UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: MARCH 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-10995
PAINE WEBBER GROWTH PROPERTIES LP
Delaware 04-2772109
(State of organization) (I.R.S.Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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 ____.
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
November 15, 1982, as supplemented
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
1996 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-6
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-34
<PAGE>
PART I
Item 1. Business
Paine Webber Growth Properties LP (the "Partnership") is a limited
partnership formed in August 1982, under the Uniform Limited Partnership Act of
the State of Delaware, for the purpose of investing in a portfolio of rental
apartment properties which had potential for near-term capital appreciation. It
is the Partnership's intention to enhance the value of the properties through
the use of capital reserves and by reinvesting cash flow from operations. The
Partnership sold $29,193,000 in Limited Partnership units (29,193 units at
$1,000 per unit) from November 15, 1982 through September 30, 1983 pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933
(Registration No. 2-78818). In addition, the Initial Limited Partner contributed
$1,000 for one unit (a "Unit") of Limited Partnership Interest. Limited Partners
will not be required to make any additional capital contributions.
As of March 31, 1996, the Partnership owned, through joint venture
partnerships, interests in the operating properties set forth in the following
table:
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
Rocky Mountain Partners 301 2/17/83 Fee ownership of land
Tantra Lake Apartments Units and improvements
Boulder, Colorado (through joint venture)
Grouse Run Associates 158 3/31/83 Fee ownership of land
I & II Units and improvements
Grouse Run Apartments (through joint venture)
Stockton, California
Nob Hill Partners 368 3/31/83 Fee ownership of land
Nob Hill Apartments Units and improvements
San Antonio, Texas (through joint venture)
Plano Chisholm Place 142 5/31/83 Fee ownership of land
Associates Units and improvements
Chisholm Place Apartments (through joint venture)
Plano, Texas
(1) See Notes to the Financial Statements of the Partnership filed in Item
14(a)(1) of this Annual Report for a description of the long-term mortgage
indebtedness secured by the Partnership's operating property investments and
for a description of the agreements through which the Partnership has
acquired these real estate investments.
The Partnership originally owned interests in six operating investment
properties. In addition to the properties listed above, the Partnership owned
interests in the Parkwoods Apartments and the Northcastle Apartments. On October
20, 1991, the 433-unit Parkwoods Apartments complex was completely destroyed by
a fire which devastated a large section of the hills over Oakland, California.
On May 27, 1992, the joint venture received a full and final insurance
settlement of approximately $29,361,000 for coverage on the damage to the
buildings and the loss of rental income. On April 15, 1994, the land at the
former Parkwoods site was sold to an affiliate of the Partnership's co-venture
partner for $4,750,000. See the discussion in the notes to the financial
statements of the Partnership accompanying this Annual Report for a further
discussion of these events. On December 23, 1994, Austin Northcastle Partners, a
joint venture in which the Partnership had an interest, sold its operating
investment property (Northcastle Apartments) to an unaffiliated 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. See the discussion in the notes to the
financial statements of the Partnership accompanying this Annual Report for a
further discussion of this transaction.
The Partnership's principal investment objectives are to invest the net cash
proceeds from the offering of limited partnership units in rental apartment
properties with the goals of obtaining:
(1) capital appreciation;
(2) tax losses during the early years of operations from deductions generated
by investments;
(3) equity build-up through principal repayments of mortgage loans on
Partnership properties; and
(4) cash distributions from rental income.
The primary investment objective of the Partnership is capital appreciation.
The Partnership may sacrifice attainment of its other objectives to the extent
required to achieve the capital appreciation objective. The Partnership has
generated tax losses from operations since inception. However, the benefits of
such losses to investors have been significantly reduced by changes in federal
income tax law subsequent to the organization of the Partnership. Through March
31, 1996, the Limited Partners had received cumulative cash distributions
totalling $16,619,000, or approximately $569 per original $1,000 investment,
including distributions of $2,968,000 paid during fiscal 1996. Such
distributions include a special distribution made on June 15, 1995 of $90 per
original $1,000 investment, consisting of the Partnership's share of the net
proceeds of the Northcastle sale and the release of certain excess reserve
funds. The cumulative cash returns described above also include $372 per
original $1,000 investment from the proceeds from the Parkwoods insurance
settlement, the subsequent land sale and the 1986 refinancing of the Tantra Lake
Apartments. The remaining cash distributions have been paid from operating cash
flow of the Partnership. The Partnership resumed regular quarterly distributions
with the payment made on November 15, 1994 for the quarter ended September 30,
1994. Presently distributions are being paid at a rate of 2% per annum on a
Limited Partner's remaining capital account of $538 per original $1,000
investment. As of March 31, 1996, the Partnership retained an ownership interest
in four of its six original investment properties. The Partnership's success in
meeting its capital appreciation objective will depend upon the proceeds
received from the final liquidation of the remaining investments, which
collectively comprise 57% of the Partnership's original investment portfolio.
The amount of such proceeds will ultimately depend upon the value of the
underlying investment properties at the time of such liquidations, which cannot
presently be determined.
All of the Partnership's investment properties are located in real estate
markets in which they face significant competition for the revenues they
generate. The apartment complexes compete with numerous projects of similar type
generally on the basis of price and amenities. Apartment properties in all
markets also compete with the local single family home market for prospective
tenants. The availability of low interest rates on home mortgage loans has
increased the level of this competition over the past few years. However, the
impact of the competition from the single-family home market has been offset by
the lack of significant new construction activity in the multi-family apartment
market over this period. Throughout fiscal 1996, the California real estate
market, where the Partnership's Grouse Run Apartments property is located,
continued to be adversely affected by the state of region's economy, which, over
the past several years, has been hit hard by cutbacks in government defense
spending and by the reduced rate of growth in the high technology industries.
Management of the Partnership has recently begun to see slight improvement in
the local Stockton, California market conditions and expects that such
improvement will continue during fiscal 1997.
The Partnership has no real property investments located outside the United
States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an Advisory
Contract with PaineWebber Properties Incorporated (the "Adviser"), which is
responsible for the day-to-day operations of the Partnership. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber Group Inc. ("PaineWebber").
The general partners of the Partnership (the "General Partners") are First
PW Growth Properties, Inc. and Properties Associates. First PW Growth
Properties, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc., is the managing general partner of the Partnership.
Properties Associates (the "Associate General Partner"), a Massachusetts general
partnership, certain general partners of which are officers of the Adviser and
the Managing General Partner, is the associate general partner of the
Partnership.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
Item 2. Properties
As of March 31, 1996, the Partnership had interests in four operating
properties through joint venture partnerships. The joint venture partnerships
and the related properties are referred to under Item 1 above to which reference
is made for the name, location, and description of each property.
Occupancy figures for each fiscal quarter during 1996, along with an
average for the year, are presented below for each property:
Percent Occupied At
---------------------------------------------------
Fiscal 1996
Property 6/30/95 9/30/95 12/31/95 3/31/96 Average
- ---------- ------- ------- -------- ------- -------
Tantra Lake Apartments 93% 95% 98% 96% 96%
Grouse Run Apartments 93% 93% 96% 96% 95%
Nob Hill Apartments 93% 93% 91% 90% 92%
Chisholm Place Apartments 96% 96% 98% 98% 97%
Item 3. Legal Proceedings
The Partnership, along with Parkwood Montclair Partners, one of the joint
ventures in which the Partnership has an interest, became defendants in numerous
lawsuits alleging damages in excess of $100 million as a result of the Oakland
Hills fire which destroyed the joint venture's investment property and several
thousand homes in the surrounding area in October 1991. The insurers who
provided liability coverage during the relevant period have participated in the
defense of the Partnership and the joint venture subject to a reservation of
rights. The legal proceedings during fiscal 1995 with respect to this litigation
included certain court-supervised mediation hearings which have subsequently led
to the settlement and dismissal of all of the outstanding claims during the year
ended March 31, 1996. These settlements and the associated expenses have been
paid for by the venture's liability insurance carriers and were well within the
venture's policy limits.
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. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including First PW Growth Properties, Inc. and Properties
Associates, which are the General Partners of the Partnership and affiliates of
PaineWebber. On May 30, 1995, the court certified class action treatment of the
claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Growth Properties
LP, PaineWebber, First PW Growth Properties, Inc. and Properties Associates (1)
failed to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in Paine Webber Growth
Properties LP, also allege that following the sale of the partnership interests,
PaineWebber, First PW Growth Properties, Inc. and Properties Associates
misrepresented financial information about the Partnerships value and
performance. The amended complaint alleges that PaineWebber, First PW Growth
Properties, Inc. and Properties Associates violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and the federal securities laws. The
plaintiffs seek unspecified damages, including reimbursement for all sums
invested by them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the limited partnerships. In addition,
the plaintiffs also seek treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in Paine Webber Growth Properties
LP.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages against PaineWebber.
The eventual outcome of this litigation and the potential impact, if any, on the
Partnership's unitholders cannot be determined at the present time.
In June 1996, approximately 50 plaintiffs filed an action entitled
Bandrowski v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
Plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint is substantially similar to the
complaint in the Abbate action, and seeks compensatory damages of $3.4 million
plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with this litigation.
At the present time, the General Partner cannot estimate the impact, if any, of
the potential indemnification claims on the Partnership's financial statements,
taken as a whole. Accordingly, no provision for any liability which could result
from the eventual outcome of these matters has been made in the accompanying
financial statements of the Partnership.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At March 31, 1996, there were 2,842 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. The Managing General Partner will
not redeem or repurchase Units.
Reference is made to Item 6 below for a discussion of cash distributions
made to the Limited Partners during fiscal 1996.
Item 6. Selected Financial Data
Paine Webber Growth Properties LP
For the years ended March 31, 1996, 1995, 1994, 1993 and 1992
(in thousands, except for per Unit data)
1996 1995 1994 1993 (1) 1992
---- ---- ---- -------- ----
Revenues $ 2,446 $ 2,471 $ 2,393 $ 2,235 $ 549
Operating income
(loss) $ (422) $ (324) $ 31 $ 88 $ 251
Partnership's share
of gains on
settlement of
insurance
claims - - $ 225 $ 11,545 -
Partnership's share of
unconsolidated
ventures' income
(losses) $ 96 $ 644 $ (2,546) $ (498) $(1,525)
Income (loss) before
extraordinary gain $ (322) $ 325 $ (2,289) $ 11,136 $(1,274)
Extraordinary gain
on extinguishment of
debt - - - - $ 3,540
Net income (loss) $ (322) $ 325 $ (2,289) $ 11,136 $ 2,266
Per Limited Partnership Unit:
Income (loss) before
extraordinary gain $(10.93) $ 8.70 $ (77.63) $ 377.63 $(43.21)
Extraordinary gain - - - - $120.06
Net income (loss) $(10.93) $ 8.70 $ (77.63) $ 377.63 $ 76.85
Cash distributions
from operations $ 11.66 $ 6.28 - $ 19.58 $ 22.33
Cash distributions
from sale,
refinancing and
other capital
transactions $ 90.00 $ 158.00 - $ 154.00 -
Total assets $12,979 $ 16,086 $ 20,510 $ 21,436 $ 9,334
Mortgage note payable $ 6,890 $ 6,962 $ 7,029 $ 5,761 -
(1) During fiscal 1993, as further discussed in Note 4 to the accompanying
consolidated financial statements, the Partnership assumed complete control
of the joint venture which owns and operates the Nob Hill Apartments.
Accordingly, the joint venture, which had been accounted for under the
equity method in prior years, has been consolidated in the Partnership's
financial statements beginning in fiscal 1993.
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Annual Report.
The above per Limited Partnership Unit information is based upon the 29,194
Limited Partnership Units outstanding during each year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership offered limited partnership interests to the public from
November 1982 to September 1983 pursuant to a Registration Statement filed under
the Securities Act of 1933. Gross proceeds of $29,194,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
approximately $24,560,000 was initially invested in joint venture interests in
six operating investment properties. As of March 31, 1996, the Partnership
retained interests in four operating investment properties. During fiscal 1995,
the Partnership completed sales transactions with respect to the Northcastle
Apartments and the land at the former site of the Parkwoods Apartments. The
Partnership does not have any commitments for additional capital expenditures or
investments but may be called upon to advance funds to its existing investments
in accordance with the respective joint venture agreements. The Partnership's
primary objective has been to maximize the capital appreciation of its operating
investment properties.
As previously reported, as a result of increases in apartment development
activity in the local market as well as the assumable financing obtained in
September 1993, management began to market the Nob Hill Apartments property for
sale during the spring of 1995. On October 18, 1995, the Partnership signed a
letter of intent with a third party to sell the Nob Hill Apartments for $10
million. As part of its due diligence process, the buyer raised certain issues
regarding required repairs to the property and requested a price concession to
offset the cost of such repairs. During the third quarter of fiscal 1996, the
Partnership negotiated with the buyer over the magnitude of the required repairs
and the amount of the costs required to complete the repairs. However, no
agreement could be reached regarding these issues and, in January 1996, the
buyer withdrew the offer to purchase the property. During the fourth quarter of
fiscal 1996, efforts to sell the property were renewed. Subsequent to the end of
fiscal 1996, a purchase and sale agreement was signed with a new prospective
buyer for a purchase price of $10 million. The sale is subject to the
satisfactory completion of 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, there are no assurances
that this transaction will be consummated. While the Nob Hill property is
currently 90% 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 may 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 will require that ongoing capital expenditures
be made to maintain the property's competitive condition. As a result of these
circumstances, management believes that the value of this 25-year-old, 368-unit,
San Antonio, Texas apartment complex may be at or near its peak for the current
market cycle.
The sale of the Nob Hill Apartments, if completed in early fiscal 1997,
would position the Partnership for a possible liquidation within the next 2-to-3
years. However, there are no assurances that the Partnership could complete the
sales of the remaining properties under acceptable terms within this time frame.
Subsequent to a sale of Nob Hill, the Partnership would have ownership interests
in three remaining apartment properties located in the markets of Boulder,
Colorado (Tantra Lake), greater Dallas (Chisholm Place) and Stockton, California
(Grouse Run). The Boulder market remains strong at the present time due to a
history of healthy population growth, a stable employment base and an
established public policy to limit new apartment construction. Despite a fairly
significant amount of new construction coming on-line in the greater Dallas
market during fiscal 1996, the performance of the Chisholm Place Apartments
remains strong currently due to the property's bigger unit sizes, its excellent
location and its well-maintained physical appearance. Throughout fiscal 1996,
the California real estate market, in which the Partnership's Grouse Run
property is located, continued to be adversely affected by the condition of the
region's economy which, over the past several years, 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, have remained relatively steady over this period due, in large part,
to the property's location and attractive physical appearance. Management has
been able to maintain high occupancy levels by offering various rental
concessions in recent years. Recently, management has begun to see slight
improvement in the local Stockton market conditions, reflecting the overall
improvements in California's economic climate in recent months. Subsequent to
year-end, the on-site management team discontinued the program of rent
concessions which had been in place. Management of the Partnership expects to
see continued gradual improvement in these market conditions during fiscal 1997.
If this trend were to continue, the Partnership may have a favorable opportunity
to sell the Grouse Run property within the next 2-to-3 years. Management's hold
versus sell decisions for its remaining investments will continue to be based
upon an assessment of the best expected overall returns to the Limited Partners.
The $8.5 million first mortgage loan secured by the Tantra Lake Apartments
is scheduled to mature on July 1, 1996. Management has analyzed several
refinancing proposals from potential new lenders in addressing this impending
maturity. Management's goal is to structure a replacement loan with the
flexibility to permit a future sale of the property in the event that a
liquidation of the Partnership is pursued over the next 2-to-3 years, as
discussed further above. Subsequent to year-end, the Partnership submitted a
loan application and a $20,000 fee to a prospective lender for a $9.25 million
loan to replace the existing debt. The terms quoted by the prospective lender
would reduce Tantra Lake's required annual debt service by more than $250,000
and significantly improve cash flow to the Partnership. In addition, the
proposed loan would be assumable upon a sale and would permit prepayment in full
at any time. A penalty tied to a yield maintenance calculation would be charged
for any prepayment in the first two years of the term. Thereafter, a penalty
equal to 1% of the outstanding principal balance would be due in conjunction
with any prepayment transaction. Based on the property's estimated market value
per the latest independent appraisal, the proposed loan amount would result in a
loan-to-value ratio of less than 60%. Accordingly, while a firm commitment for
this new loan has not yet been received, it appears likely that this loan could
be closed on favorable terms during fiscal 1997.
As previously reported, during fiscal 1993 the Partnership, along with
Parkwood Montclair Partners, became defendants in numerous lawsuits alleging
various damages in excess of $100 million as a result of the Oakland Hills fire
which destroyed the investment property and several thousand homes in the
surrounding area. The insurers who provided liability coverage during the
relevant period have participated in the defense of the Partnership and the
joint venture subject to a reservation of rights. The legal proceedings during
fiscal 1995 with respect to this litigation included certain court-supervised
mediation hearings which have subsequently led to the settlement and dismissal
of all of the outstanding claims during the year ended March 31, 1996. These
settlements and the associated expenses have been paid for by the joint
venture's liability insurance carriers and were well within the venture's policy
limits.
Management had 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 Parkwoods joint venture
to pay for building permits. The joint venture received a partial refund of such
expenses totalling approximately $146,000 in December 1995. However, the federal
agency has subsequently denied the joint venture's claim for a refund of the
remaining $300,000 in costs incurred. Management believes that the joint venture
is entitled to a full refund of the costs incurred and continues to vigorously
pursue the refund. The federal agency has granted the joint venture a hearing
regarding this matter. The hearing is scheduled to occur during the second
quarter of fiscal 1997. Presently, there are no assurances that any amounts will
be recovered.
At March 31, 1996, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $1,323,000. 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, 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 source of future liquidity and distributions to the partners is
expected to be through proceeds received from the sales or refinancings of the
four remaining investment properties.
Results of Operations
1996 Compared to 1995
The Partnership reported a net loss of $322,000 for the year ended March
31,1996, as compared to net income of $325,000 reported for the prior year. The
primary reason for the unfavorable change in net operating results is a decrease
in the Partnership's share of unconsolidated ventures' income. The Partnership
realized net income of $96,000 from its share of unconsolidated ventures'
operations in fiscal 1996 as compared to net income of $644,000 in the prior
year. The net income of the unconsolidated joint ventures during the prior year
included the net gain on the sales of the Northcastle Apartments and the
Parkwoods land of $1,043,000. The impact of this net gain on the Partnership's
share of unconsolidated ventures' income was partially offset by rental income
increases at Tantra Lake and Chisholm Place in calendar 1995, mainly as a result
of rental rate increases. The Partnership achieved rental income increases of 4%
and 2% at Tantra Lake and Chisholm Place, respectively, for calendar 1995.
Average occupancy at Tantra Lake increased slightly from 95% for calendar 1994
to 96% for calendar 1995. Average occupancy at Chisholm Place was unchanged
between calendar 1995 and 1994. Rental income was also up slightly at Grouse Run
due to an increase in average occupancy from 94% for calendar 1994 to 95% for
calendar 1995. Rental rates at Grouse Run have been relatively unchanged over
the past two years as a result of the California market conditions referred to
above.
The decrease in net income during fiscal 1996 was also partly the result
of an increase in the Partnership's operating loss of $98,000. This increase is
mainly due to increases in depreciation expense and general and administrative
expenses of $93,000 and $87,000, respectively, and a decrease in interest income
of $151,000. Depreciation expense increased due to significant fixed asset
additions to the Nob Hill operating investment property during the prior year.
General and administrative expenses increased primarily due to an increase in
certain required professional services during fiscal 1996. Interest income
decreased in fiscal 1996 due to a significant decrease in average outstanding
cash balances for the year due to the receipt of the proceeds from the sales of
the Parkwoods and Northcastle properties during the prior year. The increases in
depreciation expense and general and administrative expenses and the decrease in
interest income were offset by a decrease in interest expense and an increase in
rental income in fiscal 1996. Interest expense decreased due to the scheduled
principal amortization on the mortgage note and a decrease in the mortgage
insurance premium for the Nob Hill loan. Rental income increased by $152,000 at
the consolidated Nob Hill Apartments for calendar 1995 due to an increase in
rental rates over the prior year. Average occupancy actually declined slightly
at Nob Hill from 93% for calendar 1994 to 92% for calendar 1995.
1995 Compared to 1994
The Partnership reported net income of $325,000 for the year ended March
31, 1995, as compared to a net loss of $2,289,000 reported for the prior year.
The primary reason for the improvement in net operating results was a favorable
change in the Partnership's share of unconsolidated ventures' operations. The
Partnership realized net income from its share of unconsolidated ventures'
operations of $644,000 in fiscal 1995 as compared to net losses of $2,546,000 in
the prior year. The net income of the unconsolidated joint ventures for fiscal
1995 resulted from the net gain on the sales of the Northcastle Apartments and
the Parkwoods land. The sale of the Northcastle Apartments resulted in a gain of
$1,204,000 because the net sales proceeds exceeded the net carrying value of the
operating investment property. The Parkwoods sale proceeds were less than the
net carrying value of the land by $163,000. The Partnership's share of the net
gain from these two transactions was $1,043,000. The Partnership's share of the
unconsolidated ventures' operating losses prior to the net gain described above
decreased to $399,000 in fiscal 1995 from $2,546,000 in fiscal 1994. This
decrease was primarily the result of the $1,593,000 write down of the Parkwoods
investment property to its net realizable value which was recognized in fiscal
1994. In addition, increased rental income at the Chisholm Place and Tantra Lake
Apartments, lower repairs and maintenance expenses at Grouse Run and a decrease
in professional fees at the Parkwoods joint venture all contributed to the
improved net operating results of the unconsolidated joint ventures for fiscal
1995. Rental income at both Chisholm Place and Tantra Lake improved by 6% over
the prior year primarily due to increased rental rates. Average occupancies at
both properties remained relatively stable, in the mid-90's, throughout both
years. Repairs and maintenance expenses at Grouse Run were higher by $75,000 in
fiscal 1994 due to the painting of the building exteriors. Professional fees
incurred by the Parkwoods joint venture declined by $174,000 during fiscal 1995
due to a decrease in required legal services.
The improvement in the Partnership's share of unconsolidated ventures'
operations was offset by decreases in gain on settlement of insurance claims and
an unfavorable change in the Partnership's operating income (loss). The
Partnership realized a gain of $225,000 from the settlement of a supplemental
hazard insurance claim relating to the Parkwoods joint venture in fiscal 1994.
The Partnership had an operating loss of $324,000 in fiscal 1995 as compared to
operating income of $31,000 in fiscal 1994. This unfavorable change was
primarily due to an increase in the loss of the Partnership's consolidated joint
venture, Nob Hill Partners, of $433,000. Nob Hill's net loss increased mainly
due to an increase in interest expense of $250,000 and an increase in repairs
and maintenance expenses of $118,000. Interest expense increased due to the
September 1993 refinancing of the venture's long-term debt which increased the
outstanding principal balance of the debt by approximately $1.3 million. Repairs
and maintenance expenses increased as a result of the start of a major
improvement program at the property subsequent to the refinancing transaction.
The increase in the net loss of the Nob Hill joint venture was partially offset
by an increase in interest income of $245,000 due to an increase in average
outstanding cash balances for fiscal 1995 due to the receipt of the proceeds
from the sales of the Parkwoods and Northcastle properties and an increase in
interest rates earned on such investments during the year.
1994 Compared to 1993
The Partnership reported a net loss of $2,289,000 for the year ended March
31, 1994, as compared to net income of $11,136,000 reported for the prior year.
The primary reason for this change in net operating results was attributable to
the gain of $11,545,000 realized from the settlement of Parkwoods fire insurance
claims in the prior year. In fiscal 1994, the Partnership realized another gain
of $225,000 from the settlement of a supplemental hazard insurance claim
relating to the Parkwoods fire. Both gains arose due to the fact that the net
proceeds from the insurance claims exceeded the net carrying value of the
property destroyed by the fire. In addition to the decrease in the Parkwoods
insurance settlement gains, the Partnership's share of unconsolidated ventures'
losses increased by $2,048,000 during fiscal 1994, mainly as a result of an
increase in the operating loss of the Parkwoods joint venture. The Partnership's
share of loss from the Parkwoods joint venture increased by $2,161,000 mainly
due to a $1,593,000 write down of the Parkwoods investment property to its
estimated net realizable value because the property was held for sale as of
December 31, 1993. Estimated net realizable value represented management's
estimate of the sales price to be received in the ordinary course of business,
less costs of completion, holding and disposal. The combined operations of the
other four joint ventures improved somewhat during fiscal 1994 as compared to
the prior year, mainly due to a substantial increase in rental income at the
Northcastle Apartments due to improving market conditions in the Austin, Texas
area for apartment properties.
The Partnership's operating income decreased by $57,000 during fiscal 1994
when compared to the prior year, primarily due to an increase in general and
administrative expenses of $124,000. This increase in general and administrative
expenses was mainly a result of certain costs incurred in connection with an
independent valuation of the Partnership's operating properties, which was
commissioned in conjunction with management's ongoing portfolio management
responsibilities. These costs were partially offset by a decrease in the net
loss of the consolidated Nob Hill joint venture of $26,000. These improved
results were due to a significant increase in rental income, which was partially
offset by an increase in interest expense, as a result of the larger outstanding
principal balance of the venture's long-term debt due to the September 1993
refinancing of the venture's mortgage note payable.
<PAGE>
Inflation
The Partnership commenced operations in 1983 and completed its thirteenth
full year of operations in the current fiscal year. The effects of inflation and
changes in prices on the Partnership's operating results to date have not been
significant.
Inflation in future periods may increase revenues as well as operating
expenses at the Partnership's operating investment properties. Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration. Rental rates at these properties can be adjusted to keep
pace with inflation, to the extent market conditions allow, as the leases are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of the Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is First PW Growth
Properties, Inc., a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates, a Massachusetts general partnership, certain general partners of
which are officers of the Adviser and the Managing General Partner. The Managing
General Partner has overall authority and responsibility for the Partnership's
operations, however, the day-to-day business of the Partnership is managed by
the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date elected
Name Office Age to Office
Lawrence A. Cohen President and Chief
Executive Officer 42 5/15/91
Albert Pratt Director 85 7/20/82 *
J. Richard Sipes Director 49 6/9/94
Walter V. Arnold Senior Vice President and
Chief Financial Officer 48 10/29/85
James A. Snyder Senior Vice President 50 7/6/92
John B. Watts III Senior Vice President 43 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 53 7/20/82 *
Timothy J. Medlock Vice President and Treasurer 35 6/1/88
Thomas W. Boland Vice President 33 12/1/91
* The date of incorporation of the Managing General Partner
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors or
executive officers of the Managing General Partner of the Partnership. All of
the foregoing directors and officers have been elected to serve until the annual
meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
Adviser. The business experience of each of the directors and principal
executive officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is a also member of the Board of Directors and the
Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First Vice
President of VMS Realty Partners where he was responsible for origination and
structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is a Director of the Managing General Partner, a Consultant of
PWI and a general partner of the Associate General Partner. Mr. Pratt joined PWI
as Counsel in 1946 and since that time has held a number of positions including
Director of both the Investment Banking Division and the International Division,
Senior Vice President and Vice Chairman of PWI and Chairman of PaineWebber
International, Inc.
J. Richard Sipes is a Director of the Managing General Partner and a
Director of the Adviser. Mr. Sipes is an Executive Vice President at
PaineWebber. He joined the firm in 1978 and has served in various capacities
within the Retail Sales and Marketing Division. Before assuming his current
position as Director of Retail Underwriting and Trading in 1990, he was a
Branch Manager, Regional Manager, Branch System and Marketing Manager for a
PaineWebber subsidiary, Manager of Branch Administration and Director of
Retail Products and Trading. Mr. Sipes holds a B.S. in Psychology from
Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. He began his career in 1974 with Arthur Young & Company in Houston. Mr.
Arnold is a Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined PWPI in July 1992 having served previously as an
officer of the Adviser from July 1980 to August 1987. During the period August
1987 to February 1989, Mr. Snyder was Executive Vice President and Chief
Financial Officer of Southeast Regional Management Inc., a real estate
development company. From February 1989 to October 1990, he was President of Kan
Am Investors, Inc. a real estate investment company. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation, most recently as the
Vice President of Asset Sales.
John B. Watts III is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser which he joined in June 1988. Mr.
Watts has had over 17 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and Assistant Treasurer of
the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980, Mr.
Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and also,
from March 1974 to February 1980, the Assistant Treasurer of Capital for Real
Estate, which provided real estate investment, asset management and consulting
services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing General
Partner and Vice President and Treasurer of the Adviser which he joined in 1986.
From June 1988 to August 1989, Mr. Medlock served as the Controller of the
Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner and
a Vice President and Manager of Financial Reporting of the Adviser which he
joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in
the state of Massachusetts. He holds a B.S. in Accounting from Merrimack
College and an M.B.A. from Boston University.
(f) None of the directors and officers was involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended March 31, 1996, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser and the
General Partners are entitled to receive a share of Partnership cash
distributions, and a share of profits and losses. These items are described in
Item 13.
The Partnership resumed paying regular quarterly distributions with the
payment made on November 15, 1994 for the quarter ended September 30, 1994 at a
rate of 2% per annum on remaining invested capital. Prior to such reinstatement,
the Partnership had not made regular distributions from operating cash flow over
the previous two years. Regular quarterly distributions, which had been made
since June of 1990, were suspended effective August 15, 1992. Furthermore, the
Partnership's Limited Partnership Units are not actively traded on any organized
exchange, and no efficient secondary market exists. Accordingly, no accurate
price information is available for these Units. Therefore, a presentation of
historical unitholder total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, First PW Growth Properties, Inc. is owned by
PaineWebber. Properties Associates, the Associate General Partner, is a
Massachusetts general partnership, certain general partners of which are also
officers of the Adviser and the Managing General Partner. Properties Associates
is also the Initial Limited Partner of the Partnership and owns one Unit of
Limited Partnership interest. No limited partner is known by the Partnership to
own beneficially more than 5% of the outstanding interests of the Partnership.
(b) Neither directors and officers of the Managing General Partner nor the
general partners of the Associate General Partner, individually, own any Units
of limited partnership interest of the Partnership. No director or officer of
the Managing General Partner, nor any general partner of the Associate General
Partner, possesses a right to acquire beneficial ownership of Units of Limited
Partnership Interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are First PW Growth Properties, Inc.
(the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber Group
Inc. ("PaineWebber"), and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are officers of PaineWebber Properties Incorporated (the "Adviser") and
the Managing General Partner. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by the Adviser pursuant to
an advisory contract. The Adviser is a wholly-owned subsidiary of PaineWebber
Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber. The General
Partners, the Adviser and PWI receive fees and compensation determined on an
agreed upon basis, in consideration of various services performed in connection
with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership investments.
The Managing General Partner, the Adviser and their affiliates are reimbursed
for their direct expenses relating to the offering of Units, the administration
of the Partnership and the acquisition and operations of the Partnership's real
property investments.
All distributable cash, as defined, for each fiscal year shall be distributed
quarterly in the ratio of 99% to the Limited Partners and 1% to the General
Partners. All sale or refinancing proceeds shall be distributed in varying
proportions to the Limited and General Partners, as specified in the Partnership
Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
losses of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited and
General Partners in proportion to the amount of sale or refinancing proceeds to
which they are entitled; that is, as much as 99% but not less than 85% to the
Limited Partners. However, the General Partners shall be allocated an amount of
taxable income from a capital transaction at least sufficient to eliminate their
deficit capital account balance. If there are no sale or refinancing proceeds,
tax losses and taxable income from a sale or refinancing will be allocated 99%
to the Limited Partners and 1% to the General Partners. Allocations of the
Partnership's operations between the General Partners and the Limited Partners
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser is due to be paid an annual management fee equal to 1% of
the gross offering proceeds. However, the cumulative amount of acquisition fees
and management fees which can be paid to the Adviser is limited to the sum of
18% of the gross offering proceeds plus 10% of Distributable Cash, as defined in
the Prospectus. During 1986, this limitation was reached and, as a result,
future management fee payments are limited to 10% of any additional
Distributable Cash. In fiscal 1996, based on additional Distributable Cash paid
to the partners, management fees totalling $34,000 were paid to the Adviser.
In connection with investing Partnership capital, the Adviser earned
acquisition fees totalling $2,248,000, of which $1,664,000 was paid to the
Adviser at the time the Partnership acquired its interests in the operating
investment properties and $584,000 was deferred and was payable from the
distributable net cash flow of the operating investment properties, as defined.
As of March 31, 1992, all deferred acquisition fees had been paid in full. Total
acquisition fees to be received by the Adviser was limited to not more than 9%
of the gross offering proceeds per the terms of the Prospectus. The Adviser may
receive a real estate brokerage commission, in an amount of up to 1% of the
selling prices of properties sold, upon the disposition of Partnership
investments. Payment of such fee will be subordinated to the payment of certain
amounts to the Limited Partners.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended March 31, 1996 is $93,000, representing reimbursements to this
affiliate of the Managing General Partner for providing such 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 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1996. Fees charged by Mitchell Hutchins
are based on a percentage of invested cash reserves which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of the
Adviser.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page IV-3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the last quarter of
fiscal 1996.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership 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/ Lawrence A. Cohen
Lawrence A. Cohen
President and
Chief Executive Officer
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: June 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
By:/s/ Albert Pratt Date: June 28, 1996
---------------- -------------
Albert Pratt
Director
By: /s/ J. Richard Sipes Date: June 28, 1996
--------------------- -------------
J. Richard Sipes
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER GROWTH PROPERTIES LP
INDEX TO EXHIBITS
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
- ----------- ------------------------ -------------------------
(3) and (4) Prospectus of the Partnership Filed with the Commission
dated November 15, 1982 , as pursuant to Rule 424(c)
supplemented, with particular and incorporated
reference to the Restated herein by reference.
Certificate and Agreement of
Limited Partnership
(10) Material contracts previously Filed with the Commission
filed as exhibits to registration pursuant to Section 13 or
statements and amendments thereto 15(d) of the Securities
of the registrant together with all Act of 1934 and
such contracts filed as exhibits of incorported herein
previously filed Forms 8-K and by reference.
Forms 10-K are hereby incorporated
herein by reference.
(13) Annual Report to Limited Partners No Annual Report for the
fiscal year 1996 has been
sent to the Limited
Partners. An Annual Report
will be sent to the
Limited Partners
subsequent to this filing.
(22) List of subsidiaries Included in Item I of
Part I of this Report
Page I-1, to which
reference is hereby made.
(27) Financial Data Schedule Filed as the last page
of EDGAR submission
following the Financial
Statements and Financial
Statement Schedule required
by Item 14.
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(1) and (2) and 14(d)
PAINE WEBBER GROWTH PROPERTIES LP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
Paine Webber Growth Properties LP:
Report of independent auditors F-2
Consolidated balance sheets as of March 31, 1996 and 1995 F-3
Consolidated statements of operations for the years
ended March 31, 1996, 1995 and 1994 F-4
Consolidated statements of changes in partners' capital
(deficit) for the years ended March 31, 1996, 1995 and 1994 F-5
Consolidated statements of cash flows for the years ended
March 31, 1996, 1995 and 1994 F-6
Notes to consolidated financial statements F-7
Schedule III - Real Estate and Accumulated Depreciation F-22
Combined Joint Ventures of Paine Webber Growth Properties LP:
Report of independent auditors F-23
Combined balance sheets as of December 31, 1995 and 1994 F-24
Combined statements of operations and changes in venturers'
capital (deficit) for the years ended December 31, 1995,
1994 and 1993 F-25
Combined statements of cash flows for the years ended
December 31, 1995, 1994 and 1993 F-26
Notes to combined financial statements F-27
Schedule III - Real Estate and Accumulated Depreciation F-34
Other Financial Statement Schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Paine Webber Growth Properties LP:
We have audited the accompanying consolidated balance sheets of Paine
Webber Growth Properties LP as of March 31, 1996 and 1995, and the related
consolidated statements of operations, changes in partners' capital (deficit),
and cash flows for each of the three years in the period ended March 31, 1996.
Our audits also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paine Webber
Growth Properties LP at March 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 19, 1996
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
(In thousands, except for per Unit data)
ASSETS
1996 1995
Operating investment property, at cost:
Land $ 2,029 $ 2,029
Buildings improvements and equipment 13,827 13,678
--------- ---------
15,856 15,707
Less accumulated depreciation (6,263) (5,577)
---------- ----------
9,593 10,130
Investments in unconsolidated joint
ventures, at equity 987 1,329
Cash and cash equivalents 1,323 3,493
Real estate tax and insurance escrow deposit 247 244
Capital improvement and replacement escrow deposits 271 329
Accounts receivable 1 8
Deferred loan costs, net of accumulated amortization
of $38 ($21 in 1995) 496 513
Other assets 61 40
---------- ---------
$ 12,979 $ 16,086
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 266 $ 304
Accrued interest payable 211 155
Advances from consolidated venture 250 -
Tenant security deposits 18 24
Other liabilities 27 31
Mortgage note payable 6,890 6,962
----------- ----------
Total liabilities 7,662 7,476
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net income 24 27
Cumulative cash distributions (31) (28)
Limited Partners ($1,000 per Unit,
29,194 Units outstanding):
Capital contributions, net of offering costs 26,345 26,345
Cumulative net losses (4,403) (4,084)
Cumulative cash distributions (16,619) (13,651)
--------- ---------
Total partners' capital 5,317 8,610
--------- ---------
$ 12,979 $ 16,086
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1996, 1995 and 1994
(In thousands, except for per Unit data)
1996 1995 1994
---- ---- ----
Revenues:
Rental income $ 2,021 $ 1,869 $ 1,823
Reimbursements from affiliates 189 215 428
Interest and other income 236 387 142
-------- -------- -------
2,446 2,471 2,393
Expenses:
Interest expense 617 718 471
Real estate taxes 207 214 201
Depreciation expense 686 593 496
Property operating expenses 960 975 814
Partnership management fees 34 18 -
General and administrative 364 277 380
-------- -------- -------
2,868 2,795 2,362
--------- --------- -------
Operating income (loss) (422) (324) 31
Venture partner's share of consolidated
venture's loss 4 5 1
Partnership's share of gain on
settlement of insurance claims - - 225
Partnership's share of unconsolidated
ventures' income (losses) 96 644 (2,546)
-------- -------- -------
Net income (loss) $ (322) $ 325 $(2,289)
======== ========= ========
Per Limited Partnership Unit:
Net income (loss) $ (10.93) $ 8.70 $ (77.63)
======== ======== =========
Cash distributions $ 101.66 $164.28 $ -
======== ======= ========
The above per Limited Partnership Unit information is based upon the 29,194
Units of Limited Partnership Interest outstanding during each year.
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended March 31, 1996, 1995 and 1994
(In thousands)
General Limited
Partners Partners Total
Balance at March 31, 1993 $ (46) $15,418 $15,372
Net loss (23) (2,266) (2,289)
---------- -------- --------
Balance at March 31, 1994 (69) 13,152 13,083
Net income 71 254 325
Cash distributions (2) (4,796) (4,798)
---------- -------- --------
Balance at March 31, 1995 - 8,610 8,610
Net loss (3) (319) (322)
Cash distributions (3) (2,968) (2,971)
---------- -------- --------
Balance at March 31, 1996 $ (6) $ 5,323 $ 5,317
========== ========= ========
See accompanying notes
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (322)$ 325 $ (2,289)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Reimbursements from affiliates (189) (215) (428)
Venture partner's share of
consolidated venture's loss (4) (5) (1)
Partnership's share of gain on settlement of
insurance claims - - (225)
Partnership's share of unconsolidated
ventures' income (losses) (96) (644) 2,546
Depreciation expense 686 593 496
Amortization of deferred loan costs 17 18 3
Amortization of forgiveness of debt - - (34)
Changes in assets and liabilities:
Accounts receivable 7 78 (86)
Advances from consolidated venture 250 - 109
Real estate tax and insurance escrow
deposit (3) (5) (179)
Deferred loan costs - 13 -
Other assets (21) 30 (53)
Accounts payable and accrued expenses (38) (14) 193
Accrued interest payable 56 148 (69)
Accounts payable - affiliate - - (23)
Tenant security deposits (6) (13) (5)
---------- --------- ---------
Total adjustments 659 (16) 2,244
Net cash provided by (used in)
operating activities 337 309 (45)
Cash flows from investing activities:
Distributions from unconsolidated
joint ventures 627 6,699 292
Net withdrawals from (deposits to)
capital improvement and
replacement escrow 58 703 (1,031)
Additions to operating investment property (149) (978) (174)
Additional investments in unconsolidated
joint ventures - - (212)
---------- --------- ---------
Net cash provided by (used in)
investing activities 536 6,424 (1,125)
Cash flows from financing activities:
Proceeds from long-term debt - - 7,034
Payment of deferred financing costs - - (517)
Repayment of long-term debt (72) (67) (5,733)
Distributions to partners (2,971) (4,798) -
--------- ---------- ------------
Net cash provided by (used in)
financing activities (3,043) (4,865) 784
Net increase (decrease) in cash and
cash equivalents (2,170) 1,868 (386)
Cash and cash equivalents, beginning of year 3,493 1,625 2,011
-------- ---------- --------
Cash and cash equivalents, end of year $1,323 $ 3,493 $ 1,625
====== ========= =======
Cash paid during the year for interest $ 511 $ 516 $ 535
======= ========== ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
Paine Webber Growth Properties LP (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in August
1982 for the purpose of investing in a portfolio of rental apartment
properties which have potential for near-term capital appreciation. The
Partnership authorized the issuance of Units (at $1,000 per Unit) of which
29,194 were subscribed and issued between November 15, 1982 and September 30,
1983.
2. Summary of Significant Accounting Policies
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of March 31, 1996 and 1995 and revenues
and expenses for each of the three years in the period ended March 31, 1996.
Actual results could differ from the estimates and assumptions used.
The accompanying financial statements include the Partnership's
investments in five joint venture partnerships which own four operating
properties. Except as described below, the Partnership accounts for its
investments in joint venture partnerships using the equity method because the
Partnership does not have majority voting control. Under the equity method
the ventures are carried at cost adjusted for the Partnership's share of the
ventures' earnings, losses and distributions and certain reimbursements
receivable from the ventures (see Note 5). The Partnership's joint venture
investees are required to maintain their accounting records on a calendar
year basis for income tax reporting purposes. As a result, the Partnership
recognizes its share of the ventures' income or losses based on financial
information which is three months in arrears to that of the Partnership. See
Note 5 for a description of the unconsolidated joint venture partnerships.
As further discussed in Note 4, the Partnership acquired control of Nob
Hill Partners, which owns the Nob Hill Apartments, in fiscal 1993.
Accordingly, the accompanying financial statements present the financial
position, results of operations and cash flows of Nob Hill Partners on a
consolidated basis. As discussed above, the joint ventures have December 31
year-ends, and operations of the consolidated venture continue to be reported
on a three-month lag. All material transactions between the Partnership and
the joint venture have been eliminated in consolidation, except for
lag-period cash transfers. Such lag period transfers are accounted for as
advances from consolidated venture on the accompanying balance sheets.
The operating investment property of the consolidated joint venture is
carried at the lower of cost, reduced by accumulated depreciation, or net
realizable value. The net realizable value of a property held for long-term
investment purposes is measured by the recoverability of the Partnership's
investment through expected future cash flows on an undiscounted basis, which
may exceed the property's market value. The net realizable value of a
property held for sale approximates its market value. The Partnership's
investment in the Nob Hill Apartments was considered to be held for long-term
investment purposes as of March 31, 1995. During fiscal 1996, management
decided to actively market the Nob Hill Apartments for sale. However, because
the property's current market value is estimated to be equal to or greater
than its net carrying value, no changes to the Partnership's financial
statement presentation are required. Depreciation expense is computed using
the straight-line method over estimated useful lives of five-to-thirty years.
Costs and fees (including the acquisition fee paid to PaineWebber Properties
Incorporated) related to the acquisition of the property have been
capitalized and are included in the cost of the operating investment
property. Maintenance and repairs are charged to expense when incurred.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of" ("Statement 121"), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. Statement 121 is effective for financial
statements for years beginning after December 15, 1995. The Partnership will
adopt Statement 121 in fiscal 1997 and, based on current circumstances, does
not believe the adoption will have a material effect on results of operations
or financial position.
The consolidated joint venture leases apartment units under leases with
terms generally of one year or less. Rental income is recorded monthly as
earned.
Deferred loan costs at March 31, 1996 and 1995 consist of expenses
incurred in connection with the refinancing of the debt secured by the Nob
Hill Apartments (see Note 6). Such costs are being amortized on a
straight-line basis over the term of the loan. Amortization of deferred loan
costs is included in interest expense on the accompanying statements of
operations.
For purposes of reporting cash flows, the Partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.
The cash and cash equivalents, escrow deposits, accounts receivable and
all liabilities appearing on the accompanying consolidated balance sheets
represent financial instruments for purposes of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments." With the exception of mortgage note payable, the carrying
amount of these assets and liabilities approximates their fair value as of
March 31, 1996 due to the short-term maturities of these instruments. The
fair value of mortgage note payable is estimated using discounted cash flow
analysis, based on the current market rates for similar types of borrowing
arrangements.
No provision for income taxes is made in the accompanying financial
statements as the liability for such taxes is that of the partners rather
than the Partnership.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are First PW Growth Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber"), and Properties Associates (the
"Associate General Partner"), a Massachusetts general partnership, certain
general partners of which are officers of PaineWebber Properties Incorporated
(the "Adviser") and the Managing General Partner. Subject to the Managing
General Partner's overall authority, the business of the Partnership is
managed by the Adviser pursuant to an advisory contract. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber. The General Partners, the Adviser and PWI receive
fees and compensation determined on an agreed upon basis, in consideration of
various services performed in connection with the sale of the Units, the
management of the Partnership and the acquisition, management, financing and
disposition of Partnership investments. The Managing General Partner, the
Adviser and their affiliates are reimbursed for their direct expenses
relating to the offering of Units, the administration of the Partnership and
the acquisition and operations of the Partnership's real property
investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to
the General Partners. All sale or refinancing proceeds shall be distributed
in varying proportions to the Limited and General Partners, as specified in
the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or
tax losses of the Partnership will be allocated 99% to the Limited Partners
and 1% to the General Partners. Taxable income or tax loss arising from a
sale or refinancing of investment properties will be allocated to the Limited
and General Partners in proportion to the amount of sale or refinancing
proceeds to which they are entitled; that is, as much as 99% but not less
than 85% to the Limited Partners. However, the General Partners shall be
allocated an amount of taxable income from a capital transaction at least
sufficient to eliminate their deficit capital account balance. If there are
no sale or refinancing proceeds, tax losses and taxable income from a sale or
refinancing will be allocated 99% to the Limited Partners and 1% to the
General Partners. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes
have been made in conformity with the allocations of taxable income or tax
loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and
to report periodically the performance of the Partnership to the Managing
General Partner. The Adviser is due to be paid an annual management fee equal
to 1% of the gross offering proceeds. However, the cumulative amount of
acquisition fees and management fees which can be paid to the Adviser is
limited to the sum of 18% of the gross offering proceeds plus 10% of
Distributable Cash, as defined in the Prospectus. During 1986, this
limitation was reached and, as a result, future management fee payments are
limited to 10% of any additional Distributable Cash. In fiscal 1996 and 1995,
based on additional Distributable Cash paid to the partners, management fees
totalling $34,000 and $18,000, respectively, were paid to the Adviser. No
management fees were earned during fiscal 1994.
In connection with investing Partnership capital, the Adviser earned
acquisition fees totaling $2,248,000, of which $1,664,000 was paid to the
Adviser at the time the Partnership acquired its interests in the operating
investment properties and $584,000 was deferred and was payable from the
distributable net cash flow of the operating investment properties, as
defined. As of March 31, 1992, all deferred acquisition fees had been paid in
full. Total acquisition fees to be received by the Adviser was limited to not
more than 9% of the gross offering proceeds per the terms of the Prospectus.
The Adviser may receive a real estate brokerage commission, in an amount of
up to 1% of the selling prices of properties sold, upon the disposition of
Partnership investments. Payment of such fee will be subordinated to the
payment of certain amounts to the Limited Partners.
Included in general and administrative expenses for the years ended
March 31, 1996, 1995 and 1994 is $93,000, $96,000 and $107,000, 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, $6,000 and $4,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1996, 1995 and 1994, respectively.
4. Operating Investment Property
As of March 31, 1996 and 1995, the Partnership owned a majority and
controlling interest in one joint venture which owns an operating investment
property as discussed below. As discussed in Note 2, the Partnership's policy
is to report the operations of the joint venture on a three-month lag.
Nob Hill Partners
On March 1, 1983 the Partnership acquired an interest in Nob Hill
Partners, a newly formed Texas general partnership organized to purchase and
operate Nob Hill Apartments, a 368-unit apartment complex in San Antonio,
Texas. The property was purchased from an entity that is an affiliate of the
original co-venturer on March 31, 1983. The Partnership is a general partner
in the joint venture. The Partnership's original co-venture partner was an
affiliate of the Trammell Crow organization. Effective September 1, 1992, the
Trammell Crow affiliate's interests and capital account were transferred to
First PW Growth Properties, Inc., the Managing General Partner of the
Partnership. As a result, the Partnership assumed control over the affairs of
the joint venture. An affiliate of Trammell Crow was retained as property
manager to conduct the day-to-day operations of the property under the
direction of the Managing General Partner.
The aggregate cash investment by the Partnership for its interest was
approximately $4,961,000 (including an acquisition fee of $344,000 paid to
the Adviser of the Partnership and fees aggregating $166,000 paid to
affiliates of the co-venturer). In addition, acquisition fees aggregating
$171,000 were deferred and were to be paid to the Adviser from distributable
net cash flow from operations, if available, in twelve quarterly installments
through June 1986. The remaining unpaid deferred acquisition fees in the
amount of $71,000 were paid in fiscal 1992 with the proceeds of a loan from
the Partnership. The apartment complex was acquired subject to a nonrecourse
mortgage with a balance of $8,600,000 at the time of closing. In September
1993, the joint venture refinanced its mortgage with the proceeds of a new
nonrecourse mortgage note payable in the amount of $7,034,000 which is
scheduled to mature in November 2023 (see Note 6). In addition to the
consulting fees paid at closing, the joint venture entered into a consulting
agreement with the co-venturer, aggregating $57,000 to provide services to
enhance the marketing and rental value of the property. Such fees were to be
paid from distributable net cash flow in quarterly installments of $5,000
commencing June 30, 1984. Consulting fees of $57,000 remained deferred in
fiscal 1993 due to lack of distributable net cash flow and were forfeited by
the co-venturer upon withdrawal from the joint venture.
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. On October 18, 1995, the Partnership signed a
letter of intent with a third party to sell the Nob Hill Apartments for $10
million. However, as part of its due diligence process, the buyer raised
certain issues regarding required repairs to the property and requested a
price concession to offset the cost of such repairs. The Partnership
negotiated with the buyer over the magnitude of the required repairs and the
amount of the costs required to complete the repairs. However, no agreement
could be reached regarding these issues and, in January 1996, the buyer
withdrew the offer to purchase the property. During the fourth quarter of
fiscal 1996, efforts to sell the property were renewed. Subsequent to the end
of fiscal 1996, a purchase and sale agreement was signed with a new
prospective buyer for a purchase price of $10 million. The sale is subject to
the satisfactory completion of 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, there can be
no assurances that this transaction will be consummated.
The joint venture agreement provides that net cash flow, as defined,
will be allocated first to the payment of the deferred acquisition fees
payable to the Partnership, then to the payment of interest and principal on
certain interim borrowings, if such borrowings have been made, then to the
payment of deferred consulting fees payable to the co-venturer, and then any
remaining amounts are to be distributed 99% to the Partnership and 1% to the
co-venturer. The distributions to the Partnership are first used to reimburse
the Partnership for the joint venture's share of management fees and
out-of-pocket expenses paid by the Partnership.
Taxable income and tax loss from operations is allocated 99% to the
Partnership and 1% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes have been
made in conformity with the actual allocations of taxable income or tax loss.
Any distribution of proceeds resulting from the sale or refinancing of
the property will be distributed to the Partnership and the co-venturer for
payment of accrued interest and principal on interim borrowings, as defined,
payment of capital contributions not previously distributed, and in
percentages ranging from 100% to 80% for the Partnership and 0% to 20% for
the co-venturer as specified by the terms of the joint venture agreement.
Profits resulting from the sale or refinancing of the property will be
first allocated to the Partnership and the co-venturer on a proportionate
basis to restore any negative capital accounts to zero. Any remaining gain
will be allocated to the Partnership and the co-venturer in a manner similar
to cash distributions described above. Losses from the sale or refinancing of
the property will be first allocated to the Partnership and the co-venturer
on a proportionate basis to any positive capital balances after giving effect
to the distribution of proceeds described above, and then 99% to the
Partnership and 1% to the co-venturer.
The joint venture has entered into a property management agreement with
an affiliate of the original co-venturer, cancellable at the Partnership's
option upon the occurrence of certain events. The management fee is equal to
4% of gross receipts, as defined in the agreement.
If additional cash is required for any reason in connection with the
joint venture, it will be provided 90% by the Partnership and 10% by the
co-venturer as additional capital contributions or interim borrowings in
accordance with the terms of the joint venture agreement. Additional
contributions made by the Partnership from inception through March 31, 1996
total $2,554,000.
The following is a summary of property operating expenses for the years
ended December 31, 1995, 1994 and 1993.
1995 1994 1993
---- ---- ----
Property operating expenses:
Salaries and related costs $269 $274 $298
Repairs and maintenance 249 257 140
Utilities 121 91 110
Insurance 67 53 44
Management fees 84 79 75
Administrative and other 170 221 147
----- ----- -----
$960 $975 $814
==== ==== ====
5. Investments in Unconsolidated Joint Ventures
The Partnership had investments in five unconsolidated joint ventures at
March 31, 1996 and 1995. As explained in Note 4, the Partnership acquired
control of the joint venture which owns the Nob Hill Apartments during fiscal
1993 and, accordingly, this joint venture is presented on a consolidated
basis in the accompanying financial statements. The unconsolidated joint
ventures are accounted for on the equity method in the Partnership's
financial statements. As discussed in Note 2, these joint ventures report
their operations on a calendar year basis.
On December 23, 1994, Austin Northcastle Partners, a joint venture in
which the Partnership had an interest, sold the Northcastle Apartments to an
unaffiliated 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. The venture recognized a gain on the sale of approximately
$1,204,000 to the extent that the sales price exceeded the net book value of
the operating investment property at the time of the sale. The Partnership's
share of such gain is included in Partnership's share of unconsolidated
ventures' income on the accompanying statement of operations for fiscal 1995.
<PAGE>
Condensed combined financial statements of the unconsolidated joint
ventures, for the periods indicated, are as follows:
Condensed Combined Balance Sheets
December 31, 1995 and 1994
(in thousands)
Assets
1995 1994
Current assets $ 1,090 $ 2,778
Operating investment properties, net 16,221 16,841
Other assets 169 184
-------- --------
$ 17,480 $ 19,803
======== ========
Liabilities and Venturers' Deficit
Current liabilities $ 9,333 $ 2,611
Other liabilities 1,699 1,629
Long-term mortgage debt, less current portion 7,266 15,798
Partnership's share of combined deficit (705) (168)
Co-venturers' share of combined deficit (113) (67)
-------- --------
$ 17,480 $ 19,803
======== ========
Condensed Combined Summary of Operations
For the years ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
---- ---- ----
Revenues:
Rental revenue $ 4,763 $ 5,726 $ 5,509
Interest and other income 295 205 306
Gain on settlement of insurance claims - - 250
-------- -------- ---------
5,058 5,931 6,065
Expenses:
Property operating expenses 1,975 2,612 2,592
Depreciation and amortization 848 1,110 1,068
Interest expense 1,594 2,010 2,022
Administrative and other 560 644 1,065
Tenant compensation expense - - 250
Write down of investment property
to net realizable value - - 1,593
--------- --------- ---------
4,977 6,376 8,590
-------- --------- ---------
Income (loss) before gain on sale of
property 81 (445) (2,525)
Net gain on sales of investment properties - 1,041 -
---------- -------- --------
Net income (loss) $ 81 $ 596 $ (2,525)
========= ======== =========
Net income (loss):
Partnership's share of net
income (loss) $ 96 $ 644 $ (2,321)
Co-venturers' share of net
income (loss) (15) (48) (204)
---------- --------- ---------
$ 81 $ 596 $ (2,525)
========== ========= ==========
<PAGE>
Reconciliation of Partnership's Investment
March 31, 1996 and 1995
(in thousands)
1996 1995
Partnership's share of venturers' deficit
at December 31, as shown above $ (705) $ (168)
Reimbursements of management fees and expenses
receivable from joint ventures (1) 1,742 1,676
Timing differences due to contributions made and
distributions received subsequent to December
31 (see Note 2) (50) (179)
--------- ---------
Investments in joint ventures, at
equity at March 31 $ 987 $ 1,329
========= =========
(1) The Partnership records as income reimbursements due from the joint ventures
for the Partnership management fee and certain out-of-pocket expenses as
specified in the respective joint venture agreements. The Partnership earned
reimbursements totalling $189,000, $215,000 and $428,000 for the years ended
March 31, 1996, 1995 and 1994, respectively. The Partnership's joint venture
investees record comparable reimbursement expenses in their statements of
operations, which are reflected in the Partnership's share of ventures'
losses. Accordingly, the accounting for these reimbursements has no
significant effect on the Partnership's net capital or its results of
operations. These reimbursements are paid from cash flow of the joint
ventures as available, or from sale or refinancing proceeds, and are
cumulative to the extent not paid currently. In fiscal 1995, the Partnership
received $413,000 from the Northcastle joint venture and $393,000 from the
Parkwoods joint venture as full payments of reimbursements owed through the
date of the sales of the investment properties of the respective joint
ventures. In addition, the Partnership also received $123,000 from the
Chisholm Place joint venture during fiscal 1996, as well as $16,000 from the
Tantra Lake joint venture and $105,000 from the Chisholm Place joint venture
during fiscal 1995, as partial payments of reimbursements owed, leaving
cumulative totals of $1,742,000 and $1,676,000 receivable from the remaining
unconsolidated joint ventures at March 31, 1996 and 1995, respectively.
These amounts have been included in the balance of investments in joint
ventures on the accompanying balance sheets.
The Partnership's share of ventures' net income (loss) is presented as
follows on the accompanying statements of operations (in thousands):
1996 1995 1994
---- ---- ----
Partnership's share of ventures'
income (losses) $ 96 $ 644 $ (2,546)
Partnership's share of
gain on settlement of insurance
claims - - 225
-------- ------- ---------
Partnership's share of ventures'
net income (loss) $ 96 $ 644 $ (2,321)
======== ======== =========
Investments in unconsolidated joint ventures, at equity is the
Partnership's net investment in the unconsolidated joint venture
partnerships. These joint ventures are subject to partnership agreements
which determine the distribution of available funds, the disposition of the
venture's assets and the rights of the partners, regardless of the
Partnership's percentage ownership interest in the venture. As a result,
substantially all of the Partnership's investments in these joint ventures
are restricted as to distributions.
<PAGE>
Investments in unconsolidated joint ventures, at equity on the balance
sheet is comprised of the following investment carrying values (in
thousands):
1996 1995
Rocky Mountain Partners $ (1,048) $ (876)
Grouse Run Associates I and II 499 576
Plano Chisholm Place Associates 1,324 1,490
Parkwood Montclair Partners 212 139
--------- ---------
$ 987 $ 1,329
========= ========
Cash distributions received (including reimbursements of management fees
and out-of-pocket expenses) from the Partnership's unconsolidated joint
venture investments during the years ended March 31, 1996, 1995 and 1994 are
as follows (in thousands):
1996 1995 1994
---- ---- ----
Rocky Mountain Partners $ 396 $ 313 $ 99
Grouse Run Associates I and II 89 205 -
Parkwood Montclair Partners - 4,139 -
Austin Northcastle Partners - 1,937 70
Plano Chisholm Place Associates 142 105 123
-------- ---------- -------
$ 627 $ 6,699 $ 292
======== ======== ======
A description of the ventures' properties and the terms of the joint venture
agreements are summarized below:
(a) Rocky Mountain Partners
On February 1, 1983 the Partnership acquired an interest in Rocky
Mountain Partners, a Colorado limited partnership which owns and operates
Tantra Lake Apartments, a 301-unit apartment complex in Boulder, Colorado.
The Partnership is a general partner in the joint venture. The Partnership's
co-venture partner is an affiliate of Sares Regis Group (formerly Regis
Homes Corporation). The property was purchased on February 17, 1983.
The aggregate cash investment by the Partnership for its interest was
approximately $4,698,000 (including an acquisition fee of $300,000 and a
consulting fee of $20,000 paid to the Adviser of the Partnership, and fees
totalling $210,000 paid to affiliates of the co-venturer). In addition,
deferred acquisition fees aggregating $95,000 have been paid to the Adviser
from distributable net cash flow. The apartment complex was acquired subject
to mortgages totalling $6,582,000 at the time of closing. On June 4, 1986,
the joint venture refinanced the property by replacing the original
mortgages which had remaining balances of approximately $6,299,000 with an
$8,900,000 new first mortgage. The Partnership received a distribution
totalling $2,275,000 from the refinancing proceeds in 1986. The outstanding
first mortgage loan is nonrecourse to the venture, had a balance of
$8,482,000 as of December 31, 1995 and is scheduled to mature on July 1,
1996. Management is currently pursuing new financing sources which would
allow the venture to repay the outstanding debt obligation in addition to
negotiating with the existing mortgage lender regarding a possible extension
of the existing loan agreement. However, no financing agreement has been
finalized as of the date of this report.
The joint venture agreement provides that distributable net cash flow,
as defined, will be allocated first to the payment of interest and principal
on certain interim borrowings, if such borrowings have been made, and then
any remaining amounts are to be distributed 99% to the Partnership and 1% to
the co-venturer. This joint venture agreement has been informally modified
by the partners resulting in distributions to the Partnership and the
co-venturer totalling $1,432,000 and $14,000, respectively, from inception
through December 31, 1995.
Taxable income and tax loss from operations is allocated 99% to the
Partnership and 1% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes have been
made in conformity with the allocations of taxable income or loss.
Upon sale or refinancing the Partnership will receive an amount equal to
its initial investment in the property plus $732,000 as a first priority,
after payment of mortgage debt and other indebtedness of the joint venture.
The remaining proceeds will be split between the Partnership and the
co-venturer in varying proportions, in accordance with the joint venture
agreement.
Taxable income and tax loss resulting from a sale of the property will
generally be allocated between the Partnership and the co-venturer as sales
proceeds are distributed.
The joint venture entered into a property management agreement with an
affiliate of the co-venturer, cancellable at the Partnership's option upon
the occurrence of certain events. The management fee is equal to 5% of gross
receipts, as defined in the agreement.
In the event the joint venture requires additional funds, the first
$100,000 was to be provided by the Partnership. Thereafter, funds are to be
provided 90% by the Partnership and 10% by the co-venturer as capital
contributions or interim borrowings in accordance with the terms of the
joint venture agreement. The agreement has been informally modified by the
partners resulting in additional contributions by the Partnership and the
Co-Venturer from inception through December 31, 1995 totalling approximately
$818,000 and $8,000, respectively.
(b) Grouse Run Associates I and II
On December 15, 1982 the Partnership acquired an interest in Grouse Run
Associates I and Grouse Run Associates II, two California general
partnerships organized to purchase and operate Grouse Run Apartments, a
158-unit apartment complex in Stockton, California. The Partnership is a
general partner in each of the joint ventures. The Partnership's co-venture
partner is an affiliate of Sares Regis Group (formerly Regis Homes
Corporation). The property was acquired on March 31, 1983.
The aggregate cash investment by the Partnership for its interests was
approximately $2,192,000 (including an acquisition fee of $125,000 and a
consulting fee of $10,000 paid to the Adviser of the Partnership and fees
aggregating $90,000 paid to affiliates of the co-venturer). In addition,
deferred acquisition fees aggregating $38,000 have been paid from
distributable net cash flow to the Adviser. The apartment complex was
acquired subject to nonrecourse first mortgages with balances totalling
$3,557,000 at the time of closing. The mortgage loans had an aggregate
balance of $3,156,000 as of December 31, 1995 and are scheduled to mature in
February 2019 and February 2020.
The joint venture agreement provides that the net cash flow, as defined,
will be allocated first to the payment of interest and principal on certain
interim borrowings, if such borrowings have been made, and then any
remaining amounts are to be distributed 99% to the Partnership and 1% to the
co-venturer. This joint venture agreement has been informally modified by
the partners resulting in distributions to the Partnership totalling
$788,000 from inception through December 31, 1995.
Taxable income and tax loss from operations is allocated 99% to the
Partnership and 1% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes have been
made in conformity with the allocations of taxable income or loss.
Upon sale or refinancing, the Partnership will receive an amount equal
to its initial investment in the property plus $310,000 as a first priority,
after payment of mortgage debt and other indebtedness of the joint venture.
Remaining proceeds will be split between the Partnership and the co-venturer
in varying proportions in accordance with the joint venture agreement.
Taxable income and tax loss resulting from a sale of the apartment
complex will be allocated between the Partnership and the co-venturer
generally as sales proceeds are distributed.
The joint venture entered into a property management agreement with an
affiliate of the co-venturer, cancellable at the Partnership's option upon
the occurrence of certain events. The management fee is equal to 5% of gross
receipts, as defined in the agreement.
In the event the joint venture requires additional funds, the first
$40,000 was to be provided by the Partnership. Thereafter, funds are to be
provided 90% by the Partnership and 10% by the co-venturer as capital
contributions or interim borrowing in accordance with the terms of the joint
venture agreement. Additional contributions from inception through December
31, 1995 totalling approximately $380,000 have been made 100% by the
Partnership.
(c) Plano Chisholm Place Associates
On March 1, 1983 the Partnership acquired an interest in Plano Chisholm
Place Associates, a Texas general partnership organized to purchase and
operate Chisholm Place Apartments, a 142-unit apartment complex in Plano,
Texas. The Partnership is a general partner in the joint venture. The
Partnership's co-venture partner is an affiliate of The Horn-Barlow
Companies. The property was acquired on May 31, 1983.
On September 9, 1991, an Amended and Restated Partnership Agreement was
entered into in connection with a refinancing of the venture's mortgage
debt. The mortgage lender agreed to accept a discount on an immediate
repayment of the outstanding obligations, which included a principal balance
of $6,993,000. In return for a payment of $4,200,000, the lender forgave the
resulting principal balance of $2,793,000 and accrued interest of $975,000.
The payment to the lender and transaction closing costs were funded by a new
mortgage loan in the amount of $4,160,000 and contributions totalling
$211,000 from the Partnership and its co-venture partner made in the ratios
of 80% and 20%, respectively. The outstanding mortgage loan is nonrecourse
to the venture and is scheduled to mature on October 1, 2001. The
co-venturer was not obligated under the terms of the original joint venture
agreement to make additional contributions in connection with the
refinancing, but agreed to do so in return for the Partnership's agreement
to certain modifications to the venture agreement which would allow the
co-venturer to recover its additional investment, plus earn a current return
thereon.
The original aggregate cash investment by the Partnership for its
interest was approximately $2,233,000 (including an acquisition fee of
$150,000 paid to the Adviser of the Partnership and consulting fees
aggregating $20,000 paid to an affiliate of the co-venturer). In addition,
acquisition fees aggregating $75,000 were deferred and were to be paid to
the Adviser from distributable net cash flow from operations, if available,
in twelve quarterly installments commencing June 1984. Unpaid acquisition
fees were to be payable no later than the earlier of September 30, 1989 or
upon the sale or refinancing of the investment property. During fiscal 1992,
the joint venture paid the remaining deferred acquisition fee of $75,000 to
the Adviser from the proceeds of a capital contribution by the Partnership.
The amended joint venture agreement provides that net cash flow, as
defined, will be allocated first, to the partners until they have received
an aggregate amount equal to the deferred fees payable to the partners as of
January 1, 1991; second, to the payment of interest and principal on certain
interim borrowings, if such borrowings have been made; third, to the payment
of any reimbursements of management fees and expenses owed to the
Partnership; fourth, 80% to the Partnership and 20% to the co-venturer until
each has received the amount of its contribution of New Net Equity, as
defined, plus a 10% simple return thereon; and fifth, any remaining amounts
are to be allocated 80% to the Partnership and 20% to the co-venturer.
Taxable income and tax loss from operations in each year are allocated
80% to the Partnership and 20% to the co-venturer. Allocations of the joint
venture operations between the partners for financial accounting purposes
have been made in conformity with the allocations of taxable income or tax
loss.
Sale or refinancing proceeds will be distributed to the Partnership and
the co-venturer in varying proportions in accordance with the terms of the
amended joint venture agreement.
Profits resulting from the sale or refinancing of the property will be
first allocated to the Partnership and the co-venturer on a proportionate
basis to restore any negative capital accounts to zero. Any remaining gain
will be allocated to the Partnership and the co-venturer in a manner similar
to cash distributions. Losses from the sale or refinancing of the property
will be first allocated to the Partnership and the co-venturer on a
proportionate basis to any positive capital balances after giving effect to
the distribution of proceeds described above, and then 95% to the
Partnership and 5% to the co-venturer.
The joint venture entered into a property management agreement with an
affiliate of the co-venturer, cancellable at the Partnership's option upon
the occurrence of certain events. The terms of the management fee were
modified upon modification of the long-term debt on October 31, 1986. The
management fee is equal to 5% of gross receipts, as defined. In addition,
the management agreement provides for an incentive management fee of 1% of
gross receipts, as defined. The 1% incentive management fee is payable only
from distributable net cash flow, as defined.
If additional cash is required for any reason in connection with the
joint venture, it is to be provided by the Partnership and the co-venturer
as additional capital contributions or operating or default loans in
accordance with the terms of the amended joint venture agreement. Additional
contributions made by the Partnership from inception through December 31,
1995 total approximately $254,000.
(d) Parkwood Montclair Partners
On September 30, 1983, the Partnership acquired an interest in Parkwood
Montclair Partners, a newly formed California general partnership organized
to purchase and operate Parkwoods Apartments, a 433-unit apartment complex
in Oakland, California. The Partnership is a general partner in the joint
venture. The Partnership's co-venture partner is an affiliate of Sares Regis
Group (formerly Regis Homes Corporation). The property was purchased on
October 31, 1983. The aggregate cash investment by the Partnership for its
interest was approximately $8,153,000 (including an acquisition fee of
$570,000 and a consulting fee of $45,000 paid to the Adviser of the
Partnership and fees totalling $308,000 paid to an affiliate of the
co-venturer). In addition, acquisition fees aggregating $135,000 and $53,000
were deferred and paid to the Adviser and an affiliate of the co-venturer,
respectively, from the cash flow of the venture.
On October 20, 1991, the Parkwoods Apartments was completely destroyed
by a firestorm that devastated a large section of the hills over Oakland,
California. Subsequent to the fire, on May 27, 1992, the joint venture
reached a full and final insurance settlement which called for the venture
to receive a total of approximately $29,361,000 for coverage on the damage
to the buildings and the loss of rental income. Additionally, in September
of 1993, the joint venture entered into a cash settlement of $250,000 with
another insurance carrier related to supplemental hazard insurance. This
$250,000 settlement was recorded as a gain by the joint venture in calendar
1993. The Partnership's share of such gain was $225,000. In June 1992, the
venture partners decided not to rebuild the operating property and agreed to
distribute the net insurance proceeds after the repayment of the outstanding
mortgage loan and certain other liabilities. The mortgage loan balance of
$19,000,000 was repaid in full on June 24, 1992 with a portion of the
proceeds from the insurance settlement. Approximately $5 million of the
remaining net insurance proceeds was used or set aside to pay for post-fire
clean up and operating expenses of the Parkwoods joint venture and the costs
associated with pursuing the redevelopment permits discussed further below.
The remaining $5 million of net proceeds was paid to the Partnership under
the terms of the venture agreement. Approximately $4,500,000 of the proceeds
received by the Partnership was distributed to the Limited Partners in
August 1992. In calendar 1993, the carrying value of the land was written
down to management's estimate of net realizable value based on the estimated
sales price to be received in the ordinary course of business, less costs of
completion, holding and disposal. A loss of approximately $1,593,000 was
recognized in connection with such write down. The Partnership's share of
such loss is included in Partnership's share of unconsolidated ventures'
losses for fiscal 1994.
During fiscal 1994, the joint venture was successful in obtaining
approval for the construction of a condominium complex on the land. The
reconstruction plans were for a project of similar size and density to that
of the former Parkwood Apartment complex. Management believed that obtaining
these condominium conversion and site plan approvals would substantially
facilitate the future sale of the land. During calendar 1994, the joint
venture paid approximately $500,000 to secure certain building permits
required in order to proceed with the planned reconstruction. In connection
with obtaining the site plan approvals, the joint venture entered into a
settlement agreement with the former tenants of the operating investment
property related to their rights in the condominium conversion. Under the
terms of this agreement, the joint venture agreed to pay the former tenants
approximately $250,000 and to offer certain discounts to former tenants who
wish to purchase a condominium unit in the redeveloped project. During
fiscal 1996, the majority of the $250,000 settlement amount was paid out to
the former tenants.
On April 15, 1994, subsequent to obtaining the building permits, the
joint venture sold the Parkwoods land to an affiliate of the co-venture
partner for $4,750,000. Terms of the sale allow for the aforementioned
discounts to be provided to the former tenants. After transaction costs, net
proceeds from the sale totalled approximately $4,699,000. The sale proceeds,
net of the building permit costs referred to above, was less than the
carrying value of the investment property at the date of the sale by
approximately $163,000. An additional loss equal to this amount was
recognized by the venture in calendar 1994. A portion of the proceeds was
retained by the joint venture to pay for the ongoing costs associated with
the claims described below. The remaining portion of the proceeds was
distributed to the venture partners in accordance with the terms of the
joint venture agreement, with the Partnership receiving approximately
$4,139,000 and the co-venturer receiving approximately $49,000. Due to the
outstanding legal claims involving the joint venture, the joint venture was
not liquidated at the time of the sale of the land.
During fiscal 1993, the Partnership, along with Parkwood Montclair
Partners, became defendants in numerous lawsuits alleging various damages in
excess of $100 million as a result of the Oakland Hills fire which destroyed
the investment property and several thousand homes in the surrounding area.
The insurers who provided liability coverage during the relevant period have
participated in the defense of the Partnership and the joint venture subject
to a reservation of rights. The legal proceedings during fiscal 1995 with
respect to this litigation included certain court-supervised mediation
hearings which have subsequently led to the settlement and dismissal of all
of the outstanding claims during the year ended March 31, 1996. These
settlements and the associated expenses have been paid for by the joint
venture's liability insurance carriers and were well within the venture's
policy limits.
Management had 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
Parkwoods joint venture to pay for building permits. The joint venture
received a partial refund of these amounts totalling approximately $146,000
in December 1995, which was recorded as income by the joint venture in
calendar 1995. However, the federal agency has subsequently denied the joint
venture's claim for a refund of the remaining $300,000 in costs incurred.
Management believes that the joint venture is entitled to a full refund of
the costs incurred and continues to vigorously pursue the refund. The
federal agency has granted the joint venture a hearing regarding this
matter. The hearing is scheduled to occur during the second quarter of
fiscal 1997. There are no assurances that any further amounts will be
recovered. Any amounts which might be recovered will be recorded as income
by the joint venture in the period in which such funds are received.
Per the terms of the joint venture agreement, taxable income or tax loss
from operations is allocated 99% to the Partnership and 1% to the
co-venturer. Taxable income or tax loss resulting from the sale or other
disposition of the apartment complex was allocated between the Partnership
and the co-venturer generally as proceeds were distributed. Allocations of
the joint venture operations between the partners for financial accounting
purposes have been made in conformity with the allocations of taxable income
or tax loss.
6. Mortgage Note Payable
Mortgage note payable at March 31, 1996 and 1995 consists of the
following debt of Nob Hill Partners, the Partnership's consolidated joint
venture (in thousands):
1996 1995
Mortgage note payable secured by
the Nob Hill operating property.
The loan bears interest at 7.375%
with monthly principal and interest
payments of $49 through November 1,
2023. The fair value of this note
payable approximated its carrying
value as of December 31, 1995. $6,890 $ 6,962
====== ========
On September 20, 1993, the Nob Hill joint venture paid off the remaining
principal balance on its long-term debt due to a third party of $5,311,000.
The debt was refinanced through a nonrecourse mortgage note payable to a
third party and insured by the U.S. Department of Housing and Urban
Development (HUD). The excess proceeds from the refinancing were used to pay
financing costs, which totalled $547,000, and to fund certain required
escrow reserves. In addition to the required monthly principal and interest
payments, 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.
Scheduled maturities of the mortgage note payable for each of the next
five years and thereafter are as follows (in thousands):
1996 $ 77
1997 83
1998 90
1999 97
2000 104
Thereafter 6,439
------
$6,890
======
7. Subsequent Event
On May 15, 1996, the Partnership distributed $79,000 to the Limited
Partners and $1,000 to the General Partners for the quarter ended March 31,
1996.
<PAGE>
8. Legal Proceedings
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. The lawsuits were
brought against PaineWebber Incorporated and Paine Webber Group Inc.
(together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated
under the title In re PaineWebber Limited Partnership Litigation, the
plaintiffs amended their complaint to assert claims against a variety of
other defendants, including First PW Growth Properties, Inc. and Properties
Associates ("PA"), which are the General Partners of the Partnership and
affiliates of PaineWebber. On May 30, 1995, the court certified class
action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions
alleges that, in connection with the sale of interests in Paine Webber
Growth Properties LP, PaineWebber, First PW Growth Properties, Inc. and PA
(1) failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments
and the Partnership's anticipated performance; and (3) marketed the
Partnership to investors for whom such investments were not suitable. The
plaintiffs, who purport to be suing on behalf of all persons who invested
in Paine Webber Growth Properties LP, also allege that following the sale
of the partnership interests, PaineWebber, First PW Growth Properties, Inc.
and PA misrepresented financial information about the Partnership's value
and performance. The amended complaint alleges that PaineWebber, First PW
Growth Properties, Inc. and PA violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and the federal securities laws. The
plaintiffs seek unspecified damages, including reimbursement for all sums
invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also seek treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the New York Limited Partnership Actions outlining the
terms under which the parties have agreed to settle the case. Pursuant to
that memorandum of understanding, PaineWebber irrevocably deposited $125
million into an escrow fund under the supervision of the United States
District Court for the Southern District of New York to be used to resolve
the litigation in accordance with a definitive settlement agreement and
plan of allocation which the parties expect to submit to the court for its
consideration and approval within the next several months. Until a
definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits
will be made available to investors in Paine Webber Growth Properties LP.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including
those offered by the Partnership. The complaint alleges, among other
things, that PaineWebber and its related entities committed fraud and
misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that
were unsuitable for the plaintiffs and by overstating the benefits,
understating the risks and failing to state material facts concerning the
investments. The complaint seeks compensatory damages of $15 million plus
punitive damages against PaineWebber. The eventual outcome of this
litigation and the potential impact, if any, on the Partnership's
unitholders cannot be determined at the present time.
<PAGE>
In June 1996, approximately 50 plaintiffs filed an action entitled
Bandrowski v. PaineWebber Inc. in Sacramento, California Superior Court
against PaineWebber Incorporated and various affiliated entities concerning
the plaintiff's purchases of various limited partnership interests,
including those offered by the Partnership. The complaint is substantially
similar to the complaint in the Abbate action described above, and seeks
compensatory damages of $3.4 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber affiliates could
be entitled to indemnification for expenses and liabilities in connection
with this litigation. At the present time, the Managing General Partner
cannot estimate the impact, if any, of the potential indemnification claims
on the Partnership's financial statements, taken as a whole. Accordingly,
no provision for any liability which could result from the eventual outcome
of these matters has been made in the accompanying financial statements.
<PAGE>
<TABLE>
Schedule III- Real Estate and Accumulated Depreciation
PAINE WEBBER GROWTH PROPERTIES LP
Schedule of Real Estate and Accumulated Depreciation
March 31, 1996
(In thousands)
<CAPTION>
Cost
Capitalized Life on Which
Initial Cost to (Removed) Depreciation
Partnership Subsequent to Gross Amount at Which Carried at in Latest
Venture Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Complex
San Antonio,
TX $ 6,890 $ 2,029 $11,518 $2,309 $ 2,029 $13,827 $15,856 $ 6,263 1972-1974 3/31/83 5-30 yrs
Notes:
(A) The aggregate cost of real estate owned at December 31, 1995 for Federal income tax purposes is approximately $14,615,000.
(B) See Note 6 of Notes to Financial Statements for a description of the mortgage debt encumbering the operating investment
property.
(C) Reconciliation of real estate owned:
1996 1995 1994
---- ---- ----
Balance at beginning of year $15,707 $14,729 $14,555
Acquisitions and improvements 149 978 174
------- ------- -------
Balance at end of year $15,856 $15,707 $14,729
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 5,577 $ 4,984 $ 4,488
Depreciation expense 686 593 496
-------- -------- --------
Balance at end of year $ 6,263 $ 5,577 $ 4,984
======== ======== ========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Paine Webber Growth Properties LP:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of Paine Webber Growth Properties LP as of December 31, 1995 and
1994, and the related combined statements of operations and changes in
venturers' capital (deficit), and cash flows for each of the three years in the
period ended December 31, 1995. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Combined Joint
Ventures of Paine Webber Growth Properties LP at December 31, 1995 and 1994, and
the combined results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/S/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
February 14, 1996
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED BALANCE SHEETS
December 31, 1995 and 1994
(In thousands)
Assets
1995 1994
Current assets:
Cash and cash equivalents $ 1,007 $ 1,108
Accounts receivable 13 1,594
Prepaid expenses 70 76
--------- ---------
Total current assets 1,090 2,778
Operating investment properties:
Land 4,325 4,325
Buildings, improvements and equipment 22,693 22,465
---------- ---------
27,018 26,790
Less: accumulated depreciation (10,797) (9,949)
---------- ----------
16,221 16,841
Reserves for repairs and capital improvements 64 49
Deferred expenses, net of accumulated amortization
of 196 in 1995 ($166 in 1994) 105 135
--------- ---------
$ 17,480 $ 19,803
======== ========
Liabilities and Venturers' Deficit
Current liabilities:
Accounts payable and other liabilities $ 256 $ 386
Accrued real estate taxes 246 241
Accrued interest 74 -
Accrued management fee 16 15
Tenant security deposits 209 191
Current portion of long-term debt 8,532 159
Due to venturers - 1,619
-------- --------
Total current liabilities 9,333 2,611
Reimbursements payable to Venturer 1,699 1,629
Long-term debt 7,266 15,798
Venturers' deficit (818) (235)
-------- --------
$17,480 $19,803
======= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED STATEMENTS OF OPERATIONSAND CHANGES IN VENTURERS' CAPITAL (DEFICIT)
For the years ended December 31, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
---- ---- ----
Revenues:
Rental income $ 4,763 $ 5,726 $ 5,509
Interest and other income 295 205 306
Gain on settlement of insurance claims - - 250
-------- -------- -------
5,058 5,931 6,065
Expenses:
Interest expense 1,594 2,010 2,022
Write down of investment property to
net realizable value - - 1,593
Depreciation expense 848 1,110 1,068
Salaries 496 562 599
Repairs and maintenance 573 671 751
Property operating expenses 441 586 544
Real estate taxes 304 454 409
General and administrative 164 231 211
Management fees 245 339 289
Reimbursements to partner 193 209 454
Professional fees 119 204 400
Tenant compensation expense - - 250
-------- -------- -------
4,977 6,376 8,590
-------- -------- -------
Operating income (loss) 81 (445) (2,525)
Net gain on sales of investment properties - 1,041 -
-------- -------- -------
Net income (loss) 81 596 (2,525)
Contributions from venturers - 154 -
Distributions to venturers (664) (5,237) (201)
Venturers' capital, beginning of year (235) 4,252 6,978
-------- -------- -------
Venturers' capital (deficit), end of year $ (818) $ (235) $ 4,252
========= ========= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 81 $ 596 $(2,525)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Net gain on sales of investment properties - (1,041) -
Gain on settlement of insurance claims - - (250)
Depreciation and amortization 848 1,110 1,068
Amortization of loan acquisition costs 30 30 31
Write down of investment property to net
realizable value - - 1,593
Changes in assets and liabilities:
Accounts receivable 1,581 (2) 2
Prepaid expenses 6 50 6
Other assets - 166 -
Accounts payable and other liabilities (130) (169) 220
Accrued interest 74 (111) 118
Accrued real estate taxes 5 2 (71)
Accrued management fees 1 (3) (3)
Tenant security deposits 18 (8) 18
Due to venturers (1,619) - -
Reimbursements payable to partner 70 (693) 384
-------- ------- ------
Total adjustments 884 (669) 3,116
Net cash provided by (used for)
operating activities 965 (73) 591
Cash flows from investment activities:
Net proceeds from sales of investment
properties - 9,110 -
Additions to operating investment properties (228) (1,136) (992)
Increase in reserve for capital expenditures (15) (14) (14)
-------- ------- ------
Net cash provided by (used for)
investing activities (243) 7,960 (1,006)
Cash flows from financing activities:
Repayment of long-term debt (159) (4,525) (3,830)
Distributions to venturers (664) (4,151) (201)
Repayments of operating loans payable
to venturers - (106) -
Refund of debt issuance costs - 83 -
Proceeds from issuance of long-term debt
net of $301 debt issuance costs and
$501 capital improvement escrow - - 3,571
Proceeds from insurance settlements - - 250
Proceeds from operating loans payable to
venturers - - 238
-------- ------- ------
Net cash provided by (used for)
financing activities (823) (8,699) 28
-------- ------- ------
Net decrease in cash and cash equivalents (101) (812) (387)
Cash and cash equivalents, beginning of year 1,108 1,920 2,307
--------- ----------- --------
Cash and cash equivalents, end of year $ 1,007 $ 1,108 $ 1,920
======== ========== =======
Cash paid during the year for interest $ 1,478 $ 2,023 $ 1,872
======== ========== =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Organization
The accompanying financial statements of the Combined Joint Ventures of
PaineWebber Growth Properties, LP include the accounts of Rocky Mountain
Partners, a Colorado general partnership; Grouse Run Associates I and II,
California general partnerships; Plano Chisholm Place Associates, a Texas
general partnership; Austin Northcastle Partners, a Texas general
partnership; and Parkwood Montclair Partners, a California general
partnership. The financial statements of the Combined Joint Ventures are
presented in combined form due to the nature of the relationship between
each of the co-ventures and PaineWebber Growth Properties, LP (PWGP) which
owns a majority interest in each of the joint ventures mentioned below. As
further described in Note 2, Austin Northcastle Partners sold its operating
investment property and suspended its operations effective on December 23,
1994. Also, as further described in Note 2, Parkwood Montclair Partners sold
the land at the former site of the Parkwood Apartments on April 15, 1994 to
an affiliate of the co-venture partner. Due to certain outstanding legal
claims involving the Parkwoods joint venture, the venture was not liquidated
subsequent to the sale of the land (see Note 2).
The dates of PWGP's acquisition of interests in the joint ventures are as
follows:
Date of Acquisition
Joint Venture of Interest
Rocky Mountain Partners February 17, 1983
Grouse Run Associates I and II March 31, 1983
Plano Chisholm Place Associates May 31, 1983
Austin Northcastle Partners September 30, 1983
Parkwood Montclair Partners October 31, 1983
Basis of presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of December 31, 1995 and 1994 and
revenues and expenses for each of the three years in the period ended
December 31, 1995. Actual results could differ from the estimates and
assumptions used.
Certain of the records of the Combined Joint Ventures are maintained on
the income tax basis of accounting and are adjusted, principally for
depreciation, to conform with generally accepted accounting principles for
financial reporting purposes.
Operating investment properties
The operating investment properties are carried at the lower of cost,
reduced by accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the investment through expected future
cash flows on an undiscounted basis, which may exceed the property's current
market value. The net realizable value of a property held for sale
approximates its market value. The operating investment property owned by
the Parkwood Montclair Partners was destroyed by fire on October 20, 1991.
Subsequent to the fire, the investment property consisted of land and
construction in process which included capitalized real estate taxes and
various other costs to ready the property for sale including zoning,
grading, engineering and consulting studies. The land and construction in
progress of Parkwood Montclair Partners was being held for sale as of
December 31, 1993 and was written down to estimated net realizable value at
December 31, 1993. Estimated net realizable value represents management's
estimate of the sales price to be realized in the ordinary course of
business, less costs of completion, holding and disposal. With the exception
of the Nob Hill Apartments, the operating investment properties owned by the
other joint ventures were considered to be held for long-term investment
purposes as of December 31, 1995 and 1994. As discussed further in Note 2,
during 1995 management decided to actively market the Nob Hill Apartments
for sale. However, since the current market value of the property is
estimated to be equal to or greater than its net carrying value, no
adjustments to the financial statement presentation of the Combined Joint
Ventures are required. Depreciation expense is computed on a straight-line
basis over the estimated useful lives of the buildings, improvements and
equipment, generally, five to thirty years. Professional fees (including
deferred acquisition fees paid to an affiliate of the general partner, see
Note 3), and other costs incurred in connection with the acquisition of the
properties have been capitalized and are included in the cost of the land
and buildings.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of" ("Statement 121"), which requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. Statement 121 is effective for
financial statements for years beginning after December 15, 1995. The
Combined Joint Ventures will adopt Statement 121 in 1996 and, based on
current circumstances, management does not believe the adoption will have a
material effect on results of operations or financial position.
Deferred expenses
Deferred expenses consist primarily of loan fees which are being
amortized over the terms of the related loans. Such amortization expense is
included in interest expense on the accompanying statements of operations.
Income tax matters
The Combined Joint Ventures are comprised of entities which are not
taxable and accordingly, the results of their operations are included on the
tax returns of the various partners. Accordingly no income tax provision is
reflected in the accompanying combined financial statements.
Cash and cash equivalents
For purposes of the statement of cash flows, the Combined Joint
Ventures consider all highly liquid investments with original maturity dates
of 90 days or less to be cash equivalents.
In accordance with the joint venture agreements, certain cash balances
are restricted for insurance, real estate taxes and tenant security
deposits. However, should cash be required for operating expenditures, the
partners may modify the joint venture agreements. Included in the cash and
cash equivalents balance are the following restricted amounts:
December 31, December 31
1995 1994
Reserve for tenant security deposits $ 65 $ 191
Reserve for insurance and tax deposits 121 276
-------- --------
$ 186 $ 467
======== =======
In addition, the mortgage loan of one of the joint ventures provides
that, effective July 1991, the venture must maintain a cash balance in the
amount of $100,000 restricted for the payment of future capital
expenditures. To the extent that the venture does not expend a minimum of
$100,000 in annual capital improvements, the loan agreement requires an
increase in the amount to be held in the restricted account. Such restricted
cash amounts total $100,000 at December 31, 1995 and 1994 and are included
in the balance of cash and cash equivalents on the accompanying balance
sheets.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, tenant receivables,
cash reserves and current liabilities approximates their fair value due to
the short-term maturities of these instruments. It is not practicable for
management to estimate the fair value of reimbursements payable to Venturer
without incurring excessive costs due to the unique nature of such
obligations. The fair value of long-term debt is estimated using a
discounted cash flow analysis, based on the current market rate for similar
types of borrowing arrangements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Joint Ventures
See Note 5 to the financial statements of PWGP in this Annual Report for a
more detailed description of the joint venture partnerships. Descriptions of
the ventures' properties are summarized below:
a. Rocky Mountain Partners
The joint venture owns and operates Tantra Lake Apartments, a 301-unit
apartment complex located in Boulder, Colorado. As further described in
Note 5, the mortgage loan secured by the Tantra Lake Apartments is
scheduled to mature on July 1, 1996. Management is currently pursuing
new financing sources which would allow the venture to repay the
outstanding debt obligation in addition to negotiating with the existing
lender regarding a possible extension of the current loan agreement.
However, no financing agreement has been finalized as of the date of
this report.
b. Grouse Run Associates I and II
The joint venture owns and operates Grouse Run Apartments - Phases I and
II, a 158-unit apartment complex located in Stockton, California.
c. Plano Chisholm Place Associates
The joint venture owns and operates Chisholm Place Apartments, a
142-unit apartment complex located in Plano, Texas.
d. Austin Northcastle Partners
The joint venture owned and operated Northcastle Apartments, a 170-unit
apartment complex located in Austin, Texas. On December 23, 1994, Austin
Northcastle Partners sold the Northcastle Apartments to an unaffiliated
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. PWGP's
share of such proceeds was $1,581,000, in accordance with the terms of
the joint venture agreement. The venture recognized a gain on the sale
of approximately $1,204,000 to the extent that the sales price exceeded
the net book value of the operating investment property at the time of
the sale.
e. Parkwood Montclair Partners
The joint venture owned and operated Parkwoods Apartments, a 433-unit
apartment complex located in Oakland, California. The operating
investment property was entirely destroyed by fire on October 20, 1991.
The joint venture had in place sufficient insurance coverage on the
investment property as of the date of the fire. In May 1992, the joint
venture and the insurance carrier agreed on the extent of the losses and
entered into a cash settlement of $29,361,000. In September 1993, the
joint venture and another insurance carrier entered into a cash
settlement of $250,000 related to supplemental hazard insurance. Such
settlement amount is recorded as a gain on the 1993 statement of
operations. The net settlement proceeds were used as follows: (i)
$19,000,000 in full payment of first mortgage loan, (ii) $1,418,000
($65,000 of accrued interest) in full payment of operating loans payable
to PWGP, (iii) $171,000 in payment of reimbursements payable to PWGP,
(iv) $4,691,000 distributed to PWGP, and (v) $2,547,000 retained by the
joint venture.
During 1993, the joint venture was successful in obtaining approval for
the construction of a condominium complex on the land. The
reconstruction plans were for a project of similar size and density to
that of the former Parkwood Apartment complex. Management believed that
obtaining these condominium conversion and site plan approvals would
substantially facilitate the future sale of the land. During calendar
1994, the joint venture paid approximately $500,000 to secure certain
building permits required in order to proceed with the planned
reconstruction. In connection with obtaining the site plan approvals,
the joint venture entered into a settlement agreement with the former
tenants of the operating investment property related to their rights in
the condominium conversion. Under the terms of this agreement, the
venture agreed to pay the former tenants approximately $250,000 and to
offer certain discounts to former tenants who wish to purchase a
condominium unit in the redeveloped project. During 1995, the majority
of this $250,000 settlement amount was paid out to the former tenants.
On April 15, 1994, Parkwood Montclair Partners sold the land on the
former site of the Parkwoods Apartments to an affiliate of PWGP's
co-venture partner. The property was sold for $4,750,000. After paying
all closing costs, the net sales proceeds amounted to approximately
$4,699,000. Parkwood Montclair Partners retained a portion of the
proceeds, which will be used to pay the $250,000 settlement amount
pursuant to the agreement with the former tenants of the Parkwoods
Apartments and to fund ongoing costs associated with the claims
described below. The remaining portion of the proceeds was distributed
to the venture partners in accordance with the terms of the joint
venture agreement, with PWGP receiving approximately $4,139,000 and the
co-venturer receiving approximately $49,000. In 1993, the carrying value
of the land had been written down to management's estimate of net
realizable value based on the estimated sales price to be received in
the ordinary course of business, less costs of completion, holding and
disposal. The writedown resulted in a loss of approximately $1,593,000
which is reflected in the accompanying 1993 statement of operations. The
net sales price of the land was less than its net carrying value at the
date of the sale by approximately $163,000. An additional loss equal to
such amount was recognized in 1994. Due to the outstanding legal claims
involving the venture, as discussed further below, Parkwood Montclair
Partners was not liquidated at the time of the sale of the land.
During 1992, Parkwood Montclair Partners and its partners became
defendants in numerous lawsuits alleging damages in excess of $100
million as a result of the Oakland Hills fire which destroyed the
investment property and several thousand homes in the surrounding area
in October 1991. The joint venture's insurers who provided liability
coverage during the relevant period have participated in the venture's
defense subject to a reservation of rights. The legal proceedings during
calendar 1994 with respect to this litigation included certain
court-supervised mediation hearings which have subsequently led to the
settlement and dismissal of all of the outstanding claims during
calendar 1995. These settlements and the associated expenses have been
paid for by the joint venture's liability insurance carriers and were
well within the venture's policy limits.
Management had 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
1995 to a release schedule for money previously funded by the Parkwood
joint venture to pay for building permits. The joint venture received a
partial refund of these amounts totalling approximately $146,000 in
December 1995. Such amount is recorded as other income on the
accompanying 1995 statement of operations. However, the federal agency
has subsequently denied the joint venture's claim for a refund of the
remaining $300,000 in costs incurred. Management believes that the joint
venture is entitled to a full refund of the costs incurred and continues
to vigorously pursue the refund. The federal agency has granted the
joint venture a hearing regarding this matter. The hearing is scheduled
to occur during the third quarter of calendar 1996. There are no
assurances that any additional amounts will be recovered. Any amounts
which might be recovered will be recorded as income in the period in
which such funds are received.
The following description of the joint venture agreements provides
certain general information.
Allocations of net income and loss
The joint venture agreements provide that taxable income and tax loss
from operations in each year are generally to be allocated 99% to PWGP and
1% to the co-venturers. During 1991, the terms of the Chisholm Place joint
venture agreement were amended in conjunction with the debt refinancing
described in Note 5. Taxable income and tax loss from operations are now
allocated 80% to PWGP and 20% to the co-venturer. Gains or losses resulting
from sales or other dispositions of the projects shall be allocated as
specified in the joint venture agreements. Allocations of income and loss
for financial reporting purposes have been made in accordance with the
allocations of taxable income or loss.
Distributions
The joint venture agreements provide that distributable net cash flow,
as defined, will generally be allocated first to the payment of the deferred
acquisition and consulting fees payable to affiliates of the general
partners, then to the payment of interest and principal on certain interim
borrowings, if such borrowings have been made, and then any remaining
amounts are to be distributed 99% to PWGP and 1% to the co-venturers. In
accordance with the amendment to the Chisholm Place joint venture agreement
referred to above, beginning in 1991, cash flow of this venture, after the
payment of certain priority distributions, is to be distributed 80% to PWGP
and 20% to the co-venturer.
Distribution of proceeds resulting from the sale or refinancing of the
property shall be made in accordance with formulas provided in the joint
venture agreements.
Additional cash
Additional cash required by the Joint Ventures is generally to be
provided, either in the form of capital contributions or as loans to the
joint ventures, 90% by PWGP and 10% by the co-venturers.
<PAGE>
3. Related party transactions
The Combined Joint Ventures originally executed property management
agreements with affiliates of the co-venturers, cancellable at the joint
ventures' option upon the occurrence of certain events. The management fees
are equal to 4 to 5% of gross receipts, as defined in the agreements.
The joint venture agreements provide that the co-venturers will
reimburse PWGP for their proportionate share of PWGP's management fees and
certain out-of-pocket expenses incurred by PWGP in connection with the
general management of the joint ventures. Such reimbursements are payable
only to the extent of available cash flow from operations and are cumulative
to the extent not paid. The Combined Joint Ventures owed PWGP reimbursements
totalling $193,000, $209,000 and $454,000 for the years ended December 31,
1995, 1994 and 1993, respectively. Cumulative unpaid reimbursements
aggregated $1,699,000 and $1,629,000 at December 31, 1995 and 1994,
respectively.
Certain of the joint ventures entered into consulting agreements with
affiliates of their partners for the purpose of enhancement of the marketing
and rental value of the property. The joint ventures began paying quarterly
consulting fees commencing in 1983 and 1984, of which the total amount to be
paid was $530,000. Quarterly payments were payable only out of distributable
net cash flow or capital proceeds in accordance with the terms of the joint
venture agreements. All such deferred consulting fees have been paid in full
as of December 31, 1995.
4. Reserves for repairs and capital improvements
Under the terms of certain joint venture agreements, the joint ventures
are required to maintain a cash reserve for capital expenditures consisting
of an initial amount to be increased for each month of operations of the
operating investment property by the joint ventures by an amount equal to 2%
of the gross rents. Unless otherwise determined by the joint ventures, the
principal amount of funds in the capital reserve shall only be expended for
capital repairs to, or replacement of, portions of the operating properties
as set forth in a budget or approved by the joint ventures. At December 31,
1995 and 1994, the balance of reserves for repairs and capital improvements
consists of escrow accounts maintained by Grouse Run Associates I and II.
5. Long-term debt
Long-term debt at December 31, 1995 and 1994 consists of the following (in
thousands):
1995 1994
Nonrecourse mortgage note secured by a
first deed of trust on the Tantra Lake
Apartments (see discussion below). The
loan bears interest at 10.5% per annum,
monthly payments of principal and
interest of $84,000 will be made
through July 1, 1996 when the remaining
unpaid balance is due. The fair value
of this note approximated its carrying
value as of December 31, 1995 due to
the short-term maturity of the loan. $8,482 $8,594
Nonrecourse mortgage note secured by a
deed of trust on the Grouse Run I
operating property and guaranteed by
the Federal Housing Administration. The
loan bears interest at a rate of 7.5%
per annum and is payable in monthly
principal and interest installments of
$11,000. The remaining unpaid balance
is due February 1, 2019. The fair value
of this mortgage note approximated its
carrying value as of December 31,
1995. 1,399 1,420
Nonrecourse mortgage note secured by a
deed of trust on the Grouse Run II
operating property and guaranteed by
the Federal Housing Administration. The
loan bears interest at a rate of 7.5%
per annum and is payable in monthly
principal and interest installments of
$13,000 with the remaining unpaid
balance due February 1, 2020. The fair
value of this mortgage note
approximated its carrying value as of
December 31, 1995. 1,757 1,783
Real estate lien note payable secured
by the Chisholm Place operating
property and an assign-ment of rents.
The note is nonrecourse, bears interest
on the unpaid principal balance at a
rate of 10% per annum and is payable in
monthly principal and interest
installments, with the entire principal
balance due on October 1, 2001. The
fair value of this note approximated
$4,547 as of December 31, 1995. 4,160 4,160
Total long-term debt 15,798 15,957
Less: current portion (8,532) (159)
--------- --------
$ 7,266 $ 15,798
======== ========
Maturities of long-term debt for each of the next five years and
thereafter are as follows:
1996 $ 8,532
1997 54
1998 58
1999 63
2000 68
Thereafter 7,023
----------
$ 15,798
========
The loan secured by the Tantra Lake Apartments is scheduled to mature on
July 1, 1996. Management of the joint venture is currently pursuing
alternative financing sources to repay the maturing obligation in addition
to negotiating with the existing mortgage lender regarding a possible
extension of the current loan agreement. However, in the event that the
venture is unable to secure a new loan or an extension prior to the
scheduled maturity date, the existing lender could choose to initiate
foreclosure proceedings on the operating investment property. Management
believes that its refinancing efforts will be successful, however, there can
be no assurances that a favorable outcome will be achieved.
<PAGE>
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
Schedule of Real Estate and Accumulated Depreciation
December 31, 1995
<CAPTION>
Cost
Capitalized Life on Which
Initial Cost to (Removed) Depreciation
Partnership Subsequent to Gross Amount at Which Carried at in Latest
Venture Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED JOINT VENTURES:
Apartment Complex
Plano, TX $ 4,160 $ 1,744 $ 6,250 $ 194 $ 1,744 $ 6,444 $ 8,188 $ 2,802 1982 5/31/83 5-30 yrs
Apartment Complex
Stockton, CA 3,156 545 4,914 496 545 5,410 5,955 2,589 1980 3/31/83 5-30 yrs
Apartment Complex
Boulder, CO 8,482 2,036 8,747 2,092 2,036 10,839 12,875 5,406 1974 2/17/83 5-30 yrs
-------- ------ -------- ------ ----- -------- -------- -------
$15,798 $ 4,325 $19,911 $2,782 $4,325 $22,693 $27,018 $10,797
======= ======= ======= ====== ====== ======= ======= =======
Notes:
(A) The aggregate cost of real estate owned at December 31, 1995 for Federal income tax purposes is approximately $26,858,000.
(B) See Note 5 of Notes to Financial Statements for a description of the debt encumbering the operating investment properties.
(C) Reconciliation of real estate owned:
December 31 December 31, December 31,
1995 1994 1993
Balance at beginning of year $ 26,790 $ 38,581 $37,589
Acquisitions and improvements 228 1,136 992
Dispositions - (12,927) -
-------- --------- -------
Balance at end of year $ 27,018 $ 26,790 $38,581
======== ======== =======
(C) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 9,949 $ 11,066 $ 9,998
Depreciation expense 848 1,110 1,068
Dispositions - (2,227) -
--------- --------- --------
Balance at end of year $ 10,797 $ 9,949 $11,066
======== ========= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended March 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,323
<SECURITIES> 0
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,842
<PP&E> 16,843
<DEPRECIATION> 6,263
<TOTAL-ASSETS> 12,979
<CURRENT-LIABILITIES> 745
<BONDS> 6,890
0
0
<COMMON> 0
<OTHER-SE> 5,317
<TOTAL-LIABILITY-AND-EQUITY> 12,979
<SALES> 0
<TOTAL-REVENUES> 2,546
<CGS> 0
<TOTAL-COSTS> 2,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 617
<INCOME-PRETAX> (322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (322)
<EPS-PRIMARY> (10.93)
<EPS-DILUTED> (10.93)
</TABLE>
