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 FEBRUARY 28, 1998
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>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
BALANCE SHEETS
February 28, 1998 and August 31, 1997 (Unaudited)
(In thousands)
ASSETS
February 28 August 31
----------- ---------
Real estate investments:
Land $ 600 $ 600
Mortgage loans receivable, net 4,275 4,275
Investment in joint venture, at equity 2,971 3,060
Investment property held for sale, net - 7,150
--------- ---------
7,846 15,085
Cash and cash equivalents 1,276 1,555
Tax and insurance escrow - 215
Interest and other receivables 27 96
Prepaid expenses and other assets - 14
--------- ---------
$ 9,149 $ 16,965
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 37 $ 160
Accounts payable - affiliates 7 10
Accrued real estate taxes - 160
Tenant security deposits and other
liabilities - 64
Note payable - 894
Partners' capital 9,105 15,677
--------- ---------
$ 9,149 $ 16,965
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF INCOME
For the three and six months ended February 28, 1998 and 1997
(Unaudited) (In thousands, except per Unit amounts)
Three Months Ended Six Months Ended
February 28, February 28,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest from mortgage
loans $ 213 $ 307 $ 414 $ 613
Land rent 17 29 35 58
Other interest income 35 21 74 41
------- ------ ------- -------
265 357 523 712
Expenses:
Management fees 5 10 15 20
General and administrative 88 62 159 117
Provision for possible
uncollectible amounts 130 124 248 247
------- ------ ------- -------
223 196 422 384
------- ------ ------- -------
Operating income 42 161 101 328
Partnership's share of
venture's income 44 48 97 88
Income from operations of
investment property held
for sale, net - 210 302 221
Loss on sale of investment
property - - (23) -
------- ------ ------- -------
Net income $ 86 $ 419 $ 477 $ 637
======= ====== ======= =======
Net income per Limited
Partnership Unit $ 2.39 $ 11.39 $ 13.04 $ 17.41
======= ======= ======= =======
Cash distributions per
Limited Partnership
Unit $189.81 $ 4.62 $194.43 $ 9.24
======= ======= ======= =======
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.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended February 28, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1996 $(33) $20,043
Cash distributions (3) (335)
Net income 6 631
---- -------
Balance at February 28, 1997 $(30) $20,339
==== =======
Balance at August 31, 1997 $(30) $15,707
Cash distributions (3) (7,046)
Net income 5 472
---- -------
Balance at February 28, 1998 $(28) $ 9,133
==== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 477 $ 637
Adjustments to reconcile net income to
net cash provided by operating activities:
Partnership's share of venture's income (97) (88)
Loss on sale of investment property 23 -
Changes in assets and liabilities:
Tax and insurance escrow 215 (91)
Interest and other receivables 69 3
Prepaid expenses 14 1
Accrued real estate taxes (160) (143)
Accounts payable and accrued expenses (123) (23)
Accounts payable affiliates (3) -
Tenant security deposits (64) 6
-------- --------
Total adjustments (126) (335)
-------- --------
Net cash provided by operating activities 351 302
-------- --------
Cash flows from investing activities:
Distributions from joint venture 186 113
Proceeds from sale of investment property 7,127 -
-------- --------
Net cash provided by investing activities 7,313 113
-------- --------
Cash flows from financing activities:
Principal payments on note payable (894) (128)
Distributions to partners (7,049) (338)
-------- --------
Net cash used in financing activities (7,943) (466)
-------- --------
Net decrease in cash and cash equivalents (279) (51)
Cash and cash equivalents, beginning of period 1,555 1,653
-------- --------
Cash and cash equivalents, end of period $ 1,276 $ 1,602
======== ========
Supplemental disclosure:
Cash paid during the period for interest $ 21 $ 52
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP
Notes to 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 August 31, 1997. 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 February 28, 1998 and August 31, 1997 and revenues and
expenses for the three and six months ended February 28, 1998 and 1997. Actual
results could differ from the estimates and assumptions used.
As discussed further in Note 4, the Partnership sold its wholly-owned
Mercantile Tower Office Building in November 1997. Subsequent to this
transaction, the Partnership has two remaining real estate investments, one in
the form of a first mortgage loan receivable and land investment secured by The
Timbers Apartments and the other in the form of a joint venture interest in the
Marshalls at East Lake Shopping Center (see Notes 2 and 3). The owner of The
Timbers Apartments has been marketing the property for sale and expects to close
on a sale transaction in the third quarter of fiscal 1998. If the closing of The
Timbers sale occurs as expected, the Managing General Partner plans to market
and sell the Marshalls at East Lake Shopping Center during the second half of
calendar 1998 and complete a liquidation of the Partnership by December 31,
1998. There are no assurances, however, that the sale of the remaining assets
and the liquidation of the Partnership will be completed within this time frame.
2. Mortgage Loan and Land Investments
----------------------------------
The outstanding first mortgage loan and the cost of the related land to
the Partnership at February 28, 1998 and August 31, 1997 are as follows (in
thousands):
Amount
Property of Mortgage Loan Cost of Land
-------- ---------------- ------------
The Timbers Apartments $ 4,275(1) $ 600
Raleigh, NC
(1) The balance shown is net of an allowance for possible uncollectible
amounts of $3,438 and $3,190, respectively, as of February 28, 1998 and
August 31, 1997 (see discussion below).
The loan is secured by a first mortgage on the property, the owner's
leasehold interest in the land and an assignment of all leases, where
applicable. Interest on the Timbers loan is payable monthly at rate of 11.75%
per annum (see discussion of modification below), and the principal on the loan
is due at maturity. Among the provisions of the lease agreement, the Partnership
is entitled to additional rent based upon the gross revenues in excess of a base
amount, as defined. For the six-month periods ended February 28, 1998 and 1997,
no additional rents were received. As discussed in the Annual Report, the lessee
has the option to purchase the land for a specified period of time at a price
based on fair market value, as defined, but not less than the original cost to
the Partnership. As of February 28, 1998, the option to purchase the land was
exercisable. In addition, the Partnership's investment is 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 lease call for the Partnership
to receive a 40% share of the appreciation above a specified base amount.
Under the terms of the Timbers loan 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 loan secured by
The Timbers became prepayable without penalty as of September 1, 1997. The total
balance of the principal and deferred interest receivable at February 28, 1998
and August 31, 1997 was $7,713,000 and $7,465,000, respectively. The Partnership
has established an allowance for possible uncollectible amounts for the
cumulative amount of deferred interest owed under the Timbers modification
($3,438,000 at February 28, 1998 and $3,190,000 at August 31, 1997) due to the
Partnership's policy of reserving for deferred interest until collected.
3. Investment in Joint Venture
---------------------------
As discussed in the Annual Report, on June 12, 1990 the borrower of the
mortgage loan secured by the Marshalls 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. Subsequent to the restructuring, the
Partnership has accounted for its investment in the Marshalls joint venture on
the equity method because the Partnership does not have a voting control
interest in the venture. 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 six-month
periods ended February 28, 1998 and 1997 are as follows (in thousands):
Three Months Ended Six Months Ended
February 28, February 28,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rental revenues and
expense reimbursements $ 126 $ 134 $ 256 $ 263
Expenses:
Property operating expenses 31 33 61 64
Real estate taxes 14 16 24 37
Depreciation and amortization 37 37 74 74
------ ------ ------- -------
82 86 159 175
------ ------ ------- -------
Net income $ 44 $ 48 $ 97 $ 88
====== ====== ======= =======
Net income:
Partnership's share of
net income $ 44 $ 48 $ 97 $ 88
Co-venturer's share of
net income - - - -
------ ------ ------- -------
$ 44 $ 48 $ 97 $ 88
====== ====== ======= =======
4. 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 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. Subsequent to the date of the foreclosure, the Partnership recorded
provisions for possible investment loss totalling $2,350,000 to reflect
additional declines in management's estimate of the fair value of the investment
property. The net carrying value of the Mercantile Tower investment property as
of August 31, 1997 was $7,150,000, which comprises the balance of investment
property held for sale on the accompanying balance sheet at that date.
On November 10, 1997, the Mercantile Tower property was sold for
$7,283,000. The Partnership received net proceeds of $5,963,000 after closing
costs, closing prorations, certain credits to the buyer and the repayment of the
outstanding first mortgage note of $858,000. The sale price, net of closing
costs, was lower than the net carrying value of the investment property by
$23,000, which is reflected as a loss on the sale on the accompanying income
statement for the six months ended February 28, 1998. The net proceeds from the
sale of Mercantile Tower, along with an amount of excess cash reserves, were
distributed to the Limited Partners in the form of a special distribution in the
amount of approximately $6,741,000, or $186 per original $1,000 investment,
which was paid on December 15, 1997. While the net proceeds received from the
sale of Mercantile Tower were substantially less then the Partnership's original
investment in the property, of $10.5 million, management believes that the sale
price was reflective of the property's current fair market value, which was
supported by the most recent independent appraisal. Furthermore, management did
not foresee the potential for any significant near-term appreciation in the
property's market value. Accordingly, a current sale was deemed to be in the
best interests of the Limited Partners. A sale of the property at its current
leasing level yielded less proceeds than the sale of the property at a
stabilized level, but management concluded that the capital, time, and risk
associated with the substantial leasing activity required to achieve stabilized
operations outweighed the possibility of receiving a higher net sale price.
The Partnership records income from the investment property held for sale
in the amount of the difference between the property's gross revenues and
property operating expenses (including leasing costs and improvement expenses),
taxes and insurance. Summarized operating results for Mercantile Tower for the
period September 1, 1997 through the date of sale, November 10, 1997, and for
the three- and six-month periods ended February 28, 1997 are as follows (in
thousands):
Three Months Ended Six Months Ended
February 28, February 28,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rental revenues and expense
recoveries $ - $ 596 $ 591 $ 1,013
Interest and other income - 6 14 10
------ ------- ------- -------
- 602 605 1,023
Expenses:
Property operating expenses - 335 244 657
Interest expense - 25 21 52
Property taxes and insurance - 32 38 93
------ ------- ------- -------
- 392 303 802
------ ------- ------- -------
Income from operations of investment
property held for sale, net $ - $ 210 $ 302 $ 221
====== ======= ======= =======
The above property operating expenses for the three and six months ended
February 28, 1997 include capital improvements and leasing costs of $62,000 and
$116,000, respectively.
5. Related Party Transactions
--------------------------
The Adviser earned basic management fees of $15,000 and $20,000 for the
six-month periods ended February 28, 1998 and 1997, respectively. Accounts
payable - affiliates at February 28, 1998 and August 31, 1997 consist of
management fees payable to the Adviser of $7,000 and $10,000, respectively.
Included in general and administrative expenses for the six-month periods
ended February 28, 1998 and 1997 is $72,000 and $75,000, 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 each of the
six-month periods ended February 28, 1998 and 1997 is $1,000 and $2,000,
respectively, representing fees earned by an affiliate, Mitchell Hutchins
Institutional Investors, Inc., for managing the Partnership's
cash assets.
6. Note payable
------------
Note payable as of August 31, 1997 consisted of the following secured
indebtedness (in thousands):
August 31
---------
Line of credit borrowings secured
by the Mercantile Tower property.
Draws under the line, up to a
maximum of $2,000,000, could be
made through February 28, 1998,
only to fund approved leasing and
capital improvement costs related
to the Mercantile Tower property.
The outstanding borrowings bore
interest at the prime rate (8.25%
at August 31, 1997) 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. The fair value
of the note approximated its
carrying amount as of August 31,
1997. The note was repaid in full
on November 10, 1997 upon the sale
of the Mercantile Tower property
(see Note 4). $ 894
=====
<PAGE>
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 discussed further below, the Partnership sold its wholly-owned
Mercantile Tower Office Building in November 1997. Subsequent to this
transaction, the Partnership has two remaining real estate investments, one in
the form of a first mortgage loan receivable and land investment secured by The
Timbers Apartments and the other in the form of a joint venture interest in the
Marshalls at East Lake Shopping Center. As discussed further below, the owner of
The Timbers Apartments has been marketing the property for sale and expects to
close on a sale transaction in the third quarter of fiscal 1998. If the closing
of The Timbers sale occurs as expected, the Managing General Partner plans to
market and sell the Marshalls at East Lake Shopping Center during the second
half of calendar 1998 and complete a liquidation of the Partnership by December
31, 1998. There are no assurances, however, that the sale of the remaining
assets and the liquidation of the Partnership will be completed within this time
frame. The net proceeds from any future sales and financing transactions will be
distributed to the Limited Partners along with the remaining Partnership cash
reserves after the payment of all liquidation-related expenses.
On November 10, 1997, the Mercantile Tower property was sold for
$7,283,000. The Partnership received net proceeds of $5,963,000 after closing
costs, closing prorations, certain credits to the buyer and the repayment of the
outstanding first mortgage note of $858,000. The net proceeds from the sale of
Mercantile Tower, along with an amount of excess cash reserves, were distributed
to the Limited Partners in the form of a special distribution in the amount of
approximately $6,741,000, or $186 per original $1,000 investment, which was paid
on December 15, 1997. While the net proceeds received from the sale of
Mercantile Tower were substantially less then the Partnership's original
investment in the property, of $10.5 million, management believes that the sale
price was reflective of the property's current fair market value, which was
supported by the most recent independent appraisal. Furthermore, management did
not foresee the potential for any significant near-term appreciation in the
property's market value. Accordingly, a current sale was deemed to be in the
best interests of the Limited Partners. While a sale of the property at its
November 1997 leasing level of below 70% yielded less proceeds than the sale of
the property at a stabilized level, management concluded that the capital, time,
and risk associated with the substantial leasing activity required to achieve
stabilized operations outweighed the possibility of receiving a higher net sale
price. As previously reported, all of the operating cash flow at the Mercantile
Tower property had been used to help pay for ongoing leasing costs and capital
improvements at the building. As a result of the sale of the property and the
payment of the December 15, 1997 special capital distribution, the Partnership's
earnings can support an increase in the distribution rate paid on the remaining
invested capital. Accordingly, the annualized distribution rate has been
increased from 2.5% to 3% effective with the distribution for the quarter ended
February 28, 1998, which will be paid on April 15, 1998. The 3% annualized rate
will be paid on a Limited Partner's remaining capital account of $424 per
original $1,000 investment.
The mortgage loan secured by The Timbers Apartments contained a
prohibition against prepayment until September 1, 1997 and matures on September
1, 1998. As discussed further in the notes to the accompanying financial
statements, while interest is accruing on the Timbers loan at a rate of 11.75%,
interest is being paid currently to the extent of net operating cash flow
generated by the property, but not less than a rate of 7.75% per annum on the
original note balance of $4,275,000, under the terms of a modification agreement
reached in fiscal 1989. Deferred interest under the modification agreement is
added to the principal balance of the mortgage note on an annual basis. Under
the Partnership's accounting policy for interest income, all deferred interest
is fully reserved until collected in cash. The balance of principal and deferred
interest owed to the Partnership on the Timbers first mortgage loan totalled
$7,713,000 as of February 28, 1998. In addition, the Partnership has a $600,000
investment in the underlying land. As reported in the first quarter report, the
Timbers' borrower has initiated discussions with the Partnership concerning a
potential sale of the property. In mid-January 1998 the property owner began
marketing the property for sale on a joint basis with a local brokerage firm.
Since then, the property has been widely marketed and the owner received seven
offers from qualified third-party buyers to acquire the property. After
completing an evaluation of the best and final offers, one was selected
subsequent to quarter end. The property owner is currently negotiating a
purchase and sale agreement with this prospective buyer. Once the agreement is
signed, the prospective buyer will have a customary period to complete its due
diligence review work. Based on the proposed sale price and an expected closing
date of late April or early May 1998, the proposed sale could result in the
repayment of a substantial portion of the outstanding obligations owed to the
Partnership. Because a completed sale is contingent upon a signed purchase and
sale agreement as well as satisfactory results from the prospective buyer's due
diligence review, there can be no assurances that this sale will actually close.
If the Partnership's investments secured by The Timbers Apartments are
repaid in the third quarter as expected, the Marshalls at East Lake Shopping
Center would be the Partnership's only remaining investment. As a result of
these circumstances, the Partnership is analyzing near-term sale strategies for
this asset which could result in a sale of the property in 1998. Occupancy at
the Marshalls at East Lake Shopping Center increased from 94% at November 30,
1997 to 98% at February 28, 1998. A new lease was signed with a regional shoe
store for 4,500 square feet during the current quarter. The lease is for a
5-year term, and the tenant opened for business on February 17, 1998. Because
the tenant has a strong presence in the Atlanta area, it is a good addition to
the Center's tenant roster and is expected to increase the number of shoppers at
the property. In order to accommodate this new tenant, it was necessary to
terminate the lease of an existing tenant. Also during the second quarter, a
tenant occupying 1,200 square feet moved from the Center. Over the next 12
months only one lease expires, and the property's leasing team expects this
tenant to sign an early renewal and relocate into the 1,200 square foot store
just vacated during the second quarter. During the quarter, an aluminum coating
of the entire roofing system was completed. Other improvements planned in
conjunction with preparing the property for sale in the near term include the
painting of the Center and a new pylon sign.
At February 28, 1998, the Partnership had available cash and cash
equivalents of $1,276,000. Such cash and cash equivalents will be used for the
Partnership's working capital requirements and for distributions to the
partners. 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 and the joint venture investment property. Such sources of
liquidity are expected to be adequate to meet the Partnership's needs on both a
short-term and long-term basis.
Results of Operations
Three Months Ended February 28, 1998
- ------------------------------------
The Partnership reported net income of $86,000 for the three months ended
February 28, 1998, as compared to $419,000 for the same period in the prior
year. This decrease in net income is attributable to declines in the
Partnership's operating income of $119,000, income from operations of investment
property held for sale of $210,000, and the Partnership's share of venture's
income of $4,000. The Partnership's operating income declined mainly due to the
reduction in interest from mortgage loans and land rent stemming from the
repayment of the Eden West first mortgage loan and the repurchase of the
underlying land on July 15, 1997. The reduction in interest from mortgage loans
and land rent attributable to the Eden West repayment/repurchase amounted to
$101,000 and $11,000, respectively. This decrease in interest from mortgage
loans and land rent was partially offset by an increase in interest income from
invested cash reserves of $14,000. Interest income on money-market investments
increased largely due to an increase in the average outstanding cash reserve
balances, which resulted mainly from the temporary investment of the net
proceeds from the sale of Mercantile Tower on November 10, 1997 prior to the
special distribution to the Limited Partners made on December 15, 1997.
The decrease in the net income from operations of the investment property
held for sale for the three months ended February 28, 1998 resulted from the
sale of Mercantile Tower on November 10, 1997. The $210,000 decrease represents
the income from operations of the Mercantile Tower property for the three months
ended February 28, 1997. The decrease in the Partnership's share of venture's
income is largely due to additional revenues recognized at the Marshalls at East
Lake Shopping Center during the three months ended February 28, 1997 as a result
of short term leases signed with two tenants to temporarily occupy vacant space
at the shopping center during the Christmas season of calendar 1996.
Six Months Ended February 28, 1998
- ----------------------------------
The Partnership reported net income of $477,000 for the six months ended
February 28, 1998, as compared to $637,000 for the same period in the prior
year. This decrease in net income is the result of a decrease in operating
income of $227,000 and a loss on the sale of the Mercantile Tower property of
$23,000 which were partially offset by an increase in income from operations of
investment property held for sale of $81,000 and an increase in the
Partnership's share of venture's income of $9,000. The Partnership's operating
income declined mainly due to the reduction in interest from mortgage loans and
land rent stemming from the repayment of the Eden West first mortgage loan and
the repurchase of the underlying land on July 15, 1997. The reduction in
interest from mortgage loans and land rent attributable to the Eden West
repayment/repurchase amounted to $201,000 and $23,000, respectively. These
decreases were partially offset by an increase in interest income from invested
cash reserves of $33,000. Interest income on money-market investments increased
due to an increase in the average outstanding cash reserve balances, which
resulted mainly from the temporary investment of the net proceeds from the sale
of Mercantile Tower on November 10, 1997 prior to the special distribution to
the Limited Partners made on December 15, 1997. The Partnership's net income
also decreased as a result of the $23,000 loss from the sale of Mercantile
Tower. The loss from the sale of Mercantile Tower was the result of the excess
of the property's carrying value, net of prior provisions for possible
investment loss, over the sale price, net of closing costs.
The increase in the net income from operations of the investment property
held for sale is mainly due to a substantial decrease in property operating
expenses at Mercantile Tower prior to its sale in November 1997. The lower
operating expenses resulted mainly from a decline in leasing activity prior to
the sale of the Mercantile Tower property as well as additional expense
recoveries which resulted from a final billing of recoverable expenses through
the date of the sale. The increase in the Partnership's share of venture's
income is primarily attributable to a $16,000 decrease in total expenses which
was partially offset by a $7,000 decrease in rental revenues and expense
reimbursements at the Marshalls at East Lake Shopping Center. Total expenses
decreased mainly due to a reduction in the property's tax assessment and a
decline in repairs and maintenance expense. Rental revenues and expense
reimbursements declined mainly due to additional revenues recognized at the
Marshalls at East Lake Shopping Center in the prior year as a result of short
term leases signed with two tenants to temporarily occupy vacant space at the
shopping center during the Christmas season of calendar 1996.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: NONE
<PAGE>
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: April 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended February 28,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 1,276
<SECURITIES> 0
<RECEIVABLES> 7,740
<ALLOWANCES> 3,438
<INVENTORY> 0
<CURRENT-ASSETS> 5,578
<PP&E> 3,571
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,149
<CURRENT-LIABILITIES> 44
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,105
<TOTAL-LIABILITY-AND-EQUITY> 9,149
<SALES> 0
<TOTAL-REVENUES> 922
<CGS> 0
<TOTAL-COSTS> 174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 271
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 477
<INCOME-TAX> 0
<INCOME-CONTINUING> 477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 477
<EPS-PRIMARY> 13.04
<EPS-DILUTED> 13.04
</TABLE>
