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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, 1996
[] 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 31 through 33 of this Report.
Number of pages (including exhibits) in this filing: 50
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 Donald A. Bettex,
Ralph W. Felsten, Stanley Katzman, Thomas N. Keltner, Jr., John L.
Loehr, 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") pursuant to
a 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. Malkin. The Partners in Registrant are also members
of the law firm of Wien & Malkin LLP, 60 East 42nd Street, New
York, New York, which acts as counsel to Registrant and to Lessee
(the "Counsel"). See Items 10, 11, 12 and 13 hereof for a
description of the ongoing services rendered by, and compensation
paid to, Counsel 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, 1996, the Building was approximately
93% occupied by approximately 535 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.
(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, and
$24,000 for supervisory services payable to Counsel. See Note 4
of Notes to Financial Statements filed under Item 8 hereof (the
"Notes").
(ii) Lessee is also required to pay to Registrant (A)
additional rent (the "Additional Rent") equal to the lesser of (x)
Lessee's net operating income for the preceding lease year or (y)
$1,053,800 and (B) further additional rent (the "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 no cumulative loss not recouped.
(iii) Lessee is required to pay $1,053,800 per annum to
Registrant, as an advance against Additional Rent, an amount which
will permit basic distributions to Participants at the annual rate
of approximately 14.9% 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.
(iv) For the period before the liquidation of the
mortgage, upon the first and each subsequent refinancing which
results in an increase in the amount of the outstanding principal
balance of the mortgage, the annual basic rent would equal the sum
of (1) the annual $24,000 payment to Counsel for supervisory
services plus (2) an amount equal to the product of (A) the new
debt service percentage rate under the refinanced mortgage
multiplied by (B) the principal balance of the mortgage
immediately before the first such refinancing.
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The balance of the mortgage charges would be borne by Registrant
from Additional Rent. In such circumstances, Registrant would be
entitled to retain the full net proceeds of the 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 immediately before such refinancing shall be
reduced by the amount of mortgage amortization payable from annual
basic rent under the Lease and subsequent to the first
refinancing. See Exhibit II under Item 10(b) of Registrant's
Annual Report on Form 10-K for the fiscal years ended December 31,
1976 and 1979.
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
Lessee's operation of the Property. The Lease requires that this
report be delivered to Registrant annually within 60 days after
the end of each lease year. Accordingly, all Further Additional
Rent income and related supervisory service expenses can only be
determined after the receipt of such report. The Lease does not
provide for the Lessee to render interim reports to Registrant, so
no Further Additional Rent income is reflected for the period
between the end of the lease year and the end of Registrant's
fiscal year. See Note 4 of the Notes regarding Further Additional
Rent payments by Lessee for the fiscal years ended December 31,
1996, 1995 and 1994.
(d) Competition
Pursuant to tenant space leases at the Building, the
average base rent payable to Lessee is approximately $26 per
square foot (exclusive of electricity charges and escalation).
Such rate is competitive with the average rental rate charged by
similar office buildings offering comparable space in the
immediate vicinity of the Building. Registrant has been advised
that buildings of comparable age and condition to the Building
charge rental rates within $1.00 - $2.00 per square foot of the
average rental rate at the Building. Rental rates for space are
in the high $30's to low $40's per square foot at the following
three nearby buildings: 101 Park Avenue (a new office building
with modern facilities and located at 40th Street); Republic
National Bank Building (a modern building on Fifth Avenue and 41st
Street); the Met Life Building (a premier building erected in
1961).
In the overall rental market for commercial space in
Manhattan, rents range from approximately $50 per square foot for
prime office space to approximately $12 per square foot in less
developed industrial and/or secondary commercial areas.
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Accordingly, the average rent at the Building may be considered
competitive in the area, given the relative condition of
surrounding buildings and the nature of services, amenities and
office space offered by them as compared to the Building.
(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 de-
crease 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, 1996. 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.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which
Registrant is a party or to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Participants.
The Partners are in the process of preparing a
solicitation of consents of the Participants to consider certain
governance issues, including the designation of additional
Successor Agents, and certain operations issues, including the
granting to the Partners the authority, in consideration of the
undertaking by Lessee of certain improvements to the Property and
an increase in Basic Rent and Primary Additional Rent, to grant to
Lessee two lease extension periods. A portion of the costs of the
proposed improvement program would be shared between Registrant
and Lessee but the details of this proposal are not yet complete.
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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 1996, Registrant was advised of
47 transfers of Participations. In one instance, 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, 1996, there were 734 holders of
Participations of record.
(c) Registrant does not pay dividends. During each of
the years ended December 31, 1996 and 1995, Registrant made
regular monthly distributions of $124.57 for each $10,000
Participation. On November 30, 1996 and November 30, 1995,
Registrant made additional distributions for each $10,000
Participation of $2,637.61 and $2,013.34, respectively. Such
distributions represented 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 dis-
tributions of Additional Rent and Further Additional Rent, depends
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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.
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Item 6.
60 EAST 42nd ST. ASSOCIATES
SELECTED FINANCIAL DATA
Year ended December 31,
1996 1995 1994 1993 1992
Basic rent income.......... $ 1,087,842 $ 1,087,842 $ 1,122,040 $ 1,132,075 $ 1,132,075
Advance of additional
rent income............... 1,053,800 1,053,800 1,053,800 1,053,800 1,053,800
Further additional
rent income............... 2,051,475 1,565,928 2,202,847 2,654,582 3,546,236
Total revenue........... $ 4,193,117 $ 3,707,570 $ 4,378,687 $ 4,840,457 $ 5,732,111
Net income................. $ 2,867,971 $ 2,430,979 $ 3,051,227 $ 3,442,052 $ 4,240,312
Earnings per $10,000
participation unit,
based on 700 participation
units outstanding during
the year.................. $ 4,097 $ 3,473 $ 4,359 $ 4,917 $ 6,058
Total assets............... $ 7,521,944 $ 7,546,720 $ 7,660,149 $ 7,453,321 $ 7,497,458
Long-term obligations...... $12,020,814 $12,020,814 $12,020,814 $ - $12,061,506
Distributions per $10,000
participation unit, based
on 700 participation
units outstanding during
the year:
Income.................. $ 4,097 $ 3,473 $ 4,006 $ 4,908 $ 6,054
Return of capital....... 35 35 - - -
Total distributions..... $ 4,132 $ 3,508 $ 4,006 $ 4,908 $ 6,054
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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, 1996:
(a) Total income increased for the year ended December 31,
1996 as compared with the year ended December 31, 1995.
Such increase is attributable to the payment of an
increased amount of Further Additional Rent received by
Registrant in 1996. Total income decreased for the year
ended December 31, 1995 as compared with the year ended
December 31, 1994. Such decrease is attributable to the
payment of a decreased amount of Further Additional Rent
to Registrant in 1995 and a decrease in Basic Rent. See
Note 4 of the Notes.
(b) Total expenses increased for the year ended December 31,
1996 as compared with the year ended December 31, 1995.
Such increase resulted 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 1996. Total expenses
decreased for the year ended December 31, 1995 as
compared with the year ended December 31, 1994. Such
decrease resulted from the net of a decrease in the
additional payment for supervisory services payable with
respect to a decreased amount of Further Additional Rent
received by Registrant in 1995 and an increase in
interest expense on the Mortgage Loan due mainly to the
increase in the rate of interest for such Mortgage Loan.
In addition, there was a decrease in amortization of
mortgage refinancing costs. See Notes 3, 4 and 5 of the
Notes.
-8-
The amount of Additional Rent payable to Registrant is
affected by the cycles in the New York City economy and the real
estate rental market. It is difficult for Registrant to forecast
when these markets will improve or deteriorate.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the year ended December 31, 1996 as compared with
the year ended December 31, 1995.
Assuming that the Building continues to generate an
annual net profit in future years comparable to that in the
current year 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 Loan balance at maturity.
There are no changes anticipated in the short-term or long-term
financial liquidity position of Registrant, other than the need to
refinance the Mortgage Loan upon maturity. Registrant foresees no
need to make material commitments for capital expenditures from
its own resources 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 only 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 Jacobs Evall &
Blumenfeld 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, 1996 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
Donald A. Bettex 66 None Attorney-at-Law Retired former 1983
Senior Partner
Wien & Malkin
LLP,
Counsellors
at-Law
Ralph W. Felsten 70 None Attorney-at-Law Retired former 1984
Senior Partner
Wien & Malkin
LLP,
Counsellors-
at-Law
Stanley Katzman 64 None Attorney-at-Law Senior Partner 1988
Wien & Malkin
LLP,
Counsellors-
at-Law
Thomas N. Keltner,
Jr. 50 None Attorney-at-Law Senior Partner 1996
Wien & Malkin
LLP,
Counsellors-
at-Law
John L. Loehr 60 None Attorney-at-Law Senior Partner 1996
Wien & Malkin
LLP,
Counsellors-
at-Law
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Nature Principal Date
of Family Occupation Individual
Relation- Business and became
Name Age ship Experience Employment Partner
Peter L. Malkin 63 None Attorney-at-Law Senior Partner 1970
Wien & Malkin
LLP,
Counsellors-
at-Law
Richard A. Shapiro 51 None Attorney-at-Law Senior Partner 1996
Wien & Malkin
LLP,
Counsellors-
at-Law
As stated above, five of the Partners are also current
members of Counsel and the other two Partners are now retired
former members of Counsel. See Items 11, 12 and 13 hereof for a
description of the services rendered by, and the compensation paid
to, Counsel and for a discussion of certain relationships which
may pose actual or potential conflicts of interest among Regis-
trant, 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:
Ralph W. Felsten is a joint venturer in 250 West 57th
St. Associates.
Stanley Katzman 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.
John L. Loehr is a general partner in Empire State
Building Associates and Garment Capitol 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, 1996 by Registrant to any of the Partners as
such. Registrant pays Counsel, for supervisory services and
disbursements, fees of $24,000 per annum plus 10% of all
distributions to Participants in any year in excess of the amount
representing an annual return of 14% on the Participants' re-
maining cash investment in Registrant (which remaining cash
investment, at December 31, 1996, was equal to the Participant's
original cash investment of $7,000,000). Pursuant to such fee
arrangements, Registrant paid Counsel a total of $236,528 (con-
sisting of $24,000 as an annual basic payment for supervisory
services and $212,528 as an additional payment for supervisory
services) during the fiscal year ended December 31, 1996. The
supervisory services included preparing of reports and related
documentation required by the Securities and Exchange Commission,
monitoring of all areas of federal and local securities law
compliance, preparing certain financial reports, as well as the
supervising of accounting and other documentation related to the
administration of Registrant's business. Out of its fees, Counsel
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 Counsel.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities. See Item 5
hereof. At December 31, 1996, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 1996, the Partners (see Item 10
hereof) 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 Donald A. Bettex $ 5,000.00 .071%
in Partnership 700 Park Avenue
Interests New York, NY 10021
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Name and Address Amount of Percent
of Beneficial Beneficial of
Title of Class Owners Ownership Class
Participations Thomas N. Keltner, Jr. $ 2,500.00 .036%
in Partnership 1111 Park Avenue
Interests New York, NY 10128
John L. Loehr $ 5,000.00 .071%
286 Alpine Circle
River Vale, NJ 07675
Peter L. Malkin $40,833.34 .583%
21 Bobolink Lane
Greenwich, CT 06830
At such date, certain of the Partners (or their
respective spouses) held additional Participations as follows:
Peter L. Malkin owned of record as trustee or co-trustee
an aggregate of $55,714.29 of Participations. Mr.
Malkin disclaims any beneficial ownership of such
Participations.
Isabel Malkin, the wife of Peter L. Malkin, owned
individually and beneficially $35,000 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.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Items 1 and 10 hereof, Messrs. Bettex,
Felsten, Katzman, Keltner, Loehr, Malkin, and Shapiro are the
seven Partners in Registrant and also act as agents for
Participants in their respective partnership interests therein.
Mr. 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 Counsel (which represents
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
-13-
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.
See Items 1 and 2 hereof for a description of the terms
of the Lease. As of December 31, 1996, Mr. 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. 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 Counsel, by reason of his respective
interest in Counsel, is entitled to receive his pro rata share of
any legal fees or other remuneration paid to Counsel for
professional services rendered to Registrant and Lessee. See Item
11 hereof for a description of the remuneration arrangements
between Registrant and Counsel relating to supervisory services
provided by Counsel.
Reference is also made to Items 1 and 10 hereof for a
description of the relationship between Registrant and Counsel, 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 Counsel arises solely from such Partner's ownership
of an interest in Counsel. See Item 11 hereof for a description
of the remuneration arrangements between Registrant and Counsel
relating to supervisory services provided by Counsel.
(b) Reference is made to paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of Jacobs Evall & Blumenfeld LLP, Certified
Public Accountants, dated March 18, 1997.
Accountant's Report of Jacobs Evall & Blumenfeld LLP,
Certified Public Accountants, dated January 23, 1997.
Balance Sheets at December 31, 1996 and at December 31,
1995 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 1996, 1995 and 1994. (Exhibit B).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1996 (Exhibit C-1).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1995 (Exhibit C-2).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1994 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 1996, 1995 and 1994 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 1996, 1995 and 1994.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
1996 (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.
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March 18, 1997
60 East 42nd St. Associates
New York, N. Y.
We consent to the use of our independent accountants' report dated January 23,
1997 covering our audits of the accompanying financial statements of 60 East
42nd St. Associates in connection with and as part of your December 31, 1996
annual report (Form 10-K) to the Securities and Exchange Commission.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
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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, 1996 and 1995 and the related statements of income, partners'
capital deficit and cash flows for each of the three years in the period ended
December 31, 1996, 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, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 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.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
January 23, 1997
-17-
EXHIBIT A
60 EAST 42nd ST. ASSOCIATES
BALANCE SHEETS
A S S E T S
December 31,
1996 1995
Current Assets:
Cash in Fleet Bank $ 677 $ 677
Cash in distribution account held
by Wien, Malkin & Bettex LLP (Note 9) 87,202 87,202
TOTAL CURRENT ASSETS........... 87,879 87,879
Real Estate (Notes 2a and 3):
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 -
Other Assets:
Mortgage refinancing costs, less
accumulated amortization of
$55,457 in 1996 and $30,681
in 1995 (Note 2b)................... 194,065 218,841
TOTAL ASSETS................... $ 7,521,944 $ 7,546,720
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
Long-term Liabilities:
Bonds, mortgages and similar debt:
First mortgage payable (Note 3).... $12,020,814 $12,020,814
TOTAL LIABILITIES.............. 12,020,814 12,020,814
Partners' Capital Deficit (Exhibit C).. (4,498,870) (4,474,094)
TOTAL LIABILITIES AND
PARTNERS' CAPITAL DEFICIT..... $ 7,521,944 $ 7,546,720
See accompanying notes to financial statements.
-18-
EXHIBIT B
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF INCOME
Year ended December 31,
1996 1995 1994
Revenue:
Rent income, from a related party (Note 4).... $4,193,117 $3,707,570 $4,378,687
Expenses:
Interest on mortgage (Note 3)................. 1,063,842 1,063,842 1,061,738
Supervisory services, to a related party
(Note 5)..................................... 236,528 187,973 226,713
Amortization of mortgage refinancing costs
(Note 2b).................................... 24,776 24,776 39,009
1,325,146 1,276,591 1,327,460
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 8)........... $2,867,971 $2,430,979 $3,051,227
Earnings per $10,000 participation unit, based
on 700 participation units outstanding during
each year...................................... $ 4,097 $ 3,473 $ 4,359
See accompanying notes to financial statements.
-19-
EXHIBIT C-1
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1996
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1996 net income Distributions 1996
Stanley Katzman Group....... $ (639,156) $ 409,710 $ 413,250 $ (642,696)
John L. Loehr Group
(formerly Melvin H.
Halper Group)............. (639,156) 409,710 413,250 (642,696)
Richard A. Shapiro Group
(formerly C . Michael
Spero Group).............. (639,156) 409,710 413,249 (642,695)
Donald A. Bettex Group...... (639,156) 409,710 413,249 (642,695)
Peter L. Malkin Group....... (639,156) 409,710 413,250 (642,696)
Ralph W. Felsten Group...... (639,157) 409,710 413,249 (642,696)
Thomas N. Keltner Jr.
Group (formerly
Martin D. Newman Group).... (639,157) 409,711 413,250 (642,696)
$(4,474,094) $2,867,971 $2,892,747 $(4,498,870)
See accompanying notes to financial statements.
-20-
EXHIBIT C-2
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1995
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1995 net income Distributions 1995
Stanley Katzman Group....... $ (635,617) $ 347,283 $ 350,822 $ (639,156)
Melvin H. Halper Group
(formerly Alvin
Silverman Group)......... (635,617) 347,283 350,822 (639,156)
C. Michael Spero Group...... (635,617) 347,283 350,822 (639,156)
Donald A. Bettex Group...... (635,616) 347,283 350,823 (639,156)
Peter L. Malkin Group....... (635,617) 347,283 350,822 (639,156)
Ralph W. Felsten Group...... (635,617) 347,282 350,822 (639,157)
Martin D. Newman Group...... (635,617) 347,282 350,822 (639,157)
$(4,449,318) $2,430,979 $2,455,755 $(4,474,094)
See accompanying notes to financial statements.
-21-
EXHIBIT C-3
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1994
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1994 net income Distributions 1994
Stanley Katzman Group....... $ (670,876) $ 435,889 $ 400,630 $ (635,617)
Alvin Silverman Group....... (670,876) 435,889 400,630 (635,617)
C. Michael Spero Group...... (670,876) 435,889 400,630 (635,617)
Donald A. Bettex Group...... (670,876) 435,890 400,630 (635,616)
Peter L. Malkin Group....... (670,876) 435,890 400,631 (635,617)
Ralph W. Felsten Group...... (670,876) 435,890 400,631 (635,617)
Martin D. Newman Group...... (670,877) 435,890 400,630 (635,617)
$(4,696,133) $3,051,227 $2,804,412 $(4,449,318)
See accompanying notes to financial statements.
-22-
EXHIBIT D
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995 1994
Cash flows from operating activities:
Net income...................................... $ 2,867,971 $ 2,430,979 $ 3,051,227
Adjustments to reconcile net income to
cash provided by operating activities:
Payment of mortgage refinancing costs........ - - (249,522)
Amortization of mortgage refinancing
costs (Note 2b)............................. 24,776 24,776 39,009
Change in accrued interest payable........... - (88,653) 705
Net cash provided by
operating activities................ 2,892,747 2,367,102 2,841,419
Cash flows from financing activities:
Cash distributions.............................. (2,892,747) (2,455,755) (2,804,412)
Proceeds from refinancing first mortgage........ - - 12,020,814
Principal payments on long-term debt............ - - (12,061,506)
Net cash used in financing
activities.......................... (2,892,747) (2,455,755) (2,845,104)
Net change in cash................... - (88,653) (3,685)
Cash, beginning of year........................... 87,879 176,532 180,217
CASH, END OF YEAR.................... $ 87,879 $ 87,879 $ 176,532
Supplemental disclosure of cash flow information:
1996 1995 1994
Cash paid for:
Interest...................................... $ 1,063,842 $ 1,152,495 $1,061,032
See accompanying notes to financial statements.
-23-
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.
b. Mortgage Refinancing Costs, Amortization and Related Party
Transactions:
Mortgage refinancing costs of $308,961, incurred in connection with the
September 30, 1987 refinancing of the first mortgage payable (see Note
3), were charged to income ratably over the seven year term of the first
mortgage, from September 30, 1987 through October 1, 1994.
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. Such costs
include payments of $95,600 to the firm of Wien, Malkin & Bettex LLP, a
related party (see Note 5). Such costs also include a payment of
$60,100 to the firm of W & M Properties, Inc. ("W&M"); the principal
stockholders in W&M are also participants in Associates.
c. 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.
3. First Mortgage Payable
From September 30, 1987 through October 5, 1994, the first mortgage held by
the Apple Bank for Savings required annual mortgage charges of $1,108,075,
payable in equal monthly installments, applied first to interest at the rate
of 8 3/4% per annum and the balance to principal.
-24-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. First Mortgage Payable (Continued)
On October 6, 1994, a new 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 and the first mortgage with the Apple Bank for
Savings in the amount of $12,020,814 was paid. 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.
Principal payments required to be made on long-term debt are as follows:
Year ending December 31, 2004 (payable in full,
October 31, 2004)......................................$12,020,814
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1996, 1995 and 1994, totaling
$4,193,117, $3,707,570 and $4,378,687, respectively, as provided under an
operating lease with the Lessee dated October 1, 1958, as modified,
consisted of the following:
1996 1995 1994
Basic rent income............. $1,087,842 $1,087,842 $1,122,040
Advance of additional rent.... 1,053,800 1,053,800 1,053,800
Further additional rent....... 2,051,475 1,565,928 2,202,847
$4,193,117 $3,707,570 $4,378,687
From October 1, 1987 through October 5, 1994, the lease, as modified,
provided for annual basic rent of $1,132,075, which is equal to the sum of
$1,108,075, the prior constant annual mortgage charges, plus $24,000.
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 new
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
-25-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income (Continued)
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.
A partner in Associates is also a partner in the Lessee.
5. Related Party Transactions - Supervisory Services
Fees for supervisory services (including disbursements and costs of
accounting services) for the years ended December 31, 1996, 1995 and 1994,
totaling $236,528, $187,973 and $226,713, respectively, were paid to the
firm of Wien, Malkin & Bettex 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. Number of Participants
There were approximately 725 participants in the participating groups at
December 31, 1996, 1995 and 1994.
-26-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
7. Determination of Distributions to Participants
Distributions to participants during each year represent mainly the excess
of rent income over the mortgage requirements and cash expenses.
8. Distributions and Amount of Income per $10,000 Participation Unit
Distributions and amount of income per $10,000 participation unit during the
years 1996, 1995 and 1994, based on 700 participation units outstanding
during each year, consisted of the following:
Year ended December 31,
1996 1995 1994
Income........................ $4,097 $3,473 $4,006
Return of capital............. 35 35 -
TOTAL DISTRIBUTIONS..... $4,132 $3,508 $4,006
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.
9. 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.
-27-
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.
-28-
SCHEDULE III
60 EAST 42nd ST. ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1996
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, 1996.................................... $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
Carrying costs.................................................. $ None
E Gross amount at which carried at
close of period
Land........................................................... $ 7,240,000
Buildings and building improvements............................ 18,534,135
Total.......................................................... $25,774,135(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
(a) There have been no changes in the carrying values of real estate for
the years ended December 31, 1996, December 31, 1995 and December
31, 1994. The costs for federal income tax purposes are the same as
for financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 1994 $18,534,135
Depreciation:
F/Y/E 12/31/94 None
12/31/95 None
12/31/96 None None
Balance at December 31, 1996 $18,534,135
-29-
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 a Power of Attorney, dated
August 6, 1996 (the "Power").
60 EAST 42ND ST. ASSOCIATES
(Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 7, 1997
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 7, 1997
______________________
* Mr. Katzman supervises accounting functions for Registrant.
-30-
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 June 10, 1996, reflecting
a change in the Partners of Registrant.
4 Form of Participating Agreement, which
was filed as Exhibit No. 4 to Regis-
trant's Form S-1 Registration Statement,
as amended (the "Registration State-
ment") by letter dated June 28, 1954 and
assigned File No. 2-10981, is incorpo-
rated 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.
10(b) First Mortgage evidenced by a Modifica-
tion, 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.
______________________
* Page references are based on a sequential numbering system.
-31-
Number Document Page*
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.
-32-
Number Document Page*
13(a) Letter to Participants, dated
April 5, 1997 and supplementary
financial reports for the fiscal year
ended December 31, 1996. 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.
13(b) Letter to Participants, dated November
30, 1996 and accompanying financial
reports for the lease year ended
September 30, 1996. 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.
25 Power of Attorney dated August 6, 1996
between Donald A. Bettex, Ralph W.
Felsten, John L. Loehr, Stanley
Katzman, Peter L. Malkin, Thomas N.
Keltner, Jr., and Richard A. Shapiro as
Partners of Registrant and Stanley
Katzman and Richard A. Shapiro, which
was filed as Exhibit 25 to Registrant's
Quarterly Report on Form 10-Q for the
period ended June 30, 1996, and is
incorporated by reference as an exhibit
hereto.
27 Financial Data Schedule of Registrant
for the fiscal year ended December 31,
1996.
______________________
* Page references are based on a sequential numbering system.
-33-