UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-10995
PAINE WEBBER GROWTH PROPERTIES LP
(Exact name of registrant as specified in its charter)
Delaware 04-2772109
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and March 31, 1995
(Unaudited)
(In Thousands)
ASSETS
June 30 March 31
Operating investment property, at cost:
Land $ 2,029 $ 2,029
Buildings improvements and equipment 13,716 13,678
15,745 15,707
Less accumulated depreciation (5,745) (5,577)
10,000 10,130
Investments in unconsolidated joint
ventures, at equity 1,385 1,329
Cash and cash equivalents 804 3,493
Real estate tax and insurance escrow deposit 93 244
Capital improvement and replacement escrow deposits 255 329
Accounts receivable 10 8
Deferred loan costs, net 509 513
Other assets 31 40
$ 13,087 $ 16,086
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 122 $ 304
Accrued interest payable 169 155
Mortgage note payable 6,944 6,962
Tenant security deposits 22 24
Other liabilities 29 31
Partners' capital 5,801 8,610
$ 13,087 $ 16,086
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1995 and 1994
(Unaudited)
(In Thousands, except per Unit data)
1995 1994
REVENUES:
Rental income $ 482 $ 464
Reimbursements from affiliates 44 54
Interest and other income 83 47
609 565
EXPENSES:
Property operating expenses 240 244
Depreciation and amortization 168 125
Interest expense 146 135
Real estate taxes 54 51
Management fees 9 -
General and administrative 133 62
750 617
Operating loss (141) (52)
Venture partner's share of
consolidated venture's operations 1 1
Partnership's share of unconsolidated
ventures' income 51 73
NET INCOME (LOSS) $ (89) $ 22
Per Limited Partnership Unit:
Net income (loss) $ (3.00) $ 0.75
Cash distributions $ 93.14 $ 158.00
The above per Limited Partnership Unit information is based upon the 29,194
Units of Limited Partnership Interest outstanding during each period.
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1995 and 1994
(Unaudited)
(In Thousands)
General Limited
Partners Partners
Balance at March 31, 1994 $ (69) $ 13,152
Cash distribution - (4,613)
Net income - 22
BALANCE AT JUNE 30, 1994 $ (69) $ 8,561
Balance at March 31, 1995 $ - $ 8,610
Cash distributions (1) (2,719)
Net loss (1) (88)
BALANCE AT JUNE 30, 1995 $ (2) $ 5,803
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In Thousands)
1995 1994
Cash flows from operating activities:
Net income (loss) $ (89) $ 22
Adjustments to reconcile net income
(loss) to net cash
used for operating activities:
Reimbursements from affiliates (44) (54)
Venture partner's share of consolidated
venture's operations (1) (1)
Partnership's share of unconsolidated
ventures' income (51) (73)
Depreciation and amortization 168 125
Amortization of deferred loan costs 4 6
Changes in assets and liabilities:
Real estate tax and insurance escrow deposit 152 95
Accounts receivable (2) 2
Other assets 9 19
Accounts payable and accrued expenses (182) (197)
Accrued interest payable 14 36
Other liabilities (2) -
Tenant security deposits (2) (2)
Total adjustments 63 (44)
Net cash used for operating activities (26) (22)
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 39 4,597
Net withdrawals from (deposits to) capital
improvement and replacement escrow 74 (16)
Additions to operating investment property (38) (39)
Net cash provided by investing activities 75 4,542
Cash flows from financing activities:
Principal payments on mortgage note payable (18) (16)
Distributions to partners (2,720) (4,613)
Net cash used for financing activities (2,738) (4,629)
Net decrease in cash and cash equivalents (2,689) (109)
Cash and cash equivalents, beginning of period 3,493 1,625
Cash and cash equivalents, end of period $ 804 $ 1,516
Cash paid during the period for interest $ 128 $ 93
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 March 31, 1995.
In the opinion of management, the accompanying financial statements,
which have not been audited, reflect all adjustments necessary to present
fairly the results for the interim period. All of the accounting
adjustments reflected in the accompanying interim financial statements are
of a normal recurring nature.
2. Investments in Unconsolidated Joint Ventures
The Partnership has investments in four unconsolidated joint ventures at
June 30, 1995 (five at June 30, 1994). Three of the unconsolidated joint
ventures own and operate residential apartment complexes (four at June 30,
1994). As discussed further in the Annual Report, one unconsolidated joint
venture had owned and operated a residential apartment complex until the
property was completely destroyed by a fire in October of 1991. On April
15, 1994 this venture sold the land at the former site of the Parkwoods
apartment complex to an affiliate of the Partnership's co-venture partner
for $4,750,000. Despite the sale of the remaining real property, the
Parkwoods' joint venture will not be liquidated in the near-term due to
certain outstanding legal matters related to the aforementioned fire.
On December 23, 1994, Austin Northcastle Partners, a joint venture in
which the Partnership had an interest, sold the property known as the
Northcastle Apartments, located in Austin, Texas, to an unrelated third
party for $6,100,000. Final approval of the sale, which involved the
assumption of the outstanding first mortgage loan secured by the property,
was received from the Department of Housing and Urban Development on April
26, 1995. After transaction costs and the assumption of the outstanding
first mortgage loan, the joint venture received net proceeds of
approximately $1,620,000 from the sale. The Partnership's share of such
proceeds was $1,581,000, in accordance with the terms of the joint venture
agreement. On June 15, 1995, the Partnership made a special distribution of
$2,627,000, or $90 per unit, to the Limited Partners which included the net
proceeds from the Northcastle sale and certain excess Partnership reserves.
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 these ventures. Under the equity method
the investments are carried at cost adjusted for the Partnership's share of
the venture's earnings, losses and distributions. The Partnership's policy
is to recognize its share of ventures' operations three months in arrears.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three months ended March 31, 1995 and 1994
(in thousands)
1995 1994
Rental revenues and expense recoveries $ 1,148 $1,370
Interest and other income 23 210
1,171 1,580
Property operating expenses 513 761
Interest expense 397 479
Depreciation and amortization 216 273
1,126 1,513
Net income $ 45 $ 67
Net income:
Partnership's share of combined
income (loss) $ 51 $ 73
Co-venturers' share of combined
income (loss) (6) (6)
$ 45 $ 67
3. Operating Investment Property
The Partnership has a controlling interest in one joint venture, Nob Hill
Partners, which owns Nob Hill Apartments, a 368-unit apartment complex
located in San Antonio, Texas. As explained further in the Annual Report,
during fiscal 1993 the Partnership assumed control over the affairs of the
joint venture as a result of the withdrawal of the co-venture partner and
the assignment of its remaining interest to First PW Growth Properties,
Inc., the Managing General Partner of the Partnership. Accordingly, the
accompanying financial statements present the financial position, results of
operations and cash flows of this joint venture on a consolidated basis.
The joint venture has a year-end of December 31 for both tax and financial
reporting purposes. Accordingly, the Partnership's policy is to report the
consolidated results of the joint venture on a three-month lag.
The following is a summary of property operating expenses for the three
months ended March 31, 1995 and 1994 (in thousands):
1995 1994
Repairs and maintenance $ 63 $ 60
Utilities 30 29
Management fees 20 19
Insurance 15 7
Administrative and other 112 129
$240 $244
4. Related Party Transactions
The Partnership accrues as income reimbursements due from certain of the
joint ventures for the Partnership's management fees and certain out-of-
pocket expenses, as specified in the respective joint venture agreements.
Such reimbursements totaled $44,000 and $54,000 for the three months ended
June 30, 1995 and 1994, respectively.
Since the Partnership reinstated the payment of regular quarterly
distributions to the Limited Partner effective November 15, 1994, the Adviser
is entitled to earn certain asset management fees. The Adviser earns
management fees equal to approximately 10% of the Distributable Cash generated
by the Partnership, as defined, subject to certain limitations. Such
management fees totalled $9,000 for the three months ended June 30, 1995.
Included in general and administrative expenses for the three months
ended June 30, 1995 and 1994 is $25,000 and $27,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell
Hutchins earned fees of $1,000 and $3,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
the three months ended June 30, 1995 and 1994, respectively.
5. Mortgage Note Payable
Mortgage note payable at June 30, 1995 and March 31, 1995 consists of the
following debt of Nob Hill Partners, the Partnership's consolidated joint
venture (in thousands):
June 30 March 31
7.375% mortgage note payable secured by the
Nob Hill operating property. $6,944 $6,962
The above debt obligation represents a nonrecourse mortgage note payable
to a third party and insured by the U.S. Department of Housing and Urban
Development (HUD). The principal and interest on the note are to be paid in
monthly installments of $49,000 commencing December 1, 1993, until November
1, 2023. In addition, the property submits monthly escrow deposits of
$29,000 for taxes, insurance and a replacement reserve required under the
terms of the HUD regulatory agreement.
6. Contingencies
The Partnership is involved in certain legal actions. The Managing
General Partner believes these actions will be resolved without material
adverse effect on the Partnership's financial statements, taken as a whole.
PAINE WEBBER GROWTH PROPERTIES LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The local apartment markets where the Nob Hill, Chisholm Place and Tantra
Lake apartment complexes are located have experienced continuous gradual
improvement over the past 2 to 3 years, which has allowed the respective
properties to be more aggressive in seeking increased rents, while also
maintaining high occupancies. The operations of these three investment
properties reflect the generally improving conditions in the real estate markets
for multi-family residential properties across the country. Lack of significant
new construction activity over this period has allowed the oversupply which
existed in many markets as a result of the overbuilding of the 1980's to be
absorbed. The results of such absorption, combined with the effects of a
recovering national economy, have been a gradual improvement in economic
occupancy levels and effective rental rates and a corresponding increase in
property values in most markets. Management expects to see continued
improvement in the multi-family sector of these real estate markets in the near-
term and may seek favorable opportunities to sell certain of its remaining
operating investment properties if the magnitude of such improvement suggests
that a current sale may be in the Partnership's best interests. The California
real estate market, where the Partnership's Grouse Run Apartments property is
located, represents an exception to the aforementioned market conditions.
Conditions in California continue to be adversely affected by the condition of
the region's economy, which has been hit hard by the cutbacks in government
defense spending and by the reduced rate of growth in the high technology
industries. Operations at Grouse Run, while affected by these conditions,
continue to hold relatively steady at the present time. The improved operating
performances of the other three properties are expected to result in an overall
improvement in cash flow to the Partnership. Because of these improved property
performances and because the Partnership currently has sufficient reserves to
meet its anticipated future capital needs, management reinstated the payment of
quarterly cash distributions at the annual rate of 2% on remaining capital
beginning with a payment made on November 15, 1994 for the quarter ended
September 30, 1994. Subsequent to the June 1995 distribution of Northcastle
sale proceeds and excess reserves, Limited Partners had a remaining capital
account of $538 per original $1,000 investment. Distributions will continue at
the 2% level as long as actual results of operations produce sufficient earnings
to support such distributions.
As previously reported, management is currently in the process of using
excess reserves from the September 1993 HUD loan refinancing to substantially
upgrade the Nob Hill Apartments. A major capital improvement project commenced
in fiscal 1995 which included significant exterior renovations to this 23-year
old, San Antonio property. Management plans to focus on upgrading the
property's apartment unit interiors in early fiscal 1996. These improvements
will include updated light fixtures in the dining rooms as well as new floor
tiling. These improvements will permit Nob Hill to remain competitive as new
properties are constructed in the local market and as older properties undergo
similar renovations. As a result of the recently completed improvements, the
property's attractive assumable financing and the increased competition in the
San Antonio market, management has decided to actively market Nob Hill for sale
in fiscal 1996. Through early August 1995, several preliminary offers had been
received on the property. Management is presently in the process of analyzing
the offers and negotiating with prospective buyers in an effort to determine if
a sale can be completed on favorable terms. Management's hold/sell decisions
with respect to Nob Hill, as well as the other remaining investment properties,
will be based on an assessment of the impact on the overall returns to the
Limited Partners.
As discussed in the Annual Report, management has filed for a refund of
approximately $450,000 in costs incurred to secure the necessary building
permits which were obtained prior to the sale of the land underlying the former
Parkwoods Apartments from a federal agency responsible for administering federal
aid in connection with the 1991 Oakland fire. Management continues to pursue
collection of these reimbursements; however, it is uncertain at this time how
much, if any, of the Partnership's reimbursement claims will be recovered. The
legal proceedings related to the Oakland fire included certain court-supervised
mediation hearings during fiscal 1995 which have led to the settlement of the
majority of the outstanding claims as of early August 1995. Based on these
proceedings and the settlements executed to date, management is confident that
the amount of any legal defense costs, award judgments and negotiated
settlements will be covered under the venture's liability insurance policies.
At June 30, 1995, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $804,000. Such cash and
cash equivalents, along with future cash flow distributions from the
Partnership's operating properties, will be used for the working capital needs
of the Partnership and for the funding of the Partnership's share of capital
improvements or operating deficits of the investment properties, if necessary,
and for distributions to the partners. Such sources of liquidity are expected
to be adequate to cover the Partnership's needs on both a short-term and long-
term basis. The future source of liquidity and distributions to the partners is
expected to be through proceeds received from the sales or refinancings of the
investment properties.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995
The Partnership reported a net loss of $89,000 for the three months ended
June 30, 1995 as compared to net income of $22,000 for the same period in the
prior year. This unfavorable change in net operating results is mainly due to
an increase in the Partnership's operating loss of $89,000. This increase in
operating loss is primarily a result of an increase in general and
administrative expenses of $71,000 and an increase in depreciation and
amortization expense of $43,000. General and administrative expenses increased
mainly due to additional expenditures incurred related to an independent
valuation of the Partnership's operating properties which was commissioned in
fiscal 1995 in conjunction with management's ongoing refinancing efforts and
portfolio management responsibilities. Depreciation and amortization expense
increased as a result of significant fixed asset additions to the Nob Hill
operating investment property during fiscal 1995. The increases in general and
administrative expenses and depreciation and amortization expense were partially
offset by an increase in interest income earned on short-term investments of
$36,000. Interest income increased as a result of a significant increase in the
Partnership's average outstanding cash balances due to the receipt of the
proceeds from the sale of the Northcastle Apartments and an increase in the
interest rates earned on such cash balances. In addition to the increase in
operating loss, the Partnership's share of unconsolidated ventures' income
decreased by $22,000 in the current period. This decrease is primarily the
result of the sale of the Northcastle Apartments in December 1994. As a result
of the sale, no operating results for Northcastle are included in the combined
operations of the unconsolidated joint ventures for the three months ended June
30, 1995.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Company'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 Managing General Partner continues to believe that
the action will be resolved without material adverse effect on the
Partnership's financial statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
PAINE WEBBER GROWTH PROPERTIES 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 GROWTH PROPERTIES LP
By: FIRST PW GROWTH PROPERTIES, INC.
Managing General Partner
By:/s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Date: August 12, 1995
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<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the three months ended June 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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