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 SEPTEMBER 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-10995
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
September 30, 1995 and March 31, 1995
(Unaudited)
(In Thousands)
ASSETS
September 30 March 31
Operating investment property, at cost:
Land $ 2,029 $ 2,029
Buildings improvements and equipment 13,726 13,678
15,755 15,707
Less accumulated depreciation (5,914) (5,577)
9,841 10,130
Investments in unconsolidated joint
ventures, at equity 1,203 1,329
Cash and cash equivalents 941 3,493
Real estate tax and insurance escrow deposit 165 244
Capital improvement and replacement escrow deposits 273 329
Accounts receivable 11 8
Deferred loan costs, net 505 513
Other assets 13 40
$ 12,952 $ 16,086
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 161 $ 304
Accrued interest payable 183 155
Mortgage note payable 6,927 6,962
Tenant security deposits 20 24
Other liabilities 28 31
Partners' capital 5,633 8,610
$ 12,952 $ 16,086
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1995 and 1994
(Unaudited)
(In Thousands, except per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
REVENUES:
Rental income $ 515 $ 465 $ 997 $ 929
Reimbursements from affiliates 52 57 96 111
Interest and other income 33 66 116 113
600 588 1,209 1,153
EXPENSES:
Property operating expenses 283 202 523 446
Depreciation 169 137 337 262
Interest expense 146 187 292 322
Real estate taxes 57 48 111 99
Management fees 9 - 18 -
General and administrative 90 78 223 140
754 652 1,504 1,269
Operating loss (154) (64) (295) (116)
Venture partner's share of
consolidated venture's
operations 1 - 2 1
Partnership's share of
unconsolidated
ventures' income (losses) 78 (118) 129 (45)
NET LOSS $ (75) $ (182) $ (164) $ (160)
Per Limited Partnership Unit:
Net loss $(2.58) $(6.17) $(5.58) $ (5.42)
Cash distributions $ 3.15 $ - $96.29 $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 six months ended September 30, 1995 and 1994
(Unaudited)
(In Thousands)
General Limited
Partners Partners
Balance at March 31, 1994 $ (69) $ 13,152
Cash distribution - (4,612)
Net loss (2) (158)
BALANCE AT SEPTEMBER 30, 1994 $ (71) $ 8,382
Balance at March 31, 1995 $ - $ 8,610
Cash distributions (2) (2,811)
Net loss (2) (162)
BALANCE AT SEPTEMBER 30, 1995 $ (4) $ 5,637
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In Thousands)
1995 1994
Cash flows from operating activities:
Net loss $ (164) $ (160)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Reimbursements from affiliates (96) (111)
Venture partner's share of consolidated
venture's operations (2) (1)
Partnership's share of unconsolidated
ventures' income (losses) (129) 45
Depreciation 337 262
Amortization of deferred loan costs 8 8
Changes in assets and liabilities:
Real estate tax and insurance escrow deposit 79 62
Accounts receivable (3) (98)
Other assets 27 110
Accounts payable and accrued expenses (142) 31
Accrued interest payable 28 36
Other liabilities (3) -
Tenant security deposits (4) (4)
Total adjustments 100 340
Net cash provided by (used for)
operating activities (64) 180
Cash flows from investing activities:
Distributions from unconsolidated
joint ventures 352 4,830
Net withdrawals from capital
improvement and replacement escrow 56 14
Additions to operating investment property (48) (286)
Net cash provided by investing
activities 360 4,558
Cash flows from financing activities:
Principal payments on mortgage note payable (35) (33)
Distributions to partners (2,813) (4,613)
Net cash used for financing activities (2,848) (4,646)
Net increase (decrease) in cash
and cash equivalents (2,552) 92
Cash and cash equivalents, beginning of period 3,493 1,625
Cash and cash equivalents, end of period $ 941 $ 1,717
Cash paid during the period for interest $ 256 $ 222
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
September 30, 1995 (five at September 30, 1994). Three of the
unconsolidated joint ventures own and operate residential apartment
complexes (four at September 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 $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 and six months ended June 30, 1995 and 1994
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Rental revenues and
expense recoveries $1,160 $1,362 $2,308 $2,732
Interest and other income 39 44 62 254
1,199 1,406 2,370 2,986
Property operating expenses 512 779 1,025 1,540
Interest expense 396 489 793 975
Depreciation and amortization 216 266 432 532
1,124 1,534 2,250 3,047
Net income (loss) $ 75 $ (128) $ 120 $ (61)
Net income:
Partnership's share of
combined income (loss) $ 78 $ (118) $ 129 $ (45)
Co-venturers' share of
combined loss (3) (10) (9) (16)
$ 75 $ (128) $ 120 $ (61)
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.
Subsequent to the end of the current quarter, on October 18, 1995, the
Partnership signed a letter of intent to sell the Nob Hill Apartments to a
third party for $10 million. The sale remains subject to the buyer's due
diligence and formal approval from the U.S. Department of Housing and Urban
Development to the buyer's assumption of the outstanding first mortgage
loan. Accordingly, the can be no assurances that the sale transaction will
be consummated.
The following is a summary of property operating expenses for the three
and six months ended June 30, 1995 and 1994 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Repairs and maintenance $ 84 $ 14 $ 147 $ 74
Utilities 34 22 64 51
Management fees 21 20 41 39
Insurance 14 35 29 42
Administrative and other 130 111 242 240
$ 283 $202 $ 523 $ 446
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 totalled $96,000 and $111,000 for the six months ended
September 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 $18,000 for the six months ended September 30,
1995.
Included in general and administrative expenses for the six months ended
September 30, 1995 and 1994 is $47,000 and $49,000, 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 $5,000 and $3,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
the six months ended September 30, 1995 and 1994, respectively.
5. Mortgage Note Payable
Mortgage note payable at September 30, 1995 and March 31, 1995 consists
of the following debt of Nob Hill Partners, the Partnership's consolidated
joint venture (in thousands):
September 30 March 31
7.375% mortgage note payable secured by
the Nob Hill operating property. $6,927 $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 maturity
on 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
As previously reported, as a result of increases in apartment development
activity in the local market, as well as the attractive, assumable financing
obtained in September 1993, management began to market the Nob Hill Apartments
property for sale during the spring of 1995. Subsequent to the end of the
current quarter, on October 18, 1995, the Partnership signed a letter of intent
with a third party to sell the Nob Hill Apartments for $10 million. The sale
remains subject to the buyer's due diligence and formal approval from the U.S.
Department of Housing and Urban Development (HUD) to the buyer's assumption of
the outstanding first mortgage loan. Accordingly, there can be no assurances
that the sale transaction will be consummated. The Partnership would receive
net proceeds from the proposed sale of approximately $2.7 million. Management
would expect to distribute substantially all of these proceeds to the Limited
Partners following the receipt of HUD approval, which could take several months
to obtain. While the Nob Hill property is currently 93% occupied, it will soon
have strong competition from a significant number of new multi-family units
currently being developed. This increase in the supply of apartment units is
expected to result in pressure to reduce rental rates or use rent concessions as
leasing incentives to maintain occupancy levels and market share. In addition,
despite the recent, extensive capital improvement program at the property, the
property's age would require increased capital to maintain. As a result of
these conditions, management believes that values for this 25-year-old, 368-
unit, San Antonio, Texas apartment complex are at or near their peak for the
current market cycle.
The local apartment markets where the 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 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 1980s 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 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 discussed in the Annual Report, management 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. An agreement was reached during
the second quarter of fiscal 1996 to a release schedule for money previously
funded by the Partnership to pay for building permits. The majority of the
$450,000 is expected to be received by the Partnership by December 31, 1995.
The legal proceedings related to the Oakland fire included certain court-
supervised mediation hearings during fiscal 1995 which have subsequently led to
the settlement of the majority of the outstanding claims. 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 September 30, 1995, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $941,000. 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 September 30, 1995
The Partnership's net loss decreased by $107,000 for the three months ended
September 30, 1995 when compared to the same period in the prior year. The
primary reason for this decrease is a favorable change in the Partnership's
share of unconsolidated ventures' income (losses). The Partnership reported
income from the operations of its unconsolidated ventures of $78,000 for the
current period as compared to losses of $118,000 for the same period in the
prior year. The primary reason for this favorable change is due to certain
costs being incurred by the Parkwoods joint venture in the prior year. Parkwoods
incurred $113,000 of certain legal and administrative costs during the prior
year in order to pursue the refund of $450,000 in costs previously incurred to
secure the necessary building permits required to proceed with the planned
reconstruction of the Parkwoods property, as discussed further above. The
Parkwoods joint venture has had no significant operations during the current
year. In addition, rental income increased at each of the Partnership's three
remaining unconsolidated joint ventures, particularly at the Tantra Lakes
Apartments, during the current year mainly due to increases in
rental rates. The favorable change in the Partnership's share of unconsolidated
ventures' income was partially offset by an increase in the Partnership's
operating loss of $90,000. The increase in the Partnership's operating loss is
primarily a result of increases in property operating expenses of $81,000 and
depreciation expense of $32,000 at the Partnership's consolidated Nob Hill joint
venture and a decrease in interest and other income of $33,000. Property
operating expenses increased due to a significant increase in repairs and
maintenance expense related to costs incurred to prepare the Nob Hill property
for a possible sale. Depreciation expense increased as a result of significant
fixed asset additions to the Nob Hill operating investment property during
fiscal 1995. Interest and other income decreased due to decreases in interest
income earned on smaller escrow deposit account balances. These increases in
operating loss were partially offset by an increase in rental income at Nob Hill
of $50,000 due to an increase in rental rates over the same period in the prior
year.
Six Months Ended September 30, 1995
The Partnership's net loss increased by $4,000 for the six months ended
September 30, 1995 when compared to the same period in the prior year. This
increase is a result of an increase in the Partnership's operating loss of
$179,000 which was partially offset by a favorable change in the Partnership's
share of unconsolidated ventures' income (losses) of $174,000. The increase in
the Partnership's operating loss is primarily a result of increases in property
operating expenses of $77,000 and depreciation expense of $75,000 at the
Partnership's consolidated Nob Hill joint venture and an increase in general and
administrative expenses of $83,000. Property operating expenses increased due to
a significant increase in repairs and maintenance expense related to costs
incurred to prepare the Nob Hill property for a possible sale. Depreciation
expense increased as a result of significant fixed asset additions to the Nob
Hill operating investment property during fiscal 1995. General and
administrative expenses increased due to an increase in necessary professional
fees. The Partnership has also incurred $18,000 of management fee expense in
fiscal 1996, which it had not incurred in several years, due to the
reinstatement of quarterly distributions to the limited partners. These
increases in operating loss were partially offset by an increase in rental
income at Nob Hill of $68,000 due to an increase in rental rates over the same
period in the prior year.
The Partnership reported income from the operations of its unconsolidated
ventures of $129,000 for the current six-month period as compared to losses of
$45,000 for the same period in the prior year. The primary reason for this
favorable change is due to certain costs being incurred by the Parkwoods joint
venture in the prior year. Parkwoods incurred $151,000 of certain legal and
administrative costs during the prior year in order to pursue the refund of
$450,000 in costs previously incurred to secure the necessary building permits
required to proceed with the planned reconstruction of the Parkwoods property,
as discussed further above. The Parkwoods joint venture has had no significant
operations during the current year. In addition, rental income increased at
each of the Partnership's three remaining unconsolidated joint ventures,
particularly at the Tantra Lakes Apartments, during the current year mainly due
to increases in rental rates.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Company's quarterly report on Form 10-Q for the period
ended June 30, 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: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the six months ended September
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-END> SEP-30-1995
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