UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 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
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2772109
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No |_|.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
December 31 March 31
----------- --------
Investments in unconsolidated joint
ventures, at equity $ 124 $ 304
Cash and cash equivalents 930 4,118
--------- ---------
$ 1,054 $ 4,422
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 36 $ 39
Other liabilities - 4
Partners' capital 1,018 4,379
--------- ---------
$ 1,054 $ 4,422
========= =========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended December 31, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (6) $ 5,323
Cash distributions (2) (236)
Net income - 23
------ ---------
Balance at December 31, 1996 $ (8) $ 5,110
====== =========
Balance at March 31, 1997 $ (16) $ 4,395
Cash distributions (4) (3,826)
Net income 4 465
------ ---------
Balance at December 31, 1997 $ (16) $ 1,034
====== =========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended December 31, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
----------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income $ - $ 521 $ - $ 1,523
Reimbursements from
affiliates 51 39 142 127
Interest and other income 19 43 90 112
----- ------ ------ -------
70 603 232 1,762
Expenses:
Property operating expenses - 235 - 720
Depreciation - 181 - 515
Interest expense - 144 - 435
Real estate taxes - 49 - 161
Management fees 16 8 47 24
General and administrative 66 39 180 139
----- ------ ------ -------
82 656 227 1,994
----- ------ ------ -------
Operating income (loss) (12) (53) 5 (232)
Venture partner's share of
consolidated venture's
operations - - - 2
Partnership's share of
unconsolidated
ventures' income 226 88 464 253
----- ------ ------ -------
Net income $ 214 $ 35 $ 469 $ 23
===== ====== ====== =======
Net income per
Limited Partnership Unit $7.27 $ 1.19 $15.92 $ 0.79
===== ====== ====== =======
Cash distributions per
Limited Partnership Unit $5.29 $ 2.69 $131.06 $ 8.07
===== ====== ======= =======
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 nine months ended December 31, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 469 $ 23
Adjustments to reconcile net income to net
cash used in operating activities:
Reimbursements from affiliates (141) (127)
Venture partner's share of consolidated venture's
operations - (2)
Partnership's share of unconsolidated ventures' income (464) (253)
Depreciation - 515
Amortization of deferred loan costs - 13
Changes in assets and liabilities:
Real estate tax and insurance escrow deposit - 44
Accounts receivable - (2)
Other assets - 37
Accounts payable and accrued expenses (3) (57)
Accrued interest payable - 42
Advances from consolidated venture - (250)
Other liabilities (4) -
Tenant security deposits - (2)
-------- -------
Total adjustments (612) (42)
-------- -------
Net cash used in operating activities (143) (19)
-------- -------
Cash flows from investing activities:
Contributions to unconsolidated joint ventures - (1)
Distributions from unconsolidated joint ventures 785 556
Net withdrawals from capital improvement and
replacement escrow - 32
Additions to operating investment property - (113)
-------- -------
Net cash provided by investing activities 785 474
-------- -------
Cash flows from financing activities:
Principal payments on mortgage note payable - (58)
Distributions to partners (3,830) (238)
-------- -------
Net cash used in financing activities (3,830) (296)
-------- -------
Net (decrease) increase in cash and cash equivalents (3,188) 159
Cash and cash equivalents, beginning of period 4,118 1,323
-------- -------
Cash and cash equivalents, end of period $ 930 $ 1,482
======== =======
Cash paid during the period for interest $ - $ 380
======== =======
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 December 31, 1997 and March 31, 1997 and revenues and
expenses for each of the three and nine-month periods ended December 31, 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 $142,000 and $127,000 for the nine months ended December
31, 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 $47,000 and $24,000 for the nine
months ended December 31, 1997 and 1996, respectively.
Included in general and administrative expenses for the nine months ended
December 31, 1997 and 1996 is $71,000 and $64,000, 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 $5,000 and $3,000 (included in general
and administrative expenses) for managing the Partnership's cash assets during
the nine months ended December 31, 1997
and 1996, respectively.
3. Investments in Unconsolidated Joint Ventures
--------------------------------------------
The Partnership had investments in four unconsolidated joint ventures at
December 31, 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.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
<PAGE>
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended September 30, 1997 and 1996
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues $1,252 $1,199 $3,677 $3,544
Interest and other
income 21 33 81 83
------ ------ ------ ------
1,273 1,232 3,758 3,627
Property operating
expenses 503 581 1,664 1,626
Interest expense 348 339 1,044 1,124
Depreciation 197 224 591 632
------ ------ ------ ------
1,048 1,144 3,299 3,382
------ ------ ------ ------
Net income $ 225 $ 88 $ 459 $ 245
====== ====== ====== ======
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Net income:
Partnership's share
of combined income
(losses) $ 226 $ 88 $ 464 $ 253
Co-venturers' share of
combined income (losses) (1) - (5) (8)
------ ------ ------ ------
$ 225 $ 88 $ 459 $ 245
====== ====== ====== ======
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
for fiscal 1997 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 because of 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.
<PAGE>
The following is a summary of property operating expenses for the
consolidated Nob Hill joint venture for the three and nine months ended
September 30, 1996 (in thousands):
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ -------------------
Repairs and maintenance $ 32 $ 110
Utilities 29 99
Management fees 21 63
Insurance 15 46
Administrative and other 138 402
-------- -------
$ 235 $ 720
======== =======
<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
because of 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, in the first quarter of the current fiscal year 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. Subsequent to the Nob Hill special distribution, the Partnership's
distribution rate was increased from 3% to 5% per annum on a Limited Partner's
remaining capital account of $423 per original $1,000 Unit.
The Partnership is currently examining potential disposition strategies
for its remaining investment properties. It is currently contemplated that the
sale of the remaining assets could be completed within the next 1 to 2 years.
The sale of the remaining assets would be followed by a formal liquidation of
the Partnership, which could be completed by the end of calendar 1998. There are
no assurances, however, that the sale 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). 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 the market value of the property prior
to a sale. Projects completed during the third quarter include the planned
renovations to the fitness area as well as most of the painting of the exterior
of the property. The renovations to the fitness area included new as well as
refurbished equipment, additional lighting and a television. Other projects
scheduled for Tantra Lake in calendar 1998 have been designed to substantially
enhance the property's appearance and have the greatest impact on value, while
at the same time, allowing the Partnership to continue to maximize the cash flow
from the property.
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 99%, unchanged for the
past four consecutive quarters. Because of the consistently high occupancy
levels, the leasing team at Chisholm Place does not offer concessions and has
been able to increase rental rates. The occupancy level at the Grouse Run
Apartments in Stockton, California, averaged 96% for the quarter ended December
31, 1997, unchanged from the previous quarter. Despite this healthy occupancy
level, the property's leasing team has not been able to increase rental rates.
Stagnant economic conditions continue to prevail in Stockton as reflected by the
city's 11% unemployment rate, which is more than twice the national average.
According to recent market surveys conducted by the property's management team,
competing apartment properties are offering a month of free rent as an incentive
to attract new residents. In comparison, Grouse Run is providing a discount of
$150 off the first month's rent on leases signed with new tenants. The on-going
repairs to the property's balconies were completed during the third quarter. In
addition, the fences around the apartment units were repaired and the roof
gutters were cleaned. Management is currently analyzing market conditions in
Dallas and Stockton to assess the necessary marketing strategies and the
appropriate timing for the sale of the Chisholm Place and Grouse Run properties.
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. 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.
Furthermore, if the appeal is denied, it is possible that the venture might be
required to pay back the $146,000 which it previously received. The outcome of
this uncertainty cannot presently be determined.
At December 31, 1997, the Partnership had available cash and cash
equivalents of approximately $930,000. 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. 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 December 31, 1997
- ------------------------------------
The Partnership reported net income of $214,000 for the three-month period
ended December 31, 1997, as compared to net income of $35,000 for the same
period in the prior year. The increase in the Partnership's net income is due to
a $138,000 increase in the Partnership's share of unconsolidated ventures'
income and a $41,000 decrease in the Partnership's operating loss. The
Partnership's share of unconsolidated ventures' income increased mainly due to
improved operating results of the Tantra Lakes joint venture. Net income at
Tantra Lakes increased by $132,000 when compared to the same three-month period
in the prior year largely due to an increase in rental revenues and declines in
total property operating expenses and depreciation expense. Rental revenues at
Tantra Lakes increased by almost 5% due to increases in rental rates over the
past year. Property operating expenses decreased mainly due to lower repair and
maintenance expenses and turnover costs. The venture's depreciation and
amortization expense decreased by $28,000 due to the certain assets that became
fully depreciated during fiscal 1997. Also contributing to the increase in the
Partnership's share of unconsolidated ventures' income was a $13,000 increase in
net income from the Grouse Run joint venture.
Nine Months Ended December 31, 1997
- -----------------------------------
The Partnership reported net income of $469,000 for the nine-month period
ended December 31, 1997, as compared to net income of $23,000 for the same
period in the prior year. This increase in net income is due to a $237,000
favorable change in the Partnership's operating income (loss) and a $211,000
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. The operating results for the nine months ended December 31, 1996
reflect an operating loss of $234,000 from the consolidated Nob Hill joint
venture. A decrease in the Partnership's interest income of $22,000 and
increases in general and administrative expenses and management fees of $41,000
and $23,000, respectively, partially offset the favorable change in operating
income (loss) resulting from the Nob Hill sale. Interest and other income
decreased due to the distribution of the Partnership's excess reserves on June
13, 1997, as discussed further above. General and administrative expenses
increased due to the timing of certain recurring professional services when
compared to the same period in the prior year. Management fees increased due to
an increase in distributable cash which resulted from the increase in the
Partnership's distribution rate, as discussed further above.
The Partnership's share of unconsolidated ventures' income increased
mainly due to a $217,000 increase in the net income of the Tantra Lakes joint
venture. The increase in net income at Tantra Lakes was mainly due to an
increase in rental revenues and a decrease in depreciation and amortization
expense. Rental income at Tantra Lakes increased by 4% for the current
nine-month period due to an increase in average monthly rental rates when
compared to the same period in the prior year. The venture's depreciation and
amortization expense decreased due to the certain assets that became fully
depreciated during fiscal 1997.
<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: February 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended December 31,
1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 930
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 930
<PP&E> 124
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,054
<CURRENT-LIABILITIES> 36
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,018
<TOTAL-LIABILITY-AND-EQUITY> 1,054
<SALES> 0
<TOTAL-REVENUES> 969
<CGS> 0
<TOTAL-COSTS> 227
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 469
<INCOME-TAX> 0
<INCOME-CONTINUING> 469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 469
<EPS-PRIMARY> 15.92
<EPS-DILUTED> 15.92
</TABLE>
