UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-10977
PAINE WEBBER INCOME PROPERTIES TWO LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2689565
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
PAINE WEBBER INCOME PROPERTIES TWO LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and September 30, 1994
(Unaudited)
ASSETS
June 30 September 30
Investment property held for sale, net $ 4,552,538 $ 3,910,782
Cash and cash equivalents 777,337 202,812
Restricted escrow deposits 786,039 1,695,420
Accounts receivable - affiliates 12,865 12,865
Prepaid expenses 18,280 23,353
Deferred expenses, net 282,019 228,975
$ 6,429,078 $ 6,074,207
LIABILITIES AND PARTNERS' DEFICIT
Mortgage note payable $ 9,873,592 $ 9,924,203
Accounts payable and accrued expenses 279,449 203,281
Accounts payable - affiliates 89,518 -
Real estate taxes payable 49,143 144,171
Tenant security deposits and other liabilities 176,474 176,060
Venture partner's subordinated deficit (1,674,402) (1,826,129)
Partners' deficit (2,364,696) (2,547,379)
$ 6,429,078 $ 6,074,207
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at September 30, 1993 $ 6,361 $(2,496,858)
Net loss (1,717) (169,943)
BALANCE AT JUNE 30, 1994 $ 4,644 $(2,666,801)
Balance at September 30, 1994 $ 5,785 $(2,553,164)
Net income 1,827 180,856
BALANCE AT JUNE 30, 1995 $ 7,612 $(2,372,308)
See accompanying notes.
PAINE WEBBER INCOME PROPERTIES TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES:
Rental revenues $ 591,104 $ 572,192 $ 1,754,266 $ 1,690,999
Interest and other income 41,333 27,887 133,952 81,004
632,437 600,079 1,888,218 1,772,003
EXPENSES:
Property operating expenses 173,449 251,484 715,507 807,436
Interest expense and
related financing fees- 209,829 258,236 598,587 606,422
Depreciation and amortization 1,465 133,004 6,936 399,010
Real estate taxes 49,143 55,519 144,039 130,990
General and administrative 47,243 31,249 88,739 77,277
481,129 729,492 1,553,808 2,021,135
Operating income (loss) 151,308 (129,413) 334,410 (249,132)
Venture partner's share
of venture's
operations (68,679) 44,660 (151,727) 77,472
NET INCOME (LOSS) $ 82,629 $ (84,753) $ 182,683 $(171,660)
Net income (loss) per Limited
Partnership Unit $ 5.30 $(5.43) $11.71 $(11.00)
The above net income (loss) per Limited Partnership Unit is based upon the
15,445 Limited Partnership Units outstanding during each period.
See accompanying notes.
PAINE WEBBER INCOME PROPERTIES TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income (loss) $ 182,683 $ (171,660)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 6,936 399,010
Venture partner's share of venture's
operations 151,727 (77,472)
Changes in assets and liabilities:
Restricted escrow deposits 909,381 (34,577)
Accounts receivable - (3,124)
Accounts receivable - affiliates - 5,280
Prepaid expenses 5,073 100,279
Deferred expenses (59,980) -
Accounts payable and accrued expenses 76,168 (27,636)
Accounts payable - affiliates 89,518 (12,564)
Real estate taxes payable (95,028) (72,636)
Tenant security deposits and other
liabilities 414 (1,601)
Total adjustments 1,084,209 274,959
Net cash provided by operating
activities 1,266,892 103,299
Cash flows from investing activities:
Additions to investment property held for sale (641,756) (58,584)
Net cash used for investing activities (641,756) (58,584)
Cash flows from financing activities:
Payment of refinancing transactions costs - (101,204)
Principal payments on mortgage note payable (50,611) (47,035)
Net cash used for financing activities (50,611) (148,239)
Net increase (decrease) in cash
and cash equivalents 574,525 (103,524)
Cash and cash equivalents, beginning of period 202,812 420,261
Cash and cash equivalents, end of period $ 777,337 $ 316,737
Cash paid during the period for interest $ 582,577 $ 624,804
See accompanying notes.
1. General
The accompanying consolidated financial statements, footnotes and discussion
should be read in conjunction with the financial statements and footnotes
contained in the Partnership's Annual Report for the year ended September
30, 1994.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, reflect all adjustments necessary
to present fairly the results for the interim period. All of the accounting
adjustments reflected in the accompanying interim financial statements are
of a normal recurring nature.
2. Real Estate Investment
At June 30, 1995, the Partnership has an ownership interest in one joint
venture, Spanish Trace Associates, which owns the Spanish Trace Apartments,
a 372-unit apartment complex located in St. Louis, Missouri. This joint
venture is consolidated in the Partnership's financial statements, and
therefore, the assets, liabilities, revenues and expenses of the venture
appear in the consolidated statements. The effects of all transactions
between the Partnership and the consolidated joint venture have been
eliminated in consolidation.
Subsequent to the quarter ended June 30, 1995, the partnership reached a
tentative agreement to sell its interest in the Spanish Trace Apartments to
an affiliate of the co-venture partner for a net price of approximately $2.3
million. The net sales price for the Partnership's equity interest is based
upon an agreed upon fair market value of the property of $13.3 million. The
agreed upon fair market value, of $13.3 million, is supported by
management's most recent independent appraisal of Spanish Trace and by the
marketing efforts to third-parties which have been conducted over the last
year and a half. Under the terms of the Spanish Trace joint venture
agreement, the co-venture partner has the right to match any third-party
offer to purchase the property. Accordingly, a negotiated sale to the co-
venturer or its affiliate at the appropriate market price represents the
most expeditious and advantageous way for the Partnership to sell this
remaining investment. If the Partnership is successful in closing such a
sale, the net sales proceeds, after reserves for expenses associated with
the liquidation of the Partnership, would be distributed to the partners in
accordance with the Partnership Agreement. The sale remains subject to both
executing an acceptable sales contract and obtaining the lender's approval
of the buyer's assumption of the first mortgage loan secured by the
property. Accordingly, there can be no assurances at this time that the
sale will close. Management expects to complete a sale of the property and
a liquidation of the Partnership prior to December 31, 1995.
The following is a summary of property operating expenses for the three and
nine months ended June 30, 1995 and 1994.
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
Repairs and
maintenance $ 71,681 $ 132,401 $ 234,307 $ 303,633
Utilities 23,398 27,786 98,915 99,016
Insurance 9,809 9,535 29,430 28,605
Management fees 31,288 29,930 90,716 88,407
Administrative
and other 37,273 51,832 262,139 287,775
$ 173,449 $ 251,484 $ 715,507 $ 807,436
3. Related Party Transactions
Included in general and administrative expenses for the nine months ended
June 30, 1995 and 1994 is $26,870 and $13,956, respectively, representing
reimbursements to an affiliate of the General Partner for providing certain
financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended June 30, 1995 and 1994 is $557 and $955, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
Included in accounts payable - affiliates is approximately $90,000 payable
to an affiliate of the co-venture partner.
4. Mortgage Note Payable
The mortgage note payable on the consolidated balance sheets relates to the
Spanish Trace joint venture and is secured by that venture's operating
investment property.
Mortgage note payable consists of the following at June 30, 1995 and
September 30, 1994:
June 30 September 30
7.35% nonrecourse mortgage loan secured by
the Spanish Trace Apartments, payable in
monthly installments, including principal
and interest of $66,273 through August 1,
2028. The remaining balance of principal
and interest is due September 1, 2028 (see
discussion below). $ 9,873,592 $ 9,924,203
On August 31, 1993, the Partnership refinanced the existing debt on Spanish
Trace Apartments with a new loan insured by the U.S. Department of Housing
and Urban Development (HUD). As part of the HUD insured loan program, the
operating investment property was required to establish an escrow account
for a replacement reserve and other required repairs. The balance of these
restricted escrow deposits totalled approximately $786,000 and $1,695,000 as
of June 30, 1995 and September 30, 1994, respectively.
5. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
PAINE WEBBER INCOME PROPERTIES TWO LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's remaining investment is a joint venture interest in the
Spanish Trace Apartments, located in St. Louis, Missouri. Spanish Trace
Apartments is a 372-unit, twenty-four year old, garden-style rental property.
Subsequent to the quarter ended June 30, 1995, the Partnership reached a
tentative agreement to sell its interest in the Spanish Trace Apartments to an
affiliate of the co-venture partner for a net price of approximately $2.3
million. The net sales price for the Partnership's equity interest is based
upon an agreed upon fair market value of the property of $13.3 million. The
agreed upon fair market value, of $13.3 million, is supported by management's
most recent independent appraisal of Spanish Trace and by the marketing efforts
to third-parties which have been conducted over the last year and a half. Under
the terms of the Spanish Trace joint venture agreement, the co-venture partner
has the right to match any third-party offer to purchase the property.
Accordingly, a negotiated sale to the co-venturer or its affiliate at the
appropriate market price represents the most expeditious and advantageous way
for the Partnership to sell this remaining investment. If the Partnership is
successful in closing such a sale, the net sales proceeds, after reserves for
expenses associated with the liquidation of the Partnership, would be
distributed to limited partners in accordance with the Partnership Agreement.
The sale remains subject to both executing an acceptable sales contract and
obtaining the lender's approval of the buyer's assumption of the first mortgage
loan secured by the property. Management expects to complete a sale of the
property and a liquidation of the Partnership prior to December 31, 1995.
However, there can be no assurance that a sale and a liquidation will be
completed by that date.
Conditions in the markets for multi-family residential properties across
the country have demonstrated gradual improvement throughout fiscal 1995. The
absence of significant new construction activity has allowed the oversupply
which existed in many markets as a result of the overbuilding of the 1980s to be
absorbed. The results of this absorption have been stabilized occupancy levels
and a gradual improvement in rental rates, which have had a positive impact on
cash flow levels and, consequently, property values. The implementation of the
capital improvement program made possible by the 1993 refinancing of Spanish
Trace has supported management's ability to increase rents and add value to the
property. As a result, management believes that it is an opportune time to sell
the Partnership's remaining asset.
The Partnership has already returned capital of approximately $3,344,000 to
the Limited Partners from the Spanish Trace investment as a result of a 1985
refinancing transaction. As previously reported, on August 31, 1993 the
Partnership completed a second refinancing of the existing debt on the Spanish
Trace Apartments with a loan insured by the U.S. Department of Housing and Urban
Development (HUD). As part of the HUD insured loan program, the Spanish Trace
joint venture was required to establish an escrow account of approximately $1.8
million for a replacement reserve and payment of other required repairs, real
estate taxes and insurance premiums. The balance of these restricted escrow
deposits totalled approximately $786,000 as of June 30, 1995. These escrowed
funds continue to be used to provide the capital necessary to address certain
deferred maintenance and capital improvement items that have significantly
upgraded individual units and the property as a whole. The capital improvement
program commenced during fiscal 1994. To date, the joint venture has incurred
over $1.5 million in improvement costs. A substantial portion of such costs
have been reimbursed from the restricted escrow deposits through the third
quarter of fiscal 1995. With the major portion of the exterior phase of the
capital improvement program having been completed, management stepped up its
leasing and marketing efforts to take advantage of the property's improved
physical appearance. As of June 30, 1995, the occupancy at Spanish Trace had
reached 95%. The rest of the improvement program is expected to be completed
during 1995.
At June 30, 1995, the Partnership and its consolidated joint venture had
cash and cash equivalents of approximately $777,000. Such cash and cash
equivalents will be utilized for the Partnership's working capital requirements
through its anticipated liquidation date. The source of future liquidity and
final distribution to the partners is expected to be from the proceeds received
from the eventual sale of the Spanish Trace Apartments.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995
The Partnership reported net income of approximately $83,000 for the three
months ended June 30, 1995, as compared to a net loss of approximately $85,000
for the same period in the prior year. This favorable change in net operating
results for the third quarter of fiscal 1995 is the result of a combination of
increased revenues and lower expenses. Rental revenues increased by
approximately $19,000 for the current three-month period, reflecting the
increasing rental and occupancy rates made possible by the capital improvement
program at Spanish Trace. In addition, interest income increased by
approximately $13,000, mainly due to an increase in average market interest
rates over the prior period. The decrease in total expenses of approximately
$248,000 can be primarily attributed to the absence of depreciation recorded on
the operating investment property in the current period. As of September 30,
1994, the Spanish Trace property was classified as an asset held for sale, as a
result of management's plans to market the property for sale in fiscal 1995, as
described above. The estimated market value of the Spanish Trace Apartments is
substantially higher than the net carrying value of the property on the
accompanying balance sheets. Therefore, no further depreciation will be
recorded unless the Partnership's plans for holding the asset change at some
future date. In addition, property operating expenses declined by approximately
$78,000 mainly due to a decrease in repairs and maintenance. Repairs and
maintenance expense in the prior period reflects the implementation of a program
to address certain deferred maintenance items.
Nine Months Ended June 30, 1995
For the nine-month period ended June 30, 1995, the Partnership reported net
income of approximately $183,000, as compared to a net loss of approximately
$172,000 for the same period in the prior year. This favorable change in net
operating results, of approximately $355,000, can be primarily attributed to the
absence of depreciation recorded on the operating investment property for the
nine month period ended June 30, 1995, as further discussed above. Increases in
rental revenues and interest income together with a decrease in property
operating expenses all contributed to the favorable change in net operating
results for the third quarter of fiscal 1995. Rental revenues increased by
approximately $63,000 in the current nine-month period, reflecting the increases
in rental and occupancy rates referred to above. Interest and other income
increased by approximately $53,000 mainly due to an increase in the interest
rates earned on the restricted escrow funds related to the debt refinancing.
Property operating expenses declined by approximately $92,000 mainly due to a
decrease in repairs and maintenance. Repairs and maintenance expense in the
prior period reflects the implementation of a program to address certain
deferred maintenance items during fiscal 1994.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's quarterly report on Form 10-Q for the
period ended March 31, 1995, in November 1994, a series of purported class
actions (the "New York Limited Partnership Actions") were filed in the United
States District Court for the Southern District of New York concerning
PaineWebber Incorporated's sale and sponsorship of various limited partnership
investments, including those offered by the Partnership. On May 30, 1995, the
court certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partner continues to believe that the action will be
resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
PAINE WEBBER INCOME PROPERTIES TWO LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES TWO
LIMITED PARTNERSHIP
By: SECOND INCOME PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: August 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the nine months ended June
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 777,337
<SECURITIES> 0
<RECEIVABLES> 12,865
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,594,321
<PP&E> 4,552,538
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,429,078
<CURRENT-LIABILITIES> 594,584
<BONDS> 9,873,592
<COMMON> 0
0
0
<OTHER-SE> (4,039,098)
<TOTAL-LIABILITY-AND-EQUITY> 6,429,078
<SALES> 0
<TOTAL-REVENUES> 1,888,218
<CGS> 0
<TOTAL-COSTS> 955,221
<OTHER-EXPENSES> (151,727)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 598,587
<INCOME-PRETAX> 182,683
<INCOME-TAX> 0
<INCOME-CONTINUING> 182,683
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,683
<EPS-PRIMARY> 11.71
<EPS-DILUTED> 11.71
</TABLE>
