Management fee 70,000 67,000
Reimbursement for administration expenses 35,000 41,000
Interest expense 58,000 58,000
3. SALE OF PROPERTY
On July 24, 2000 the Partnership sold to an unaffiliated third party the land
located at Nichols and Surrey Road for approximately $150,000. The Partnership
incurred closing costs of approximately $19,000 and realized a gain of
approximately $131,000 on the sale.
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FORM 10 - QSB SEPTEMBER 30, 2000
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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3. SALE OF PROPERTY (CONTINUED)
On January 13, 1999 the Partnership sold to an unaffiliated third party the
property located at 82 Easton Street for approximately $400,000. The
Partnership incurred closing costs of approximately $10,000. The carrying
value of the property sold was approximately $267,000 and the Partnership
realized a gain of approximately $123,000.
On June 30, 1999 the Partnership sold to an unaffiliated third party the
property located at 20 Wanoma Way, for approximately $20,000.
4. CONTINGENT PURCHASE PRICE PAYMENTS
Contingent Purchase Price Payments were not required on the sale of
properties described in Note 3. Based on the fair value of the remaining
properties the Partnership believes that it will not be obligated to make
any Contingent Purchase Price Payments upon sale of the remaining
properties.
5. MORTGAGE LOAN
On February 2, 2000, the Partnership refinanced the $12,000,000 floating
rate loan secured by the properties. The new mortgage loan, in the
principal amount of $18,500,000, requires monthly payments of interest at
9.03% and principal based on a 30 year amortization schedule and matures
2010, with a balloon payment of approximately $16,968,000. Monthly
principal and interest payments are $149,255. An additional $60,508 per
month payment is required for real estate tax escrows and reserves. The
Partnership incurred approximately $823,000 in fees and expenses (of which
$78,000 was paid in 1999) in connection with the refinancing. Prepayment of
the loan is permitted only if certain conditions required by the loan
agreement are met after the third year of the loan. The General Partner has
guaranteed $5,000,000 of the loan. The Partnership received approximately
$5,519,000 after the satisfaction of the former loan, payment of closing
costs, escrows and reserves.
6. RESTRICTED CASH
As a result of the refinancing on February 2, 2000, the Partnership is no
longer required to maintain restricted cash. Restricted cash at December
31, 1999 represents funds provided for and maintained by the Partnership
pursuant to the mortgage note payable agreement to meet future capital
requirements, debt service payments and operational needs.
7. EXTRAORDINARY LOSS
The unamortized deferred costs of $92,000 on the refinanced loan were
expensed as extraordinary loss on extinguishment of debt during the nine
months ended September 30, 2000.
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FORM 10 - QSB SEPTEMBER 30, 2000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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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 disclosures contained in this Form 10-QSB
and the other filings with the Securities and Exchange Commission made
by 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 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.
On July 24, 2000 the Partnership sold to an unaffiliated third party the
land located at Nichols and Surrey Road for approximately $150,000. The
Partnership incurred closing costs of approximately $19,000 and realized
a gain of approximately $131,000 on the sale.
The level of liquidity based upon the Registrant's cash and cash
equivalents experienced an increase of $5,646,000 at September 30, 2000
as compared to December 31, 2000. The increase in cash and cash
equivalents of $5,646,000 was provided by $3,151,000 from investing
activities, $1,358,000 from operating activities and $1,137,000 from
financing activities. Investing activities consisted of a $3,077,000
decrease in restricted cash reserves due to a release of the cash
restrictions by the new lender and $131,000 of proceeds from the sale of
property which was partially offset by $57,000 of improvements to
property and equipment. Financing activities consisted of $18,500,000 of
proceeds from the mortgage refinancing which were partially offset by
$11,624,000 paid in satisfaction of the mortgage payable, $90,000 of
principal payments, $745,000 of deferred costs paid to refinance the
debt and $4,904,000 of cash distributions paid to the partners. At
September 30, 2000, the Registrant's cash balance was $5,746,000. The
cash balance is primarily invested in money market accounts.
As owner of the commercial properties along the wharf, the Registrant is
responsible for maintaining the bulkheads. The Registrant anticipates
spending approximately $3,500,000 over the next five years for bulkhead
replacement. The Registrant expects to utilize cash flow from operations
to fund these improvements.
The Registrant has received a letter from the U.S. Department of Justice
relating to potential non-compliance with the American Disabilities Act
(the "Act"). After review of the commercial properties compliance with
the Act, the Registrant agreed that certain modifications are required.
The Managing General Partner does not believe these costs will have a
material adverse effect on the Registrant.
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FORM 10 - QSB SEPTEMBER 30, 2000
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
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Liquidity and Capital Resources (Continued)
-------------------------------------------
On February 2, 2000, the Registrant refinanced the $12,000,000 floating
rate loan, which was scheduled to mature in June 2001 with a new loan
secured by the properties in the amount of $18,500,000. The new loan,
which requires monthly payments of interest at 9.03% and principal based
on a 30 year amortization schedule, matures in March 2010, with a
balloon payment of approximately $16,968,000. Monthly principal and
interest payments are $149,255. An additional $60,508 per month payment
is required for real estate tax escrows and reserves. The Registrant
incurred approximately $823,000 in fees and expenses in connection with
the refinancing. Prepayment of the loan is permitted only if certain
conditions required by the loan agreement are met after the third year
of the loan. The General Partner has guaranteed $5,000,000 of the loan.
The Registrant received approximately $5,519,000 after the satisfaction
of the former loan, payment of closing costs, escrows and reserves. A
distribution of $4,904,000 was made to the partners from the refinancing
proceeds in March 2000. The limited partners received approximately
$4,855,000 ($6,185 per unit) and the general partners received $49,000.
There are three lawsuits, each purporting to represent a class of
investor limited partners against the Registrant, its general partners
and certain related and unrelated parties. The lawsuits claim unjust
enrichment, violation of the Massachusetts securities laws, breach of
fiduciary duty, fraud, deceit, misrepresentation, conspiracy, breach of
contract, negligence, and violation of Massachusetts consumer protection
laws on behalf of themselves and the purported class. The plaintiffs
appear to contend in substance, that a 1996 offering of preferred
limited partnership units in the Registrant and the subsequent sale of
certain of Registrant's assets violated their rights as limited
partners. The lawsuits are in their early stages and it is not possible
to predict the likely outcome of these actions at this time. A fourth
lawsuit based on the same claims was recently dismissed. The General
Partner believes that the remaining three actions are also without merit
and intends to vigorously defend these actions.
Results of Operations
---------------------
The Registrant generated net income before extraordinary loss of
$670,000 for the nine months ended September 30, 2000, as compared to
net income before extraordinary loss of $1,074,000 during the nine
months ended September 30, 1999. Income from operations for the nine
months ended September 30, 2000 was $1,610,000 as compared to $1,555,000
for nine months ended September 30, 1999. This increase in income from
operations was due to an increase in revenue from commercial rental
operations and a net decrease in operating expenses.
Operating expenses decreased by $18,000 for the nine months ended
September 30, 2000 as compared to 1999 primarily due to decreases in
commercial rental expense, repairs and maintenance and real estate taxes
and insurance which were partially offset by increases in general and
administrative expense and amortization expense.
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FORM 10 - QSB SEPTEMBER 30, 2000
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Results of Operations (Continued)
---------------------------------
Other expense increased by $459,000 as a result of an increase in
interest expense of $571,000, which more than offset an increase in
interest income of $123,000. Interest expense increased due to the
increased mortgage balance upon refinancing. Interest income increased
due to an overall increase in cash available for investment.
The results of operations in future periods may differ from the result
of operations for the period ended September 30, 2000 as weather
conditions could adversely affect operating results due to the short
seasonal nature of the business. Inflation and changing economic
conditions could also affect occupancy levels, rental rates and
operating expenses.
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FORM 10-QSB SEPTEMBER 30, 2000
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PART II - OTHER INFORMATION
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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.
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FORM 10 - QSB SEPTEMBER 30, 2000
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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
-----------------------------------
Michael L. Ashner
Chief Executive Officer
BY: /s/ Thomas Staples
-----------------------------------
Thomas Staples
Chief Financial Officer
Dated: November 10, 2000
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