UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
(Exact name of registrant as specified in its charter)
Delaware 04-2798594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X . No .
PAINE WEBBER GROWTH PROPERTIES TWO LP
BALANCE SHEETS
September 30, 1995 and March 31, 1995
(Unaudited)
(In Thousands)
ASSETS
September 30 March 31
Investments in joint
ventures, at equity $ 2,094 $ 2,777
Investment held for sale - 350
Cash and cash equivalents 1,590 1,053
$ 3,684 $ 4,180
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and
accrued expenses $ 11 $ 55
Partners' capital 3,673 4,125
$ 3,684 $ 4,180
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended September 30, 1995 and 1994
(Unaudited)
(In Thousands)
General Limited
Partner Partners
Balance at March 31, 1994 $ (88) $ 6,751
Net loss (1) (84)
BALANCE AT SEPTEMBER 30, 1994 $ (89) $ 6,667
Balance at March 31, 1995 $ (113) $ 4,238
Net loss (1) (112)
Cash distributions (3) (336)
BALANCE AT SEPTEMBER 30, 1995 $ (117) $ 3,790
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES TWO LP
STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1995 and 1994
(Unaudited)
(In Thousands, except per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
REVENUES:
Reimbursements from
affiliate $ 57 $ 46 $ 108 $ 93
Interest income 14 9 29 14
71 55 137 107
EXPENSES:
Management fees 18 - 34 -
General and administrative 61 56 106 116
79 56 140 116
Operating income (loss) (8) (1) (3) (9)
Partnership's share of
ventures' losses (30) 45 (110) (76)
NET INCOME (LOSS) $ (38) $ 44 $ (113) $ (85)
Per Limited Partnership Unit:
Net income (loss) $ (1.13) $ 1.31 $ (3.35) $(2.53)
Cash distributions $ 5.19 $ - $ 10.05 $ -
The above per Limited Partnership Unit information is based upon the 33,410
Limited Partnership Units outstanding during each period.
See accompanying notes.
PAINE WEBBER GROWTH PROPERTIES TWO LP
STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In Thousands)
1995 1994
Cash flows from operating activities:
Net loss $ (113) $ (85)
Adjustments to reconcile net loss to
net cash used for operating activities:
Reimbursements from affiliate (108) (93)
Loss from operations of investment
properties held for sale, net - -
Partnership's share of ventures' losses 110 76
Changes in assets and liabilities:
Accounts payable and accrued expenses (45) 2
Total adjustments (43) (15)
Net cash used for operating activities (156) (100)
Cash flows from investing activities:
Distributions from joint ventures 682 558
Proceeds from sale of investment 350 -
Net cash provided by investing
activities 1,032 558
Cash flows from financing activities:
Distributions to partners (339) -
Net increase in cash and cash equivalents 537 458
Cash and cash equivalents,
beginning of period 1,053 514
Cash and cash equivalents, end of period $ 1,590 $ 972
See accompanying notes.
1. General
The accompanying financial statements, footnotes and discussions should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended March 31, 1995.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Investments in Joint Venture Partnerships
The Partnership has investments in two joint venture partnerships at
September 30, 1995 (three at September 30, 1994) which own operating
properties as more fully described in the Partnership's Annual Report. The
joint ventures are accounted for by using the equity method. Under the
equity method, the investments are carried at cost adjusted for the
Partnership's share of the ventures' earnings and losses and distributions.
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. As of March 31, 1995,
the Partnership's investment in Hudson Partners was recorded as held for
sale and was separately classified on the accompanying balance sheet at its
estimated fair value. On September 12, 1995, the Partnership sold its joint
venture interest in the Hudson Apartments for $350,000 to its co-venture
partner.
Summarized operating results of the joint ventures, for the periods
indicated, are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and six months ended June 30, 1995 and 1994
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Rental revenues
and expense recoveries $1,810 $1,947 $3,580 $3,844
Interest and other income 12 45 29 79
1,822 1,992 3,609 3,923
Property operating expenses 745 739 1,486 1,546
Real estate taxes 146 172 293 329
Interest expense 546 652 1,105 1,296
Depreciation and amortization 415 393 836 843
1,852 1,956 3,720 4,014
Net income (loss) $ (30) $ 36 $ (111) $ (91)
Net income (loss):
Partnership's share of
combined income (loss) $ (30) $ 45 $ (110) $ (76)
Co-venturers' share of
combined income (loss) - (9) (1) (15)
$ (30) $ 36 $ (111) $ (91)
3. Related Party Transactions
Included in general and administrative expenses for six months ended
September 30, 1995 and 1994 is $35,000 and $34,000, respectively,
representing reimbursements to an affiliate of the Managing General
Partner for providing certain financial, accounting and investor
communication services to the Partnership.
Also included in general and administrative expenses for the six months
ended September 30, 1995 and 1994 is $2,000 and $1,000, respectively,
representing fees earned by Mitchell Hutchins Institutional Investors, Inc.
for managing the Partnership's cash assets.
As a result of the commencement of regular quarterly distributions effective
for the second quarter of fiscal 1995 the Adviser began earning a management
fee equal to approximately 10% of the Distributable Cash of the Partnership,
as defined, pursuant to the advisory agreement. The Adviser earned
management fees totalling $34,000 for the six month period ended
September 30, 1995.
4. 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.
PAINE WEBBER GROWTH PROPERTIES TWO LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As discussed in the Annual Report, during the first quarter of fiscal 1996
the Partnership agreed to the sale of its interest in the Hudson Apartments. On
September 12, 1995, the Partnership completed the sale of its joint venture
interest in the Hudson Apartments, located in Tyler, TX, for $350,000 to its co-
venture partner. While such proceeds are substantially less than the amount of
the Partnership's original investment, of $2,600,000, 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 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 did not
foresee significant appreciation in the value of the Partnership's interest in
the Hudson joint venture in the near-term. Furthermore, since the venture's new
mortgage financing was 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 believed that it was an opportune time to sell the
Partnership's investment. The Partnership will make a special distribution
to the Limited Partners of $23 per original $1,000 Unit, or approximately
$768,000, on November 15, 1995, which represents the Hudson sale proceeds
plus an amount of cash reserves that is in excess of expected future
requirements.
The current operations of the Partnership's two remaining investment
properties, the Portland Center and Walker House apartment complexes, reflect
the generally improving conditions in the real estate markets for multi-family
residential properties across the country, as previously reported. Excess cash
flow distributions from the investment properties totalled $682,000 and $558,000
for the six months ended September 30, 1995 and 1994, respectively. Management
expects to see continued improvement in the multi-family sector of the real
estate market in the near-term. The implementation of capital improvements at
Portland Center, which are discussed further below, has allowed management 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.
Management began actively marketing the property for sale in September and
subsequent to the quarter-end has received several preliminary offers.
Management intends to engage in negotiations with prospective buyers and will
continue to market the property for sale during the third quarter to attempt to
achieve the highest possible price. However, there can be no assurances that
any offers will be received at a price that management will consider acceptable
or that a sale transaction will be consummated during fiscal 1996. A sale of
the Walker House Apartments, if completed, could position the Partnership for a
possible liquidation within the next 2 to 3 years. Management's hold/sell
decisions will be based on an assessment of the impact on the overall returns to
the Limited Partners.
As discussed further in the Annual Report, management is currently in the
process of using the excess cash reserves from the December 1993 Portland Center
HUD loan refinancing to complete a major renovation program at the Portland
Center property, which includes upgrades to the common areas and many individual
units. 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 implemented a program of rental rate increases aimed at
increasing tenant turnover. Management expects to be able to lease the
renovated units at substantial rate increases. Approximately 30% of the
property's total units have been upgraded to date and rental rate increases
averaging greater than 10% 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 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, has organized a coalition of
interested property owners to attempt 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.
Consistent cash flow from operations is expected to be generated by the
Portland Center joint venture beginning in fiscal 1997 as the capital
improvement program nears completion. Because of the continued improvement in
cash flow at the Partnership's remaining 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
remaining invested capital. The annualized distribution rate has been
increased over the past twelve months and reached 4% for the quarter ended
September 30, 1995. Management expects to maintain the distribution rate
at 4% on remaining invested capital, of $532 per original $1,000 Unit, for
the remainder of fiscal 1996, unless actual results of operations, economic
conditions or other factors differ substantially from the assumptions used
in projecting the planned distribution rate.
At September 30, 1995, the Partnership had available cash and cash
equivalents of approximately $1,590,000. Such cash and cash equivalents, along
with the expected operating cash flow from the Partnership's joint venture
investments, will be utilized for the working capital needs of the Partnership
and for distributions to the partners. The source of future liquidity and
distributions to the partners is expected to be through proceeds received from
the sale or refinancing of the investment properties.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995
For the three months ended September 30, 1995, the Partnership reported a
net loss of $38,000 as compared to net income of $44,000 for the same period in
the prior year. The adverse change in net operating results for the second
quarter of fiscal 1996 was caused by an increase in the Partnership's share of
ventures' losses along with increases in management fees and general and
administrative expenses. The change in the Partnership's share of ventures'
operations was mainly due to an increase in the net losses recognized by the
Portland Center joint venture. The venture's net losses increased as a result
of increases in operating expenses and depreciation expense related to the
ongoing capital improvement program discussed further above. Operating expenses
increased due to a significant increase in advertising and other media expense
which have resulted from efforts to re-lease the renovated units. The increase
in expenses at Portland Center was partially offset by increased rental revenues
at both Portland Center and Walker House for the three months ended September
30, 1995. Partnership management fees of $18,000 were earned by the Adviser in
the current quarter as a result of the reinstatement of quarterly distributions
during the second half of fiscal 1995.
Six Months Ended September 30, 1995
For the six months ended September 30, 1995, the Partnership reported a net
loss of $113,000 as compared to a net loss of $85,000 for the same period in the
prior year. The increase in net loss is the result of increases in the
Partnership's share of ventures' losses and management fees, which were
partially offset by an increase in revenues and a slight decrease in general and
administrative expenses. The Partnership's share of losses from its two
remaining investment properties increased $48,000 for the current six-month
period mainly as a result of increased operating expenses and depreciation
expense at Portland Center related to the ongoing capital improvement program
discussed further above. Partnership management fees of $34,000 were earned by
the Adviser in the current six-month period as a result of the reinstatement of
quarterly distributions during the second half of fiscal 1995.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's annual report on Form 10-K for the year
ended March 31, 1995, 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. On May 30, 1995, the court
certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partners continue to believe that the action will be
resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
On September 20, 1995 a Form 8-K was filed by the registrant reporting
the Partnership's sale of its interest in the Hudson Apartments property.
PAINE WEBBER GROWTH PROPERTIES TWO LP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER GROWTH PROPERTIES TWO LP
By: SECOND PW GROWTH PROPERTIES, INC.
Managing General Partner
By:/s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Date: November 13, 1995
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the six months ended September
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,590
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<OTHER-SE> 3,673
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<TOTAL-REVENUES> 137
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<TOTAL-COSTS> 140
<OTHER-EXPENSES> 110
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<INCOME-PRETAX> (113)
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