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 November 30, 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
November 30, 1996 and August 31, 1996 (Unaudited)
(In thousands )
ASSETS
November 30 August 31
----------- ---------
Investment property held for sale $ 3,964 $ 3,964
Cash and cash equivalents 391 376
Escrowed cash 155 140
Accounts receivable 19 20
Prepaid insurance 5 7
--------- ---------
$ 4,534 $ 4,507
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 34 $ 48
Accounts payable - affiliates 3 3
Accrued real estate taxes 99 72
Tenant security deposits 18 18
Total partners' capital 4,380 4,366
--------- ---------
$ 4,534 $ 4,507
========= =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT
For the three months ended November 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1995 $(26) $ 4,286
Net income 1 79
Cash distributions (1) (50)
----- -------
Balance at November 30, 1995 $ (26) $ 4,315
===== =======
Balance at August 31, 1996 $ (25) $ 4,391
Net income - 65
Cash distributions (1) (50)
----- -------
Balance at November 30, 1996 $ (26) $ 4,406
===== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF INCOME
For the three months ended November 30, 1996 and 1995 (Unaudited)
(In thousands, except per Unit amounts)
1996 1995
---- ----
Revenues:
Interest earned on short-term investments $ 5 $ 2
----- ------
5 2
Expenses:
Management fees 3 3
General and administrative 42 49
----- ------
45 52
----- ------
Operating loss (40) (50)
Income from operations of investment
property held for sale, net 105 130
------ ------
Net income $ 65 $ 80
===== ======
Net income per Limited
Partnership Unit $3.43 $4.26
===== =====
Cash distributions per Limited
Partnership Unit $2.69 $2.69
===== =====
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 three months ended November 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 65 $ 80
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in assets and liabilities:
Escrowed cash (15) (60)
Accounts receivable 1 160
Prepaid insurance and other assets 2 (4)
Accounts payable and accrued expenses (14) (7)
Accrued real estate taxes 27 27
Tenant security deposits and other liabilities - 18
--------- ---------
Total adjustments 1 134
--------- ---------
Net cash provided by operating activities 66 214
Cash flows from financing activities:
Distributions to partners (51) (51)
--------- ---------
Net increase in cash and cash equivalents 15 163
Cash and cash equivalents, beginning of period 376 223
--------- ---------
Cash and cash equivalents, end of period $ 391 $ 386
========= =========
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, 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 accounting 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 require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of November 30, 1996 and August 31,
1996 and revenues and expenses for the three months ended November 30, 1996
and 1995. Actual results could differ from the estimates and assumptions
used.
2. Related Party Transactions
--------------------------
The Adviser earned management fees of $3,000 for both of the three-month
periods ended November 30, 1996 and 1995.
Included in general and administrative expenses for both of the three-month
periods ended November 30, 1996 and 1995 is $23,000, representing
reimbursements to an affiliate of the General Partner for providing certain
financial, accounting and investor communication services to the
Partnership.
3. Investment Property Held for Sale and Potential Partnership Liquidation
-----------------------------------------------------------------------
As discussed further in the Partnership's fiscal 1996 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 since assuming ownership.
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. 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, 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 November 30, 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. All costs incurred to hold the
asset are charged to expense and no depreciation expense is recorded.
<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.
During the fourth quarter of fiscal 1996, due to the buyer's inability to
obtain the required financing, the sale transaction was not able to be
completed. Subsequently, management reviewed offers from other potential
buyers and executed a sales contract with a new buyer in August 1996 at a
sales price of $4,700,000. This sale transaction was also subject to the
satisfactory completion of due diligence, which was to be completed by
September 30, 1996. At the end of the due diligence period, the prospective
buyer requested an extension of the due diligence period. Management was
willing to grant such an extension only if the prospective buyer was
willing to make its deposit non-refundable and subject to forfeiture in the
event that the sale did not close subsequent to the extension period for
any reason other than financing. The prospective buyer did not agree to the
terms of the extension, and the sales contract was terminated. During the
first quarter of fiscal 1997, management again evaluated other offers and
solicited new offers through further marketing efforts. As a result of
these efforts, management identified a new third-party prospective buyer
and, subsequent to November 30, 1996, signed a contract to sell the
property for $4,300,000. As with the prior offers, this agreement is
subject to the satisfactory completion of due diligence, as well as the
buyer's ability to secure financing. The prospective buyer has until
February 16, 1997 to complete its due diligence, which will include a Phase
II environmental evaluation of the property, and to secure a financing
commitment. This prospective buyer would then have an additional 30 days to
close the transaction. A Phase I environmental evaluation of the Harwood
Village property performed in November 1996 recommended that additional
testing be conducted due to potential concerns regarding possible soil and
ground water contamination from an adjacent site. No conclusions regarding
the existence of any possible contamination can be made until the
additional testing is completed. Management hopes to complete a sale of the
property during calendar year 1997, however, due to the outstanding
contingencies, 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-month periods ended November
30, 1996 and 1995 are as follows (in thousands):
1996 1995
---- ----
Rental revenues and expense recoveries $ 170 $ 178
Property operating expenses 29 13
Property taxes and insurance 29 29
Management fees 7 6
----- ------
65 48
----- ------
Income from investment property
held for sale, net $ 105 $ 130
===== ======
4. Contingencies
--------------
As discussed in more detail in the Annual Report, 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, management began active
marketing efforts for the Harwood Village Shopping Center in February 1996.
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 contract, the satisfactory completion of the buyer's due
diligence and the buyer's ability to obtain financing. During the fourth quarter
of fiscal 1996, due to the buyer's inability to obtain the required financing,
the sale transaction was not able to be completed. Subsequently, management
reviewed offers from other potential buyers and executed a sales contract with a
new buyer in August 1996 at a sales price of $4,700,000. This sale transaction
was also subject to the satisfactory completion of due diligence, which was to
be completed by September 30, 1996. Prior to September 30, 1996, the prospective
buyer requested an extension of the due diligence period. Management was willing
to grant such an extension only if the prospective buyer was willing to make a
non-refundable deposit which would be subject to forfeiture in the event that
the sale did not close subsequent to the extension period for any reason other
than financing. The prospective buyer did not agree to the terms of the
extension, and the sales contract was terminated.
During the first quarter of fiscal 1997, management again solicited new
offers through further marketing efforts and subsequent to November 30, 1996,
signed a contract with a new prospective buyer to sell the property for
$4,300,000. As with the prior offers, this agreement is subject to the
satisfactory completion of due diligence as well as the buyer's ability to
secure financing. The prospective buyer has until February 16, 1997 to complete
its due diligence, which will include a Phase II environmental evaluation of the
property, and to secure a financing commitment. This prospective buyer would
then have an additional 30 days to close the transaction. A Phase I
environmental evaluation of the Harwood Village property performed in November
1996 recommended that additional testing be conducted due to potential concerns
regarding possible soil and ground water contamination from an adjacent site. No
conclusions regarding the existence of any possible contamination can be made
until the additional testing is completed. The reductions in the three
contracted sales prices which have been negotiated over the past nine months is
symptomatic of a general trend in values for retail shopping centers in many
markets due to certain consolidations and bankruptcies among retailers which
have led to an oversupply of space and the generally flat rate of growth in
overall retail sales. Nonetheless, management continues to believe that a
current sale of the property would be in the best interests of the Limited
Partners.
Management hopes to complete a sale of the Harwood Village property during
calendar year 1997, however, due to the outstanding contingencies, there are no
assurances that this sale transaction will be completed. A sale of the property
would be followed by a liquidation of the Partnership. Assuming that the current
sale contract is consummated, it is currently anticipated that the potential
liquidating distribution would be approximately $214 per original $1,000
investment.
During the quarter ended November 30, 1996, the leasing team at Harwood
Village North Shopping Center renewed the last of the ten leases that expired in
fiscal year 1996. The Center continues to be 98% leased at November 30, 1996,
unchanged from the quarter ended August 30, 1996. The property's leasing team is
currently working on the only lease that comes up for renewal during fiscal year
1997, a 4,000 square foot tenant that is expected to renew upon the expiration
of its current lease on March 31, 1997.
As of November 30, 1996, the Partnership had cash and cash equivalents of
$391,000. 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.
<PAGE>
Results of Operations
Three Months Ended November 30, 1996
- -----------------------------------
The Partnership reported net income of $65,000 for the three months ended
November 30, 1996, compared to net income of $80,000 for the same period in the
prior year. This decrease in the Partnership's net income resulted from a
decrease in the Partnership's income from the operations of the investment
property held for sale, which was partially offset by a decrease in the
Partnership's operating loss. Income from the operations of the investment
property held for sale decreased by $25,000 primarily due to higher leasing
commissions paid in the current period and a slight decrease in rental income.
The decrease in the Partnership's operating loss resulted from a $3,000
increase in interest income and a $7,000 decrease general and administrative
expenses. Interest income increased due a higher average invested cash reserve
balance during the current period while general and administrative expenses
declined due to a decrease in certain required professional fees.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
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 First Qualified Properties, Inc. and Properties
Associates ("PA"), which are the General Partners of the Partnership and
affiliates 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 alleged
that, in connection with the sale of interests in PaineWebber Qualified Plan
Property Fund LP, PaineWebber, First Qualified Properties, Inc. and PA (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
purported to be suing on behalf of all persons who invested in PaineWebber
Qualified Plan Property Fund LP, also alleged that following the sale of the
partnership interests, PaineWebber, First Qualified Properties, Inc. and PA
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleged that PaineWebber, First Qualified
Properties, Inc. and PA violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought 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 sought treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions 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 plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships 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.
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 a ruling by the court as a
result of this final hearing is currently pending.
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 the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
any amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. At the present time, the General Partners
cannot estimate the impact, if any, of the potential indemnification claims on
the Partnership's financial statements, taken as a whole. Accordingly, no
provision for any liability which could result from the eventual outcome of
these matters has been made in the accompanying financial statements of the
Partnership.
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: January 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the three months ended November
30, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 391
<SECURITIES> 0
<RECEIVABLES> 19
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 570
<PP&E> 3,964
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,534
<CURRENT-LIABILITIES> 154
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,380
<TOTAL-LIABILITY-AND-EQUITY> 4,534
<SALES> 0
<TOTAL-REVENUES> 110
<CGS> 0
<TOTAL-COSTS> 45
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 65
<INCOME-TAX> 0
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> 3.43
<EPS-DILUTED> 3.43
</TABLE>
