UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-17146
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2752249
(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 1 of 14
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
BALANCE SHEETS
May 31, 1995 and August 31, 1994
(Unaudited)
ASSETS
May 31 August 31
Real estate investments:
Land $ 1,750,000 $ 1,750,000
Mortgage loans, net 10,177,157 10,177,157
Investment in joint venture, at equity 3,239,054 3,252,647
Investment property held for sale, net 8,300,000 8,300,000
23,466,211 23,479,804
Cash and cash equivalents 1,300,569 1,041,817
Tax and insurance escrow 337,443 187,787
Interest and other receivables 158,606 286,364
Prepaid expenses 550 14,545
$25,263,379 $25,010,317
LIABILITIES AND PARTNERS' CAPITAL
Accrued real estate taxes $ 114,625 $ 170,000
Accounts payable and accrued expenses 82,764 246,352
Accounts payable - affiliates 11,597 10,633
Tenant security deposits 56,347 48,198
Note payable 1,198,664 604,166
Partners' capital 23,799,382 23,930,968
$25,263,379 $25,010,317
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended May 31, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at August 31, 1993 $(21,334) $30,695,003
Cash distributions (5,491) (6,160,971)
Net income 10,916 1,080,674
BALANCE AT MAY 31, 1994 $(15,909) $25,614,706
Balance at August 31, 1994 $(32,587) $23,963,555
Cash distributions (5,337) (528,394)
Net income 4,020 398,125
BALANCE AT MAY 31, 1995 $(33,904) $23,833,286
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
REVENUES:
Interest from mortgage loans$ 373,330 $ 387,037 $1,104,565 $1,246,798
Land rent 51,156 62,156 153,469 230,469
Recovery of bad debt 14,365 292,114 - 292,114
Other income 17,089 20,025 43,548 23,650
455,940 761,332 1,301,582 1,793,031
EXPENSES:
Management fees 11,597 9,744 33,405 31,708
General and administrative 103,146 101,520 311,546 318,566
Provision for possible uncollectible
amounts - 94,995 182,526 271,184
114,743 206,259 527,477 621,458
Operating income 341,197 555,073 774,105 1,171,573
Partnership's share of venture's
income 29,053 40,177 99,740 121,501
Loss from operations of
investment property
held for sale (28,789) (346,425) (471,700) (201,485)
NET INCOME $ 341,461 $ 248,825 $ 402,145 $1,091,589
Net income per Limited
Partnership Unit $ 9.32 $ 6.80 $10.98 $ 29.82
Cash distributions per Limited
Partnership Unit $ 5.07 $160.00 $14.58 $170.00
The above net income and cash distributions per Limited Partnership Unit are
based upon the 36,241 Units of Limited Partnership Interest outstanding during
each period.
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $ 402,145 $1,091,589
Adjustments to reconcile net income to
net cash provided by operating activities:
Partnership's share of venture's income (99,740) (121,501)
Changes in assets and liabilities:
Tax and insurance escrow (149,656) 199,944
Interest and other receivables 127,758 75,712
Prepaid expenses 13,995 13,999
Accrued real estate taxes (55,375) (126,307)
Accounts payable and accrued expenses 964 (57,566)
Accounts payable - affiliates (163,588) (45,191)
Tenant security deposits 8,149 14,909
Total adjustments (317,493) (46,001)
Net cash provided by operating activities 84,652 1,045,588
Cash flows from investing activities:
Proceeds received from repayment
of mortgage loan and sale of land - 5,607,843
Distributions from joint venture 113,333 198,333
Advances to joint venture - (7,755)
Net cash provided by investing activities 113,333 5,798,421
Cash flows from financing activities:
Additional borrowings under note payable 594,498 -
Distributions to partners (533,731) (6,166,462)
Net cash provided by (used for) financing activities
60,767 (6,166,462)
Net increase in cash and cash equivalents 258,752 677,547
Cash and cash equivalents, beginning of period 1,041,817 217,617
Cash and cash equivalents, end of period $1,300,569 $ 895,164
Cash paid during the period for interest $ 72,413 $ -
See accompanying notes.
1.General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 31, 1994.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2.Related Party Transactions
The Adviser earned basic management fees of $33,405 and $31,708 for the
nine-month periods ended May 31, 1995 and 1994, respectively. Accounts
payable - affiliates at May 31, 1995 and August 31, 1994 consists of
management fees of $11,597 and $10,633, respectively, payable to the Adviser.
Included in general and administrative expenses for nine months ended May
31, 1995 and 1994 is $131,780 and $122,310, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended May 31, 1995 and 1994 is $2,155 and $492, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
3.Mortgage Loan and Land Investments
The outstanding first mortgage loans and the cost of the related land to
the Partnership at May 31, 1995 and August 31, 1994 are as follows:
Property Amount of Mortgage Loan Cost of Land
5/31/95 8/31/94 5/31/95 8/31/94
Harbour Bay Plaza $ 2,850,000 $ 2,850,000 $ 750,000$ 750,000
Sewall's Point, FL
Eden West Apartments 3,500,000 3,500,000 400,000 400,000
Omaha, NE
The Timbers Apartments 6,517,618 6,335,092 600,000 600,000
Raleigh, NC (2,242,618) (2,060,092)
4,275,000 4,275,000
Subtotal 10,625,000 10,625,000 1,750,000 1,750,000
Less: General loan
reserve (447,843) (447,843) - -
$ 10,177,157 $10,177,157 $ 1,750,000$ 1,750,000
The loans are secured by first mortgages on the properties, the owner's
leasehold interest in the land and an assignment of all leases, where
applicable. Interest is payable monthly at rates between 11.5% and 11.75%
per annum and the principal is due at maturity. Among the provisions of the
lease agreements, the Partnership is entitled to additional rent based upon
the gross revenues in excess of a base amount, as defined. For the nine-
month periods ended May 31, 1995 and 1994, no additional rents were received.
As discussed in the Annual Report, the lessees have the option to purchase
the land for specified periods of time at a price based on fair market value,
as defined, but not less than the original cost to the Partnership. As of
May 31, 1995, all of the options to purchase the land were exercisable.
The objectives of the Partnership with respect to its mortgage loan and
land investments are to provide current income from fixed mortgage interest
payments and base land rents, then to provide increases to this current
income through participation in the annual revenues generated by the
properties as they increase above the specified base amounts. In addition,
the Partnership's investments are structured to share in the appreciation in
value of the underlying real estate. Accordingly, upon either sale,
refinancing, maturity of the mortgage loan or exercise of the option to
repurchase the land, the terms of the leases call for the Partnership to
receive a 37% to 52% share of the appreciation above a specified base amount.
Under the terms of the Timbers modification executed in fiscal 1989, the
amount payable to the Partnership is equal to the cash flow of the property
available after the payment of operating expenses, not to exceed 11.75% of
the note balance, but in no event less than 7.75% of the note balance. The
amount deferred each year will accrue interest at the original rate of 11.75%
beginning at the end of that year and the total deferred amount plus accrued
interest will be payable upon maturity of the note in September of 1998. The
Partnership has established an allowance for possible uncollectible amounts
for the cumulative amount of deferred interest owed under the Timbers
modification ($2,242,618 at May 31, 1995 and $2,060,092 at August 31, 1994)
due to the uncertainty as to the collection of the deferred interest from
this investment. During the quarter ended May 31, 1995, the Partnership
received a payment of $120,522 from the Timbers' borrower as a partial
payment of deferred interest owed.
During fiscal 1995, the Partnership has received formal notice from the
Harbour Bay Plaza and Eden West borrowers of their intentions to prepay the
Partnership's mortgage loans and repurchase the underlying land. The Harbour
Bay Plaza prepayment transaction would result in the Partnership receiving an
amount of approximately $200,000 in excess of its outstanding mortgage loan
and land investments as its share of the property's appreciation. This
transaction is expected to close in the fourth quarter of fiscal 1995. The
amount to be received as the Partnership's share of the appreciation on the
Eden West property, if any, cannot be determined with certainty at this time.
The terms of the Eden West mortgage loan call for the Partnership to receive
a prepayment penalty which would be equal to 3.75% of the outstanding
principal balance. If completed, the net proceeds from these prepayment
transactions would be distributed to the Limited Partners. Both prepayment
transactions remain contingent on, among other things, the borrowers
obtaining sufficient financing to repay their obligations to the Partnership.
Accordingly, there can be no assurances that such transactions will be
consummated.
4. Investment in Joint Venture
As discussed in the Annual Report, on June 12, 1990, the borrower of the
mortgage loan secured by the Marshall's at East Lake Shopping Center,
Oxford/Concord Associates, filed a Chapter 11 petition with the United States
Bankruptcy Court for the Northern District of Georgia. On November 14, 1990,
the Bankruptcy Court ordered that both the Partnership and the borrower
submit plans for the restructuring of the mortgage loan and ground lease
agreements. During fiscal 1991, the Partnership and the borrower reached a
settlement agreement which involved the formation of a joint venture to own
and operate the property on a go-forward basis. The formation of the joint
venture was approved by the Bankruptcy Court and became effective in December
of 1991. The Partnership contributed its rights and interests under its
mortgage loan to the joint venture and the loan was extinguished. In
addition, the Partnership contributed the land underlying the operating
property to the joint venture and the related ground lease was terminated.
Oxford/Concord Associates contributed all of its rights, title and interest
in and to the improvements, subject to the Partnership's loan, to the joint
venture.
Since the Partnership received an equity interest in full satisfaction of
its outstanding mortgage loan receivable, the transaction was accounted for
as a troubled debt restructuring in accordance with Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". Accordingly, the Partnership would have
recognized a loss to the extent that the face amount of the mortgage loan and
the carrying value of the land exceeded the fair value of the equity interest
acquired. However, management estimated that the fair value of the equity
interest acquired was approximately equal to the face amount of the loan and
the investment in land. Therefore, no loss was recorded at the time of the
restructuring. The carrying value of the mortgage loan receivable and land
comprising the Partnership's investment in Marshall's at East Lake, which
totalled $3,500,000, was reclassified to investment in joint venture,
effective December 11, 1991. Subsequent to the restructuring, the
Partnership has accounted for its equity investment as if it had acquired the
interest for cash, in accordance with SFAS No. 15. Based upon the provisions
of the joint venture agreement, the Partnership's investment in the
Marshall's joint venture is accounted for on the equity method in the
Partnership's financial statements. Under the equity method, the investment
is carried at cost, adjusted for the Partnership's share of earnings, losses
and distributions.
Summarized operating results of the venture for the three- and nine-month
periods ended May 31, 1995 and 1994 are as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
REVENUES:
Rental revenues and
expense reimbursements $ 109,000 $ 115,000 $ 325,000 $ 356,000
EXPENSES:
Property operating expenses 36,000 32,000 101,000 111,000
Real estate taxes 11,000 11,000 25,000 29,000
Depreciation and amortization 33,000 31,000 99,000 94,000
80,000 74,000 225,000 234,000
NET INCOME $ 29,000 $ 41,000 $ 100,000 $ 122,000
Net income:
Partnership's share
of net income $ 29,000$ 41,000 $ 100,000 $ 122,000
Co-venturer's share
of net income - - - -
$ 29,000$ 41,000 $ 100,000 $ 122,000
The joint venture agreement provides that all taxable income for any
fiscal year, will, in general, be allocated to the Partnership until it has
received income allocations equal to a nine percent return upon its invested
capital, as defined. Thereafter, taxable income will be allocated 80% to the
Partnership and 20% to Oxford/Concord Associates. In general, all tax losses
will be allocated to the Partnership.
The joint venture agreement also provides that cash flow, as defined, be
distributed monthly to the Partnership until it has received distributions
equal to a nine percent return upon its deemed invested capital of
$4,250,000. Thereafter, cash flow will be distributed 80% to the Partnership
and 20% to Oxford/Concord Associates. Proceeds from any capital transaction,
as defined, shall be distributed first to the Partnership until it has
received aggregate distributions equal to a nine percent return upon its
deemed invested capital; second, to the Partnership until it has received an
amount equal to its aggregate capital contributions, as defined; and the
balance, if any, will be distributed 80% to the Partnership and 20% to
Oxford/Concord Associates.
5. Investment Property Held for Sale
Mercantile Tower Office Building
As discussed in the Annual Report, the Partnership assumed ownership of
the Mercantile Tower Office Building, in Kansas City, Missouri, through a
deed-in-lieu of foreclosure action on April 12, 1993 as a result of certain
uncured defaults on the Partnership's mortgage loan receivable. The
Partnership complies with the guidelines set forth in the Statement of
Position entitled "Accounting for Foreclosed Assets", issued by the American
Institute of Certified Public Accountants, to account for its investment
properties acquired through foreclosures. Under the Statement of Position, a
foreclosed asset is recorded at the lower of cost or estimated fair value,
reduced by the estimated costs to sell the asset. Cost is defined as the fair
value of the asset at the date of the foreclosure. Adjustments to the
carrying value of the assets subsequent to foreclosure are recorded through
the use of a valuation allowance. The combined balance of the land and the
mortgage loan investment at the time title was transferred was $10,500,000.
The estimated fair value of the operating property at the date of
foreclosure, net of selling expenses, was $9,500,000. Accordingly, a write-
down of $1,000,000 was recorded as a loss on foreclosure in fiscal 1993. An
additional write-down of $1,200,000 was recorded as a provision for possible
investment loss in fiscal 1994 to reflect a further decline in management's
estimate of the fair value of the investment property. The net carrying
value of the Mercantile Tower investment property as of May 31, 1995 and
August 31, 1994, of $8,300,000, is classified as an investment property held
for sale on the Partnership's balance sheet.
The Partnership records income or loss from the investment property held
for sale in the amount of the difference between the property's gross
revenues and the sum of property operating expenses (including leasing costs
and improvement expenses) and interest on the line of credit borrowings
described in Note 6. Summarized operating results for Mercantile Tower for
the three- and nine-month periods ended May 31, 1995 and 1994 are as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
Rental revenues and expense
recoveries $ 397,000 $ 260,000 $1,252,000$1,244,000
Interest and other income 3,000 2,000 8,000 9,000
400,000 262,000 1,260,000 1,253,000
Property operating expenses 398,000 608,000 1,660,000 1,454,000
Interest expense 31,000 - 72,000 -
429,000 608,000 1,732,000 1,454,000
Loss from operations
of investment property held
for sale $ (29,000) $ (346,000) $ (472,000)$(201,000)
Property operating expenses for the three and nine months ended May 31,
1995 include capital improvements and leasing costs totalling approximately
$103,000 and $730,000, respectively.
6. Note payable
Note payable as of May 31, 1995 and August 31, 1994 consists of the
following secured indebtedness:
May 31, 1995 August 31, 1994
Line of credit borrowings secured by the
Mercantile Tower property (see Note 5). Draws
under the line, up to a maximum of $2,000,000,
can be made through March 15, 1996, only to
fund approved leasing and capital improvement
costs related to the Mercantile Tower
property. The outstanding borrowings bear
interest at the prime rate plus 1% per annum.
Interest-only payments were due on a monthly
basis through February 1995. Thereafter,
monthly principal and interest payments were
due through maturity on
February 10, 2001. $1,198,664 $604,166
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.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As previously reported, the Partnership assumed ownership of the Mercantile
Tower Office Building on April 12, 1993. The Managing General Partner has
engaged the services of a local property management company to carry out the
day-to-day operations of the building under the direction of the Adviser. The
occupancy level at Mercantile has increased to 67% at May 31, 1995, up from 63%
at the end of the previous quarter. During the third quarter, leasing agents
were successful in signing a new lease as well as two lease renewals at this
property. The property is in need of significant funds to pay for leasing
costs, certain deferred maintenance and capital improvements. Subsequent to the
date that the Partnership assumed control of the building's operations, the
management company has used cash flow from operations to complete a capital
improvement program which included various structural, cosmetic and aesthetic
improvements and enhancements to the building's common areas that were necessary
as an initial step to effectively market and lease the vacant space. In
addition to the capital improvements completed to date, the Mercantile Tower
property will require significant funds in order to pay for tenant improvements
and leasing commissions required to lease the currently vacant space and
stabilize operations. The Partnership expects to provide these funds from the
cash flow of the property, certain secured borrowings and, to the extent
necessary, from the Partnership's cash reserves. During fiscal 1994, the
Partnership closed on a $2 million line of credit which will be used to pay for
the majority of the required tenant improvement and capital enhancement costs
anticipated over the next 9 months. This nonrecourse, fully amortizable line of
credit is payable with interest at 1% over prime, and has a 7-year term with
interest-only payments in the first year. The line of credit borrowings are
collateralized by a first lien against the Mercantile Tower property, which
includes an adjoining parking facility. The draw period has a 2-year term which
ends in March 1996, and draw downs under the line of credit can only be made in
connection with costs associated with signed leases and contracts for capital
improvements. As of May 31, 1995, the Partnership had drawn approximately
$1,251,000 under the line of credit. If leasing activity progresses as
expected, management anticipates drawing the entire $2 million balance of the
line of credit before March 1996. Monthly payments due under the borrowing
agreement began to include scheduled principal amortization effective in March
1995. As of May 31, 1995, the Partnership had made principal paydowns of
approximately $52,000 on the line of credit. Until a stabilized occupancy level
is achieved and the line of credit borrowings are repaid, the Partnership's
investment in Mercantile Tower is not expected to generate any significant
excess cash flow.
Occupancy at the Marshall's at East Lake Shopping Center as of May 31, 1995
was 89%, up from its level of 85% one year ago but decreased from its level of
92% as of the previous quarter due to one tenant vacating as a result of
financial difficulties. However, during the third quarter, two new leases and
one expansion of an existing lease were executed. In addition, subsequent to
the quarter-end, a new lease was signed with a national financial services
company. The effect of this recent leasing activity will increase the center's
occupancy level to 97%. The Partnership received cash flow distributions from
the Marshall's joint venture of approximately $113,000 for the nine months ended
May 31, 1995. Annual distributions of $150,000 to $200,000 are expected from
this investment based on the property's current leasing status. As previously
reported, Marshall's, the center's anchor tenant, opened another store in 1994
at a new competitive center four miles from the Marshall's at East Lake Shopping
Center. Marshall's sales at East Lake have been very strong and their
management has confirmed that they plan to keep the East Lake store open.
However, there can be no assurances that such plans are not subject to change.
The initial term of the Marshall's lease at East Lake runs to January 31, 2003.
Notwithstanding their obligation under the lease agreement, the loss of the
center's only anchor tenant could have serious adverse effects on management's
ability to retain its other tenants and to lease vacant space. Management
continues to monitor this situation closely.
Occupancy at Eden West Apartments, The Timbers Apartments and Harbour Bay
Plaza remained strong at 99%, 97% and 90%, respectively, for the quarter ended
May 31, 1995. Eden West and Timbers have also shown substantial increases in
rental rates when compared to the prior year. The mortgage loans secured by
these three properties bear interest at rates between 11.5% and 11.75% per
annum. With general real estate market conditions improving along with the
state of the overall economy, and with credit in the capital markets for real
estate transactions more accessible than in prior years, it is possible that the
current loans secured by these properties could be refinanced at lower rates.
However, the Partnership's mortgage loans contain certain restrictions with
regard to prepayments. The Timbers loan contains a prohibition against
prepayment until September 1, 1997. The Eden West loan prohibited prepayment
through June 1, 1994 and includes a prepayment premium for any prepayment
between June 1994 and May 1998 at rates between 5% and 1.25% of the mortgage
loan balance. The Harbour Bay Plaza loan, which has a scheduled maturity date
of December 1, 1995, became fully prepayable without penalty effective January
1994. In addition to repaying the outstanding mortgage loans, the borrowers
would be required to exercise their options to purchase the underlying land at
the time of any prepayment transaction, including in such purchase price the
Partnership's share, if any, of the property's appreciation called for under the
terms of the ground lease. As a practical matter, this requirement could make
it difficult for the borrowers to finance a prepayment transaction.
During fiscal 1995, the Partnership has received formal notice from the
Harbour Bay Plaza and Eden West borrowers of their intentions to prepay the
Partnership's mortgage loans and repurchase the underlying land. The Harbour
Bay Plaza prepayment transaction would result in the Partnership receiving,
pursuant to the ground lease, approximately $200,000 in excess of the
outstanding mortgage loan and land investments, which total $3,600,000. This
transaction is expected to close in the fourth quarter of fiscal 1995. The
amount to be received as the Partnership's share of the appreciation on the Eden
West property, if any, cannot be determined with certainty at this time. The
terms of the Eden West mortgage loan require a prepayment penalty which would be
equal to 3.75% of the outstanding principal balance of $3.5 million. If
completed, the net proceeds from these prepayment transactions would be
distributed to the Limited Partners. Both prepayment transactions remain
contingent on, among other things, the borrowers obtaining sufficient financing
to repay their obligations to the Partnership. Accordingly, there can be no
assurances that such transactions will be consummated.
At May 31, 1995, the Partnership had available cash and cash equivalents of
approximately $1,301,000. Such cash and cash equivalents will be used for the
Partnership's working capital requirements and for distributions to the
partners. The Partnership began implementing small increases in the quarterly
distribution rate to the Limited Partners commencing with the payment made in
October 1994 for the quarter ended August 31, 1994. The distribution rate was
increased to 2.5% per annum on remaining invested capital during the third
quarter of fiscal 1995. The distribution rate is expected to stabilize at 2.5%
thereafter for the foreseeable future. The source of future liquidity and
distributions to the partners is expected to be through cash generated from the
operations of the Partnership's real estate and mortgage loan investments,
repayment of the Partnership's mortgage loans receivable and the proceeds from
the sales or refinancings of the underlying land, the operating investment
property and the joint venture investment property.
RESULTS OF OPERATIONS
Three Months Ended May 31, 1995
The Partnership's net income increased by approximately $93,000 for the
three months ended May 31, 1995 compared to the same period in the prior year,
primarily due to a decrease in the net loss from the Mercantile Tower property.
Revenues from Mercantile Tower were higher by approximately $137,000 for the
three months ended May 31, 1995, as a result of the occupancy gains achieved
over the past year. In addition, property expenses at Mercantile Tower
decreased by approximately $210,000 for the current three-month period due to
the timing of certain capital improvement projects. The decrease in the loss
from investment property held for sale was offset by a decrease in operating
income of approximately $214,000 mainly due to a decrease in the recovery of bad
debt from the prior year. The recovery of bad debt totalling $14,000 for the
three month period May 31, 1995 related to Timbers and the prior year amount
totalling $292,000 related to the Howard Johnson's investment.
Nine Months Ended May 31, 1995
The Partnership's net income decreased by approximately $689,000 for the
nine months ended May 31, 1995, in comparison to the same period in the prior
year, primarily due to a decrease in mortgage interest and land rent revenues
and a substantial increase in property operating expenses at the Mercantile
Tower property which is reflected in the loss from operations of investment
property held for sale. The net operating results of the Mercantile Tower
Office Building for the current nine-month period include certain costs,
totalling approximately $730,000, as compared to $490,000 in the previous year,
related to the improvements and leasing costs incurred subsequent to obtaining
the credit line discussed further above. As a result of the Partnership's
accounting policy with regard to its investment properties acquired through
foreclosure, all costs associated with holding the asset are expensed as
incurred. In addition, interest expense incurred on the line of credit
borrowings totalled $72,000 for the nine months ended May 31, 1995. Revenues
from Mercantile Tower were slightly higher for the nine months ended May 31,
1995, as compared to the same period in the prior year, as a result of the
occupancy gains achieved over the past year. Mortgage interest and land rent
revenues declined by approximately $219,000 for the nine months ended May 31,
1995 due to the sale of the Howard Johnson's Motor Lodge effective April 1,
1994, which resulted in the repayment of the Partnership's mortgage loan
receivable and the termination of the Partnership's ground lease. The
Partnership's share of venture's income decreased by approximately $22,000 in
the nine-month period ended May 31, 1995 due to lower rental revenues at the
Marshall's at East Lake Shopping Center as a result of a decline in effective
rental rates over the past two fiscal years as well as a decrease in cost
recoveries.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's quarterly report on Form 10-Q for the
period ended February 28, 1995, in November 1994, a series of purported class
actions (the "New York Limited Partnership Actions") were filed in the United
States District Court for the Southern District of New York concerning
PaineWebber Incorporated's sale and sponsorship of various limited partnership
investments, including those offered by the Partnership. On May 30, 1995, the
court certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partners continue to believe that the action will be
resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
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 QUALIFIED PLAN PROPERTY
FUND TWO, LP
By: SECOND QUALIFIED PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: July 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the 9 months ended May 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 1,300,569
<SECURITIES> 0
<RECEIVABLES> 10,335,763
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,797,168
<PP&E> 13,289,054
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,263,379
<CURRENT-LIABILITIES> 265,333
<BONDS> 1,198,664
<COMMON> 0
0
0
<OTHER-SE> 23,799,382
<TOTAL-LIABILITY-AND-EQUITY> 25,263,379
<SALES> 0
<TOTAL-REVENUES> 1,401,322
<CGS> 0
<TOTAL-COSTS> 527,477
<OTHER-EXPENSES> 471,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 402,145
<INCOME-TAX> 0
<INCOME-CONTINUING> 402,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,145
<EPS-PRIMARY> 10.98
<EPS-DILUTED> 10.98
</TABLE>
