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, 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: 0-10980
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2738053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and September 30, 1994
(Unaudited)
ASSETS
March 31 September 30
Operating investment property:
Land $ 1,400,000 $ 1,400,000
Buildings, improvements and equipment 12,593,549 11,829,259
13,993,549 13,229,259
Less: accumulated depreciation (4,229,433) (4,016,646)
9,764,116 9,212,613
Cash and cash equivalents 308,969 24,441
Tax and insurance escrow deposits 56,553 156,103
Repair escrow 36,405 794,216
Prepaid and other assets 38,462 38,891
Deferred financing costs, net 180,400 184,158
$ 10,384,905 $10,410,422
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 502,634 $ 484,493
Accrued real estate taxes 30,652 93,251
Accrued interest 37,417 37,630
Tenant security deposits and prepaid rent 61,905 56,146
Equity in losses of unconsolidated joint ventures
in excess of investments and advances 1,115,832 779,691
Long-term debt 4,944,937 4,973,090
Partners' capital 3,691,528 3,986,121
$ 10,384,905 $10,410,422
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended March 31, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at September 30, 1993 $ (141,273) $ 4,611,593
Net loss (2,809) (278,110)
BALANCE AT MARCH 31, 1994 $ (144,082) $ 4,333,483
Balance at September 30, 1994 $ (146,115) $ 4,132,236
Net loss (2,946) 291,647)
BALANCE AT MARCH 31, 1995 $ (149,061) $3,840,589
See accompanying notes.
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1995 and 1994
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
REVENUES:
Rental revenues $476,483 $416,371 $914,978 $839,969
Interest and other income 2,815 8,203 4,107 21,793
479,298 424,574 919,085 861,762
EXPENSES:
Property operating expenses 337,079 275,826 653,499 576,431
Mortgage interest 112,359 84,743 225,037 159,159
Depreciation and amortization 108,537 83,861 216,545 173,463
Real estate taxes 33,737 27,551 63,007 67,470
General and administrative 34,547 89,671 90,343 139,579
626,259 561,652 1,248,431 1,116,102
Operating loss (146,961) (137,078) (329,346) (254,340)
Partnership's share of
unconsolidated
ventures' income (losses) 35,601 16,531 34,753 (26,579)
NET LOSS $ (111,360) $(120,547) $(294,593) $(280,919)
Net loss per Limited
Partnership Unit $ (4.29) $ (4.64) $(11.35) $(10.82)
The above net loss per Limited Partnership Unit is based upon the 25,698 Units
of Limited Partnership Interest outstanding for each period.
See accompanying notes.
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net loss $ (294,593) $(280,919)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 216,545 173,463
Partnership's share of unconsolidated
ventures' income (losses) (34,753) 26,579
Changes in assets and liabilities:
Tax and insurance escrow deposits 99,550 (33,571)
Accrued interest and other receivables - (11,785)
Prepaid and other assets 429 28,421
Accounts payable and other liabilities 18,141 138
Accounts payable - affiliates - (24,808)
Accrued real estate taxes (62,599) (37,030)
Accrued interest (213) 13,500
Tenant security deposits and prepaid rent 5,759 (18,807)
Total adjustments 242,859 116,100
Net cash used for operating activities (51,734) (164,819)
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 411,644 -
Additional investment in unconsolidated joint venture (40,750) -
Additions to buildings, improvements and equipment (764,290) -
Net withdrawals from repair escrow 757,811
- - - - -
Net cash provided by investing activities 364,415 -
Cash flows from financing activities:
Principal payments on long-term debt (28,153) -
Issuance of long-term debt - 5,000,000
Payment of loan fees and expenses - (192,841)
Repayment of long-term debt - (3,337,243)
Funding of capital improvement escrow - (1,461,395)
Net cash provided by (used for)
financing activities (28,153) 8,521
Net increase (decrease) in cash
and cash equivalents 284,528 (156,298)
Cash and cash equivalents, beginning of period 24,441 176,345
Cash and cash equivalents, end of period $ 308,969 $ 20,047
Cash paid during the period for interest $ 225,250 $ 141,919
See accompanying notes.
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, 1994.
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. Investments in Unconsolidated Joint Ventures
At March 31, 1995 and 1994, the Partnership had investments in two
unconsolidated joint ventures, Charter Oak Associates and Braesridge 305
Associates, which own operating investment properties, as more fully
described in the Partnership's Annual Report. The unconsolidated joint
ventures are accounted for on the equity method in the Partnership's
financial statements 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.
Summarized operating results of the unconsolidated joint ventures for the
three and six months ended March 31, 1995 and 1994 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1995 AND 1994
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
Rental revenues and
expense recoveries $ 1,274,000 $1,201,000 $ 2,515,000 $2,270,000
Interest and other income 39,000 1,000 141,000 108,000
1,313,000 1,202,000 2,656,000 2,378,000
Property operating expenses 574,000 522,000 1,218,000 1,060,000
Interest expense 427,000 463,000 861,000 903,000
Depreciation and amortization 167,000 144,000 329,000 289,000
Real estate taxes 99,000 65,000 200,000 172,000
1,267,000 1,194,000 2,608,000 2,424,000
NET INCOME (LOSS) $ 46,000 $ 8,000 $ 48,000 $ (46,000)
Net income (loss):
Partnership's share
of combined
income (loss) $ 37,000 $ 18,000 $ 38,000 $ (24,000)
Co-venturers' share of
combined income (loss) 9,000 (10,000) 10,000 (22,000)
$ 46,000 $ 8,000 $ 48,000 $ (46,000)
RECONCILIATION OF PARTNERSHIP'S SHARE OF OPERATIONS
Partnership's share of
combined income (loss),
as shown above $ 37,000 $ 18,000 $ 38,000 $ (24,000)
Amortization of excess
basis (1,000) (1,000) (3,000) (3,000)
Partnership's share of
unconsolidated ventures'
losses $ 36,000 $ 17,000 $ 35,000 $ (27,000)
3.Operating Investment Property
Operating investment property at March 31, 1995 and September 30, 1994
represents the land, buildings and equipment of Arlington Towne Oaks
Associates, a joint venture in which the Partnership has a controlling
interest, as described below.
As discussed further in the Annual Report, during fiscal 1991 the
Partnership's co-venture partner in Arlington Towne Oaks Associates withdrew
from the venture and assigned its interest to the Managing General Partner of
the Partnership in return for a release from any further obligations. As a
result, the Partnership assumed full control over the affairs of the joint
venture. Accordingly, the accompanying financial statements present the
financial position and results of operations of the joint venture on a
consolidated basis. The joint venture owns and operates a 320-unit apartment
complex in Arlington, Texas.
The Partnership is utilizing a local, unaffiliated property management
company to operate the property, under the direction of the Managing General
Partner. The following is a summary of property operating expenses for the
three and six months ended March 31, 1995 and 1994.
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
Property operating expenses:
Salaries and related costs $ 73,773 $ 61,563 $134,300 $128,271
Repairs and maintenance 83,087 37,555 178,739 107,193
Utilities 131,971 124,591 237,557 245,079
Management fees 19,119 17,249 36,660 34,633
Administrative and other 29,129 34,868 66,243 61,255
$337,079 $275,826 $653,499 $576,431
4. Related Party Transactions
Included in general and administrative expenses for six months ended
March 31, 1995 and 1994 is $42,132 and $51,291, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months
ended March 31, 1995 and 1994 is $457 and $670, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
5. Long-term Debt
Long-term debt at March 31, 1995 and September 30, 1994 relates to the
consolidated joint venture, Arlington Towne Oaks Associates, and is
summarized as follows:
March 31 September 30
9.08% mortgage note due March 1, 2019,
payable in monthly installments of
$42,234, including interest,
collateralized by the Towne Oaks
operating investment property. $ 4,944,937 $4,973,090
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As discussed further in the Annual Report, the implementation of capital
improvements made possible by the recent refinancings of the Charter Oak and
Towne Oaks properties are expected to support management's ability to increase
rents and add value to these properties. Accordingly, management is not likely
to consider the sale of either of these assets at least until the respective
capital improvement programs are substantially completed and the effects of the
improvements are fully reflected in the asking rents for the apartment units.
With respect to the Braesridge property, now that the property's long-term
mortgage debt has been refinanced, as discussed further below, and with
occupancy rates at stabilized levels in the mid-90's, management must examine
whether there are substantial benefits to be gained by continuing to hold the
property. Management plans to market the property for sale during fiscal 1995
in order to test the market to determine whether a favorable sale opportunity
might exist. As part of such marketing efforts, management will examine the
factors affecting the prices of multi-family residential properties in the
Houston area to attempt to determine if market prices might be at or near their
peak for the current market cycle. In all likelihood, such values are
substantially below the Partnership's original investment in Braesridge.
Nonetheless, a current sale which would recover a portion of the original
investment and eliminate the future carrying costs associated with holding the
investment may be in the Partnership's best interests to the extent that the
property's future appreciation potential is deemed to be limited. The newly
modified mortgage debt can be assumed by a buyer of the property, which may help
facilitate a future sale transaction.
As part of the refinancing of the mortgage loan secured by the Towne Oaks
Apartments in fiscal 1994, the joint venture was required to establish an escrow
account for a replacement reserve and other capital repairs. The balance of
these restricted reserves totalled approximately $1.5 million at the time of the
closing. Subsequent to the refinancing, the Partnership has implemented a
program to use these funds, along with cash flow from property operations, to
repair and upgrade the Towne Oaks Apartments. To date, over $1.7 million of
capital expenditures have been incurred to complete the installation and
painting of new exterior siding on all buildings and to upgrade the apartment
interiors. The exterior portion of the capital improvement program was
completed during the quarter ended December 31, 1994. Apartment interiors are
being upgraded on a turnover basis and should be substantially completed by the
end of 1995. The property improvements were necessary in order to improve
occupancy and rental rates at this almost 20-year old facility, which had
declined during fiscal 1993 and 1994 due to competitive conditions existing in
the property's Arlington, Texas submarket. The impact of the renovation program
is reflected in the property's occupancy level which increased to 91% as of
March 31, 1995 from a low of 84% experienced at March 31, 1994. The Partnership
hired a new management firm to oversee the implementation of the property
rehabilitation program and to manage the day-to-day operations of the apartment
complex under the direction of the Managing General Partner. Management is
confident that the capital improvement program will allow the property to remain
competitive in its marketplace. Further increases in occupancy levels and
rental rates are expected in future quarters. As planned rental rate increases
are implemented, the property should begin to generate excess cash flow in the
fairly near future.
During the first quarter of fiscal 1995, the Braesridge joint venture
completed a long-term extension of its mortgage loan with the existing lender.
The modified note, in the initial principal amount of $10,058,382, is secured by
the operating investment property and requires principal and interest payments
of $84,412 on a monthly basis. The interest rate on the modified obligation is
9%, with provisions to adjust the rate after the first 7 years of the term. The
term of the mortgage obligation is not to exceed 25 years. The agreement
contains a call option that, with six months advance written notice on either
the 7th, 14th, or 21st anniversary date of the note, would require the payment
of the unpaid principal and accrued interest. Given 30 days advance written
notice, the Partnership is allowed to make prepayments of up to 10% of the
original principal on any interest paying date during the first 7 years of the
note without prepayment consideration. The entire balance may be prepaid during
the six full calendar months immediately preceding the 7th, 14th, and 21st
anniversary date of the note or immediately preceding the maturity date of
August 1, 2019 given 30 days advance written notice. Closing costs for the loan
modification and extension agreement totalled $81,500 and were paid during the
quarter ended December 31, 1994. The Partnership contributed its 50% share of
such amounts. In addition to the loan closing costs, the venture will require
funds during fiscal 1995 to cover certain working capital requirements and
certain planned capital improvements. The Partnership's share of such amounts
is expected to total approximately $100,000.
During the six months ended March 31, 1995, the Partnership received
distributions of approximately $412,000 from Charter Oak Associates. Additional
cash flow distributions are expected semi-annually on a go-forward basis. The
positive cash flow from the venture is a direct result of the HUD refinancing
which took place in August 1993. Despite the increase in the venture's loan
balance, annual debt service for the Charter Oak joint venture has decreased
under the new financing structure as a result of the significant reduction in
the interest rate. As part of the HUD insured loan program, the joint venture
was required to establish an escrow account for a replacement reserve and other
required repairs. The balance of these restricted escrow deposits totalled
approximately $382,000 as of March 31, 1995. These escrows will provide the
capital necessary to address certain deferred maintenance and capital
improvement items that will significantly upgrade individual units and the
property as a whole. The capital improvement program commenced during fiscal
1994, with the joint venture incurring over $820,000 in improvement costs to
date. Based on these improvements, and the reduction in the property's debt
payments, management of the Partnership is optimistic that the property will
achieve strong performance levels in the coming months and will generate the
cash flow required to fund the Partnership's operations.
At March 31, 1995 the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $309,000. Such cash and
cash equivalents will be utilized for the working capital requirements of the
Partnership and, if necessary, to fund property operating deficits and capital
improvements of the joint ventures in accordance with the respective joint
venture agreements. The source of future liquidity and distributions to the
partners is expected to be through cash generated from operations of the
Partnership's investment properties and proceeds from the sales or refinancing
of such properties.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995
The Partnership reported a net loss of approximately $111,000 for the
three-month period ended March 31, 1995, as compared to a net loss of
approximately $121,000 for the same period in the prior year. This favorable
change in net operating results for the second quarter of fiscal 1995 can be
attributed to an increase in the Partnership's share of unconsolidated ventures'
income offset by a slight increase in operating loss.
The increase in the Partnership's share of unconsolidated ventures' income
is primarily due to an increase in rental revenues at both the Charter Oak and
Braesridge joint ventures. The increase in revenues resulted mainly from an
increase in rental rates at both properties. This increase in revenues was
partially offset by increases in repairs and maintenance expenses at both joint
ventures.
The increase in the Partnership's operating loss, which includes the
results of the consolidated Towne Oaks joint venture, is mainly the result of
increases in interest expense and depreciation, which was partially offset by an
increase in rental revenues from the Towne Oaks Apartments. As discussed
further above, the capital improvement program at Towne Oaks has had a positive
impact on both the occupancy level and rental rates at the property. Rental
revenues were up $60,000 for the three-month period ended March 31,1995 as
compared to the same period in fiscal 1994. Interest expense on the Towne Oaks
debt, which was refinanced in fiscal 1994, increased by approximately $28,000 as
a result of the higher principal balance and interest rate on the new mortgage
loan. Depreciation and amortization expense increased by approximately $25,000
over the prior period as a result of the additional depreciation on the capital
improvements funded with the proceeds from the refinancing.
Six Months Ended March 31,1995
The Partnership reported a net loss of approximately $295,000 for the six
months ended March 31, 1995, as compared to a net loss of approximately $281,000
for the same period in the prior year. This increase in net loss resulted from
an increase in the Partnership's operating loss of approximately $75,000, offset
by an improvement in the Partnership's share of unconsolidated ventures'
operations of approximately $61,000.
The increase in the Partnership's operating loss, which includes the
results of the consolidated Towne Oaks joint venture, is primarily the result of
an increase in interest expense, which was partially offset by an increase in
rental revenues from the Towne Oaks Apartments. Rental revenues were up $75,000
for the six-month period ended March 31, 1995, as compared to the same period in
fiscal 1994, due to the impact of the capital improvements discussed above.
Interest expense on the Towne Oaks debt increased by approximately $66,000 as a
result of the higher principal balance and interest rate on the new mortgage
loan. In addition, depreciation and amortization expense increased by
approximately $43,000 over the prior period as a result of the additional
depreciation on the capital improvements .
The improvement in the Partnership's share of unconsolidated ventures'
operations in the current period is primarily due to an increase in rental
revenues at both the Charter Oak and Braesridge joint ventures in fiscal 1995.
As discussed further above, rental rates have increased at Charter Oak in
conjunction with the capital improvement program and Braesridge experienced
increases in both occupancy and rental rates over the prior period. This
increase in revenues was partially offset by increases in repairs and
maintenance expenses at both joint ventures.
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 Fourth Income Properties Fund, Inc., an affiliate of
PaineWebber and the Managing General Partner in the Partnership.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Income Properties
Four LP, PaineWebber and Fourth Income Properties Fund, 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 Four LP,
also allege that following the sale of the partnership interests, PaineWebber
and Fourth Income Properties Fund, Inc. misrepresented financial information
about the Partnership's value and performance. The amended complaint alleges
that PaineWebber and Fourth Income Properties Fund, 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 Fourth Income Properties Fund, Inc. and its affiliates for costs and
liabilities in connection with this litigation. The Managing 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.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
PAINE WEBBER INCOME PROPERTIES FOUR 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 FOUR
LIMITED PARTNERSHIP
By: FOURTH INCOME PROPERTIES FUND, INC.
Managing General Partner
By:/s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the six months ended March 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 308,969
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 440,389
<PP&E> 12,877,717
<DEPRECIATION> 4,229,433
<TOTAL-ASSETS> 9,269,073
<CURRENT-LIABILITIES> 632,608
<BONDS> 4,944,937
<COMMON> 0
0
0
<OTHER-SE> 3,691,528
<TOTAL-LIABILITY-AND-EQUITY> 9,269,073
<SALES> 0
<TOTAL-REVENUES> 953,838
<CGS> 0
<TOTAL-COSTS> 1,023,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225,037
<INCOME-PRETAX> (294,593)
<INCOME-TAX> 0
<INCOME-CONTINUING> (294,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,593)
<EPS-PRIMARY> (11.35)
<EPS-DILUTED> (11.35)
</TABLE>
