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, 1997
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
Current Report on Form 8-K of
registrant dated
February 7, 1997 Part IV
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
1997 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-7
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-7
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-2
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-33
<PAGE>
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Partnership's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are discussed in Item 7 in the section entitled
"Certain Factors Affecting Future Operating Results" beginning on page II-6 of
this Form 10-K.
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, 1997, the Partnership owned, through joint venture
partnerships, interests in the operating properties set forth in the following
table:
<TABLE>
<CAPTION>
Name of Joint Venture Date of
Name and Type of Property Acquisition
Location Size of Interest Type of Ownership (1)
- -------- ---- ----------- --------------------
<S> <C> <C> <C>
Rocky Mountain Partners 301 2/17/83 Fee ownership of land and improvements
Tantra Lake Apartments Units (through joint venture) Boulder, Colorado
Grouse Run Associates I & II 158 3/31/83 Fee ownership of land and improvements
Grouse Run Apartments Units (through joint venture)
Stockton, California
Plano Chisholm Place 142 5/31/83 Fee ownership of land and improvements
Associates Units (through joint venture)
Chisholm Place Apartments
Plano, Texas
</TABLE>
(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, the Northcastle Apartments and the Nob
Hill 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. On February 7, 1997, Nob Hill Partners,
a joint venture in which the Partnership had an investment, sold its operating
investment property, the Nob Hill Apartments, a 368-unit apartment complex
located in San Antonio, Texas, to an unrelated third party for $9.5 million.
Final approval of the sale, which involved the assumption of the outstanding
mortgage loan secured by the property, was received by the Department of Housing
and Urban Development on June 9, 1997. The sale generated net proceeds of
approximately $2.3 million. In addition, the venture had excess working capital
of approximately $360,000 at the time of the sale. All of the net proceeds and
excess working capital were due to the Partnership under the terms of the Nob
Hill 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, 1997, the Limited Partners had received
cumulative cash distributions totalling $16,973,000, or approximately $581 per
original $1,000 investment, including distributions of $354,000 paid during
fiscal 1997. The cumulative cash returns described above 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. Such cumulative cash
returns 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. During the first half of fiscal 1997,
distributions were paid at a rate of 2% per annum on a Limited Partner's
remaining capital account of $538 per original $1,000 investment. Effective for
the quarter ended December 31, 1996, the distribution rate was increased to 3%
per annum. As discussed above, the Partnership successfully closed the sale of
the Nob Hill Apartments on February 7, 1997. Because the new owner assumed the
property's existing first mortgage loan provided through the Department of
Housing and Urban Development (HUD), the sale required the formal approval of
HUD, which was received on June 9, 1997. As a result, the Partnership made a
Special Distribution of $115 per original $1,000 Unit on June 13, 1997. Of this
amount, $90.65 represented the net proceeds and excess working capital from the
sale of the Partnership's investment in Nob Hill and $24.35 represented a
distribution of Partnership reserves that exceeded expected future requirements.
After this special capital distribution to investors, the Partnership's annual
distribution rate will be increased to 4.25% per annum on a Limited Partner's
remaining capital account of $423 per original $1,000 Unit. As of March 31,
1997, the Partnership retained an ownership interest in three 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 37% 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 generally been
offset by the lack of significant new construction activity in the multi-family
apartment market over most of this period. In the past 12 months, development
activity for multi-family properties in many markets has escalated
significantly.
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, 1997, the Partnership had interests in three 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 1997, along with an
average for the year, are presented below for each property owned during fiscal
1997:
Percent Occupied At
-------------------------------------------------------
Fiscal 1997
Property 6/30/96 9/30/96 12/31/96 3/31/97 Average
- -------- ------- ------- -------- ------- -------
Tantra Lake Apartments 90% 95% 95% 95% 94%
Grouse Run Apartments 96% 93% 94% 97% 95%
Nob Hill Apartments (1) 90% 94% 93% N/A N/A
Chisholm Place Apartment 97% 98% 97% 99% 98%
(1) The Nob Hill Apartments was sold on February 7, 1997.
Item 3. 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, 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 alleged
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
purported to be suing on behalf of all persons who invested in Paine Webber
Growth Properties LP, also alleged 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 alleged 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 sought 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 sought 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. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds has not occurred to date
pending the resolution of an appeal of the settlement by two of the plaintiff
class members. As part of the settlement agreement, PaineWebber has agreed not
to seek indemnification from the related partnerships and real estate investment
trusts at issue in the litigation (including the Partnership) for any amounts
that it is required to pay under the settlement.
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 sought
compensatory damages of $15 million plus punitive damages against PaineWebber.
In September 1996 the court dismissed many of the plaintiffs' claims as barred
by applicable securities arbitration regulations. Mediation with respect to the
Abbate action was held in December 1996. As a result of such mediation, a
settlement between PaineWebber and the plaintiffs was reached which provided for
the complete resolution of this action. Final releases and dismissals with
regard to this action were received subsequent to March 31, 1997.
Based on the settlement agreements discussed above covering all of the
outstanding unitholder litigation, and notwithstanding the appeal of the class
action settlement referred to above, management does not expect that the
resolution of these matters will have a material impact on the Partnership's
financial statements, taken as a whole.
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, 1997, there were 2,723 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 1997.
Item 6. Selected Financial Data
Paine Webber Growth Properties LP
For the years ended March 31, 1997, 1996, 1995, 1994 and 1993
(in thousands, except for per Unit data)
1997 (1) 1996 1995 1994 1993 (1)
-------- ---- ---- ---- -------
Revenues $ 2,825 $ 2,446 $ 2,471 $ 2,393 $ 2,235
Operating income
(loss) $ (559) $ (422) $ (324) $ 31 $ 88
Partnership's share
of gains on settlement
of insurance claims - - - $ 225 $ 11,545
Loss on sale of
operating investment
property $ (138) - - - -
Partnership's share of
unconsolidated
ventures' income
(losses) $ 94 $ 96 $ 644 $ (2,546) $ (498)
Net income (loss) $ (580) $ (322) $ 325 $ (2,289) $ 11,136
Per Limited
Partnership Unit:
Net income (loss) $(19.67) $(10.93) $ 8.70 $ (77.63) $ 377.63
Cash distributions
from operations $ 12.12 $ 11.66 $ 6.28 - $ 19.58
Cash distributions
from sale,
refinancing and
other capital
transactions - $ 90.00 $158.00 - $ 154.00
Total assets $ 4,422 $12,979 $16,086 $ 20,510 $ 21,436
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 owned and operated the Nob Hill Apartments.
Accordingly, the joint venture, which had been accounted for under the
equity method in prior years, was consolidated in the Partnership's
financial statements beginning in fiscal 1993. The Nob Hill Apartments was
sold to an unrelated third party on February 7, 1997.
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.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified below, which could cause actual results to differ materially from
historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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, 1997 the Partnership
retained interests in three operating investment properties. During fiscal 1997,
the Partnership completed a sales transaction with respect to the Nob Hill
Apartments and 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. During fiscal 1997, a purchase and sale
agreement was signed with a prospective buyer for a purchase price of $10
million. In the third quarter of fiscal 1997, the terms of the agreement were
amended to reflect a reduction in the purchase price to $9.5 million as a result
of certain required repair work at the property. The transaction closed in the
fourth quarter of fiscal 1997, on February 7, 1997, and the Partnership received
net proceeds from the sale of approximately $2.3 million. In addition, the
venture had excess working capital of approximately $360,000 at the time of the
sale. All of the net proceeds and excess working capital were distributed to the
Partnership in accordance with the terms of the Nob Hill joint venture
agreement. The Partnership's original investment in the Nob Hill joint venture
totalled approximately $5 million. Despite receiving less than 50% of the
Partnership's original investment, management believes that the sale price is
reflective of the market value of the property and that it was an appropriate
time to sell the investment property. While the Nob Hill property was 93%
occupied for the quarter ended December 31, 1996, development of a significant
number of new multi-family units was underway at the time of the sale. Increased
competition had begun to result in pressure to reduce rental rates or use rent
concessions as leasing incentives to maintain occupancy levels and market share.
In addition, despite the recent extensive capital improvement program at the
property, the property's age required that ongoing capital expenditures be made
to maintain the property's competitive condition. As a result of these
circumstances, management believed that the value of this 25-year-old, 368-unit,
San Antonio, Texas apartment complex was at or near its peak for the current
market cycle. While the sale had been executed and control of the property had
been transferred to the buyer on February 7, 1997, the sale remained contingent
upon receiving the consent of the Secretary of Housing and Urban Development
("HUD") to the sale of the property and the assumption of the loan by the
purchaser. Such final approval was received on June 9, 1997. As a result, the
Partnership made a special distribution to the Limited Partners of approximately
$3,357,000, or $115 per original $1,000 Unit, on June 13, 1997. Of this amount,
$90.65 represented the net proceeds and excess working capital from the sale of
the Nob Hill Apartments and $24.35 represented a distribution of Partnership
reserves which exceeded expected future requirements. After this special capital
distribution to investors, the Partnership's annual distribution rate will be
increased from 3% to 4.25% on a Limited Partner's capital account of $423 per
original $1,000 Unit. The reasons for the increase in the distribution rate are
the improved cash flow being generated by the Tantra Lake Apartments and the
fact that nearly all of Nob Hill's operating cash flow for the past several
years had been used at the property for repairs and improvements. The increased
distribution rate will be effective for the payment to be made on August 15,
1997 for the quarter ending June 30, 1997.
The sale of the Nob Hill Apartments has positioned the Partnership for a
possible liquidation within the next 2-to-3 years. The Partnership has ownership
interests in three remaining apartment properties located in the markets of
Boulder, Colorado (Tantra Lake), greater Dallas, Texas (Chisholm Place) and
Stockton, California (Grouse Run). 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 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. As previously reported, the Partnership received some
unsolicited interest from prospective buyers for the Tantra Lake Apartments
during fiscal 1997. Management has initiated discussions with local real estate
brokerage firms concerning potential sale strategies for Tantra Lake. However,
no decision has been made to formally list the property for sale.
Notwithstanding the current situation, it is possible that a formal marketing
process for a potential sale of the property could occur during fiscal 1998.
Capital improvement projects planned for the 1997 calendar year at Tantra Lake
include new roofs for specific buildings and upgrades to the electrical system.
Other improvements budgeted at Tantra Lake for 1997 are the exterior painting of
ten buildings, siding repairs and landscape enhancements. Despite a fairly
significant amount of new construction coming on-line in the greater Dallas
market during fiscal 1997, the performance of the Chisholm Place Apartments has
remained strong due to the property's larger unit sizes, its excellent location
and its well-maintained physical appearance. Management is currently analyzing
the potential for near term appreciation in the value of the Chisholm Place
property to determine the appropriate timing for the disposition of this asset.
The Chisholm Place property is in excellent condition, and the only physical
improvement planned for the next year is the installation of 60 ceiling fans in
the apartment interiors. The occupancy level at the Grouse Run Apartments in
Stockton, California, averaged 97% for the quarter ended March 31, 1997, which
exceeds the prior quarter's average of 94% as well as the median occupancy level
of 95% reported ]in the property's local market. The increase in the property's
average occupancy level is attributable to a slight improvement in the local
economy. Conditions in Stockton's apartment market have been generally soft over
the past year, and rental rates have remained relatively flat. Because of the
property's improved occupancy levels, the leasing staff has recently
discontinued the use of all rental concessions and discounts. A program of
balcony repairs begun at Grouse Run in fiscal 1997 is scheduled for completion
by June 30, 1997. Additional improvements scheduled for the Grouse Run property
in calendar year 1997 include repairing the perimeter fences on several
balconies, painting the trim on building exteriors and enhancing the
landscaping.
The $8.5 million first mortgage loan secured by the Tantra Lake Apartments
was scheduled to mature on July 1, 1996. Management had analyzed several
refinancing proposals from potential new lenders in addressing this scheduled
maturity. Management's goal was 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 achievable over the next 2-to-3 years, as
discussed further above. On August 6, 1996, the Partnership closed on a new loan
for the Tantra Lake joint venture and the existing first mortgage loan was
repaid in full. The new mortgage loan, in the principal amount of $8,850,000,
bears interest at 7.68% per annum, requires interest-only payments throughout
its term and is scheduled to mature on September 1, 2001. The terms of the new
loan reduce Tantra Lake's required annual debt service by more than $300,000
which has significantly improved cash flow to the Partnership from this
investment. In addition, the new loan is assumable upon a sale and allows for
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.
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. Presently, there are no assurances that any amounts will be
recovered. Accordingly, no receivable for any such amounts has been reflected in
the joint venture's financial statements.
At March 31, 1997, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $4,118,000. Such cash and
cash equivalents include the proceeds from the sale of the Nob Hill Apartments
as discussed further above. As noted above, a special distribution of these
proceeds and excess Partnership reserves totalling approximately $3.4 million
was made to the Limited Partners on June 13, 1997. The remainder of 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
three remaining investment properties.
Results of Operations
1997 Compared to 1996
- ---------------------
The Partnership reported a net loss of $580,000 for the year ended March
31, 1997, as compared to a net loss of $322,000 for the prior year. This
$258,000 unfavorable change in net operating results is primarily due to a
$138,000 loss realized from the sale of the Nob Hill Apartments on February 7,
1997, as discussed further above, and a $137,000 increase in the Partnership's
operating loss. The loss on the sale of the Nob Hill Apartments amounted to
$138,000, which represented the difference between the gross purchase price of
$9.5 million net of selling costs, and the net carrying value of the operating
investment property as of the date of the sale. The Partnership's operating loss
increased due to a $516,000 increase in expenses that was partially offset by a
$379,000 increase in revenues. Expenses increased mainly due to an $856,000 loss
recorded on the impairment of the consolidated venture's operating property.
Prior to the sale, as of December 31, 1996, the Nob Hill joint venture
recognized an impairment loss to write down the net carrying value of the
operating investment property and related deferred expenses to management's
estimate of the net proceeds which were realizable from a sale transaction. The
additional loss on the sale referred to above, of $138,000, was recorded as of
the date of the sale based on the final negotiated amount of the net proceeds.
Decreases in depreciation and general and administrative expenses of $457,000
and $147,000, respectively, partially offset the impairment loss on the Nob Hill
property. Depreciation expense decreased as the consolidated joint venture
ceased recording depreciation expense on the Nob Hill property as of April 30,
1996 as it began to actively market the property for sale. General and
administrative expenses decreased largely due to a reduction in certain required
professional services when compared to the prior year. In addition, property
operating expenses increased by $191,000. Due to the Partnership's three-month
reporting lag and the sale of the Nob Hill Apartments on February 7, 1997, as
discussed further in Notes 2 and 4 to the consolidated financial statements, the
Partnership reported operations of the consolidated venture from January 1, 1997
through the date of sale in the consolidated fiscal 1997 operating results.
Accordingly, the consolidated statements of operations for fiscal 1997 reflect
slightly more than one additional month of Nob Hill's operations. Revenues
increased due to a $230,000 increase in rental revenue and a $162,000 increase
in interest and other income. The increases in both revenue categories was
primarily due to the inclusion of the additional lag-period operations of the
Nob Hill joint venture in the current year results, as explained above.
The Partnership's share of unconsolidated ventures' income decreased by
$2,000 for fiscal 1997 when compared to the prior year. The Partnership's share
of unconsolidated ventures' income decreased due to a $71,000 decline in
combined revenues which was partially offset by a $67,000 decrease in combined
expenses. Revenues decreased mainly due to a $138,000 decrease in interest and
other income. Interest and other income decreased primarily due to the $146,000
partial refund received in the prior year for costs incurred to secure the
necessary building permits which were obtained prior to the sale of the land
underlying the former Parkwoods Apartments, as discussed further above. A
$67,000 increase in rental income partially offset the decrease in interest and
other income. Rental revenues increased mainly due to an increase in average
monthly rental rates at the Tantra Lake Apartments during the current year.
Expenses decreased mainly due to reductions in combined depreciation expense and
combined interest expense of $54,000 and $39,000, respectively. Depreciation
expense declined primarily due to a significant asset at Tantra Lake having
become fully depreciated during the current year. Interest expense decreased due
to the August 1996 refinancing of Tantra Lake's mortgage loan which
significantly reduced the venture's annual debt service, as discussed further
above.
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 was 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 calendar
1994 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 were relatively unchanged between
calendar 1995 and 1994 as a result of soft market conditions in the state of
California in general.
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 was
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 fiscal 1995.
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 sale 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 fiscal 1994 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.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
- --------------------------------------------------
The following factors could cause actual results to differ materially from
historical results or those anticipated:
Real Estate Investment Risks. Real property investments are subject to
varying degrees of risk. Revenues and property values may be adversely affected
by the general economic climate, the local economic climate and local real
estate conditions, including (i) the perceptions of prospective tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide adequate management and maintenance of the property; (iii) the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise; and (iv) increased operating costs. Real estate values may also be
adversely affected by such factors as applicable laws, including tax laws,
interest rate levels and the availability of financing.
Effect of Uninsured Loss. The Partnership carries comprehensive liability,
fire, flood, extended coverage and rental loss insurance with respect to its
properties with insured limits and policy specifications that management
believes are customary for similar properties. There are, however, certain types
of losses (generally of a catastrophic nature such as wars, floods or
earthquakes) which may be either uninsurable, or, in management's judgment, not
economically insurable. Should an uninsured loss occur, the Partnership could
lose both its invested capital in and anticipated profits from the affected
property.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances on, under, in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances.
The Partnership is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the
Partnership, nor is the Partnership aware of any environmental condition with
respect to any of its properties that it believes will involve any such material
expenditure. However, there can be no assurance that any non-compliance,
liability, claim or expenditure will not arise in the future.
Competition. The financial performance of the Partnership's remaining real
estate investments will be significantly impacted by the competition from
comparable properties in their local market areas. The occupancy levels and
rental rates achievable at the properties are largely a function of supply and
demand in the market. In many markets across the country, development of new
multi-family properties has surged in the past 12 months. Existing properties in
such markets have generally experienced increased vacancy levels, declines in
effective rental rates and, in some cases, declines in estimated market values
as a result of the increased competition. There are no assurances that these
competitive pressures will not adversely affect the operations and/or market
values of the Partnership's investment properties in the future.
Impact of Joint Venture Structure. The ownership of certain of the remaining
investments through joint venture partnerships could adversely impact the timing
of the Partnership's planned dispositions of its remaining assets and the amount
of proceeds received from such dispositions. It is possible that the
Partnership's co-venture partners could have economic or business interests
which are inconsistent with those of the Partnership. Given the rights which
both parties have under the terms of the joint venture agreements, any conflict
between the partners could result in delays in completing a sale of the related
operating property and could lead to an impairment in the marketability of the
property to third parties for purposes of achieving the highest possible sale
price.
Availability of a Pool of Qualified Buyers. The availability of a pool of
qualified and interested buyers for the Partnership's remaining assets is
critical to the Partnership's ability to realize the estimated fair market
values of such properties at the time of their final dispositions. Demand by
buyers of multi-family apartment properties is affected by many factors,
including the size, quality, age, condition and location of the subject
property, potential environmental liability concerns, the existing debt
structure, the liquidity in the debt and equity markets for assets acquisitions,
the general level of market interest rates and the general and local economic
climates.
INFLATION
- ---------
The Partnership commenced operations in 1983 and completed its fourteenth
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 resulting from inflation.
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
---- ------ --- ---------
Bruce J. Rubin President and Director 37 8/22/96
Terrence E. Fancher Director 43 10/10/96
Walter V. Arnold Senior Vice President and
Chief Financial Officer 49 10/29/85
David F. Brooks First Vice President and
Assistant Treasurer 54 7/20/82 *
Timothy J. Medlock Vice President and Treasurer 36 6/1/88
Thomas W. Boland Vice President 34 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:
Bruce J. Rubin is President and Director of the Managing General
Partner. Mr. Rubin was named President and Chief Executive Officer of PWPI
in August 1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking
in November 1995 as a Senior Vice President. Prior to joining PaineWebber,
Mr. Rubin was employed by Kidder, Peabody and served as President for KP
Realty Advisers, Inc. Prior to his association with Kidder, Mr. Rubin was a
Senior Vice President and Director of Direct Investments at Smith Barney
Shearson. Prior thereto, Mr. Rubin was a First Vice President and a real
estate workout specialist at Shearson Lehman Brothers. Prior to joining
Shearson Lehman Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at Willkie Farr & Gallagher. Mr. Rubin is a graduate of Stanford
University and Stanford Law School.
<PAGE>
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as
a result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is
responsible for the origination and execution of all of PaineWebber's REIT
transactions, advisory assignments for real estate clients and certain of the
firm's real estate debt and principal activities. He joined Kidder, Peabody
in 1985 and, beginning in 1989, was one of the senior executives responsible
for building Kidder, Peabody's real estate department. Mr. Fancher previously
worked for a major law firm in New York City. He has a J.D. from Harvard Law
School, an M.B.A. from Harvard Graduate School of Business Administration and
an A.B. from Harvard College.
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.
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, 1997, 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. The annual distribution rate
was increased to 3% for the payment made on February 15, 1997 for the quarter
ended December 31, 1996. As discussed further in Item 7, the Partnership is
expected to further increase the distribution rate to 4.25% for the distribution
to be paid on August 15, 1997 for the quarter ending June 30, 1997. However, 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.
<PAGE>
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 1997, based on additional Distributable Cash paid
to the partners, management fees totalling $35,000 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, 1997 is $88,000, 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 $3,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1997. 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) A Current Report on Form 8-K dated February 7, 1997 was filed during
the last quarter of fiscal 1997 to report the sale of the
Partnership's Nob Hill Apartments investment property and is hereby
incorporated by reference.
(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/ Bruce J. Rubin
-------------------
Bruce J. Rubin
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 27, 1997
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/ Bruce J. Rubin Date: June 27, 1997
--------------------------- -------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: June 27, 1997
----------------------- -------------
Terrence E. Fancher
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER GROWTH PROPERTIES LP
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
- ----------- ----------------------- ------------------
<S> <C> <C>
(3) and (4) Prospectus of the Partnership Filed with the Commission
dated November 15, 1982, as pursuant to Rule 424(c) and
supplemented, with particular incorporated herein by
reference to the Restated 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 Act
of the registrant together with of 1934 and incorporated
all such contracts filed as herein by reference.
exhibits of previously filed
Forms 8-K and Forms 10-K are
hereby incorporated herein
by reference.
(13) Annual Report to Limited Partners No Annual Report for
fiscal year 1997 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.
</TABLE>
<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, 1997 and 1996 F-3
Consolidated statements of operations for the years ended
March 31, 1997,1996 and 1995 F-4
Consolidated statements of changes in partners' capital
(deficit) for the years ended March 31, 1997, 1996 and 1995 F-5
Consolidated statements of cash flows for the years ended
March 31, 1997, 1996 and 1995 F-6
Notes to consolidated financial statements F-7
Schedule III - Real Estate and Accumulated Depreciation F-21
Combined Joint Ventures of Paine Webber Growth Properties LP:
Report of independent auditors F-22
Combined balance sheets as of December 31, 1996 and 1995 F-23
Combined statements of operations and changes in
venturers' capital (deficit) for the years ended
December 31, 1996, 1995 and 1994 F-24
Combined statements of cash flows for the years ended
December 31, 1996, 1995 and 1994 F-25
Notes to combined financial statements F-26
Schedule III - Real Estate and Accumulated Depreciation F-33
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, 1997 and 1996, 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, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Paine Webber Growth Properties LP at March 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended March 31, 1997 in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
June 13, 1997
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
(In thousands, except for per Unit data)
ASSETS
1997 1996
---- ----
Operating investment property, at cost:
Land $ - $ 2,029
Buildings improvements and equipment - 13,827
------- ---------
- 15,856
Less accumulated depreciation - (6,263)
------- ---------
- 9,593
Investments in unconsolidated joint
ventures, at equity 304 987
Cash and cash equivalents 4,118 1,323
Real estate tax and insurance
escrow deposit - 247
Capital improvement and replacement
escrow deposits - 271
Accounts receivable - 1
Deferred loan costs, net of accumulated
amortization of $38 in 1996 - 496
Other assets - 61
------- ---------
$ 4,422 $ 12,979
======= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 39 $ 266
Accrued interest payable - 211
Advances from consolidated venture - 250
Tenant security deposits - 18
Other liabilities 4 27
Mortgage note payable - 6,890
------- ---------
Total liabilities 43 7,662
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net income 18 24
Cumulative cash distributions (35) (31)
Limited Partners ($1,000 per Unit,
29,194 Units outstanding):
Capital contributions, net
of offering costs 26,345 26,345
Cumulative net losses (4,977) (4,403)
Cumulative cash distributions (16,973) (16,619)
------- ---------
Total partners' capital 4,379 5,317
------- --------
$ 4,422 $ 12,979
======= ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1997, 1996 and 1995
(In thousands, except for per Unit data)
1997 1996 1995
---- ---- ----
Revenues:
Rental income $ 2,251 $ 2,021 $ 1,869
Reimbursements from affiliates 176 189 215
Interest and other income 398 236 387
-------- -------- --------
2,825 2,446 2,471
Expenses:
Loss due to impairment of long-lived assets 856 - -
Interest expense 665 617 718
Real estate taxes 231 207 214
Depreciation expense 229 686 593
Property operating expenses 1,151 960 975
Partnership management fees 35 34 18
General and administrative 217 364 277
-------- -------- --------
3,384 2,868 2,795
-------- -------- --------
Operating loss (559) (422) (324)
Loss on sale of operating investment property (138) - -
Venture partner's share of consolidated
venture's loss 23 4 5
Partnership's share of unconsolidated
ventures' income 94 96 644
-------- -------- --------
Net income (loss) $ (580) $ (322) $ 325
======== ======== ========
Per Limited Partnership Unit:
Net income (loss) $ (19.67) $ (10.93) $ 8.70
======== ======== ========
Cash distributions $ 12.12 $ 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, 1997, 1996 and 1995
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
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
Net loss (6) (574) (580)
Cash distributions (4) (354) (358)
-------- -------- --------
Balance at March 31, 1997 $ (16) $ 4,395 $ 4,379
======== ======== ========
See accompanying notes
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (580) $ (322) $ 325
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Reimbursements from affiliates (176) (189) (215)
Loss due to impairment of long-lived
assets 856 - -
Loss on sale of operating investment
property 138 - -
Venture partner's share of consolidated
venture's loss (23) (4) (5)
Partnership's share of unconsolidated
ventures' losses (94) (96) (644)
Depreciation expense 229 686 593
Amortization of deferred loan costs 18 17 18
Changes in assets and liabilities:
Accounts receivable 1 7 78
Advances from consolidated venture (250) 250 -
Real estate tax and insurance
escrow deposit 247 (3) (5)
Deferred loan costs - - 13
Other assets 61 (21) 30
Accounts payable and accrued expenses (227) (38) (14)
Accrued interest payable (211) 56 148
Tenant security deposits (18) (6) (13)
--------- -------- -------
Total adjustments 551 659 (16)
--------- -------- -------
Net cash (used in) provided by
operating activities (29) 337 309
Cash flows from investing activities:
Distributions from unconsolidated
joint ventures 953 627 6,699
Net withdrawals from capital improvement
and replacement escrow 146 58 703
Additions to operating investment property (158) (149) (978)
Net proceeds from sale of operating
investment property 2,332 - -
---------- -------- ------
Net cash provided by investing
activities 3,273 536 6,424
Cash flows from financing activities:
Repayment of long-term debt (91) (72) (67)
Distributions to partners (358) (2,971) (4,798)
--------- ------- -------
Net cash used in financing
activities (449) (3,043) (4,865)
--------- ------- -------
Net increase (decrease) in cash and
cash equivalents 2,795 (2,170) 1,868
Cash and cash equivalents,
beginning of year 1,323 3,493 1,625
---------- ------- -------
Cash and cash equivalents, end of year $ 4,118 $ 1,323 $ 3,493
========== ======= =======
Supplemental Disclosures:
Cash paid during the year for interest $ 781 $ 511 $ 516
========== ======= ========
Long-term debt assumed by buyer $ (6,799) $ - $ -
========== ======= ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
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.
The net proceeds of the Partnership's offering were originally invested
in six operating investment properties. Through March 31, 1997, two of these
investments had been sold and one was completely destroyed by fire. See Notes
4 and 5 to the financial statements for further discussions of the
Partnership's investments.
2. Use of Estimates and 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, 1997 and 1996 and revenues
and expenses for each of the three years in the period ended March 31, 1997.
Actual results could differ from the estimates and assumptions used.
The accompanying financial statements include the Partnership's
investments in certain joint venture partnerships which own or owned
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 in the ventures. 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 owned 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 were reported on a
three-month lag until the date of the sale of the venture's operating
investment property in February 1997. Due to the Partnership's policy of
accounting for significant lag-period transactions in the period in which
they occur, the loss on this transaction was recognized in fiscal 1997. 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. See Note 4 for a description of the
consolidated joint venture partnership and a discussion of the significant
lag-period sale transaction which was recorded in fiscal 1997.
The operating investment property of the consolidated joint venture was
carried at cost, reduced by accumulated depreciation, or an amount less than
cost if indicators of impairment are present in accordance with statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No.
121 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. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Nob Hill venture recognized
an impairment loss in fiscal 1997 prior to completing the sale transaction
when it became apparent that the net carrying amount of the operating
investment property would not be recovered from the net proceeds of the sale
transaction (see Note 4).
Depreciation expense was 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 had been capitalized and were included in the
cost of the operating investment property. Maintenance and repairs were
charged to expense when incurred. The consolidated venture ceased recording
depreciation expense on the Nob Hill property as of April 30, 1996 as it
began to actively market the property for sale.
The consolidated joint venture leased apartment units under leases with
terms generally of one year or less. Rental income was recorded monthly as
earned.
Deferred loan costs at March 31, 1996 consisted of expenses incurred in
connection with the refinancing of the debt secured by the Nob Hill
Apartments (see Note 6). Such costs, prior to the date of sale, were being
amortized on a straight-line basis over the term of the loan. Amortization of
deferred loan costs, through the date of sale, was 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 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." The carrying amount of these cash and cash
equivalents approximates their fair value as of March 31, 1997 and 1996 due
to the short-term maturities of these instruments.
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 1997, 1996 and
1995, based on additional Distributable Cash paid to the partners, management
fees totalling $35,000, $34,000 and $18,000, respectively, were paid to the
Adviser.
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, 1997, 1996 and 1995 is $88,000, $93,000 and $96,000, 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 $3,000, $5,000 and $6,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1997, 1996 and 1995, respectively.
4. Operating Investment Property
As of March 31, 1996, the Partnership owned a majority and controlling
interest in one joint venture which owned an operating investment property,
the Nob Hill Apartments. As discussed in Note 2, the Partnership reported the
operations of the Nob Hill joint venture on a three-month lag. On February 7,
1997, the joint venture which owned the Nob Hill Apartments sold the
operating investment property to an unrelated third party. Due to the
Partnership's policy of accounting for significant lag-period transactions in
the period in which they occur, the loss on this transaction was recognized
in fiscal 1997. Accordingly, in addition to the operations for the twelve
months ended December 31, 1996, the operations of the Nob Hill joint venture
for the period January 1, 1997 through the date of sale on February 7, 1997
are also reflected in the accompanying consolidated financial statements.
Such operations in calendar 1997 reflected total revenues of $224,000 and
total expenses of $290,000 for a net operating loss of $66,000, of which the
Partnership's share was $65,000. Prior to the sale, the consolidated venture
recognized an impairment loss of $856,000 to write down the net carrying
value of the operating investment property and related deferred expenses to
management's estimate of the net proceeds which were realizable from a sale
transaction. An additional loss on the sale totalling $138,000 was recorded
as of the date of the sale based on the final negotiated amount of the net
proceeds.
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 was an affiliate of the
original co-venturer on March 31, 1983. The Partnership was 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 initial principal amount of
$7,034,000 which was scheduled to mature in November 2023 (see Note 6).
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. During fiscal 1997, a purchase and sale agreement
was signed with a prospective buyer for a purchase price of $10 million. In
October 1996, the terms of the agreement were amended to reflect a reduction
in the purchase price to $9.5 million as a result of certain required repair
work at the property. The transaction closed in the fourth quarter of fiscal
1997, on February 7, 1997, and the Partnership received net proceeds from the
sale of approximately $2.3 million. In addition, the venture had excess
working capital of approximately $360,000 at the time of the sale. All of the
net proceeds and excess working capital were distributed to the Partnership
in accordance with the terms of the Nob Hill joint venture agreement. While
the sale had been executed and control of the property had been transferred
to the buyer on February 7, 1997, the sale remained contingent upon receiving
the consent of the Secretary of Housing and Urban Development ("HUD") to the
sale of the property and the assumption of the loan by the purchaser. Such
final approval was received on June 9, 1997. As a result, the Partnership
made a special distribution to the Limited Partners of approximately
$3,357,000, or $115 per original $1,000 Unit, on June 13, 1997. Of this
amount, $90.65 represented the net proceeds and excess working capital from
the sale of the Nob Hill Apartments and $24.35 represented a distribution of
Partnership reserves which exceeded expected future requirements.
Taxable income and tax loss from operations were allocated 99% to the
Partnership and 1% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes were made
in conformity with the actual allocations of taxable income or tax loss.
Losses from the sale or refinancing of the property were 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 had 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 was equal to
4% of gross receipts, as defined in the agreement.
If additional cash was required for any reason in connection with the
joint venture, it was to 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 the date of sale
on February 7, 1997 totalled $2,554,000.
<PAGE>
The following is a summary of property operating expenses for the years
ended December 31, 1996, 1995 and 1994.
1996 (1) 1995 1994
---- ---- ----
Property operating expenses:
Salaries and related costs $ 301 $269 $274
Repairs and maintenance 279 249 257
Utilities 152 121 91
Insurance 100 67 53
Management fees 92 84 79
Administrative and other 227 170 221
------ ---- ----
$1,151 $960 $975
====== ==== ====
(1)Due to the Partnership's three-month reporting lag and the sale
of the Nob Hill Apartments on February 7, 1997, as discussed
above, the Partnership reported operations of the consolidated
venture from January 1, 1997 through the date of sale in the
results for the twelve months ended December 31, 1996.
Accordingly, the property operating expenses summarized above for
the twelve months ended December 31, 1996 reflect slightly more
than one additional month of operations which amounted to
approximately $216,000.
5. Investments in Unconsolidated Joint Ventures
The Partnership had investments in four unconsolidated joint ventures at
March 31, 1997 and 1996. 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, 1996 and 1995
(in thousands)
Assets
1996 1995
---- ----
Current assets $ 1,264 $ 1,090
Operating investment properties, net 15,683 16,221
Other assets 379 169
-------- --------
$ 17,326 $ 17,480
======== ========
Liabilities and Venturers' Deficit
Current liabilities $ 782 $ 9,333
Other liabilities 1,719 1,699
Long-term mortgage debt, less current portion 16,065 7,266
Partnership's share of combined deficit (1,068) (705)
Co-venturers' share of combined deficit (172) (113)
-------- ---------
$ 17,326 $ 17,480
======== ========
Condensed Combined Summary of Operations
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
---- ---- ----
Revenues:
Rental revenue $ 4,830 $ 4,763 $ 5,726
Interest and other income 157 295 205
-------- -------- --------
4,987 5,058 5,931
Expenses:
Property operating expenses 2,053 1,975 2,612
Depreciation and amortization 794 848 1,110
Interest expense 1,555 1,594 2,010
Administrative and other 508 560 644
-------- -------- --------
4,910 4,977 6,376
-------- -------- --------
Income (loss) before gain on
sale of property 77 81 (445)
Net gain on sales of investment
properties - - 1,041
-------- -------- --------
Net income $ 77 $ 81 $ 596
======== ======== ========
Net income (loss):
Partnership's share of net income (loss) $ 94 $ 96 $ 644
Co-venturers' share of net income (loss) (17) (15) (48)
-------- -------- --------
$ 77 $ 81 $ 596
======== ======== ========
<PAGE>
Reconciliation of Partnership's Investment
March 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Partnership's share of venturers' deficit
at December 31, as shown above $ (1,068) $ (705)
Reimbursements of management fees and expenses
receivable from joint ventures (1) 1,769 1,742
Timing differences due to contributions made
and distributions received subsequent to
December 31 (see Note 2) (397) (50)
-------- ---------
Investments in joint ventures, at equity,
at March 31 $ 304 $ 987
======== =========
(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 $176,000, $189,000 and $215,000 for the years ended
March 31, 1997, 1996 and 1995, 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. Such cumulative reimbursements
payable to the Partnership totalled $1,769,000 and $1,742,000 at March 31,
1997 and 1996, respectively. These amounts have been included in the balance
of investments in joint ventures on the accompanying balance sheets.
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.
Investments in unconsolidated joint ventures, at equity, on the
accompanying balance sheets is comprised of the following investment carrying
values (in thousands):
1997 1996
---- ----
Rocky Mountain Partners $ (1,339) $ (1,048)
Grouse Run Associates I and II 295 499
Plano Chisholm Place Associates 1,151 1,324
Parkwood Montclair Partners 197 212
--------- ---------
$ 304 $ 987
========= =========
<PAGE>
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, 1997, 1996 and 1995 are as follows
(in thousands):
1997 1996 1995
---- ---- ----
Rocky Mountain Partners $ 619 $ 396 $ 313
Grouse Run Associates I and II 193 89 205
Parkwood Montclair Partners - - 4,139
Austin Northcastle Partners - - 1,937
Plano Chisholm Place Associates 141 142 105
------- ------- --------
$ 953 $ 627 $ 6,699
======= ======= ========
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 was nonrecourse to the venture, had a balance of
$8,482,000 as of December 31, 1995 and was scheduled to mature on July 1,
1996. On August 6, 1996, the Partnership closed on a new loan for the Tantra
Lake joint venture and the existing first mortgage loan was repaid in full.
The new mortgage loan, in the principal amount of $8,850,000, bears interest
at 7.68% per annum, requires interest-only payments throughout its term and
is scheduled to mature on September 1, 2001. The terms of the new loan
reduce Tantra Lake's required annual debt service by more than $300,000
which has significantly improved cash flow to the Partnership from this
investment. In addition, the new loan is assumable upon a sale and allows
for 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.
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. Distributions to the Partnership and the co-venturer
totalling $1,827,000 and $18,000, respectively, had been made from inception
through December 31, 1996.
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, 1996 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 two nonrecourse first mortgages with balances totalling
$3,557,000 at the time of closing. The mortgage loans had an aggregate
balance of $3,109,000 as of December 31, 1996 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
$848,000 from inception through December 31, 1996.
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, 1996 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.
<PAGE>
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 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,
1996 total approximately $254,000.
(d) Parkwood Montclair Partners
---------------------------
On September 30, 1983, the Partnership acquired an interest in Parkwood
Montclair Partners, a 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. 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.
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. A 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 certain
outstanding legal claims. 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. Except as discussed
below, such legal claims had all been settled as of December 31, 1996.
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. Presently,
there are no assurances that any further amounts will be recovered.
Accordingly, no receivable for any such amounts has been reflected in the
joint venture's financial statements.
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.
<PAGE>
6. Mortgage Note Payable
Mortgage note payable at March 31, 1996 consisted of the following debt
of Nob Hill Partners, the Partnership's consolidated joint venture (in
thousands):
1996
----
Mortgage note payable secured by
the Nob Hill operating property and
insured by the U.S. Department of
Housing and Urban Development
(HUD). The loan bore 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. As discussed further in Note
4, on February 7, 1997 Nob Hill
Partners sold the Nob Hill
Apartments to an unrelated third
party which assumed the outstanding
mortgage loan. $ 6,890
========
In addition to the required monthly principal and interest payments, the
Nob Hill joint venture submitted monthly escrow deposits of $29,000 for
taxes, insurance and a replacement reserve required under the terms of the
HUD regulatory agreement.
7. 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 and REIT
stocks, 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
alleged 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 purported to be suing on behalf of all persons who invested in Paine
Webber Growth Properties LP, also alleged 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 alleged 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
sought 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 sought 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. On July 17, 1996, PaineWebber and the class plaintiffs
submitted a definitive settlement agreement which provides for the complete
resolution of the class action litigation, including releases in favor of
the Partnership and PWPI, and the allocation of the $125 million settlement
fund among investors in the various partnerships and REITs at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the
partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A
final hearing on the fairness of the proposed settlement was held in
December 1996, and in March 1997 the court announced its final approval of
the settlement. The release of the $125 million of settlement proceeds has
not occurred to date pending the resolution of an appeal of the settlement
by two of the plaintiff class members. As part of the settlement agreement,
PaineWebber has agreed not to seek indemnification from the related
partnerships and real estate investment trusts at issue in the litigation
(including the Partnership) for any amounts that it is required to pay
under the settlement.
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 alleged, 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 sought compensatory damages of $15 million plus punitive
damages against PaineWebber. In September 1996, the court dismissed many of
the plaintiffs' claims as barred by applicable securities arbitration
regulations. Mediation with respect to the Abbate action was held in
December 1996. As a result of such mediation, a settlement between
PaineWebber and the plaintiffs was reached which provided for the complete
resolution of this action. Final releases and dismissals with regard to this
action were received subsequent to March 31, 1997.
Based on the settlement agreements discussed above covering all of the
outstanding unitholder litigation, and notwithstanding the appeal of the
class action settlement referred to above, management does not expect that
the resolution of these matters will have a material impact on the
Partnership's financial statements, taken as a whole.
8. Subsequent Events
On May 15, 1997, the Partnership distributed $118,000 to the Limited
Partners and $1,000 to the General Partners for the quarter ended March 31,
1997.
<PAGE>
<TABLE>
<CAPTION>
Schedule III- Real Estate and Accumulated Depreciation
PAINE WEBBER GROWTH PROPERTIES LP
Schedule of Real Estate and Accumulated Depreciation
March 31, 1997
(In thousands)
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 - $ 2,029 $11,518 $2,467 - - - - 1972-1974 3/31/83 5-30 yrs.
Notes:
(A) The aggregate cost of real estate owned at December 31, 1996 for Federal income tax purposes was approximately $14,773,000.
(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:
1997 1996 1995
---- ---- ----
Balance at beginning of year $15,856 $15,707 $14,729
Acquisitions and improvements 158 149 978
Decrease due to sale of operating investment property (1) (16,014) - -
------- ------- -------
Balance at end of year $ - $15,856 $15,707
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 6,263 $ 5,577 $ 4,984
Depreciation expense 229 686 593
Decrease due to sale of operating investment property (1) (6,492) - -
------- -------- --------
Balance at end of year $ - $ 6,263 $ 5,577
======= ======== ========
(1) See Note 4 to the Financial Statements for a discussion of the sale of the Nob Hill Apartments on February 7, 1997.
</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, 1996 and
1995, 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, 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 combined 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,
1996 and 1995, and the combined results of their operations and their cash flows
for each of the three years in the period ended December 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
February 14, 1997
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED BALANCE SHEETS
December 31, 1996 and 1995
(In thousands)
Assets
1996 1995
---- ----
Current assets:
Cash and cash equivalents $ 957 $ 1,007
Accounts receivable 2 13
Prepaid expenses 195 70
Deposit for repair and improvements 110 -
---------- ---------
Total current assets 1,264 1,090
Operating investment properties:
Land 4,325 4,325
Buildings, improvements and equipment 22,949 22,693
--------- ---------
27,274 27,018
Less: accumulated depreciation (11,591) (10,797)
--------- ---------
15,683 16,221
Reserves for repairs and capital improvements 78 64
Deferred expenses, net of accumulated amortization
of $110 in 1996 ($196 in 1995) 301 105
--------- ---------
$ 17,326 $ 17,480
========= =========
Liabilities and Venturers' Deficit
Current liabilities:
Accounts payable and other liabilities $ 266 $ 256
Accrued real estate taxes 246 246
Accrued interest - 74
Accrued management fee 16 16
Tenant security deposits 200 209
Current portion of long-term debt 54 8,532
--------- ---------
Total current liabilities 782 9,333
Reimbursements payable to Venturer 1,719 1,699
Long-term debt 16,065 7,266
Venturers' deficit (1,240) (818)
--------- ---------
$ 17,326 $ 17,480
========== =========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
1996 1995 1994
---- ---- ----
Revenues:
Rental income $ 4,830 $ 4,763 $ 5,726
Interest and other income 157 295 205
-------- ------- --------
4,987 5,058 5,931
Expenses:
Interest expense 1,555 1,594 2,010
Depreciation expense 794 848 1,110
Salaries 508 496 562
Repairs and maintenance 610 573 671
Property operating expenses 459 441 586
Real estate taxes 306 304 454
General and administrative 165 164 231
Management fees 246 245 339
Reimbursements to partner 170 193 209
Professional fees 97 119 204
--------- ------ --------
4,910 4,977 6,376
--------- ------ --------
Operating income (loss) 77 81 (445)
Net gain on sales of investment properties - - 1,041
--------- ------- --------
Net income 77 81 596
Contributions from venturers - - 154
Distributions to venturers (499) (664) (5,237)
Venturers' capital (deficit),
beginning of year (818) (235) 4,252
--------- ------- ---------
Venturers' deficit, end of year $ (1,240) $ (818) $ (235)
========= ======= =========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 77 $ 81 $ 596
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Net gain on sales of investment properties - - (1,041)
Depreciation expense 794 848 1,110
Amortization of loan acquisition costs 44 30 30
Changes in assets and liabilities:
Accounts receivable 11 1,581 (2)
Prepaid expenses (125) 6 50
Other assets - - 166
Accounts payable and other liabilities 10 (130) (169)
Accrued interest (74) 74 (111)
Accrued real estate taxes - 5 2
Accrued management fees - 1 (3)
Tenant security deposits (9) 18 (8)
Due to venturers - (1,619) -
Reimbursements payable to partner 20 70 (693)
--------- ------ -------
Total adjustments 671 884 (669)
--------- ------ -------
Net cash provided by (used in)
operating activities 748 965 (73)
--------- ------- --------
Cash flows from investment activities:
Net proceeds from sales of investment properties - - 9,110
Additions to operating investment properties (256) (228) (1,136)
Increase in reserve for capital expenditures (124) (15) (14)
-------- ------- --------
Net cash (used in) provided by
investing activities (380) (243) 7,960
--------- -------- ---------
Cash flows from financing activities:
Repayment of long-term debt (8,529) (159) (4,525)
Distributions to venturers (499) (664) (4,151)
Repayments of operating loans payable to venturers - - (106)
Refund of debt issuance costs - - 83
Proceeds from issuance of long-term debt 8,850 - -
Financing fees (240) - -
--------- ------- -------
Net cash used in financing activities (418) (823) (8,699)
--------- ------- -------
Net decrease in cash and cash equivalents (50) (101) (812)
Cash and cash equivalents, beginning of year 1,007 1,108 1,920
--------- ------- -------
Cash and cash equivalents, end of year $ 957 $ 1,007 $ 1,108
========= ======= =======
Cash paid during the year for interest $ 1,585 $ 1,478 $ 2,023
========== ======== =======
See accompanying notes.
</TABLE>
<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, 1996 and 1995 and
revenues and expenses for each of the three years in the period ended
December 31, 1996. 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 cost, reduced by
accumulated depreciation, or an amount less than cost if indicators of
impairment are present in accordance with statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 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. SFAS No. 121 also addresses the accounting for long-lived assets
that are expected to be disposed of.
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.
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 certain of the joint venture agreements, specific
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
1996 1995
---- ----
Reserve for tenant security deposit $ 65 $ 65
Reserve for insurance and tax deposits 126 121
------ -------
$ 191 $ 186
====== =======
In addition, the previous mortgage loan of the Tantra Lake joint venture
provided 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 did not expend a minimum of
$100,000 in annual capital improvements, the loan agreement required an
increase in the amount to be held in the restricted account. Such restricted
cash amounts totalled $100,000 at December 31, 1995 which was included in
the balance of cash and cash equivalents on the accompanying balance sheet.
As discussed further in Note 5 to the combined financial statements, this
loan was refinanced in August 1996.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents and cash reserves
approximate their fair values as of December 31, 1996 and 1995 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.
<PAGE>
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 $8.5 million mortgage loan secured by the Tantra Lake
Apartments was scheduled to mature on July 1, 1996. On August 6, 1996,
the Partnership closed on a new loan for the Tantra Lake joint venture
and the existing first mortgage loan was repaid in full.
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. 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 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 certain outstanding legal claims. 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. The net sales price of the land was less than its
net carrying value at the date of the sale by approximately $163,000. A
loss equal to such amount was recognized in 1994. Due to the outstanding
legal claims involving the venture, Parkwood Montclair Partners was not
liquidated at the time of the sale of the land. Except as discussed
below, such legal claims had all been settled as of December 31, 1996.
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. Presently, there are no assurances that
any additional amounts will be recovered. Future amounts which might be
recovered, if any, 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.
<PAGE>
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.
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 $170,000, $193,000 and $209,000 for the years ended December 31,
1996, 1995 and 1994, respectively. Cumulative unpaid reimbursements
aggregated $1,719,000 and $1,699,000 at December 31, 1996 and 1995,
respectively.
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. As of December
31, 1996 and 1995, the amount of capitalized expenditures have exceeded the
amounts of the required deposits to such reserves. Accordingly, no such
reserve balances were required.
<PAGE>
5. Long-term debt
Long-term debt at December 31, 1996 and 1995 consists of the following
(in thousands):
1996 1995
---- ----
Nonrecourse mortgage note secured
by a first deed of trust on the
Tantra Lake Apartments (see
discussion below). The loan bears
interest at 7.68% per annum,
monthly interest-only payments of
$57 will be made through September
1, 2001 when the remaining unpaid
balance is due. The fair value of
this note approximated its carrying
value as of December 31, 1996. See
discussion below regarding the
August 1996 refinancing. $8,850 $ -
Nonrecourse mortgage note secured
by a first deed of trust on the
Tantra Lake Apartments. The loan
bore interest at 10.5% per annum,
monthly payments of principal and
interest of $84 were made through
July 1, 1996 when the remaining
unpaid balance was 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. See discussion below
regarding August 1996 refinancing. - 8,482
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. The remaining unpaid
balance is due February 1, 2019.
The fair value of this mortgage
note approximated its carrying
value as of December 31, 1996 and
1995. 1,377 1,399
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 with the remaining unpaid
balance due February 1, 2020. The
fair value of this mortgage note
approximated its carrying value as
of December 31, 1996 and 1995. 1,732 1,757
<PAGE>
1996 1995
---- ----
Real estate lien note payable
secured by the Chisholm Place
operating property and an
assignment 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 interest-only installments,
with the entire principal balance
due on October 1, 2001. The fair
value of this note approximated
$4,449 and $4,547 as of December
31, 1996 and 1995, respectively. 4,160 4,160
-------- --------
Total long-term debt 16,119 15,798
Less: current portion (54) (8,532)
-------- --------
$ 16,065 $ 7,266
======== ========
Maturities of long-term debt for each of the next five years and
thereafter are as follows:
1997 $ 54
1998 58
1999 63
2000 68
2001 13,083
Thereafter 2,793
--------
$ 16,119
========
On August 6, 1996, the Partnership closed on a new loan for the
Tantra Lake joint venture and the existing first mortgage loan was
repaid in full. The new mortgage loan, in the principal amount of
$8,850,000, bears interest at 7.68% per annum, requires interest-only
payments throughout its term and is scheduled to mature on September 1,
2001. The terms of the new loan reduce Tantra Lake's required annual
debt service by more than $300,000 which has significantly improved the
venture's cash flow. In addition, the new loan is assumable upon a sale
and allows for 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.
<PAGE>
<TABLE>
<CAPTION>
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, 1996
(In thousands)
Costs
Capitalized Life on Which
(Removed) Depreciation
Initial Cost to Subsequent to Gross Amount at Which Carried at in Latest
Partnership Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances(B)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 $ 3,021 1982 5/31/83 5-30 yrs.
Apartment
Complex
Stockton, CA 3,109 545 4,914 539 545 5,453 5,998 2,759 1980 3/31/83 5-30 yrs.
Apartment
Complex
Boulder, CO 8,850 2,036 8,747 2,305 2,036 11,052 13,088 5,811 1974 2/17/83 5-30 yrs.
------- ------ -------- ------- ------ -------- ------- -------
$16,119 $ 4,325 $19,911 $3,038 $4,325 $22,949 $27,274 $11,591
======= ======= ======= ====== ====== ======= ======= =======
Notes:
(A) The aggregate cost of real estate owned at December 31, 1996 for Federal income tax purposes is approximately $27,308,000.
(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,
1996 1995 1994
---- ---- ----
Balance at beginning of year $27,018 $ 26,790 $ 38,581
Acquisitions and improvements 256 228 1,136
Dispositions - - (12,927)
------- -------- --------
Balance at end of year $27,274 $ 27,018 $ 26,790
======= ======== ========
(C) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 10,797 $ 9,949 $ 11,066
Depreciation expense 794 848 1,110
Dispositions - - (2,227)
--------- --------- --------
Balance at end of year $ 11,591 $ 10,797 $ 9,949
========= ======== ========
</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, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,118
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,118
<PP&E> 304
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,422
<CURRENT-LIABILITIES> 39
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,379
<TOTAL-LIABILITY-AND-EQUITY> 4,422
<SALES> 0
<TOTAL-REVENUES> 2,942
<CGS> 0
<TOTAL-COSTS> 1,863
<OTHER-EXPENSES> 138
<LOSS-PROVISION> 856
<INTEREST-EXPENSE> 665
<INCOME-PRETAX> (580)
<INCOME-TAX> 0
<INCOME-CONTINUING> (580)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (580)
<EPS-PRIMARY> (19.67)
<EPS-DILUTED> (19.67)
</TABLE>
