UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 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 of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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 ____.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
December 22, 1981, as supplemented
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
1995 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership Interests
and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-5
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-5
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-27
<PAGE>
PART I
Item 1. Business
Paine Webber Income Properties Four Limited Partnership (the "Partnership")
is a limited partnership formed in July 1981 under the Uniform Limited
Partnership Act of the State of Delaware for the purpose of investing in a
diversified portfolio of existing income-producing real properties including
shopping centers, office buildings and apartment complexes. The Partnership sold
$25,698,000 in Limited Partnership Units (the "Units"), representing 25,698
Units at $1,000 per Unit, during the offering period pursuant to a Registration
Statement on Form S-11 filed under the Securities Act of 1933 (Registration No.
2-73602). Limited Partners will not be required to make any additional capital
contributions.
As of September 30, 1995, the Partnership had three operating property
investments, which were owned through joint venture partnerships, as set forth
below:
Name of Joint Venture Date of
Name and Type of Property Acquisition
Location Size of Interest Type of Ownership (1)
- ----------------------- ---- ----------- ---------------------
Charter Oak Associates 284 6/8/82 Fee ownership of land and
Charter Oak Apartments units improvements (through
Creve Coeur, Missouri joint venture)
Arlington Towne Oaks 320 8/23/82 Fee ownership of land and
Associates units improvements (through
Arlington Towne Oaks joint venture)
Apartments
Arlington, Texas
Braesridge 305 545 9/30/82 Fee ownership of land and
Associates (2) units improvements (through
Braesridge joint venture)
Apartments
Houston, Texas
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments, and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
(2) Subsequent to year-end, on December 29, 1995, the Partnership sold its
interest in the Braesridge 305 Associates joint venture to an affiliate of
its co-venture partners for net cash proceeds of $1,000,000, as further
discussed in Item 7.
The Partnership originally owned interests in five operating investment
properties. The Partnership agreed to transfer title to the Yorktown Office
Center to the mortgage lender in March of 1991. The decision to forfeit the
Partnership's interest in the Yorktown Office Center, a 99,000 square foot
building located in a suburb of Chicago, Illinois, was based on the property's
inability to generate sufficient income to cover its debt service obligations.
The inability of the Yorktown joint venture to meet the debt service
requirements of the mortgage loan resulted from the significant oversupply of
competing office space in the local suburban real estate market and its negative
impact on occupancy and rental rates. Management did not foresee any improvement
in the local real estate market for the next several years and believed that the
use of cash reserves to fund operating deficits would still not enable the
Partnership to recover any meaningful portion of its remaining investment in
Yorktown Office Court. As a result of the transfer of title, the Partnership no
longer has any ownership interest in this property. In addition, the venture
which owned the Glenwood Village Shopping Center, a 41,000 square foot strip
center in Raleigh, North Carolina, sold the property to a third party on
September 23, 1991. The property was sold for $4,300,000 and, after repaying the
outstanding mortgage loan and paying transaction costs, the Partnership's share
of the net proceeds was $1,650,000.
<PAGE>
The Partnership's original investment objectives were to:
(i) provide the Limited Partners with cash distributions which, to some
extent, will not constitute taxable income;
(ii) preserve and protect the Limited Partners' capital;
(iii) obtain long-term appreciation in the value of its properties;
and
(iv) provide a build-up of equity through the reduction of mortgage
loans on its properties.
Through September 30, 1995, the Limited Partners had received cumulative
cash distributions totalling approximately $9,492,000, or approximately $387 per
original $1,000 investment for the Partnership's earliest investors. Of this
amount, approximately $4,497,000, or $175 per original $1,000 investment,
represents proceeds distributed from the refinancing of the Charter Oak
Apartments in fiscal 1986 and from the sale of the Glenwood Village Shopping
Center in November 1991. The remaining distributions have been paid from
operating cash flow. A substantial portion of these distributions paid to date
has been sheltered from current taxable income. The Partnership suspended the
payment of regular quarterly distributions of excess cash flow in fiscal 1987.
As of September 30, 1995, the Partnership retained its ownership interest in
three of its five original investment properties. Due to the fiscal 1996 sale of
the interest in the Braesridge joint venture, which represented 31% of the
Partnership's original investment portfolio, for an amount which is
substantially lower than the Partnership's investment in Braesridge, combined
with the fiscal 1991 foreclosure loss of the Yorktown investment, which
represented 16% of the Partnership's original investment portfolio, in all
likelihood the Partnership will be unable to return the full amount of the
original capital contributed by the Limited Partners. The amount of capital
which will be returned will depend upon the proceeds received from the final
liquidation of the two remaining investments. The amount of such proceeds will
ultimately depend upon the value of the underlying investment properties at the
time of their final disposition, which cannot presently be determined.
All of the properties securing the Partnership's remaining investments are
located in real estate markets in which they face significant competition for
the revenues they generate. The apartment complexes compete with numerous
projects of similar type generally on the basis of price, location and
amenities. As in all markets, the apartment project also competes with the local
single family home market for prospective tenants. The continued availability of
low interest rates on home mortgage loans has increased the level of this
competition over the past few years. However, the impact of the competition from
the single-family home market has been offset by the lack of significant new
construction activity in the multi-family apartment market over this period.
The Partnership has no real estate investments located outside the United
States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an Advisory
Contract with PaineWebber Properties Incorporated (the "Adviser"), which is
responsible for the day-to-day operations of the Partnership. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber Group Inc. ("PaineWebber").
The general partners of the Partnership (the "General Partners") are Fourth
Income Properties Fund, Inc. and Properties Associates. Fourth Income Properties
Fund, Inc., a wholly-owned subsidiary of PaineWebber, is the Managing General
Partner of the Partnership. The Associate General Partner of the Partnership is
Properties Associates, a Massachusetts general partnership, certain general
partners of which are also officers of the Adviser and the Managing General
Partner. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by the Adviser.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
<PAGE>
Item 2. Properties
As of September 30, 1995, the Partnership had interests in three operating
properties through joint venture partnerships. The joint venture partnerships
and the related properties are referred to under Item 1 above to which reference
is made for the name, location and description of each property.
Occupancy figures for each fiscal quarter during 1995, along with an
average for the year, are presented below for each property:
Percent Occupied At
Fiscal 1995
12/31/94 3/31/95 6/30/95 9/30/95 Average
Charter Oak Apartments 92% 95% 95% 96% 95%
Arlington Towne Oaks
Apartments 87% 91% 94% 94% 92%
Braesridge Apartments 96% 96% 95% 96% 96%
Item 3. 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. 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 alleges
that, in connection with the sale of interests in PaineWebber Income Properties
Four Limited Partnership, PaineWebber, Fourth Income Properties Fund, 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
purport to be suing on behalf of all persons who invested in PaineWebber Income
Properties Four Limited Partnership, also allege that following the sale of the
partnership interests, PaineWebber, Fourth Income Properties Fund, Inc. and PA
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, Fourth Income
Properties Fund, Inc. and PA 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., PA and their 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.
The Partnership is not subject to any other material pending legal
proceedings.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At September 30, 1995 there were 2,064 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for the Units will develop. The Managing General Partner
will not redeem or repurchase Units.
The Partnership made no cash distributions to the Limited Partners during
fiscal 1995.
Item 6. Selected Financial Data
Paine Webber Income Properties Four Limited Partnership
For the years ended September 30, 1995, 1994, 1993, 1992 and 1991
(In thousands, except per Unit data)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(1)
Revenues $ 1,656 $ 1,496 $ 1,531 $ 1,577 $ 1,522
Operating loss $ (427) $ (518) $ (322) $ (222) $ (333)
Partnership's share of
unconsolidated
ventures' operations $ 174 $ 34 $ (353) $ (299)$ (605)
Loss before extraordinary
gains $ (253) $ (484) $ (675) $ (521)$ (938)
Extraordinary gains - - - - $ 2,499
Net income (loss) $ (253) $ (484) $ (675) $ (521)$ 1,561
Per Limited Partnership Unit:
Loss before
extraordinary gains $ (9.75) $(18.65) $(26.01) $ (20.09)$ (36.13)
Extraordinary gains - - - - $ 96.26
Net income (loss) $ (9.75) $(18.65) $(26.01) $(20.09) $ 60.13
Cash distribution
from sale proceeds - - - $ 58.00 -
Total assets $ 9,962 $ 10,410 $ 8,849 $ 9,364 $11,089
Long-term debt $ 4,915 $ 4,973 $ 3,337 $ 3,486 $ 3,623
(1) The extraordinary gains recognized in fiscal 1991 related to the foreclosure
of the Yorktown Office Court in March of 1991 and the extinguishment of a
second mortgage loan secured by the Towne Oaks Apartments.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the 25,698
Limited Partnership Units outstanding during each year.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership offered Limited Partnership Interests to the public from
December 1981 to December 1982 pursuant to a Registration Statement filed under
the Securities Act of 1933. Gross proceeds of $25,698,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
approximately $22,336,000 was originally invested in five operating investment
properties through joint ventures. Through September 30, 1995, one of these
properties had been lost to foreclosure and another had been sold to a third
party. The Partnership does not have any commitments for additional investments
but may be called upon to fund its portion of operating deficits or capital
improvements of the joint ventures in accordance with the respective joint
venture agreements.
Subsequent to year end, on December 29, 1995, the Partnership sold its
interest in the Braesridge joint venture to an affiliate of the co-venture
partners for net cash proceeds of $1 million. Management had been actively
marketing the Braesridge Apartments for sale during fiscal 1995 and received
several offers from prospective purchasers. The purchase contract signed with
the co-venture partners was at a price which exceeded all third party offers.
The net sale price for the Partnership's equity interest was based on an agreed
upon fair value of the property of approximately $11.7 million. The agreed upon
fair market value is supported by management's most recent independent appraisal
of the Braesridge Apartments and by the marketing efforts to third-parties which
were conducted during fiscal 1995. Under the terms of the Braesridge joint
venture agreement, the co-venture partner had the right to match any third-party
offer to purchase the property. Accordingly, a negotiated sale to the
co-venturer at the appropriate market price represented the most expeditious and
advantageous way for the Partnership to sell this investment. The original cash
investment by the Partnership for its interest in the Braesridge joint venture
was approximately $6,879,000 (including an acquisition fee of $725,000 paid to
the Adviser of the Partnership). The property was originally subject to an
institutional nonrecourse first mortgage of approximately $8,500,000 at the time
of acquisition. Subsequent to acquisition, the venture was forced to modify the
terms of the mortgage loan because the property did not generate sufficient cash
flow to service the debt. The effect of such deferrals was that the total amount
of the mortgage loan obligation increased over the several years covered by the
modification agreements to a total of approximately $10 million. The inability
of the Braesridge joint venture to service its mortgage debt obligations during
the late 1980s was the result of overbuilding which precipitated a severe real
estate recession. Such conditions, which existed throughout the country, were
compounded in Houston by the collapse of the domestic crude oil production
industry. These factors put severe downward pressure on occupancy levels and
rental rates. The occupancy level of the Braesridge Apartments averaged 68% over
the five-year period from fiscal 1985 through fiscal 1989. The estimated market
value of the Braesridge Apartments had declined to approximately one-half of the
outstanding debt obligation at the height of this real estate slump.
Conditions in the markets for multi-family residential properties across
the country have demonstrated gradual improvement over the past few years. The
absence of significant new construction activity has allowed the oversupply
which existed in many markets as a result of the overbuilding of the late 1980s
to be absorbed. The results of this absorption have been stabilized occupancy
levels and a gradual improvement in rental rates, which have had a positive
impact on cash flow levels and, consequently, property values. The Braesridge
Apartments achieved a 96% average occupancy level in fiscal year 1995, improved
from a level of 93% attained in the prior year. The high occupancy levels in the
Houston market over the last two years, combined with significantly increased
rental rates, are now sufficient to justify the construction of new apartment
units which could limit Braesridge's long-term performance. Because of the
potential apartment development, as well as the attractive, assumable financing
obtained in October 1994, management believed that now was the appropriate time
to market the Braesridge Apartments for sale and complete a transaction which
would enable the Partnership to realize a partial recovery of its initial
investment in this property. Despite recovering less than 15% of its original
cash investment in Braesridge, the Partnership will recognize a gain for
financial reporting purposes in fiscal 1996 in connection with the sale of this
venture interest because the losses recorded in prior years under the equity
method of accounting have exceeded the Partnership's initial investment amount.
The Partnership expects to distribute approximately $500,000 of the net sale
proceeds, or approximately $20 per original $1,000 investment, in a special
distribution to the Limited Partners to be made by February 15, 1996. The
remaining net sale proceeds would be retained by the Partnership as additional
working capital reserves.
Due to the fiscal 1996 sale of the interest in the Braesridge joint
venture, which represented 31% of the Partnership's original investment
portfolio, for an amount which is substantially lower than the Partnership's
investment in Braesridge, combined with the fiscal 1991 foreclosure loss of the
Yorktown investment, which represented 16% of the Partnership's original
investment portfolio, in all likelihood the Partnership will be unable to return
the full amount of the original capital contributed by the Limited Partners. The
amount of capital which will be returned will depend upon the proceeds received
from the final liquidation of the two remaining investments. The amount of such
proceeds will ultimately depend upon the value of the underlying investment
properties at the time of their final disposition, which cannot presently be
determined. The improving market conditions referred to above for multi-family
apartment properties, combined with the significant capital improvement programs
which are in the process of being implemented at both of the two remaining
investment properties, may result in favorable opportunities to sell the
Partnership's remaining investments within the next 2-to-3 years. The
implementation of capital improvements made possible by the recent refinancings
of the Charter Oak and Towne Oaks properties, as discussed further below, are
expected to support management's ability to increase rents and add value to
these properties. Accordingly, management will likely defer any considerations
of engaging in concerted sales efforts with respect to Charter Oak and Towne
Oaks for the next 12-to-18 months until the respective capital improvement
programs are substantially completed and the effects of the improvements are
fully reflected in the rental rate structures for the apartment units.
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 property. To date, over $1.8
million of capital expenditures have been incurred to complete the installation
and painting of new exterior siding on all buildings and to begin the process of
upgrading the apartment interiors. The exterior portion of the capital
improvement program is substantially completed. Apartment interiors are being
upgraded on a turnover basis and will continue over the next 3 years until all
of the units have been upgraded. The property improvements were necessary in
order to improve the average occupancy levels and rental rates at this 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 initial
impact of the renovation program is reflected in the property's occupancy level
which had increased to 94% as of September 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 fiscal
1996. As planned rental rate increases are implemented, the property should
begin to generate excess cash flow in the fairly near future.
During fiscal 1995, the Partnership received total distributions of
$409,000 from Charter Oak Associates, which included an operating cash flow
distribution and the release of certain excess reserves. The positive cash flow
from the venture is a direct result of the HUD refinancing which took place in
August 1993. 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 which totalled approximately $1.7 million at the time of the
loan closing. The balance of these restricted escrow deposits totaled
approximately $780,000 as of September 30, 1995. These escrows have provided the
capital necessary to address certain deferred maintenance and capital
improvement items that have significantly upgraded individual units and the
property as a whole. The capital improvements during fiscal 1995 were
principally comprised of the renovation of individual apartment units which, as
with Towne Oaks, is being done on a turnover basis and will continue until all
of the apartments have been upgraded. The Charter Oak Apartments property has
achieved a 4% increase in its average occupancy level over the past 3 years,
improving to 95% for fiscal 1995 from a level of 91% experienced in fiscal 1992.
The increase in the occupancy level over the past three consecutive years has
been accomplished while simultaneously raising rental rates on the apartment
units, which has allowed rental income to increase by an average of 6% per year.
The suburban St. Louis submarket has not experienced any substantial new
development activity in several years and management is not aware of any
significant plans for major development activity in the near future. For fiscal
1996 management plans to continue the unit renovation program and address
additional landscaping enhancements.
At September 30, 1995 the Partnership and its consolidated joint venture
had available cash and cash equivalents of $129,000. Such cash and cash
equivalents, combined with the proceeds to be retained from the sale of the
Braesridge joint venture interest, as discussed above, 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
1995 Compared to 1994
The Partnership reported a net loss of $253,000 for the year ended
September 30, 1995, as compared to a net loss of $484,000 recognized in the
prior year. The decrease in net loss resulted from a decrease in the
Partnership's operating loss of $91,000 and an increase in the Partnership's
share of unconsolidated ventures' income of $140,000. 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 Oak Apartments. Rental revenues increased by $187,000
for fiscal 1995, when compared to fiscal 1994, due to the impact of the capital
improvements discussed above on occupancy and rental rates. The increase in
revenues at Towne Oaks was partially offset by increases in the consolidated
venture's interest expense, depreciation expense and real estate taxes. Interest
expense on the Towne Oaks debt increased by $42,000 as a result of the higher
principal balance and interest rate on the new mortgage loan subsequent to the
fiscal 1994 refinancing transaction. Depreciation expense increased by $25,000
due to the additional depreciation on the capital improvements at the Towne Oaks
Apartments. In addition, real estate tax expense on the Towne Oaks property
increased by $14,000 in fiscal 1995.
The improvement in the Partnership's share of unconsolidated ventures'
income during fiscal 1995 is primarily due to an increase in rental revenues at
both the Charter Oak and Braesridge joint ventures. As discussed further above,
rental rates have increased at Charter Oak in conjunction with the capital
improvement program and Braesridge experienced increases in both average
occupancy and rental rates during fiscal 1995. Average occupancy at the
Braesridge Apartments was 96% for fiscal 1995, as compared to 93% for fiscal
1994. The resulting increase in combined rental revenues, of $243,000, was
partially offset by increases in repairs and maintenance expense at the
Braesridge joint venture along with an increase in depreciation and amortization
expense at the Charter Oak joint venture as a result of additional depreciation
on the capital improvements.
1994 Compared to 1993
The Partnership reported a net loss of $484,000 for the year ended
September 30, 1994, which represented a decrease in net loss of $191,000 when
compared to fiscal 1993. This favorable change was primarily the result of an
improvement in the net operating results of the Partnership's unconsolidated
joint ventures (Braesridge and Charter Oak) during fiscal 1994. The Partnership
recognized income of $34,000 from its share of unconsolidated ventures'
operations in 1994, as compared to a loss of $353,000 in fiscal 1993. This
improvement was primarily the result of increased rental income from the
Braesridge Apartments and lower mortgage interest and operating expenses of the
Charter Oak joint venture. Rental revenues from Braesridge increased by $263,000
in fiscal 1994, which was partially offset by increases in salaries and repairs
and maintenance expenses. As discussed further above, the Charter Oak joint
venture refinanced its debt on August 31, 1993. This resulted in a decrease in
the venture's interest expense of $242,000 during fiscal 1994. In addition, real
estate taxes and maintenance expenses of the Charter Oak joint venture decreased
by $39,000.
The favorable change in the Partnership's share of unconsolidated ventures'
operations was partially offset by an increase in the Partnership's operating
loss. The increase in the Partnership's operating loss, of $196,000, was
primarily the result of an increase in interest expense, coupled with a slight
decline in rental revenues, from the Towne Oaks Apartments. The decrease in
rental revenues can be attributed to the decline in occupancy at the Towne Oaks
Apartments during the renovation period of the apartment complex, as discussed
further above. Interest expense on the Towne Oaks debt increased by $110,000 as
a result of the higher principal balance and interest rate on the new mortgage
loan. An increase in Partnership general and administrative expenses of $63,000
also contributed to the increase in operating loss for fiscal 1994. The increase
in general and administrative expenses resulted mainly from certain expenditures
incurred in connection with an independent valuation of the Partnership's
operating properties which was commissioned during fiscal 1994 in conjunction
with management's ongoing refinancing efforts and portfolio management
responsibilities.
1993 Compared to 1992
The Partnership reported a net loss of $675,000 for the year ended
September 30, 1993 as compared to a net loss of $521,000 for fiscal 1992. This
increase in net loss resulted from an increase in the Partnership's operating
loss of $100,000, coupled with an increase in the Partnership's share of
unconsolidated ventures' losses of $54,000.
The increase in the Partnership's operating loss was primarily a result of
a decrease in rental revenues and an increase in property operating expenses
reported by the consolidated Towne Oaks joint venture. The decrease in rental
revenues can be attributed to a decline in occupancy at the Towne Oaks
Apartments while the increase in operating expenses resulted mainly from an
increase in repairs and maintenance expense incurred to upgrade the property and
address certain deferred maintenance items. This was partially offset by an
increase in other income at the Towne Oaks Apartments, along with a slight
decrease in interest expense due to principal pay downs on the outstanding
mortgage note. A decrease in interest income due to lower average outstanding
cash reserve balances also contributed to the increase in operating loss for
fiscal 1993.
The Partnership's share of unconsolidated ventures' losses increased by 18%
primarily due to an overall increase in property operating expenses at both
unconsolidated joint ventures, which was partially offset by an increase in
rental revenues due to improved occupancy at both the Charter Oak and Braesridge
apartment properties during fiscal 1993. The Partnership's share of losses from
the Charter Oak joint venture decreased by $111,000 as a result of higher
revenues which were partially offset by an increase in real estate tax expense
as a result of a refund received in fiscal 1992. The Partnership's share of
losses from the Braesridge joint venture increased by $165,000 mainly due to
certain leasing and marketing expenses incurred as part of efforts to further
increase occupancy.
Inflation
The Partnership completed its thirteenth full year of operations in fiscal
1995 and the effects of inflation and changes in prices on revenues and expenses
to date have not been significant.
Inflation in future periods may cause an increase in revenues, as well as
operating expenses, at the Partnership's operating investment properties.
Tenants at the Partnership's apartment properties have short-term leases,
generally of six-to-twelve months in duration. Rental rates at these properties
can be adjusted to keep pace with inflation, as market conditions allow, as the
leases are renewed or turned over. Such increases in rental income would be
expected to at least partially offset the corresponding increases in Partnership
and property operating expenses.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
<PAGE>
III-4
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Fourth Income Properties
Fund, Inc. a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates, a Massachusetts general partnership, certain general partners of
which are officers of the Adviser and the Managing General Partner. The Managing
General Partner has overall authority and responsibility for the Partnership's
operations, however, the day-to-day business of the Partnership is managed by
the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date elected
Name Office Age to Office
Lawrence A. Cohen President and Chief Executive
Officer 42 8/30/88
Albert Pratt Director 84 6/12/81 *
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President and
Chief Financial Officer 48 10/29/85
James A. Snyder Senior Vice President 50 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 53 6/12/81 *
Timothy J. Medlock Vice President and Treasurer 34 6/1/88
Thomas W. Boland Vice President 33 12/1/91
* The date of incorporation of the Managing General Partner.
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors or
executive officers of the Managing General Partner of the Partnership. All of
the foregoing directors and executive officers have been elected to serve until
the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser.
The business experience of each of the directors and principal executive
officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is also a member of the Board of Directors and the
Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First Vice
President of VMS Realty Partners where he was responsible for origination and
structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is Director of the Managing General Partner, a Consultant of
PWI and a General Partner of the Associate General Partner. Mr. Pratt joined PWI
as Counsel in 1946 and since that time has held a number of positions including
Director of both the Investment Banking Division and the International Division,
Senior Vice President and Vice Chairman of PWI and Chairman of PaineWebber
International, Inc.
<PAGE>
J. Richard Sipes is a Director of the Managing General Partner and a
Director of the Adviser. Mr. Sipes is an Executive Vice President at
PaineWebber. He joined the firm in 1978 and has served in various capacities
within the Retail Sales and Marketing Division. Before assuming his current
position as Director of Retail Underwriting and Trading in 1990, he was a
Branch Manager, Regional Manager, Branch System and Marketing Manager for a
PaineWebber subsidiary, Manager of Branch Administration and Director of
Retail Products and Trading. Mr. Sipes holds a B.S. in Psychology from
Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. Mr. Arnold is a Certified Public Accountant licensed in the State of
Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company.
John B. Watts III is a Senior Vice President of the Managing General
Partner and a Senior Vice President of the Adviser which he joined in June 1988.
Mr. Watts has had over 16 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an Assistant Treasurer
of the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and
also, from March 1974 to February 1980, the Assistant Treasurer of Capital for
Real Estate, which provided real estate investment, asset management and
consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and Vice President and Treasurer of the Adviser which he joined
in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner and
a Vice President and Manager of Financial Reporting of the Adviser which he
joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in the
state of Massachusetts. He holds a B.S. in Accounting from Merrimack College
and an M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended September 30, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser, and the
General Partners are entitled to receive a share of Partnership cash
distributions and a share of profits and losses. These items are described in
Item 13.
The Partnership has not paid cash distributions to the Unitholders from
operations over the past five years. Furthermore, the Partnership's Units of
Limited Partnership Interest are not actively traded on any organized exchange,
and no efficient secondary market exists. Accordingly, no accurate price
information is available for these Units. Therefore, a presentation of
historical Unitholder total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of Limited
Partnership Interest, not voting securities. All the outstanding stock of the
Managing General Partner, Fourth Income Properties Fund, Inc., is owned by
PaineWebber. Properties Associates, the Associate General Partner, is a
Massachusetts general partnership, certain general partners of which are
officers of the Adviser and the Managing General Partner. No limited partner is
known by the Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.
(b) Neither directors and officers of the Managing General Partner nor the
general partners of the Associate General Partner, individually, own any Units
of limited partnership interest of the Partnership. No director or officer of
the Managing General Partner, nor any general partner of the Associate General
Partner, possesses a right to acquire beneficial ownership of Units of Limited
Partnership Interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are Fourth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group Inc. ("PaineWebber"), and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by PaineWebber Properties
Incorporated (the "Adviser") pursuant to an advisory contract. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber.
The General Partners, the Adviser and PWI receive fees and compensation
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management and disposition of Partnership
investments. In connection with investing Partnership capital, the Adviser
received acquisition fees paid by the joint ventures and sellers.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds shall be distributed in
varying proportions to the Limited and General Partners, as specified in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
losses of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Taxable income or tax losses arising from a sale or
refinancing of investment properties will be allocated to the Limited Partners
and the General Partners in proportion to the amounts of sale or refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or refinancing. If
there are no sale or refinancing proceeds, taxable income and tax losses from a
sale or refinancing will be allocated 99% to the Limited Partners and 1% to the
General Partners. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser is paid a basic management fee (4% of adjusted cash flow,
as defined) and an incentive management fee (5% of adjusted cash flow
subordinated to a noncumulative annual return to the limited partners equal to
6% based upon their adjusted capital contribution) for services rendered. The
Adviser did not earn any management fees during the year ended September 30,
1995 due to the lack of distributable cash flow.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended September 30, 1995 is $86,000 representing reimbursements to this
affiliate for providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $1,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended September 30, 1995. Fees charged
by Mitchell Hutchins are based on a percentage of invested cash reserves which
varies based on the total amount of invested cash which Mitchell Hutchins
manages on behalf of PWPI.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at Page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
Page IV-3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the last quarter of
fiscal 1995.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at Page F-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership 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/ Lawrence A. Cohen
Lawrence A. Cohen
President and Chief Executive Officer
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: January 9, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership in
the capacity and on the dates indicated.
By:/s/ Albert Pratt Date:January 9, 1996
Albert Pratt
Director
By: /s/ J. Richard Sipes Date January 9, 1996
J. Richard Sipes
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Page Number in the
Exhibit No. Description of Document Report or Other
Reference
- ---------------- ----------------------------------- ---------------------
(3) and (4) Prospectus of the Registrant dated Filed with the
December 22, 1991, as supplemented Commission pursuant
with particular reference to the Rule 424(c) and
Restated Certificant and Agreement incorporated herein
of Limited Partnership. by reference.
(10) Material contracts previously filed as Filed with the
exhibits to registration to statements Commission pursuant
and amendments thereto of the registrant Section 13 or
together with all such contracts filed 15(d) of the
as exhibits of previously filed Securities Exchange
Forms 10-K and hereby incorporated Act of 1934 and
herein by reference. incorporated herein
by reference.
(13) Annual Report to Limited Partners No Annual Report
for the year ended
September 30, 1995
has been sent to
the Limited Partners.
An Annual Report will
be sent to the
Limited Partners
subsequent to this
filing.
(22) List of subsidiaries Included in Item 1
of Part I of this
Report Page I-1, to
which reference is
hereby made.
(27) Financial data schedule Filed as the last
page of EDGAR
submission
following the
Financial
Statements and
Financial Statement
Schedules required
by Item 14.
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
Paine Webber Income Properties Four Limited Partnership:
Report of independent auditors F-2
Consolidated balance sheets as of September 30, 1995 and 1994 F-3
Consolidated statements of operations for the years ended September 30,
1995, 1994 and 1993 F-4
Consolidated statements of changes in partners' capital (deficit) for the
years ended
September 30, 1995, 1994 and 1993 F-5
Consolidated statements of cash flows for the years ended September 30,
1995, 1994 and 1993 F-6
Notes to consolidated financial statements F-7
Schedule III - Real Estate and Accumulated Depreciation F-16
Combined Joint Ventures of Paine Webber Income Properties Four Limited
Partnership:
Report of independent auditors F-17
Combined balance sheets as of September 30, 1995 and 1994 F-18
Combined statements of operations and changes in venturers' deficit
for the years ended September 30, 1995, 1994 and 1993 F-19
Combined statements of cash flows for the years ended
September 30, 1995, 1994 and 1993 F-20
Notes to combined financial statements F-21
Schedule III- Real Estate and Accumulated Depreciation F-27
Other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Four Limited Partnership:
We have audited the accompanying consolidated balance sheets of PaineWebber
Income Properties Four Limited Partnership as of September 30, 1995 and 1994,
and the related consolidated statements of operations, changes in partners'
capital (deficit) and cash flows for each of the three years in the period ended
September 30, 1995. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paine Webber
Income Properties Four Limited Partnership at September 30, 1995 and 1994 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
December 29, 1995
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994
(In thousands, except per Unit data)
ASSETS
1995 1994
Operating investment property:
Land $ 1,400 $ 1,400
Buildings, improvements and equipment 12,468 11,829
--------- ---------
13,868 13,229
Accumulated depreciation (4,436) (4,016)
--------- ---------
9,432 9,213
Cash and cash equivalents 129 24
Tax escrow deposit 110 156
Repair escrow 59 794
Prepaid and other assets 57 39
Deferred financing costs, net of accumulated
amortization of $13 ($4 in 1994) 175 184
------- ------
$ 9,962 $10,410
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 144 $ 484
Accrued real estate taxes 101 93
Mortgage interest payable 37 38
Tenant security deposits 58 56
Equity in losses of unconsolidated joint ventures
in excess of investments and advances 974 780
Long-term debt 4,915 4,973
--------- --------
Total liabilities 6,229 6,424
Partners' capital:
General Partners:
Capital contributions 1 l
Cumulative net loss (100) (97)
Cumulative cash distributions (51) (51)
Limited Partners ($1,000 per unit; 25,698 Units issued):
Capital contributions, net of offering costs 23,194 23,194
Cumulative net loss (9,819) (9,569)
Cumulative cash distributions (9,492) (9,492)
-------- ---------
Total partners' capital 3,733 3,986
-------- ---------
$ 9,962 $10,410
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 1995, 1994 and 1993
(In thousands, except per Unit data)
1995 1994 1993
---- ---- ----
Revenues:
Rental revenue $ 1,613 $ 1,426 $1,454
Interest income 8 8 9
Other income 35 62 68
----------- ---------- ---------
1,656 1,496 1,531
Expenses:
Property operating expenses 820 811 852
Mortgage interest and other financing costs 458 416 298
Depreciation and amortization 420 395 358
Real estate taxes 134 120 136
General and administrative 251 272 209
--------- --------- ---------
2,083 2,014 1,853
-------- -------- --------
Operating loss (427) (518) (322)
Partnership's share of unconsolidated
ventures' operations 174 34 (353)
---------- --------- --------
Net loss $ (253) $ (484) $ (675)
======== ======= ==========
Net loss per Limited Partnership Unit $ (9.75) $(18.65) $(26.01)
======== ======= ========
The above net loss per Limited Partnership Unit is based upon the 25,698
Limited Partnership Units outstanding during each year.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
General Limited
Partners Partners Total
Balance at September 30, 1992 $(135) $5,280 $ 5,145
Net loss (7) (668) (675)
-------- ------- -------
Balance at September 30, 1993 (142) 4,612 4,470
Net loss (5) (479) (484)
-------- ------- -------
Balance at September 30, 1994 (147) 4,133 3,986
Net loss (3) (250) (253)
-------- -------- --------
Balance at September 30, 1995 $ (150) $ 3,883 $ 3,733
====== ======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net loss $ (253) $ (484) $ (675)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation and amortization 420 395 358
Amortization of deferred financing costs 9 18 -
Partnership's share of unconsolidated
ventures' operations (174) (34) 353
Changes in assets and liabilities:
Tax escrow deposit 46 (18) (37)
Accrued interest and other receivables - 1 -
Prepaid and other assets (18) 5 (27)
Accounts payable and other liabilities (3) 5 21
Accounts payable - affiliate - (25) 9
Accrued real estate taxes 8 (8) -
Mortgage interest payable (1) 13 (1)
Tenant security deposits 2 (4) 10
----------- ----------- ----------
Total adjustments 289 348 686
--------- --------- ---------
Net cash provided by (used for)
operating activities 36 (136) 11
Cash flows from investing activities:
Distributions from unconsolidated
joint ventures 409 125 -
Additional investments in
unconsolidated joint ventures (41) - (82)
Additions to buildings, improvements
and equipment (976) (795) (46)
Decrease in (deposits to) repair escrow 735 (794) -
Net cash provided by (used for)
investing activities 127 (1,464) (128)
Cash flows from financing activities:
Payment of deferred financing costs - (188) -
Proceeds from issuance of long-term debt - 5,000 -
Principal repayments on long-term debt (58) (3,364) (149)
------ ------ -----
Net cash provided by (used for)
financing activities (58) 1,448 (149)
Net increase (decrease) in cash and
cash equivalents 105 (152) (266)
Cash and cash equivalents,
beginning of year 24 176 442
--------- -------- ---------
Cash and cash equivalents, end of year $ 129 $ 24 $ 176
========= =========== ========
Cash paid during the year for interest $ 450 $ 370 $ 299
========= ========== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
Notes To Consolidated Financial Statements
1. Organization
Paine Webber Income Properties Four Limited Partnership (the
"Partnership") is a limited partnership organized pursuant to the laws of the
State of Delaware in July 1981 for the purpose of investing in a diversified
portfolio of income-producing properties. The Partnership authorized the sale of
units (the "Units") of partnership interest (at $1,000 per Unit) of which 25,698
were subscribed and issued between December 1981 and December 1982.
2. Summary of Significant Accounting Policies
The accompanying financial statements include the Partnership's
investments in three joint venture partnerships which own operating properties.
As further discussed in Note 5, subsequent to year-end, the Partnership sold its
interest in the Braesridge joint venture for $1,000,000. Except as described
below, the Partnership accounts for its investments in joint venture
partnerships using the equity method because the Partnership does not have a
voting control interest in the ventures. Under the equity method the investment
in a joint venture is carried at cost adjusted for the Partnership's share of
the venture's earnings or losses and distributions. See Note 5 for a description
of the unconsolidated joint venture partnerships.
As further discussed in Note 4, effective December 31, 1990, the
co-venture partner of Arlington Towne Oaks Associates assigned its general
partnership interest to Fourth Income Properties Fund, Inc., the Managing
General Partner of the Partnership (see Note 3). The assignment gave the
Partnership control over the affairs of the joint venture. Accordingly, the
accompanying financial statements present the financial position, results of
operations and cash flows of this joint venture on a consolidated basis. All
transactions between the Partnership and the joint venture have been eliminated
in consolidation.
The operating investment property owned by the consolidated joint venture
is carried at the lower of cost, reduced by accumulated depreciation, or net
realizable value. The net realizable value of a property held for long-term
investment purposes is measured by the recoverability of the Partnership's
investment through expected future cash flows on an undiscounted basis, which
may exceed the property's market value. The Partnership's operating investment
property is considered to be held for long-term investment purposes as of
September 30, 1995 and 1994. Depreciation on the operating investment property
is computed using the straight-line method over an estimated useful life of
forty years for the buildings and improvements and five years for the equipment.
Acquisition fees paid to an affiliate in connection with the investment in the
Towne Oaks joint venture have been capitalized and are included in the cost of
the operating investment property.
The Partnership has reviewed FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," which is
effective for financial statements for years beginning after December 15, 1995,
and believes this new pronouncement will not have a material effect on the
Partnership's financial statements.
Deferred financing costs represent loan financing fees and other long-term
debt acquisition costs which have been capitalized and are being amortized, on a
straight-line basis, over the term of the consolidated joint venture's mortgage
loan. Amortization of deferred financing costs is included in mortgage interest
expense and related financing costs on the accompanying statements of
operations.
The consolidated joint venture leases apartment units under leases with
terms usually of one year or less. Rental income is recorded on the accrual
basis as earned. Security deposits typically are required of all tenants.
For purposes of reporting cash flows, the Partnerships considers all
highly liquid investments with original maturities of 90 days or less to be cash
equivalents.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership. Upon sale or
disposition of the Partnership's investments, the taxable gain or the taxable
loss incurred will be allocated among the partners. In cases where the
disposition of the investment involves the lender foreclosing on the investment,
taxable income could occur without distribution of cash. This income would
represent passive income to the partners which could be offset by each partners'
existing passive losses, including any passive loss carryovers from prior years.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are Fourth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group Inc. ("PaineWebber"), and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by PaineWebber Properties
Incorporated (the "Adviser") pursuant to an advisory contract. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber. The General Partners, the Adviser and PWI receive
fees and compensation, determined on an agreed-upon basis, in consideration of
various services performed in connection with the sale of the Units, the
management of the Partnership and the acquisition, management, financing and
disposition of Partnership investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds shall be distributed in
varying proportions to the Limited and General Partners, as specified in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
losses of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Taxable income or tax losses arising from a sale or
refinancing of investment properties will be allocated to the Limited Partners
and the General Partners in proportion to the amounts of sale or refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or refinancing. If
there are no sale or refinancing proceeds, taxable income and tax losses from a
sale or refinancing will be allocated 99% to the Limited Partners and 1% to the
General Partners. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser is paid a basic management fee (4% of adjusted cash flow,
as defined) and an incentive management fee (5% of adjusted cash flow
subordinated to a noncumulative annual return to the limited partners equal to
6% based upon their adjusted capital contribution) for services rendered. The
Adviser did not earn any basic management fees during the three-year period
ended September 30, 1995 due to the lack of distributable cash flow. No
incentive management fees have been paid to date.
In connection with the sale of each property, the Adviser may receive a
disposition fee in an amount equal to 3/4% based on the selling price of the
property, subordinated to the payment of certain amounts to the Limited
Partners. No such fees have been earned to date.
The Managing General Partner and its affiliates are reimbursed for their
direct expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operation of the Partnership's real estate
investments.
Included in general and administrative expenses for the years ended
September 30, 1995, 1994 and 1993 is $86,000, $98,000 and $110,000,
respectively, representing reimbursements to an affiliate of the Managing
General Partner for providing certain financial, accounting and investor
communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned
$1,000 (included in general and administrative expenses) for each of the years
ended September 30, 1995, 1994 and 1993 for managing the Partnership's cash
assets.
4. Operating Investment Property
Operating investment property at September 30, 1995 and 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.
On August 23, 1982 the Partnership acquired an interest in Arlington Towne
Oaks Associates, a Texas general partnership organized to purchase and operate
Towne Oaks Apartments, a 320-unit apartment complex in Arlington, Texas. The
Partnership's original co-venture partner was an affiliate of the Trammell Crow
organization. Effective December 31, 1990, the co-venture partner of 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 of any
further obligations. As a result of the assignment, the Partnership assumed
control over the affairs of the joint venture.
The aggregate cash investment by the Partnership for its interest was
approximately $5,258,000 (including an acquisition fee of $550,000 paid to the
Adviser). The apartment complex was acquired subject to two mortgages: an
institutional nonrecourse first mortgage with a balance of $4,435,000 at the
time of closing and a second mortgage from the seller of the property with a
balance of $1,650,000 at the time of closing. The second mortgage was
extinguished in fiscal 1991. The venture refinanced its first mortgage loan
during fiscal 1994. The new nonrecourse first mortgage loan had an outstanding
principal balance of approximately $4,915,000 as of September 30, 1995.
The joint venture agreement provides that the Partnership will receive
from cash flow, to the extent available, a non-cumulative preferred return,
payable monthly, of $483,000 for each year. After the Partnership's preferred
return requirements are met, the co-venturer is then entitled to receive
quarterly, non-cumulative subordinated returns of $14,000 for each quarter
thereafter. The next $300,000 of available annual cash flow in any year is to be
distributed 90% to the Partnership and 10% to the co-venturer. The next $200,000
of cash flow in any year is to be distributed 80% to the Partnership and 20% to
the co-venturer. Any remaining cash flow is to be used to liquidate any unpaid
principal and accrued interest on any notes made by the joint venture to any
partners, and any remaining cash flow is to be distributed 70% to the
Partnership and 30% to the co-venturer.
Distributions of sale and/or refinancing proceeds will be as follows,
after the payment of mortgage debts and to the extent not previously returned to
each partner: 1) payment of notes and accrued interest payable to partners, 2)
to the Partnership in an amount equal to the Partnership's gross investment, 3)
to the manager for any unpaid subordinated management fees, 4) the next
$3,000,000 to the Partnership and co-venturer allocated 90% and 10%,
respectively, 5) the next $2,000,000 to the Partnership and co-venturer
allocated 80% and 20%, respectively, 6) the next $2,000,000 to the Partnership
and co-venturer allocated 70% and 30%, respectively (increased by $200,000 for
each year or partial year succeeding the fifth year of ownership by the
Partnership), 7) remaining balance to the Partnership and co-venturer allocated
60% and 40%, respectively.
Tax profits, as defined, will be allocated to the Partnership and the
co-venturer in amounts equal to cash distributions, with the balance of the
taxable income allocated 70% to the Partnership and 30% to the co-venturer. Tax
losses, as defined, are allocated 80% to the Partnership and 20% to the
co-venturer. Profits resulting from the sale or refinancing of the Operating
Investment Property will be allocated as follows: 1) to the Partnership and the
co-venturer on a proportionate basis to restore any negative capital accounts to
zero, 2) any remaining gain equal to the excess of the capital proceeds, as
defined, over the aggregate capital balances of all partners, to the Partnership
and the co-venturer on a proportionate basis, and 3) to the Partnership and the
co-venturer in a manner similar to cash distributions described in the preceding
paragraph. Losses from the sale or refinancing of the Operating Investment
Property will be allocated as follows: 1) losses equal to the excess of the
aggregate positive capital accounts of all partners who have positive capital
balances over the capital proceeds, as defined, to the Partnership and the
co-venturer on a proportionate basis and 2) remaining losses 70% to the
Partnership and 30% to the co-venturer. Internal Revenue Service regulations
require partnership allocations of income and loss to the respective partners to
have "substantial economic effect". This requirement resulted in the joint
venture's net loss for the years ended September 30, 1995, 1994 and 1993 being
allocated in a manner different from that provided in the joint venture
agreement, as set forth above, such that no loss was allocable to the
co-venturer. Allocations of the venture's operations between the Partnership and
the co-venturer for financial accounting purposes have been made in conformity
with the actual allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with the
venture, the Partnership and the co-venturer shall loan the required funds to
the venture in the proportions of 70% and 30%, respectively. In the event a
partner defaults in its obligations to make a loan, the other partner may make
all or any part of the loan required by the defaulting partner. Cumulative loans
advanced to the joint venture by the Partnership totalled $1,551,000 as of
September 30, 1995. Such loans bear interest at the lesser of 12% per annum or
the prime rate and are repayable only from the venture's net cash flow or sale
or refinancing proceeds.
The following is a summary of property operating expenses for the years
ended September 30, 1995, 1994 and 1993 (In thousands).
1995 1994 1993
---- ---- ----
Property operating expenses:
Salaries $ 263 $ 241 $ 230
Repairs and maintenance 241 175 274
Utilities 105 150 150
Insurance 10 26 25
Management fees 78 69 62
Administrative and other 123 150 111
------ ------ ------
$ 820 $ 811 $ 852
===== ===== =====
5. Investments in Unconsolidated Joint Ventures
At September 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. The unconsolidated joint
ventures are accounted for on the equity method in the Partnership's financial
statements. 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.
Condensed combined financial statements of the unconsolidated joint ventures
follow.
<PAGE>
Condensed Combined Balance Sheets
September 30, 1995 and 1994
(in thousands)
Assets
1995 1994
Current assets $ 1,221 $ 1,903
Operating investment property, net 18,216 17,943
Other assets, net 292 276
----------- ----------
$ 19,729 $20,122
======== =======
Liabilities and Venturers' Deficit
Current liabilities (including current portion of
mortgage notes payable) $ 2,052 $ 2,070
Long-term mortgage debt, less current portion 19,854 20,054
Partnership's share of combined deficit (1,575) (1,406)
Co-venturers' share of combined deficit (602) (596)
----------- ----------
$ 19,729 $20,122
======== =======
Reconciliation of Partnership's Investment
September 30, 1995 and 1994
1995 1994
Partnership's share of combined deficit,
as shown above $ (1,575) $(1,406)
Partnership's share of current liabilities
and long-term debt 511 531
Excess basis due to investment in
joint ventures, net (1) 90 95
------- -------
Equity in losses of unconsolidated joint
ventures in excess of investments and advances $ (974) $ (780)
========= ========
(1) At September 30, 1995 and 1994, the Partnership's investment exceeds its
share of the combined joint venture capital and liabilities by
approximately $90,000 and $95,000, respectively. This amount, which relates
to certain expenses incurred by the Partnership in connection with
acquiring its joint venture investments, is being amortized on a
straight-line basis over the estimated useful life of the properties.
<PAGE>
Condensed Combined Summary of Operations For the years ended
September 30, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---- ---- ----
Rental income $ 5,168 $ 4,925 $ 4,546
Interest and other income 129 132 100
--------- --------- ---------
5,297 5,057 4,646
Interest expense and related
financing fees 1,779 1,790 1,910
Property operating expenses 2,663 2,646 2,583
Depreciation and amortization 640 565 544
-------- ---------- ---------
5,082 5,001 5,037
-------- -------- --------
Net income (loss) $ 215 $ 56 $ (391)
======== ========= =========
Net income (loss):
Partnership's share of combined
operations $ 179 $ 39 $ (348)
Co-venturers' share of combined
operations 36 17 (43)
--------- -------- ---------
$ 215 $ 56 $ (391)
========= ========= =========
Reconciliation of Partnership's Share of Operations
1995 1994 1993
---- ---- ----
Partnership's share of combined
operations, as shown above $ 179 $ 39 $ (348)
Amortization of excess basis (5) (5) (5)
----------- ---------- -----------
Partnership's share of unconsolidated
ventures' income (losses) $ 174 $ 34 $ (353)
======== ========= =========
Equity in losses of unconsolidated joint ventures in excess of investments and
advances on the balance sheet is comprised of the following equity method
carrying values:
1995 1994
Charter Oak Associates $ 32 $ 200
Braesridge 305 Associates (1,006) (980)
--------- -------
$ (974) $ (780)
========= ======
These joint ventures are subject to partnership agreements which determine
the distribution of available funds, the disposition of the venture's assets and
the rights of the partners, regardless of the Partnership's percentage ownership
interest in the venture. Substantially all of the Partnership's investments in
these joint ventures are restricted as to distributions.
A description of the unconsolidated ventures' properties and the terms of
the joint venture agreements are summarized below:
a) Charter Oak Associates
On June 8, 1982, the Partnership acquired an interest in Charter Oak
Associates, a Missouri general partnership organized to purchase and operate
Charter Oak Apartments, a 284-unit apartment complex in Creve Coeur, Missouri.
The Partnership is a general partner in the joint venture. The Partnership's
co-venture partner is an affiliate of the Paragon Group.
The aggregate cash investment by the Partnership for its interest was
approximately $5,289,000 (including an acquisition fee of $530,000 paid to the
Adviser). The apartment complex was acquired subject to an institutional
nonrecourse first mortgage with a balance of $5,036,000 at the time of closing.
At September 30, 1985, Charter Oak Associates refinanced the first mortgage loan
on the Charter Oak apartment complex. A new non-recourse first mortgage in the
amount of $8,600,000 was obtained at that time. The mortgage loan had a term of
seven years and bore interest at the rate of 11.3% per year. The proceeds from
the refinancing were used to repay the remaining balance on the existing first
mortgage loan of $4,670,000, to pay expenses of closing the new loan and for
distributions to the joint venture partners. Refinancing proceeds of $3,000,000
and $600,000 were distributed to the Partnership and the co-venturer,
respectively, on September 30, 1985. During fiscal 1993, the property's existing
debt was refinanced again through the receipt of a loan issued in conjunction
with an insured loan program of the U.S. Department of Housing and Urban
Development (HUD). The new loan, which had an initial principal balance of
$10,262,000, is a nonrecourse obligation secured by the operating investment
property and an assignment of rents and leases. The loan, which is fully
assumable, has a 35-year maturity and bears interest at a fixed rate of 7.35% .
As part of the HUD insured loan program, the operating investment property was
required to establish an escrow account for a replacement reserve and other
required repairs. The excess loan proceeds, after repayment of the outstanding
indebtedness, were used to pay transaction costs and to fund certain of the
aforementioned capital reserve requirements.
The joint venture agreement and an amendment thereto (the "Agreement")
dated September 30, 1985 provides that the first distribution of cash flow for
any year shall be used collectively to reduce the other partner's deficit. The
other partner's deficit is defined to be an amount equal to 10% of the excess
aggregate amount required to be loaned to Charter Oak over the aggregate amount
actually so loaned to Charter Oak by such partner. During fiscal 1993, the
Partnership advanced 100% of the funds required to close the refinancing
transaction referred to above, which totalled approximately $25,000. The joint
venture agreement provides that the next $220,000 of net cash flow be
distributed to the Partnership, on a noncumulative annual basis, payable monthly
(preference return of the Partnership) and that the next $19,000 of cash flow be
distributed to the co-venturer on a noncumulative annual basis, payable
quarterly (preference return of the co-venturer); the next $213,000 of annual
cash flow will be distributed 85% to the Partnership and 15% to the co-venturer,
and any remaining annual cash flow will be distributed 70% to the Partnership
and 30% to the co-venturer. The amount and timing of actual cash distributions
are restricted by the Computation of Surplus Cash, Distributions and Residual
Receipts as defined under the HUD financing agreement. During fiscal year 1995,
the joint venture distributed $409,000 to the Partnership.
Depreciation and an amount of gross taxable income equal to the amount
paid to amortize the indebtedness of Charter Oak Associates shall be allocated
94% to the Partnership and 6% to the co-venturer. Any remaining taxable income
or tax loss shall be allocated in the same proportions as cash is distributed.
Allocations of the venture's operations between the Partnership and co-venturer
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
Any proceeds arising from a refinancing, sale, exchange or other
disposition of property will be distributed first to the payment of unpaid
principal and accrued interest on any outstanding mortgage loans. Any remaining
proceeds will be distributed according to the September 30, 1985 Amendment to
the Agreement in the following order: repayment of unpaid principal and accrued
interest on all outstanding operating notes; $2,230,000 to the Partnership;
$200,000 to the co-venturer; $4,000,000 to the Partnership and the co-venturer
in the proportions of 85% and 15%, respectively; with the remaining balance to
the Partnership and the co-venturer in the proportions of 70% and 30%,
respectively, unless distributions of net cash flow and certain proceeds have
reached specified levels, in which case the remaining balance is distributed
equally.
If additional cash is required in connection with Charter Oak Associates,
it may be provided by the Partnership and the co-venturer as loans to Charter
Oak Associates. The agreement calls for such loans to be provided 70% by the
Partnership and 30% by the co-venturer.
The joint venture entered into a property management contract with an
affiliate of the co-venturer, cancelable at the option of the Partnership upon
the occurrence of certain events. The management fee is 5% of gross rental
revenues.
b) Braesridge 305 Associates
On September 30, 1982 the Partnership acquired an interest in Braesridge
305 Associates (Braesridge), a Texas general partnership organized to purchase
and operate Braesridge Apartments, a 545-unit apartment complex. The apartment
complex is located in Houston, Texas. The Partnership is a general partner in
the joint venture. The Partnership's co-venture partners are Stanford Capital
Corporation and certain individuals.
Subsequent to year end, on December 29, 1995, the Partnership sold
its interest in Braesridge to an affiliate of the co-venture partners for net
cash proceeds of $1 million. Management had been actively marketing the
Braesridge Apartments for sale during fiscal 1995 and received several offers
from prospective purchasers. The purchase contract signed with the co-venture
partners was at a price which exceeded all third party offers. The net sale
price for the Partnership's equity interest is based on an agreed upon fair
value of the property of approximately $11.7 million. The agreed upon fair
market value is supported by management's most recent independent appraisal of
the Braesridge Apartments and by the marketing efforts to third-parties which
were conducted during fiscal 1995. Under the terms of the Braesridge joint
venture agreement, the co-venture partner had the right to match any third-party
offer to purchase the property. Accordingly, a negotiated sale to the
co-venturer at the appropriate market price represented the most expeditious and
advantageous way for the Partnership to sell this investment. The Partnership's
investment in the Braesridge Apartments represented 31% of the original
investment portfolio. Despite recovering less than 15% of its original cash
investment in Braesridge, the Partnership will recognize a gain in fiscal 1996
in connection with the sale of this venture interest because the losses recorded
in prior years under the equity method have exceeded the Partnership's initial
investment amount. The Partnership expects to distribute approximately $500,000
of the net sale proceeds, or approximately $20 per original $1,000 investment,
in a Special Distribution to be made by February 15, 1996. The remaining net
sale proceeds would be retained by the Partnership as additional working capital
reserves. The sale of the Partnership's interest in Braesridge, as discussed
further above, terminates the Partnership's rights to any share of future cash
flow or sale or refinancing proceeds.
The aggregate cash investment by the Partnership for its interest was
approximately $6,879,000 (including an acquisition fee of $725,000 paid to the
Adviser of the Partnership). The property was originally subject to an
institutional nonrecourse first mortgage of approximately $8,500,000 at the time
of closing. Subsequent to acquisition, the venture was forced to modify the
terms of the mortgage loan because the property did not generate sufficient cash
flow to service the debt. The initial debt modification provided for the
deferral of a portion of the debt service payments through August 1, 1994.
Effective August 1, 1994, the Braesridge joint venture completed a further
modification of its mortgage obligation. The modified note, in the initial
principal amount of $10,058,000, is secured by the operating investment property
and requires principal and interest payments of $84,000 on the first day of each
month beginning September 1994. The interest rate on the modified obligation is
9% with provisions to adjust the rate after the first 7 years of the note. The
term of the mortgage obligation is not to exceed 25 years. Additionally, under
the loan agreement the venture is required to make property maintenance escrow
payments of $16,667 each month that the escrow does not maintain a balance of
$300,000. Amounts in the property maintenance escrow are to be used, subject to
approval by the lender, for major repairs, replacements, and renovations to the
property or to offset operating deficits incurred in connection with the
property. The venture is also required to make real estate tax escrow payments.
If additional cash was required in connection with the operating
investment property, it was to be provided by the venture partners equally as
loans to the joint venture after an initial $100,000 special operating loan from
the co-venturers. During 1995, the venture partners loaned an additional $82,000
to the joint venture in accordance with these terms. As of September 30, 1995,
total operating loans of $290,750 and $178,250 were payable to the co-venturers
and the Partnership, respectively. Total accrued interest on such loans
aggregated $357,000 as of September 30, 1995.
Taxable income or tax loss of the joint venture through the date of the
sale of the Partnership's interest shall be allocated in the same proportion as
cash is distributed and if no cash is distributed, 100% to the Partnership.
Allocations of the venture's operations among the Partnership and co-venturers
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
The joint venture entered into a property management contract with an
affiliate of the co-venturers for fees equal to 4% of the gross receipts from
operations of the complex.
6. Long-term Debt
Long-term debt at September 30, 1995 and 1994 relates to the consolidated
joint venture, Arlington Towne Oaks Associates, and is summarized as follows (in
thousands):
1995 1994
9.08% mortgage note due March
1, 2019, payable in monthly
installments of $42, including
interest, collateralized by the
operating investment property. $ 4,915 $4,973
======== ======
Scheduled maturities of long-term debt are summarized as follows (in
thousands):
1996 $ 63
1997 69
1998 75
1999 83
2000 91
Thereafter 4,534
-------
$4,915
7. 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.
<PAGE>
<TABLE>
<CAPTION>
Schedule III- Real Estate and Accumulated Depreciation
Paine Webber Income Properties Four Limited Partnership
Schedule of Real Estate and Accumulated Depreciation
September 30, 1995
(In thousands)
Initial Cost to Gross Amount at Which Carried at Life on Which
Partnership Costs Close of period Depreciation
Buildings Capitalized Buildings, in Latest
Improvements (Removed) Improvements Income
& Personal Subsequent to & Personal Accumulated Date of Date Statement
Description Encumbrances Land Property Acquisition Land Property Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Complex
Arlington,
TX $4,915 $1,400 $9,763 $2,705 $1,400 $12,468 $13,868 $4,436 1975 8/23/82 5-40 yrs
Notes:
(A) The aggregate cost of real estate owned at September 30, 1995 for Federal income tax purposes is approximately $13,227,000.
(B) See Notes 4 and 6 of Notes to Financial Statements.
(C) Reconciliation of real estate owned:
1995 1994 1993
---- ---- ----
Balance at beginning of period $13,229 $ 12,097 $ 12,051
Increase due to capitalized
mprovements 639 1,132 46
-------- --------- ---------
Balance at end of period $13,868 $ 13,229 $ 12,097
======= ========= ========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 4,016 $ 3,625 $ 3,267
Depreciation expense 420 391 358
------- ------- -------
Balance at end of period $ 4,436 $4,016 $ 3,625
======= ====== =======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Four Limited Partnership:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of PaineWebber Income Properties Four Limited Partnership as of
September 30, 1995 and 1994, and the related combined statements of operations
and changes in venturers' deficit and cash flows for each of the three years in
the period ended September 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Combined Joint Ventures
of Paine Webber Income Properties Four Limited Partnership at September 30, 1995
and 1994 and the combined results of their operations and their cash flows for
each of the three years in the period ended September 30, 1995 in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
November 16, 1995
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1995 and 1994
(In thousands)
Assets
1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 262 $ 265
Escrow deposits 882 1,619
Property maintenance escrow 19 -
Prepaid expenses 58 19
------------ ---------
Total current assets 1,221 1,903
Operating investment properties, at cost:
Land 3,119 3,119
Buildings, improvements and equipment 22,706 21,793
--------- --------
25,825 24,912
Less accumulated depreciation (7,609) (6,969)
--------- --------
18,216 17,943
Deferred expenses, net of accumulated amortization
of $25 ($131 in 1994) 292 276
---------- ----------
$19,729 $20,122
Liabilities and Venturers' Deficit
Current liabilities:
Accounts payable and other liabilities $ 114 $ 134
Accrued real estate taxes 293 298
Accrued interest 494 512
Tenant security deposits 119 116
Distributions payable to venturers 305 336
Operating loans from venturers 516 459
Other current liabilities 11 13
Current portion of long-term debt 200 202
--------- -------
Total current liabilities 2,052 2,070
Long-term debt 19,854 20,054
Venturers' deficit (2,177) (2,002)
--------- --------
$19,729 $20,122
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' DEFICIT
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
---- ---- ----
Revenues:
Rental income $ 5,168 $ 4,925 $ 4,546
Interest and other income 129 132 100
--------- --------- --------
5,297 5,057 4,646
Expenses:
Interest expense and related
financing fees 1,779 1,790 1,910
Salaries and related costs 719 738 648
Depreciation and amortization 640 565 544
Repairs and maintenance 629 558 507
Real estate taxes 385 390 447
Utilities 360 386 348
Management fees 235 223 228
General and administrative 254 271 310
Insurance 81 80 95
---------- ---------- ----------
5,082 5,001 5,037
-------- -------- --------
Net income (loss) 215 56 (391)
Distributions to venturers (390) (448) -
Venturers' deficit, beginning of year (2,002) (1,610) (1,219)
--------- -------- ---------
Venturers' deficit, end of year $ (2,177) $(2,002) $(1,610)
======== ======= ========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 215 $ 56 $ (391)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 640 565 544
Amortization of deferred financing costs 20 40 41
Original issue discount interest - (144) (181)
Changes in assets and liabilities:
Escrow deposits 718 430 15
Accounts receivable - - 2
Prepaid expenses (39) 135 (72)
Accounts payable and other liabilities (20) (146) 163
Accrued real estate taxes (5) (7) (3)
Accrued interest (18) 116 114
Tenant security deposits 3 7 4
Other current liabilities (2) (9) (24)
------------ --------- ----------
Total adjustments 1,297 987 603
Net cash provided by
operating activities 1,512 1,043 212
Cash flows from investment activities:
Capital expenditures (913) (699) (79)
Cash flows from financing activities:
Distributions to venturers (421) (125) -
Issuance of operating loans from venturers 82 - 131
Repayment of operating loans from venturers (25) - -
Restricted escrows funded by debt proceeds - - (1,678)
Increase in deferred expenses (36) (59) (247)
Proceeds from long-term debt - - 10,262
Principal payments on long-term debt (202) (65) (8,526)
--------- ---------- -------
Net cash used for financing
activities (602) (249) (58)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (3) 95 75
Cash and cash equivalents, beginning of year 265 170 95
--------- --------- ----------
Cash and cash equivalents, end of year $ 262 $ 265 $ 170
======== ======== ========
Cash paid during the year for interest $ 1,726 $ 1,675 $ 2,003
======= ======= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
Notes to Combined Financial Statements
1. Summary of significant accounting policies
Organization
The accompanying financial statements of the Combined Joint Ventures of
Paine Webber Income Properties Four Limited Partnership (PWIP4) include the
accounts of PWIP4's two unconsolidated joint ventures investees as of September
30, 1995. Charter Oak Associates was organized on June 8, 1982 in accordance
with a partnership agreement between PWIP4 and Paragon/Charter Oak Associates,
Ltd. The Charter Oak Associates joint venture was organized to purchase and
operate an apartment complex in St. Louis County, Missouri. Braesridge 305
Associates was formed as a general partnership on September 30, 1982, for the
purpose of acquiring and operating an apartment complex, including two phases,
Braesridge I and Braesridge II. On the same date, Braesridge 305 Associates
acquired from a partner the assets, subject to certain liabilities, of
Braesridge I and the adjacent site for Braesridge II, which was completed in
August 1983. The apartment complex is located in Houston, Texas. PWIP4 has two
co-venturer partners in the Braesridge joint venture, Stanford Capital
Corporation ("Stanford") and Braesridge Apartments. The financial statements of
the Combined Joint Ventures are presented in combined form due to the nature of
the relationship between the co-venturers and PWIP4, which owns a majority
financial interest in both joint ventures.
Basis of presentation
The records of the two Combined Joint Ventures are maintained on the
income tax basis of accounting and adjusted to generally accepted accounting
principles (GAAP) for financial reporting purposes, principally for
depreciation.
Operating investment properties
The operating investment properties are carried at the lower of cost,
reduced by accumulated depreciation, or net realizable value. The net realizable
value of a property held for long-term investment purposes is measured by the
recoverability of the venture's investment through expected future cash flows on
an undiscounted basis, which may exceed the property's market value. The net
realizable value of a property held for sale approximates its current market
value. Both of the operating properties owned by the Combined Joint Ventures
were considered to be held for long-term investment purposes as of September 30,
1995 and 1994.
The Combined Joint Ventures have reviewed FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,"
which is effective for financial statements for years beginning after December
15, 1995, and believe this new pronouncement will not have a material effect on
the financial statements of the Combined Joint Ventures.
The Combined Joint Ventures capitalized property taxes and interest
incurred during the construction period of the projects along with the costs of
identifiable improvements. Professional fees and other costs relating to the
formation of the joint ventures have also been capitalized and are included in
the cost of the properties. Depreciation expense is computed on a straight-line
basis over the estimated useful life of the buildings, improvements and
equipment, generally, 5 to 40 years.
Deferred expenses
Deferred expenses consist of capitalized loan costs which are being
amortized over the terms of the related loan agreements. Amortization of
deferred loan costs is included in interest expense on the accompanying
statements of operations.
<PAGE>
Revenue Recognition
The Combined Joint Ventures lease space at the apartment properties under
short-term operating leases. Rental revenues are recognized on an accrual basis
as earned pursuant to the terms of the leases. Security deposits are generally
required of all tenants.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
Income tax matters
The Combined Joint Ventures consists of entities which are not taxable and
accordingly, the results of their operations are included on the tax returns of
the various partners. Accordingly no income tax provision is reflected in the
accompanying combined financial statements.
Cash and cash equivalents
For purposes of the statement of cash flows, the Combined Joint Ventures
consider all highly liquid investments with original maturity dates of 90 days
or less to be cash equivalents.
Escrow Deposits
Escrow deposits consist primarily of amounts to be used for the payment of
property taxes, insurance premiums and reserves for replacements to the
operating investment properties. Amounts in the property replacement reserves
are to be used, subject to the approval by the lender, for major repairs,
replacements and renovations to the properties. As of September 30, 1995,
approximately $718,000 of these reserves relates to escrow accounts for property
taxes, insurance premiums and a reserve for replacements as required by the U.S.
Department of Housing and Urban Development (HUD) which insures the long-term
debt of Charter Oak Associates Joint Venture. Use of these funds must be
approved by HUD.
2. Related Party Transactions
Affiliates of Stanford provided property repair and maintenance services
for the Braesridge Apartments totalling $65,000, $154,000 and $128,000 during
the years ended September 30, 1995, 1994 and 1993, respectively. Additionally,
management fees and fees for accounting services rendered totalling $136,000,
$138,000 and $133,000 were paid by Braesridge 305 Associates to Stanford and
affiliates of Stanford for the years ended September 30, 1995, 1994 and 1993,
respectively. Both joint ventures have property management contracts with
affiliates of the co-venture partners. The management fees paid to the property
managers range from 4% to 5% of certain gross revenues.
As provided for in the Braesridge joint venture agreement, the first
$100,000 of deficit funding from the venture partners is to be treated as a
special operating loan. The special operating loans from partners accrue
interest on principal only at 16%. Any deficit funding thereafter is to be
treated as an operating loan which shall accrue interest on principal only at
the greater of Bank of Boston prime plus 1% or 12%. Operating loans totaling
$107,000 and $17,625 were made by the partners to the Braesridge 305 Associates
joint venture in accordance with the joint venture agreement during fiscal 1993
and 1992, respectively. During 1995 the partners loaned an additional $82,000 to
the Partnership under the same terms, as stated above. Of the total special and
operating loans at September 30, 1995, $224,000, $178,000 and $67,000 is payable
to Braesridge Apartments, PWIP4 and Stanford, respectively. Interest incurred on
these operating loans totaled $57,000, $51,000 and $48,000 for the years ended
September 30, 1995, 1994 and 1993, respectively.
As part of the refinancing of the long-term debt of Charter Oak Associates
in fiscal 1993, PWIP4 provided an unsecured operating note in the amount of
$25,000 which bore interest at the lower of 12% or the prime rate (8.75% at
September 30, 1995) per year. The operating note and related accrued interest
are payable only from refinancing or sales proceeds as defined by the agreement,
including funds set aside in an escrow account to be released at some later
date. During fiscal 1995, Charter Oaks repaid the operating loan plus accrued
interest from certain funds released from escrow by the mortgage lender.
Included in the balance of other current liabilities at September 30, 1995
and 1994 is $11,000 and $13,000, respectively, which represents the balance in
an intercompany account maintained between Charter Oak Associates and the
related property manager.
3. Joint Venture Agreements
Charter Oak Associates
The joint venture owns and operates the Charter Oak Apartments, a 284-unit
apartment complex in Creve Coeur, Missouri. As discussed further in Note 4, the
mortgage debt of Charter Oak Associates matured on October 1, 1992, and was
refinanced during fiscal 1993 through the receipt of a loan issued in
conjunction with an insured loan program of the U.S. Department of Housing and
Urban Development (HUD).
The joint venture agreement and an amendment thereto dated September 30,
1985 (collectively, the Agreement) provides that the cash flow for any year
shall first be distributed to a partner in the amount of the other partner's
deficit. The other partner's deficit is defined to be an amount equal to 10% of
the excess aggregate amount required to be loaned to the joint venture over the
aggregate amount actually so loaned to the joint venture by such partner. Cash
flow for any year shall next be distributed to PWIP4 in the amount of $220,000
on a non-cumulative annual basis, payable monthly. The next $19,000 will be
distributed to the co-venturer on a non-cumulative annual basis, payable
quarterly. The next $213,000 of annual cash flow will be distributed 85% to
PWIP4 and 15% to the co-venturer, and any remaining annual cash flow will be
distributed 70% to PWIP4 and 30% to the co-venturer. The timing and amount of
actual distributions to the venture partners is restricted by the Computation of
Surplus Cash, Distributions and Residual Receipts as defined under the HUD
financing agreement. During fiscal year 1995, the joint venture distributed
$385,000 to the Partnership.
Depreciation and an amount of gross income equal to the amount paid to
amortize the indebtedness of the joint venture shall be allocated 94% to PWIP4
and 6% to the co-venturer. Any remaining taxable income or tax losses shall be
allocated in the same proportions as cash is distributed. Allocations of income
or loss for financial reporting purposes have been made in accordance with the
allocations of taxable income and tax loss.
Any proceeds arising from a refinancing, sale, exchange or other
disposition of property will be distributed first to the payment on unpaid
principal and accrued interest on any outstanding mortgage notes. Any remaining
proceeds will be distributed in the following order: repayment of unpaid
principal and accrued interest on all outstanding operating notes; $2,230,000 to
PWIP4; $200,000 to the co-venturer; $4,000,000 to PWIP4 and the co-venturer in
the proportions of 85% and 15%, respectively; with any remaining balance to
PWIP4 and the co-venturer in the proportions of 70% and 30%, respectively,
unless distributions of net cash flow and certain proceeds have reached
specified levels, in which cash the remaining balance is distributed equally.
If additional cash is required in connection with the joint venture, it
may be provided by PWIP4 and the co-venturer as loans (evidenced by operating
notes) to the joint venture. The agreement calls for such loans to be provided
70% by PWIP4 and 30% by the co-venturer. PWIP4 funded 100% of the operating note
required by the venture in fiscal 1993. Charter Oak Associates repaid the 1993
operating note plus accrued interest during fiscal 1995.
<PAGE>
Braesridge 305 Associates
The joint venture owns and operates the 545-unit Braesridge apartment
complex located in Houston, Texas. The joint venture agreement provides that the
Net Cash Flow (as defined), after certain adjustments, shall be distributed
monthly as a preferred return to PWIP4 from the date of the agreement as
follows: September 30, 1983 - $510,000, September 30, 1984 - $555,000; September
30, 1985 and thereafter - $600,000. Any such amounts not distributed prior to
the sale of the property will be distributed as a preference item to PWIP4 upon
dissolution of the joint venture. Unpaid amounts at September 30, 1995 total
$6,300,000. If any net cash flow remains after the payment to PWIP4 and payment
of interest on the special operating loans for years subsequent to September 30,
1991, a noncumulative annual preferred return of up to $200,000 will be paid to
Stanford Capital Corporation and Braesridge Apartments (the "remaining
partners") on a quarterly basis. Any net cash flow remaining after payment of
the preferred returns subsequent to September 30, 1991 will be distributed
annually as follows: the first $100,000 distributed 75% to PWIP4 and 25% to the
remaining partners, and any remaining distributed 50% to PWIP4 and 50% to the
remaining partners.
If there is a sale, exchange, or refinancing of the encumbered operating
investment property, the first payment (after repayment of any operating loans,
including accrued interest, payable to the venture partners) will be to PWIP4 to
the extent of its gross investment (presently $6,775,000); the next will be to
pay any accrued interest on and principal of any outstanding special operating
loans; the next $2,250,000 will be to the remaining partners; the next
$1,000,000 will be to PWIP4; and the next $500,000 will be to the remaining
partners. Any excess will be distributed 50% to PWIP4 and 50% to the remaining
partners.
Taxable income or tax loss in each year shall be allocated in accordance
with the partners' tax basis interests in the joint venture. Allocations of the
venture's income or loss for financial reporting purposes have been made in
accordance with the allocations of taxable income and tax loss.
Additional working capital required in connection with operations of the
property prior to September 30, 1986 was to be provided by the remaining
partners. Working capital required subsequent to September 30, 1986 is to be
provided by the partners equally as loans to the joint venture (see Note 2).
On October 27, 1995 PWIP 4 entered into a partnership interest purchase
agreement with Braesridge 1995 Equity (Braesridge), an affiliate of the
co-venturers, calling for the sale of PWIP4's entire partnership interest to
Braesridge for $1,000,000. On this date, Braesridge paid PWIP a $200,000
nonrefundable deposit which is to be credited against the purchase price at
closing. Under the terms of the assignment, PWIP4 will relinquish all rights and
obligations associated with its interest in the joint venture, including any
loans outstanding and interest related thereto.
4. Mortgage Notes Payable
Long-term debt at September 30, 1995 and 1994 consists of the following
(in thousands):
1995 1994
7.35% nonrecourse mortgage
secured by the Charter Oak
operating investment property;
payable from October 1, 1993
through August 1, 2028,
in principal and interest
installments of $68 per month
and the last installment to be
due and payable on September 1,
2028. See discussion below. $ 10,127 $10,197
<PAGE>
1995 1994
Mortgage note secured by the
Braesridge Apartments; principal
and interest payments of $84 are
due on the first day of each month
beginning September 1994. The
loan bears interest at a rate of
9% with provisions to adjust the
rate after the first 7 years
of the note. The term of the
mortgage obligation is not to exceed
25 years. See discussion regarding
modification below. 9,927 10,059
20,054 20,256
Less current portion (200) (202)
-------- -------
$ 19,854 $20,054
======== =======
Annual debt service payments on the Braesridge mortgage loan were
scheduled to increase by approximately $130,000 effective August 1, 1992.
Commencing August 1, 1992 monthly principal and interest payments of $95,000
were to have been payable until August 1, 1994 at which time a balloon payment
of $9,800,000 was to have been due. The venture's cash flow was not expected to
be sufficient to cover these increased payments in fiscal 1993. As a result,
management initiated discussions with the lender during fiscal 1992, which
resulted in an agreement for a further modification of the loan terms. Under the
terms of the modification agreement, dated December 2, 1992, the lender agreed
to defer the scheduled principal payments through the remaining term of the
loan, which matured on August 1, 1994, until which the loan required
interest-only payments on a monthly basis at a rate of 10% per annum. The
mortgage note was modified again on August 1, 1994 under the terms set forth
above. 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. In addition, the venture
is required to make property maintenance escrow payments of $16,667 each month
that the escrow does not maintain of balance of $300,000. Amounts in the
property maintenance escrow are to be used, subject to approval by the lender,
for major repairs, replacements and renovations to the property or to offset
operating deficits incurred in connection with the property. The venture is also
required to make real estate tax escrow payments.
Interest expense on the Braesridge loan through August 1, 1994 was
adjusted to reflect the original issue discount on the basis of a constant
annual interest rate of 8%. This additional liability was recorded as accrued
original issue discount interest and totalled $144,000 at September 30, 1993.
Such amount was fully amortized during fiscal 1994.
The loan secured by the Charter Oak Apartments is insured by the U.S.
Department of Housing and Urban Development (HUD). In addition to the monthly
principal and interest payment, the Charter Oak joint venture submits monthly
escrow deposits of $19,000 for tax and insurance escrows and replacement
reserves. Under the HUD loan program, the venture is required to obtain mortgage
insurance to cover the outstanding principal balance of the loan. Mortgage
insurance premiums paid during fiscal 1995 and 1994 totalled $84,000 and
$103,000, respectively, and are included in interest expense and related
financing fees on the accompanying statement of operations.
<PAGE>
Maturities of the long-term debt for each of the next five years and
thereafter are as follows (in thousands):
1996 $ 200
1997 217
1998 236
1999 257
2000 279
Thereafter 18,865
$20,054
<PAGE>
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES OF
Paine Webber Income Properties Four Limited Partnership
Schedule of Real Estate and Accumulated Depreciation
September 30, 1995
(In thousands)
<CAPTION>
Initial Cost to Gross Amount at Which Carried at Life on Which
Partnership Costs Close of period Depreciation
Buildings Capitalized Buildings, in Latest
Improvements (Removed) Improvements Income
& Personal Subsequent to & Personal Accumulated Date of Date Statement
Description Encumbrances Land Property Acquisition Land Property Total Depreciation Construction Acquired is Computed
COMBINED JOINT VENTURES:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Complex
Creve Coeur,
MO $10,127 $1,420 $ 9,106 $1,971 $1,420 $11,077 $12,497 $3,706 1971 6/8/82 5-40 yrs
Apartment Complex
Houston, TX 9,927 2,000 7,590 3,738 1,699 11,629 13,328 3,903 1981 9/30/82 5-40 yrs
------ ------ -------- ------ ------ ------- -------- -------
$20,054 $3,420 $16,696 $5,709 $3,119 $22,706 $25,825 $7,609
======= ====== ======= ====== ====== ======= ======= ======
Notes:
(A) The aggregate cost of real estate owned at September 30, 1995 for Federal income tax purposes is approximately $27,852,000.
(B) See Note 5 of Notes to Financial Statements.
(C) Reconciliation of real estate owned:
1995 1994 1993
---- ---- ----
Balance at beginning of period $24,912 $24,213 $24,134
Increase due to capitalized
improvements 913 699 79
----------- ---------- -----------
Balance at end of period $25,825 $24,912 $24,213
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 6,969 $ 6,404 $5,860
Depreciation expense 640 565 544
-------- -------- --------
Balance at end of period $7,609 $6,969 $6,404
====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Partnership's audited financial
statements for the year ended September 30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 355
<PP&E> 13,868
<DEPRECIATION> 4,436
<TOTAL-ASSETS> 9,962
<CURRENT-LIABILITIES> 340
<BONDS> 4,915
<COMMON> 0
0
0
<OTHER-SE> 3,733
<TOTAL-LIABILITY-AND-EQUITY> 9,962
<SALES> 0
<TOTAL-REVENUES> 1,830
<CGS> 0
<TOTAL-COSTS> 1,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> (253)
<INCOME-TAX> 0
<INCOME-CONTINUING> (253)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (253)
<EPS-PRIMARY> (9.75)
<EPS-DILUTED> (9.75)
</TABLE>
