UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 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: 0-10979
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3038189
(State of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
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. X
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
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
December 3, 1980, as supplemented
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
1995 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership
Interests and
Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-1
Item 8 Financial Statements and Supplementary Data II-5
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-5
Part III
Item 10 Directors and Principal Executive Officers of the
Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners and
Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-29
<PAGE>
PART I
Item 1. Business
Paine Webber Income Properties Three Limited Partnership (the
"Partnership") is a limited partnership formed in June 1980 under the Uniform
Limited Partnership Act of the State of Delaware for the purpose of investing in
a diversified portfolio of existing income-producing real properties including
shopping centers and apartment complexes. The Partnership sold $21,550,000 in
Limited Partnership units (the "Units"), representing 21,550 Units at $1,000 per
unit, during the offering period pursuant to a Registration Statement on Form
S-11 filed under the Securities Act of 1933 (Registration No. 2-68360). Limited
Partners will not be required to make any additional capital contributions.
As of September 30, 1995, the Partnership owns directly or through joint
venture partnerships the properties or interests in the properties referred to
below:
Name of Joint Venture Date of
Name and Type of Property Acquisition of Type of
Location Size Interest Ownership (1)
- ----------------------- ---- ---------- -------------
Camelot Associates 492 6/29/81 Fee ownership of
Camelot East and the Villas Units improvements
Camelot Apartments (through joint
venture).
Fairfield, Ohio Land is subject to a
ground lease.
Boyer Lubbock Associates 143,800 6/30/81 Fee ownership of land
Central Plaza Shopping Center gross and improvements
Lubbock, Texas leasable (through joint venture).
sq. ft.
Northeast Plaza Shopping 116,000 9/25/81 Fee ownership of land
Center gross and improvements
Sarasota, Florida leasable subject to a master
sq. ft. lease.
Pine Trail Partnership 283,000 11/12/81 Fee ownership of
Pine Trail Shopping Center gross improvements and 23
West Palm Beach, Florida leasable acres of land (through
sq. ft. joint venture).
Approximately 4 acres of
land is subject to ground
leases.
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
The Partnership originally had investment interests in six operating
investment properties. The Partnership sold its investment in the Briarwood
Joint Venture, which owned the Briarwood Apartments and Gatewood Apartments in
Bucks County, Pennsylvania, on December 20, 1984 for cash and a note receivable.
See Note 6 to the financial statements accompanying this Annual Report for a
further discussion of this transaction.
<PAGE>
The Partnership's investment objectives are to:
(1) provide the Limited Partners with cash distributions which, to some extent,
will not constitute taxable income;
(2) preserve and protect Limited Partners' capital; (3) achieve long-term
appreciation in the value of its properties; and (4) provide a build up of
equity through the reduction of mortgage loans on its properties.
Through September 30, 1995, the Limited Partners had received cumulative
cash distributions totalling approximately $21,809,000, or approximately $1,039
per original $1,000 investment for the Partnership's earliest investors. Of the
total distributions, approximately $7,623,000, or approximately $354 per
original $1,000 investment, represents proceeds from the sale of the Briarwood
and Gatewood Apartments in fiscal 1985. The remaining distributions have been
made from the net operating cash flow of the Partnership. A substantial portion
of such distributions has been sheltered from current taxable income. The
Partnership is currently paying quarterly distributions of excess cash flow at
the rate of 3% per annum on the remaining invested capital. In addition, the
Partnership retains its ownership interest in four of its six original
investment properties. The Partnership's success in meeting its capital
appreciation objective will depend upon the proceeds received from the final
liquidation of its remaining investments. The amount of such proceeds will
ultimately depend upon the value of the underlying investment properties at the
time of their final disposition, which cannot presently be determined. At the
present time, real estate values for retail shopping centers in certain markets
have begun to be affected by the effects of overbuilding and consolidations
among retailers which have resulted in an oversupply of space. Currently,
occupancy at all three of the Partnership's retail shopping centers remain high
and operations do not appear to have been affected by this general trend.
As discussed further in the notes to the accompanying financial statements,
the amount of proceeds received from the future liquidation of the Northeast
Plaza Shopping Center may be adversely impacted by the effects of a
contamination of the groundwater at the property. Per the terms of a formal
indemnification agreement, Mobil Oil Corporation, the party responsible for the
contamination, agreed to compensate the Partnership for any damages caused by
the contamination. Since the time that the contamination was discovered, Mobil
has investigated the problem and is progressing with efforts to remedy the soil
and groundwater contamination under the supervision of the Florida Department of
Environmental Regulation, which has approved Mobil's remedial action plan.
Although the Partnership was able to refinance the property's mortgage
indebtedness, which had been in default for more than two years, during fiscal
1994, it has incurred significant out-of-pocket and legal expenses in connection
with its sale and refinancing efforts as a result of the contamination issue.
During the first quarter of fiscal 1993, the Partnership filed suit against
Mobil for breach of indemnity and property damage (see Item 3). On April 28,
1995, Mobil Oil Corporation was successful in obtaining a Partial Summary
Judgment which removed the case from the Federal Court system. Subsequently, the
Partnership has filed an action in the Florida State Court system. This action
is for substantially all of the same claims and utilizes the substantial
discovery and trial preparation work already completed for the Federal case. The
Partnership is seeking judgment against Mobil which would award the Partnership
compensatory damages, costs, attorneys' fees and such other relief as the court
may deem proper. The outcome of these legal proceedings cannot presently be
determined.
All of the properties securing the Partnership's investments are located in
real estate markets in which they face significant competition for the revenues
they generate. The apartment complex competes with numerous projects of similar
type generally on the basis of price, location and amenities. Apartment
properties in all markets also compete with the local single family home market
for prospective tenants. The continued availability of low interest rates on
home mortgage loans has increased the level of this competition over the past
few years. However, the impact of the competition from the single-family home
market has been offset by the lack of significant new construction activity in
the multi-family apartment market over this period. The shopping centers compete
for long-term retail tenants with numerous projects of similar type generally on
the basis on rental rates, location, tenant mix and tenant improvement
allowances.
The Partnership has no real estate investments located outside the United
States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an Advisory
Contract with PaineWebber Properties Incorporated (the "Adviser"), which is
responsible for the day-to-day operations of the Partnership. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber Group Inc. ("PaineWebber").
The General Partner of the Partnership is Third Income Properties, Inc. (the
"General Partner"), a wholly-owned subsidiary of PaineWebber. Subject to the
General Partner's overall authority, the business of the Partnership is managed
by the Adviser.
The terms of transactions between the Partnership and affiliates of the
General Partner of the Partnership are set forth in Items 11 and 13 below to
which reference is hereby made for a description of such terms and transactions.
Item 2. Properties
As of September 30, 1995, the Partnership owned one property directly and
owned interests in three operating properties through joint venture
partnerships. Such properties are referred to under Item 1 above to which
reference is made for the name, location and description of each property.
Occupancy figures for each fiscal quarter during 1995, along with an average
for the year, are presented below for each property:
Percent Leased At
Fiscal 1995
12/31/94 3/30/95 6/30/95 9/30/95 Average
Camelot Apartments 95% 97% 97% 94% 96%
Central Plaza 96% 92% 92% 92% 93%
Northeast Plaza Shopping
Center 100% 100% 100% 100% 100%
Pine Trail Shopping Center 94% 96% 96% 96% 96%
Item 3. Legal Proceedings
As further discussed in Item 7, during fiscal 1993 the Partnership filed
suit against Mobil Oil Corporation because of Mobil's failure to compensate the
Partnership under the terms of an indemnification agreement between the parties
related to the soil and groundwater contamination affecting the Partnership's
Northeast Plaza Shopping Center investment. Management believes that the
Partnership's efforts to sell or refinance the Northeast Plaza property have
been impeded by potential buyer and lender concerns of an environmental nature
with respect to the property. During 1990, it was discovered that certain
underground storage tanks of a Mobil service station located adjacent to the
shopping center had leaked and contaminated the groundwater in the vicinity of
the station. Since the time that the contamination was discovered, Mobil has
investigated the problem and is progressing with efforts to remedy the soil and
groundwater contamination under the supervision of the Florida Department of
Environmental Regulation, which has approved Mobil's remedial action plan.
During fiscal 1990, the Partnership had obtained a formal indemnification
agreement from Mobil Oil Corporation in which Mobil agreed to bear the cost of
all damages and required clean-up expenses. Furthermore, Mobil indemnified the
Partnership against its inability to sell, transfer or obtain financing on the
property because of the contamination. As a result of the contamination of the
groundwater at Northeast Plaza, the Partnership has incurred certain damages,
primarily related to the inability to sell the property and to delays in the
process of refinancing the property's mortgage indebtedness. The Partnership has
incurred significant out-of-pocket and legal expenses in connection with such
sale and refinancing efforts. Despite repeated requests by the Partnership for
compensation under the terms of the indemnification agreement, to date Mobil has
refused to compensate the Partnership for any of these damages. During the first
quarter of fiscal 1993, the Partnership filed suit against Mobil for breach of
indemnity and property damage. On April 28, 1995, Mobil Oil Corporation was
successful in obtaining a Partial Summary Judgment which removed the case from
the Federal Court system. Subsequently, the Partnership has filed an action in
the Florida State Court system. This action is for substantially all of the same
claims and utilizes the substantial discovery and trial preparation work already
completed for the Federal case. The Partnership is seeking judgment against
Mobil which would award the Partnership compensatory damages, costs, attorneys'
fees and such other relief as the Court may deem proper. The outcome of these
legal proceedings cannot presently be determined.
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. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including Third Income Properties, Inc. which is the General
Partner of the Partnership and an affiliate of PaineWebber. On May 30, 1995, the
court certified class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Income Properties
Three Limited Partnership, PaineWebber and Third Income Properties, Inc. (1)
failed to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in Paine Webber Income
Properties Three Limited Partnership, also allege that following the sale of the
partnership interests, PaineWebber and Third Income Properties, Inc.
misrepresented financial information about the Partnerships value and
performance. The amended complaint alleges that PaineWebber and Third Income
Properties, Inc. violated the Racketeer Influenced and Corrupt Organizations Act
("RICO") and the federal securities laws. The plaintiffs seek unspecified
damages, including reimbursement for all sums invested by them in the
partnerships, as well as disgorgement of all fees and other income derived by
PaineWebber from the limited partnerships. In addition, the plaintiffs also seek
treble damages under RICO. The defendants' time to move against or answer the
complaint has not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify Third Income Properties, Inc. and its affiliates for costs and
liabilities in connection with this litigation. The General Partner intends to
vigorously contest the allegations of the action, and believes that the action
will be resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At September 30, 1995 there were 1,649 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. The General Partner will not redeem
or repurchase Units.
Reference is made to Item 6 below for a discussion of cash distributions
made to the Limited Partners during 1995.
Item 6. Selected Financial Data
Paine Webber Income Properties Three Limited Partnership
(In thousands, except per Unit data)
Years Ended September 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues $ 492 $ 483 $ 483 $ 491 $ 517
Operating loss $ (246) $ (197) $ (154) $ (229) $ (100)
Partnership's share
of ventures' income $ 510 $ 442 $ 332 $ 351 $ 414
Net income $ 264 $ 245 $ 178 $ 122 $ 314
Per Limited Partnership Unit:
Net income $ 12.14 $ 11.26 $ 8.16 $ 5.61 $ 14.40
Cash distributions $ 19.40 $ 19.40 $ 19.40 $ 38.80 $ 49.69
Total assets $ 7,151 $ 7,429 $ 8,271 $ 8,537 $ 9,213
Mortgage note payable $ 1,549 $ 1,667 $ 2,245 $ 2,276 $ 2,304
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the
21,550 Limited Partnership Units outstanding during each year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership offered limited partnership interests to the public from
December 1980 to December 1981 pursuant to a Registration Statement filed under
the Securities Act of 1933. Gross proceeds of $21,550,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
approximately $18,802,000 was originally invested in six operating investment
properties. As of September 30, 1995, two of the original properties had been
sold. The Partnership does not have any commitments for additional capital
expenditures or investments but may be called upon to advance funds to its
existing investments to pay for its share of certain required capital
improvement expenses. The Partnership's four remaining investment properties
consist of three retail shopping centers and one multi-family apartment complex.
Towards the latter half of 1995, real estate values for retail shopping centers
in certain markets have begun to be affected by the effects of overbuilding and
consolidations among retailers which have resulted in an oversupply of space.
Currently, occupancy at all three of the Partnership's retail shopping centers
remain high and operations do not appear to have been affected by this general
trend.
The operations of the Partnership's three joint venture investment
properties are stable and producing excess cash flow as of September 30, 1995.
At the Pine Trail Shopping Center, the national restaurant chain which renovated
a building on an out-parcel at the property and opened for business during the
first quarter of fiscal 1995 is generating increased shopper traffic and new
business for the Center's other tenants. Road construction near the center has
been completed, and the traffic flow to Pine Trail has improved as a result.
Pine Trail maintained a 96% occupancy level as of September 30, 1995. The Pine
Trail Shopping Center has five out-parcels on the site, covering approximately
six acres, which have been leased by the Pine Trail Partnership from third
parties under five separate ground leases since the inception of the joint
venture. During the third quarter of fiscal 1995, the joint venture completed
the acquisition of one of these out-parcels, containing 60,248 square feet, for
the purchase price of $350,000. This purchase price is significantly lower than
the assessed value of the out-parcel and comparable land sales in the area. This
purchase was 100% financed with a non-recourse first mortgage loan secured by
the lease of the free-standing restaurant located on the out-parcel. The loan
bears interest at the prime rate plus one-percent and requires monthly principal
and interest payments over a 5-year term. Management may seek to acquire the
other out-parcels at the Pine Trails property if favorable terms for such
acquisitions can be negotiated. Comprehensive ownership of all of the land
underlying the shopping center, if accomplished, should enhance the
marketability of the property under a sale scenario.
The average occupancy level at the Camelot Apartments increased to 96% for
the year ended September 30, 1995 from 94% for the prior fiscal year. The
capital improvement program implemented at the property in 1994, which included
the continuation of a roof replacement process, has enabled the property to
increase occupancy levels and rental rates over the past year. Given the current
strength of the national real estate market with respect to multi-family
apartment properties, management began to actively market this property for sale
during the fourth quarter of fiscal 1995. In addition, the Partnership has
engaged in preliminary discussions with its co-venture partners regarding the
possible sale of the Partnership's interest in the Camelot joint venture. In
accordance with the terms of the joint venture agreement, the co-venturers have
the right to match any third party offer obtained to buy the property.
Accordingly, a negotiated sale to the co-venturers at the appropriate fair
market value may represent the most expeditious and advantageous way for the
Partnership to sell this investment. The decision as to whether to complete a
transaction to sell the Partnership's interest in the Camelot Apartments will be
based on an evaluation of the current fair market value of the operating
investment property and an assessment of the national and local market factors
affecting the appreciation potential of the property in the relatively near
term. Accordingly, there can be no assurances that a sale transaction will be
consummated in the near term. A portion of the property's cash flow will
continue to be reinvested to address certain deferred maintenance items and make
selected capital improvements during fiscal 1996 in order to enhance the
property's curb appeal. The Camelot joint venture has two outstanding first
mortgage loans which had a combined principal balance of $4,298,000 as of
September 30, 1995. One of these first mortgages, with a balance of $2,298,000,
was originally scheduled to mature on January 1, 1996. Subsequent to year-end,
the venture obtained an extension of the maturity date from the lender to July
1, 1996 in return for an extension fee of $5,600. The venture's other first
mortgage loan had a principal balance of $2,000,000 as of September 30, 1995 and
is scheduled to mature on July 1, 1997. At the present time, the venture is
negotiating with several different potential lending sources to refinance the
mortgage loan which matures in fiscal 1996. The principal balance of this
mortgage loan represents less than 20% of the total estimated market value of
the venture's operating investment property. In light of the venture's low
leverage level, the current favorable interest rate environment and the
continued strong supply of capital for real estate lending, management expects
to be able to secure a loan to refinance this maturing obligation.
The mortgage debt secured by Central Plaza was scheduled to mature on
December 1, 1994. During the first quarter of fiscal 1995, the venture obtained
an extension of the maturity date from the lender to January 1, 1995. During the
second quarter of fiscal 1995, the venture obtained a mortgage loan from a new
lender which enabled the venture to repay, in full, this maturing obligation.
The new loan, in the initial principal amount of $4,200,000, bears interest at a
rate of 10% per annum. Monthly payments of principal and interest of
approximately $37,000 are due until maturity in January 2002. With the new
financing in place, management is now working on a plan to increase occupancy,
upgrade the property's tenant mix and increase rental rates. Such plans involve
a possible 15,000 square foot store expansion for one of the center's anchor
tenants. The additional space requirements could be met by expanding into 6,000
square feet of space currently occupied by a tenant which is experiencing
financial problems and enlarging the shopping center by approximately 9,000
square feet. The costs of the expansion would be paid by the anchor tenant.
Subsequent to year-end, a tentative agreement was reached with this anchor
tenant to proceed with this planned expansion. In addition, the property's
leasing and management team is negotiating with an existing tenant that occupies
5,600 square feet of space on an amendment of its lease which would result in
higher effective rental rates and an extension of the lease term. It is also
negotiating with two other leasing prospects that would lease most of the
remaining available space.
As previously reported, management believes that the Partnership's efforts
to sell or refinance the Northeast Plaza property have been impeded by potential
lender concerns of an environmental nature with respect to the property. During
1990, it was discovered that certain underground storage tanks of a Mobil
service station located adjacent to the shopping center had leaked and
contaminated the groundwater in the vicinity of the station. Since the time that
the contamination was discovered, Mobil has investigated the problem and is
progressing with efforts to remedy the soil and groundwater contamination under
the supervision of the Florida Department of Environmental Regulation, which has
approved Mobil's remedial action plan. During fiscal 1990, the Partnership had
obtained a formal indemnification agreement from Mobil Oil Corporation in which
Mobil agreed to bear the cost of all damages and required clean-up expenses.
Furthermore, Mobil indemnified the Partnership against its inability to sell,
transfer or obtain financing on the property because of the contamination. As a
result of the contamination of the groundwater at Northeast Plaza, the
Partnership has incurred certain damages, primarily related to the inability to
sell the property and to delays in the process of refinancing the property's
mortgage indebtedness. The Partnership has incurred significant out-of-pocket
and legal expenses in connection with such sale and refinancing efforts. Despite
repeated requests by the Partnership for compensation under the terms of the
indemnification agreement, to date Mobil has refused to compensate the
Partnership for any of these damages. During the first quarter of fiscal 1993,
the Partnership filed suit against Mobil for breach of indemnity and property
damage. On April 28, 1995, Mobil Oil Corporation was successful in obtaining a
Partial Summary Judgment which removed the case from the Federal Court system.
Subsequently, the Partnership has filed an action in the Florida State Court
system. This action is for substantially all of the same claims and utilizes the
substantial discovery and trial preparation work already completed for the
Federal case. The Partnership is seeking judgment against Mobil which would
award the Partnership compensatory damages, costs, attorneys' fees and such
other relief as the Court may deem proper. The outcome of these legal
proceedings cannot presently be determined.
At September 30, 1995, the Partnership had available cash and cash
equivalents of $296,000. Such cash and cash equivalents will be used for working
capital requirements and distributions to the partners. The source of future
liquidity and distributions to the partners is expected to be through cash
generated from the operations of the Partnership's income-producing investment
properties and proceeds received from the sale or refinancing of such properties
or sales of the Partnership's interests in such properties. Such sources of
liquidity are expected to be sufficient to meet the Partnership's needs on both
a short-term and long-term basis. In addition, the Partnership has a note
receivable that it received as a portion of the proceeds from the sale of its
interest in the Briarwood joint venture in fiscal 1985. The note and related
accrued interest receivable have been netted against a deferred gain of a like
amount on the accompanying balance sheet. The interest owed on the note
receivable is currently payable only to the extent that the related properties
generate excess net cash flow. To date, no payments have been received on the
note, which matures on January 1, 2000, and none are expected in the near
future. Since the operating properties continue to generate net cash flow
deficits and the Partnership's note receivable is subordinated to the existing
first mortgage debt, there is significant uncertainty as to the collectibility
of the principal and accrued interest. Proceeds, if any, received on the note
would represent a source of additional liquidity for the Partnership.
Results of Operations
1995 Compared to 1994
The Partnership's net income increased by $19,000 during fiscal 1995, when
compared to the prior year, mainly due to an increase in the Partnership's share
of ventures' income of $68,000 which was partially offset by an increase in the
general and administrative expenses of $51,000. General and administrative
expenses increased mainly due to increased legal and appraisal costs resulting
from the continued litigation against Mobil Oil Corporation, as discussed
further above. The Partnership's share of ventures' income increased primarily
due to an increase in net income at the Pine Trail joint venture. Net income at
Pine Trail increased as a result of an increase in rental income due to higher
average occupancy rates when compared to the prior year. The Pine Trails
Shopping Center had an average occupancy level of 96% for fiscal 1995, as
compared to 93% for the prior year. The Partnership's share of ventures' income
also increased because the Partnership was allocated a higher percentage of the
net income from the Camelot joint venture when compared to the prior year.
Although net income decreased slightly at Camelot as a result of an increase in
maintenance expenses, the Partnership was allocated a larger percentage of the
net income due to the method of allocation specified in the joint venture
agreement. The increase in the Partnership's share of income from the Pine Trail
and Camelot joint ventures was partially offset by a decrease in the
Partnership's share of income from Central Plaza. Net income was down at Central
Plaza as a result of a decline in average occupancy compared to the prior year.
Occupancy at Central Plaza declined from 96% for fiscal 1994 to 93% for fiscal
1995 mainly due to a 6,000 square foot tenant that vacated the property in the
second quarter of fiscal 1995. As discussed further above, management is
currently evaluating tentative plans to re-lease this space and possibly expand
the shopping center.
1994 Compared to 1993
The Partnership's net income increased by $67,000 during fiscal 1994 when
compared to the prior year. The increase is the result of an increase in the
Partnership's share of ventures' income of $111,000 and a decrease in interest
expense of $90,000 as a result of the March 1994 refinancing of the Northeast
Plaza note payable. The Partnership's share of ventures' income increased mainly
due to an increase in net income at the Pine Trail Shopping Center. Net income
at Pine Trail increased as a result of an increase in rental revenues and a
decrease in operating expenses. Rental revenues increased mainly due to an
increase in the average occupancy of the center for fiscal 1994 versus fiscal
1993. Property operating expenses decreased as a result of an improvement
program which took place in fiscal 1993 and resulted in higher than normal
repairs and maintenance expenses in that year. The net operating results of the
Central Plaza joint venture also improved slightly during fiscal 1994 due to a
modest increase in rental revenues. The net operating income of the Camelot
joint venture decreased slightly in fiscal 1994 as revenues remained flat while
certain property operating expenses increased over the prior year. Interest
expense decreased in fiscal 1994 as a result of the accrual of default interest
during the prior year while the Northeast Plaza refinancing efforts were in
process. These favorable changes in net income were partially offset by an
increase in the Partnership's general and administrative expenses. The higher
general and administrative expenses in fiscal 1994 reflected an increase in
legal fees in connection with the ongoing Mobil litigation referred to above, as
well as certain additional costs related to an independent valuation of the
Partnership's operating properties which was in process in conjunction with
management's ongoing refinancing and portfolio management responsibilities.
1993 Compared to 1992
For the year ended September 30, 1993, the Partnership's net income increased
by $56,000 when compared to the prior year. The improvement in net income was
primarily due to a decrease in general and administrative expenses of $67,000,
mainly as a result of a reduction in legal expenses incurred in connection with
the Northeast Plaza debt refinancing efforts and Mobil litigation described
above. In addition, management fees declined by $13,000 as a result of a
reduction in the distribution rate from 6% to 3% effective for the quarter ended
September 30, 1992. The reductions in general and administrative expenses and
management fees were partially offset by a decline in interest income of $8,000,
resulting mainly from a decline in the interest rates earned on average
outstanding cash reserve balances during fiscal 1993, and a decrease in the
Partnership's share of ventures' income of $19,000 mainly due to a decrease in
tenant reimbursement income at the Pine Trail joint venture.
Inflation
The Partnership completed its fourteenth full year of operations in fiscal
1995 and the effects of inflation and changes in prices on revenues and expenses
to date have not been significant.
Inflation in future periods may increase revenues, as well as operating
expenses, at the Partnership's operating investment properties. Many of the
existing leases with tenants at the Partnership's two joint venture owned retail
shopping centers contain rental escalation and/or expense reimbursement clauses
based on increases in tenant sales or property operating expenses. Furthermore,
the master lease on the Partnership's wholly-owned retail shopping center
requires the lessee to pay all of the expenses associated with operating the
property. In addition, rental revenues at the Partnership's multi-family
residential investment property may be adjusted to keep pace with inflation, as
market conditions allow, as the leases, which are short-term in nature, are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14 of
this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Principal Executive Officers of the Partnership
The General Partner of the Partnership is Third Income Properties, Inc., a
Delaware corporation, which is a wholly-owned subsidiary of PaineWebber. The
General Partner has overall authority and responsibility for the Partnership's
operations, however, the day-to-day business of the Partnership is managed by
the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the General Partner of the Partnership are as follows:
Date elected
Name Office Age to Office
Lawrence A. Cohen President, Chief Executive 42 8/30/88
Officer and Director
Albert Pratt Director 84 6/13/80 *
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President
and Chief Financial Officer 47 10/29/85
James A. Snyder Senior Vice President 50 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 53 6/13/80 *
Timothy J. Medlock Vice President and Treasurer 34 6/1/88
Thomas W. Boland Vice President 33 12/1/91
* The date of incorporation of the General Partner
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors or
officers of the General Partner of the Partnership. All of the foregoing
directors and executive officers have been elected to serve until the annual
meeting of the General Partner.
(e) All of the directors and officers of the General Partner hold similar
positions in affiliates of the General Partner, which are the corporate general
partners of other real estate limited partnerships sponsored by PWI, and for
which Paine Webber Properties Incorporated serves as the Adviser. The business
experience of each of the directors and principal executive officers of the
General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the General
Partner and President and Chief Executive Officer of the Adviser which he joined
in January 1989. He is also a member of the Board of Directors and the
Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First Vice
President of VMS Realty Partners where he was responsible for origination and
structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is a Director of the General Partner, a Consultant of PWI and a
general partner of the Associate General Partner. Mr. Pratt joined PWI as
Counsel in 1946 and since that time has held a number of positions including
Director of both the Investment Banking Division and the International Division,
Senior Vice President and Vice Chairman of PWI and Chairman of PaineWebber
International, Inc.
<PAGE>
J. Richard Sipes is a Director of the Managing General Partner and a
Director of the Adviser. Mr. Sipes is an Executive Vice President at
PaineWebber. He joined the firm in 1978 and has served in various capacities
within the Retail Sales and Marketing Division. Before assuming his current
position as Director of Retail Underwriting and Trading in 1990, he was a
Branch Manager, Regional Manager, Branch System and Marketing Manager for a
PaineWebber subsidiary, Manager of Branch Administration and Director of
Retail Products and Trading. Mr. Sipes holds a B.S. in Psychology from
Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the General Partner and Senior Vice President and Chief Financial Officer of the
Adviser which he joined in October 1985. Mr. Arnold joined PWI in 1983 with the
acquisition of Rotan Mosle, Inc. where he had been First Vice President and
Controller since 1978, and where he continued until joining the Adviser. Mr.
Arnold is a Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company.
John B. Watts III is a Senior Vice President of the Managing General
Partner and a Senior Vice President of the Adviser which he joined in June 1988.
Mr. Watts has had over 16 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
General Partner and a First Vice President and an Assistant Treasurer of the
Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980, Mr.
Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and also,
from March 1974 to February 1980, the Assistant Treasurer of Capital for Real
Estate, which provided real estate investment, asset management and consulting
services.
Timothy J. Medlock is a Vice President and Treasurer of the General Partner
and Vice President and Treasurer of the Adviser which he joined in 1986. From
June 1988 to August 1989, Mr. Medlock served as the Controller of the General
Partner and the Adviser. From 1983 to 1986, Mr. Medlock was associated with
Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate University in 1983
and received his Masters in Accounting from New York University in 1985.
Thomas W. Boland is a Vice President of the General Partner and a Vice
President and Manager of Financial Reporting of the Adviser which he joined
in 1988. From 1984 to 1987 Mr. Boland was associated with Arthur Young &
Company. Mr. Boland is a Certified Public Accountant licensed in the state
of Massachusetts. He holds a B.S. in Accounting from Merrimack College and
an M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of her or his ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended September 30, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the Partnership's General Partner receive no
current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser, and the
General Partners are entitled to receive a share of cash distributions and a
share of profits or losses. These items are described under Item 13.
The Partnership has paid cash distributions to the Unitholders on a
quarterly basis at rates ranging from 3% to 8.25% per annum on remaining
invested capital over the past five years. However, the Partnership's Units of
Limited Partnership Interest are not actively traded on any organized exchange,
and no efficient secondary market exists. Accordingly, no accurate price
information is available for these Units. Therefore, a presentation of
historical Unitholder total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
General Partner, Third Income Properties, Inc. is owned by PaineWebber. No
limited partner is known by the Partnership to own beneficially more than 5% of
the outstanding interests of the Partnership.
(b) Neither officers and directors of the General Partner nor the general
partners of the Associate General Partner, individually, own any Units of
limited partnership interest of the Partnership. No director or officer of the
General Partner, possesses a right to acquire beneficial ownership of Units of
limited partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partner of the Partnership is Third Income Properties, Inc.
(the "General Partner"), a wholly-owned subsidiary of PaineWebber Group Inc.
("PaineWebber"). Subject to the General Partner's overall authority, the
business of the Partnership is managed by PaineWebber Properties Incorporated
(the "Adviser") pursuant to an advisory contract. The Adviser is a wholly-owned
subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of
PaineWebber.
The General Partner, the Adviser and PWI receive fees and compensation,
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management, financing and disposition of
Partnership investments.
All distributable cash, as defined, for each fiscal year is distributed
quarterly in the ratio of 99% to the Limited Partners and 1% to the General
Partner. All sale or refinancing proceeds shall be distributed in varying
proportions to the Limited and General Partners, as specified in the Partnership
Agreement. In accordance with the Partnership Agreement, the General Partner has
not received any sale or refinancing proceeds to date.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
loss from operations of the Partnership will be allocated 99% to the Limited
Partners and 1% to the General Partner. Taxable income or tax loss arising from
a sale or refinancing of investment properties will be allocated to the Limited
Partners and the General Partner in proportion to the amounts of sale or
refinancing proceeds to which they are entitled provided that the General
Partner will be allocated at least 1% of taxable income arising from a sale or
refinancing. If there are no sale or refinancing proceeds, taxable income or tax
loss from a sale or refinancing will be allocated 99% to the Limited Partners
and 1% to the General Partner. Allocations of the Partnership's operations
between the General Partner and the Limited Partners for financial accounting
purposes have been made in conformity with the allocations of taxable income or
tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer the day-to-day operations of the Partnership,
and to report periodically the performance of the Partnership to the General
Partners. The Adviser is paid a basic management fee (4% of Adjusted Cash Flow,
as defined) and an incentive management fee (5% of Adjusted Cash Flow
subordinated to a noncumulative annual return to the Limited Partners equal to
6% based upon their adjusted capital contribution) for services rendered. The
Adviser earned basic management fees of $17,000 for the year ended September 30,
1995. No incentive management fees were earned during the year ended September
30, 1995.
In connection with investing Partnership Capital, the Adviser received
acquisition fees of 9% of the gross proceeds from the sale of Partnership Units.
In connection with the sale of each property, the Adviser may receive a
disposition fee, payable upon liquidation of the Partnership, in an amount equal
to 3/4% of the selling price of the property, subordinated to the payment of
certain amounts to the Limited Partners.
The General Partner and its affiliates are reimbursed for their direct
expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operations of the Partnership's real
property investments.
An affiliate of the General Partner performs certain accounting, tax
preparation, securities law compliance and investor communications and relations
services for the Partnership. The total costs incurred by this affiliate in
providing such services allocated among several entities, including the
Partnership. Included in general and administrative expenses for the year ended
September 30, 1995 is $72,000 representing reimbursements to this affiliate for
providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $1,400 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1995. Fees charged by Mitchell Hutchins
are based on a percentage of invested cash reserves which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of PWPI.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page IV-3 are filed as part of this report.
(b) No Current Reports on Form 8-K were filed during the last quarter of
fiscal 1995.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
See (a) (1) and (2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES
LIMITED PARTNERSHIP
By: Third Income Properties, Inc.
General Partner
By:/s/ Lawrence A. Cohen
Lawrence A. Cohen
President and Chief Executive Officer
By:/s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By:/s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: January 4, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership in
the capacity and on the dates indicated.
By:/s/ Albert Pratt Date:January 4, 1996
Albert Pratt
Director
By: /s/ J. Richard Sipes Date: January 4, 1996
J. Richard Sipes
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER PROPERTIES THREE LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Page Number in the
Exhibit No. Description of Document Report or Other
Reference
- ---------------- ----------------------------------- ----------------------
(3) and (4) Prospectus of the Registrant Filed with the
dated December 3, 1980, as Commission pursuant
supplemented, with particular to Rule 424(c) and
reference to the Restated incorporated herein
Certificate and Agreement of by reference.
Limited Partnership.
(10) Material contracts previously Filed with the
filed as exhibits to registration Commission pursuant
statements and amendments thereto to Section 13 or
of the registrant together with 15(d) of the
all such contracts filed as Securities Exchange
exhibits of previously filed Act of 1934 and
Forms 8-K and Forms 10-K are incorporated herein
hereby incorporated herein by by reference.
reference.
(13) Annual Report to Limited Partners No Annual Report
for the year ended
September 30, 1995
has been sent to
the Limited
Partners. An
Annual Report will
be sent to the
Limited Partners
subsequent to this
filing.
(22) List of subsidiaries Included in Item 1
of Part I of this
Report Page I-1, to
which reference is
hereby made.
(27) Financial data schedule Filed as the last
page of EDGAR
submission
following the
Financial
Statements and
Financial Statement
Schedule required
by Item 14.
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
Paine Webber Income Properties Three Limited Partnership:
Report of independent auditors - Ernst & Young LLP F-2
Report of independent accountants - Coopers & Lybrand L.L.P. F-3
Balance sheets at September 30, 1995 and 1994 F-4
Statements of income for the years ended September 30,
1995, 1994 and 1993 F-5
Statements of changes in partners' capital (deficit) for the
years ended September 30, 1995, 1994 and 1993 F-6
Statements of cash flows for the years ended September
30, 1995, 1994 and 1993 F-7
Notes to financial statements F-8
Schedule III - Real Estate and Accumulated Depreciation F-18
Combined Joint Ventures of PaineWebber Income Properties Three Limited
Partnership
Report of independent auditors - Ernst & Young LLP F-19
Report of independent accountants - Coopers & Lybrand L.L.P. F-20
Combined balance sheets as of September 30, 1995 and 1994 F-21
Combined statements of income and changes in venturers'
capital for the years ended September 30, 1995, 1994 and 1993 F-22
Combined statements of cash flows for the years ended
September 30, 1995, 1994 and 1993 F-23
Notes to combined financial statements F-24
Schedule III - Real Estate and Accumulated Depreciation F-29
Other schedules have been omitted since the required information is not
applicable, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Three Limited Partnership:
We have audited the accompanying balance sheets of Paine Webber Income
Properties Three Limited Partnership as of September 30, 1995 and 1994, and the
related statements of income, changes in partners' capital (deficit) and cash
flows for each of the three years in the period ended September 30, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. We did not audit
the financial statements of Camelot Associates, which statements reflect 2% and
3% of the Partnership's total assets as of September 30, 1995 and 1994,
respectively, and 38%, 40% and 62% of the Partnership's share of ventures'
income for the years ended September 30, 1995, 1994 and 1993, respectively.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Camelot
Associates, is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Paine Webber Income Properties Three Limited
Partnership at September 30, 1995 and 1994 and the results of its operations and
its cash flows for each of the three years in the period ended September 30,
1995 in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
December 28, 1995
<PAGE>
Report of Independent Accountants
To the Venturers of
Camelot Associates:
We have audited the accompanying balance sheets of Camelot Associates (an
Ohio Partnership) as of September 30, 1995 and 1994, and the related statements
of income, venturers' deficit and cash flows for each of the three years in the
period ended September 30, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements 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 Camelot Associates (an Ohio
Partnership) as of September 30, 1995 and 1994 and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1995 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
November 16, 1995
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1995 and 1994
(In thousands, except per Unit data)
ASSETS
1995 1994
Operating investment property, at cost:
Land $ 950 $ 950
Building and improvements 4,088 4,088
-------- ---------
5,038 5,038
Less accumulated depreciation (1,287) (1,185)
------- ---------
Net operating investment property 3,751 3,853
Investments in joint ventures, at equity 3,030 3,265
Cash and cash equivalents 296 216
Deferred expenses, net of accumulated amortization
of $32 ($11 in 1994) 74 95
Note and interest receivable, net - -
------------------------
$ 7,151 $ 7,429
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 4 $ 4
Accrued expenses 40 42
Mortgage note payable 1,549 1,667
-------- ---------
Total liabilities 1,593 1,713
Partners' capital:
General Partner:
Capital contribution 1 1
Cumulative net income 81 79
Cumulative cash distributions (143) (139)
Limited Partners ($1,000 per unit; 21,550 Units issued):
Capital contributions, net of offering costs 19,397 19,397
Cumulative net income 8,031 7,769
Cumulative cash distributions (21,809) (21,391)
Total partners' capital 5,558 5,716
-------- --------
$ 7,151 $ 7,429
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the years ended September 30, 1995, 1994 and 1993
(In thousands, except per Unit data)
1995 1994 1993
---- ---- ----
Revenues:
Rental revenues $ 478 $ 478 $ 478
Interest income 14 5 5
----------- ----------- --------
492 483 483
Expenses:
Interest expense 166 159 249
Management fees 17 17 17
Depreciation 102 102 102
General and administrative 453 402 269
-------- --------- ------
738 680 637
-------- --------- ------
Operating loss (246) (197) (154)
Partnership's share of ventures' income 510 442 332
-------- --------- ------
Net income $ 264 $ 245 $ 178
======= ======== =====
Net income per Limited Partnership Unit $12.14 $ 11.26 $ 8.16
====== ======= =======
Cash distributions per Limited Partnership Unit $19.40 $ 19.40 $19.40
====== ======= ======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 21,550 Limited Partnership Units outstanding during each year.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
General Limited
Partner Partners Total
Balance at September 30, 1992 $ (55) $ 6,192 $ 6,137
Cash distributions (4) (418) (422)
Net income 2 176 178
------ ------- --------
Balance at September 30, 1993 (57) 5,950 5,893
Cash distributions (4) (418) (422)
Net income 2 243 245
------- -------- --------
Balance at September 30, 1994 (59) 5,775 5,716
Cash distributions (4) (418) (422)
Net income 2 262 264
------ -------- --------
Balance at September 30, 1995 $(61) $5,619 $5,558
==== ====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 264 $ 245 $ 178
Adjustments to reconcile net income
to net cash used for operating activities:
Depreciation 102 102 102
Amortization of deferred financing costs 21 11 -
Partnership's share of ventures' income (510) (442) (332)
Changes in assets and liabilities:
Interest and other receivables - - (236)
Accounts payable - affiliates - (25) (5)
Accrued expenses (2) 15 (24)
Default interest payable - (77) 38
------------ ---------- ---------
Total adjustments (389) (416) (457)
Net cash used for operating
activities (125) (171) (279)
Cash flows from investing activities:
Distributions from joint ventures 745 775 746
Cash flows from financing activities:
Distributions to partners (422) (422) (422)
Proceeds from issuance of mortgage
note payable - 1,722 -
Principal payments on mortgage
note payable (118) (1,741) (31)
Payment of loan fees and expenses - (106) -
----------- --------- -----------
Net cash used for
financing activities (540) (547) (453)
-------- --------- ---------
Net increase in cash and cash equivalents 80 57 14
Cash and cash equivalents,
beginning of year 216 159 145
--------- ------- --------
Cash and cash equivalents, end of year $ 296 $ 216 $ 159
========= ======== =======
Cash paid during the year for interest $ 145 $ 226 $ 210
========= ======== =======
See accompanying notes.
<PAGE>
PAINEWEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
Note to Financial Statements
1. Organization
Paine Webber Income Properties Three Limited Partnership (the
"Partnership") is a limited partnership organized pursuant to the laws of
the State of Delaware in June 1980 for the purpose of investing in a
diversified portfolio of income-producing properties. The Partnership
authorized the issuance of units (the "Units") of partnership interests (at
$1,000 per Unit) of which 21,550 Units were subscribed and issued between
December 3, 1980 and December 10, 1981.
2. Summary of Significant Accounting Policies
The accompanying financial statements include three investments in joint
venture partnerships which own operating properties. The Partnership
accounts for its investments in joint venture partnerships using the equity
method because the Partnership does not have a voting control interest in
the ventures. Under the equity method the investment in a joint venture is
carried at cost adjusted for the Partnership's share of the venture's
earnings or losses and distributions. See Note 5 for a description of the
joint venture partnerships.
The Partnership deferred a portion of the gain on the sale of the
Briarwood Joint Venture property in fiscal 1985 using the cost recovery
method. The portion of the remaining gain to be recognized is represented
by a note and accrued interest receivable. The note and accrued interest
receivable have been netted against the deferred gain on the accompanying
balance sheet. The gain would be recognized if the note and interest
receivable are paid (see Note 6).
The Partnership carries its operating investment property at the lower
of cost, reduced by accumulated depreciation, or net realizable value. The
net realizable value of a property held for long-term investment purposes
is measured by the recoverability of the Partnership's investment through
expected future cash flows on an undiscounted basis, which may exceed the
property's market value. The net realizable value of a property held for
sale approximates its current market value. The Partnership's operating
investment property is considered to be held for long-term investment
purposes as of September 30, 1995 and 1994. Depreciation on the operating
investment property has been provided on the straight-line method based
upon an estimated useful life of 40 years for the building and
improvements.
The Partnership has reviewed FAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," which is
effective for financial statements for years beginning after December 15,
1995, and believes this new pronouncement will not have a material effect on
the Partnership's financial statements.
The Partnership's wholly-owned operating investment property is leased
under a master lease agreement which covers 100% of the rentable space of
the shopping center. The master lease is accounted for as an operating lease
in the Partnership's financial statements. Rental income under the master
lease is recorded on the accrual basis as earned.
For purposes of reporting cash flows, the Partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership.
3. The Partnership Agreement and Related Party Transactions
The General Partner of the Partnership is Third Income Properties, Inc.
(the "General Partner"), a wholly-owned subsidiary of PaineWebber Group
Inc. ("PaineWebber"). Subject to the General Partner's overall authority,
the business of the Partnership is managed by PaineWebber Properties
Incorporated (the "Adviser") pursuant to an advisory contract. The Adviser
is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly-owned subsidiary of PaineWebber.
The General Partner, the Adviser and PWI receive fees and compensation,
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management, financing and disposition of
Partnership investments.
All distributable cash, as defined, for each fiscal year is distributed
quarterly in the ratio of 99% to the Limited Partners and 1% to the General
Partner. All sale or refinancing proceeds shall be distributed in varying
proportions to the Limited and General Partners, as specified in the
Partnership Agreement. In accordance with the Partnership Agreement, the
General Partner has not received any sale or refinancing proceeds to date.
Pursuant to the terms of the Partnership Agreement, taxable income or
tax loss from operations of the Partnership will be allocated 99% to the
Limited Partners and 1% to the General Partner. Taxable income or tax loss
arising from a sale or refinancing of investment properties will be
allocated to the Limited Partners and the General Partner in proportion to
the amounts of sale or refinancing proceeds to which they are entitled
provided that the General Partner will be allocated at least 1% of taxable
income arising from a sale or refinancing. If there are no sale or
refinancing proceeds, taxable income or tax loss from a sale or refinancing
will be allocated 99% to the Limited Partners and 1% to the General
Partner. Allocations of the Partnership's operations between the General
Partner and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer the day-to-day operations of the
Partnership, and to report periodically the performance of the Partnership
to the General Partners. The Adviser is paid a basic management fee (4% of
Adjusted Cash Flow, as defined) and an incentive management fee (5% of
Adjusted Cash Flow subordinated to a noncumulative annual return to the
Limited Partners equal to 6% based upon their adjusted capital
contribution) for services rendered. The Adviser earned basic management
fees of $17,000 for each of the three years ended September 30, 1995, 1994
and 1993. No incentive management fees were earned during the three-year
period ended September 30, 1995. Accounts payable - affiliates at both
September 30, 1995 and 1994 consists of management fees payable to the
Adviser of $4,000.
In connection with investing Partnership Capital, the Adviser received
acquisition fees of 9% of the gross proceeds from the sale of Partnership
Units. In connection with the sale of each property, the Adviser may
receive a disposition fee, payable upon liquidation of the Partnership, in
an amount equal to 3/4% of the selling price of the property, subordinated
to the payment of certain amounts to the Limited Partners.
The General Partner and its affiliates are reimbursed for their direct
expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operations of the Partnership's real
property investments.
Included in general and administrative expenses for the years ended
September 30, 1995, 1994 and 1993 is $72,000, $81,000 and $90,000,
respectively, representing reimbursements to an affiliate of the General
Partner for providing certain financial, accounting and investor
communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell
Hutchins earned fees of $1,400, $300 and $300 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1995, 1994 and 1993, respectively.
<PAGE>
4. Operating Investment Property
The Partnership has one wholly-owned operating investment property. On
September 25, 1981, the Partnership purchased Northeast Plaza, a 67,000
square foot existing shopping center in Sarasota, Florida. The shopping
center was expanded to its current size of 116,000 square feet by September
30, 1986. The aggregate cash invested by the Partnership was approximately
$2,888,000 (including an acquisition fee of $268,000 paid to the Adviser).
The property was acquired subject to a nonrecourse wrap-around mortgage loan
of approximately $2,480,000. On March 29, 1994, the Partnership refinanced
the existing wraparound mortgage note secured by the Northeast Plaza
Shopping Center, which had been in default for over two years, with a new
non-recourse loan issued by the prior underlying first mortgage lender (see
Note 7). The refinancing was negotiated in conjunction with a restructuring
of the master lease that covers the Partnership's interest in Northeast
Plaza. The master lessee was also the holder of the wraparound mortgage. As
part of the refinancing, the wrap note holder applied withheld rental
payments, which totalled $661,000, against the outstanding balance of the
wraparound mortgage. Rental payments to the Partnership were reinstated
beginning in April 1994.
At the time of the original purchase of the shopping center, the
Partnership entered into a lease agreement with the seller of the property
for the operation and management of the property. The lease has an initial
term of 30 years and two 5-year renewal options. This master lease
agreement has been classified as an operating lease and, therefore, rental
income is reported when earned. Under the terms of the agreement, the
Partnership receives annual basic rent of $435,000. The Partnership also
receives contingent rent equal to the greater of (a) approximately 47.5% of
annual increases to gross rental income over a specified base amount or (b)
$43,000 annually. The agreement provides specifically that the manager pay
all costs of operating the shopping center and all annual taxes, insurance
and administrative expenses. The manager is further required to pay for all
costs of repair and replacement required in connection with the shopping
center. Minimum lease payments under the initial term of the lease
agreement, including the minimum amount of contingent rent, will amount to
$478,000 in each year.
Under the amended terms of the master lease, upon the sale or
refinancing of the project, any remaining proceeds, after repayment of the
outstanding balance on the mortgage loan, payment of certain priority items
to the Partnership and repayment of the Partnership's original investment,
will be allocated equally to the Partnership and to the manager of the
property as a return on the leasehold interest.
5. Joint Venture Partnerships
As of September 30, 1995 and 1994, the Partnership had investments in
three joint ventures. These joint ventures are accounted for using the
equity method in the Partnership's financial statements. Condensed combined
financial statements of these joint ventures follow.
<PAGE>
Condensed Combined Balance Sheets
September 30, 1995 and 1994
(in thousands)
Assets
1995 1994
---- ----
Current assets $ 1,377 $ 1,055
Operating investment property, net 17,510 17,772
Other assets, net 263 110
---------- ----------
$19,150 $18,937
======= =======
Liabilities and Capital
Current liabilities $ 3,828 $ 5,315
Other liabilities 111 114
Long-term mortgage debt 13,456 11,537
Partnership's share of combined capital accounts 1,251 1,526
Co-venturers' share of combined capital accounts 504 445
---------- ----------
$19,150 $18,937
======= =======
Reconciliation of Partnership's Investment
1995 1994
Partnership's share of capital, as shown above $ 1,251 $ 1,526
Partnership's share of current
liabilities and long-term debt 173 33
Excess basis due to investment in ventures, net (1) 1,606 1,706
------- --------
Investments in joint ventures, at equity $ 3,030 $ 3,265
======= =======
(1)At September 30, 1995 and 1994, the Partnership's investment exceeds its
share of the joint venture partnerships' capital accounts by $1,606,000
and $1,706,000, respectively. This amount, which relates to certain
expenses incurred by the Partnership in connection with acquiring its
joint venture investments, is being amortized over the estimated useful
life of the investment properties.
Condensed Combined Summary of Operations
For the years ended September 30, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---- ---- ----
Rental revenues and expense recoveries $ 6,186 $ 6,030 $ 5,885
Interest income 63 27 28
---------- ---------- ----------
6,249 6,057 5,913
Property operating expenses 2,729 2,524 2,514
Depreciation and amortization 822 908 895
Interest expense 1,737 1,705 1,740
-------- ------- --------
5,288 5,137 5,149
Net income $ 961 $ 920 $ 764
======== ========= ========
Net income:
Partnership's share of combined income $ 610 $ 542 $ 432
Co-venturers' share of combined income 351 378 332
--------- ---------- ---------
$ 961 $ 920 $ 764
======== ========= ========
Reconciliation of Partnership's Share of Income
1995 1994 1993
---- ---- ----
Partnership's share of income,
as shown above $ 610 $ 542 $ 432
Amortization of excess basis (100) (100) (100)
------ -------- ---------
Partnership's share of ventures' income $ 510 $ 442 $ 332
====== ======= =======
Investments in joint ventures, at equity, is the Partnership's net
investment in the joint venture partnerships. These joint ventures are
subject to partnership agreements which determine the distribution of
available funds, the disposition of the ventures' assets and the rights of
the partners, regardless of the Partnership's percentage ownership interest
in the venture. Substantially all of the Partnership's investments in these
joint ventures are restricted as to distributions.
Investments in joint ventures, at equity, on the balance sheet is
comprised of the following joint venture investments:
1995 1994
Camelot Associates $ 103 $ 182
Boyer Lubbock Associates 33 (16)
Pine Trail Partnership 2,894 3,099
Investments in joint ventures, at equity $3,030 $ 3,265
The Partnership received cash distributions from the joint ventures as
set forth below:
1995 1994 1993
---- ---- ----
Camelot Associates $ 274 $ 284 $ 262
Boyer Lubbock Associates 111 181 174
Pine Trail Partnership 360 310 310
------- -------- ----
Total $ 745 $ 775 $ 746
====== ======= ====
A description of the joint ventures' properties and the terms of the joint
venture agreements are summarized below.
a) Camelot Associates
On June 29, 1981 the Partnership acquired an interest in Camelot Associates
("Camelot") an Ohio limited partnership which owns and operates Camelot
Apartments, a 492-unit apartment complex in Fairfield, Ohio. The Partnership
is a general partner in the joint venture. The Partnership's co-venturers are
Chelsea Moore Corporation and certain individuals.
The aggregate cash investment by the Partnership for its 50% interest was
approximately $2,790,000 (including an acquisition fee of $300,000 paid to
the Adviser). The Partnership's interest was acquired subject to two
institutional nonrecourse first mortgages with balances, at the time of
closing, totalling approximately $6,128,000. One of these first mortgages
with a balance of $2,298,000 was originally scheduled to mature on January 1,
1996. Subsequent to year-end, the venture obtained an extension of the
maturity date from the lender to July 1, 1996 in return for an extension fee
of $5,600. The venture's other first mortgage loan had a principal balance of
$2,000,000 as of September 30, 1995 and is scheduled to mature on July 1,
1997. At the present time, the venture is negotiating with several different
potential lending sources to refinance the mortgage loan which matures in
fiscal 1996. The principal balance of this mortgage loan represents less than
20% of the total estimated market value of the venture's operating investment
property. In light of the venture's low leverage level, the current favorable
interest rate environment and the continued strong supply of capital for real
estate lending, management expects to be able to secure a loan to refinance
this maturing obligation. In addition to investigating refinancing
alternatives, the venture partners have engaged in preliminary negotiations
regarding a possible sale of the Partnership's interest in the joint venture
to the co-venturers. There are no assurances that any such sale transaction
will be completed. The proceeds of any such transaction would substantially
exceed the present equity method carrying value of the Partnership's interest
in Camelot Associates. As a result, the Partnership would expect to recognize
a gain on the sale of its venture interest.
The joint venture agreement provides that from available cash flow, the
Partnership will receive an annual preferred base return payable monthly of
$252,000. The co-venturers will then be entitled to receive an annual
non-cumulative, subordinated base return, payable annually of $148,000. The
next $100,000 in excess of such base returns in any year will be distributed
60% to the Partnership and 40% to the co-venturers, and any remaining cash
flow will be distributed to the Partnership and the co-venturers in
accordance with their ownership interests in the venture. During fiscal 1995,
1994 and 1993, the Partnership was due to receive all of its preferred base
return. During fiscal 1994 and 1993, the Partnership was also due to receive
an additional $22,000 and $33,000, respectively, in excess of its preferred
base return. The co-venturers received $112,000, $163,000 and $170,000 for
fiscal 1995, 1994 and 1993, respectively.
Upon sale or refinancing, the Partnership will receive an amount equal to
the Partnership's gross investment as a first priority in distributions of
net sale or refinancing proceeds after repayment of long-term debt. The next
$2,700,000 of such proceeds will be distributed to the co-venturers. Any
remaining proceeds will be distributed to the Partnership and the
co-venturers in accordance with their ownership interests in the venture.
Taxable income and tax loss from operations in each year will be allocated
to the Partnership and the co-venturers generally in accordance with cash
distributions except that all depreciation attributable to a step-up in basis
pursuant to an election under Section 754 of the Internal Revenue Code as a
result of the investment by the Partnership will be allocated to the
Partnership. Allocations of the venture's operations among the Partnership
and the co-venturers for financial accounting purposes have been made in
conformity with the allocations of taxable income or tax loss.
The joint venture entered into a property management contract with an
affiliate of the co-venturers. The initial term of the contract expires on
July 1, 1997. The contract may be cancelled, at the Partnership's option, at
any time, upon the occurrence of certain events. For the years ended
September 30, 1995, 1994 and 1993, the management company earned fees of
$103,000, $98,000 and $100,000, respectively.
b) Boyer Lubbock Associates
On June 30, 1981 the Partnership acquired an interest in Boyer Lubbock
Associates, a Texas general partnership organized to purchase and operate
Central Plaza, a 143,800 square foot shopping center in Lubbock, Texas. The
Partnership is a general partner in the joint venture. The Partnership's
co-venturer is an affiliate of The Boyer Company. Revenue from a major tenant
of Central Plaza accounted for 28% of the venture's total revenues for fiscal
1995.
The aggregate cash investment by the Partnership for its 50% interest was
approximately $2,076,000 (including an acquisition fee of $225,000 paid to
the Adviser). The Partnership's interest was acquired subject to an
institutional nonrecourse first mortgage with a balance of approximately
$4,790,000 at the time of closing. The venture's debt was originally
scheduled to mature on December 1, 1994. During the first quarter of fiscal
1995, the venture obtained an extension of the maturity date from the lender
to January 1, 1995. During the second quarter of fiscal 1995, the venture
obtained a mortgage loan from a new lender which enabled the venture to
repay, in full, this maturing obligation. The new loan, in the initial
principal amount of $4,200,000, bears interest at a rate of 10% per annum.
Monthly payments of principal and interest of approximately $37,000 are due
until maturity in January 2002.
The joint venture agreement between the Partnership and the co-venturer
provides that from available cash flow the Partnership will receive an annual
preference, payable monthly, of $171,000, and the co-venturer will receive
the remaining distributable cash up to a maximum of $120,000. Additional cash
flow will be distributed equally to the Partnership and the co-venturer.
During fiscal 1995, 1994 and 1993 the Partnership was due to receive its full
preferred base return. The co-venturer received its base return of $120,000
in 1995, 1994 and 1993. In addition, for fiscal 1995, 1994 and 1993 excess
cash flow of $120,000, $12,000 and $22,000, respectively, was available to be
distributed equally between the Partnership and the co-venturer.
Taxable income and tax loss before depreciation are generally allocated in
accordance with cash distributions, after equal allocation of profits in the
amount required to be transferred to the capital cash reserve accounts and to
amortize the indebtedness of the joint venture. Depreciation expense is
allocated in accordance with the tax basis of the capital contributions of
the Partnership and the co-venturer, after adjustment for liabilities and
capital improvements. In the event of no available cash flow, 100% of
remaining profit or loss is allocated to the Partnership. Allocations of the
venture's operations between the Partnership and the co-venturer for
financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
Upon sale or refinancing, the Partnership will receive $2,000,000, plus
certain closing costs, as a first priority in distributions of sale or
refinancing proceeds after the repayment of the remaining balance on the
first mortgage. The next $1,625,000 will be distributed to the co-venturer.
Any remaining proceeds will be distributed equally to the Partnership and the
co-venturer.
The joint venture entered into a management agreement with an affiliate of
the co-venturer. The contract may be cancelled at the Partnership's option,
at any time upon the occurrence of certain events. For the years ended
September 30, 1995, 1994 and 1993, the management company earned fees of
$37,000, $38,000 and $37,000, respectively. In addition, during the years
ended September 30, 1995 and 1993, lease commissions aggregating $7,000 and
$13,000, respectively, were also paid to the affiliate of the co-venturer. No
lease commissions were paid for the year ended September 30, 1994.
c) Pine Trail Partnership
On November 12, 1981, the Partnership acquired an interest in Pine Trail
Partnership, a Florida general partnership organized to own and operate Pine
Trail Center, a 283,000 square foot shopping center in West Palm Beach,
Florida. The Partnership is a general partner in the joint venture. The
Partnership's co-venturer is a partnership comprised of certain individuals.
The Partnership invested approximately $6,236,000 (including an acquisition
fee of $645,600 paid to the Adviser) for its 50% interest. The co-venturer
contributed its interest in the property to the joint venture. The joint
venture is subject to an institutional nonrecourse first mortgage which had a
balance of approximately $8,140,000 at the time of the closing. The mortgage
loan has a scheduled maturity date of January 1, 2001. The Pine Trail
Shopping Center has five out-parcels on the site, covering approximately six
acres, which have been leased by the Pine Trail Partnership from third
parties under five separate ground leases since the inception of the joint
venture. During the third quarter of fiscal 1995, the joint venture completed
the acquisition of one of these out-parcels, containing 60,248 square feet,
for the purchase price of $350,000. This purchase was 100% financed with a
non-recourse first mortgage loan secured by the lease of the free-standing
restaurant located on the out-parcel. The loan bears interest at the prime
rate plus one-percent and requires monthly principal and interest payments
over a 5-year term.
The joint venture agreement provides that the Partnership will receive a
noncumulative annual cash distribution, payable quarterly, from net cash
flow. The first $515,000 of net cash flow shall be distributed to the
Partnership, and the next $235,788 of net cash flow shall be distributed to
the co-venturer. Any excess cash flow shall be allocated equally between the
Partners. During fiscal 1995, 1994 and 1993 the property did not generate
sufficient cash flow for the Partnership to receive its minimum preferred
distribution of $515,000. Based on the distributable cash generated by the
venture's operations, the Partnership was entitled to receive $402,000,
$343,000 and $314,000 for fiscal 1995, 1994 and 1993, respectively. The
co-venturer was not entitled to receive any distributions during the
three-year period ended September 30, 1995.
Upon sale or refinancing of the encumbered property, the Partnership will
receive $6,150,000 as a first priority in distributions of net sale or
refinancing proceeds. The next $4,156,000 of such proceeds will be
distributed to the co-venturer. Thereafter, any remaining proceeds will be
distributed 50% to the Partnership and 50% to the co-venturer. The
co-venturer's distributable share of sale or refinancing proceeds is subject
to reduction if certain specified percentage rental revenue objectives are
not achieved. Upon refinancing of the unencumbered property, the distribution
will be shared equally.
Taxable income and tax loss from operations in each year shall be allocated
to the Partnership and the co-venturer in the same proportions as cash
distribution entitlements, subject to adjustments in the case of tax loss for
an allocation of a minimum to the co-venturer. Allocations of the venture's
operations between the Partnership and the co-venturer for financial
accounting purposes have been made in conformity with the allocations of
taxable income or tax loss.
The joint venture entered into a property management contract with an
affiliate of the co-venturer cancellable at the option of the Partnership
upon the occurrence of certain events. For the years ended September 30,
1995, 1994 and 1993, the property manager earned fees of $76,000, $71,000 and
$70,000, respectively. In addition, the property manager is entitled to
leasing commissions at prevailing market rates. Leasing commissions earned by
the property manager were $41,000, $4,000 and $20,000 for the years ended
September 30, 1995, 1994 and 1993, respectively.
6. Note and Interest Receivable, Net
On September 15, 1981 the Partnership acquired a 35% interest in Briarwood
Joint Venture, an existing Pennsylvania general partnership which owned a
686-unit apartment complex in Bucks County, Pennsylvania. The Partnership
originally invested approximately $4,815,000 (including an acquisition fee of
$500,000 paid to the Adviser) for its interest. The Partnership's interest
was acquired subject to two institutional nonrecourse first mortgages with
balances totalling approximately $8,925,000 at the time of the closing.
On December 20, 1984 the joint venture partners sold their ownership
interests in the Briarwood Joint Venture for $33,152,000. After the payment
of mortgage obligations and closing costs, the Partnership's allocable share
of the proceeds was $10,935,000, represented by cash of $7,490,000 and a note
receivable of $3,445,000. For financial accounting purposes, a gain of
$7,255,000 resulted from the transaction of which $3,810,000 was recognized
at the time of the sale and the remainder was deferred under the cost
recovery method. For income tax purposes, a gain of $4,829,000 was recognized
upon sale and the remainder deferred utilizing the installment method. The
difference in the amount of gain recognized for financial accounting and tax
purposes results from accounting differences related to the carrying value of
the Partnership's investment.
The principal amount of the note receivable of $3,445,000 bears interest at
9% annually, matures on January 1, 2000 and is subordinated to a first
mortgage. Interest and principal payments on the note are payable only to the
extent of net cash flow from the properties sold, as defined in the sale
documents. Any interest not received will accrue additional interest of 9%
per annum. The Partnership's policy has been to defer recognition of all
interest income on the note until collected, due to the uncertainty of its
collectibility. To date, the Partnership has not received any interest
payments. Per the terms of the note agreement, accrued interest receivable as
of September 30, 1995 and 1994 would be approximately $5,283,000 and
$4,562,000, respectively. Since the properties continue to generate operating
deficits and the Partnership's note receivable is subordinated to other first
mortgage debt, there is significant uncertainty as to the collectibility of
both the principal and accrued interest as of September 30, 1995. As a
result, the portion of the remaining gain to be recognized, which is
represented by the note and accrued interest, has been deferred until
realized in cash.
7. Mortgage Note Payable
The mortgage note payable at September 30, 1995 and 1994 is secured by the
Partnership's wholly-owned Northeast Plaza Shopping Center. On March 29,
1994, the Partnership refinanced the existing wraparound mortgage note
secured by Northeast Plaza, which had been in default for over two years,
with a new loan issued by the prior underlying first mortgage lender. The
new loan, in the initial principal amount of $1,722,000, has a term of five
years and bears interest at a fixed rate of 9% per annum. Monthly principal
and interest payments of $22,000 are due beginning in May 1994. The loan may
be prepaid at anytime without penalty. Closing costs of $106,000 were paid
out of the proceeds of the refinancing. The refinancing was negotiated in
conjunction with a restructuring of the master lease that covers the
Partnership's interest in Northeast Plaza. The master lessee was also the
holder of the wraparound mortgage. As part of the refinancing, the wrap note
holder applied withheld rental payments, which totalled $661,000, against
the outstanding balance of the wraparound mortgage.
Previously, the mortgage secured by Northeast Plaza had consisted of a
9.3% nonrecourse wraparound mortgage note. The mortgage note was to be
payable in monthly installments of principal and interest aggregating
$241,000 per year. This note wrapped around an underlying first mortgage
loan. The entire principal balance, together with outstanding accrued
interest, was originally due and payable on September 30, 1991. Due to the
default on the wrap mortgage, beginning October 1, 1991 interest began to
accrue on the outstanding balance of the wraparound mortgage at a default
rate of 11% under the terms of the original loan agreement. Such default
interest amounted to $19,000 and $38,000 for fiscal 1994 and 1993,
respectively. Due to differences between the Partnership and the mortgagee
in the methods used to apply the withheld rental payments against the
outstanding mortgage obligation, the final pay-off amount on the wraparound
mortgage loan was less than the carrying balance of the loan plus accrued
interest, net of the rent receivable, on the Partnership's books. As a
result, the difference of $51,000 was recognized as a reduction of interest
expense in fiscal 1994.
Scheduled maturities of long-term debt for each of the next four fiscal
years are as follows (in thousands):
1996 $ 129
1997 141
1998 155
1999 1,124
--------
$ 1,549
8. Subsequent Event
On November 15, 1995, the Partnership distributed $105,000 to the Limited
Partners and $1,000 to the General Partner for the quarter ended September
30, 1995.
9. Contingencies
Management believes that the Partnership's efforts to sell or refinance
the Northeast Plaza property have been impeded by potential buyer and lender
concerns of an environmental nature with respect to the property. During
1990, it was discovered that certain underground storage tanks of a Mobil
service station located adjacent to the shopping center had leaked and
contaminated the groundwater in the vicinity of the station. Since the time
that the contamination was discovered, Mobil Oil Corporation (Mobil) has
investigated the problem and is progressing with efforts to remedy the soil
and groundwater contamination under the supervision of the Florida
Department of Environmental Regulation, which has approved Mobil's remedial
action plan. During fiscal 1990, the Partnership had obtained an
indemnification agreement from Mobil in which Mobil agreed to bear the cost
of all damages and required clean-up expenses. Furthermore, Mobil
indemnified the Partnership against its inability to sell, transfer, or
obtain financing on the property because of the contamination.
As a result of the contamination of the groundwater at Northeast Plaza,
the Partnership has incurred certain damages, primarily related to the
inability to sell the property and to delays in the process of refinancing
the property's mortgage indebtedness. The Partnership has incurred
significant out-of-pocket and legal expenses in connection with such sale
and refinancing efforts. Despite repeated requests by the Partnership for
compensation under the terms of the indemnification agreement, to date Mobil
has refused to compensate the Partnership for any of these damages. During
the first quarter of fiscal 1993, the Partnership filed suit against Mobil
for breach of indemnity and property damage. On April 28, 1995, Mobil Oil
Corporation was successful in obtaining a Partial Summary Judgment which
removed the case from the Federal Court system. Subsequently, the
Partnership has filed an action in the Florida State Court system. This
action is for substantially all of the same claims and utilizes the
substantial discovery and trial preparation work already completed for the
Federal case. The Partnership is seeking judgment against Mobil which would
award the Partnership compensatory damages, out-of-pocket costs, attorneys'
fees and such other relief as the court may deem proper. The eventual
outcome of these legal proceedings cannot be predicted at this time.
Accordingly, the out-of-pocket costs, legal fees and related expenses
related to this situation have been expensed as incurred on the
Partnership's income statements and no estimate of any recoveries which
could result from this litigation have been recorded.
The Partnership is involved in certain legal actions. The General Partner
believes these actions will be resolved without material adverse effect on
the Partnership's financial statements, taken as a whole.
<PAGE>
- ------------------------------------------------------------
- --------------------------------------------------------
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
Schedule of Real Estate and Accumulated Depreciation
September 30, 1995
(in thousands)
<CAPTION>
Initial Cost to Gross Amount at Which Carried at Life on Which
Partnership Costs Close of period Depreciation
Buildings Capitalized Buildings, in Latest
Improvements (Removed) Improvements Income
& Personal Subsequent to & Personal Accumulated Date of Date Statement
Description Encumbrances Land Property Acquisition Land Property Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center
Sarasota, Florida $ 1,549 $950 $1,930 $2,158 $950 $4,088 $5,038 $1,287 1964 - 19789/25/81 40
======= ==== ====== ====== ==== ====== ====== ======
years
Notes:
(A) The aggregate cost of real estate owned at September 30, 1995 for Federal income tax purposes is approximately $5,038,000.
(B) See Notes 4 and 7 to Financial Statements.
(C) Reconciliation of real estate owned:
1995 1994 1993
---- ---- ----
Balance at beginning of year $ 5,038 $ 5,038 $ 5,038
Improvements - - -
------------ ----------- -----------
Balance at end of year $ 5,038 $ 5,038 $ 5,038
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 1,185 $ 1,083 $ 981
Depreciation expense 102 102 102
-------- --------- ---------
Balance at end of year $ 1,287 $ 1,185 $ 1,083
======= ======= =======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Three Limited Partnership:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of Paine Webber Income Properties Three Limited Partnership as of
September 30, 1995 and 1994, and the related combined statements of income and
changes in venturers' capital and cash flows for each of the three years in the
period ended September 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements and
schedule of Camelot Associates, which statements reflect 15% and 16% of the
combined assets of the Combined Joint Ventures of Paine Webber Income Properties
Three Limited Partnership as of September 30, 1995 and 1994, respectively, and
44%, 43% and 43% of the combined revenues of the Combined Joint Ventures of
Paine Webber Income Properties Three Limited Partnership for the years ended
September 30, 1995, 1994 and 1993, respectively. Those statements and schedule
were audited by other auditors, whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Camelot Associates, is based
solely on the report of the other auditors.
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 the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of the Combined Joint Ventures of
Paine Webber Income Properties Three Limited Partnership at September 30, 1995
and 1994 and the combined results of their operations and their cash flows for
each of the three years in the period ended September 30, 1995 in conformity
with generally accepted accounting principles. Also, in our opinion, based on
our audits and the report of other auditors, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
November 16, 1995
<PAGE>
Report of Independent Accountants
To the Venturers of
Camelot Associates:
We have audited the accompanying balance sheets of Camelot Associates (an
Ohio Partnership) as of September 30, 1995 and 1994, and the related statements
of income, venturers' deficit and cash flows for each of the three years in the
period ended September 30, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements 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 Camelot Associates (an Ohio
Partnership) as of September 30, 1995 and 1994 and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1995 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
November 16, 1995
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1995 and 1994
(In thousands)
Assets
1995 1994
Current assets:
Cash and cash equivalents $ 800 $ 449
Escrowed funds, principally for
payment of real estate taxes 451 332
Accounts receivable 91 140
Accounts receivable due from partners - 90
Prepaid expenses 35 34
Capital improvement reserve - 10
----------- ---------
Total current assets 1,377 1,055
Operating investment properties:
Land 4,392 4,025
Buildings, improvements and equipment 27,400 27,223
-------- --------
31,792 31,248
Less accumulated depreciation (14,282) (13,476)
Net operating investment properties 17,510 17,772
Deferred expenses, net of accumulated amortization
of $185 ($140 in 1994) 263 110
---------- ----------
$19,150 $18,937
======= =======
Liabilities and Venturers' Capital
Current liabilities:
Accounts payable $ 178 $ 83
Distributions payable to venturers 436 360
Accrued interest 158 155
Accrued real estate taxes 458 424
Other accrued liabilities 28 32
Prepaid rent 18 19
Long-term debt - current portion 2,552 4,242
-------- --------
Total current liabilities 3,828 5,315
Notes payable 14 14
Tenant security deposits 97 100
Long-term debt 13,456 11,537
Commitments (Note 5)
Venturers' capital 1,755 1,971
--------- ---------
$19,150 $18,937
======= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF INCOME AND CHANGES IN VENTURERS' CAPITAL
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
---- ---- ----
Revenues:
Rental income $ 5,479 $ 5,306 $5,205
Reimbursement from tenants 707 724 680
Interest income and other 63 27 28
--------- ---------- -----------
6,249 6,057 5,913
Expenses:
Interest expense 1,737 1,705 1,740
Depreciation and amortization 822 908 895
Real estate taxes 632 586 555
Management fees 215 206 207
Ground rent 147 154 154
Repairs and maintenance 674 569 628
Insurance 89 72 71
Utilities 257 266 240
General and administrative 266 291 215
Other 449 380 409
Bad debt expense - - 35
------------------------ ----------
5,288 5,137 5,149
--------- -------- --------
Net income 961 920 764
Distributions to venturers (1,177) (1,083) (1,080)
Contributions from venturers - 75 30
Venturers' capital, beginning of year 1,971 2,059 2,345
-------- -------- ---------
Venturers' capital, end of year $1,755 $ 1,971 $ 2,059
====== ======= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 961 $ 920 $ 764
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 822 908 895
Amortization of deferred financing costs 29 - -
Bad debt expense - - 44
Changes in assets and liabilities:
Escrowed funds (119) (45) 38
Accounts receivable 49 (40) 17
Prepaid expenses (1) (1) 1
Capital improvement reserve 10 (10) -
Deferred expenses (198) (22) (72)
Other assets - 3 -
Accounts payable 95 (34) 7
Accrued interest 3 (4) 2
Accrued real estate taxes 34 11 (1)
Other accrued liabilities (4) 14 4
Prepaid rent (1) 9 (15)
Tenant security deposits (3) (6) (6)
------------ --------- -----------
Total adjustments 716 783 914
--------- ------- --------
Net cash provided by
operating activities 1,677 1,703 1,678
Cash flows from investing activities:
Additions to operating investment properties (544) (342) (314)
Cash flows from financing activities:
Capital contributions - 15 -
Principal payments on long-term debt (4,321) (488) (442)
Distributions to partners (1,011) (946) (965)
Proceeds from refinancing of debt 4,200 - -
Proceeds of long-term debt 350 - -
------- -----------------------
Net cash used for
financing activities (782) (1,419) (1,407)
-------- ------- --------
Net increase (decrease) in cash
and cash equivalents 351 (58) (43)
Cash and cash equivalents, beginning of year 449 507 550
-------- --------- ---------
Cash and cash equivalents, end of year $ 800 $ 449 $ 507
======== ======== ========
Cash paid during the year for interest $ 1,734 $ 1,709 $ 1,739
======= ======= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Organization
The accompanying financial statements of the Combined Joint Ventures of
Paine Webber Income Properties Three Limited Partnership (Combined Joint
Ventures) include the accounts of Camelot Associates, an Ohio limited
partnership; Boyer Lubbock Associates, a Utah limited partnership and Pine Trail
Partnership, a Florida general partnership. The financial statements of the
Combined Joint Ventures are presented in combined form, rather than
individually, because the nature of the relationship between the co-venturers
and Paine Webber Income Properties Three Limited Partnership (PWIP3) is
substantially the same for each joint venture.
The dates of PWIP3's acquisition of interests in the joint ventures are as
follows:
Date of Acquisition
Joint Venture of Interest
Camelot Associates 6/29/81
Boyer Lubbock Associates 6/30/81
Pine Trail Partnership 11/12/81
Basis of presentation
Generally, the records of the combined joint ventures are maintained on the
income tax basis of accounting and adjusted to generally accepted accounting
principles for financial reporting purposes, principally for depreciation.
Operating investment properties
The operating investment properties are recorded at cost less accumulated
depreciation. Acquisition fees have been capitalized and are included in the
cost of the operating investment property. Depreciation expense is computed on a
straight-line basis over the estimated useful lives of the buildings,
improvements and equipment, generally five to forty years.
The Combined Joint Ventures have reviewed FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,"
which is effective for financial statements for years beginning after December
15, 1995, and believes this new pronouncement will not have a material effect on
the financial statements of the Combined Joint Ventures.
Deferred expenses
Deferred expenses consist primarily of loan fees and leasing commissions
which are being amortized over the lives of the related loans and related leases
on the straight-line method.
Income tax matters
The Combined Joint Ventures are comprised of entities which are not taxable
and accordingly, the results of their operations are included on the tax returns
of the various partners. Accordingly no income tax provision is reflected in the
accompanying combined financial statements.
<PAGE>
Cash and cash equivalents
For purposes of the statement of cash flows, cash and cash equivalents
include all highly liquid investments with maturities of 90 days or less.
Capital improvement reserve
In accordance with the joint venture agreement of Boyer Lubbock Associates,
a capital improvement reserve account was established to insure that adequate
funds are available to pay for future capital improvements to the venture's
operating investment property. At the end of each month, 1% of the gross minimum
base rents and percentage rents collected from tenants during the month is to be
deposited into this account. These deposits have not been made on a monthly
basis but have been made periodically throughout the year in the aggregate
required amounts.
2. Joint Ventures
See Note 5 to the financial statements of PWIP3 included in this Annual
Report for a more detailed description of the joint ventures. Descriptions of
the ventures' properties are summarized below:
a. Camelot Associates
The joint venture owns and operates Camelot East and the Villas of Camelot
Apartments, a 492-unit apartment complex, located in Fairfield, Ohio. As further
described in Note 4, the venture had a first mortgage loan with a balance of
$2,298,000 which was scheduled to mature on January 1, 1996. Subsequent to
year-end, the venture obtained an extension of the maturity date from the lender
to July 1, 1996. At the present time, the venture is negotiating with several
different potential lenders to refinance this mortgage loan.
b. Boyer Lubbock Associates
The joint venture owns and operates Central Plaza Shopping Center, a
143,800 square foot shopping center, located in Lubbock, Texas.
c. Pine Trail Partnership
The joint venture owns and operates Pine Trail Shopping Center, a 283,000
square foot shopping center, located in West Palm Beach, Florida.
The following description of the joint venture agreements provides certain
general information.
Allocations of net income and loss
The joint venture agreements generally provide that taxable income and tax
loss from operations are allocated between PWIP3 and the co-venturers in the
same proportion as net cash flow distributed to each partner for such year,
except for certain items which are specifically allocated to the partners, as
defined in the joint venture agreements. Allocations of income and loss for
financial reporting purposes have been made in accordance with the allocations
of taxable income and loss.
Gains or losses resulting from sales or other dispositions of the projects
shall be allocated as specified in the joint venture agreements.
Distributions
The joint venture agreements generally provide that distributions will be
paid first to PWIP3 from net cash flow monthly or quarterly, equivalent to
between $171,000 and $515,000 annually as specified in the joint venture
agreements. After payment of certain amounts to the co-venturers, any remaining
net cash flow is to be allocated between the partners in accordance with their
respective ownership percentages.
Distribution of net proceeds resulting from the sale or refinancing of the
properties shall be made in accordance with formulas provided in the joint
venture agreements.
3. Related party transactions
The Combined Joint Ventures have entered into property management
agreements with affiliates of the co-venturers, cancellable at the joint
ventures' option upon the occurrence of certain events. The management fees
generally are equal to 4% of gross receipts, as defined in the agreements.
Management fees totalling $215,000, $206,000 and $207,000 were paid to
affiliates of the co-venturers for the years ended September 30, 1995, 1994 and
1993, respectively.
Certain of the joint ventures pay leasing commissions to affiliates of the
co-venturers. Leasing commissions paid to affiliates amounted to $48,000, $4,000
and $33,000 in fiscal 1995, 1994 and 1993, respectively.
4. Long-term debt
Long-term debt at September 30, 1995 and 1994 consists of the following (in
thousands):
1995 1994
---- ----
9.375% nonrecourse mortgage loan secured
by Central Plaza Shopping Center, payable
in monthly installments of $40 including
interest, with a final payment
of the remaining principal due January 1, 1995. $ - $ 3,888
10% nonrecourse mortgage loan secured by
Central Plaza Shopping Center,
payable in monthly installments of $37,
including interest, with a
final payment of $4,010 due January 2, 2002. 4,187 -
12% unsecured note payable to the
co-venturer of Boyer Lubbock
Associates, payable in monthly
installments of $5 including interest
with a final payment of $1 due on
October 1, 1995. - 63
9.25% mortgage note, due July 1, 1997
with monthly payments of
principal and interest of $21 secured
by the Camelot Apartments
property. 2,000 2,064
<PAGE>
9.0% mortgage note, due January 1, 1996
with monthly payments of principal
and interest of $30 secured by the Camelot
Apartments property. See discussion below. 2,298 2,453
12.25% mortgage note, payable $85 per month
including interest with a
payment of $5,874 due January 1, 2001,
secured by the Pine Trail
Shopping Center 7,175 7,311
10% mortgage note, payable $3 per month,
including interest, with a
payment of $330 due in 2000, secured
by 1.4 acres of land and the
operating investment thereon owned by
the Pine Trail joint venture.
See discussion below. 348 -
16,008 15,779
Less amounts due within one year (2,552) (4,242)
--------- ----------
$13,456 $11,537
Scheduled maturities of long-term debt for each of the next five years and
thereafter are as follows (in thousands):
1996 $ 2,552
1997 2,132
1998 231
1999 254
2000 630
Thereafter 10,209
--------
$16,008
One of the first mortgage loans secured by the Camelot Apartments, with a
balance of $2,298,000 as of September 30, 1995, was scheduled to mature on
January 1, 1996. Subsequent to year-end, the venture obtained an extension of
the maturity date from the lender to July 1, 1996 in return for an extension fee
of $5,600. At the present time, the venture is negotiating with several
different potential lending sources to refinance this mortgage loan. The
principal balance of this mortgage loan represents less than 20% of the total
estimated market value of the venture's operating investment property. In light
of the venture's low leverage level, the current favorable interest rate
environment and the continued strong supply of capital for real estate lending,
management expects to be able to secure a loan to refinance this maturing
obligation. In addition to investigating refinancing alternatives, the venture
partners have engaged in preliminary negotiations regarding a possible sale of
PWIP3's interest in the joint venture to the co-venturers. There are no
assurances that any such sale transaction will be completed.
The Pine Trail Shopping Center has five out-parcels on the site, covering
approximately six acres, which have been leased by the Pine Trail Partnership
from third parties under five separate ground leases since the inception of the
joint venture. During the third quarter of fiscal 1995, the joint venture
completed the acquisition of one of these out-parcels, containing 60,248 square
feet, for the purchase price of $350,000. This purchase was 100% financed with a
non-recourse first mortgage loan secured by the lease of the free-standing
restaurant located on the out-parcel. The loan bears interest at the prime rate
plus one-percent and requires monthly principal and interest payments over a
5-year term.
In accordance with the mortgage note agreement of the Pine Trail
Partnership, the joint venture is required to escrow certain insurance premiums
and real estate taxes totalling $216,000 and $228,000 at September 30, 1995 and
1994, respectively.
5. Leases
The Combined Joint Ventures derive a portion of their revenues from
noncancellable shopping center operating leases. The initial terms of such
leases range from five to twenty-five years with the majority of the leases
containing renewal options. Revenue from a major tenant of the property owned by
Boyer Lubbock Associates accounted for 28% of the venture's total revenues for
the year ended September 30, 1995.
Minimum future rentals due to be received on existing noncancellable
operating leases by the Pine Trail Partnership and Boyer Lubbock Associates for
the years ending September 30 and thereafter are as follows (in thousands):
1996 $ 2,645
1997 2,412
1998 2,345
1999 2,175
2000 1,986
Thereafter 7,836
----------
Total $ 19,399
The above amounts do not include contingent rentals based on cost of living
increases and rentals which may be received under certain leases on the basis of
a percentage of sales in excess of stipulated minimums.
The operating investment property of the Pine Trail Partnership is subject
to ground leases on the acreage not encumbered by long-term debt (Note 4) or
owned in fee. The leases contain various provisions with stipulations for cost
of living increases and contingent payments based on sales and purchase options.
The lease terms range from 35 to 99 years with certain renewal options.
Minimum future rentals payable on existing noncancellable ground leases are
as follows (in thousands):
1996 $112
1997 112
1998 112
1999 112
2000 112
Thereafter 5,756
Total $6,316
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
Schedule of Real Estate and Accumulated Depreciation
September 30, 1995
(In thousands)
<CAPTION>
Initial Cost to Gross Amount at Which Carried at Life on Which
Partnership Costs Close of period Depreciation
Buildings Capitalized Buildings, in Latest
Improvements (Removed) Improvements Income
& Personal Subsequent to & Personal Accumulated Date of Date Statement
Description Encumbrances Land Property Acquisition Land Property Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED JOINT VENTURES:
Apartment
Complex
Fairfield, OH $ 4,298 $ 498 $ 6,685 $ 566 $ 498 $ 7,251 $ 7,749 $ 5,154 various 6/29/81 various
Shopping Center 4,187 966 4,573 871 966 5,444 6,410 3,894 1978-80 6/30/81 15-31.5 yrs.
Lubbock, TX
Shopping Center
West Palm
Beach, FL 7,523 2,561 13,306 1,766 2,928 14,705 7,633 5,234 1980-82 11/12/81 3-31.5 yrs.
$16,008 $4,025 $24,564 $3,203 $4,392 $27,400 $31,792 $14,282
======= ====== ======= ====== ====== ======= ======= =======
Notes:
(A) The aggregate cost of real estate owned at September 30, 1995 for Federal income tax purposes is
approximately $28,725,000.
(B) See Note 4 to Combined Financial Statements for a description of the terms of the debt encumbering the properties.
(C) Reconciliation of real estate owned:
1995 1994 1993
---- ---- ----
Balance at beginning of year $31,248 $30,906 $30,739
Increase due to additions 544 342 167
---------- ---------- ----------
Balance at end of year $31,792 $31,248 $30,906
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $13,476 $12,585 $11,710
Depreciation expense 806 891 875
---------- ---------- ---------
Balance at end of year $14,282 $13,476 $12,585
======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Partnership's audited financial
statements for the year ended September 30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 296
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 296
<PP&E> 8,068
<DEPRECIATION> (1,287)
<TOTAL-ASSETS> 7,151
<CURRENT-LIABILITIES> 44
<BONDS> 1,549
<COMMON> 0
0
0
<OTHER-SE> 5,558
<TOTAL-LIABILITY-AND-EQUITY> 7,151
<SALES> 0
<TOTAL-REVENUES> 1,002
<CGS> 0
<TOTAL-COSTS> 572
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> 264
<INCOME-TAX> 0
<INCOME-CONTINUING> 264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264
<EPS-PRIMARY> 12.14
<EPS-DILUTED> 12.14
</TABLE>
