FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[] 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 0-2670
60 EAST 42ND ST. ASSOCIATES
(Exact name of registrant as specified in its charter)
New York 13-6077181
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
$7,000,000 of Participations in Partnership Interests
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
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
The aggregate market of the voting stock held by non-affiliates of
the Registrant: Not applicable, but see Items 5 and 10 of this
report.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
An Exhibit Index is located on pages 32 through 34 of this Report.
Number of pages (including exhibits) in this filing: 51
PART I
Item 1. Business.
(a) General
Registrant is a partnership which was organized on
September 25, 1958. On October 1, 1958, Registrant acquired fee
title to the Lincoln Building (the "Building") and the land
thereunder, located at 60 East 42nd Street, New York, New York (the
"Property") Registrant's partners are Jack K. Feirman, Mark Labell,
Anthony E. Malkin, Scott D. Malkin, Thomas N. Keltner, Jr., Peter
L. Malkin, and Richard A. Shapiro (individually, a "Partner" and,
collectively, the "Partners"), each of whom also acts as an agent
for holders of participations in the Registrant (each holder of a
participation, individually, a "Participant" and, collectively, the
"Participants"). Registrant leases the Property to Lincoln
Building Associates (the "Lessee") under a long-term net operating
lease (the "Lease") the current term of which expires on September
30, 2008. There is one additional 25-year renewal term which, if
exercised, will extend the Lease until September 30, 2033.
Lessee is a partnership whose members consist of, among
others, Mr. Peter Malkin. Five of the seven Partners in Registrant
are current members of Wien & Malkin LLP, 60 East 42nd Street, New
York, New York, which provides supervisory and other services to
Registrant and to Lessee (the "Supervisor"). See Items 10, 11, 12
and 13 hereof for a description of the ongoing services rendered
by, and compensation paid to, Supervisor and for a discussion of
certain relationships which may pose actual or potential conflicts
of interest among Registrant, Lessee and certain of their
respective affiliates.
As of December 31, 1999, the Building was approximately
98.95% occupied by approximately 600 tenants who engage principally
in the practice of law, accounting, real estate, engineering and
advertising. Registrant does not maintain a full-time staff. See
Item 2 hereof for additional information concerning the Property.
(b) The Mortgage
A new mortgage loan on the Property was closed on October
6, 1994 (the "Mortgage Loan"). The material terms of the Mortgage
Loan are as follows:
(i) A principal amount of $12,020,814;
(ii) Annual charges of $1,063,842, payable in equal
monthly installments of $88,654, representing interest only at the
rate of 8.85% per annum;
(iii) A term of ten years; and
(iv) A maturity date of October 31, 2004. The Mortgage
Loan is prepayable in whole after October 6, 1995, with a penalty
providing certain interest protection to the mortgagee. The
Mortgage Loan is prepayable in whole without penalty during the
90-day period prior to its maturity date.
The refinancing costs were capitalized by Registrant and
are being expensed ratably during the period of the mortgage
extension from October 6, 1994 to October 31, 2004.
(c) The Lease
The Lease, as modified, provides:
(i) Lessee is required to pay Registrant an annual basic
rent of $1,087,842 (the "Basic Rent"), which is equal to the sum of
$1,063,842, the constant annual charges on the first mortgage
calculated in accordance with the terms of the Lease, plus $24,000
for supervisory services payable to Supervisor. See Note 4 of
Notes to Financial Statements filed under Item 8 hereof (the
"Notes").
(ii) (A) additional rent (the "Additional Rent") equal to
the lesser of (x) Lessee's net operating income for the lease year
or (y) $1,053,800 and (B) further additional rent ("Further
Additional Rent") equal to 50% of any remaining balance of Lessee's
net operating income for such lease year. (Lessee has no
obligation to make any payment of Additional Rent or Further
Additional Rent until after Lessee has recouped any cumulative
operating loss accruing from and after September 30, 1977. There
is currently no accumulated operating loss against which to offset
payment of Additional Rent or Further Additional Rent.)
(iii) An advance against Additional Rent equal to the
lesser of (x) Lessee's net operating income for the preceding lease
year or (y) $1,053,800, which, in the latter amount, will permit
basic distributions to Participants at an annual rate of
approximately 14.95% per annum on their remaining cash investment
in Registrant; provided, however, if such advances exceed Lessee's
net operating income for any Lease year, advances otherwise
required during the subsequent lease year shall be reduced by an
amount equal to such excess until Lessee shall have recovered,
through retention of net operating income, the full amount of such
excess. After the participants have received distributions equal
to a return of 14% per annum, $7,380 is paid to Supervisor from the
advances against Additional Rent.
-2-
Further Additional Rent income is recognized when earned
from the Lessee, at the close of the lease year ending September
30. Such income is not determinable until the Lessee, pursuant to
the Lease, renders to Registrant a certified report on the
operation of the Property. Further Additional Rent for the lease
year ended September 30, 1999 was $3,091,366. After the payment
of $309,137 to Supervisor as an additional payment for supervisory
services, the balance of $2,782,229 was distributed to the
Participants on November 30, 1999.
If the Mortgage is modified, upon the first refinancing
which would result in an increase in the amount of the outstanding
principal balance of the mortgage, the Basic Rent shall be equal to
the Wien & Malkin LLP annual supervisory fee of $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 such refinancing. If there
are subsequent refinancings which result in an increase in the
amount of the outstanding principal balance of the mortgage, the
principal balance referred to above shall be reduced by the amount
of the mortgage amortization payable from Basic Rent subsequent to
the first refinancing.
(d) Competition
Pursuant to tenant space leases at the Building, the
average base rent payable to Lessee is approximately $29.19 per
square foot (exclusive of electricity charges and escalation) and
current deals range from $35 to $55.
(e) Tenant Leases
Lessee operates the Building free from any federal, state
or local government restrictions involving rent control or other
similar rent regulations which may be imposed upon residential real
estate in New York City. Any increase or decrease in the amount of
rent payable by a tenant is governed by the provisions of the
tenant's lease, or, if a new tenant, by then existing trends in the
rental market for office space.
Item 2. Property.
Registrant owns the Building located at 60 East 42nd
Street, New York, New York, known as the "Lincoln Building," and
the land thereunder. See Item 1. Registrant's fee title to the
Property is encumbered by the Mortgage Loan with an unpaid
principal balance of $12,020,814 at December 31, 1999. For a
description of the terms of the Mortgage Loan, see Item 1 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and Note 3 of the Notes thereto. The Building,
erected in 1930, has 55 floors, a concourse and a lower lobby. It
is located diagonally opposite Grand Central Terminal, on 42nd
Street between Park Avenue and Madison Avenue. The Building is net
leased to Lessee. See Item 1 hereof and Note 4 of the Notes for
additional information concerning the Lease.
-3-
In 1999, the participants of Associates and the Lessee
consented to a building improvements program (the "Program")
estimated to cost approximately $22,800,000 and expected to take
two to three years to complete.
The Lessee is currently financing the Program and billing
Associates for the costs incurred. The Program (1) grants the
ownership of the improvements to Associates and acknowledges its
intention to finance them through a fee mortgage increase, and (2)
allows for the increased mortgage charges to be paid by Associates
from an equivalent increase in the basic rent paid by the Lessee to
Associates. Since any overage rent will be decreased by one-half
of that amount, the net effect of the lease modification is to have
Associates and the Lessee share the costs of the Program equally,
assuming overage rent continues to be earned.
To induce the Lessee to approve the Program, Associates
agreed to grant to the Lessee, upon the completion of the Program,
an extension of the lease for an additional 50 years to 2083.
In January 2000, the participants of the Lessee were
asked to approve an increase to the Program from $22,800,000 to
approximately $28,000,000 under substantially the same conditions
as had previously been approved. The increased amount has been
previously authorized by the participants of Associates. Such
increase would extend the lease beyond 2083, based on the net
present benefit to Associates of the improvements made.
Item 3. Legal Proceedings.
The property of Registrant is the subject of the
following material pending litigation:
Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et.
al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed
an action in the Supreme Court of the State of New York, against
Helmsley-Spear, Inc. and Leona Helmsley concerning various
partnerships which own, lease or operate buildings managed by
Helmsley-Spear, Inc., including Registrant's property. In their
complaint, plaintiffs sought the removal of Helmsley-Spear, Inc. as
managing and leasing agent for all of the buildings. Plaintiffs
also sought an order precluding Leona Helmsley from exercising any
partner management powers in the partnerships. In August, 1997,
the Supreme Court directed that the foregoing claims proceed to
arbitration. As a result, Mr. Malkin and Wien & Malkin LLP filed
an arbitration complaint against Helmsley-Spear, Inc. and Mrs.
-4-
Helmsley before the American Arbitration Association. Helmsley-
Spear, Inc. and Mrs. Helmsley served answers denying liability and
asserting various affirmative defenses and counterclaims; and Mr.
Malkin and Wien & Malkin LLP filed a reply denying the
counterclaims. By agreement dated December 16, 1997, Mr. Malkin
and Wien & Malkin LLP (each for their own account and not in any
representative capacity) reached a settlement with Mrs. Helmsley of
the claims and counterclaims in the arbitration and litigation
between them. Mr. Malkin and Wien & Malkin LLP are continuing
their prosecution of claims in the arbitration for relief against
Helmsley-Spear, Inc., including its termination as the leasing and
managing agent for various entities and properties, including the
Registrant's Lessee.
Item 4. Submission of Matters to a Vote of Participants.
No matters were submitted to the Participants during the
last quarter of the period covered by this report.
-5-
PART II
Item 5. Market for the Registrant's Common Equity and Related
Security Holder Matters.
Registrant, a partnership, was organized on September 25,
1958.
The securities registered by it under the Securities
Exchange Act of 1934, as amended, consist of participations in the
partnership interests of the Partners in Registrant (the
"Participations") and are not shares of common stock or the
equivalent. The Participations represent each Participant's
fractional share in a Partner's undivided interest in Registrant.
One full unit of the Participations was offered at an original
purchase price of $10,000; fractional units were also offered for
proportionate purchase prices. Registrant has not repurchased
Participations in the past and is not likely to change its policy
in the future.
(a) The Participations neither are traded on an
established securities market nor are readily tradable on a
secondary market or the equivalent thereof. Based on Registrant's
transfer records, Participations are sold by the holders thereof
from time to time in privately negotiated transactions and, in many
instances, Registrant is not aware of the prices at which such
transactions occur. During 1999, Registrant was advised of 74
transfers of Participations. In five instances, the indicated
purchase price was equal to two times the face amount of the
Participations transferred, i.e., $20,000 for a $10,000
participation. In all other cases, no consideration was indicated.
(b) As of December 31, 1999, there were 748 holders of
Participations of record.
(c) Registrant does not pay dividends. During each of
the years ended December 31, 1999 and 1998, Registrant made regular
monthly distributions of $124.57 for each $10,000 Participation.
On November 30, 1999 and November 30, 1998, Registrant made
additional distributions for each $10,000 Participation of
$3,974.61 and $1,955.90, respectively. Such distributions repre-
sented primarily Additional Rent and Further Additional Rent
payable by Lessee in accordance with the terms of the Lease. See
Item 1 hereof. There are no restrictions on Registrant's present
or future ability to make distributions; however, the amount of
such distributions, particularly distributions of Additional Rent
and Further Additional Rent, depends solely on Lessee's ability to
make payments of Basic Rent, Additional Rent and Further Additional
Rent to Registrant. See Item 1 hereof. Registrant expects to make
distributions so long as it receives the payments provided for
under the Lease. See Item 7 hereof.
-6-
[SELECTED FINANCIAL DATA]
Item 6.
60 EAST 42nd ST. ASSOCIATES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Basic rent income... $ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,087,842
Advance of additional
rent income........ 1,053,800 1,053,800 1,053,800 1,053,800 1,053,800
Further additional
rent income........ 3,091,366 1,529,651 2,110,080 2,051,475 1,565,928
Total revenue.... $ 5,233,008 $ 3,671,293 $ 4,251,722 $ 4,193,117 $ 3,707,570
Net income.......... $ 3,758,620 $ 2,390,776 $ 2,877,925 $ 2,867,971 $ 2,430,979
Earnings per $10,000
participation unit,
based on 700 participation
units outstanding during
the year........... $ 5,369 $ 3,415 $ 4,111 $ 4,097 $ 3,473
Total assets........ $ 8,510,184 $ 7,472,392 $ 7,497,168 $ 7,521,944 $ 7,546,720
Long-term
obligations....... $12,020,814 $12,020,814 $12,020,814 $12,020,814 $12,020,814
Distributions per $10,000
participation unit, based
on 700 participation
units outstanding during
the year:
Income........... $ 5,369 $ 3,415 $ 4,111 $ 4,097 $ 3,473
Return of capital. 100 35 35 35 35
Total distributions.$ 5,469 $ 3,450 $ 4,146 $ 4,132 $ 3,508
</TABLE>
-7-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Registrant was organized solely for the purpose of
acquiring the Property subject to a net operating lease held by
Lessee. Registrant is required to pay, from Basic Rent under the
Lease, mortgage charges and amounts for supervisory services.
Registrant is required to pay from Additional Rent and Further
Additional Rent additional amounts for supervisory services and
then to distribute the balance of such Additional Rent and Further
Additional Rent to the Participants. Under the Lease, Lessee has
assumed sole responsibility for the condition, operation, repair,
maintenance and management of the Property. Registrant need not
maintain substantial reserves or otherwise maintain liquid assets
to defray any operating expenses of the Property.
The following summarizes the material factors affecting
Registrant's results of operations for the three years ended
December 31, 1999:
(a) Total income increased for the year ended December 31,
1999 as compared with the year ended December 31, 1998.
Such increase is attributable to the payment of an
increased amount of Further Additional Rent received by
Registrant in 1999. Total income decreased for the year
ended December 31, 1998 as compared with the year ended
December 31, 1997. Such decrease is attributable to the
payment of a decreased amount of Further Additional Rent
to Registrant in 1998. See Note 4 of the Notes.
(b) Total expenses increased for the year ended December 31,
1999 as compared with the year ended December 31, 1998.
Such increase resulted mainly from an increase in the
additional payment for supervisory services payable with
respect to an increased amount of Further Additional Rent
received by Registrant in 1999. Total expenses decreased
for the year ended December 31, 1998 as compared with the
year ended December 31, 1997. Such decrease resulted
from a decrease in the additional payment for supervisory
services payable with respect to Further Additional Rent
received by Registrant in 1998.
Registrant's results of operations are affected primarily
by the amount of rent payable to it under the Lease. The amount of
Overage Rent payable to Registrant is affected by the cycles in the
New York City economy and real estate rental market. It is
difficult for management to forecast the New York City real estate
market over the next few years.
-8-
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the year ended December 31, 1999 as compared with the
year ended December 31, 1998.
No amortization payments are due under the Mortgage to
fully satisfy the outstanding principal balance at maturity, and
furthermore, Registrant does not maintain any reserve to cover the
payment of such Mortgage indebtedness at maturity. Therefore,
repayment of the Mortgage will depend on Registrant's ability to
arrange a refinancing. Assuming that the Property continues to
generate an annual net profit in future years comparable to that in
past years, and assuming further that current real estate trends
continue in the geographic area in which the Property is located,
Registrant anticipates that the value of the Property would be in
excess of the amount of the Mortgage balance at maturity.
Registrant anticipates that funds for working capital for
the Property will be provided by rental payments received from
Lessee and, to the extent necessary, from additional capital
investment by the partners in Lessee and/or external financing.
However, as noted above, Registrant has no requirement to maintain
substantial reserves to defray any operating expenses of the
Property. Registrant foresees no need to make material commitments
for capital expenditures while the Lease is in effect.
Inflation
Inflationary trends in the economy do not directly affect
Registrant's operations since, as noted above, Registrant does not
actively engage in the operation of the Property. Inflation may
impact the operations of Lessee. Lessee is required to pay Basic
Rent, regardless of the results of its operations. Inflation and
other operating factors affect the amount of Additional Rent and
Further Additional Rent payable by Lessee, which is based on
Lessee's net operating profit.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying
report by, and the consent to the use thereof, of J.H. Cohn LLP
immediately following, are being filed in response to this item.
Item 9. Disagreement on Accounting and Financial Disclosure.
Not applicable.
-9-
PART III
Item 10. Directors and Executive Officers of the Registrant.
Registrant has no directors or officers or any other
centralization of management. There is no specific term of office
for any Partner. The table below sets forth as to each Partner as
of December 31, 1999 the following: name, age, nature of any
family relationship with any other Partner, business experience
during the past five years and principal occupation and employment
during such period, including the name and principal business of
any corporation or any organization in which such occupation and
employment was carried on and the date such individual became a
Partner:
Nature Principal Date
of Family Occupation Individual
Relation- Business and became
Name Age ship Experience Employment Partner
Anthony E. Malkin 37 son of President of President of 1997
Peter L. real estate W&M Properties,
Malkin, management Inc.
brother company
of
Scott D.
Malkin
Scott D. Malkin 41 son of Chairman and CEO of 1997
Peter L. CEO of real S.D. Malkin
Malkin, estate Properties,
brother development Inc.
of company
Anthony E.
Malkin
Mark Labell 47 None Real Estate Partner 1998
Supervision Wien & Malkin
and Law LLP,
Thomas N. Keltner,
Jr. 53 None Real Estate Partner 1996
Supervision Wien & Malkin
and Law LLP,
-10-
Nature Principal Date
of Family Occupation Individual
Relation- Business and became
Name Age ship Experience Employment Partner
Jack K. Feirman 54 None Real Estate Partner 1998
Supervision Wien & Malkin
and Law LLP,
Peter L. Malkin 66 Father Real Estate Senior Partner 1970
of Supervision and Chairman
Anthony E. and Law Wien & Malkin
and LLP,
Scott D.
Malkin
Richard A. Shapiro 54 None Real Estate Partner 1996
Supervision Wien & Malkin
and Law LLP
As stated above, five of the Partners are current members
of Supervisor. See Items 11, 12 and 13 hereof for a description of
the services rendered by, and the compensation paid to, Supervisor
and for a discussion of certain relationships which may pose actual
or potential conflicts of interest among Registrant, Lessee and
certain of their respective affiliates.
The names of entities which have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of
1934 or are subject to the requirements of Section 15(d) of that
Act, and in which the Partners are either a director, joint
venturer or general partner are as follows:
Thomas N. Keltner, Jr. is a general partner in Empire
State Building Associates, Navarre-500 Building
Associates and Garment Capitol Associates.
Richard A. Shapiro is a general partner in Garment
Capitol Associates and Empire State Building Associates.
Anthony E. Malkin is a joint venturer in 250 West 57th
Street Associates.
Peter L. Malkin is a joint venturer in 250 West 57th St.
Associates; and a general partner in Empire State
Building Associates, Navarre-500 Building Associates and
Garment Capitol Associates.
-11-
Item 11. Executive Compensation.
As stated in Item 10 hereof, Registrant has no directors
or officers or any other centralization of management.
No remuneration was paid during the current fiscal year
ended December 31, 1999 by Registrant to any of the Partners as
such. Registrant pays Supervisor, for supervisory services and
disbursements, fees of $24,000 per annum plus an additional payment
of 10% of all distributions to Participants in Registrant in any
year in excess of the amount representing an annual return of 14%
on the Participants' remaining cash investment in Registrant (which
remaining cash investment, at December 31, 1999, was equal to the
Participant's original cash investment of $7,000,000). Pursuant to
such fee arrangements, Registrant paid Supervisor a total of
$333,137 (consisting of $24,000 as an annual basic payment for
supervisory services and $309,137 as an additional payment for
supervisory services) during the fiscal year ended December 31,
1999. The supervisory services included, among other items, the
preparation of certain reports required by the Securities and
Exchange Commission, the monitoring or coordination of certain
other areas of legal compliance, the preparation of certain
financial reports, as well as the supervision of accounting and
other documentation related to the administration of Registrant's
business. Out of its fees, Supervisor paid all disbursements and
costs of regular accounting services. As noted in Items 1 and 10
of this report, five of the Partners are also members of
Supervisor.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities. See Item 5
hereof. At December 31, 1999, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 1999, the Partners (see Item 10
hereof) beneficially owned, directly or indirectly, the following
Participations:
Name and Address Amount of Percent
of Beneficial B eneficial of
Title of Class Owners Ownership Class
Participations Thomas N. Keltner, Jr. $ 2,500 .036%
in Partnership 60 East 42nd Street
Interests New York, NY 10165
Anthony E. Malkin $25,833 .369%
60 East 42nd Street
New York, NY 10165
Scott D. Malkin $33,334 .476%
27 Hereford Square
SW7 4NB
London, England
-13-
At such date, certain of the Partners (or their
respective spouses) held additional Participations as follows:
Anthony E. Malkin owned of record as co-trustee an
aggregate of $5,000 of Participations. Mr. Anthony E.
Malkin disclaims any beneficial ownership of such
Participations.
Peter L. Malkin owned of record as trustee or co-trustee
an aggregate of $55,714 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
Richard A. Shapiro owned of record as custodian a $5,000
Participation. Mr. Shapiro disclaims any beneficial
ownership of such Participation.
Entities for the benefit of members of Peter L. Malkin's
family owned of record and beneficially $107,500 of
Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations, except that related
Trusts are required to complete scheduled payments to Mr.
Malkin.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Items 1 and 10 hereof, Messrs. Feirman,
Keltner, Labell, Anthony E. Malkin, Peter L. Malkin, Scott D.
Malkin and Shapiro are the seven Partners in Registrant and also
act as agents for Participants in their respective partnership
interests therein. Mr. Peter Malkin is also among the partners in
Lessee. As a consequence of one of the seven Partners being a
partner in Lessee and five of the seven Partners being members of
Supervisor (which supervises Registrant and Lessee), certain actual
or potential conflicts of interest may arise with respect to the
management and administration of the business of Registrant.
However, under the respective Participating Agreements pursuant to
which the Partners act as agents for the Participants, certain
transactions require the prior consent from Participants owning a
specified interest under the Agreements in order for the agents to
act on the Participants' behalf. Such transactions, among others,
include modification and extension of the Lease or the Mortgage
Loan, or a sale or other disposition of the Property or
substantially all of Registrant's other assets.
-14-
See Items 1 and 2 hereof for a description of the terms
of the Lease. As of December 31, 1999, Mr. Peter Malkin owned a
partnership interest in Lessee. The respective interests, if any,
of the Partners in Registrant and Lessee arise solely from
ownership of their respective Participations, and, in the case of
Mr. Peter Malkin, his individual ownership of a partnership
interest in Lessee. The Partners receive no extra or special
benefit not shared on a pro rata basis with all other Participants
in Registrant or partners in Lessee. However, each of the five
Partners who is a partner in Supervisor, by reason of his respec-
tive interest in Supervisor, is entitled to receive his pro rata
share of any supervisory, service, legal or other remuneration paid
to Supervisor for services rendered to Registrant and Lessee. See
Item 11 hereof for a description of the remuneration arrangements
between Registrant and Supervisor relating to supervisory services
provided by Supervisor.
Reference is also made to Items 1 and 10 hereof for a
description of the relationship between Registrant and Supervisor,
of which five of the Partners are among the members. The
respective interests of each Partner in any remuneration paid or
given by Registrant to Supervisor arises solely from such Partner's
ownership of an interest in Supervisor. See Item 11 hereof for a
description of the remuneration arrangements between Registrant and
Supervisor relating to supervisory services provided by Supervisor.
(b) Reference is made to paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
-15-
PART IV
Item 14.Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of J. H. Cohn LLP, Certified Public Accountants,
dated February 2, 2000.
Accountant's Report of J. H. Cohn LLP, Certified Public
Accountants, dated January 31, 2000.
Balance Sheets at December 31, 1999 and at December 31,
1998 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 1999, 1998 and 1997. (Exhibit B).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1999 (Exhibit C-1).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1998 (Exhibit C-2).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1997 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 1999, 1998 and 1997 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 1999, 1998 and 1997.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
1999 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) No report on Form 8-K was filed by Registrant during
the last quarter of the period covered by this
report.
-16-
[J.H. COHN LLP
ACCOUNTANTS & CONSULTANTS]
February 2, 2000
60 East 42nd St. Associates
New York, N. Y.
We consent to the use of our independent accountants' report dated January
31, 2000 covering our audits of the accompanying financial statements of 60
East 42nd St. Associates in connection with and as part of your December
31, 1999 annual report (Form 10-K) to the Securities and Exchange
Commission.
J.H. Cohn LLP
-17-
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in 60 East 42nd St. Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of 60 East 42nd St.
Associates as of December 31, 1999 and 1998, and the related statements of
income, partners' capital deficit and cash flows for each of the three
years in the period ended December 31, 1999, and the supporting financial
statement schedule as contained in Item 14(a)(2) of this Form 10-K. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits 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 audits
provide 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 60 East 42nd St.
Associates as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles, and the related financial statement schedule, when considered
in relation to the basic financial statements, presents fairly, in all
material respects, the information set forth therein.
J.H. Cohn LLP
New York, N. Y.
January 31, 2000
-18-
EXHIBIT A
60 EAST 42nd ST. ASSOCIATES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C> <C> <C>
Current Assets:
Cash in Fleet Bank $ 677 $ 677
Cash in distribution account held
by Wien & Malkin LLP (Note 10) 87,202 87,202
TOTAL CURRENT ASSETS.......... 87,879 87,879
Real Estate (Notes 2a, 3 and 12):
Land............................. 7,240,000 7,240,000
Buildings.... ............... $16,960,000 $16,960,000
Less: Accumulated
depreciation............ 16,960,000 - 16,960,000 -
Building improvements........ 1,574,135 1,574,135
Less: Accumulated
depreciation............ 1,574,135 - 1,574,135 -
Building improvements, construction
in progress................. 1,062,568 -
Other Assets:
Mortgage refinancing costs, less
accumulated amortization of
$129,785 in 1999 and $105,009
in 1998 (Note 2b)........... 119,737 144,513
TOTAL ASSETS.......... $ 8,510,184 $ 7,472,392
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Current Liabilities:
Due to lessee, a related
party (Note 12).............. $ 1,062,568 $ -
Accrued professional fees, to a
related party (Note 6)....... 45,253 -
TOTAL CURRENT LIABILITIES. 1,107,821 -
Long-term Liabilities:
Bonds, mortgages and similar debt:
First mortgage payable (Note 3).... 12,020,814 12,020,814
TOTAL LIABILITIES.............. 13,128,635 12,020,814
Commitments and contingencies
(Notes 11 and 12).....................
Partners' Capital Deficit (Exhibit C).. (4,618,451) (4,548,422)
TOTAL LIABILITIES AND
PARTNERS' CAPITAL DEFICIT..... $ 8,510,184 $ 7,472,392
</TABLE>
See accompanying notes to financial statements.
-19-
EXHIBIT B
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Revenue:
Rent income, from a related party (Note 4). $5,233,008 $3,671,293 $4,251,722
Expenses:
Interest on mortgage (Note 3)............. 1,063,842 1,063,842 1,063,842
Supervisory services, to a related party
(Note 5)............................... 340,517 183,506 237,634
Amortization of mortgage refinancing costs
(Note 2b)............................... 24,776 24,776 24,776
Professional fees, primarily to a
related party (Note 6)................. 45,253 8,393 47,545
1,474,388 1,280,517 1,373,797
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 9)....... $3,758,620 $2,390,776 $2,877,925
Earnings per $10,000 participation unit, based
on 700 participation units outstanding during
each year.................................. $ 5,369 $ 3,415 $ 4,111
</TABLE>
See accompanying notes to financial statements.
-20-
EXHIBIT C-1
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION> Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1999 net income Distributions 1999
<S> <C> <C> <C> <C>
Jack Feirman Group.. $ (649,774) $ 536,945 $ 546,950 $ (659,779)
Mark Labell Group.... (649,775) 536,946 546,950 (659,779)
Richard A. Shapiro
Group............. (649,775) 536,946 546,950 (659,779)
Anthony E. Malkin
Group............. (649,775) 536,946 546,950 (659,779)
Peter L. Malkin
Group............. (649,774) 536,946 546,950 (659,778)
Scott D. Malkin
Group............. (649,774) 536,946 546,950 (659,778)
Thomas N. Keltner
Jr. Group........ (649,775) 536,945 546,949 (659,779)
$(4,548,422) $3,758,620 $3,828,649 $(4,618,451)
</TABLE>
See accompanying notes to financial statements.
-21-
EXHIBIT C-3
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1997 net income Distributions 1997
<S> <C> <C> <C> <C>
Stanley Katzman
Group....... $ (642,696) $ 411,132 $ 414,671 $ (646,235)
John L. Loehr
Group......... (642,696) 411,132 414,671 (646,235)
Richard A. Shapiro
Group....... (642,695) 411,132 414,672 (646,235)
Anthony E. Malkin Group
(formerly Donald A. Bettex
Group)....... (642,695) 411,132 414,672 (646,235)
Peter L. Malkin
Group........ (642,696) 411,133 414,672 (646,235)
Scott D. Malkin Group
(formerly Ralph W. Felsten
Group)....... (642,696) 411,132 414,671 (646,235)
Thomas N. Keltner
Jr. Group..... (642,696) 411,132 414,672 (646,236)
$(4,498,870) $2,877,925 $2,902,701 $(4,523,646)
</TABLE>
See accompanying notes to financial statements.
-22-
EXHIBIT C-2
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1998 net income Distributions 1998
<S> <C> <C> <C> <C>
Jack Feirman Group
(formerly Stanley
Katzman Group)... $ (646,235) $ 341,539 $ 345,078 $ (649,774)
Mark Labell Group
(formerly
John L. Loehr
Group)...... (646,235) 341,539 345,079 (649,775)
Richard A. Shapiro
Group....... (646,235) 341,539 345,079 (649,775)
Anthony E. Malkin
Group....... (646,235) 341,539 345,079 (649,775)
Peter L. Malkin
Group....... (646,235) 341,540 345,079 (649,774)
Scott D. Malkin
Group....... (646,235) 341,540 345,079 (649,774)
Thomas N. Keltner
Jr. Group..... (646,236) 341,540 345,079 (649,775)
$(4,523,646) $2,390,776 $2,415,552 $(4,548,422)
</TABLE>
See accompanying notes to financial statements.
-23-
EXHIBIT D
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................... $ 3,758,620 $ 2,390,776 $ 2,877,925
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of mortgage
refinancing costs............. 24,776 24,776 24,776
Change in accrued expenses.... 45,253 - -
Net cash provided by
operating activities.... 3,828,649 2,415,552 2,902,701
Cash flows from financing activities:
Cash distributions.............. (3,828,649) (2,415,552) (2,902,701)
Net cash used in financing
activities............. (3,828,649) (2,415,552) (2,902,701)
Net change in cash........... - - -
Cash, beginning of year............. 87,879 87,879 87,879
CASH, END OF YEAR.......... $ 87,879 $ 87,879 $ 87,879
Supplemental disclosure of cash flow information:
1999 1998 1997
Cash paid for:
Interest..................... $ 1,063,842 $ 1,063,842 $ 1,063,842
Supplemental disclosure of noncash
investing and financing activities:
In 1999 the Partnership purchased
certain building improvements by
means of a financing agreement
with the lease............. $ 1,062,568
</TABLE>
See accompanying notes to financial statements.
-24-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
60 East 42nd St. Associates ("Associates") is a general partnership which owns
commercial property situated at 60 East 42nd Street and 301 Madison Avenue, New
York, New York. The property is net leased to Lincoln Building Associates (the
"Lessee").
2. Summary of Significant Accounting Policies
a. Real Estate and Depreciation:
Real estate, consisting of land, buildings and building improvements, is
stated at cost. The buildings and building improvements are fully
depreciated.
In 1999 Associates began a building improvement program (see Note 12). At
December 31, 1999 costs of $1,062,568 have been incurred for new building
improvements, construction in progress which have not yet been put into
service. It is Associates' policy to depreciate such improvements when placed
in service.
b. Mortgage Refinancing Costs, Amortization and Related Party Transactions:
Mortgage refinancing costs of $249,522, incurred in connection with the
October 6, 1994 refinancing of the first mortgage payable (see Note 3), are
being charged to income ratably over the 10 year and 26 day term of the
mortgage, from October 6, 1994 through October 31, 2004.
c. Use of Estimates:
In preparing financial statements in conformity with generally accepted
accounting principles, management 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.
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, to refinance
an existing first mortgage in the amount of $12,020,814. Annual mortgage
charges are $1,063,842, payable in equal monthly installments, for interest
only at the rate of 8.85% per annum. The first mortgage matures on October
31, 2004. The real estate is pledged as collateral for the first mortgage.
-25-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1999, 1998 and 1997, totaling
$5,233,008, $3,671,293 and $4,251,722, respectively, as provided under an
operating lease with the Lessee dated October 1, 1958, as modified, consisted of
the following:
1999 1998 1997
Basic rent income............. $1,087,842 $1,087,842 $1,087,842
Advance of additional rent.... 1,053,800 1,053,800 1,053,800
Further additional rent....... 3,091,366 1,529,651 2,110,080
$5,233,008 $3,671,293 $4,251,722
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.
The modified lease also provides for payments of additional rent, as follows:
1. Advances of additional rent are payable in equal monthly installments
totaling an amount equal to the lesser of $1,053,800 or the defined
net operating income of the Lessee during the preceding fiscal year
ended September 30th (the "lease year"); and
2. Further additional rent is payable in an amount equal to 50% of the
Lessee's remaining net operating income, as defined, in each lease
year.
The modified lease further provides for changes to be made in the basic rent
paid in the event of a refinancing of the first mortgage (Note 3). In such
case, 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 such mortgage refinancing
results in an increase in the amount of outstanding principal balance of the
mortgage, the basic rent shall be equal to the sum of $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.
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.
The lease had an initial term expiring on September 30, 1983, with renewal
options for two additional periods of 25 years each. In 1982, the first lease
renewal option was exercised for the period from October 1, 1983 through
September 30, 2008.
The Lessee may surrender the lease at the end of any month, upon sixty days'
prior written notice; the liability of the Lessee will end on the effective
date of such surrender.
See Note 12.
A partner in Associates is also a partner in the Lessee.
-26-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
5. Related Party Transactions - Supervisory Services
Fees for supervisory services (including disbursements and costs of accounting
services) for the years ended December 31, 1999, 1998 and 1997, totaling
$340,517, $183,506 and $237,634, respectively, were paid to the firm of Wien &
Malkin LLP. Some members of that firm are partners in Associates. Fees for
supervisory services are paid pursuant to an agreement, which amount is based on
a rate of return of investment achieved by the participants of Associates each
year.
6. Related Party Transactions - Professional Fees
Professional fees for the years ended December 31, 1999, 1998 and 1997, totaling
$39,226, $8,393, and $47,545, respectively, including disbursements, were paid
or accrued to the firm of Wien & Malkin LLP, a related party.
7. Number of Participants
There were approximately 745 participants in the participating groups at
December 31, 1999, 1998 and 1997.
8. Determination of Distributions to Participants
Distributions to participants during each year represent the excess of rent
income over the mortgage requirements and cash expenses.
9. Distributions and Amount of Income per $10,000 Participation Unit
Distributions and amount of income per $10,000 participation unit during the
years ended December 31, 1999, 1998 and 1997, based on 700 participation units
outstanding during each year, consisted of the following:
Year ended December 31,
1999 1998 1997
Income........................ $5,369 $3,415 $4,111
Return of capital............. 100 35 35
TOTAL DISTRIBUTIONS..... $5,469 $3,450 $4,146
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.
-27-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
10. 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, 1999 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, 2000.
11. Contingencies
Wien & Malkin LLP and Peter L. Malkin, a partner in Associates, are engaged in a
dispute with Helmsley-Spear, Inc., the managing agent of Associates' real
property, concerning the management, leasing and supervision of the property
being net leased to the Lessee. In this connection, certain legal and
professional fees and other expenses have been paid and incurred and additional
costs are expected to be incurred. Associates' allocable share of such costs
cannot as yet be determined. Accordingly, Associates has not provided for the
expense and related liability with respect to such costs in the accompanying
financial statements.
12. Building Improvements Program and Subsequent Event
In 1999 the participants of Associates and the Lessee consented to a building
improvements program (the "Program") estimated to cost approximately $22,800,000
and expected to take two to three years to complete.
The Lessee is currently financing the Program and billing Associates for the
costs incurred. The Program (1) grants the ownership of the improvements to
Associates and acknowledges its intention to finance them through a fee mortgage
increase, and (2) allows for the increased mortgage charges to be paid by
Associates from an equivalent increase in the basic rent paid by the Lessee to
Associates. Since any overage rent will be decreased by one-half of that amount,
the net effect of the lease modification is to have Associates and the Lessee
share the costs of the Program equally, assuming overage rent continues to be
earned.
To induce the Lessee to approve the Program, Associates agreed to grant to the
Lessee, upon the completion of the Program, an extension of the lease (Note 4)
for an additional 50 years to 2083.
In January 2000 the participants of the Lessee were asked to approve an increase
to the Program from $22,800,000 to approximately $28,000,000 under substantially
the same conditions as had previously been approved. The increased amount had
previously been authorized by the participants of Associates. Such increase
would extend the lease beyond 2083, based on the net present benefit to
Associates of the improvements made.
-28-
60 EAST 42nd ST. ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the present
instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
-29-
60 EAST 42nd ST. ASSOCIATES SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Column
A Description Land, buildings and building
improvements situated at
60 East 42nd Street and
301 Madison Avenue, New York, N.Y.
B Encumbrances - Morgan Guaranty Trust Company of New York,
as trustee of a pension trust
Balance at December 31, 1999........................... $12,020,814
C Initial cost to company
Land................................................. $ 7,240,000
Buildings............................................ $16,960,000
D Cost capitalized subsequent to acquisition
Building improvements................................ $ 1,574,135
Building improvements, construction in progress...... $ 1,062,568
Carrying costs....................................... $ None
E Gross amount at which carried at
close of period
Land................................................ $ 7,240,000
Buildings and building improvements................. 19,596,703
Total.................................................. $26,836,703(a)
F Accumulated depreciation.............................. $18,534,135(b)
G Date of construction 1930
H Date acquired October 1, 1958
I Life on which depreciation in latest
income statements is computed Not applicable
</TABLE>
(a) The carrying values of real estate for the years ended December 31, 1998
and 1997 was $25,774,135. For the year ended December 31, 1999 Associates
began a building improvements program (see Note 12) and incurred building
improvements, construction in progress costs of $1,062,568. No depreciation
has been taken on the building improvements, construction in progress since
these improvements have yet to be put into service. The costs for federal
income tax purposes are the same as for financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 1997 $18,534,135
Depreciation:
F/Y/E 12/31/97 None
12/31/98 None
12/31/99 None None
Balance at December 31, 1999 $18,534,135
-30-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to Powers of Attorney, dated March
18, 1998, March 20, 1998 and May 14, 1998 (the "Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 14, 2000
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 14, 2000
________________________
* Mr. Katzman supervises accounting functions for Registrant.
-31-
Exhibit Index
Number Document Page*
3(a) Partnership Agreement, dated September
25, 1958, which was filed by letter
dated March 31, 1981 (Commission File
No. 0-2670) as Exhibit No. 3 to
Registrant's Form 10-K for the fiscal
year ended December 31, 1980, is
incorporated by reference as an exhibit
hereto.
3(b) Amended Business Certificate of
Registrant filed with the Clerk of New
York County on November 28, 1997,
reflecting a change in the Partners of
Registrant, which was filed as Exhibit
3(b) to Registrant's 10-Q for the period
ended March 31, 1998 and is incorporated
by reference as an exhibit hereto.
4 Form of Participating Agreement, which
was filed as Exhibit No. 4 to
Registrant's Form S-1 Registration
Statement, as amended (the "Registration
Statement") by letter dated June 28, 1954
and assigned File No. 2-10981, is
incorporated by reference as an exhibit
hereto.
10(a) Deed of Lincoln Building to WLKP Realty
Corp., which was filed as Exhibit No. 5
to Registrant's Registration Statement
by letter dated June 28, 1954 and
assigned File No. 2-10981, is
incorporated by reference as an exhibit
hereto.
_______________________
* Page references are based on a sequential numbering system.
-32-
Number Document Page*
10(b) First Mortgage evidenced by a
Modification, Extension & Consolidation
Agreement, dated March 31, 1954, between
WLKP Realty Corp. and The Prudential
Insurance Company of America
("Prudential"), which was filed as
Exhibit No. 6 to Registrant's
Registration Statement by letter dated
June 28, 1954 and assigned File No.
2-10981, is incorporated by reference as
an exhibit hereto.
10(c) Form of Net Lease between Registrant
and Lincoln Building Associates, which
was filed as Exhibit No. 9 to
Registrant's Registration Statement by
letter dated June 28, 1954 and assigned
File No. 2-10981, is incorporated by
reference as an exhibit hereto.
10(d) Deed from Lincoln Building Associates
to Registrant, dated October 1, 1958,
which was filed by letter dated March
31, 1981 (Commission File No. 0-2670) as
Exhibit No. 10(d) to Registrant's Form
10-K for the fiscal year ended December
31, 1980, is incorporated by reference,
as an exhibit hereto.
10(e) Second Modification of Lease Agreement,
dated January 1, 1977, which was filed
by letter dated March 28, 1980
(Commission File No. 0-2670) as Exhibit
II under Item 10(b) of Registrant's Form
10-K for the fiscal year ended December
31, 1979, is incorporated by reference
as an exhibit hereto.
10(f) Third Modification of Lease Agreement,
which was filed by letter dated March
28, 1980 (Commission File No. 0-2670) as
Exhibit II under Item 10(b) of
Registrant's Form 10-K for the fiscal
year ended December 31, 1979, is
incorporated by reference as an exhibit
hereto.
_______________________
* Page references are based on a sequential numbering system.
-33-
Number Document Page*
13(a) Letter to Participants, dated March 2,
2000 and supplementary financial reports
for the fiscal year ended December 31,
1999. The foregoing material shall not
be deemed to be "filed" with the Com-
mission or otherwise subject to the
liabilities of Section 18 of the Secur-
ities Exchange Act of 1934.
13(b) Letter to Participants, dated November 30,
1999 and accompanying financial reports
for the lease year ended September 30,
1999. The foregoing material shall not
be deemed to be "filed" with the
Commission or otherwise subject to the
liabilities of Section 18 of the
Securities Exchange Act of 1934.
24 Powers of Attorney dated March 18, 1998,
March 20, 1998 and May 14, 1998 between
the Partners of Registrant and Stanley
Katzman and Richard A. Shapiro, which
was filed as Exhibit 24 to Registrant's
10-Q for the period ended March 31, 1998
and is incorporated by reference as an
exhibit hereto.
27 Financial Data Schedule of Registrant
for the fiscal year ended December 31,
1999.
_______________________
* Page references are based on a sequential numbering system.
-34-
[LETTERHEAD OF WIEN & MALKIN LLP]
March 2, 2000
To Participants in 60 East 42nd St. Associates
Federal Identification Number 13-6077181
We enclose the annual report of the partnership which owns the premises
at 60 East 42nd Street (the Lincoln Building), and at 301 Madison Avenue, New
York City, for the year ended December 31, 1999.
The reported income for 1999 was $3,758,620. This was less than
distributions of $3,828,649 which is partly the result of amortization of
mortgage refinancing costs.
Monthly distributions during 1999 totalled $1,046,420, or about 14.9%
per annum on the original cash investment of $7,000,000. The distributions were
made possible by advances from the lessee totalling $1,053,800 against
additional rent.
Additional rent for the lease year ended September 30, 1999 was
$4,145,166, or an excess of $3,091,366 over the advances of $1,053,800. Wien &
Malkin LLP received $309,137 and the balance of the excess rent of $2,782,229
was distributed to the participants on November 30, 1999. The additional
distribution of $2,782,229 represented an annual return of about 39.7% on
the cash investment of $7,000,000, so that total distributions for 1999 were
at the rate of about 54.6% per annum.
Taking into account that a portion of prior distributions constituted a
return of capital, the book value on December 31, 1999 of an original cash
investment of $10,000 was a deficit balance of $6,598.
The Schedule K-1 form(s) (Form 1065), containing 1999 tax information
were mailed to the participants on February 23, 2000. These forms must be
reviewed in detail by your accountant. If you have any question about the
enclosed material or the Schedule K-1(s), please communicate with our office.
Please retain this letter and the Schedule K-1 form(s) for the
preparation of your income tax returns for the year 1999.
Cordially yours,
WIEN & MALKIN LLP
By: Stanley Katzman
SK:jf
Encs.
-35-
[LETTERHEAD OF J. H. COHN LLP
ACCOUNTANTS & CONSULTANTS]
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, 1999, 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 includesexamining, 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 60 East 42nd Street
Associates as of December 31, 1999, and the results of its operations and
its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
J.H. Cohn LLP
420 Lexington Avenue
New York, N. Y. 10170
January 31, 2000
-36-
60 EAST 42ND ST. ASSOCIATES
BALANCE SHEET
DECEMBER 31, 1999
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 -
Building improvements, construction in progress 1,062,568
Land 7,240,000
Mortgage refinancing costs 249,522
Less: Accumulated amortization 129,785 119,737
Total assets $ 8,510,184
Liabilities and partners' capital (deficit)
Liabilities:
First mortgage $12,020,814
Due to lessee 1,062,568
Accrued expenses 45,253
Total liabilities 13,128,635
Commitments and contingencies
Partners' capital (deficit) (4,618,451)
Total liabilities and partners' capital (deficit) $ 8,510,184
See accompanying notes to financial statements.
-37-
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
Income:
Basic rent income $1,087,842
Additional rent income 4,145,166
Total income 5,233,008
Expenses:
Interest on first mortgage $1,063,842
Supervisory services 340,517
Amortization of mortgage refinancing costs 24,776
Professional fees 45,253
Total expenses 1,474,388
Net income $3,758,620
See accompanying notes to financial statements.
-38-
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1999
Partners' capital (deficit), January 1, 1999 $(4,548,422)
Add, Net income for the year ended
December 31, 1999 3,758,620
(789,802)
Less, Distributions:
Monthly distributions, January 1,
1999 through December 31, 1999 $1,046,420
Distribution on November 30, 1999 of
balance of additional rent for the
lease year ended September 30, 1999 2,782,229
3,828,649
Partners' capital (deficit),
December 31, 1999 $(4,618,451)
See accompanying notes to financial statements.
-39-
60 EAST 42ND ST. ASSOCIATES
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
Cash flows from operating activities
Net income $ 3,758,620
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of mortgage refinancing costs 24,776
Change in accrued expenses 45,253
Net cash provided by operating activities 3,828,649
Cash flows from financing activities
Monthly distributions to participants (1,046,420)
Distribution on November 30, 1999 of
balance of additional rent for the
lease year ended September 30, 1999 (2,782,229)
Net cash used in financing activities (3,828,649)
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 1999 for:
Interest $ 1,063,842
Supplemental disclosure of non-cash investing and financing activities
In 1999 the Partnership purchased certain building improvements
by means of a financial agreement with the lessee $ 1,062,568
See accompanying notes to financial statements.
-40-
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 (the "Lessee").
2. Summary of Significant Accounting Policies
Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management 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.
In 1999 Associates began a building improvements program (see Note 10).
At December 31, 1999 costs totaling $1,062,568 have been incurred for
new building improvements, construction in progress which have not yet
been put into service. It is Associates' policy to depreciate such
improvements when they are placed in service.
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.
-41-
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
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. See Note 10.
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 mortgagebalance, 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, 1999, the Lessee reported
additional rent of $4,145,166 based on an operating profit of $7,236,532
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. A
member of that firm is a partner in Associates.
-42-
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Professional Fees and Related Party Transactions
Included in accrued expenses are payments for professional fees,
including disbursements of $39,226 which were accrued 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, 1999 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, 2000.
9. Contingencies
Wien & Malkin LLP and Peter L. Malkin are engaged in a dispute with
Helmsley-Spear, Inc. concerning the management, leasing and supervision
of the property being net leased to the Lessee. In this connection,
certain legal and professional fees and other expenses have been paid
and incurred and additional costs are expected to be incurred.
Associates' allocable share of such costs cannot as yet be determined.
Accordingly, Associates has not provided for the expense and related
liability with respect to such costs in the accompanying financial
statements.
-43-
60 EAST 42ND ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (Continued)
10. Building Improvements Program and Subsequent Event
In 1999 the participants of Associates and the Lessee consented to a
building improvements program (the "Program") estimated to cost
approximately $22,800,000 and expected to take two to three years to
complete.
The Lessee is currently financing the Program and billing Associates
for the costs incurred. The Program (1) grants the ownership of the
improvements to Associates and acknowledges its intention to finance
them through a fee mortgage increase, and (2) allows for the increased
mortgage charges to be paid by Associates from an equivalent increase
in the basic rent paid by the Lessee to Associates. Since any overage
rent will be decreased by one-half of that amount, the net effect of
the lease modification is to have Associates and the Lessee share the
costs of the Program equally, assuming overage rent continues to
be earned.
To induce the Lessee to approve the Program, Associates agreed to
grant to the Lessee, upon the completion of the Program, an
extension of the lease (Note 4) for an additional 50 years to 2083.
In January 2000 the participants of the Lessee were asked to approve
an increase to the Program from $22,800,000 to approximately
$28,000,000 under substantially the same conditions as had previously
been approved. The increased amount had previously been authorized
by the participants of Associates. Such increase would extend the
lease beyond 2083, based on the net present benefit to Associates of
the improvements made.
-44-
Exhibit 13b
[LETTERHEAD OF WIEN & MALKIN LLP]
November 30, 1999
TO PARTICIPANTS IN 60 EAST 42ND ST. ASSOCIATES:
We enclose the operating report of the lessee, Lincoln
Building Associates, for the fiscal year of the lease ended
September 30, 1999. The lessee reported profit of $6,182,732
subject to additional rent for the lease year ended September 30,
1999, as against profit of $4,113,103 for the lease year ended
September 30, 1998. Additional rent for the lease year ended
September 30, 1999 was $4,145,166; $1,053,800 at $87,817 per
month was advanced against additional rent so that the balance of
additional rent is $3,091,366.
Wien & Malkin LLP receives an additional payment for
supervisory services of 10% of distributions in excess of 14% per
annum on the cash investment. Accordingly, Wien & Malkin LLP
received $309,137 of the additional rent and the balance of
$2,782,229 is being distributed to the participants. A check for
your share of the additional distribution and the computation of
the additional payment to Wien & Malkin LLP and distribution are
enclosed.
The additional distribution of $2,782,229 represents a
return of about 39.7% on the cash investment of $7,000,000.
Regular monthly distributions are at the rate of about 14.9% a
year, so that distributions for the year ending December 31, 1999
will be about 54.6% per annum.
If you have any question about the enclosed material, please
communicate with the undersigned.
Cordially yours,
WIEN & MALKIN LLP
By: Stanley Katzman
SK:fm
Encs.
-45-
60 East 42nd St. Associates
Computation of Additional Payment for
Supervisory Services and Distribution
For the Lease Year Ended September 30, 1999
Secondary additional rent $3,091,366
Primary additional rent, 1999:
Monthly distributions at about
14.9% per annum on
original investment $1,046,420
Additional monthly payment to
Wien & Malkin LLP 7,380 1,053,800
Total rent to be distributed 4,145,166
14% return on $7,000,000 investment 980,000
Subject to additional payment at
10% to Wien & Malkin LLP $3,165,166
Additional payment at 10% $ 316,517
Paid to Wien & Malkin LLP as
advances for additional payment 7,380
Balance of additional payment to
Wien & Malkin LLP $ 309,137
Summary:
Additional distribution to participants $2,782,229
Payment to Wien & Malkin LLP, as above 309,137
Total secondary additional rent available
for distribution to participants and
payment to Wien & Malkin LLP $3,091,366
-46-
[LETTERHEAD OF ROGOFF & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS]
Lincoln Building Associates
60 East 42nd Street
New York, New York 10165
Gentlemen:
In accordance with our engagement, we have compiled the
special-purpose statement of income and expense of Lincoln
Building Associates for the lease year ended September 30, 1999.
Our engagement included the examination of statements of
receipts and disbursements for the property, together with
supporting records, but did not include the verification by direct
communication of the income from tenants or liabilities and
disbursements to vendors.
We have no knowledge of any contingent liabilities that
should be disclosed.
Based on our compilation, subject to the above, the
accompanying special-purpose statement of income and expense
presents fairly the net operating income, as defined, for the
computation of additional rent, of Lincoln Building Associates,
for the lease year ended September 30, 1999.
New York, New York
October 22, 1999
-47-
Lincoln Building Associates
Notes to Financial Statement
Note 1 - The lease as modified effective January 1, 1977
provides for additional rent, as follows:
Additional rent equal to the first $1,053,804
of the Lessee's net operating income, as
defined, in each lease year.
Further additional rent equal to 50% of the
Lessee's remaining net operating income, as
defined, in each lease year.
-48-
Lincoln Building Associates
Statement of Income and Expense
October 1,1998 through September 30, 1999
Income:
Rent income $ 26,049,568
Electric income-net 1,163,668
Other income 684,647
$ 27,897,883
Total Income
Expenses:
Basic rent expense 1,087,840
Real estate taxes 5,792,612
Labor costs 5,881,827
Repairs, supplies and improvements 5,221,752
Steam 471,002
Management and leasing 1,161,979
Professional fees 376,331
Insurance 130,236
Water and sewer charges 161,362
Miscellaneous 376,410
Total Expenses 20,661,351
Net Income subject to additional rent 7,236,532
Less, Net income subject to primary
additional rent 1,053,800
Net Income Subject to secondary additional rent $ 6,182,732
Secondary additional rent at 50% $ 3,091,366
Computation of Additional Rent due Landlord:
Primary additional rent $ 1,053,800
Secondary additional rent 3,091,366
Total Additional rent 4,145,166
Less, Advances against additional rent 1,053,800
Additional rent due landlord $ 3,091,366
The accompanying letter
are an integral part of the statement.
-49-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of December 31, 1999 and the Statement Of Income
for the year ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 87,879
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,879
<PP&E> 26,836,703
<DEPRECIATION> 18,534,135
<TOTAL-ASSETS> 8,510,184<F1>
<CURRENT-LIABILITIES> 1,107,821
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (4,618,451)
<TOTAL-LIABILITY-AND-EQUITY> 8,510,184
<SALES> 5,233,008<F2>
<TOTAL-REVENUES> 5,233,008
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 410,546<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,063,842
<INCOME-PRETAX> 3,758,620
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,758,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,758,620
<EPS-BASIC> 5,369<F4>
<EPS-DILUTED> 5,369<F4>
<FN>
<F1>Includes unamortized mortgage refinance costs.
<F2>Rental Income
<F3>Supervisory services, Professional fees, and amortization of mortgage
refinance costs.
<F4>Earnings per $10,000 participation unit, based on 700 participation
units outstanding during the period
-50-
</TABLE>
