UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2772109
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- - ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No |_|.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Investments in unconsolidated joint
ventures, at equity $ 285 $ 304
Cash and cash equivalents 858 4,118
------ ------
$1,143 $4,422
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 8 $ 39
Other liabilities - 4
Partners' capital 1,135 4,379
------ ------
$1,143 $4,422
====== ======
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (6) $ 5,323
Cash distributions (1) (79)
Net loss - 18
-------- --------
Balance at June 30, 1996 $ (7) $ 5,262
======== ========
Balance at March 31, 1997 $ (16) $ 4,395
Cash distributions (1) (3,475)
Net income 2 230
-------- --------
Balance at June 30, 1997 $ (15) $ 1,150
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
1997 1996
---- ----
Revenues:
Rental income $ - $ 504
Reimbursements from affiliates 42 41
Interest and other income 58 33
-------- -------
100 578
Expenses:
Property operating expenses - 266
Depreciation - 166
Interest expense - 145
Real estate taxes - 57
Management fees 12 8
General and administrative 46 43
-------- -------
58 685
Operating income (loss) 42 (107)
Venture partner's share of
consolidated venture's operations - 1
Partnership's share of unconsolidated
ventures' income 190 124
-------- -------
Net income $ 232 $ 18
======== =======
Net income per
Limited Partnership Unit $ 7.87 $ 0.61
======= ======
Cash distributions per
Limited Partnership Unit $119.04 $ 2.69
======= ======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 29,194 Units of Limited Partnership Interest outstanding during
each period.
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 232 $ 18
Adjustments to reconcile net income to net cash
used in operating activities:
Reimbursements from affiliates (42) (41)
Venture partner's share of consolidated venture'
operations - (1)
Partnership's share of unconsolidated ventures'
income (190) (124)
Depreciation - 166
Amortization of deferred loan costs - 4
Changes in assets and liabilities:
Real estate tax and insurance escrow deposit - 154
Accounts receivable - (1)
Other assets - 35
Accounts payable and accrued expenses (31) (163)
Accrued interest payable - 14
Advances from consolidated venture - (250)
Other liabilities (4) (1)
Tenant security deposits - -
-------- --------
Total adjustments (267) (208)
-------- --------
Net cash used in operating activities (35) (190)
-------- --------
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 251 88
Net deposits to capital improvement and
replacement escrow - (16)
Additions to operating investment property - (27)
-------- --------
Net cash provided by investing activities 251 45
-------- --------
Cash flows from financing activities:
Principal payments on mortgage note payable - (19)
Distributions to partners (3,476) (80)
-------- --------
Net cash used in financing activities (3,476) (99)
-------- --------
Net decrease in cash and cash equivalents (3,260) (244)
Cash and cash equivalents, beginning of period 4,118 1,323
-------- --------
Cash and cash equivalents, end of period $ 858 $ 1,079
======== ========
Cash paid during the period for interest $ - $ 127
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should
be read in conjunction with the financial statements and footnotes contained
in the Partnership's Annual Report for the year ended March 31, 1997. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected
in the accompanying interim financial statements are of a normal recurring
nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which 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 June 30, 1997 and March 31, 1997 and
revenues and expenses for each of the three-month periods ended June 30,
1997 and 1996. Actual results could differ from the estimates and
assumptions used.
2. Related Party Transactions
The Partnership accrues as income reimbursements due from certain of
the joint ventures for the Partnership's management fees and certain
out-of-pocket expenses, as specified in the respective joint venture
agreements. Such reimbursements totalled $42,000 and $41,000 for the three
months ended June 30, 1997 and 1996, respectively.
The Adviser earns management fees equal to approximately 10% of the
Distributable Cash generated by the Partnership, as defined, subject to
certain limitations. Such management fees totalled $12,000 and $8,000 for
the three months ended June 30, 1997 and 1996, respectively.
Included in general and administrative expenses for the three months
ended June 30, 1997 and 1996 is $23,000 and $24,000, 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 an affiliate, Mitchell Hutchins
Institutional Investors, Inc. ("Mitchell Hutchins") for the managing of cash
assets. Mitchell Hutchins earned fees of $3,000 and $2,000 (included in
general and administrative expenses) for managing the Partnership's cash
assets during the three months ended June 30, 1997 and 1996, respectively.
3. Investments in Unconsolidated Joint Ventures
The Partnership has investments in four unconsolidated joint ventures
at June 30, 1997 and 1996. Three of the unconsolidated joint ventures own
and operate residential apartment complexes. As discussed further in the
Annual Report, one unconsolidated joint venture (Parkwoods) had owned and
operated a residential apartment complex until the property was completely
destroyed by a fire in October of 1991. On April 15, 1994, this venture sold
the land at the former site of the Parkwoods apartment complex to an
affiliate of the Partnership's co-venture partner for $4,750,000. Despite
the sale of the remaining real property, the Parkwoods joint venture has not
been liquidated to date due to certain outstanding legal matters related to
the aforementioned fire.
The unconsolidated joint ventures are accounted for on the equity
method in the Partnership's financial statements because the Partnership
does not have a voting control interest in these ventures. Under the equity
method the investments are carried at cost adjusted for the Partnership's
share of the venture's earnings, losses and distributions. The Partnership's
policy is to recognize its share of ventures' operations three months in
arrears.
<PAGE>
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three months ended March 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Rental revenues $1,213 $1,194
Interest and other income 29 26
------ ------
1,242 1,220
Property operating expenses 536 525
Interest expense 340 393
Depreciation 179 184
------ ------
1,055 1,102
------ ------
Net income $ 187 $ 118
====== ======
Net income:
Partnership's share of
combined income (losses) $ 190 $ 124
Co-venturers' share of
combined income (losses) (3) (6)
------ ------
$ 187 $ 118
====== ======
4. Sale of Operating Investment Property
The Partnership had a controlling interest in one joint venture, Nob
Hill Partners, which owned Nob Hill Apartments, a 368-unit apartment complex
located in San Antonio, Texas. As explained further in the Annual Report,
during fiscal 1993 the Partnership assumed control over the affairs of the
joint venture as a result of the withdrawal of the co-venture partner and
the assignment of its remaining interest to First PW Growth Properties,
Inc., the Managing General Partner of the Partnership. Accordingly, the
accompanying financial statements present the financial position, results of
operations and cash flows of this joint venture on a consolidated basis. The
joint venture had a year-end of December 31 for both tax and financial
reporting purposes. Accordingly, the Partnership's policy was to report the
operating results of the consolidated joint venture on a three-month lag.
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 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.
The following is a summary of property operating expenses for the
consolidated Nob Hill joint venture for the three months ended March 31,
1996 (in thousands):
1996
----
Repairs and maintenance $ 45
Utilities 38
Management fees 21
Insurance 15
Administrative and other 147
------
$ 266
======
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
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 in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended March 31, 1997 under the heading "Certain Factors Affecting Future
Operating Results", 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
- - -------------------------------
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 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.
The Partnership's annual distribution rate was increased from 3% to 5% on
a Limited Partner's capital account of $538 per original $1,000 Unit for
distribution to be paid on August 15, 1997 for the quarter ended June 30, 1997.
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. It should be noted that due to the
payment of the special capital distribution of $115 per Unit on June 13, 1997,
resulting from the sale of the Nob Hill Apartments, the amount of the
distribution will change with the regularly quarterly payment to be made on
November 14, 1997 for the quarter ending September 30, 1997. The new 5%
annualized rate will be paid on a Limited Partner's remaining capital account of
$423 per Unit, which reflects the $115 return of capital.
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. Since that time, management has initiated discussions with
area real estate brokerage firms in order to define potential strategies for
marketing the Partnership's interest in Tantra Lake. While exploring potential
sale opportunities, management has also decided that certain physical
improvements should be made to increase that market value of the property.
Property improvements completed during the quarter were upgrades to the
property's electrical system, new roofs for several buildings and retrofits for
the common area restrooms to comply with requirements contained in the Americans
with Disabilities Act. Other improvements budgeted at Tantra Lake for 1997 are
the exterior painting of ten buildings, siding repairs and landscape
enhancements. Bids are being obtained for these improvements. At the same time,
management is working to enhance the operating efficiencies of the property in
order to maximize the market value upon its eventual sale. Any sale of the
Tantra Lake Apartments would likely be followed by sales of Chisholm Place and
Grouse Run. 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. The
occupancy level at Chisholm Place averaged 99% for the quarter ended June 30,
1997, unchanged from the prior quarter. The occupancy level at the Grouse Run
Apartments in Stockton, California, averaged 95% for the quarter ended June 30,
1997, which is 2% below the average occupancy level of the preceding quarter.
The apartment market in Stockton remains stagnant, and the use of concessions,
which had been suspended during the quarter ended March 31, 1997, are again
necessary on certain unit types at Grouse Run. Prospective tenants are offered
two weeks of free rent as an incentive to sign a lease for these units. Rental
rate increases are still not possible in the Stockton market. Consequently,
residents at Grouse Run Apartments who renew their leases for a six-month term
receive the same rental rate specified in their existing lease. Property
improvements for the quarter included the routine replacement of carpeting and
appliances. 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.
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 June 30, 1997, the Partnership had available cash and cash equivalents
of approximately $858,000. Such cash and cash equivalents, along with future
cash flow distributions from the Partnership's operating properties, will be
used for the working capital needs of the Partnership, for the funding of the
Partnership's share of capital improvements or operating deficits of the
investment properties, if necessary, and for distributions to the partners. Such
sources of liquidity are expected to be adequate to cover the Partnership's
needs on both a short-term and long-term basis. The source of future liquidity
and distributions to the partners is expected to be through proceeds received
from the sales or refinancings of the three remaining investment properties.
Results of Operations
Three Months Ended June 30, 1997
- - --------------------------------
The Partnership had a $214,000 increase in net income for the three-month
period ended June 30, 1997, when compared to the same period in the prior year.
The change in net income is due to a $149,000 favorable change in the
Partnership's operating income (loss) and a $66,000 increase in the
Partnership's share of unconsolidated ventures' income. The favorable change in
the Partnership's operating income (loss) is primarily due to the February 1997
sale of the consolidated Nob Hill Apartments, as discussed further above. Due to
the Partnership's three-month reporting lag and the sale of the Nob Hill
Apartments on February 7, 1997, the Partnership reported operations of the
consolidated venture from January 1, 1997 through the date of the sale in the
consolidated fiscal 1997 operating results. It is the Partnership's policy to
report significant lag-period transactions in the period in which they occur.
The operating results for the three months ended June 30, 1996 reflect an
operating loss of $110,000 from the consolidated Nob Hill joint venture. In
addition, a $25,000 increase in interest and other income contributed to the
favorable change in operating income (loss) for the current three-month period.
Interest and other income increased primarily due to an increase in income
earned on short-term investments. Interest earned on short-term investments
increased due to the higher average outstanding cash balances resulting from the
temporary investment of the proceeds from the sale of Nob Hill Apartments prior
to the special distribution to the Limited Partners which occurred on June 13,
1997.
The Partnership's share of unconsolidated ventures' income increased
mainly due to a $74,000 increase in net income at the Tantra Lake joint venture
for the current three-month period. Net income increased at Tantra Lake
primarily due to a $53,000 decrease in interest expense and a $13,000 increase
in rental revenue. 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 in the Annual Report. Rental revenue
increased mainly due to an increase in average monthly rental rates at the
Tantra Lake Apartments during the current three-month period, when compared to
the same period in the prior year.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K: No reports on Form 8-K have been filed by the
registrant during the quarter for which this report is filed.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER GROWTH PROPERTIES LP
By: FIRST PW GROWTH PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Date: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30,
1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 858
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 858
<PP&E> 285
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,143
<CURRENT-LIABILITIES> 8
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,135
<TOTAL-LIABILITY-AND-EQUITY> 1,143
<SALES> 0
<TOTAL-REVENUES> 290
<CGS> 0
<TOTAL-COSTS> 58
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 232
<INCOME-TAX> 0
<INCOME-CONTINUING> 232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232
<EPS-PRIMARY> 7.87
<EPS-DILUTED> 7.87
</TABLE>
