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 MAY 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: 0-17147
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
(Exact name of registrant as specified in its charter)
Delaware 04-2798638
(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 QUALIFIED PLAN PROPERTY FUND THREE, LP
BALANCE SHEETS
May 31, 1995 and August 31, 1994
(Unaudited)
ASSETS
May 31 August 31
Real estate investments:
Investment property held for sale $ 4,720,000 $ 4,720,000
Investment in operating property - 250,000
Land 1,150,000 1,150,000
Mortgage loans receivable 9,185,000 9,185,000
15,055,000 15,305,000
Cash and cash equivalents 2,270,731 1,853,703
Interest receivable 85,099 85,099
Tax and tenant security deposit escrows 71,654 71,153
Prepaid expenses 1,552 17,926
Deferred expenses, net 14,336 17,081
$17,498,372 $17,349,962
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 19,373 $ 19,373
Accounts payable and accrued expenses 64,462 82,381
Tenant security deposits 14,258 14,240
Partners' capital 17,400,279 17,233,968
$17,498,372 $17,349,962
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the nine months ended May 31, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at August 31, 1993 $ 7,063 $17,120,134
Net income 10,488 1,027,786
Cash distributions (9,686) (949,257)
BALANCE AT MAY 31, 1994 $ 7,865 $17,198,663
Balance at August 31, 1994 $ 8,142 $17,225,826
Net income 11,366 1,113,888
Cash distributions (9,686) (949,257)
BALANCE AT MAY 31, 1995 $ 9,822 $17,390,457
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
REVENUES:
Interest from mortgage
loans $ 255,297 $ 255,297 $ 765,891 $ 765,891
Land rent 36,442 34,394 125,265 126,643
Interest earned on short-
term investments 31,964 16,740 81,673 44,469
Other income 9,995 6,319 23,524 19,070
333,698 312,750 996,353 956,073
EXPENSES:
Management fees 22,601 22,601 67,804 67,804
General and administrative 95,787 88,493 275,525 263,539
Amortization of deferred
expenses 914 914 2,745 2,745
119,302 112,008 346,074 334,088
Operating income 214,396 200,742 650,279 621,985
Gain on sale of investment
in operating property 61,079 - 61,079 -
Income from operations of
investment property held
for sale, net 117,662 129,655 413,896 416,289
NET INCOME $ 393,137 $ 330,397 $1,125,254 $1,038,274
Net income per Limited
Partnership Unit $10.87 $ 9.14 $31.12 $28.72
Cash distributions per Limited
Partnership Unit $ 8.84 $ 8.84 $26.52 $26.52
The above net income and cash distributions per Limited Partnership Unit are
based upon the 35,794 Units of Limited Partnership Interest outstanding during
each period.
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $1,125,254 $1,038,274
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of investment in operating property (61,079) -
Amortization of deferred expenses 2,745 2,745
Changes in assets and liabilities:
Tax and tenant security deposit escrows (501) 5,173
Prepaid expenses 16,374 11,513
Accounts payable - affiliates - (28,925)
Accounts payable and accrued expenses (17,919) (13,520)
Tenant security deposits 18 89
Total adjustments (60,362) (22,925)
Net cash provided by
operating activities 1,064,892 1,015,349
Cash flows from investing activities:
Proceeds from sale of investment
in operating property 311,079 -
Cash flows from financing activities:
Distributions to partners (958,943) (958,943)
Net increase in cash and cash equivalents 417,028 56,406
Cash and cash equivalents, beginning of period 1,853,703 1,769,705
Cash and cash equivalents, end of period $ 2,270,731 $ 1,826,111
See accompanying notes.
1.General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 31, 1994.
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.Mortgage Loan and Land Investments
The outstanding first mortgage loans and the cost of the related land to the
Partnership at May 31, 1995 and August 31, 1994 are as follows:
Amount of
Property Mortgage Loan Cost of Land
Appletree Apartments $ 4,850,000 $ 650,000
Omaha, NE
Woodcroft Shopping Center
Durham, NC
Phase I 3,100,000 360,000
Phase II 1,235,000 140,000
$ 9,185,000 $1,150,000
The interest rates on the mortgage loans range from 11% to 11.25% per annum.
The land leases have terms of 40 years. Among the provisions of the lease
agreements, the Partnership is entitled to additional rent based upon the
gross revenues from the operating properties in excess of a base amount, as
defined. For the nine months ended May 31, 1995, additional rent of $29,452
was earned from the Woodcroft Shopping Center investment. For the nine
months ended May 31, 1994, additional rent of $30,830 was earned from the
Woodcroft Shopping Center investment. The lessees have the option to
purchase the land for specified periods of time, as discussed in the Annual
Report, at a price based on fair market value, as defined, but in no event
less than the original cost to the Partnership. As of May 31, 1995, the
option to purchase the land underlying the Appletree Apartments was
exercisable. The Partnership's investments are structured to share in the
appreciation in value of the underlying real estate. Accordingly, upon
either sale, refinancing, maturity of the mortgage or exercise of the option
to purchase the land, the Partnership will receive a 33% to 50% share of the
appreciation above a specified base amount.
During fiscal 1995, the Partnership has received formal notice from the
Appletree borrower of its intent to prepay the Partnership's mortgage loan
and repurchase the underlying land. The amount to be received by the
Partnership as its share of the appreciation of the Appletree property cannot
be determined with certainty at the present time. The terms of the Appletree
mortgage loan would require a prepayment penalty which would be equal to
3.75% of the outstanding principal balance. If completed, the proceeds of
this prepayment transaction would be distributed to the Limited Partners.
However, the prepayment transaction remains contingent on, amount other
things, the borrower obtaining sufficient financing to repay its obligations
to the Partnership. Accordingly, there are no assurances that this
transaction will be consummated.
3.Investment Properties
As discussed in the Annual Report, the Partnership foreclosed under the terms
of the mortgage loan secured by Westside Creek Apartments on March 23, 1989
due to nonpayment of the required debt service. The Adviser has employed a
local property management company to conduct the day-to-day operations of the
property under the direction of the Managing General Partner. The property
consists of 142 units and is located in Little Rock, Arkansas. The net
carrying value of the Partnership's investment in the Westside Creek
Apartments, of $4,720,000, is classified as investment property held for sale
on the accompanying balance sheets as of May 31, 1995 and August 31, 1994.
The Partnership recognizes income from the operations of investment property
held for sale in the amount of the excess of the property's gross revenues
over the sum of property operating expenses (including capital improvement
costs), taxes and insurance. Summarized operating results of the Westside
Creek investment property for the three and nine months ended May 31, 1995
and 1994 are as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
Rental income $219,115 $229,493 $690,620 $689,875
Other income 8,153 9,464 25,054 25,757
227,268 238,957 715,674 715,632
Property operating expenses 84,499 88,311 235,343 236,702
Property taxes and insurance 25,107 20,991 66,435 62,641
109,606 109,302 301,778 299,343
Income from operations, net $117,662 $129,655 $413,896 $416,289
During the quarter ended February 28, 1995, the Partnership executed a
purchase and sale agreement to sell the Westside Creek Apartments to an
unaffiliated third party for $6,775,000. Subsequently, the prospective
purchaser, which is a national pension fund advisor, encountered internal tax
regulation compliance issues related to the sale which prevented the sale
from closing. Accordingly, management has begun to actively re-market the
property to other potential buyers. There are no assurances that a sale
transaction will be completed in the near future.
Also, as discussed in the Annual Report, an affiliate of the Partnership,
which held the mortgage and land lease on the Cordova Creek Apartments,
foreclosed on the property in fiscal 1990 due to nonpayment of the required
interest payments. The Partnership had held a 3.5% interest in the mortgage
loan and land investments through an agreement with this affiliate.
Subsequent to foreclosure, the Partnership recorded its investment at the net
combined carrying value of its previous interest in the land and mortgage
loan of $250,000. The Partnership's investment, which consisted of a 3.5%
equity ownership in the operations and eventual sales proceeds of the Cordova
Creek property, was accounted for on the cost method. The affiliate which
held title to the operating property sold the Cordova Creek Apartments to an
unaffiliated third party on April 12, 1995. The Partnership's share of the
net sales proceeds was approximately $311,000, resulting in a $61,000 gain
over the Partnership's cost basis of $250,000. A special distribution of $42
per original $1,000 investment, or $1,503,000, was made to Limited Partners
on June 15, 1995, which represented approximately $9 from Cordova Creek net
sales proceeds and $33 as a distribution from cash reserves which were deemed
to be in excess of the Partnership's expected future requirements.
4. Related Party Transactions
The Adviser earned basic management fees of $67,804 for each of the nine-
month periods ended May 31, 1995 and 1994. Accounts payable - affiliates at
both May 31, 1995 and August 31, 1994 consists of management fees of $19,373
payable to the Adviser.
Included in general and administrative expenses for the nine months ended May
31, 1995 and 1994 is $133,501 and $120,755, 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 nine months
ended May 31, 1995 and 1994 is $3,307 and $1,965, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
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.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As previously reported, the affiliated partnership which held the title to
the Cordova Creek Apartments, PaineWebber Qualified Plan Property Fund Four, LP,
sold the property to an unaffiliated third party for $9,100,000 on April 12,
1995. The Partnership had an ownership interest of 3.5% in the Cordova Creek
property. The Partnership's share of the net sales proceeds was approximately
$311,000, which represented a $61,000 premium over the Partnership's cost basis.
A special distribution of $42 per original $1,000 investment, or $1,503,000 was
made to Limited Partners on June 15, 1995, which represented approximately $9
from Cordova Creek net sales proceeds and $33 as a distribution from cash
reserves which were deemed to be in excess of the Partnership's expected future
requirements.
Also as previously reported, in January 1995 the Partnership executed a
purchase and sale agreement to sell the Westside Creek Apartments to an
unaffiliated third party for $6,775,000. Subsequently, the prospective
purchaser, which is a national pension fund, encountered internal tax regulation
compliance issues related to the sale which prevented the sale from closing.
Accordingly, management has begun to actively re-market the property to other
potential buyers. However, there are no assurances that a sale transaction will
be completed in the near future. Management will base its hold/sell decision
with respect to Westside Creek on an assessment of the impact on the overall
returns to the Limited Partners. Management continues to believe that the
Partnership will realize a substantial gain over its original investment of
$4,850,000 upon the eventual sale of the Westside Creek property.
Operations of the properties securing the Partnership's two remaining
mortgage loan investments remained strong during the first nine months of fiscal
1995 and continue to fully support the debt service and land rent payments owed
to the Partnership. During the nine months ended May 31, 1995, the Partnership
received additional rent of $29,452 under the terms of the Woodcroft Shopping
Center ground lease because cash flow from the property was in excess of certain
base amounts specified in the lease agreement. Leasing levels at the Appletree
Apartments and Woodcroft Shopping Center were 98% and 97%, respectively, as of
May 31, 1995. The mortgage loans secured by the Appletree Apartments and
Woodcroft Shopping Center bear interest at annual rates of 11.00% and 11.25%,
respectively. With real estate market conditions improving along with the state
of the overall economy, and with credit in the capital markets for real estate
transactions more accessible than in prior years, it is possible, that the
current loans secured by these projects could be refinanced at lower rates.
However, the Appletree loan includes a prepayment premium for any prepayment
between May 1994 and April 1998 at rates between 5% and 1.25% of the mortgage
loan balance. In addition to repaying the outstanding mortgage loans, the
borrowers would also have to exercise their options to purchase the underlying
land as part of any prepayment transaction, including in such purchase the
Partnership's share, if any, of the property's appreciation called for under the
terms of the ground lease. As a practical matter, this requirement could make
it difficult for the borrowers to finance a prepayment transaction.
Nonetheless, it is possible that the loans secured by the Woodcroft Shopping
Center and/or the Appletree Apartments could be prepaid in the near term.
Subsequent to quarter ended May 31, 1995, the Partnership has received
formal notice from the Appletree borrower of its intent to prepay the
Partnership's mortgage loan and repurchase the underlying land. The amount to
be received by the Partnership as its share of the appreciation of the Appletree
property cannot be determined with certainty at the present time. The terms of
the Appletree mortgage loan would require a prepayment penalty which would be
equal to 3.75% of the outstanding principal balance of $4,850,000. If
completed, the proceeds of this prepayment transaction would be distributed to
the Limited Partners. However, the prepayment transaction remains contingent
on, amount other things, the borrower obtaining sufficient financing to repay
its obligations to the Partnership. Accordingly, there are no assurances that
this transaction will be consummated.
At May 31, 1995, the Partnership had available cash and cash equivalents of
approximately $2,270,000. Such cash balance includes the $1,503,000 referred to
above which was distributed to the Limited Partners in June 1995. The remaining
amount of cash and cash equivalents will be used 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 cash
generated from the Partnership's real estate investments, the repayment of the
mortgage loans receivable and the future sales or refinancings of the underlying
land and the investment properties. Such sources of liquidity are expected to
be adequate to meet the Partnership's needs on both a short-term and long-term
basis.
RESULTS OF OPERATIONS
Three Months Ended May 31, 1995
The Partnership's net income increased by approximately $63,000 for the
three month period ended May 31, 1995, when compared to the same period in the
prior year. The primary reason for the increase in net income during the
current quarter is the gain realized by the Partnership from the sale of the
Cordova Creek Apartments on April 12, 1995. As discussed further above, the
Partnership held a 3.5% interest in Cordova Creek and realized a gain of
approximately $61,000 from the sale of the property. Operating income also
increased during the current quarter by approximately $14,000 as a result of an
increase in interest income earned on short term investments. Interest income
increased due to an increase in the interest rate earned on short term
investments over the same period in the prior year. In addition, the
Partnership's average outstanding cash reserve balances has increased over the
prior period, due in part to the receipt of the Cordova proceeds. The gain from
the sale of Cordova Creek and the increase in operating income were partially
offset by a decrease in the income from the operations of the Westside Creek
Apartments of approximately $12,000 due to a slight decrease in rental income.
Nine Months Ended May 31, 1995
The Partnership's net income increased by approximately $87,000 for the
nine month period ended May 31, 1995, when compared to the same period in the
prior year. The primary reason for the increase in net income is the
aforementioned gain realized by the Partnership from the sale of Cordova Creek.
In addition, operating income increased by approximately $28,000 primarily as a
result of an increase in interest income earned on short term investments of
approximately $37,000. Interest income increased due to an increase in the
interest rates earned on short term investments and an increase in average cash
balances over the same period in the prior year. This increase in interest
income was partially offset by an increase in general and administrative
expenses of approximately $12,000 for the current nine-month period. General
and administrative expenses increased mainly due to certain legal expenses which
were incurred in conjunction with the proposed sale of the Westside Creek
Apartments. Income from the operations of the Westside Creek Apartments
decreased by $2,000 due to a small increase in real estate tax expense.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's quarterly report on Form 10-Q for the
period ended February 28, 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:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, 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 QUALIFIED PLAN PROPERTY FUND THREE, LP
By: THIRD QUALIFIED PROPERTIES, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: July 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Partnership's interim financial statements for the 9 months ended May 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 2,270,731
<SECURITIES> 0
<RECEIVABLES> 9,270,099
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,429,036
<PP&E> 5,870,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,498,372
<CURRENT-LIABILITIES> 98,093
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 17,400,279
<TOTAL-LIABILITY-AND-EQUITY> 17,498,372
<SALES> 0
<TOTAL-REVENUES> 1,471,328
<CGS> 0
<TOTAL-COSTS> 346,074
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,125,254
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,125,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,125,254
<EPS-PRIMARY> 31.12
<EPS-DILUTED> 31.12
</TABLE>
