Back to GetFilings.com
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, 1998
[] 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 30 through 32 of this Report.
Number of pages (including exhibits) in this filing: 49
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 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, 1998, the Building was approximately
96% occupied by approximately 605 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
-1-
(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 Counsel. 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.
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, 1998 was $1,529,651. After the payment
of $8,393 for fees and expenses in connection with the September 4,
1997 Consent Solicitation Program and $152,126 to Counsel as an
additional payment for supervisory services, the balance of
$1,369,132 was distributed to the Participants on November 30,
1998.
-2-
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 $26 per square
foot (exclusive of electricity charges and escalation) and current
deals range from $34 to $45. Registrant has been advised that
buildings of comparable age in the area currently request rental
rates within $32 - $51 per square foot. In the overall rental
market for commercial space in Manhattan, rents range from
approximately $51 or more per square foot for prime office space to
approximately $25 per square foot in less developed industrial
and/or secondary commercial areas.
(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.
-3-
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, 1998. 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.
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.
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.
-4-
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 1998, Registrant was advised of 65
transfers of Participations. In nine 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 two instances, the indicated purchase price was
equal to approximately 1.9 times the face amount of the
Participations transferred, i.e., $9,450 for a $5,000
participation. In all other cases, no consideration was indicated.
(b) As of December 31, 1998, there were 743 holders of
Participations of record.
(c) Registrant does not pay dividends. During each of
the years ended December 31, 1998 and 1997, Registrant made regular
monthly distributions of $124.57 for each $10,000 Participation.
On November 30, 1998 and December 2, 1997, Registrant made
additional distributions for each $10,000 Participation of
$1,955.90 and $2,651.83, respectively. Such distributions repre-
sented primarily Additional Rent and Further Additional Rent
payable by Lessee in accordance with the terms of the Lease. See
Item 1 hereof. There are no restrictions on Registrant's present
or future ability to make distributions; however, the amount of
such distributions, particularly distributions of Additional Rent
and Further Additional Rent, depends solely on Lessee's ability to
make payments of Basic Rent, Additional Rent and Further Additional
Rent to Registrant. See Item 1 hereof. Registrant expects to make
distributions so long as it receives the payments provided for
under the Lease. See Item 7 hereof.
-5-
[SELECTED FINANCIAL DATA]
Item 6.
60 EAST 42nd ST. ASSOCIATES
SELECTED FINANCIAL DATA
Year ended December 31,
1998 1997 1996 1995 1994
Basic rent income..$ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,087,842 $ 1,122,040
Advance of additional
rent income.... 1,053,800 1,053,800 1,053,800 1,053,800 1,053,800
Further additional
rent income..... 1,529,651 2,110,080 2,051,475 1,565,928 2,202,847
Total revenue... $ 3,671,293 $ 4,251,722 $ 4,193,117 $ 3,707,570 $ 4,378,687
Net income......... $ 2,390,776 $ 2,877,925 $ 2,867,971 $ 2,430,979 $ 3,051,227
Earnings per $10,000
participation unit,
based on 700 participation
units outstanding during
the year......... $ 3,415 $ 4,111 $ 4,097 $ 3,473 $ 4,359
Total assets....... $ 7,472,392 $ 7,497,168 $ 7,521,944 $7,546,720 $ 7,660,149
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.......... $ 3,415 $ 4,111 $ 4,097 $ 3,473 $ 4,006
Return of capital.. 35 35 35 35 -
Total distributions $ 3,450 $ 4,146 $ 4,132 $ 3,508 $ 4,006
-6-
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, 1998:
(a) 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 received by
Registrant in 1998. Total income increased for the year
ended December 31, 1997 as compared with the year ended
December 31, 1996. Such increase is attributable to the
payment of an increased amount of Further Additional Rent
to Registrant in 1997. See Note 4 of the Notes.
(b) Total expenses decreased for the year ended December 31,
1998 as compared with the year ended December 31, 1997.
Such decrease resulted mainly from a decrease in the
additional payment for supervisory services payable with
respect to a decreased amount of Further Additional Rent
received by Registrant in 1998 and professional fees
incurred in connection with the Consent Solicitation
Program. Total expenses increased for the year ended
December 31, 1997 as compared with the year ended
December 31, 1996. Such increase resulted from an
increase in the additional payment for supervisory
services payable with respect to Further Additional Rent
received by Registrant in 1997 and professional fees
incurred in connection with the Consent Solicitation
Program.
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.
-7-
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the year ended December 31, 1998 as compared with the
year ended December 31, 1997.
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 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.
-8-
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, 1998 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 36 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 40 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 46 None Attorney-at-Law; Partner 1998
Real Estate Wien & Malkin
LLP,
Thomas N. Keltner,
Jr. 52 None Attorney-at-Law; Senior Partner 1996
Real Estate Wien & Malkin
LLP,
-9-
Nature Principal Date
of Family Occupation Individual
Relation- Business and became
Name Age ship Experience Employment Partner
Jack K. Feirman 53 None Attorney-at-Law; Partner 1998
Real Estate Wien & Malkin
LLP,
Peter L. Malkin 65 Father Attorney-at-Law; Senior Partner 1970
of Real Estate
Anthony E. and Chairman
and Wien & Malkin
Scott D. LLP
Malkin
Richard A. Shapiro 53 None Attorney-at-Law; Senior Partner 1996
Real Estate Wien & Malkin
LLP
As stated above, five of the Partners are current 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 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.
-10-
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, 1998 by Registrant to any of the Partners as
such. Registrant pays Counsel, 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, 1998, was equal to the
Participant's original cash investment of $7,000,000). Pursuant to
such fee arrangements, Registrant paid Counsel a total of $183,506
(consisting of $24,000 as an annual basic payment for supervisory
services and $159,506 as an additional payment for supervisory
services) during the fiscal year ended December 31, 1998. 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, 1998, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
(b) At December 31, 1998, 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 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
Peter L. Malkin $62,500 .893%
60 East 42nd Street
New York, NY 10165
Scott D. Malkin $33,334 .476%
27 Hereford Square
SW7 4NB
London, England
-11-
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 $45,714 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. 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
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 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.
-12-
See Items 1 and 2 hereof for a description of the terms
of the Lease. As of December 31, 1998, 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 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.
-13-
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 February 2, 1999.
Accountant's Report of Jacobs Evall & Blumenfeld LLP,
Certified Public Accountants, dated January 29, 1999.
Balance Sheets at December 31, 1998 and at December 31,
1997 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 1998, 1997 and 1996. (Exhibit B).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1998 (Exhibit C-1).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1997 (Exhibit C-2).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1996 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 1998, 1997 and 1996 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 1998, 1997 and 1996.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December 31,
1998 (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.
-14-
[LETTERHEARD OF
JACOBS EVALL & BLUMENFELD LLP
CERTIFIED PUBLIC ACCOUNTANTS]
February 2, 1999
60 East 42nd St. Associates
New York, N. Y.
We consent to the use of our independent accountants' report
dated January 29, 1999 covering our audits of the accompanying
financial statements of 60 East 42nd St. Associates in connection
with and as part of your December 31, 1998 annual report
(Form 10-K) to the Securities and Exchange Commission.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
- 15-
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, 1998 and 1997 and
the related statements of income, partners' capital deficit
and cash flows for each of the three years in the period
ended December 31, 1998, 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, 1998 and 1997, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 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 29, 1999
- 16-
EXHIBIT A
60 EAST 42nd ST. ASSOCIATES
BALANCE SHEETS
A S S E T S
December 31,
1998 1997
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 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
$105,009 in 1998 and $80,233
in 1997 (Note 2b).............. 144,513 169,289
TOTAL ASSETS............. $ 7,472,392 $ 7,497,168
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). (4,548,422) (4,523,646)
TOTAL LIABILITIES AND
PARTNERS' CAPITAL DEFICIT... $ 7,472,392 $ 7,497,168
See accompanying notes to financial statements.
-17-
EXHIBIT B
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF INCOME
Year ended December 31,
1998 1997 1996
Revenue:
Rent income, from a related party
(Note 4)..................... $ 3,671,293 $ 4,251,722 $4,193,117
Expenses:
Interest on mortgage (Note 3)..... 1,063,842 1,063,842 1,063,842
Supervisory services, to a related party
(Note 5).......................... 183,506 237,634 236,528
Amortization of mortgage refinancing costs
(Note 2b)......................... 24,776 24,776 24,776
Professional fees, to a related party
(Note 6).......................... 8,393 47,545 -
1,280,517 1,373,797 1,325,146
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 9)...... $ 2,390,776 $2,877,925 $2,867,971
Earnings per $10,000 participation unit, based
on 700 participation units outstanding during
each year.............................. $ 3,415 $ 4,111 $ 4,097
See accompanying notes to financial statements.
-18-
EXHIBIT C-3
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.
-19-
EXHIBIT C-2
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1997
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1997 net income Distributions 1997
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)
See accompanying notes to financial statements.
-20-
EXHIBIT C-1
60 EAST 42nd ST. ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1998
Partners'
Partners' capital deficit
capital deficit Share of December 31,
January 1, 1998 net income Distributions 1998
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)
See accompanying notes to financial statements.
-21-
EXHIBIT D
60 EAST 42nd ST. ASSOCIATES
STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net income............................. $ 2,390,776 $ 2,877,925 $ 2,867,971
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing
costs (Note 2b).................... 24,776 24,776 24,776
Net cash provided by
operating activities....... 2,415,552 2,902,701 2,892,747
Cash flows from financing activities:
Cash distributions.................... (2,415,552) (2,902,701) (2,892,747)
Net cash used in financing
activities................. (2,415,552) (2,902,701) (2,892,747)
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:
1998 1997 1996
Cash paid for:
Interest........................... $ 1,063,842 $1,063,842 $ 1,063,842
See accompanying notes to financial statements.
-22-
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 $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 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
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.
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
-23-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1998, 1997 and 1996,
totaling $3,671,293, $4,251,722 and $4,193,117, respectively, as
provided under an operating lease with the Lessee dated October 1,
1958, as modified, consisted of the following:
1998 1997 1996
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....... 1,529,651 2,110,080 2,051,475
$3,671,293 $4,251,722 4,193,117
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 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.
-24-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income (Continued)
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, 1998, 1997 and
1996, totaling $183,506, $237,634 and $236,528, 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 year ended December 31, 1998 and 1997,
totaling $8,393 and $47,545, respectively, including disbursements,
were paid to the firm of Wien & Malkin LLP, a related party.
7. Number of Participants
There were approximately 725 participants in the participating groups
at December 31, 1998, 1997 and 1996.
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.
-25-
60 EAST 42nd ST. ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
9. Distributions and Amount of Income per $10,000 Participation Unit
Distributions and amount of income per $10,000 participation unit
during the years 1998, 1997 and 1996, based on 700 participation units
outstanding during each year, consisted of the following:
Year ended December 31,
1998 1997 1996
Income........................$3,415 $4,111 $4,097
Return of capital............. 35 35 35
TOTAL DISTRIBUTIONS..... $3,450 $4,146 $4,132
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.
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, 1998 was completely insured. The distribution account held by
Wien & Malkin LLP is not insured. The funds held in the distribution
account were paid to the participants on January 1, 1999.
-26-
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.
-27-
60 EAST 42nd ST. ASSOCIATES
SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 1998
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, 1998....................... $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, 1998, December 31, 1997 and
December 31, 1996. The costs for federal income tax purposes are
the same as for financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 1996 $18,534,135
Depreciation:
F/Y/E 12/31/96 None
12/31/97 None
12/31/98 None None
Balance at December 31, 1998 $18,534,135
-28-
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 15, 1999
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 15, 1999
________________________
* Mr. Katzman supervises accounting functions for Registrant.
-29-
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.
-30-
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.
-31-
Number Document Page*
13(a) Letter to Participants, dated February 3,
1999 and supplementary financial reports
for the fiscal year ended December 31,
1998. 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,
1998 and accompanying financial reports
for the lease year ended September 30,
1998. 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,
1997.
_______________________
* Page references are based on a sequential numbering system.
-32-