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 JUNE 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-10980
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
June 30, 1995 and September 30, 1994
(Unaudited)
ASSETS
June 30 September 30
Operating investment property:
Land $ 1,400,000 $ 1,400,000
Buildings, improvements and equipment 12,297,227 11,829,259
13,697,227 13,229,259
Less: accumulated depreciation (4,324,230) (4,016,646)
9,372,997 9,212,613
Cash and cash equivalents 165,912 24,441
Tax and insurance escrow deposits 69,833 156,103
Repair escrow 31,137 794,216
Prepaid and other assets 63,515 38,891
Deferred financing costs, net 178,521 184,158
$9,881,915 $10,410,422
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 156,733 $ 484,493
Accrued real estate taxes 67,468 93,251
Accrued interest 37,307 37,630
Tenant security deposits and prepaid rent 63,647 56,146
Equity in losses of unconsolidated joint ventures
in excess of investments and advances 1,136,910 779,691
Long-term debt 4,930,375 4,973,090
Partners' capital 3,489,475 3,986,121
$9,881,915 $10,410,422
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at September 30, 1993 $(141,273) $ 4,611,593
Net loss (6,760) (669,201)
BALANCE AT JUNE 30, 1994 $(148,033) $ 3,942,392
Balance at September 30, 1994 $(146,115) $ 4,132,236
Net loss (4,966) (491,680)
BALANCE AT JUNE 30, 1995 $(151,081) $3,640,556
See accompanying notes.
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES:
Rental revenues $ 503,911 $ 436,216 $1,418,889 $1,157,617
Interest and other income 3,051 1,714 7,158 5,141
506,962 437,930 1,426,047 1,162,758
EXPENSES:
Property operating expenses 333,161 461,053 986,660 900,550
Interest expense and
related fees 117,668 139,359 342,705 298,518
Depreciation expense 91,039 76,768 307,584 250,231
Real estate taxes 36,816 34,829 99,823 102,299
General and administrative 109,252 73,095 199,595 212,674
687,936 785,104 1,936,367 1,764,272
Operating loss (180,974) (347,174) (510,320) (601,514)
Partnership's share of
unconsolidated
ventures' income (losses) (21,079) (47,868) 13,674 (74,447)
NET LOSS $(202,053) $(395,042) $(496,646) $ (675,961)
Net loss per Limited
Partnership Unit $(7.78) $(15.22) $(19.13) $(26.04)
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 nine months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net loss $ (496,646) $(675,961)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation expense 307,584 250,231
Amortization of deferred financing fees 5,637 2,571
Partnership's share of unconsolidated
ventures' income (losses) (13,674) 74,447
Changes in assets and liabilities:
Tax and insurance escrow deposits 86,270 105,122
Accrued interest and other receivables - (9,976)
Prepaid and other assets (24,624) (55,417)
Accounts payable and other liabilities 9,420 (15,237)
Accounts payable - affiliates - (24,808)
Accrued real estate taxes (25,783) (43,314)
Accrued interest (323) 13,399
Tenant security deposits and
prepaid rent 7,501 (17,540)
Total adjustments 352,008 279,478
Net cash used for operating activities (144,638) (396,483)
Cash flows from investing activities:
Distributions from unconsolidated
joint venture 411,643 125,000
Additional investment in unconsolidated
joint venture (40,750) -
Additions to buildings, improvements
and equipment (805,148) (226,263)
Net withdrawals from repair escrow 763,079 -
Net cash provided by(used for)
investing activities 328,824 (101,263)
Cash flows from financing activities:
Principal payments on long-term debt (42,715) -
Issuance of long-term debt - 5,000,000
Payment of loan fees and expenses - (192,198)
Repayment of long-term debt - (3,350,545)
Funding of capital improvement escrow - (1,024,322)
Net cash provided by (used for)
financing activities (42,715) 432,935
Net increase (decrease) in cash and
cash equivalents 141,471 (64,811)
Cash and cash equivalents, beginning
of period 24,441 176,345
Cash and cash equivalents, end of period $ 165,912 $111,534
Cash paid during the period for interest $ 337,391 $ 282,548
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 June 30, 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 nine months ended June 30, 1995 and 1994 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
Rental revenues and
expense
recoveries $1,285,000 $1,223,000 $3,917,000 $ 3,598,000
Interest and
other income 15,000 - 39,000 1,000
1,300,000 1,223,000 3,956,000 3,599,000
Property operating
expenses 616,000 503,000 1,834,000 1,603,000
Interest expense 424,000 508,000 1,285,000 1,369,000
Depreciation and
amortization 180,000 158,000 509,000 447,000
Real estate taxes 97,000 110,000 297,000 282,000
1,317,000 1,279,000 3,925,000 3,701,000
NET INCOME (LOSS) $ (17,000) $ (56,000) $ 31,000 $ (102,000)
Net income (loss):
Partnership's share of
combined income
(loss) $ (20,000) $ (47,000) $ 18,000 $ (70,000)
Co-venturers'
share of
combined income
(loss) 3,000 (9,000) 13,000 (32,000)
$ (17,000) $ (56,000) $ 31,000 $ (102,000)
RECONCILIATION OF PARTNERSHIP'S SHARE OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
Partnership's share of
combined income (loss),
as shown above $(20,000) $ (47,000) $ 18,000 $(70,000)
Amortization of excess basis (1,000) (1,000) (4,000) (4,000)
Partnership's share of
unconsolidated ventures'
income (losses) $(21,000) $ (48,000) $ 14,000 $(74,000)
3.Operating Investment Property
Operating investment property at June 30, 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 nine months ended June 30, 1995 and 1994:
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
Property operating expenses:
Salaries and related costs $ 66,834 $ 59,352 $201,134 $187,623
Repairs and maintenance 135,523 255,250 314,262 362,443
Utilities 75,075 100,386 312,632 208,531
Management fees 20,164 17,502 56,824 52,135
Administrative and other 35,565 28,563 101,808 89,818
$333,161 $ 461,053 $986,660 $900,550
4. Related Party Transactions
Included in general and administrative expenses for nine months ended
June 30, 1995 and 1994 is $65,715 and $77,817, 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 nine months
ended June 30, 1995 and 1994 is $700 and $818, 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 June 30, 1995 and September 30, 1994 relates to the
consolidated joint venture, Arlington Towne Oaks Associates, and is
summarized as follows:
June 30 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. $4,930,375 $4,973,090
6. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
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 has begun to market the property for sale during fiscal
1995 in order 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.
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 is expected to
require funds in the near term 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.
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
loan 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 is
substantially completed. 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 94% as of June 30, 1995 from a low of 84%
experienced one year earlier. 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 nine months ended June 30, 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 $341,000 as of June 30, 1995. These escrowed funds are being used
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 $1 million 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 June 30, 1995 the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $166,000. 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 refinancings
of such properties.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995
The Partnership reported a net loss of approximately $202,000 for the
three-month period ended June 30, 1995, as compared to a net loss of
approximately $395,000 for the same period in the prior year. This favorable
change in net operating results for the third quarter of fiscal 1995 can be
attributed to decreases in both operating loss and the Partnership's share of
unconsolidated ventures' losses.
The decrease in the Partnership's operating loss, which includes the
results of the consolidated Towne Oaks joint venture, is mainly the result of an
increase in rental revenues and a decrease in property operating expenses from
the Towne Oaks Apartments, which was partially offset by increases in
depreciation and general and administrative expenses. 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. Property
operating expenses decreased by $128,000 primarily due to a reduction in repairs
and maintenance expenses. The early phase of the improvement program at Towne
Oaks, as discussed further above, included addressing certain deferred
maintenance items. Rental revenues were up $68,000 for the three-month period
ended June 30,1995 as compared to the same period in fiscal 1994. Depreciation
expense increased by approximately $14,000 over the prior period as a result of
the additional depreciation on the capital improvements funded with the proceeds
from the refinancing. General and administrative expenses increased by $36,000
for the current three-month period mainly due to additional costs incurred in
connection with an independent valuation of the Partnership's operating
investment properties.
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 the
Braesridge joint venture and an increase in depreciation expense at the Charter
Oak joint venture as a result of the additional capital improvements.
Nine Months Ended June 30,1995
The Partnership reported a net loss of approximately $497,000 for the nine
months ended June 30, 1995, as compared to a net loss of approximately $676,000
for the same period in the prior year. This decrease in net loss resulted from
a decrease in the Partnership's operating loss of approximately $91,000 and an
improvement in the Partnership's share of unconsolidated ventures' operations of
approximately $88,000.
The decrease 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 rental revenues from the Towne Oaks Apartments. Rental revenues
were up $261,000 for the nine-month period ended June 30, 1995, as compared to
the same period in fiscal 1994, due to the impact of the capital improvements
discussed above on occupancy and rental rates. The increase in revenues was
partially offset by an increase in interest expense and depreciation expense.
Interest expense on the Towne Oaks debt increased by approximately $44,000 as a
result of the higher principal balance and interest rate on the new mortgage
loan. In addition, depreciation expense increased by approximately $57,000 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 nine-month 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 the Braesridge joint venture along with an increase in
depreciation and amortization expense at the Charter Oak joint venture as a
result of the additional depreciation on the capital improvements.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's quarterly report on Form 10-Q for the
period ended March 31, 1995, 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. On May 30, 1995, the
court certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partner continues to believe 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: August 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the nine months ended June 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 165,912
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 330,397
<PP&E> 12,560,317
<DEPRECIATION> 4,324,230
<TOTAL-ASSETS> 9,881,915
<CURRENT-LIABILITIES> 261,508
<BONDS> 4,930,375
<COMMON> 0
0
0
<OTHER-SE> 3,489,475
<TOTAL-LIABILITY-AND-EQUITY> 9,881,915
<SALES> 0
<TOTAL-REVENUES> 1,439,721
<CGS> 0
<TOTAL-COSTS> 1,593,662
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342,705
<INCOME-PRETAX> (496,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496,646)
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<EPS-PRIMARY> (19.13)
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