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 May 31, 1996
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 : 0-17145
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
(Exact name of registrant as specified in its charter)
Delaware 13-3069311
(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 QUALIFIED PLAN PROPERTY FUND, LP
BALANCE SHEETS
May 31, 1996 and August 31, 1995 (Unaudited)
(In thousands )
ASSETS
May 31 August 31
------ ---------
Real estate investments:
Investment property held for sale, net $ 3,964 $ 3,918
Cash and cash equivalents 325 223
Escrowed cash 122 53
Accounts receivable 38 198
Prepaid insurance and other assets 19 6
-------- --------
$ 4,468 $ 4,398
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 14 $ 38
Accounts payable - affiliates 3 3
Accrued real estate taxes 45 69
Tenant security deposits and other liabilities 20 28
Partners' capital 4,386 4,260
-------- --------
$ 4,468 $ 4,398
======== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended May 31, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1994 $(26) $ 4,423
Net income 1 104
Cash distributions (2) (170)
---- --------
Balance at May 31, 1995 $(27) $ 4,357
==== ========
Balance at August 31, 1995 $(26) $ 4,286
Net income 2 277
Cash distributions (2) (151)
---- --------
Balance at May 31, 1996 $(26) $ 4,412
==== ========
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1996 and 1995
(Unaudited)
(In thousands, except for per Unit data)
Three Months Ended Nine Months Ended
May 31, May 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest from mortgage loan $ - $ 81 $ - $ 244
Land rent - 12 - 36
Interest earned on short-term
investments 4 5 9 20
----- ----- ---- -----
4 98 9 300
Expenses:
Management fees 3 3 9 9
General and administrative 60 76 179 185
----- ----- ---- -----
63 79 188 194
----- ----- ---- -----
Operating income(loss) (59) 19 (179) 106
Income from operations of investment
property held for sale, net 184 - 458 -
----- ----- ---- -----
Net income $ 125 $ 19 $ 279 $ 106
===== ===== ==== =====
Net income per Limited
Partnership Unit $6.58 $1.02 $14.72 $5.56
===== ===== ====== =====
Cash distributions per Limited
Partnership Unit $2.69 $2.69 $ 8.07 $9.07
===== ===== ======= =====
The above per Limited Partnership Unit information is based upon the 18,781
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 279 $ 106
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in assets and liabilities:
Escrowed cash (69) 50
Interest and land rent receivable - (93)
Accounts receivable 160 (6)
Prepaid insurance and other assets (13) -
Accounts payable - affiliates - 1
Accounts payable and accrued expenses (24) (53)
Accrued real estate taxes (24) -
Tenant security deposits and other liabilities (8) -
-------- -------
Total adjustments 22 (101)
-------- -------
Net cash provided by operating activities 301 5
Cash flows from investing activities:
Purchase of land (46) -
Cash flows from financing activities:
Distributions to partners (153) (172)
-------- ---------
Net increase (decrease) in cash and cash equivalents 102 (167)
Cash and cash equivalents, beginning of period 223 473
--------- --------
Cash and cash equivalents, end of period $ 325 $ 306
========= =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
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 August 31, 1995.
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 accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Related Party Transactions
The Adviser earned management fees of $9,000 for both of the nine-month
periods ended May 31, 1996 and 1995.
Included in general and administrative expenses for the nine months ended
May 31, 1996 and 1995 is $74,000 and $84,000, respectively, representing
reimbursements to an affiliate of the General Partner for providing certain
financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended May 31, 1996 and 1995 is $1,000, representing fees earned by Mitchell
Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
3. Investment Property Held for Sale and Potential Partnership Liquidation
As discussed further in the Annual Report, on June 19, 1995 the Partnership
foreclosed under the terms of the mortgage loan secured by the Harwood
Village Shopping Center. The property consists of 86,300 net rentable
square feet and is located in Bedford, Texas (suburban Dallas). The Adviser
has employed a local management company to operate the property on the
Partnership's behalf. Prior to the foreclosure transaction, the
Partnership's investments in Harwood Village had consisted of a 9.5%
mortgage loan in the amount of $3,418,000 and land with a cost basis of
$500,000 which was subject to a ground lease. Annual rent due under the
terms of the ground lease totalled $47,500.
The Partnership complies with the guidelines set forth in the Statement of
Position entitled "Accounting for Foreclosed Assets," issued by the
American Institute of Certified Public Accountants, to account for its
investment properties acquired through foreclosure. Under the Statement of
Position, a foreclosed asset is recorded at the lower of cost or estimated
fair value, reduced by the estimated costs to sell the asset. Cost is
defined as the fair value of the asset at the date of the foreclosure.
Management believed that the fair value of the Harwood Village Shopping
Center was approximately equal to the aggregate carrying value of the
Partnership's land and mortgage loan investments at the date of the
foreclosure, of $3,918,000. Accordingly, such carrying values were
reclassified to investment property held for sale as of the date of
foreclosure. During fiscal 1996, the Partnership purchased an additional
out-parcel of land adjacent to the Harwood Village property for $46,000,
which is included in the balance of investment property held for sale as of
May 31, 1996. Declines in the estimated fair value of the asset subsequent
to foreclosure are recorded through the use of a valuation allowance.
Subsequent increases in the estimated fair value of the asset result in a
reduction in the valuation allowance, but not below zero.
<PAGE>
During the quarter ended May 31, 1996, the Partnership signed a letter of
intent to sell the Harwood Village Shopping Center to an unrelated third
party for $4,925,000. The sale remained subject to, among other things, the
negotiation of a definitive sales agreement, the satisfactory completion of
the buyer's due diligence and the buyer's ability to obtain financing.
Subsequent to the quarter-end, due to the buyer's inability to obtain the
required financing, the sale transaction was not able to be completed.
Management has since reviewed offers from other potential buyers and is
currently in the process of negotiating another sales contract. Based on
the current offers, if the Partnership were to agree to the terms of a sale
of the Harwood Village property in the near term, the final negotiated sale
price would likely be at an amount lower than the previously disclosed
transaction, but still in excess of the current carrying amount of the
investment property. However, since no definitive agreement has been signed
to date, there can be no assurances that a sale transaction will be
completed. If a sale does occur, it would be followed by a liquidation of
the Partnership.
The Partnership records income from the investment property held for sale
in the amount of the difference between the property's gross revenues and
property operating expenses (including leasing costs and improvement
expenses), taxes and insurance. Summarized operating results for the
Harwood Village Shopping Center for the three and nine month periods ended
May 31, 1996 are as follow (in thousands):
Three Nine
Months Ended Months Ended
5/31/96 5/31/96
------------ ------------
Rental revenues and expense
recoveries $ 234 $ 633
Property operating expenses 14 67
Property taxes and insurance 29 86
Management fees 8 22
------- -------
Total expenses 51 175
------- -------
Income from investment property
held for sale, net $ 183 $ 458
======== =======
4. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the General Partner is unable to estimate the impact, if any, of these
matters on the Partnership's financial statements, taken as a whole.
.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As discussed further in the Annual Report, the Partnership assumed
ownership of the Harwood Village North Shopping Center on June 19, 1995 as a
result of foreclosure proceedings which followed certain uncured defaults under
the terms of the Partnership's mortgage loan receivable. Subsequent to assuming
ownership, the Adviser hired a local property management company to manage the
day-to-day operations of the 86,300 square foot shopping center, which was 98%
leased as of May 31, 1996. Since June of 1995, the Partnership has been working
on renewing the leases that expire during fiscal 1996 and completing minor
enhancements to improve the center's marketability in preparation for a possible
sale of the property. The property's leasing team is currently working on
renewing leases with four tenants representing 14,350 square feet, or
approximately 17% of the center. During the current quarter, management's
marketing efforts resulted in the signing of a letter of intent for the sale of
the Harwood Village North Shopping Center to an unrelated third party for
$4,925,000. The prospective sale was subject to, among other things, the
negotiation of a definitive sales agreement, satisfactory completion of the
buyer's due diligence and the buyer's ability to obtain financing. Subsequent to
the quarter end, the potential buyer was unable to obtain the required financing
and the sales contract was terminated. Management has since reviewed offers from
other potential buyers and is currently in the process of negotiating another
sales contract. Based on the current offers, if the Partnership were to agree to
terms for a sale of the Harwood Village property in the near term, the final
negotiated sale price would likely be at an amount lower than the previously
disclosed transaction. Nonetheless, management would still expect to receive net
proceeds in an amount in excess of the current carrying value of the investment
property on the Partnership's balance sheet. However, since no definitive
agreement has been signed to date, there can be no assurances that a sale
transaction will be completed.
As of May 31, 1996, the Partnership had cash and cash equivalents of
$325,000. Such cash and cash equivalents will be used for the working capital
requirements of the Partnership and distributions to the partners. The source of
future liquidity and distributions to the partners is expected to be through
cash flow generated from the operations of the Harwood Village property and from
the eventual sale of the operating investment property, as discussed further
above. Upon the sale of the Harwood Village North Shopping Center, the
Partnership will be liquidated and a final distribution, including any remaining
cash reserves after payment of all liquidation-related expenses, will be made to
the Limited Partners.
Results of Operations
Three Months Ended May 31, 1996
The Partnership reported net income of $125,000 for the three months ended
May 31, 1996, compared to net income of $19,000 for the same period in the prior
year. The favorable change in the Partnership's net operating results for these
two periods reflects the foreclosure of the Harwood Village North Shopping
Center discussed above. Prior to the foreclosure transaction in the fourth
quarter of fiscal 1995, the Partnership's investments in Harwood Village had
consisted of a 9.5% mortgage loan in the amount of $3,418,000 and land with a
cost basis of $500,000 which was subject to a ground lease. Annual rent due
under the terms of the ground lease totalled $47,500. Net operating income from
the shopping center of $184,000 was recognized for the three-month period ended
May 31, 1996, whereas interest and land rent of only $93,000 was recognized in
the same period in the prior year. In addition, a decrease in the Partnership's
general and administrative expenses of $16,000 also contributed to the favorable
change in net operating results for the third quarter of fiscal 1996. General
and administrative expenses were higher in the prior period mainly due to legal
fees associated with the default on the Harwood Village mortgage loan.
Nine Months Ended May 31, 1996
The Partnership reported net income of $279,000 for the nine months ended May
31, 1996, compared to net income of $106,000 for the same period in the prior
year. The increase in net income is a direct result of the foreclosure of the
Harwood Village North Shopping Center discussed above. The Partnership's income
statement for the nine-month period ended May 31, 1995 reflects nine months of
interest income and land rent from the Harwood Village mortgage loan and land
investments, which totalled $280,000. Net operating income from the shopping
center of $458,000 was recognized for the nine month period ended May 31, 1996.
A decrease in interest earned on short-term investments of $11,000 partially
offset the favorable change in net operating results for the current nine-month
period. Interest income earned on the Partnership's cash reserves declined
mainly as a result of a decrease in the average outstanding balance of such
reserves.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, First Qualified Properties, Inc. and Properties
Associates, the General Partners of the Partnership, were named as defendants 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 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 which the parties expect to submit to the
court for its consideration and approval within the next several months. Until a
definitive settlement and plan of allocation is approved by the court, there can
be no assurance what, if any, payment or non-monetary benefits will be made
available to unitholders in PaineWebber Qualified Plan Property Fund, LP.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with this litigation.
At the present time, the General Partners cannot estimate the impact, if any, of
these potential indemnification claims on the Partnership's financial
statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
NONE
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 QUALIFIED PLAN PROPERTY FUND, LP
By: FIRST QUALIFIED PROPERTIES, INC.
General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: July 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended May 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 325
<SECURITIES> 0
<RECEIVABLES> 38
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 504
<PP&E> 3964
<DEPRECIATION> 0
<TOTAL-ASSETS> 4468
<CURRENT-LIABILITIES> 82
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4386
<TOTAL-LIABILITY-AND-EQUITY> 4468
<SALES> 0
<TOTAL-REVENUES> 467
<CGS> 0
<TOTAL-COSTS> 188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 279
<INCOME-TAX> 0
<INCOME-CONTINUING> 279
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<EXTRAORDINARY> 0
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<NET-INCOME> 279
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<EPS-DILUTED> 14.72
</TABLE>
