UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [XX]
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Check the appropriate box:
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[ ] Confidential, for use of the Commission Only
[XX] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Commission File No. 0-2670
60 East 42nd St. Associates
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than Registrant)
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4) Date Filed:
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6/29/99
60 EAST 42nd ST. ASSOCIATES
c/o Wien & Malkin LLP
60 East 42nd Street - 26th Floor
New York, New York 10165-0015
Telephone (212) 687-8700
Telecopier (212) 986-7679
STATEMENT BY THE AGENTS IN THE
SOLICITATION OF PARTICIPANT CONSENTS
Dated June 30, 1999
This Statement is issued in connection with the
Solicitation of Participant Consents by Peter L. Malkin, Anthony
E. Malkin, Scott D. Malkin, Jack K. Feirman, Thomas N. Keltner,
Jr., Mark Labell and Richard A. Shapiro, as the agents (the
"Agents") for the participants (the "Participants") in 60 East
42nd St. Associates ("Associates"). Associates was formed in 1958
to acquire the land and improvements known as 60 East 42nd Street
in New York City (the "Building"), subject to a net operating
lease (the "Lease") to Lincoln Building Associates (the "Lessee").
See Section I. - Background.
The Agents are requesting that the Participants consent
to a program proposed by the Lessee for financing and completing
improvements which the Lessee and the Agents have concluded are
necessary to preserve the Building's physical plant, its
competitive market position, and Associates' long-term investment
return. Under the Lessee's proposal, a substantial portion of the
cost of such improvements and certain other improvements in the
future will be paid from the proceeds of an increase in the fee
mortgage (the "Fee Mortgage"), and the Lessee's basic rent to
Associates will increase to pay the resulting increase in debt
service. This Fee Mortgage financing will spread the improvement
cost and stabilize the amount available for distribution to the
Participants. To induce the Lessee to make the improvements which
are not required by the Lease, the Agents will be authorized to
grant the Lessee options to extend the Lease beyond its current
expiration of 2033 to 2083, and the Agents will be further
authorized to grant additional lease extension rights in the
future for such consideration and upon such terms as the Agents
then deem appropriate for the benefit of Associates.
As attorneys-in-fact for the Participants, the Agents
will implement the program after receiving the Participants'
consent. As part of this program, the Agents will be authorized,
as they deem appropriate for the benefit of Associates from time
to time in the future, to refinance the Fee Mortgage with an
institutional lender and without personal liability for a
principal amount not to exceed $40,000,000 plus refinancing costs.
The proceeds of any increased debt will be applied to the
Property, and any increased debt service will be paid by an
equivalent increase in Basic Rent paid by the Lessee.
It is anticipated that this Statement and the
accompanying form of Consent will be mailed to the Participants on
June 30, 1999. The Solicitation of Consents will terminate 90
days after the date of this letter, unless extended by the Agents,
but in no event later than December 31, 1999. The Agents will
advise all Participants of the Solicitation results not later than
90 days after the termination date, including any extension.
I. BACKGROUND
A. Organization of Associates
Associates is a New York partnership organized in 1958
by Lawrence A. Wien, who served until his death as one of
Associates' partners. Peter L. Malkin continues to serve as a
partner, his sons Anthony E. Malkin and Scott D. Malkin serve as
partners, and other members of Wien & Malkin LLP serve as the
other partners. Each partner acts as the Agent for a group of
Participants under a participating agreement (a "Participating
Agreement").
The terms of all the Participating Agreements are
identical. Participants have the right to approve or disapprove
certain Agent actions, including this financing and lease
extension program. The percentage of Participants required to
approve this proposal is described in Section X. - Terms of
Solicitations of Consents.
B. The Property
The Property consists of 60 East 42nd Street, a 55-story
building constructed in 1930, with a concourse and lower level,
containing approximately 1,093,000 square feet of office space and
23,000 square feet of retail space, located diagonally opposite
Grand Central Terminal on 42nd Street between Park Avenue and
Madison Avenue and including a small light protector building at
301 Madison Avenue (collectively, the "Property" or the
"Building").
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The Building contains retail stores on the street,
concourse and lower levels and approximately 605 office tenants
engaged in a variety of businesses and professions. As of June 1,
1999, the Building was approximately 97% occupied.
C. The Lease
1. Term
The current term of the Lease expires in 2033. If this
program is approved, the Lease will be subject to extension in 25
year increments to 2083 and thereafter for further periods based
upon additional consideration as approved by the Agents in accord
with this Statement.
2. Rent
The Lease requires the Lessee to pay the following rent
for each fiscal year (October 1 through September 30):
a. Basic rent ("Basic Rent") each year equal to the
sum of (i) the annual debt service on the Fee Mortgage and (ii)
$24,000.
b. Overage rent ("Overage Rent") equal to (i) 100% of
the Lessee's net profit from the Property up to $1,053,800
("Additional Rent") and (ii) 50% of the Lessee's remaining net
profit ("Further Additional Rent").
Basic rent is payable monthly and is subject to
adjustment equal to any increase or decrease in Fee Mortgage debt
service on the existing principal amount. Additional Rent is
advanced monthly based on the Lessee's net profit for the prior
fiscal year and then adjusted in the following fiscal year based
upon actual results. Further Additional Rent is payable within 60
days after fiscal year-end.
For the past 10 fiscal years, the Lessee has paid the
full $1,053,800 of Additional Rent plus Further Additional Rent.
For the most recent fiscal year ended September 30, 1998, the
Lessee paid $1,053,800 of Additional Rent plus $1,529,651 of
Further Additional Rent. Although the Lessee is permitted to
deduct accumulated losses from certain prior fiscal years against
advances for Additional Rent, there is currently no accumulated
loss from past fiscal years to be deducted against current or
future payments of Additional Rent. See Section I.F. Financial
Information.
3. Other Material Lease Terms
The Lessee pays all insurance, real estate tax, repair,
maintenance and other operating expenses for the Property. The
Lessee is not required to make capital improvements to the
Property.
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The Lessee has the right to assign the Lease without
Associates' consent, so long as the assignee assumes all Lease
obligations. The Lessee also has the right to surrender the Lease
to Associates on 60 days' notice.
D. Fee Mortgage
The Fee Mortgage balance is currently approximately
$12,000,000, having been last refinanced in 1994. The maximum Fee
Mortgage authorized under this program is $40,000,000 plus
refinancing costs, on the basis that (i) the proceeds of any
increase in the Fee Mortgage shall be applied to improvements and
repairs at the Property and (ii) any increased debt service on the
Fee Mortgage shall be paid by Associates from an equivalent
increase in Basic Rent paid by the Lessee.
Interest payable on the existing Fee Mortgage principal
balance is at the annual rate of 8.85%. The Fee Mortgage matures
October 31, 2004. Based upon preliminary discussions with Morgan
Guaranty Trust Company of New York, trustee for the current holder
of the Fee Mortgage, it is anticipated that for any Fee Mortgage
increase in 1999 the annual interest rate will be about 7.5%, the
debt service will be based on a 25-year amortization schedule, and
the maturity will be approximately five years. The increase in
the Fee Mortgage may be incurred in multiple drawdowns or from
different lenders, in order to enhance borrowing cost efficiency,
and the mortgage may be standing with interest only.
E. Competition
Pursuant to new space leases, the rental rate currently
asked of prospective office tenants at the Building is
approximately $39.00 to $55.00 per square foot (exclusive of
electricity charges). The Building's rents under existing leases
are currently lower than those charged by similar office buildings
of similar age and location.
The Lessee operates the Building free of any federal,
state or local governmental rent regulation. Rents are governed
by existing leases and market conditions.
F. Financial Information
The Participants have received total distributions
representing an annual return on their original cash investment at
rates of approximately 34.5% for 1998, 41.5% for 1997, and 41.3%
for 1996. These percentages were calculated by dividing the cash
payments to the Participants in each year by the Participants'
original $7,000,000 cash investment in the Property. Certain
Participants may have purchased their interests for amounts
different than the original cash investment, and their return on
their investment will thus be different.
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Each monthly installment of Basic Rent is applied to pay
monthly debt service on the Fee Mortgage and basic supervisory
compensation to Wien & Malkin LLP. Additional Rent is applied to
pay monthly distributions to the Participants, and Further
Additional Rent is applied to pay additional distributions to the
Participants, in each case including any required additional
supervisory compensation to Wien & Malkin LLP. See Section I.G. -
Supervisory Services to Associates.
Attached are audited financial statements of Associates
as of December 31, 1996, 1997 and 1998, including in each case the
balance sheets and the related statements of income, partners'
capital and cash flows. Also, See Section
VII. Agents' Discussion and Analysis of Financial Condition and
Results of Operation.
Jacobs Evall & Blumenfeld LLP serves as Associates'
independent public accountants and has performed certain other
financial accounting work for Associates, including tax return
preparation.
G. Supervisory Services to Associates
No Agent receives remuneration from Associates for
serving as Agent. Peter L. Malkin is Chairman and Anthony E.
Malkin is Senior Director of Supervisory Services of Wien & Malkin
LLP. The other Agents are members of Wien & Malkin LLP, except
Scott D. Malkin who has substantial experience in real estate and
has been approved by the Participants as a successor Agent.
Wien & Malkin LLP has acted as supervisor and legal
counsel for each of Associates and the Lessee from inception. A
non-exclusive list of Wien & Malkin LLP's supervisory services to
Associates includes maintaining partnership records, performing
physical inspections of the Property, reviewing insurance
coverage, conducting annual partnership meetings, issuing reports
to the Participants, and administrative oversight of special
transactions such as the proposed program. Financial services
include monthly receipt of rent from the Lessee, payment of
monthly and additional distributions to the Participants, payment
of all other disbursements, confirmation of the payment of real
estate taxes, review of financial statements submitted to
Associates by the Lessee and of audited financial statements and
tax information prepared by Associates' independent certified
public accountants, and distribution of such materials to the
Participants. Wien & Malkin LLP also prepares quarterly, annual
and other periodic filings with the Securities and Exchange
Commission and applicable state authorities.
In consideration of its supervisory services to
Associates, Wien & Malkin LLP receives (i) a basic payment of
$24,000 a year ("Basic Supervisory Compensation") and (ii) an
additional payment of 10% of the cash distributions to
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Participants in any year in excess of 14% on the $7,000,000 cash
investment ("Additional Supervisory Compensation"). Wien &
Malkin LLP pays all disbursements relating to Wien & Malkin LLP's
ordinary services to Associates, including accounting and other
professional fees, filing and search fees, document preparation,
and mailing costs. For the year ended December 31, 1998,
Associates paid Wien & Malkin LLP Basic Supervisory Compensation
of $24,000 and Additional Supervisory Compensation of $159,506.
II. OPERATIONS MATTERS
A. Proposed Improvement Program
The improvements proposed to be completed after December
31, 1998, are shown in Exhibit A and are estimated to cost
approximately $22,800,000 over approximately two to three years.
Each item has been recommended by Wien & Malkin LLP supervisory
staff based upon a program prepared by the Lessee the design,
engineering and bidding of which has been, for the great majority,
fully concluded by expert consultants and specially hired in-house
personnel. Included in the budget are: (a) $4,000,000 for
replacement of all Building windows, (b) $4,200,000 for public
corridor and elevator lobby upgrades, (c) $3,200,000 for new
public bathrooms, (d) $2,700,000 for elevator system
modernization, (e) $625,000 for new elevator cabs, (f) $385,000
for new concierge desk and new card key and security system, (g)
$1,550,000 for roof and parapet replacement and repairs, (h)
$2,350,000 for water riser replacement, (i) $750,000 for facade
restoration, (j) $800,000 for new marketing center, new conference
center, and upgrading of the Building law library, and (k)
$100,000 for lobby retail arcade upgrades. The balance will be
available for contingencies discovered in the field and
improvement of tenant spaces.
B. Financing
The $22,800,000 estimated cost of the improvements over
approximately two to three years will be funded substantially
through an increase in the Fee Mortgage (from the current
approximately $12,000,000). Associates will own the improvements
paid from the Fee Mortgage proceeds and will pay the increased
debt service from an equivalent increase in Basic Rent paid to
Associates by the Lessee. The increased Basic Rent and cash
payments for improvements will be deducted in computing Additional
Rent. Assuming that $1,053,800 of Additional Rent continues to be
paid each year without reduction for funding improvements, the new
debt service and improvement costs will be borne equally by
Associates and the Lessee and will be spread through mortgage
renewals over many years, thus stabilizing distributions to
Participants.
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Neither Associates nor the Participants will be
personally liable for payment of the Fee Mortgage. To minimize
interest charges, the Agents will seek the advance of the Fee
Mortgage increase in installments as the work proceeds. The
maximum Fee Mortgage debt authorized by the program will be
$40,000,000, and the actual amount will depend upon future
improvements and repairs at the Property and funding available
from cash flow.
The Fee Mortgage increase, as advanced, will be held by
Associates and applied to the improvement program as expended by
the Lessee. For purposes of determining Overage Rent, the
interest earned on the temporary investment of the Fee Mortgage
increase until expended in connection with the improvement program
shall be treated as income of the Lessee.
If the Lessee were to pay for the improvements without
such financing, the full cost would be currently deducted against
Overage Rent. 100% of the distributions to Participants is derived
from Overage Rent. If the full cost were deducted as spent
against Overage Rent, distributions to Participants would be
significantly reduced, if not eliminated, during the next several
years. The proposed Fee Mortgage financing will instead spread
the improvement cost through successive refinancings over a longer
term and stabilize the amount of Overage Rent payable by the
Lessee for distribution to Participants.
C. Basic Rent
Currently, Basic Rent is $1,087,842 a year, to be
adjusted to reflect any increase or decrease in debt service on
the existing principal amount of the Fee Mortgage. Under the
program proposed in this Statement, the Basic Rent payable to
Associates by the Lessee will increase to pay all debt service on
the increase in the Fee Mortgage.
Assuming an increase in the Fee Mortgage from
$12,000,000 to $34,000,000 with interest at 7.5% on the additional
$22,000,000 and with 25 year amortization, Basic Rent will
increase annually by $1,950,937 to pay debt service on the Fee
Mortgage increase, and Further Additional Rent will decrease by
one-half of that amount, prior to any increase in Further
Additional Rent due to increased revenue resulting from the
improvements.
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D. Lease Modification
The Lease will be modified as required to confirm the
increase in Basic Rent. The Agents will have discretionary
authority to grant the Lessee lease extension options in the
future when deemed appropriate by the Agents for the benefit of
Associates. When the Lessee completes $22,800,000 of improvements
substantially in accord with this program, the Agents will grant
two 25-year extensions to 2083.
The granting of lease extension options to 2083 will
trigger a New York State Transfer Tax of approximately $300,000.
These transfer taxes would typically be paid by Associates as the
transferor, but the Lessee has agreed that the transfer taxes will
be funded from the Fee Mortgage increase to be serviced through
the Lessee's increased Basic Rent.
In concluding that the Lessee's completion of the
improvement program justifies the Lease extension option, the
Agents have consulted with Brown Harris Stevens Appraisal &
Consulting, LLC ("Brown Harris") to render an independent opinion
comparing the present values of the respective benefits and costs
to each of Associates and the Lessee. Brown Harris concluded that
there is a positive net present value for each of Associates and
the Lessee arising from the program. Brown Harris is independent
of Associates, the Agents, the Lessee, and Wien & Malkin LLP. A
copy of its report is enclosed.
E. Solicitation and Program Expenses
The expenses for the consent solicitation, lease
amendment, refinancing, transfer and recording taxes, legal fees,
and related costs will be paid from the Fee Mortgage increase
which is serviced by the Lessee's Basic Rent increase and
deducted in computing Overage Rent. Wien & Malkin LLP will
represent as counsel Associates and the Lessee in connection with
this program at standard hourly rates, and Associates will
indemnify Wien & Malkin LLP and the Agents as well as their
advisers and affiliates and the managing agent against any claim
or expense arising in connection with the program.
III. CERTAIN EFFECTS OF THE IMPROVEMENT AND FINANCING PROGRAM
A. Generally
Payment for the improvement program (whether by
repayment of the Fee Mortgage increase through increased Basic
Rent or direct payment for services and materials) is deductible
in computing Overage Rent. Therefore, each of Associates and the
Lessee will ultimately bear one-half of the cost of the
improvement program. Stated differently, the value of the
Property and of Associates' interest in it will be enhanced, and
the Lessee will have contributed half the cost.
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The Agents believe there are good prospects that
increases in rental income from tenants will offset and ultimately
be greater than the increases in the Lessee's expense for Basic
Rent over the course of the program, thus moderating or avoiding
any reduction of Overage Rent and distributions.
The improvement and financing program will have no
direct effect on the Agents as such. There is no change in the
Basic Supervisory Fee or the formula under which Wien & Malkin LLP
receives Additional Supervisory Compensation, but such
compensation will vary in proportion to any variation in Overage
Rent. See Section V. - Potential Conflicts of Interest.
B. Tax Consequences
The improvements paid through the Fee Mortgage increase
shall be made by the Lessee as agent for Associates and shall be
the property of Associates. The applicable income tax deductions
for depreciation shall benefit the Participants. To the extent
the improvement program is funded from the Fee Mortgage increase,
non-deductible amortization payments by Associates under the Fee
Mortgage will ultimately equal the tax benefits of the
depreciation. If the proposed Fee Mortgage terms require
amortization payments through successive refinancings over a 25-
year period, the Participants will receive a timing benefit
because depreciation deductions will be available during the early
years of debt repayment when depreciation exceeds loan
amortization. Accordingly, there is a tax benefit to the
Participants as a result of the improvement and financing program.
IV. RECOMMENDATIONS
The Agents recommend that the Participants approve the
improvement, financing and lease modification program, for the
following reasons:
-- The improvements will attract more
creditworthy tenants at higher rental rates.
- The improvements are needed to meet the
physical and marketing requirements of the Property
and will enhance its value.
- The Fee Mortgage financing of the improvements
will spread their cost and stabilize distributions
to Participants. In the absence of financing and
lease extensions, the Agents believe that the
Lessee (a) will not undertake all of the
improvements so the opportunity to improve and
protect profit and distributions to Participants
will be diminished and (b) will undertake certain
improvements solely with current cash flow, thereby
significantly reducing distributions to
Participants during the next several years.
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The data and background materials regarding this
financing and improvement program are on file in the office of
Wien & Malkin LLP and are available for review by Participants.
For appointments to inspect and copy such data, and for copies of
such data by mail, call Stanley Katzman, Esq. at (212) 687-8700.
V. POTENTIAL CONFLICTS OF INTEREST
A. Certain Ownership of Participations
As of June 1, 1999, the Agents beneficially owned,
directly or indirectly, the following Participations:
Name and Address Amount of Percent
of Beneficial Beneficial of
Title of Class Owners Ownership Class
Participations Peter L. Malkin $72,500 1.036%
in Partner 60 East 42nd Street
Interest New York, NY 10165
Anthony E. Malkin 25,833 .369%
60 East 42nd Street
New York, NY 10165
Scott D. Malkin 33,334 .476%
35 Mason Street
Greenwich, CT 06830
Thomas N. Keltner, Jr. 2,500 .036%
60 East 42nd Street
New York, NY 10165
Anthony E. Malkin owned of record as co-trustee an
aggregate of $5,000 of Participations. Anthony E. Malkin disclaims
any beneficial ownership of such Participations.
Members of the family of Peter L. Malkin, Anthony E.
Malkin and Scott D. Malkin, or trusts for their benefit, owned of
record or beneficially $85,714 of other Participations. Messrs.
Malkin disclaim any beneficial ownership of such Participations.
No other Agent owns a Participation.
B. Relationships with the Lessee
As of June 1, 1999, record and beneficial ownership of
7.5% of the Lessee is held by Peter L. Malkin and members of his
family. Peter L. Malkin owns of record as trustee, co-trustee or
agent an aggregate of 12.1% of the Lessee and disclaims any
beneficial ownership therein. Certain actions by the Lessee
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require approval of no less than 60% of the partner interests in
the Lessee. The Agents have been advised that the requisite
partners in the Lessee have approved the improvement, financing
and lease modification program on the condition that the program
is approved by the Participants.
Wien & Malkin LLP receives $180,000 annually from the
Lessee for acting as supervisor of the Lessee's partnership
agreement and additional supervisory compensation of 10% of
distributions of cash profit of the Lessee in excess of $400,000
per annum. Wien & Malkin LLP will serve as counsel to Associates
and the Lessee in connection with this program at standard hourly
rates.
The Agents and Wien & Malkin LLP as well as their
advisers and affiliates and the managing agent are being
indemnified by the Lessee and Associates in connection with all
items of the improvement, financing and lease extension program,
including this solicitation.
C. Third Parties
Brown Harris has been retained by the Agents as a
consultant and will receive a fee of less than $35,000 whether or
not the improvement, and financing and lease modification program
is approved. Brown Harris is an independent company, not related
to the Agents, Wien & Malkin LLP, Associates, or the Lessee.
VI. FEES AND EXPENSES
All fees and expenses relating to this solicitation and
the Fee Mortgage increase, including all independent consultants,
will be paid from the Fee Mortgage increase which is serviced by
the Lessee's Basic Rent increase and deducted in determining
Overage Rent.
VII. AGENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
For 1998 for each original $10,000 Participation,
Associates made regular monthly distributions from Additional Rent
aggregating $1,494 plus additional distributions from Further
Additional Rent aggregating $1,956. See Section I.C.2. - The
Lease.
The following summarizes certain material factors
affecting Associates' results of operations for the two years
ended December 31, 1998:
a. Total income decreased for 1998 compared with
the prior year, attributable to decreased
Additional Rent.
b. Total income increased for 1997 compared with
the prior year, attributable to increased
Additional Rent.
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VIII. LIQUIDITY AND CAPITAL RESOURCES
There has been no significant change in Associates'
liquidity for the twelve-month period ended December 31, 1998, as
compared with the twelve-month period ended December 31, 1997.
IX. INFLATION
Inflationary trends in the economy may impact the
operations of the Lessee, and therefore, Overage Rent.
Historically, inflation generally has resulted in an increase in
Overage Rent.
X. TERMS OF SOLICITATIONS OF CONSENTS
Each Agent acts for Participants owning $1,000,000 of
the original $7,000,000 investment in Associates. On June 1,
1999, no person held Participations aggregating more than 5% of
the total outstanding Participations.
On June 1, 1999, there were about 750 Participants
holding Participations. Each Participant's voting percentage in
his or her group is determined by a fraction, whose numerator is
the face amount of the Participation and denominator is the
group's original $1,000,000 investment in Associates.
Each Participating Agreement requires 100% consent for
approval of the proposals made by the Agents in this Statement,
subject to the Participation purchase arrangement described below.
Each Participating Agreement states that, if owners of
90% of the Participations in any Agent's group consent, the Agent
or his designee shall have the right to purchase the interest of
any Participant in such Agent's group who has not given such
consent within 10 days after the Agent's mailing of the request
therefor. The purchase price shall be the greater of (i) the book
value of the Participation (original cost less capital repaid
thereon) and (ii) $100. Since the book value of an original
Participation has a negative balance as of June 1, 1999, the
purchase price will be $100.
If 90% or more of the Participants in an Agent's group
consent to any element of the improvement, financing and lease
modification program, each Agent (or his designee) presently
intends to purchase the interest of any non-consenting
Participants. Any Participant whose Participation is purchased by
an Agent (or his designee) will not receive any further Overage
Rent paid in respect of the year of purchase or thereafter.
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The solicitation of consents will terminate 90 days
after the date of this Statement but may be extended by the Agents
through December 31, 1999. There is no record date establishing
the identity of the Participants entitled to vote for the program.
Holders of Participations as of June 1, 1999 will be recognized as
entitled to vote. However, if any Participation is transferred
before the consent with respect to that Participation is given,
the transferee will be entitled to vote. If consent to the
proposals has been given prior to the transfer of a Participation,
the transferee will be bound by the vote of the transferor. In
addition, the Agents and their designees will be entitled to vote
the Participation of any non-consenting Participant whose interest
is purchased by them under the Participation purchase arrangement
as described above.
Wien & Malkin LLP has been authorized by the Agents to
solicit the consents of Participants by mail, telecopier,
telephone and telegram after the mailing of this Statement.
Consent Forms which are signed, dated and returned without a
choice indicated will be deemed to constitute a binding consent.
Any consent (including a deemed consent) is irrevocable.
Participations are not traded on an established
securities market, nor are they readily tradable on a secondary or
equivalent market. Based on Associates' transfer records,
Participations are sold by holders from time to time in privately
negotiated transactions, and, in some instances, Associates is
unaware of the prices at which such transactions occur. However,
Associates has been advised that the known price for private sales
during the past year has been $20,000 per $10,000 original
investment.
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Exhibit A
Lincoln Building 60 East 42nd Street
Building Improvement Program
Project/Item Budget
Elevator system modernization $2,700,000
Elevator cab replacement 625,000
New concierge desk 285,000
Public corridors and elevator lobbies upgrades 4,234,000
New public bathrooms 3,196,000
Lobby retail arcade upgrades, new
awning & displays 95,000
Facade renovation 750,000
New marketing center 210,000
New conference center 200,000
Building law library upgrades 375,000
New cardkey & security system 100,000
Roof & parapet replacements 1,545,000
Water riser replacement 2,353,000
New stairwell lighting & signage 150,000
Misc. electrical & mechanical system upgrades 310,000
Window replacement 4,000,000
Contingency 1,622,000
___________
Total $22,750,000
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CONSENT
60 EAST 42nd ST. ASSOCIATES
As a Participant in 60 East 42nd St. Associates, the
undersigned hereby takes the following action in response to the
letter from Peter L. Malkin to Participants in 60 East 42nd St.
Associates dated June 30, 1999 and the accompanying Statement by
the Agents in the Solicitation of Participant Consents
(collectively, the "Statement"):
1. Proposed Improvement, Financing and Lease Modification
CONSENT WITHHOLD CONSENT
______ Consent to _______ Disapprove of
and Approve of
_______ Abstain from
Consenting to
the program for financing and completing approximately $22,800,000
of improvements and modifying the lease to contain extension
options to 2083, all as described in the Statement.
2. Discretionary Refinancing Authority of the Agents
CONSENT WITHHOLD CONSENT
______ Consent to _______ Disapprove of
and Approve of
_______ Abstain from
Consenting to
giving present and successor Agents discretionary authority to
refinance the Fee Mortgage for a principal amount not to exceed
$40,000,000 plus refinancing costs, with an institutional lender,
non-recourse, from time to time in the future, all as described in
the Statement.
3. Discretionary Lease Modification Authority of the Agents
CONSENT WITHHOLD CONSENT
______ Consent to _______ Disapprove of
and Approve of
_______ Abstain from
Consenting to
-15-
giving present and successor Agents discretionary authority to
grant the Lessee lease extension options from time to time in the
future for such consideration and on such terms as deemed
appropriate by the Agents for the benefit of Associates, all as
described in the Statement.
THE AGENTS RECOMMEND YOUR CONSENT TO ALL FOREGOING ITEMS. A
PARTICIPANT WHO ABSTAINS IS TREATED THE SAME AS A PARTICIPANT WHO
DOES NOT CONSENT.
Dated: ______________________, 1999
___________________________
Signature
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS CONSENT.
ONCE GIVEN, CONSENT MAY NOT BE REVOKED.
IF THIS FORM IS SIGNED, DATED AND RETURNED WITHOUT A CHOICE
INDICATED, THE PARTICIPANT SIGNING SAME SHALL BE DEEMED
TO HAVE CONSENTED.
-16-
[LETTERHEARD OF
JACOBS EVALL & BLUMENFELD LLP]
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in 60 East 42nd St. Associates (a Partnership):
We have audited the accompanying balance sheet of 60 East 42nd St.
Associates ("Associates") as of December 31, 1998, and the related
statements of income, partners' capital (deficit) and cash flows for
the year then ended. These financial statements are the responsibility
of Associates' management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Associates
as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
420 Lexington Avenue
New York, N. Y. 10170
January 29, 1999
60 EAST 42ND ST. ASSOCIATES
BALANCE SHEET
DECEMBER 31, 1998
Assets
Cash in Fleet Bank $ 677
Cash in distribution account held
by Wien & Malkin LLP 87,202
87,879
Real estate at 60 East 42nd Street and
301 Madison Avenue, New York City:
Buildings $16,960,000
Less: Accumulated depreciation 16,960,000 -
Building improvements 1,574,135
Less: Accumulated depreciation 1,574,135 -
Land 7,240,000
Mortgage refinancing costs 249,522
Less: Accumulated amortization 105,009 144,513
Total assets $ 7,472,392
Liabilities and partners' capital (deficit)
Liabilities:
First mortgage $12,020,814
Partners' capital (deficit) (4,548,422)
Total liabilities and partners' capital (deficit) $ 7,472,392
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
Income:
Basic rent income $1,087,842
Additional rent income 2,583,451
Total income 3,671,293
Expenses:
Interest on first mortgage $1,063,842
Supervisory services 183,506
Amortization of mortgage refinancing costs 24,776
Professional fees 8,393
Total expenses 1,280,517
Net income $2,390,776
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1998
Partners' capital (deficit), January 1, 1998 $(4,523,646)
Add, Net income for the year ended
December 31, 1998 2,390,776
(2,132,870)
Less, Distributions:
Monthly distributions, January 1,
1998 through December 31, 1998 $1,046,420
Distribution on November 30, 1998 of
balance of additional rent for the
lease year ended September 30, 1998 1,369,132
2,415,552
Partners' capital (deficit),
December 31, 1998 $(4,548,422)
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
Cash flows from operating activities
Net income $ 2,390,776
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing costs 24,776
Net cash provided by operating activities 2,415,552
Cash flows from financing activities
Monthly distributions to participants (1,046,420)
Distribution on November 30, 1998 of
balance of additional rent for the
lease year ended September 30, 1998 (1,369,132)
Net cash used in financing activities (2,415,552)
Net change in cash -
Cash at beginning of year 87,879
Cash at end of year $ 87,879
Supplemental disclosure of cash flows information
Cash paid in 1998 for:
Interest $ 1,063,842
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Business Activity
60 East 42nd St. Associates ("Associates") is a general partnership
which owns commercial property at 60 East 42nd Street and 301
Madison Avenue, New York, N.Y. The property is net leased to
Lincoln Building Associates.
2. Summary of Significant Accounting Policies
Use of estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management often makes estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Land, buildings, building improvements and depreciation:
Land, buildings and building improvements are stated at cost.
Depreciation was provided on the straight-line method over the
estimated useful life of the buildings, 26 years from October 1,
1958, and the estimated useful life of the building improvements,
20 years, 5 months from May 1, 1964. The buildings and building
improvements are fully depreciated.
Mortgage refinancing costs and amortization:
Mortgage refinancing costs of $249,522, incurred in connection
with the October 6, 1994 refinancing of the first mortgage, are
being amortized ratably over the term of the mortgage, from
October 6, 1994 through October 31, 2004.
3. First Mortgage Payable
On October 6, 1994, a first mortgage was placed on the property with
Morgan Guaranty Trust Company of New York, as trustee of a pension
trust, in the amount of $12,020,814. The first mortgage requires
constant equal monthly payments totalling $1,063,842 per annum for
interest only, at the rate of 8.85% per annum, and matures on October
31, 2004. The real estate is pledged as collateral for the first
mortgage.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
3. First Mortgage Payable (continued)
Required principal payments on the first mortgage are as follows:
1999 through 2003 - 0 -
October 31, 2004 $12,020,814
4. Rent Income and Related Party Transactions
On January 4, 1982, Lincoln Building Associates (the lessee)
exercised its option to renew the lease for an additional period
of 25 years, and the lease period now extends through September
30, 2008. The lease includes an option to renew for one additional
period of 25 years through September 30, 2033.
Effective October 6, 1994, the lease, as modified, provides for
annual basic rent of $1,087,842, which is equal to the sum of
$1,063,842, the constant annual mortgage charges, plus $24,000.
In the event of a mortgage refinancing, unless there is an increase
in the mortgage balance, the annual basic rent will be modified and
will be equal to the sum of $24,000 plus an amount equal to the
revised mortgage charges. In the event that such mortgage refinancing
results in an increase in the amount of outstanding principal balance
of the mortgage, the basic rent shall be equal to $24,000 plus an
amount equal to the product of the new debt service percentage rate
under the refinanced mortgage multiplied by the principal balance of
the mortgage immediately prior to the refinancing.
The lease, as modified, also provides for additional rent, as follows:
1. Additional rent equal to the first $1,053,800 of the lessee's
net operating income, as defined, in each lease year.
2. Further additional rent equal to 50% of the lessee's remaining
net operating income, as defined, in each lease year.
For the lease year ended September 30, 1998,the lessee reported
additional rent of $2,583,451 based on an operating profit of
$4,113,103 subject to additional rent.
Additional rent is billed to and advanced by the lessee in equal monthly
installments of $87,817. While it is not practicable to estimate that
portion of additional rent for the lease year ending on the ensuing
September 30th which would be allocable to the current three month
period ending December 31st, Associates' policy is to include in its
income each year the advances of additional rent income received from
October 1st to December 31st.
No other additional rent is accrued by Associates for the period between
the end of the lessee's lease year ending September 30th and the end of
Associates' fiscal year ending December 31st.
A partner in Associates is also a partner in the lessee.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Supervisory Services and Related Party Transactions
Payments for supervisory services, including disbursements and cost
of accounting services, are made to the firm of Wien & Malkin LLP.
A member of that firm is a partner in Associates.
6. Professional Fees and Related Party Transactions
Payments for professional fees, including disbursements, are made
to the firm of Wien & Malkin LLP, a related party.
7. Income Taxes
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes
are paid by the participants in their individual capacities.
8. Concentration of Credit Risk
Associates maintains cash balances in a bank and in a distribution
account held by Wien & Malkin LLP. The bank balance is insured by
the Federal Deposit Insurance Corporation up to $100,000, and at
December 31, 1998 was completely insured. The distribution account
held by Wien & Malkin LLP is not insured. The funds held in the
distribution account were paid to the participants on January 1,
1999.
[LETTERHEARD OF
JACOBS EVALL & BLUMENFELD LLP
CERTIFIED PUBLIC ACCOUNTANTS]
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in 60 East 42nd St. Associates (a Partnership):
We have audited the accompanying balance sheet of 60 East 42nd St. Associates
("Associates") as of December 31, 1997, and the related statements of income,
partners' capital (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of Associates' management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associates as of December
31, 1997, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
420 Lexington Avenue
New York, N. Y. 10170
January 31, 1998
60 EAST 42ND ST. ASSOCIATES
BALANCE SHEET
DECEMBER 31, 1997
Assets
Cash in Fleet Bank $ 677
Cash in distribution account held
by Wien & Malkin LLP 87,202
87,879
Real estate at 60 East 42nd Street and
301 Madison Avenue, New York City:
Buildings $16,960,000
Less: Accumulated depreciation 16,960,000 -
Building improvements 1,574,135
Less: Accumulated depreciation 1,574,135 -
Land 7,240,000
Mortgage refinancing costs 249,522
Less: Accumulated amortization 80,233 169,289
Total assets $ 7,497,168
Liabilities and partners' capital (deficit)
Liabilities:
First mortgage $12,020,814
Partners' capital (deficit) (4,523,646)
Total liabilities and partners' capital (deficit) $ 7,497,168
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
Income:
Basic rent income $1,087,842
Additional rent income 3,163,880
Total income 4,251,722
Expenses:
Interest on first mortgage $1,063,842
Supervisory services 237,634
Amortization of mortgage
refinancing costs 24,776
Professional fees 47,545
Total expenses 1,373,797
Net income $2,877,925
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1997
Partners' capital (deficit), January 1, 1997 $(4,498,870)
Add, Net income for the year ended
December 31, 1997 2,877,925
(1,620,945)
Less, Distributions:
Monthly distributions, January 1,
1997 through December 31, 1997 $1,046,420
Distribution on December 2, 1997 of
balance of additional rent for the
lease year ended September 30, 1997 1,856,281
2,902,701
Partners' capital (deficit),
December 31, 1997 $(4,523,646)
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
Cash flows from operating activities
Net income $ 2,877,925
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing costs 24,776
Net cash provided by operating activities 2,902,701
Cash flows from financing activities
Monthly distributions to participants (1,046,420)
Distribution on December 2, 1997 of
balance of additional rent for the
lease year ended September 30, 1997 (1,856,281)
Net cash used in financing activities (2,902,701)
Net change in cash -
Cash at beginning of year 87,879
Cash at end of year $ 87,879
Supplemental disclosure of cash flows information
Cash paid in 1997 for:
Interest $ 1,063,842
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Business Activity
60 East 42nd St. Associates ("Associates") is a general partnership
which owns commercial property at 60 East 42nd Street and 301 Madison
Avenue, New York, N.Y. The property is net leased to Lincoln Building
Associates.
2. Summary of Significant Accounting Policies
Use of estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management often makes estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Land, buildings, building improvements and depreciation:
Land, buildings and building improvements are stated at cost.
Depreciation was provided on the straight-line method over the
estimated useful life of the buildings, 26 years from October 1,
1958, and the estimated useful life of the building improvements,
20 years, 5 months from May 1, 1964. The buildings and building
improvements are fully depreciated.
Mortgage refinancing costs and amortization:
Mortgage refinancing costs of $249,522, incurred in connection with
the October 6, 1994 refinancing of the first mortgage, are being
amortized ratably over the term of the mortgage, from October 6,
1994 through October 31, 2004.
3. First Mortgage Payable
On October 6, 1994, a first mortgage was placed on the property with
Morgan Guaranty Trust Company of New York, as trustee of a pension
trust, in the amount of $12,020,814. The first mortgage requires
constant equal monthly payments
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
3. First Mortgage Payable (continued)
totalling $1,063,842 per annum for interest only, at the rate of 8.85%
per annum, and matures on October 31, 2004. The real estate is pledged
as collateral for the first mortgage.
Required principal payments on the first mortgage are as follows:
1998 through 2003 - 0 -
October 31, 2004 $12,020,814
4. Rent Income and Related Party Transactions
On January 4, 1982, Lincoln Building Associates (the lessee) exercised
its option to renew the lease for an additional period of 25 years, and
the lease period now extends through September 30, 2008. The lease
includes an option to renew for one additional period of 25 years
through September 30, 2033.
Effective October 6, 1994, the lease as modified provides for annual
basic rent of $1,087,842, which is equal to the sum of $1,063,842, the
constant annual mortgage charges, plus $24,000. In the event of a
mortgage refinancing, unless there is an increase in the mortgage
balance, the annual basic rent will be modified and will be equal to
the sum of $24,000 plus an amount equal to the revised mortgage
charges. In the event that such mortgage refinancing results in an
increase in the amount of outstanding principal balance of the
mortgage, the basic rent shall be equal to $24,000 plus an amount
equal to the product of the new debt service percentage rate under
the refinanced mortgage multiplied by the principal balance of the
mortgage immediately prior to the refinancing.
The lease, as modified, also provides for additional rent, as follows:
1. Additional rent equal to the first $1,053,800 of the lessee's
net operating income, as defined, in each lease year.
2. Further additional rent equal to 50% of the lessee's remaining
net operating income, as defined, in each lease year.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Rent Income and Related Party Transactions (continued)
For the lease year ended September 30, 1997, there was additional
rent of $3,163,880 based on an operating profit of $5,273,959
subject to additional rent.
Additional rent is billed to and advanced by the lessee in equal
monthly installments of $87,817. While it is not practicable to
estimate that portion of additional rent of the lease year ending
on the ensuing September 30th which would be allocable to the current
three month period ending December 31st, Associates' policy is to
include in its income each year the advances of additional rent
income received from October 1st to December 31st.
No other additional rent is accrued by Associates for the period
between the end of the lessee's lease year ending September 30th and
the end of Associates' fiscal year ending December 31st.
A partner in Associates is also a partner in the lessee.
5. Supervisory Services and Related Party Transactions
Payments for supervisory services, including disbursements and cost of
accounting services, are made to the firm of Wien & Malkin LLP. Some
members of that firm are partners in Associates.
6. Professional Fees and Related Party Transactions
Payments for professional fees, including disbursements, are made to
the firm of Wien & Malkin LLP, a related party.
7. Income Taxes
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes
are paid by the participants in their individual capacities.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Concentration of Credit Risk
Associates maintains cash balances in a bank and in a distribution
account held by Wien & Malkin LLP. The bank balance is insured by
the Federal Deposit Insurance Corporation up to $100,000, and at
December 31, 1997 was completely insured. The distribution account
held by Wien & Malkin LLP is not insured. The funds held in the
distribution account were paid to the participants on January 1,
1998.
[LETTERHEAD OF
JACOBS EVALL & BLUMENFELD
CERTIFIED PUBLIC ACCOUNTANTS]
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in 60 East 42nd St. Associates (a Partnership):
We have audited the accompanying balance sheet of 60 East 42nd St. Associates
("Associates") as of December 31, 1996, and the related statements of income,
partners' capital (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of Associates' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Associates as of December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
420 Lexington Avenue
New York, N. Y. 10170
January 23, 1997
60 EAST 42ND ST. ASSOCIATES
BALANCE SHEET
DECEMBER 31, 1996
Assets
Cash in Fleet Bank $ 677
Cash in distribution account held
by Wien, Malkin & Bettex LLP 87,202
87,879
Real estate at 60 East 42nd Street and
301 Madison Avenue, New York City:
Buildings $16,960,000
Less: Accumulated depreciation 16,960,000 -
Building improvements 1,574,135
Less: Accumulated depreciation 1,574,135 -
Land 7,240,000
Mortgage refinancing costs 249,522
Less: Accumulated amortization 55,457 194,065
Total assets $ 7,521,944
Liabilities and partners' capital (deficit)
Liabilities:
First mortgage $12,020,814
Partners' capital (deficit) (4,498,870)
Total liabilities and partners' capital (deficit) $ 7,521,944
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
Income:
Basic rent income $1,087,842
Additional rent income 3,105,275
Total income 4,193,117
Expenses:
Interest on first mortgage $1,063,842
Supervisory services 236,528
Amortization of mortgage refinancing costs 24,776
Total expenses 1,325,146
Net income $2,867,971
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1996
Partners' capital (deficit), January 1, 1996 $(4,474,094)
Add, Net income for the year ended
December 31, 1996 2,867,971
(1,606,123)
Less, Distributions:
Monthly distributions, January 1,
1996 through December 31, 1996 $1,046,420
Distribution on November 30, 1996 of
balance of additional rent for the
lease year ended September 30, 1996 1,846,327
2,892,747
Partners' capital (deficit),
December 31, 1996 $(4,498,870)
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
Cash flows from operating activities
Net income $ 2,867,971
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing costs 24,776
Net cash provided by operating activities 2,892,747
Cash flows from financing activities
Monthly distributions to participants (1,046,420)
Distribution on November 30, 1996 of
balance of additional rent for the
lease year ended September 30, 1996 (1,846,327)
Net cash used in financing activities (2,892,747)
Net change in cash -
Cash at beginning of year 87,879
Cash at end of year $ 87,879
Supplemental disclosure of cash flows information
Cash paid in 1996 for:
Interest $ 1,063,842
See accompanying notes to financial statements.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Business Activity
60 East 42nd St. Associates ("Associates") is a general partnership which
owns commercial property at 60 East 42nd Street and 301 Madison Avenue, New
York, N.Y. The property is net leased to Lincoln Building Associates.
2. Summary of Significant Accounting Policies
Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management often makes estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Land, buildings, building improvements and depreciation:
Land, buildings and building improvements are stated at cost.
Depreciation was provided on the straight-line method over the estimated
useful life of the buildings, 26 years from October 1, 1958, and the
estimated useful life of the building improvements, 20 years, 5 months
from May 1, 1964. The buildings and building improvements are fully
depreciated.
Mortgage refinancing costs and amortization:
Mortgage refinancing costs of $249,522, incurred in connection with the
October 6, 1994 refinancing of the first mortgage, are being amortized
ratably over the term of the mortgage, from October 6, 1994 through
October 31, 2004.
3. First Mortgage Payable
On October 6, 1994, a first mortgage was placed on the property with Morgan
Guaranty Trust Company of New York, as trustee of a pension trust, in the
amount of $12,020,814. The first mortgage requires constant equal monthly
payments
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
3. First Mortgage Payable (continued)
totalling $1,063,842 per annum for interest only, at the rate of 8.85% per
annum,and matures on October 31, 2004. The real estate is pledged as
collateral for the first mortgage.
Required principal payments on the first mortgage are as follows:
1996 through 2003 - 0 -
October 31, 2004 $12,020,814
4. Rent Income and Related Party Transactions
On January 4, 1982, Lincoln Building Associates exercised its option to
renew the lease for an additional period of 25 years, and the lease period
now extends through September 30, 2008. The lease includes an option to
renew for one additional period of 25 years through September 30, 2033.
Effective April 1, 1979, the lease was modified to provide for annual basic
rent of $1,255,194 through September 30, 1983, and any renewal term of the
lease, or until such time that the first mortgage was refinanced. In the
event of such mortgage refinancing, unless there is an increase in the
mortgage balance, the annual basic rent will be modified and will be equal
to the sum of $24,000 plus an amount equal to the revised mortgage charges.
In the event that such mortgage refinancing results in an increase in the
amount of outstanding principal balance of the mortgage, the basic rent
shall be equal to $24,000 plus an amount equal to the product of the new
debt service percentage rate under the refinanced mortgage multiplied by the
principal balance of the mortgage immediately prior to the refinancing.
Effective October 6, 1994, the annual basic rent is $1,087,842, which is
equal to the sum of $1,063,842, the constant annual mortgage charges, plus
$24,000.
The lease, as modified, also provides for additional rent, as follows:
1. Additional rent equal to the first $1,053,800 of the lessee's net
operating income, as defined, in each lease year.
2. Further additional rent equal to 50% of the lessee's remaining net
operating income, as defined, in each lease year.
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Rent Income and Related Party Transactions (continued)
For the lease year ended September 30, 1996, there was additional rent of
$3,105,275 based on an operating profit of $5,156,749 subject to additional
rent.
Additional rent is billed to and advanced by the lessee in equal monthly
installments of $87,817. While it is not practicable to estimate that
portion of additional rent of the lease year ending on the ensuing September
30th which would be allocable to the current three month period ending
December 31st, Associates' policy is to include in its income each year the
advances of additional rent income received from October 1st to December
31st.
No other additional rent is accrued by Associates for the period between the
end of the lessee's lease year ending September 30th and the end of
Associates' fiscal year ending December 31st.
A partner in Associates is also a partner in the lessee.
5. Supervisory Services and Related Party Transactions
Payments for supervisory services, including disbursements and cost of
accounting services, are made to the firm of Wien, Malkin & Bettex LLP.
Some members of that firm are partners in Associates.
6. Income Taxes
Net income is computed without regard to income tax expense since Associates
does not pay a tax on its income; instead, any such taxes are paid by the
participants in their individual capacities.
7. Concentration of Credit Risk
Associates maintains cash balances in a bank and in a distribution account
held by Wien, Malkin & Bettex LLP. The bank balance is insured by the
Federal Deposit Insurance Corporation up to $100,000, and at December 31,
1996 was completely insured. The distribution account held by Wien, Malkin
& Bettex LLP is not insured. The funds held in the distribution account
were paid to the participants on January 1, 1997.
