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, 1995
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: 0-12085
PAINE WEBBER GROWTH PROPERTIES TWO LP
Delaware 04-2798594
(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
October 6, 1983, as supplemented
PAINE WEBBER GROWTH PROPERTIES TWO LP
- -
1995 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business I-1
Item 2 Properties I-2
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of
Security HoldersI-3
PART II
Item 5 Market for the Partnership's Limited
Partnership Interests and
Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of
Financial Condition
and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-6
PART III
Item 10 Directors and Executive Officers of the
Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial
Owners and Management III-3
Item 13 Certain Relationships and Related TransactionsIII-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-26
PART I
Item 1. Business
Paine Webber Growth Properties Two LP (the "Partnership") is a limited
partnership formed in June 1983 under the Uniform Limited Partnership Act of the
State of Delaware for the purpose of investing in a portfolio of rental
apartment and commercial 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 $33,410,000 in Limited Partnership Units
(33,410 Units at $1,000 per Unit) from October 6, 1983 to October 5, 1984
pursuant to a Registration Statement on Form S-11 filed under the Securities Act
of 1933 (Registration No. 2-84814). Limited Partners will not be required to
make any additional capital contributions.
As of March 31, 1995, the Partnership owned, through the joint venture
partnerships, interests in the operating properties set forth in the following
table:
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership
(1)
Montgomery Village HWH 196 3/9/84 Fee ownership of land
Associates units and improvements
Walker House Apartments (2) (through joint venture)
Montgomery Village, Maryland
Oregon Portland Associates 525 4/26/84 Fee ownership of land
Portland Center, Apartment apartment and improvements
and Office Complex units and (through joint venture)
Portland, Oregon 28,328
sq. ft.
office
space
Hudson Partners 144 11/20/84 Fee ownership of land
The Hudson Apartments units and improvements
Tyler, Texas (through joint venture)
(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.
(2) On September 30, 1986, Montgomery Village HWH Associates sold The
Hamlet, an apartment complex consisting of 864 units, which was one of
the two properties originally owned and operated by the venture.
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's success in meeting its capital appreciation objective will depend
upon the proceeds received from the final liquidation of the remaining
investments. The amount of such proceeds will ultimately depend upon the value
of the underlying investment properties at the time of such liquidations, which
generally cannot be determined at the present time. Subsequent to year-end, in
June 1995 the Partnership agreed to sell its interest in Hudson Partners to the
co-venture partner for $350,000. While such proceeds would be substantially
below the amount of the Partnership's original investment, which totalled $2.6
million, management believes that the offer is reflective of the current fair
value of the Partnership's interest and that it may be an opportune time to
dispose of this investment. The sale of the Partnership's interest remains
contingent upon the achievement of a specified financing level. Accordingly,
there are no assurances that this transaction will be consummated. See Item 7
for a further discussion.
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, 1995, the limited partners have received
cumulative cash distributions of approximately $15,157,000. This return
includes distributions totalling $445 per original $1,000 unit from the sale of
The Hamlet Apartments, including an amount of $45 per Unit distributed in fiscal
1992 as a result of the collection of a note receivable taken back at the time
of the sale. The Partnership continues to retain an ownership interest in three
operating investment properties. During fiscal 1995, improved conditions in the
real estate markets for multi-family apartment properties favorably impacted the
Partnership's portfolio. All three of the apartment properties in the
Partnership's portfolio are generating excess cash flow from operations after
payment of operating expenses and debt service obligations. As a result of the
improved cash flow from the properties and the expectation that it will continue
in the future, the Partnership instituted the payment of regular quarterly cash
distributions at an annualized rate of 3% on a remaining capital account of $555
per original $1,000 Unit. The first distribution payment was made on November
15, 1994 for the quarter ended September 30, 1994. The distribution rate was
raised to 3.25% for the quarter ended December 31, 1994 and to 3.50% for the
quarter ended March 31, 1995. At the present level, annual distributions to the
Limited and General Partners would total approximately $656,000.
All of the properties securing the Partnership's investments 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, location and amenities.
Apartment properties in all markets also compete with the local single-family
home market for prospective tenants. Despite this competition, the lack of
significant new construction of multi-family housing has allowed the oversupply
which exists in most markets to begin to be absorbed, with the result being a
gradual improvement in occupancy levels and effective rental rates and a
corresponding increase in property values. Management of the Partnership
expects to continue to see improvement in this sector of the real estate market
in the near term.
The Partnership is engaged solely in the business of real estate
investment; therefore, a presentation of information about industry segments is
not applicable. The Partnership has no real estate investments located outside
the United States.
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
Second PW Growth Properties, Inc. and Properties Associates. Second PW Growth
Properties, Inc. (the `Managing General Partner''), a wholly-owned subsidiary
of PaineWebber, is the managing general partner of the Partnership. The
associate general partner is Properties Associates (the `Associate General
Partner'), a Massachusetts general partnership, certain general partners of
which are also officers of the Adviser and the Managing General Partner.
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
The Partnership has acquired interests in operating properties through
joint venture partnerships. These joint venture partnerships and the related
properties are referred to under Item 1 above to which reference is made for the
name, location, and the description of each property.
Occupancy figures for each fiscal quarter during 1995, along with an
average for the year, are presented below for each property:
Percent Occupied At
Fiscal
1995
6/30/94 9/30/94 12/31/94 3/31/95 Average
Walker House Apartments 97% 97% 98% 99% 98%
Portland Center 93% 93% 93% 89% 92%
The Hudson Apartments 98% 98% 99% 99% 99%
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 Second PW Growth Properties, Inc. and Properties
Associates, which are the General Partners of the Partnership and affiliates of
PaineWebber. On May 30, 1995, the court certified class action treatment of the
claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Growth Properties
Two LP, PaineWebber, Second PW Growth Properties, Inc. and Properties Associates
(1) failed to provide adequate disclosure of the risks involved; (2) made false
and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in Paine Webber Growth
Properties Two LP, also allege that following the sale of the partnership
interests, PaineWebber, Second PW Growth Properties, Inc. and Properties
Associates misrepresented financial information about the Partnership's value
and performance. The amended complaint alleges that PaineWebber, Second PW
Growth Properties, Inc. and Properties Associates violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs seek unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also seek treble damages under RICO. The defendants'
time to move against or answer the complaint has not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify Second PW Growth Properties, Inc., Properties Associates and their
affiliates for costs and liabilities in connection with this litigation. The
General Partners intend to vigorously contest the allegations of the action, and
believe that the action will be resolved without material adverse effect on the
Partnership's financial statements, taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
None. PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
At March 31, 1995 there were 3,181 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.
Effective for the second quarter of fiscal 1995, the Partnership began
distributions to the Limited Partners equivalent to a 3% annualized rate of
return on the remaining invested capital. The distribution rate was
subsequently increased to 3.25% for the third quarter and to 3.5% for the
quarter ended March 31, 1995. Reference is made to Item 6 below for a
disclosure of the amount of cash distributions per Unit made to the Limited
Partners during fiscal 1995.
Item 6. Selected Financial Data
PAINEWEBBER GROWTH PROPERTIES TWO LP
FOR THE YEARS ENDED MARCH 31, 1995, 1994, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
1995 1994 1993 1992 1991
Revenues $ 227 $ 201 $ 202 $ 223 $ 217
Operating income (loss)$ (65) $ (15) $ 22 $ 19 $ (208)
Partnership's share of
ventures' losses $ (161) $ (309) $ (867) $(1,244) $(2,063)
Loss on writedown
of investment to
fair value $ (2,019) - - - -
Loss before extraordinary
item $ (2,245) $ (324) $ (845) $(1,225) $(2,271)
Extraordinary item-
share of gain on
extinguishment of debt - - - - $ 2,170
Net loss $ (2,245) $ (324) $ (845) $(1,225) $ (101)
Per Limited Partnership Unit:
Loss before
extraordinary item $ (66.54) $ (9.60) $ (25.05) $(36.30) $(67.30)
Extraordinary gain - - - - $ 64.32
Net loss $ (66.54) $ (9.60) $ (25.05) $(36.30) $ (2.98)
Cash distributions:
Operations $ 8.68 - - - -
Sales proceeds - - - $ 45.00 -
Total assets $ 4,180 $ 6,671 $ 7,021 $ 7,864 $11,316
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the 33,410
Limited Partnership Units outstanding during each year.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership offered limited partnership interests to the public from
October 1983 to October 1984 pursuant to a Registration Statement filed under
the Securities Act of 1933. Gross proceeds of $33,410,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
approximately $26,690,000 was initially invested in three joint ventures which
owned four operating investment properties. To date the Partnership has made
additional advances of approximately $1.7 million to the three joint ventures,
including approximately $7,000 in the current year. The sale of one of the
original investment properties in September of 1986 resulted in the return of
$13,364,000 to the Limited Partners in November of 1986 and the return of
approximately $1,503,000 to the Limited Partners during fiscal 1992 as a result
of the maturity of a note received at the time of the sale. 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 achieve long-term capital appreciation of the
operating investment properties through property upgrades and subsequent rental
income increases. As previously reported, in December 1993 the Managing
General Partner
completed the refinancing of the entire Portland Center debt obligation with a
new loan issued in conjunction with an insured loan program of the Department of
Housing and Urban Development (HUD). As part of the HUD insured loan program,
the Portland Center joint venture was required to establish escrow accounts for
replacement reserves and other required repairs. During calendar 1994, the
joint venture capitalized approximately $1.9 million of improvements in
conjunction with a major renovation program which includes upgrades to the
common areas and many individual units. The majority of these costs were
reimbursed, or were due to be reimbursed, from the HUD-controlled escrow
accounts. The property's individual apartment units are being upgraded on a
turnover basis. As part of an effort to accelerate the pace of the unit
upgrades, management recently implemented a program of rental rate increases
aimed at increasing tenant turnover. The result, as expected, has been a
temporary decline in occupancy, to 89% for the quarter ended March 31, 1995.
Management expects to be able to lease the renovated units quickly at
substantial rate increases. The acceleration of turnover work could result in
temporary declines in net cash flow in future quarters as units remain vacant
for short periods of time to accommodate the upgrading process. Approximately
25% of the property's total units have been upgraded and rental rate increases
averaging 14% have been achieved on these units. The capital improvement
program will continue throughout calendar year 1995. The joint venture
anticipates spending approximately $594,000 during calendar 1995 on capital
improvements, of which approximately $246,000 is expected to be reimbursed from
HUD replacement reserves. The remainder will be funded from operating cash flow
of the Portland Center property. During fiscal 1995, management learned that
the City of Portland is currently proposing the development of a light rail
system that may result in a rail line extension along the street in front of the
Portland Center Apartments. As a result, the Partnership, through the on-site
management team, is attempting to organize a coalition of interested property
owners to secure a line extension decision and to suggest design alternatives
that would have the most beneficial impact to Portland Center and the
surrounding area.
The current operations of the Partnership's three remaining investment
properties reflect the generally improving conditions in the real estate markets
for multi-family residential properties across the country. For the most part,
lack of significant new construction activity has allowed the oversupply which
existed in many markets, as a result of the overbuilding of the 1980s, to be
absorbed. The results of such absorption, combined with the effects of a
recovering national economy, have been a gradual improvement in occupancy levels
and effective rental rates and a corresponding increase in property values in
most markets. Management expects to see continued improvement in the multi-
family sector of the real estate market in the near-term. The implementation of
the capital improvements at Portland Center is expected to support management's
ability to increase rents and add value to the property. Accordingly,
management will likely not consider the sale of the Portland Center property in
the near term, at least until the capital improvement program is substantially
completed and the effects of the improvements are fully reflected in the asking
rents for the apartment units. Conversely, management believes that it may be
an opportune time to consider the sale of the Walker House Apartments. The
strong performance of the Walker House investment property as well as the
current demand for apartments by institutional and local buyers may provide a
sales price which would maximize the investment returns to the Limited Partners.
Accordingly, management has begun to actively market the property for sale and
expects to receive offers to purchase the property in the second quarter of
fiscal 1996. There can be no assurances that any such offers will be at a price
that management will consider acceptable or that a sale transaction will be
consummated during fiscal 1996. Through the end of calendar 1995, the joint
venture plans to spend approximately $84,000 on certain deferred maintenance
items to prepare the property for a possible sale. Management is in the
preliminary stage of reviewing refinancing options for
the mortgage loan secured by the Hudson Apartments, which matures in November of
1995. The principal balance of the outstanding note is $2,660,000 which will be
due and payable at maturity. The current loan to value ratio on the outstanding
mortgage is approximately 65%. In addition, property operations have been
strong throughout fiscal 1995, as evidenced by the average occupancy rate of
99%. Accordingly, management does not foresee any problems finding replacement
financing for this mortgage loan. The interest rate on the current note is 10%,
and management anticipates refinancing at a lower interest rate. However, the
current loan requires interest-only payments, whereas any new loan is likely to
require monthly principal amortization. Nonetheless, the venture should realize
some net debt service savings based on current market interest rates which would
improve the property's excess cash flow available for distribution to the
Partnership. The Partnership's co-venture partner has approached the
Partnership about the possibility of purchasing the Partnership's interest in
the Hudson Apartments in conjunction with the expected refinancing transaction.
Subsequent to year end, the co-venture partner offered to buy the Partnership's
interest for $350,000. While such proceeds would be substantially less than the
amount of the Partnership's original investment, of $2.6 million, management
believes that the offer is reflective of the current fair market value of the
Partnership's interest. In the mid-to-late 1980s, the Hudson joint venture was
unable to generate sufficient cash flows to meet its contractual debt service
requirements. As a result, the venture entered into several debt modifications
aimed at alleviating the need for the Partnership to fund cash flow deficits.
In October 1990, in order to take advantage of a discounted debt pay-off offer
from the existing mortgage lender and to avoid possibly losing the property
through foreclosure proceedings, the venture admitted a new partner who
contributed the $600,000 necessary to complete the proposed refinancing
transaction. Although this recapitalization saved the property from likely
foreclosure, it resulted in a 50% dilution of the Partnership's interest and
created a 15% preferred return on the new partner's $600,000 investment. Based
on current market factors, management does not foresee significant appreciation
in the value of the Partnership's interest on the Hudson joint venture in the
near term. Furthermore, since the new mortgage financing is expected to have a
five-year prohibition on prepayment, and thereafter any sale of the property
would require the consent of the co-venturer, management believes that it may be
an opportune time to sell the Partnership's investment. Accordingly, the
Partnership has agreed to accept the co-venturer's offer. This transaction
remains contingent upon the proposed lender advancing sufficient funds to the
co-venture partner for the purpose of purchasing the Partnership's interest.
Therefore, there are no assurances that this transaction will be consummated.
The sales of the Walker House Apartments and the Partnership's interest in the
Hudson joint venture, if completed, could position the Partnership for a
possible liquidation within the next 2 to 3 years. However, there are no
assurances that the Partnership will be able to successfully dispose of its
remaining investments under favorable conditions within this time frame.
Management's hold/sell decisions will be based on an assessment of the impact on
the overall returns to the Limited Partners.
The Partnership received distributions from the Walker House and Portland
Center joint ventures totaling approximately $445,000 and $586,000,
respectively, during fiscal 1995. The cash distributions from Portland Center
during the year included the release of certain excess reserve funds associated
with the refinancing transaction discussed further above. Occupancy and cash
flow at the Walker House apartment complex have remained strong during the past
fiscal year. The property averaged 98% occupancy for fiscal 1995.
Distributions from the Walker House joint venture, which continue to represent
the Partnership's primary source of liquidity on a consistent basis, have
increased from their level of a year ago as a result of increased rental
revenues due to improving market conditions which have allowed management to
continue to implement gradual rental rate increases. Rental revenues increased
slightly at the Hudson Apartments in the current fiscal year as well.Throughout
most of fiscal 1995, cash flow from the Hudson joint venture
continued to be applied 100% against the priority return to the co-venture
partner. The Partnership did receive a minimal distribution of excess cash flow
for the fourth quarter of the current year and would expect to receive
distributions of between $20,000 and $30,000 for fiscal 1996 if the sale
transaction described above is not completed. Consistent cash flow from
operations is expected to be generated by the Portland Center joint venture
beginning in fiscal 1996 as the capital improvement program nears completion.
Because of the continued improvement in cash flow at all three properties, and
the expectation that it will continue in the future, the Partnership instituted
the payment of quarterly cash distributions during fiscal 1995. The first
payment was made on November 15, 1994 for the quarter ended September 30, 1994.
The initial payment to the Limited Partners was based upon a 3% annual return on
a remaining capital account of $555 per original $1,000 Unit. The annualized
distribution rate was increased to 3.25% for the quarter ended December 31, 1994
and to 3.5% for the quarter ended March 31, 1995. The distribution rate is
expected to increase to 4% by the second quarter of fiscal 1996.
At March 31, 1995, the Partnership had available cash and cash equivalents
of approximately $1,053,000. Such cash and cash equivalents, along with the
expected operating cash flow from the Walker House Apartments and Portland
Center property, will be utilized for the working capital needs of the
Partnership and for distribution to the partners. These sources of liquidity
are expected to be sufficient to meet the Partnership's needs on 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 sale or
refinancing of the investment properties.
RESULTS OF OPERATIONS
1995 Compared to 1994 The Partnership reported a net loss of $2,245,000 for
the year ended March
31, 1995, compared to a net loss of $324,000 for fiscal 1994. The increase in
net loss is primarily the result of a write-down of $2,019,000 which the
Partnership recorded in fiscal 1995 to adjust the carrying value of the Hudson
investment to $350,000 based on the proposed sale of the Partnership's interest,
as discussed further above. An increase of $50,000 in the Partnership's
operating loss also contributed to the increase in net loss for fiscal 1995.
Operating loss increased due to increases in management fees and general and
administrative expenses. The Partnership incurred management fees in the amount
of $29,000 for fiscal 1995. As a result of the commencement of regular
quarterly distributions of operating cash flow, the Adviser is entitled to asset
management fees in an amount equal to approximately 10% of the distributable
cash of the Partnership. An increase of approximately $34,000 in interest
income on Partnership cash reserves offset the increase in management fees. The
increase in interest income can be attributed to higher average cash balances
and slightly higher interest rates during the current year. General and
administrative expenses increased by $47,000 in fiscal 1995, mainly due to
higher professional fees related to the completion of an independent valuation
of the Partnership's operating properties which began in late fiscal 1994.
A significant decline in the Partnership's share of ventures' losses, from
$309,000 in fiscal 1994 to $161,000 in fiscal 1995, partially offset the Hudson
write-down and the increase in the Partnership's operating loss. Operating
results at Portland Center showed the most improvement among the joint ventures,
with a $390,000 increase in revenues over the prior year. As discussed further
above, such increases in rental income are attributable to rental rate increases
implemented at the property in conjunction with the ongoing renovation program.
Occupancy at Portland Center actually declined during the fourth quarter of
fiscal 1995 to 89% as management implemented a program to accelerate tenant
turnover in order to complete the renovation program more quickly. Revenues
were up slightly at the Walker House and Hudson Apartments as well during fiscal
1995. Both properties maintained occupancy levels in the high 90's throughout
the current year while implementing small rental rate increases. The favorable
changes in revenues were offset, in part, by an increase in mortgage interest
expense at Portland Center of $286,000 as a result of the increase in the
mortgage loan balance as a result of the December 1993 refinancing. Despite a
significant reduction in the interest rate on the Portland Center loan, interest
and related charges exceed their prior level due to the higher principal balance
and the payment of mortgage insurance premiums required under the new HUD
financing agreement. Property operating expenses at Portland Center also
increased mainly due to the capital improvement program currently in progress,
which includes significant repairs and maintenance expenses.
1994 Compared to 1993
The Partnership's net loss decreased by approximately $521,000 in fiscal
1994, when compared to fiscal 1993, mainly due to a decrease in the Partnerships
share of ventures' losses. The Partnership's share of ventures' losses
decreased significantly from the prior year mainly as a result of improved
operations at the Portland Center joint venture. During fiscal 1994, management
of the joint venture was able to increase rental rates at Portland Center while
maintaining a high occupancy level. The result was an increase in rental
revenues of approximately $163,000. In addition, the joint venture experienced
a substantial decrease in interest expense during fiscal 1994 as a result of
certain loan extension fees paid in the prior year and the full amortization of
a debt discount on the venture's original mortgage loan which occurred in early
fiscal 1994. Also, real estate tax expense for the Portland Center property
declined in fiscal 1994. The venture's real estate tax expense was lower by
approximately $182,000 as a result of the full 12-month effect of an abatement
received during the latter part of fiscal 1993. The favorable change in the
Partnership's share of ventures' losses was
partially offset by an increase in Partnership general and administrative
expenses of approximately $36,000. General and administrative expenses
increased mainly due to certain costs incurred in connection with an independent
valuation of the Partnership's operating properties which was commissioned in
support of management's ongoing portfolio management responsibilities.
1993 Compared to 1992
The Partnership's net loss decreased by approximately $380,000 in fiscal
1993, when compared to fiscal 1992, mainly due to a decrease in the
Partnership's share of ventures' losses. The decrease in the Partnership's
share of ventures' losses can be partly attributed to an increase in revenues
resulting mainly from an increase in the occupancy level at the Portland Center
property. Portland Center rental revenues increased by approximately $229,000,
or 5%, over the prior year. The improvement in occupancy was due to the success
of aggressive leasing efforts employed during fiscal 1993. Also, real estate
tax expense of the Portland Center joint venture declined in fiscal 1993. The
venture's real estate tax expense was lower by approximately $112,000 as a
result of a reduction in fiscal 1993 taxes and a refund of $63,000 received in
fiscal 1993. In addition, slight increases in rental revenues at both the
Walker House Apartments and the Hudson Apartments contributed to the decrease in
ventures' losses. These favorable changes in joint venture net operating
results were partially offset by an increase in combined depreciation expense
related to certain prior year fixed asset additions.
The Partnership's operating income increased by approximately $3,000 in
fiscal 1993, despite a significant decline in interest income. Interest income
on the Partnership's cash reserves declined by approximately $24,000 in fiscal
1993 due to a decrease in the average outstanding balance of cash and cash
equivalents held by the Partnership and a decline in the general level of
interest rates earned on invested cash reserves. In fiscal 1992 the average
cash balance included the receipt of approximately $2.4 million from the
maturity of a note receivable related to the 1986 sale of The Hamlet Apartments.
The proceeds from the note were held temporarily by the Partnership pending
distribution to the Limited Partners. The decline in interest income was offset
by a decrease in general and administrative expenses and management fees.
General and administrative expenses were approximately $13,000 lower in fiscal
1993 primarily due to a reduction in legal and other professional fees. There
were no management fees recorded during fiscal 1993 because the Partnership
reached a limitation on the cumulative amount of management fees that can be
earned by the Advisor under the terms of the original Prospectus during fiscal
1992. Future management fees will only be earned if the Partnership generates
distributable cash, as defined.
Inflation
The Partnership completed its eleventh full year of operations in fiscal
1995. 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 complexes have short-term leases, generally of six
months to one year in duration. Rental rates at these properties can be
adjusted to keep pace with inflation, to the extent market conditions allow, as
the leases are renewed or turned-over. Such increases in rental income would be
expected to at least partially offset the corresponding increases in Partnership
and property operating expenses.Item 8. Financial Statements and Supplementary
Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None. PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Second 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 also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operation, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
Lawrence A. Cohen President and
Chief Executive Officer 41 5/15/91
Albert Pratt Director 84 6/1/83 *
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President and
Chief Financial Officer 47 10/29/85
James A. Snyder Senior Vice President 49 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 52 6/1/83 *
Timothy J. Medlock Vice President and Treasurer 33 6/1/88
Thomas W. Boland Vice President 32 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 serves as the
Adviser. The business experience of each of the directors and principal
executive officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is also a member of the Board of Directors and
the Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First
Vice President of VMS Realty Partners where he was responsible for origination
and structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is a Director of the Managing General Partner and a Consultant
of PWI. Mr. Pratt joined PWI as Counsel in 1946 and since that time has held a
number of positions including Director of both the Investment Banking Division
and the International Division, Senior Vice President and Vice Chairman of PWI
and Chairman of PaineWebber International, Inc.
J. Richard Sipes is a Director of the Managing General Partner and a Director
of the Adviser. Mr. Sipes is an Executive Vice President at PaineWebber. He
joined the firm in 1978 and has served in various capacities within the Retail
Sales and Marketing Division. Before assuming his current position as Director
of Retail Underwriting and Trading in 1990, he was a Branch Manager, Regional
Manager, Branch System and Marketing Manager for a PaineWebber subsidiary,
Manager of Branch Administration and Director of Retail Products and Trading.
Mr. Sipes holds a B.S. in Psychology from Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI
in 1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. He began his career in 1974 with Arthur Young & Company in Houston.
Mr. Arnold is a Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company. John B. Watts III is a
Senior Vice President of the Managing General
Partner and a Senior Vice President of the Adviser which he joined in June 1988.
Mr. Watts has had over 16 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an 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 were
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, 1995, 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 renumeration 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 began paying cash distributions to the Unitholders on a
quarterly basis at a rate of 3% per annum on the remaining invested capital
effective for the second quarter of fiscal 1995. The annual rate was increased
to 3.25% for the third quarter and 3.5% for the quarter ended March 31, 1995.
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.
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, Second 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 the officers and directors 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 officer or
director 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 Second 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 also officers of PaineWebber Properties Incor-
porated (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. In addition, the General Partners and
their affiliates are reimbursed for their direct expenses relating to the
offering of units, the administration of the Partnership and the operations of
the Partnership's real property investments.
All distributable cash, as defined, for each fiscal year will be distrib-
uted 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 and tax
losses of the Partnership from both current operations and capital transactions
generally will be allocated 99% to the Limited Partners and 1% to the General
Partners, except that 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. 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 the 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 of up
to 1% of the gross offering proceeds outstanding. However, during the quarter
ended June 30, 1991 the Partnership reached a limitation on the cumulative
amount of management fees that can be earned by the Adviser under the terms of
the original Prospectus. Future management fees will only be earned if the
Partnership generates Distributable Cash, as defined. Therefore, the accrual of
management fee expense was suspended upon reaching this limitation. During
fiscal 1995 the Partnership instituted the payment of quarterly distributions
and, as a result, the Adviser was paid $29,000 in management fees per the
advisory contract.
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, 1995 is $71,719 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 $2,372 (included in general and administrative expenses) for managing
the Partnership's cash assets during the year ended March 31, 1995. 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at page
IV-3 are filed as part of this Report.
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
(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.
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 TWO LP
By: Second PW Growth Properties, Inc.
Managing General Partner
By: /s/ Lawrence A. Cohen
Lawrence A. Cohen
President and
Chief Executive Officer
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: June 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
By:/s/ Albert Pratt Date: June 28, 1995
Albert Pratt
Director
By: /s/ J. Richard Sipes Date: June 28, 1995
J. Richard Sipes
Director
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(3)
PAINE WEBBER GROWTH PROPERTIES TWO LP
INDEX TO EXHIBITS
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
(3) and (4) Prospectus of the Partnership Filed with the Commission
dated October 6, 1983, as pursuant to Rule 424(c) and
supplemented, with particular incorporated herein by
reference to the Amended and reference.
Restated Certificate and
Agreement of Limited Partnership
(10) Material contracts previously Filed with the Commission p
filed as exhibits to registration to Section 13 or 15(d) of
statements and amendments thereto Securities Act of 1934 and
of the registrant together with incorporated herein by
all such contracts filed as 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 1995 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
1 of this Report Page I-
1, to which reference is
hereby made.
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2) AND ITEM 14(D)
PAINE WEBBER GROWTH PROPERTIES TWO LP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
PAINE WEBBER GROWTH PROPERTIES TWO LP:
Reports of independent auditors F-2
Balance sheets as of March 31, 1995 and 1994 F-4
Statements of operations for the years ended
March 31, 1995, 1994 and 1993 F-5
Statements of changes in partners' capital (deficit)
for the years ended March 31, 1995, 1994 and 1993 F-6
Statements of cash flows for the years ended
March 31, 1995, 1994 and 1993 F-7
Notes to financial statements F-8
COMBINED JOINT VENTURES OF PAINE WEBBER GROWTH PROPERTIES TWO LP:
Reports of independent auditors F-16
Combined balance sheets as of December 31, 1994
and 1993 F-18
Combined statements of operations and changes in
venturers' capital for the years ended
December 31, 1994, 1993 and 1992 F-19
Combined statements of cash flows for the years
ended December 31, 1994, 1993 and 1992 F-20
Notes to combined financial statements F-21
Schedule III-Real Estate and Accumulated Depreciation F-26
Other schedules have been omitted since the required information is not
present or is 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.
REPORT OF INDEPENDENT AUDITORS
The Partners
Paine Webber Growth Properties Two LP:
We have audited the accompanying balance sheets of PaineWebber Growth
Properties Two LP as of March 31, 1995 and 1994, and the related statements of
operations, changes in partners' capital (deficit) and cash flows for each of
the three years in the period ended March 31, 1995. 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 did
not audit the financial statements of Montgomery Village HWH Associates, which
statements reflect 24% and 27% of the Partnership's total assets as of March 31,
1995 and 1994, respectively, and 27%, 14% and 10% of the Partnership's share of
ventures' losses for the years ended March 31, 1995, 1994 and 1993,
respectively. Those statements were audited by other auditors, whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for Montgomery Village HWH Associates, is based solely on the report of the
other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
Note 4 to the financial statements discusses the status of the debt secured
by the Hudson Apartments, in which the Partnership has a joint venture interest.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of PaineWebber Growth Properties Two LP at March 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1995 in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
June 23, 1995
Reznick Fedder & Silverman
Certified Public Accountants
217 East Redwood Street, Suite 1900
Baltimore, MD 21202
INDEPENDENT AUDITORS' REPORT
The Partners
Montgomery Village HWH Associates:
We have audited the accompanying balance sheets of Montgomery Village HWH
Associates as of December 31, 1994 and 1993 and the related statements of
operations, changes in partners' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of partnership's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Montgomery Village HWH
Associates as of December 31, 1994 and 1993 and the results of its operations,
the changes in partners' equity and its cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
s/s Reznick Fedder & Silverman
Reznick Fedder & Silverman
Baltimore, Maryland
January 5, 1995
PAINE WEBBER GROWTH PROPERTIES TWO LP
BALANCE SHEETS
March 31, 1995 and 1994
(In Thousands, except for per Unit Data)
ASSETS
1995 1994
Investments in joint ventures, at equity $ 2,777 $ 6,157
Investment held for sale 350 -
Cash and cash equivalents 1,053 514
$ 4,180 $ 6,671
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 55 $ 8
Total liabilities 55 8
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net losses (112) (89)
Cash distributions (3) -
Limited Partners ($1,000 per Unit,
33,410 Units outstanding):
Capital contributions, net of offering costs 29,778 29,778
Cumulative net losses (10,382) (8,159)
Cumulative cash distributions (15,157) (14,868)
Total partners' capital 4,125 6,663
$ 4,180 $ 6,671
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES TWO LP
STATEMENTS OF OPERATIONS
For the years ended March 31, 1995, 1994 and 1993
(In Thousands, except for per Unit Data)
1995 1994 1993
REVENUES:
Interest income $ 50 $ 16 $ 17
Reimbursements from affiliate 177 185 185
227 201 202
EXPENSES:
Management fees 29 - -
General and administrative 263 216 180
292 216 180
Operating income (loss) (65) (15) 22
Partnership's share of
ventures' losses (161) (309) (867)
Loss on write-down of
investment to fair value (2,019) - -
NET LOSS $(2,245) $ (324) $ (845)
Per Limited Partnership Unit:
Net loss $(66.54) $ (9.60) $(25.05)
Cash distributions $ 8.68 $ - $ -
The above per Limited Partnership Unit information is based upon the 33,410
Limited Partnership Units outstanding during each year.
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES TWO LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended March 31, 1995, 1994 and 1993
(In Thousands)
General Limited
Partners Partners Total
Balance at March 31, 1992 $ (77) $ 7,909 $ 7,832
Net loss (8) (837) (845)
BALANCE AT MARCH 31, 1993 (85) 7,072 6,987
Net loss (3) (321) (324)
BALANCE AT MARCH 31, 1994 (88) 6,751 6,663
Cash distributions (3) (290) (293)
Net loss (22) (2,223) (2,245)
BALANCE AT MARCH 31, 1995 $ (113) $ 4,238 $ 4,125
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES TWO LP
STATEMENTS OF CASH FLOWS
For the years ended March 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
1995 1994 1993
Cash flows from operating activities:
Net loss $ (2,245) $ (324) $ (845)
Adjustments to reconcile net loss
to net cash used
for operating activities:
Reimbursements from affiliate (177) (185) (185)
Partnership's share of ventures' losses 161 309 867
Loss on write-down of investment to
fair value 2,019 - -
Changes in assets and liabilities:
Accounts payable - affiliates - (10) -
Accounts payable and accrued
expenses 47 (17) 3
Total adjustments 2,050 97 685
Net cash used for operating
activities (195) (227) (160)
Cash flows from investing activities:
Distributions from joint ventures 1,034 347 274
Additional investments in joint ventures (7) (117) (225)
Net cash provided by investing
activities 1,027 230 49
Cash flows from financing activities:
Distributions to partners (293) - -
Net increase (decrease) in cash and
cash equivalents 539 3 (111)
Cash and cash equivalents, beginning of
year 514 511 622
Cash and cash equivalents, end of year $ 1,053 $ 514 $ 511
See accompanying notes.
1.General
Paine Webber Growth Properties Two LP (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in June 1983
for the purpose of investing in a portfolio of rental apartment and commercial
properties which have potential for near-term capital appreciation. The
Partnership authorized the issuance of Units (at $1,000 per Unit) of which
33,410, representing capital contributions of $33,410,000, were subscribed and
issued between October 1983 and October 1984.
2.Summary of Significant Accounting Policies
The accompanying financial statements include the Partnership's investments
in three joint venture partnerships which own operating properties. The
Partnership accounts for its investments in joint venture partnerships using the
equity method because the Partnership does not have majority voting control.
Under the equity method the investment in a joint venture is carried at cost
adjusted for the Partnership's share of the venture's earnings and losses and
distributions. All of the joint venture partnerships are required to maintain
their accounting records on a calendar basis for income tax reporting purposes.
As a result, the Partnership recognizes its share of the income or loss from the
joint ventures based on financial information which is three months in arrears
to that of the Partnership. See Note 4 for a description of the joint venture
partnerships.
The Partnership has reviewed FAS No. 121 `Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of 'which is
effective for financial statements for years beginning after December 15, 1995,
and believes this new pronouncement will not have a material effect on the
Partnership's financial statements.
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.
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 Second 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 also officers of PaineWebber Properties Incor-
porated (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. In addition, the General Partners and
their affiliates are reimbursed for their direct expenses relating to the
offering of units, the administration of the Partnership and the operations of
the Partnership's real property investments.
All distributable cash, as defined, for each fiscal year will be distrib-
uted 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 and tax
losses of the Partnership from both current operations and capital transactions
generally will be allocated 99% to the Limited Partners and 1% to the General
Partners, except that 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. 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 the 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 of up
to 1% of the gross offering proceeds outstanding. However, during the quarter
ended June 30, 1991 the Partnership reached a limitation on the cumulative
amount of management fees that can be earned by the Adviser under the terms of
the original Prospectus. Future management fees are limited further to 10% of
the Distributable Cash, as defined, of the Partnership. Therefore, the accrual
of management fee expense was suspended upon reaching this limitation. For the
year ended March 31, 1995, the Adviser earned $29,000 in management fees as a
direct result of the commencement of regular quarterly distributions effective
for the second quarter of fiscal 1995.
In connection with investing Partnership capital, the Adviser earned
acquisition fees of up to 9% of the gross proceeds of the offering. A portion
of these acquisition fees ($718,000) were deferred at the time the joint venture
interests were acquired and were payable from distributable net cash flow, as
defined, generated by the operating investment properties. As of March 31,
1992, all deferred acquisition fees had been paid in full.
In connection with the sale of the properties, the Adviser may receive real
estate brokerage commissions in an amount of up to 2% of the selling prices of
properties sold upon the disposition of Partnership investments. Payments of
such amounts is subordinated to the payment of certain amounts to the Limited
Partners. To date the Adviser has not received any real estate brokerage
commissions.
Included in general and administrative expenses for the years ended March
31, 1995, 1994 and 1993 are $71,719, $66,639 and $79,698, 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 $2,372, $1,459, and $3,115 (included in general and administrative
expenses) for managing the Partnership's cash assets during the years ended
March 31, 1995, 1994 and 1993, respectively.
4.Investments in Joint Venture Partnerships
The Partnership has investments in three joint ventures. These joint
ventures are accounted for on the equity method in the Partnership's financial
statements. For income tax reporting purposes, these joint ventures are
required to maintain their accounting records on a calendar year basis. As a
result, the joint ventures are accounted for based on financial information
which is three months in arrears to that of the Partnership.
Condensed combined financial statements of these joint ventures, for the
periods indicated, are as follows:
CONDENSED COMBINED BALANCE SHEETS
December 31, 1994 and 1993
(in thousands)
Assets
1994 1993
Current assets $ 4,892 $ 6,224
Operating investment property, net 31,147 30,755
Other assets 842 945
$ 36,881 $ 37,924
Liabilities and Partners' Capital
Current liabilities $ 3,734 $ 1,018
Other liabilities 2,096 2,158
Long-term mortgage debt, less current portion 27,656 30,524
Partnership's share of combined capital 3,870 4,504
Co-venturers' share of combined capital (deficit) (475) (280)
$ 36,881 $ 37,924
Reconciliation of Partnership's Investment
March 31, 1995 and 1994
(in thousands)
1995 1994
Partnership's share of capital at December 31,
as shown above $ 3,870 $ 4,504
Less: Partnership's share of capital from investment
held for sale (1) (2,204) -
Partnership's share of ventures' current
liabilities and long-term debt - 279
Reimbursement of management fees and expenses
receivable from joint venture (2) 1,415 1,521
Timing difference due to contributions (distributions)
made subsequent to December 31 (see Note 2) (304) (147)
Investments in joint ventures, at equity at March 31$ 2,777 $ 6,157
(1) As of March 31, 1995, the Partnership's investment in Hudson Partners is
recorded as held for sale and is separately classified on the accompanying
1995 balance sheet at its estimated fair value (see discussion below).
(2) In accordance with the Portland Center joint venture agreement, the
Partnership recorded reimbursement revenues for the years ended March 31,
1995, 1994 and 1993 of $177,365, $185,200 and $184,952, respectively, for the
reimbursement of certain Partnership expenses. The Portland Center joint
venture records a comparable reimbursement expense in its statement of
operations which is reflected in the Partnership's share of ventures' losses.
Accordingly, the accounting for these reimbursements has no material effect
on the Partnership's net capital or its results of operations. The
reimbursements due the Partnership are payable only out of net cash flow of
the operating property and are cumulative to the extent not paid. A
cumulative total of $1,414,898 and $1,520,513 remained unpaid as of March 31,
1995 and 1994, respectively, which is recorded in the joint venture
investment balance on the accompanying balance sheet.
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the years ended December 31, 1994, 1993 and 1992
(in thousands)
1994 1993 1992
Rental revenues and expense recoveries$ 7,757 $ 7,341 $ 7,115
Interest and other income 233 194 164
7,990 7,535 7,279
Property operating expenses 3,874 3,767 3,826
Interest expense 2,684 2,400 2,726
Depreciation and amortization 1,621 1,719 1,673
8,179 7,886 8,225
Net loss $ (189) $ (351) $ (946)
Net loss:
Partnership's share of
combined net loss $ (161) $ (309) $ (867)
Co-venturers' share of
combined net loss (28) (42) (79)
$ (189) $ (351) $ (946)
Investments in joint ventures, at equity is the Partnership's net
investment in the joint venture partnerships. These joint ventures are subject
to partnership agreements which determine the distribution of available funds,
the disposition of the ventures' assets and the rights of the partners,
regardless of the Partnership's percentage ownership interest in the ventures.
Substantially all of the Partnership's investments in these joint ventures are
restricted as to distributions.
Investments in joint ventures, at equity on the balance sheet at March 31,
is comprised of the following investment carrying values (in thousands):
1995 1994
Montgomery Village HWH Associates $ 1,483 $ 1,822
Oregon Portland Associates 1,294 1,944
Hudson Partners - (1) 2,391
$ 2,777 $ 6,157
(1) As noted above, the Partnership's investment in Hudson Partners is held for
sale as of March 31, 1995 (see discussion below).
The cash distributions received from the Partnership's joint venture
investments during fiscal 1995, 1994 and 1993 are as follows (in thousands):
1995 1994 1993
Montgomery Village HWH Associates $ 445 $ 347 $ 274
Oregon Portland Associates 586 - -
Hudson Partners 3 - -
$ 1,034 $ 347 $ 274
A description of the ventures' properties and the terms of the joint
venture agreements are summarized below:
(a) Montgomery Village HWH Associates
On December 29, 1983 the Partnership acquired an interest in Montgomery
Village HWH Associates, a Maryland general partnership organized to purchase and
operate The Hamlet and Walker House, two apartment complexes located in
Montgomery Village, Maryland with a total of 1,060 units. The Partnership is a
general partner in the joint venture. The Partnership's co-venture partner is
an affiliate of General American Real Estate and Development, Inc. The
properties were purchased on March 9, 1984.
The aggregate cash investment by the Partnership for its interest was
approximately $12,982,000 (including an acquisition fee of $1,100,000 paid to
the Adviser and fees aggregating $150,000 paid to an affiliate of the co-
venturer). In addition, acquisition fees aggregating $350,000 were deferred at
the time of purchase and were paid to the Adviser from distributable net cash
flow and net sale proceeds of the joint venture. The apartment complexes were
acquired subject to nonrecourse mortgages totalling approximately $24,639,000 at
the time of closing.
On September 30, 1986, The Hamlet Apartments was sold. The sales price was
$38,000,000, with $36,000,000 paid in cash and the remainder paid in the form of
a second mortgage note of $2,000,000. The Partnership received a distribution
of $12,973,283 and was allocated a gain of $9,320,750 from the sale in 1986.
The note bore interest at 9% with principal and interest payable on September
30, 1991. The joint venture received $500,000 during calendar 1988 as partial
prepayment of the note and, on August 23, 1988, the partners entered into an
agreement for the distribution of this amount. The co-venturer received
$427,000 of the $500,000 consisting of $100,000 for deferred consulting fees,
$177,000 as compensation owed for negotiating the sale of The Hamlet, and
$150,000 for capital proceeds distributions deferred at the time of the sale.
The remaining $73,000 was paid to the Adviser as deferred acquisition fees. The
joint venture received $2,357,295 from the maturity of the note and interest
receivable related to the sale of The Hamlet in September of 1991. The
Partnership received the entire amount of the proceeds. The proceeds from the
note were used to make a special distribution of approximately $1.5 million to
the Limited Partners and to pay previously deferred management fees owed to the
Adviser totalling approximately $731,000. The remainder of the $2.4 million was
added to the Partnership's cash reserves. The net proceeds arising from the
sale of The Hamlet were not distributed in accordance with the joint venture
agreement as outlined below, however the partners agreed to the order of the
distribution. Distributions of the remaining amounts to be received from the
future sale of the Walker House will be allocated so that in total, cumulative
sale or refinancing proceeds will have been allocated in accordance with the
joint venture agreement. On November 29, 1989 the joint venture refinanced the
mortgage debt secured by the Walker House Apartments, replacing its original $4
million, 9.75% loan with a $5.1 million, 9.5% nonrecourse loan due in December
of 1996.
The joint venture agreement provides that distributable net cash flow, to
the extent that it exceeds minimums, as defined, will be allocated 99% to the
Partnership and 1% to the co-venturer, as a distribution to the partners.
Taxable income and tax loss from operations in each year are 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 tax loss.
Upon sale or refinancing, the Partnership is entitled to an amount equal to
its investment in the properties plus a 7% simple, cumulative return per annum
on its investment as a first priority, after payment of mortgage debt and any
deferred fees then payable. Next, any accrued subordinated management fees are
to be paid. Proceeds are then to be applied to the payment of accrued interest
and then principal on any outstanding operating notes. The co-venturer is then
to receive an amount equal to its remaining investment. Remaining proceeds are
to 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 properties is to
be allocated between the Partnership and the co-venturer generally as sales
proceeds are distributed.
In the event the joint venture requires additional funds, such funds will
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.
(b) Oregon Portland Associates
On October 28, 1983, the Partnership acquired an interest in Oregon
Portland Associates, a newly formed Oregon general partnership organized to
purchase and operate Portland Center, a residential apartment and office complex
located in Portland, Oregon with a total of 525 apartment units and 28,328
square feet of office space. The Partnership is a general partner in the joint
venture. The Partnership's co-venture partner is an affiliate of Golub &
Company. The property was purchased on April 26, 1984.
The aggregate cash investment by the Partnership for its interest was
approximately $11,097,000 (including acquisition fees of $800,000 paid to the
Adviser and $280,000 paid to an affiliate of the co-venturer). In addition,
acquisition fees aggregating $280,000 were deferred at the time of purchase and
were paid to the Adviser out of net cash flow of the joint venture. The
apartment complex was acquired subject to nonrecourse mortgage balances
totalling approximately $18,493,000 at the time of the closing. During fiscal
1994, the joint venture refinanced its outstanding debt obligation with a new
nonrecourse loan in the amount of approximately $23 million issued in
conjunction with an insured loan program of the Department of Housing and Urban
Development (HUD). The loan, which is fully assumable, has a 35-year maturity
and bears interest at a fixed rate of 7.125% per annum. As part of the HUD
insured loan program, the joint venture was required to establish escrow
accounts for replacement reserves and other required repairs. The balance of
these restricted escrow deposits totalled approximately $3.3 million and $4
million as of December 31, 1994 and 1993, respectively. The excess loan
proceeds, after repayment of the outstanding indebtedness, were used to pay
transaction costs and to fund the required escrow accounts.
Pursuant to the agreement, the Partnership is to be reimbursed each year by
the joint venture for the joint venture's share of the management fee and
expenses (a "deferred fee") allocable to or incurred by the Partnership in
connection with the management of the property. These fees are payable only out
of net cash flow, as defined, and are cumulative to the extent not paid.
The joint venture agreement provides that net cash flow, as defined, will
be allocated first to the payment of any deferred fees then payable, then to the
payment of interest and principal on any loans made by the partners to the joint
venture, and any remaining amounts 99% to the Partnership and 1% to the co-
venturer as a distribution to the partners. Such distributions are subject to
the terms of the first mortgage and a regulatory agreement.
Net proceeds (after repayment of third-party indebtedness and the
establishment of any necessary reserves) from a sale or refinancing will be
distributed first to the payment of all deferred fees then payable, then to the
payment of principal and interest on certain loans made by the partners to the
joint venture. The Partnership will then receive an amount equal to its
investment in the property plus a 6% noncompounded cumulative return on its
investment. Interest and principal on any remaining loans made by the partners
to the joint venture will then be paid. Next, the co-venturer will be paid an
amount equal to its remaining investment. Any remaining proceeds will be split
between the Partnership and the co-venturer in varying proportions which
increase in the co-venturer's favor from 5% to 40% in accordance with the joint
venture agreement. Such payments to the partners, except for the payment of
interest and principal on any remaining loans as described above, will not be
made if a partner's account in the joint venture equals zero, until sufficient
distributions have been made to the other partner in order to bring that
partner's capital account to zero.
Taxable income and tax loss from operations in each year are 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 tax loss. Taxable
income and tax loss resulting from a sale of the property will be allocated
between the Partnership and the co-venturer generally as sales proceeds are
distributed.
The joint venture originally 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, that provided for management and leasing
commission fees to be paid to the property manager. The management fee was 5%
of gross rents, as defined. In September of 1989 the Partnership exercised its
right to terminate the contract and hired an unaffiliated party to manage the
property. The joint venture continues to pay a joint venture management fee to
the original property manager. This fee is equal to 1% of gross rents, as
defined.
In the event the joint venture requires additional funds, such 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. During fiscal 1994, the Partnership advanced 100% of the
funds required by the venture to close the debt refinancing transaction
described above. Such advances, which totalled approximately $117,000, were
repaid in full during fiscal 1995, including accrued interest. All such amounts
are reflected as distributions received in the Partnership's financial
statements.
(c) Hudson Partners
On November 20, 1984 the Partnership acquired an interest in Hudson
Partners, a Texas general partnership organized to purchase and operate the
Hudson Apartments, a residential apartment complex located in Tyler, Texas with
a total of 144 apartment units. The Partnership is a general partner in the
joint venture. The Partnership's original co-venture partner was an affiliate
of the Trammel Crow organization. The property was purchased on November 20,
1984.
On October 31, 1989, the co-venturer assigned its entire ownership interest
in Hudson Partners to Second PW Growth Properties, Inc., ("Growth II") the
Managing General Partner of the Partnership. The assignment included all prior
interests, obligations and responsibilities of the original co-venture partner.
On October 30, 1990, an amended and restated joint venture agreement was entered
into, whereby: the Partnership assigned its entire partnership interest to
PaineWebber Hudson Partners, Ltd. ("PW Hudson"), Growth II withdrew from the
joint venture, and Hudson Associates Ltd. (Associates) was admitted into the
joint venture in exchange for a $600,000 cash capital contribution. PW Hudson
is a Texas limited partnership between the Partnership as general partner and
Growth II as a limited partner. Associates is an affiliate of Horn-Barlow
Companies. During fiscal 1995, the co-venture partner approached the
Partnership about the possibility of purchasing the Partnership's interest in
the Hudson joint venture in conjunction with the expected refinancing
transaction discussed below. Subsequent to year end, the Partnership agreed to
sell its interest in Hudson Partners for $350,000. While such proceeds would be
substantially below the amount of the Partnership's original investment,
management believes that the offer is reflective of the current fair value of
the Partnership's interest and that it may be an opportune time to dispose of
this investment. This transaction remains contingent upon the proposed lender
advancing sufficient funds to the co-venture partner for the purpose of
purchasing the Partnership's interest. Accordingly, there are no assurances
that this transaction will be consummated. Nonetheless, since it is the
Partnership's intention to sell its interest, the investment in Hudson Partners
has been separately classified as an investment held for sale as of March 31,
1995 and its net carrying value has been written down to $350,000. The write-
down resulted in the recognition of a loss of $2,019,000 in fiscal 1995.
The aggregate cash investment by the Partnership for its interest was
approximately $2,611,000 (including acquisition fees of $183,000 to the Adviser
and $66,000 to an affiliate of the co-venturer). In addition, acquisition fees
aggregating $88,000 were deferred and paid to the Adviser from distributable net
cash flow of the joint venture, as defined. The apartment complex was acquired
subject to a nonrecourse mortgage balance of $4,500,000 at the time of the
closing. In October 1990, the Partnership paid $3,149,939 on the old mortgage
and the remaining principal balance of $1,995,318, plus the accrued and deferred
interest balance of $216,566, were forgiven by the lender. A substantial
portion of the $3,149,939 payment was funded by a new $2,666,000 nonrecourse
mortgage note payable entered into on October 30, 1990, which bears interest at
10% per annum and matures in November 1995. The venture is currently in the
process of seeking financing to repay the maturing first mortgage loan
obligation; however no firm commitments have been obtained. The ability of the
joint venture to continue as a going concern is dependent upon the successful
refinancing of the mortgage loan. This situation raises substantial doubt about
the ability of the joint venture to continue as a going concern. The financial
statements of the joint venture do not include any adjustments that may result
from the outcome of this uncertainty. The total assets, total liabilities,
gross revenues and total expenses of Hudson Partners included in the
accompanying 1994 condensed combined balance sheet and summary of operations
total $5,437,000, $3,484,000, $832,000 and $885,000, respectively.
The net profits and losses of the joint venture were allocated 99% to the
Partnership and 1% to the co-venturer through October 30, 1990. Thereafter, in
accordance with the terms of the restated joint venture agreement, income or
gain shall be allocated, first, to Associates until such time as it has been
allocated cumulative income or gain equal to the cumulative amount, if any, of
its Preferred Return, as defined, and LC Preferred Return, if any, as defined,
distributed to it during the year, and, second to PW Hudson and Associates until
such time as they have been allocated cumulative income or gain equal to, or in
proportion to, if there is insufficient income or gain, the respective
cumulative distributions to them during the year relative to proceeds from
Capital Transactions, as defined. Losses are to be allocated equally between PW
Hudson and Associates. Allocations of the joint venture's operations among the
partners for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
The income and losses of PW Hudson in each fiscal year shall be allocated
99.99% to the Partnership and .01% to Growth II. Available cash shall first be
used to repay interest and principal on Optional Loans, and then 99.99% to the
Partnership and .01% to Growth II.
If additional cash is required, it is to be provided by PW Hudson and
Hudson Associates by additional capital contributions or operating loans in
accordance with the terms of the restated joint venture agreement.
The restated joint venture agreement provides for the monthly calculation
of distributable net cash flow. The distributable net cash flow will be
allocated first to Associates in an amount equal to its Preferred Return, as
defined ($90,000 annually as of December 31, 1994), then to Associates in an
amount equal to its LC Preferred Return, if any, as defined, with any remaining
amounts allocated equally between PW Hudson and Associates.
Any distribution of proceeds resulting from an Interim Capital Transaction,
as defined, shall be distributed, after payment of any debt, including any other
loans made by PW Hudson and Associates to the joint venture and the
establishment of any reserves for taxes and the payment of other costs and
expenses, as follows: 1) to Associates in an amount equal to the Letter of
Credit Funds, if any, as defined, 2) to Associates in an amount equal to its
Unreturned Contributions, as defined, 3) to Associates in an amount equal to the
LC Preferred Return, if any, as defined, 4) $150,000 to Associates, 5) $150,000
to PW Hudson, and 6) any remaining amounts equally between PW Hudson and
Associates. Any distribution of proceeds resulting from a Capital Transaction,
as defined, other than an Interim Capital Transaction, shall be distributed to
PW Hudson and Associates in accordance with their respective Capital Account
balances, as defined.
The joint venture had initially entered into a property management
agreement with an affiliate of the original co-venturer. In August of 1990, the
Partnership terminated that contract and entered into a property management
contract with an affiliate of Associates that provides for the management fee to
be paid at the rate of 5% of monthly gross rents, as defined in the agreement.
5. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse effect
on the Partnership's financial statements, taken as a whole.
REPORT OF INDEPENDENT AUDITORS
The Partners
PaineWebber Growth Properties Two LP:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of PaineWebber Growth Properties Two LP as of December 31, 1994
and 1993, and the related combined statements of operations and changes in
venturers' capital and cash flows for each of the three years in the period
ended December 31, 1994. 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 did not audit the financial statements of
Montgomery Village HWH Associates, which statements reflect 18% and 18% of the
total assets of the Combined Joint Ventures of PaineWebber Growth Properties Two
LP as of December 31, 1994 and 1993, respectively, and 21%, 22% and 23% of the
combined revenues of the Combined Joint Ventures of PaineWebber Growth Partners
Two LP for the years ended December 31, 1994, 1993 and 1992, respectively.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Montgomery
Village HWH Associates, is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
Note 5 to the combined financial statements discusses the status of the debt
secured by the operating investment property owned by Hudson Partners.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Combined Joint Ventures of PaineWebber
Growth Properties Two LP at December 31, 1994 and 1993, and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 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
Boston, Massachusetts
February 9, 1995
Reznick Fedder & Silverman
Certified Public Accountants
217 East Redwood Street, Suite 1900
Baltimore, MD 21202
INDEPENDENT AUDITORS' REPORT
The Partners
Montgomery Village HWH Associates:
We have audited the accompanying balance sheets of Montgomery Village HWH
Associates as of December 31, 1994 and 1993 and the related statements of
operations, changes in partners' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of partnership's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Montgomery Village HWH
Associates as of December 31, 1994 and 1993 and the results of its operations,
the changes in partners' equity and its cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ Reznick Fedder & Silverman
Reznick Fedder & Silverman
Baltimore, Maryland
January 5, 1995
COMBINED JOINT VENTURES OF
PAINEWEBBER GROWTH PROPERTIES TWO LP
COMBINED BALANCE SHEETS
December 31, 1994 and 1993
(In Thousands)
Assets
1994 1993
Current assets:
Cash and cash equivalents $ 266 $ 743
Accounts receivable 58 67
Funds held in escrow 845 742
Prepaid expenses 450 620
HUD repair escrow 1,010 1,373
HUD reserve for replacements 2,255 2,619
Other assets 8 60
Total current assets 4,892 6,224
Operating investment properties:
Land 6,715 6,715
Buildings, improvements and equipment 40,104 38,251
46,819 44,966
Less accumulated depreciation (15,672) (14,211)
31,147 30,755
Deferred expenses, net of accumulated
amortization of $234 ($131 in 1993) 842 945
$ 36,881 $ 37,924
Liabilities and Venturers' Capital
Current liabilities:
Accounts payable and accrued liabilities $ 519 $ 341
Deferred income 52 33
Tenant security deposits 286 309
Payable to property manager 9 50
Advance from venturer - 117
Current portion of long-term debt 2,868 168
Total current liabilities 3,734 1,018
Expense reimbursement payable to venturer 1,415 1,477
Deferred fees payable to affiliates 33 33
Deferred interest payable 243 243
Notes payable to venturers 405 405
Long-term debt, less current portion 27,656 30,524
Venturers' capital 3,395 4,224
$ 36,881 $37,924
See accompanying notes.
COMBINED JOINT VENTURES OF
PAINEWEBBER GROWTH PROPERTIES TWO LP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL
For the years ended December 31, 1994, 1993 and 1992
(In Thousands)
1994 1993 1992
REVENUES:
Rental income and expense recoveries $ 7,757 $ 7,341 $ 7,115
Interest and other income 233 194 164
7,990 7,535 7,279
EXPENSES:
Interest expense and related financing fees 2,787 2,455 2,779
Depreciation expense 1,519 1,664 1,620
Real estate taxes (net of refunds of
$15, $66 and $63 in 1994, 1993 and 1992,
respectively) 663 642 824
Salaries and related costs 681 725 751
Maintenance 705 608 544
Utilities 608 600 527
Management fees 621 540 525
General and administrative 356 443 420
Insurance 140 119 101
Professional fees 29 29 64
Other 70 61 70
8,179 7,886 8,225
Net loss (189) (351) (946)
Contributions from venturers 7 7 225
Distributions to venturers (647) (299) (531)
Venturers' capital, beginning of year 4,224 4,867 6,119
Venturers' capital, end of year $ 3,395 $ 4,224 $ 4,867
See accompanying notes.
COMBINED JOINT VENTURES OF
PAINEWEBBER GROWTH PROPERTIES TWO LP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
1994 1993 1992
Cash flows from operating activities:
Net loss $ (189) $ (351) $ (946)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation expense 1,519 1,664 1,620
Amortization of deferred financing costs 103 55 53
Amortization of long-term debt discount - 35 104
Changes in assets and liabilities:
Accounts receivable 9 (30) 53
Funds held in escrow (106) 225 (157)
Prepaid expenses 170 (200) 35
Other current assets 52 (55) 94
Accounts payable and accrued liabilities 174 (150) (48)
Deferred income 19 16 4
Tenant security deposits (20) (3) (40)
Payable to property manager (41) 28 -
Expense reimbursement payable to venturer (62) 193 193
Deferred interest payable - - 45
Total adjustments 1,817 1,778 1,956
Net cash provided by operating
activities 1,628 1,427 1,010
Cash flows from investing activities:
Additions to operating investment
properties (1,911) (814) (484)
Withdrawals from (additions to) HUD
repair escrow 363 (1,373) -
Withdrawals from (additions to) HUD
reserve for replacements 364 (2,581) 25
Net cash used for investing activities (1,184) (4,768) (459)
Cash flows from financing activities:
Capital contributions 7 7 225
Distributions to venturers (643) (299) (531)
Proceeds from (repayments of) advances
from venturers (117) 117 -
Principal payments on long-term debt (168) (25) (23)
Proceeds from mortgage note - 23,021 -
Retirement of long-term debt - (18,493) -
Refinancing fees paid - (812) (76)
Net cash provided by (used for)
financing activities (921) 3,516 (405)
Net increase (decrease) in cash and cash
equivalents (477) 175 146
Cash and cash equivalents, beginning of year 743 568 422
Cash and cash equivalents, end of year $ 266 $ 743 $ 568
Cash paid during the year for interest $ 2,251 $ 2,323 $ 2,577
Write off of fully amortized loan costs $ - $ 199 $ -
See accompanying notes.
1. Summary of significant accounting policies
Organization
The accompanying financial statements of the Combined Joint Ventures of
PaineWebber Growth Properties Two LP (Combined Joint Ventures) include the
accounts of Montgomery Village HWH Associates, a Maryland general partnership;
Oregon Portland Associates, an Oregon general partnership; and Hudson Partners,
a Texas 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-venturers and PaineWebber Growth Properties Two LP
("GP2").
The dates of GP2's acquisition of interests in the joint ventures are as
follows:
Date of Acquisition
Joint Venture of Interest
Montgomery Village HWH Associates March 9, 1984
Oregon Portland Associates April 26, 1984
Hudson Partners November 20, 1984
Operating investment properties
The operating investment properties are carried at the lower of cost,
reduced by accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the investment through expected future cash
flows on an undiscounted basis, which may exceed the property's current market
value. The net realizable value of a property held for sale approximates its
market value. All of the operating investment properties owned by the Combined
Joint Ventures were considered to be held for long-term investment purposes as
of December 31, 1994 and 1993. The Combined Joint Ventures capitalized property
taxes and interest incurred during the construction period of the projects along
with the costs of identifiable improvements. Depreciation expense is computed
on a straight-line basis over the estimated useful life of the buildings,
improvements and equipment, generally 5 to 40 years.
The Combined Joint Ventures have reviewed FAS No. 121 `Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of''
which is effective for financial statements for years beginning after December
15, 1995, and believe this new pronouncement will not have a material effect on
the Combined Joint Ventures' financial statements.
Deferred expenses
Deferred expenses consist of financing fees incurred in connection with the
original purchase or refinancings of the operating investment properties which
are being amortized on a straight-line basis over the term of the related loans.
Amortization of such costs 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 reporting cash flows, the Combined Joint Ventures consider
all highly liquid investments and certificates of deposit purchased with
original maturities of three months or less and money market funds to be cash
equivalents.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2.Joint Ventures
See Note 4 to the financial statements of GP2 included in this Annual
Report for a more detailed description of the joint venture partnerships.
Descriptions of the ventures' properties are summarized below:
a. Montgomery Village HWH Associates
The joint venture originally owned and operated The Hamlet and Walker
House, two apartment complexes located in Montgomery Village, Maryland with a
total of 1,060 units. On September 30, 1986, The Hamlet Apartments, which
consisted of 864 units, was sold.
b. Oregon Portland Associates
The joint venture owns and operates Portland Center, a 525-unit apartment
complex with 28,328 square feet of commercial space located in Portland, Oregon.
c. Hudson Partners
The joint venture owns and operates Hudson Apartments, a 144-unit apartment
complex located in Tyler, Texas. The first mortgage loan secured by the
property is scheduled to mature in 1995 (see Note 5).
The following description of the joint venture agreements provides certain
general information.
Allocations of net income and loss
The joint venture agreements generally provide that taxable net income and
losses from operations are to be allocated 99% to GP2 and 1% to the co-
venturers, with the exception of the Hudson joint venture.
On October 30, 1990, an amended and restated joint venture agreement was
entered into on the Hudson Apartments investment, whereby: GP2 assigned its
entire partnership interest to PaineWebber Hudson Partners, Ltd. ("PW Hudson")
and Hudson Associates Ltd. ("Associates") was admitted into the joint venture in
exchange for a $600,000 cash capital contribution. PW Hudson is a Texas limited
partnership between GP2 as general partner and Second PW Growth Properties, Inc.
("Growth II"), the Managing General Partner of GP2, as a limited partner.
Associates is an affiliate of Horn-Barlow Companies. In accordance with the
terms of this amendment, income or gain is allocated first to the new co-venture
partner until its Preferred Return, as defined in the joint venture agreement,
has been received. Income or gain is then allocated to PW Hudson and to the co-
venturer until they have been allocated cumulative income or gain equal to, or
in proportion to, if there is insufficient income or gain, the respective
cumulative distributions to them during the year relative to proceeds from
Capital Transactions, as defined in the joint venture agreement. Losses are to
be allocated equally between PW Hudson and the co-venturer. Amounts allocable
to PW Hudson are generally allocated 99.99% to GP2 and .01% to Growth II.
Allocations of net income and losses for financial reporting purposes have
been made in accordance with the allocations of taxable income or tax loss.
Gains or losses resulting from sales or other dispositions of the projects
shall be allocated as specified in the joint venture agreements.
Distributions
Except as discussed in the following paragraph, the joint venture
agreements generally provide that net cash flow (as defined in the joint venture
agreement) will be allocated as follows: first; payment of any deferred fees
payable to affiliates; second, payment of interest and principal on any loans
made by the partners and any remaining amounts 99% to GP2 and 1% to the co-
venturer.
The amended joint venture agreement of Hudson Partners provides for the
monthly calculation of distributable net cash flow. The distributable net cash
flow will be allocated first to the co-venturer in an amount equal to its
Preferred Return, as defined in the joint venture agreement ($90,000 annually as
of December 31, 1994), then to the co-venturer in an amount equal to its LC
Preferred Return, if any, as defined, with any remaining amounts allocated
equally between PW Hudson and the co-venturer. Cash flow distributed to PW
Hudson shall be used first to repay optional loans and then allocated 99.99% to
GP2 and .01% to Growth II.
Distributions of net proceeds upon the sale or disposition of the projects
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 GP2 and 10% by the co-venturers.
During 1993, GP2 advanced $117,178 to the Portland Center joint venture to
fund closing costs associated with a refinancing of the venture's first mortgage
loan. Such amount was repaid in full during 1994, including accrued interest.
The principal balance of loans payable to the venturers of the Hudson Partners
joint venture totalled $405,337 at both December 31, 1994 and 1993. Interest on
the unpaid principal of these partner loans was accrued at interest rates from
9.75% to 12% per annum through 1992. Effective January 1, 1993, the venture
partners authorized the joint venture to stop accruing interest on these notes.
Principal and interest are payable only out of distributable cash flow or
capital proceeds, as defined. Interest expense of $44,608 was deferred in 1992.
Total deferred interest on these notes amounted to $242,663 at December 31, 1994
and 1993.
3.Funds held in escrow
Funds held in escrow at December 31, 1994 and 1993 consist of cash on
deposit for the following purposes (in thousands)
1994 1993
Mortgage escrow deposits $ 321 $ 190
Real estate taxes 105 99
Capital reserve 85 121
Insurance premiums and tenant security deposits 334 332
$ 845 $ 742
4.Related Party Transactions
The Combined Joint Ventures originally entered into property management
agreements with affiliates of the co-venturers, cancellable at the joint
ventures' option upon the occurrence of certain events. During 1989 the
Portland Center and Walker House joint ventures terminated the management
contracts with the affiliates and hired unaffiliated third parties. During
1990, the Hudson Associates joint venture terminated the original contract and
entered into a property management contract with an affiliate of the new co-
venture partner. Current management fees on the three joint venture properties
are generally 5% of gross receipts, as defined.
Pursuant to the Portland Center joint venture agreement, GP2 is to be
reimbursed each year by the joint venture for its share of certain expenses
incurred by GP2 in connection with the general management of the joint venture.
GP2 earned reimbursement of management fees and expenses in the amount of
$217,061, $193,200 and $193,200 for the years ended December 31, 1994, 1993 and
1992, respectively. These fees are payable only out of net cash flow, as
defined, and are cumulative to the extent not paid. Unpaid fees of $1,414,898
and $1,477,034 were outstanding at December 31, 1994 and 1993, respectively.
GP2 and the co-venturers earned acquisition fees of $2,801,000 and
$496,000, respectively, in connection with the investments in the joint ventures
and the acquisitions of the investment properties. Such fees were capitalized
as part of the cost of the operating investment properties.
5.Long-term debt
Long-term debt at December 31, 1994 and 1993 consists of the following (in
thousands):
1994 1993
7.125% mortgage note, principal and interest
due monthly, unpaid principal due January
1, 2029, secured by the operating
investment property of the Portland Center
joint venture (see discussion below). $ 22,881 $23,021
Nonrecourse mortgage note secured by Walker
House apartment property. The loan bears
interest at 9.50%. Principal and interest
of $41,902 payable monthly with a final
balloon payment of $4,918,780 due December
1, 1996. 4,983 5,011
Nonrecourse mortgage note secured by Hudson
Apartments property. The loan bears
interest at 10%, payable monthly.
Principal to be paid at maturity, November
1995 (see discussion below). 2,660 2,660
30,524 30,692
Less current portion (2,868) (168)
$27,656 $30,524
During 1993, Oregon Portland Associates paid off a wraparound mortgage note
secured by its operating investment property and secured new permanent
financing. The new mortgage is subject to the terms of a HUD regulatory
agreement. The mortgage is interest-only for January of 1994; beginning
February 1994, payments of principal and interest in the amount of $149,095 are
to be made monthly. In conjunction with the new mortgage, the joint venture was
required to deposit portions of the proceeds into various escrow accounts. The
HUD repair escrow is to be used for specific nonrecurring landscape and site
improvements to the venture's operating property over the course of the next
year. From this account $362,828 was expended during 1994 and no funds were
expended during 1993. The HUD reserve for replacements, which totalled
approximately $2,255,000 and $2,619,000 at December 31, 1994 and 1993,
respectively, is an amount stipulated by HUD as required by the regulatory
agreement to fund ongoing betterments and replacements to the property.
The mortgage loan secured by the Hudson Apartments is scheduled to mature
in November 1995. Management of the joint venture is presently seeking new
financing to repay this maturing obligation; however, no firm commitments have
been obtained. The ability of the joint venture to continue as a going concern
is dependent upon the successful refinancing of this mortgage loan. This
situation raises substantial doubt about the joint venture's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability or classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of Hudson Partners to continue as a going concern. The total
assets, total liabilities, gross revenues, and total expenses of Hudson Partners
included in the accompanying 1994 combined balance sheet and statement of
operations total approximately $5,437,000, $3,484,000, $832,000 and $885,000,
respectively.
Scheduled maturities of long-term debt for each of the next five years and
thereafter are as follows (in thousands):
Year Amount
1995 $ 2,868
1996 5,129
1997 189
1998 203
1999 218
Thereafter 21,917
$30,524
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES OF
PAINEWEBBER GROWTH PROPERTIES TWO LP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
Cost Life on Which
Initial Cost to Capitalized Depreciation
Partnership Subsequent to Gross Amount at Which Carried in Latest
Venture Acquisition at End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction is Computed
COMBINED JOINT VENTURES:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Complex
Montgomery
Village,
Maryland $ 4,983 $ 1,211 $ 7,254 $ 914 $1,211 $8,168 $9,379 $ 3,198 3/9/84 5-30 yrs.
Apartment
Complex
Portland,
Oregon 22,88 14,700 19,453 6,117 4,700 25,570 30,270 10,634 4/26/84 7-25 yrs.
Apartment
Complex
Tyler,
Texas 2,660 799 6,161 210 804 6,366 7,170 1,840 11/20/84 5-40 yrs.
$30,524 $ 6,710 $ 32,868 $ 7,241 $6,715 $40,104 $46,819 $15,672
Notes
(A) The aggregate cost of real estate owned at December 31, 1994 for Federal
income tax purposes is approximately $51,389,000.
(B) Reconciliation of real estate owned:
1994 1993 1992
Balance at beginning of period $ 44,966 $44,170 $ 43,686
Increase due to acquisition
and improvements 1,911 814 484
Decrease due to disposals (58) (18) -
Balance at end of period $ 46,819 $44,966 $44,170
(C) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 14,211 $12,565 $ 10,945
Depreciation expense 1,519 1,664 1,620
Write-offs due to disposals (58) (18) -
Balance at end of period $ 15,672 $14,211 $ 12,565
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's annual financial statements for the year ended 3/31/95 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,053
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,053
<PP&E> 3,127
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,180
<CURRENT-LIABILITIES> 55
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,125
<TOTAL-LIABILITY-AND-EQUITY> 4,180
<SALES> 0
<TOTAL-REVENUES> 227
<CGS> 0
<TOTAL-COSTS> 292
<OTHER-EXPENSES> 161
<LOSS-PROVISION> 2,019
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,245)
<EPS-PRIMARY> (66.54)
<EPS-DILUTED> (66.54)
