UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, 1997 and September 30, 1996
(Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Operating investment property, at cost:
Land $ 950 $ 950
Building and improvements 4,088 4,088
----------- --------
5,038 5,038
Less accumulated depreciation (1,440) (1,389)
----------- --------
3,598 3,649
Investments in joint ventures, at equity 2,876 2,844
Cash and cash equivalents 897 1,000
Accounts receivable 99 99
Deferred expenses, net 42 53
Note and interest receivable, net - -
----------- --------
$ 7,512 $ 7,645
=========== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 4 $ 4
Accounts payable and accrued expenses 28 60
Mortgage note payable 1,351 1,420
Partners' capital 6,129 6,161
----------- --------
$ 7,512 $ 7,645
=========== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended March 31, 1997 and 1996
(Unaudited)
(In thousands)
General Limited
Partner Partners
------- --------
Balance at September 30, 1995 $ (61) $5,619
Cash distributions (2) (209)
Net income 2 173
-------- ------
Balance at March 31, 1996 $ (61) $5,583
======== ======
Balance at September 30, 1996 $ - $6,161
Cash distributions (2) (210)
Net income 2 178
-------- ------
Balance at March 31, 1997 $ - $6,129
======== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three and six months ended March 31, 1997 and 1996
(Unaudited)
(In thousands, except per Unit amounts)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ --------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental revenues $ 119 $ 119 $ 239 $ 239
Interest income 14 7 27 10
------ ----- ------ -----
133 126 266 249
Expenses:
Interest expense 36 39 73 79
Management fees 4 4 8 8
Depreciation expense 26 26 51 51
General and administrative 102 87 143 175
------ ----- ------ -----
168 156 275 313
------ ----- ------ -----
Operating loss (35) (30) (9) (64)
Partnership's share of
ventures' income 108 122 189 239
------ ------ ------ ------
Net income $ 73 $ 92 $ 180 $ 175
====== ====== ====== ======
Net income per Limited
Partnership Unit $ 3.36 $ 4.24 $ 8.27 $ 8.04
====== ====== ====== ======
Cash distributions per Limited
Partnership Unit $ 4.88 $ 4.85 $ 9.76 $ 9.70
====== ====== ====== ======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 21,550 Units of Limited Partnership Interest outstanding for each
period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 180 $ 175
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation expense 51 51
Amortization of deferred financing costs 11 11
Partnership's share of ventures' income (189) (239)
Changes in assets and liabilities:
Accounts payable and accrued expenses (32) (16)
-------- -------
Total adjustments (159) (193)
-------- -------
Net cash provided by (used in)
operating activities 21 (18)
Cash flows from investing activities:
Distributions from joint ventures 157 568
Cash flows from financing activities:
Distributions to partners (212) (211)
Principal payments on mortgage note payable (69) (63)
--------- -------
Net cash used in financing activities (281) (274)
--------- -------
Net (decrease) increase in cash and cash equivalents (103) 276
Cash and cash equivalents, beginning of period 1,000 296
--------- -------
Cash and cash equivalents, end of period $ 897 $ 572
========= =======
Cash paid during the period for interest $ 62 $ 68
========= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained
in the Partnership's Annual Report for the year ended September 30, 1996.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of March 31, 1997 and September 30,
1996 and revenues and expenses for each of the three- and six-month periods
ended March 31, 1997 and 1996. Actual results could differ from the
estimates and assumptions used.
2. Related Party Transactions
Management fees earned by the Adviser totalled $8,000 for each of the
six-month periods ended March 31, 1997 and 1996. Accounts payable
affiliates at March 31, 1997 and September 30, 1996 consists of $4,000 of
management fees payable to the Adviser at both dates.
Included in general and administrative expenses for the six months ended
March 31, 1997 and 1996 is $33,000 and $36,000, respectively, representing
reimbursements to an affiliate of the General Partner for providing certain
financial, accounting and investor communication services to the
Partnership.
3. Real Estate Investments
As of March 31, 1997, the Partnership directly owns one operating
investment property (Northeast Plaza) and has investments in two joint
venture partnerships (three at March 31, 1996) as more fully described in
the Partnership's Annual Report. On June 19, 1996, the joint venture which
owned the Camelot Apartments sold the operating investment property to an
unrelated third party for $15,150,000. The Partnership received net sales
proceeds of approximately $5.9 million after deducting closing costs, the
repayment of the outstanding first mortgage loans, the buyout of an
underlying ground lease and the co-venturers' share of the net proceeds.
The Partnership made a special distribution to the Limited Partners from
the Camelot sale proceeds of approximately $5.5 million, or $256 per
original $1,000 investment, on August 15, 1996. The remaining net proceeds
were added to the Partnership's cash reserves to provide for the potential
capital needs of the Partnership's three remaining investments. The joint
ventures are accounted for by using the equity method because the
Partnership does not have a voting control interest in the ventures. Under
the equity method, the assets, liabilities, revenues and expenses of the
joint ventures do not appear in the Partnership's financial statements.
Instead, the investments are carried at cost adjusted for the Partnership's
share of the ventures' earnings, losses and distributions.
<PAGE>
Summarized operating results of the joint ventures for the three and six
months ended March 31, 1997 and 1996 are as follows:
Condensed Combined Summary of Operations
For the three and six months ended March 31, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and expense
recoveries $ 866 $ 1,475 $1,815 $2,992
Interest and other income 3 80 7 127
------- ------- ------ ------
869 1,555 1,822 3,119
Property operating
expenses 251 708 612 1,403
Interest expense 332 440 665 870
Depreciation and
amortization 115 196 241 404
------- -------- ------ -------
698 1,344 1,518 2,677
------- -------- ------ -------
Net income $ 171 $ 211 $ 304 $ 442
======= ======== ====== =======
Net income:
Partnership's share of
combined income $ 109 $ 147 $ 191 $ 289
Co-venturers' share of
combined income 62 64 113 153
------- -------- ------ -------
$ 171 $ 211 $ 304 $ 442
======= ======== ====== =======
Reconciliation of Partnership's Share of Operations
For the three and six months ended March 31, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of
income, as shown above $ 109 $ 147 $ 191 $ 289
Amortization of excess
basis (1) (25) (2) (50)
------ ----- ----- ------
Partnership's share of
ventures' income $ 108 $ 122 $ 189 $ 239
====== ===== ===== ======
4. Note and Interest Receivable, Net
Note and interest receivable at March 31, 1997 and September 30, 1996
consists of a $3,445,336 note received in connection with the Partnership's
sale of its joint venture interest in the Briarwood joint venture in
December of 1984. The note has been netted against deferred gain on the sale
of a like amount on the Partnership's balance sheet. The note bears interest
at 9% annually, matures on January 1, 2000 and is subordinated to a first
mortgage loan. 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 March 31, 1997 would be approximately $6,496,000. Since the properties
securing the note 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 March 31, 1997. 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.
<PAGE>
5. Mortgage Note Payable and Contingencies
The mortgage note payable at March 31, 1997 and September 30, 1996 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 approximately $21,900 are due
until maturity in May 1999. The loan may be prepaid at anytime without
penalty. The fair value of this mortgage note payable approximated its
carrying value as of March 31, 1997.
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 at a Mobil
service station located adjacent to the shopping center had leaked and
contaminated the groundwater in the vicinity of the station. Mobil
investigated the leak 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 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 disagreed as to the extent of the indemnification and has refused to
compensate the Partnership for any of these damages. During the first
quarter of fiscal 1993, the Partnership filed suit in Federal Court against
Mobil for breach of indemnity and property damage. 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. On April 28, 1995, Mobil was successful
in dismissing the action from the Federal Court system on jurisdictional
grounds. Subsequently, the Partnership 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. On November 14, 1996, the state court
granted the Partnership's Motion for Partial Summary Judgment as to
liability with regard to the Partnership's claims for damages. During fiscal
1996, the Partnership agreed to a mediation session with Mobil, which took
place on November 25, 1996, in an attempt to settle the case. A settlement
was not reached at the mediation, but discussions are continuing. A jury
trial was expected to commence by early April 1997. However, the jury trial
has been delayed because of a change in the assignment of the presiding
judge and a conflict in the new judge's schedule. Depositions, hearings and
settlement discussions are continuing, as are the Partnership's efforts to
establish a firm trial date. The outcome of these legal proceedings cannot
presently be determined. 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.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The operations of the Partnership's two joint venture investment
properties are stable and producing excess cash flow as of March 31, 1997. The
occupancy level at Pine Trail Shopping Center in West Palm Beach, Florida, was
97% at the end of the quarter, unchanged from the previous quarter. The only
change in occupancy during the quarter was the departure of a 1,000 square foot
tenant that closed its store due to poor sales. Additionally, one lease renewal
was signed with a 1,740 square foot tenant that extended its lease term for an
additional five years. Negotiations to bring a new restaurant tenant to the
Center are progressing, and a lease is expected to be finalized in the third
quarter. The prospective new restaurant tenant plans to construct a building at
its own cost on an out parcel to be leased from the Pine Trail joint venture for
a ten-year period. Currently there is a retail bank building on this out parcel
which has been leased but not occupied for over a year. The bank tenant has
agreed to terminate its lease and pay a cancellation fee. This fee is expected
to cover the proposed costs to complete the transaction with the new restaurant
tenant, including demolition of the existing building and brokerage commissions.
In conjunction with obtaining approval for demolition of the existing building
and construction of the new building on this out parcel, the property's
management team obtained approval from the Palm Beach County planning and zoning
authority to add as much as 11,000 square feet of expansion space elsewhere at
the Center. While there are currently no specific tenants targeted for this
potential expansion space, the flexibility to expand will be an advantage in
negotiating new and renewal leases.
The Partnership has discussed the possibility of selling its interest in
the Pine Trail Shopping Center to its joint venture partner and has reached an
agreement on the terms for such a potential sale. The proposed sale price for
the Partnership's equity interest in the Pine Trail Shopping Center, of
$6,150,000, is supported by an independent appraisal of the property. The joint
venture partner is currently seeking financing which would be used to purchase
the Partnership's interest and repay the existing $7.6 million first mortgage
loan. There can be no assurances, however, that this transaction will be
successfully consummated.
At Central Plaza Shopping Center in Lubbock, Texas, the occupancy level
remained at 92% for the quarter. The property's leasing team is continuing its
efforts to lease the remaining 11,500 square feet of vacant space at the Center.
The largest of the vacant spaces is adjacent to one of the Center's anchor
tenants. The leasing staff is working to locate a tenant for this space that
would bring additional shoppers to the Center and complement the current tenant
mix. The leasing team is also investigating the possibility of a small expansion
of the Center to accommodate a prospective tenant in this location. Another
vacant space sits in the back corner of the Center, behind one of the Center's
restaurant tenants, and has been extremely difficult to lease due to its lack of
visibility.
The Partnership and its co-venture partner are exploring potential sale
opportunities for the Central Plaza property. However, it may be desirable to
complete a lease-up of the Center's remaining vacant space before any sale
transaction occurs. Accordingly, there are no assurances that a sale transaction
will be completed in the near future.
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 at a Mobil
service station located adjacent to the shopping center had leaked and
contaminated the ground water in the vicinity of the station. Mobil investigated
the leak and is progressing with efforts to remedy the soil and ground water
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 ground water 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 disagreed as to the
extent of the indemnification and has refused to compensate the Partnership for
any of these damages. During the first quarter of fiscal 1993, the Partnership
filed suit in Federal Court against Mobil for breach of indemnity and property
damage. On April 28, 1995, Mobil was successful in dismissing the action from
the Federal Court system on jurisdictional grounds. Subsequently, the
Partnership 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. On November
14, 1996, the state court granted the Partnership's Motion for Partial Summary
Judgment as to liability with regard to the Partnership's claims for damages.
During fiscal 1996, the Partnership agreed to a mediation session with Mobil,
which took place on November 25, 1996, in an attempt to settle the case. A
settlement was not reached at the mediation, but discussions are continuing. A
jury trial was expected to commence by early April 1997. However, the jury trial
has been delayed because of a change in the assignment of the presiding judge
and a conflict in the new judge's schedule. Depositions, hearings and settlement
discussions are continuing, as are the Partnership's efforts to establish a firm
trial date. The Partnership continues to be concerned about the impact of this
contamination on the Partnership's ability to sell this investment on favorable
terms in the future. The outcome of these legal proceedings cannot presently be
determined.
The Northeast Plaza property, which the Partnership master leases to a
local manager/operator, was 100% leased as of March 31, 1997. However, the
physical occupancy level was 92% at quarter end due to the move-out of a 10,000
square foot tenant. A new lease has been signed with an automobile supply store
that will occupy the 10,000 square foot space beginning next quarter. This
tenant has committed to a five-year lease with three five-year renewal options.
Each of the Partnership's three remaining properties are retail shopping
centers. As discussed further above, the Partnership has begun to explore the
potential for selling its remaining investment properties in the near term.
Although no assurances can be given, it is currently contemplated that sales of
the Partnership's remaining assets could be completed within the next 2 - to - 3
years. At the present time, real estate values for retail shopping centers in
certain markets are being adversely impacted by the effects of overbuilding and
consolidations among retailers which have resulted in an oversupply of space and
by the generally flat rate of growth in retail sales. Currently, occupancy at
all three of the Partnership's retail shopping centers remains high and
operations to date do not appear to have been affected by this general trend. It
remains unclear at this time what impact, if any, this general trend will have
on the future operations and/or market values of the Partnership's retail
properties. It is possible that the current market conditions for retail
properties in general will affect the timing of the dispositions of the
remaining investments. If favorable sales opportunities are not available in the
near term, the Partnership may continue to hold the investments and, where
necessary, obtain assumable mortgage financing which would allow the Partnership
the greatest flexibility to pursue future sales opportunities when such market
conditions improve.
At March 31, 1997, the Partnership had available cash and cash equivalents
of $897,000. 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.
<PAGE>
Results of Operations
Three Months Ended March 31, 1997
- ---------------------------------
The Partnership reported net income of $73,000 for the three months ended
March 31, 1997, as compared to net income of $92,000 for the same period in the
prior year. This $19,000 decrease in net income is attributable to a $14,000
decrease in the Partnership's share of ventures' income and a $5,000 increase in
the Partnership's operating loss. The Partnership's share of ventures' income
decreased mainly due to the inclusion of the operating results of the Camelot
Apartments, which was sold in June 1996, in the prior year's income. The
Partnership's share of income from the Camelot joint venture in the prior year,
net of the amortization of excess basis, was $40,000. Partially offsetting the
inclusion of the Camelot joint venture's operating results in the prior year's
income were increases in the Partnership's share of income from both the Central
Plaza and Pine Trail joint ventures of $16,000 and $10,000, respectively. Net
income increased at Central Plaza mainly due to a 3% increase in average
occupancy compared to the same period in the prior year and small decreases in
interest and depreciation expenses. Net income increased at Pine Trail mainly
due to an increase in rental revenues resulting from rental rate increases.
The Partnership's operating loss increased primarily due to a $15,000
increase in general and administrative expenses. General and administrative
expenses increased due to an increase in legal fees incurred during the current
three-month period in connection with the continued litigation against Mobil Oil
Corporation, as discussed further above. The increase in general and
administrative expenses was partially offset by an increase in interest income
and a decline in interest expense in the current period.
Six Months Ended March 31, 1997
- -------------------------------
The Partnership reported net income of $180,000 for the six months ended
March 31, 1997, as compared to net income of $175,000 for the same period in the
prior year. This $5,000 increase in net income is attributable to a $55,000
decrease in the Partnership's operating loss which was partially offset by a
$50,000 decrease in the Partnership's share of ventures' income. The
Partnership's operating loss decreased due to a $38,000 decline in the
Partnership's operating expenses and a $17,000 increase in interest income.
Operating expenses declined mainly due to a decrease in general and
administrative expenses of $32,000 for the current six-month period. General and
administrative expenses decreased mainly as a result of a decline in certain
required professional services during the current period. Interest income
increased due to an increase in the Partnership's average outstanding cash
balances during the current six-month period resulting from the retention of a
portion of the Camelot sale proceeds subsequent to the June 1996 sale
transaction.
The Partnership's share of ventures' income decreased mainly due to the
inclusion of the operating results of the Camelot Apartments in the prior year's
income. The Partnership's share of income from the Camelot joint venture in the
prior year, net of the amortization of excess basis, was $104,000. Partially
offsetting the inclusion of the Camelot joint venture's operating results in the
prior year's income were increases in the Partnership's share of income from
both the Central Plaza and Pine Trail joint ventures of $35,000 and $19,000,
respectively. Net income increased at Central Plaza mainly due to a 3% increase
in average occupancy compared to the same period in the prior year and a small
decrease in depreciation expense. Net income increased at Pine Trail mainly due
to an increase in rental revenues resulting from rental rate increases and a
small increase in occupancy when compared to the same period in the prior year.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, the Partnership's General Partner was named as a
defendant in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
various limited partnership investments and REIT stocks, including those offered
by the Partnership. In January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and a plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. As
part of the settlement agreement, PaineWebber has agreed not to seek
indemnification from the related partnerships and real estate investment trusts
at issue in the litigation (including the Partnership) for any amounts that it
is required to pay under the settlement. In addition, in December 1996
PaineWebber agreed to settle the Bandrowski action discussed further in the
Annual Report. Final releases and dismissals with regard to this action were
received subsequent to the quarter ended March 31, 1997. Based on the settlement
agreements discussed above covering all of the outstanding unitholder
litigation, management does not expect that the resolution of these matters will
have a material impact on the Partnership's financial statements, taken as a
whole.
With regard to the Partnership's litigation against Mobil Oil Corporation
related to the groundwater contamination at the Northeast Plaza Shopping Center,
on November 14, 1996 the Florida state court granted the Partnership's Motion
for Partial Summary Judgment as to liability with regard to the Partnership's
claims for damages. During fiscal 1996, the Partnership agreed to a mediation
session with Mobil, which took place on November 25, 1996, in an attempt to
settle the case. A settlement was not reached at the mediation, but discussions
are continuing. A jury trial was expected to commence by early April 1997.
However, the jury trial has been delayed because of a change in the assignment
of the presiding judge and a conflict in the new judge's schedule. Depositions,
hearings and settlement discussions are continuing, as are the Partnership's
efforts to establish a firm trial date. The outcome of these legal proceedings
cannot presently be determined.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES THREE LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES THREE
LIMITED PARTNERSHIP
By: THIRD INCOME PROPERTIES, INC.
General Partner
By:/s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended March 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 897
<SECURITIES> 0
<RECEIVABLES> 99
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 996
<PP&E> 7,914
<DEPRECIATION> 1,440
<TOTAL-ASSETS> 7,512
<CURRENT-LIABILITIES> 32
<BONDS> 1,351
0
0
<COMMON> 0
<OTHER-SE> 6,129
<TOTAL-LIABILITY-AND-EQUITY> 7,512
<SALES> 0
<TOTAL-REVENUES> 455
<CGS> 0
<TOTAL-COSTS> 202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 180
<INCOME-TAX> 0
<INCOME-CONTINUING> 180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180
<EPS-PRIMARY> 8.27
<EPS-DILUTED> 8.27
</TABLE>
