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, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
Commission File Number: 0-10995
PAINE WEBBER GROWTH PROPERTIES LP
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2772109
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
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(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
BALANCE SHEETS
June 30, 1998 and March 31, 1998 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Cash and cash equivalents $ 1,089 $ 1,034
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Losses from joint ventures in excess
of investments and advances $ 469 $ 266
Accounts payable and accrued expenses 35 44
Other liabilities - 146
Partners' capital 585 578
-------- --------
$ 1,089 $ 1,034
======== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
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
======== ========
Balance at March 31, 1998 $ (20) $ 598
Cash distributions (2) (185)
Net income 2 192
------- --------
Balance at June 30, 1998 $ (20) $ 605
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
STATEMENTS OF INCOME
For the three months ended June 30, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
1998 1997
---- ----
Revenues:
Reimbursements from affiliates $ 42 $ 42
Interest and other income 17 58
------- --------
59 100
Expenses:
Management fees 19 12
General and administrative 45 46
------- --------
64 58
------- --------
Operating income (loss) (5) 42
Partnership's share of ventures' income 199 190
------- --------
Net income $ 194 $ 232
======= ========
Net income per
Limited Partnership Unit $ 6.58 $ 7.87
======= =======
Cash distributions per
Limited Partnership Unit $ 6.35 $119.04
======= =======
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
STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 194 $ 232
Adjustments to reconcile net income
to net cash used in operating activities:
Reimbursements from affiliates (42) (42)
Partnership's share of ventures' income (199) (190)
Changes in assets and liabilities:
Accounts payable and accrued expenses (9) (31)
Other liabilities (146) (4)
------- ------
Total adjustments (396) (267)
------- ------
Net cash used in operating activities (202) (35)
Cash flows from investing activities:
Distributions from joint ventures 444 251
Cash flows from financing activities:
Distributions to partners (187) (3,476)
------- ------
Net increase (decrease) in cash and cash equivalents 55 (3,260)
Cash and cash equivalents, beginning of period 1,034 4,118
------- ------
Cash and cash equivalents, end of period $ 1,089 $ 858
======= ======
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
Notes to 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, 1998. 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, 1998 and March 31, 1998 and revenues and expenses
for each of the three-month periods ended June 30, 1998 and 1997. 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 for each of the three months ended June 30, 1998
and 1997.
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 $19,000 and $12,000 for the three
months ended June 30, 1998 and 1997, respectively.
Included in general and administrative expenses for the three months ended
June 30, 1998 and 1997 is $24,000 and $23,000, 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 $1,000 and $3,000 (included in general
and administrative expenses) for managing the Partnership's cash assets during
the three months ended June 30, 1998 and
1997, respectively.
<PAGE>
3. Investments in Unconsolidated Joint Ventures
--------------------------------------------
The Partnership had investments in four unconsolidated joint ventures at
June 30, 1998 and 1997. 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.
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, 1998 and 1997
(in thousands)
1998 1997
---- ----
Rental revenues $ 1,216 $ 1,213
Interest and other income 38 29
-------- --------
1,254 1,242
Property operating expenses 510 536
Interest expense 347 340
Depreciation 197 179
-------- --------
1,054 1,055
-------- --------
Net income $ 200 $ 187
======== ========
Net income:
Partnership's share of
combined income (losses) $ 199 $ 190
Co-venturers' share of
combined income (losses) 1 (3)
-------- --------
$ 200 $ 187
======== ========
<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, 1998 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
- -------------------------------
The Partnership is currently pursuing potential disposition strategies for
the three remaining investments in its portfolio. General improvements in the
apartment segment of the real estate market are expected to provide the
Partnership with the opportunities to market and sell these three properties in
the near term. As discussed further below, active marketing efforts on all three
properties began during the first quarter of fiscal 1999. It is currently
contemplated that the sales of the remaining assets and a liquidation of the
Partnership could be accomplished prior to the end of calendar year 1998. There
are no assurances, however, that the sales of the remaining assets and the
liquidation of the Partnership will be completed within this time frame. 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). As noted in the Annual
Report, the Partnership had received interest from several prospective
purchasers to buy the Tantra Lake Apartments during fiscal 1997. In response to
this interest, the Partnership determined that certain physical improvements
should be made to the property prior to engaging in a formal marketing process.
Subsequent to completing such improvements, the Partnership initiated
discussions during fiscal 1998 with area real estate brokerage firms in order to
define potential marketing strategies for selling Tantra Lake. During the fourth
quarter of fiscal 1998, the Partnership obtained marketing proposals and
selected a national brokerage firm that is the leading seller of apartment
properties in the Denver area. During the first quarter of fiscal 1999, a
marketing package was prepared, and comprehensive sales efforts began in April
1998. The property was widely marketed to over 350 prospects and approximately
30 prospective buyers requested a complete marketing package. As a result of
these efforts the Partnership received 16 offers to purchase the property. The
Partnership then conducted a second round of bidding and received six revised
offers from buyers who elected to increase their initial bids. After
interviewing each prospective buyer and conducting a review of their financial
capabilities and previous acquisitions, the Partnership selected an offer. A
purchase and sale agreement is currently being negotiated with this prospective
buyer. Because the joint venture agreement gives the co-venture partner a right
of first refusal to purchase this property, this purchase and sale agreement
will be submitted to the partner for its review. The partner will then have 60
days to decide whether to agree to buy the property at the price and on the
terms offered by the prospective purchaser, or to waive its first refusal right
and agree to a sale to this prospective buyer. Since any sale transaction
remains contingent upon, among other things, the negotiation of a definitive
sales agreement and the satisfactory completion of the prospective buyer's due
diligence, there can be no assurance that a sale will be completed.
The occupancy level at the Tantra Lake Apartments averaged 93% for the
first quarter of fiscal 1999, which is an increase from 91% for the same period
one year ago. Historically, the property experiences a higher number of
vacancies during the quarter ended June 30th, because of the significant number
of college students who move from the property each year in late May when the
schools close for the summer months. As previously reported, the construction of
new apartment projects in the communities adjacent to the city of Boulder and in
the suburban Denver area continues to affect occupancy levels and rental rates
in the Boulder market. The Metro Denver Apartment Report for the first quarter
of 1998 reports that there are currently 10,000 apartment units under
construction in the metropolitan Denver area that are in various stages of
completion. The steady pace of new construction in the greater Denver area is
one of the major reasons that has led to the decision to market the Tantra Lake
property for sale.
Despite the ongoing development of several new apartment communities in the
vicinity of Chisholm Place, the property continues to outperform the local
market. The average occupancy level at Chisholm Place was 98% for the quarter
ended June 30, 1998, unchanged from the prior quarter. The property's management
and leasing team reports that although the occupancy level remains high, the
increased competition continues to limit rental rate growth. As noted in the
Annual Report, the Partnership and its co-venture partner have had discussions
concerning the near-term sale of Chisholm Place. During the fourth quarter of
fiscal 1998, the Partnership and its co-venture partner requested broker
proposals from two real estate firms with offices in Texas to market Chisholm
Place for sale. After reviewing their respective proposals and conducting
interviews, the Partnership and its co-venture partner selected a local
brokerage firm with extensive experience in marketing apartment properties.
Sales materials were finalized and extensive marketing efforts began in late May
1998. As part of these marketing efforts, approximately 80 potential buyers were
contacted of which 35 requested the complete marketing package. Fifteen offers
were subsequently received from these prospective buyers to purchase the
property. These 35 prospective buyers were then requested to submit revised
offers. Eight of these prospective purchasers elected to increase their initial
bids. After reviewing the offers and completing an evaluation of the relative
strengths of the prospective purchasers that included a review of their
financial capabilities and of their previous acquisitions, a prospective
third-party purchaser was selected. Subsequent to the end of the first quarter,
a purchase and sale agreement was signed with this prospective buyer. Because
the joint venture agreement gives the co-venture partner a right of first
refusal to purchase this property, this purchase and sale agreement is being
submitted to the partner for its review. It will then have 60 days to decide
whether to agree to buy the property at the price and on the terms offered by
the prospective purchaser, or to waive its first refusal right and agree to a
sale to this prospective buyer. Since the sale of Chisholm Place remains
contingent upon, among other things, the satisfactory completion of the buyer's
due diligence, there can be no assurances that a sale of the property will be
completed.
The occupancy level at the Grouse Run Apartments in Stockton, California,
averaged 97% for the quarter ended June 30, 1998, up from 93% last quarter and
95% for the same period in the previous year. As discussed in the Annual Report,
the Partnership and its co-venture partner have been exploring potential
opportunities for the sale of the Grouse Run Apartments. As part of that plan,
discussions were held with real estate firms with a strong background in selling
properties like Grouse Run. During the fourth quarter of fiscal 1998, proposals
were requested from four of these firms with offices in California to market the
property for sale. After reviewing their respective proposals and completing
in-depth interviews, the Partnership and its co-venture partner selected a
national brokerage firm that is a leading seller of apartment properties in the
Stockton area. Sales materials were finalized, and extensive marketing efforts
began in late May 1998. As a result of these marketing efforts, eight offers to
purchase the Grouse Run Apartments property were received. After reviewing the
offers and completing an evaluation of the relative strengths of the prospective
purchasers, including a review of their financial capabilities and previous
acquisitions, a prospective third-party buyer was selected. Subsequent to the
end of the first quarter, a purchase and sale agreement was signed with this
prospective buyer. Because the joint venture agreement gives the co-venture
partner a right of first refusal to purchase this property, this purchase and
sale agreement is being submitted to the partner for its review. It will then
have 60 days to decide whether to agree to buy the property at the price and on
the terms offered by the prospective purchaser, or to waive its first refusal
right and agree to a sale to this prospective buyer. Since the sale of Grouse
Run remains contingent upon, among other things, the satisfactory completion of
the buyer's due diligence, there can be no assurances that a sale of the
property will be completed.
As previously reported, 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 has appealed the agency's decision. However, during fiscal
1998 the federal agency denied the Partnership's appeal regarding the
reimbursement claim, and, at the present time, the Partnership does not plan any
further legal action. In addition, during the first quarter of fiscal 1999 the
Partnership received a demand for the return of the $146,000 which was disbursed
in December 1995. A liability for this obligation was accrued on the
Partnership's balance sheet as of March 31, 1998. In June 1998, the Partnership
contributed $146,000 to the Parkwoods joint venture to fund payment for this
liability.
As noted in the Annual Report, Rocky Mountain Partners, the joint venture
which owns the Tantra Lake property, was named as a defendant in a lawsuit
brought in February 1998 by two individuals and an entity, among others, who had
previously performed repair work at the property. The lawsuit alleges, among
other things, that the individuals were exposed, without their knowledge, to
unsafe levels of asbestos hazards in the course of performing work at the Tantra
Lake Apartments. The joint venture plans to vigorously defend itself against the
allegations in this lawsuit. The joint venture's insurer has preliminarily
denied coverage for the costs of defending the lawsuit by citing a contract
exclusion. The eventual outcome of this litigation and the applicability of
insurance coverage related thereto cannot be determined at this time.
Accordingly, no liability for any expenses which might result from this
litigation has been provided for in the venture's financial statements. Assuming
that the sales of the Partnership's remaining assets proceed as expected, as
discussed further above, management will attempt to resolve this matter fully
during calendar year 1998 in order to complete the liquidation of the
Partnership as planned.
At June 30, 1998, the Partnership had available cash and cash equivalents
of approximately $1,089,000. 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.
During the current quarter, the quarterly distribution rate was increased to a
6% annualized rate of return on remaining capital from a 5% rate, effective for
the distribution paid on May 15, 1998 for the quarter ended March 31, 1998. 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. Such sources of liquidity are expected to be adequate to
cover the Partnership's needs on both a short-term and long-term basis.
Results of Operations
Three Months Ended June 30, 1998
- --------------------------------
The Partnership reported net income of $194,000 for the three-month period
ended June 30, 1998, as compared to net income of $232,000 for the same period
in the prior year. The $38,000 decrease in net income is due to a $47,000
unfavorable change in the Partnership's operating income (loss), which was
partially offset by a $9,000 increase in the Partnership's share of ventures'
income. The unfavorable change in the Partnership's operating income (loss) is
primarily due to a decrease in interest and other income of $41,000. Interest
and other income decreased primarily due to a decline in interest earned on
short-term investments as a result of lower average outstanding cash balances
resulting from the temporary investment in the prior period of the proceeds from
the sale of the Nob Hill Apartments prior to the special distribution to the
Limited Partners which occurred on June 13, 1997. In addition, management fee
expense increased by $7,000 due to an increase in the distributions upon which
such fees are based.
The Partnership's share of unconsolidated ventures' income increased
mainly due to improved operating results of the Chisholm Place joint venture.
The net loss at Chisholm Place decreased by $24,000 when compared to the same
three-month period in the prior year primarily due to a decrease in property
operating expenses. Property operating expenses declined mainly due to lower
professional fees and a reduction in repairs and maintenance expenses. The
decrease in net loss at Chisholm Place was partially offset by a decrease in net
income at Grouse Run of $7,000 due to a small reduction in rental income.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
The status of outstanding litigation remain unchanged from what was
reported in the Partnership's Annual Report on Form 10-K for the year ended
March 31, 1998.
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: July 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended June 30, 1998
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-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 1,089
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,089
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,089
<CURRENT-LIABILITIES> 35
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 585
<TOTAL-LIABILITY-AND-EQUITY> 1,089
<SALES> 0
<TOTAL-REVENUES> 258
<CGS> 0
<TOTAL-COSTS> 64
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 194
<INCOME-TAX> 0
<INCOME-CONTINUING> 194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 194
<EPS-PRIMARY> 6.58
<EPS-DILUTED> 6.58
</TABLE>
