UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-10980
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2738053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1996 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
----------- ------------
Operating investment property:
Land $ 1,300 $ 1,300
Buildings, improvements and equipment 11,851 11,842
---------- --------
13,151 13,142
Less: accumulated depreciation (4,989) (4,877)
---------- --------
8,162 8,265
Cash and cash equivalents 673 654
Tax escrow deposit 28 121
Repair escrow 57 53
Investment in unconsolidated joint
venture, at equity 76 -
Prepaid and other assets 52 59
Deferred financing costs, net 166 168
---------- --------
$ 9,214 $ 9,320
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 86 $ 105
Accrued real estate taxes 15 115
Mortgage interest payable 37 37
Tenant security deposits 62 65
Equity in losses of unconsolidated joint ventures
in excess of investments and advances - 32
Long-term debt 4,836 4,852
Partners' capital 4,178 4,114
---------- --------
$ 9,214 $ 9,320
========== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 1996 and 1995 (Unaudited)
(In thousands, except per Unit data)
1996 1995
---- ----
Revenues:
Rental revenues $ 443 $ 449
Interest and other income 100 65
-------- -------
543 514
Expenses:
Property operating expenses 296 309
Interest expense and related fees 112 113
Depreciation expense 112 105
Real estate taxes 35 34
General and administrative 32 61
-------- -------
587 622
-------- -------
Operating loss (44) (108)
Partnership's share of unconsolidated
ventures' income 108 9
Gain on sale of joint venture investment - 2,111
-------- -------
Net income $ 64 $ 2,012
======== =======
Net income per Limited Partnership Unit $2.46 $ 77.52
===== =======
The above net income per Limited Partnership Unit is based upon the 25,698
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended December 31, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1995 $ (150) $ 3,883
Net income 20 1,992
------ --------
Balance at December 31, 1995 $ (130) $ 5,875
====== ========
Balance at September 30, 1996 $ (141) $ 4,255
Net income 1 63
------ --------
Balance at December 31, 1996 $ (140) $ 4,318
====== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 64 $ 2,012
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Gain on sale of joint venture investment - (2,111)
Depreciation expense 112 105
Amortization of deferred financing fees 2 2
Partnership's share of unconsolidated
ventures' income (108) (9)
Changes in assets and liabilities:
Tax and insurance escrow deposits 93 (42)
Prepaid and other assets 7 5
Accounts payable and other liabilities (19) (56)
Accrued real estate taxes (100) 34
Tenant security deposits (3) 5
-------- --------
Total adjustments (16) (2,067)
-------- --------
Net cash provided by (used in)
operating activities 48 (55)
-------- --------
Cash flows from investing activities:
Proceeds received from sale of joint
venture investment - 1,000
Additions to buildings, improvements and equipment (9) (25)
Net (deposits to) withdrawals from repair escrow (4) 19
-------- --------
Net cash (used in) provided by
investing activities (13) 994
-------- --------
Cash flows from financing activities:
Principal repayments on long-term debt (16) (15)
-------- --------
Net increase in cash and cash equivalents 19 924
Cash and cash equivalents, beginning of period 654 129
-------- --------
Cash and cash equivalents, end of period $ 673 $ 1,053
======== ========
Cash paid during the period for interest $ 110 $ 111
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended September 30, 1996. In
the opinion of management, the accompanying financial statements, which have
not been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected
in the accompanying interim financial statements are of a normal recurring
nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of December 31, 1996 and September 30,
1996 and revenues and expenses for the three months ended December 31, 1996
and 1995. Actual results could differ from the estimates and assumptions
used.
2. Related Party Transactions
Included in general and administrative expenses for both of the three-month
periods ended December 31, 1996 and 1995 is $21,000, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the three months
ended December 31, 1996 and 1995 is $700 and $200, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
3. Investments in Unconsolidated Joint Ventures
At December 31, 1996, the Partnership had an investment in one
unconsolidated joint venture, Charter Oak Associates, which owns an
operating investment property as more fully described in the Partnership's
Annual Report. As of April 1, 1995, the Partnership had owned interests in
two unconsolidated ventures. On December 29, 1995, the Partnership assigned
its interest in the Braesridge Apartments joint venture to an affiliate of
the co-venture partner for net cash proceeds of $1,000,000. The Partnership
made a special distribution of $513,960, or $20 per original $1,000
investment, to the Limited Partners on February 15, 1996 from the proceeds
of this transaction. The remaining net sale proceeds of $486,040 were
retained by the Partnership for Partnership reserves and to fund potential
future capital needs of its remaining investments. The unconsolidated joint
ventures are accounted for on the equity method in the Partnership's
financial statements because the Partnership does not have a voting control
interest in the ventures. Under the equity method, the assets, liabilities,
revenues and expenses of the joint venture do not appear in the
Partnership's financial statements. Instead, the investment is carried at
cost adjusted for the Partnership's share of the venture's earnings, losses
and distributions.
<PAGE>
Summarized operating results of the unconsolidated joint ventures for the
three months ended December 31, 1996 and 1995 are as follows. The summary of
operations for the three months ended December 31, 1995 includes the
Partnership's share of the Braesridge joint venture's net loss through
December 29, 1995:
Condensed Combined Summary of Operations
For the three months ended December 31, 1996 and 1995 (in thousands)
1996 1995
---- ----
Rental revenues and
expense recoveries $ 638 $1,314
Interest and other income 36 61
------- ------
674 1,375
Property operating expenses 214 627
Interest expense 184 409
Depreciation and amortization 113 169
Real estate taxes 38 101
------- ------
549 1,306
------- ------
Net income $ 125 $ 69
======= ======
Net income:
Partnership's share of
combined income $ 108 $ 66
Co-venturers' share of
combined income 17 3
------- ------
$ 125 $ 69
======= ======
Reconciliation of Partnership's Share of Operations
For the three months ended December 31, 1996 and 1995 (in thousands)
1996 1995
---- ----
Partnership's share of
combined income, as shown above $ 108 $ 66
Amortization of excess basis - (57)
------- ------
Partnership's share of
unconsolidated ventures' income $ 108 $ 9
======= ======
4. Operating Investment Property
Operating investment property at December 31, 1996 and September 30, 1996
represents the land, buildings and equipment of Arlington Towne Oaks
Associates, a joint venture in which the Partnership has a controlling
interest. As discussed further in the Annual Report, during fiscal 1991 the
Partnership's co-venture partner in Arlington Towne Oaks Associates withdrew
from the venture and assigned its interest to the Managing General Partner of
the Partnership in return for a release from any further obligations. As a
result, the Partnership assumed control over the affairs of the joint
venture. Accordingly, the accompanying financial statements present the
financial position and results of operations of the joint venture on a
consolidated basis. The joint venture owns and operates a 320-unit apartment
complex in Arlington, Texas.
<PAGE>
The Partnership is utilizing a local, unaffiliated property management
company to operate the property under the direction of the Managing General
Partner. The following is a summary of property operating expenses for the
three months ended December 31, 1996 and 1995 (in thousands):
1996 1995
---- ----
Property operating expenses:
Salaries and related costs $ 67 $ 62
Repairs and maintenance 81 95
Utilities 104 100
Management fees 21 20
Administrative and other 23 32
------ -------
$ 296 $ 309
====== =======
5. Long-term Debt
Long-term debt at December 31, 1996 and September 30, 1996 relates to the
consolidated joint venture, Arlington Towne Oaks Associates, and is
summarized as follows (in thousands):
December 31 September 30
----------- ------------
9.08% mortgage note due March 1,
2019, payable in monthly
installments of $42, including
interest, collateralized by the
Towne Oaks operating investment
property. The fair value of this
note payable approximated its
carrying value as of December 31,
1996 and September 30, 1996. $4,836 $ 4,852
======= =======
6. Contingencies
As discussed in more detail in the Annual Report for the year ended
September 30,1996, the Partnership is involved in certain legal actions. At
the present time, the Managing General Partner is unable to determine what
impact, if any, the resolution of these matters may have on the
Partnership's financial statements, taken as a whole.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As further discussed in the Annual Report, on December 29, 1995 the
Partnership assigned its interest in the Braesridge Apartments joint venture to
an affiliate of its co-venture partners for net cash proceeds of $1,000,000.
This net sale price for the Partnership's equity interest reflected the
deduction of the outstanding first mortgage loan and certain co-venture partner
operating loans from an agreed upon effective sale price of $11,750,000, which
was supported by the most recent independent appraisal of the property. The
Partnership distributed approximately $514,000 of the net sale proceeds, or $20
per original $1,000 investment, in a special distribution to the Limited
Partners on February 15, 1996. The remaining net sale proceeds of approximately
$486,000 were retained by the Partnership to increase cash reserves maintained
to fund working capital requirements and potential future capital needs of the
Charter Oak and Towne Oaks investments.
Due to the fiscal 1996 sale of the Partnership's interest in the
Braesridge joint venture, which represented 31% of the original investment
portfolio, for an amount which was substantially lower than the Partnership's
investment in the joint venture, combined with the fiscal 1991 foreclosure loss
of the Yorktown investment, which represented 16% of the original investment
portfolio, 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
liquidation of the Partnership's 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. Occupancy at the Partnership's two remaining multi-family apartment
properties, Charter Oak and Towne Oaks, averaged 94% and 87%, respectively, for
the first quarter of fiscal 1997 compared to 94% and 91%, respectively, for the
prior quarter. The decline in occupancy at Towne Oaks is attributable to a
seasonal decline in prospective tenants looking to rent apartment units as well
as a softening in local market conditions which has led to difficulty in
attracting qualified prospective tenants. Prospective tenant traffic at Towne
Oaks declined by 37% in the first quarter. During the quarter, a new on-site
manager was hired to oversee the property. Subsequent to this hiring, the
property has experienced an increase in rental income collections and a decline
in tenant move-out notices. Cash flow from the consolidated Towne Oaks joint
venture continues to be applied to the program begun in fiscal 1995 to upgrade
the apartment interiors on a turnover basis. This work is scheduled to continue
over approximately the next 2 years until all of the units have been upgraded.
To date, more than half of the unit interiors have been upgraded. The interior
upgrades range from repainting and carpet replacement, where needed, to the
complete retrofit of the fixtures, cabinets, heating and air conditioning
equipment and the replacement of all appliances in each unit. The upgraded units
are generating additional rental rates averaging 11% greater than unrenovated
units. At Charter Oak, refinancing reserves continue to be used as part of a
program to upgrade individual units and the property as a whole. As with Towne
Oaks, the work to renovate the individual apartment units is being done on a
turnover basis and will continue until all of the units have been upgraded. To
date, approximately one-third of the unit interiors have been upgraded. The
upgraded units are generating additional rental rates of $50 to $125 per month,
depending on the type of unit. Over the past 12-15 months, development activity
for multi-family properties in many markets, including the greater Dallas area
in which the Towne Oaks Apartments is located, has increased significantly. The
general increase in development activity may be an indication that market values
for multi-family properties are nearing their peak for the current market cycle.
To date, Charter Oak has not experienced a significant increase in the supply of
apartment units in its sub-market, but management continues to monitor this
situation closely. As a result of the current market conditions, management will
likely explore the market for potential sales opportunities for the Charter Oak
and Towne Oaks properties in the near term. Depending on the availability of
favorable sales opportunities for the two remaining properties, the Partnership
could be positioned for a possible liquidation within the next 2-to-3 years.
There are no assurances, however, that the Partnership will be able to achieve
the sale of its remaining assets within this time frame.
In light of the current strength of the real estate market for multi-family
apartment properties which may provide the Partnership with opportunities to
sell its remaining investment properties over the next 2-to-3 years, management
reviewed the carrying values of its consolidated operating investment property,
the Towne Oaks Apartments, for potential impairment as of September 30, 1996. In
conjunction with such review in fiscal 1996, the Partnership elected early
application of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (SFAS 121). In accordance with SFAS 121, an impairment loss with respect to
an operating investment property is recognized when the sum of the expected
future net cash flows (undiscounted and without interest charges) is less than
the carrying amount of the asset. An impairment loss is measured as the amount
by which the carrying amount of the asset exceeds its fair value, where fair
value is defined as the amount at which the asset could be bought or sold in a
current transaction between willing parties, that is other than a forced or
liquidation sale. The effect of such application was the recognition of an
impairment loss on the operating investment property owned by Arlington Towne
Oaks Associates. The impairment loss resulted because, in management's judgment,
the venture was unlikely to be able to recover the carrying value of the asset
within the Partnership's practicable remaining holding period. Arlington Towne
Oaks Associates recognized an impairment loss of $1,000,000 to write down the
operating investment property to its estimated fair value of $8.3 million as of
September 30, 1996. Fair value was estimated using an independent appraisal of
the operating property. Such appraisal makes use of a combination of certain
generally accepted valuation techniques, including direct capitalization,
discounted cash flows and comparable sales analysis.
At December 31, 1996, the Partnership and its consolidated joint venture
had available cash and cash equivalents of $673,000. Such cash and cash
equivalents will be utilized for the Partnership's working capital requirements
and, if necessary, to fund property operating deficits and capital improvements
of the two remaining 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 sale or refinancing of
such properties.
Results of Operations
Three Months Ended December 31, 1996
- ------------------------------------
The Partnership reported net income of $64,000 for the three months ended
December 31, 1996, as compared to a net income of $2,012,000 recognized for the
same period in the prior year. This decrease in the Partnership's net income is
primarily the result of the $2,111,000 gain recognized on the sale of the
Partnership's interest in the Braesridge joint venture in the first quarter of
fiscal 1996, which was partially offset by a decrease in the Partnership's
operating loss and an increase in the Partnership's share of unconsolidated
ventures' income in the current period. Despite recovering less than 15% of its
original cash investment in Braesridge, the Partnership recognized a gain of
$2,111,000 in connection with the sale of its venture interest in the first
quarter of fiscal 1996 because the losses and distributions recorded in prior
years under the equity method had exceeded the Partnership's investments in the
venture
The Partnership's operating loss decreased by $64,000 in the current three
month period primarily due to an increase in interest and other income and a
decrease in general and administrative expenses. Interest and other income
increased by $35,000 largely due to an increase in the average invested cash
reserve balance during the current three-month period as a result of the
retention of a portion of the Braesridge sale proceeds, as discussed further
above. General and administrative expenses decreased by $29,000 mainly due to a
reduction in certain required professional services in the first quarter of
fiscal 1997. A decrease in property operating expenses also contributed to the
decline in the Partnership's operating loss. Property operating expenses from
the consolidated Towne Oaks joint venture decreased by $13,000 primarily due to
a decrease in repairs and maintenance expenses.
The Partnership's share of unconsolidated ventures' income increased by
$99,000 in the current three-month period primarily due to the inclusion of the
net loss attributable to the operations of the Braesridge joint venture through
the date of the sale in the prior period results. The Partnership's share of
unconsolidated ventures' income in the current year includes only the operations
of the Partnership's sole remaining unconsolidated joint venture which owns and
operates the Charter Oak Apartments. The Partnership's share of the operations
of the Charter Oak joint venture declined by $3,000 for the current three-month
period primarily due to higher non-cash depreciation charges which were
partially offset by an increase in rental revenues. Depreciation expense
increased primarily due to the capital improvements performed at the property
over the past two years while rental revenues increased primarily due to
increases in rental rates on the renovated apartments units, as discussed
further above.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
The status of the litigation involving the Partnership's General Partners
and their affiliates remains unchanged from what was reported in the Annual
Report on Form 10-K for the year ended September 30, 1996.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES FOUR
LIMITED PARTNERSHIP
By: FOURTH INCOME PROPERTIES FUND, INC.
Managing General Partner
By:/s/ Walter V. Arnold
-------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended December 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 810
<PP&E> 13,227
<DEPRECIATION> 4,989
<TOTAL-ASSETS> 9,214
<CURRENT-LIABILITIES> 200
<BONDS> 4,836
0
0
<COMMON> 0
<OTHER-SE> 4,178
<TOTAL-LIABILITY-AND-EQUITY> 9,214
<SALES> 0
<TOTAL-REVENUES> 651
<CGS> 0
<TOTAL-COSTS> 475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 64
<INCOME-TAX> 0
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.46
</TABLE>
