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 November 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: 0-17147
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
November 30, 1995 and August 31, 1995
(Unaudited)
(In thousands)
ASSETS
November 30 August 31
Real estate investments:
Investment property held for sale $ 4,720 $ 4,720
Land 1,150 1,150
Mortgage loans receivable 9,185 9,185
--------- ----------
15,055 15,055
Cash and cash equivalents 829 790
Interest receivable 85 85
Tax and tenant security deposit escrows 38 73
Prepaid expenses 10 14
Deferred expenses, net 12 13
--------- -----------
$ 16,029 $ 16,030
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 18 $ 18
Accounts payable and accrued expenses 46 110
Tenant security deposits 14 14
Partners' capital 15,951 15,888
--------- ---------
$ 16,029 $ 16,030
======== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the three months ended November 30, 1995 and 1994
(Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at August 31, 1994 $ 8 $17,226
Net income 4 375
Cash distributions (3) (316)
------- ---------
Balance at November 30, 1994 $ 9 $17,285
====== =======
Balance at August 31, 1995 $ 10 $15,878
Net income 3 355
Cash distributions (3) (292)
------- ----------
Balance at November 30, 1995 $ 10 $15,941
====== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
STATEMENTS OF INCOME
For the three months ended November 30, 1995 and 1994
(Unaudited)
(In thousands, except per Unit data)
1995 1994
---- ----
Revenues:
Interest from mortgage loans $ 255 $ 255
Land rent 33 34
Interest earned on short-
term investments 10 23
Other income - 6
-------- ---------
298 318
Expenses:
Management fees 21 23
General and administrative 68 68
Amortization of deferred expenses 1 1
--------- ---------
90 92
-------- --------
Operating income 208 226
Income from operations of
investment property held
for sale, net 150 153
------- -------
Net income $ 358 $ 379
====== ======
Net income per Limited
Partnership Unit $9.91 $10.48
===== ======
Cash distributions per Limited
Partnership Unit $8.16 $ 8.84
===== =======
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.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
STATEMENTS OF CASH FLOWS
For the three months ended November 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In thousands)
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 358 $ 379
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred expenses 1 1
Changes in assets and liabilities:
Tax and tenant security deposit escrows 35 36
Prepaid expenses 4 8
Accounts payable and accrued expenses (64) (43)
---------- ---------
Total adjustments (24) 2
---------- ----------
Net cash provided by operating activities 334 381
Cash flows from financing activities:
Distributions to partners (295) (320)
--------- ----------
Net increase in cash and cash equivalents 39 61
Cash and cash equivalents, beginning of period 790 1,854
--------- --------
Cash and cash equivalents, end of period $ 829 $ 1,915
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 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. Mortgage Loan and Land Investments
The outstanding first mortgage loans and the cost of the related land to the
Partnership at November 30, 1995 and August 31, 1995 are as follows (in
thousands):
Amount of
Property Mortgage Loan Cost of Land
Appletree Apartments $ 4,850 $ 650
Omaha, NE
Woodcroft Shopping Center
Durham, NC
Phase I 3,100 360
Phase II 1,235 140
$ 9,185 $1,150
======= ======
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 three months ended November 30, 1995, additional rent of
$1,000 was earned from the Woodcroft Shopping Center investment. For the
three months ended November 30, 1994, additional rent of $2,000 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 November 30, 1995, all
of the options to purchase the land underlying the above properties were
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 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, among 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.
<PAGE>
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 November 30, 1995 and August 31,
1995.
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 months ended November 30, 1995 and
1994 are as follows (in thousands):
1995 1994
---- ----
Revenues:
Rental income $ 246 $ 239
Other income 9 8
---------- ---------
255 247
Expenses:
Property operating expenses 84 74
Property taxes and insurance 21 20
---------- ---------
105 94
--------- ---------
Income from operations, net $ 150 $ 153
======== =======
As discussed further 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, which was recognized in the
third quarter of fiscal 1995. 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 sale proceeds
and $33 as a distribution from cash reserves which were deemed to be in
excess of the Partnership's expected future requirements.
<PAGE>
4. Related Party Transactions
The Adviser earned basic management fees of $21,000 and $23,000 for the
three-month periods ended November 30, 1995 and 1994, respectively. Accounts
payable - affiliates at both November 30, 1995 and August 31, 1995 consists
of management fees of $18,000 payable to the Adviser.
Included in general and administrative expenses for the three months ended
November 30, 1995 and 1994 is $37,000 and $43,000, 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 three months
ended November 30, 1995 is $3,000, 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.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Operations of the properties securing the Partnership's two remaining
mortgage loan investments remained strong during fiscal 1995 and continue to
fully support the debt service and land rent payments owed to the Partnership.
Leasing levels at the Appletree Apartments and Woodcroft Shopping Center were
96% and 97%, respectively, as of November 30, 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. As previously reported, since
current market interest rates for first mortgage loans are considerably lower
than these rates, and with the increased availability of credit in the capital
markets for real estate transactions, the likelihood of the Partnership's
mortgage loan investments being prepaid has been high since the time that the
terms of such mortgage loans allowed for prepayment. The Appletree loan became
prepayable in April 1994. 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. The Woodcroft loan became prepayable
without penalty in December 1994. As discussed further below, the borrowers on
both of the outstanding loan investments have approached the Partnership
regarding potential prepayment transactions. While there are no assurances that
these borrowers will be able to finance such transactions in the near term, if
these transactions are completed the Partnership could be positioned for a
possible liquidation pending the disposition of the wholly-owned Westside Creek
Apartments, which is currently being marketed for sale.
During the first quarter of fiscal 1996, the Partnership received notice from
the owner of the Woodcroft Shopping Center of its intent to repay the
Partnership's first mortgage loan and purchase the underlying land in
conjunction with a sale of the operating property to a third party. The proposed
terms of the transaction would have resulted in the full repayment of the
Partnership's mortgage loan of $4,335,000 and the receipt of $1,220,000 as
payment in full for obligations owing under the ground lease, representing the
repayment of the $500,000 land investment and $720,000 as the Partnership's
share of the appreciation in value of the underlying property. Subsequent to the
end of the first quarter, however, the prospective buyer was unable to secure
the necessary financing to close the sale. As a result, the offer to purchase
the Partnership's land and repay the outstanding mortgage loan was withdrawn. It
is uncertain at this time whether the borrower will make another offer to prepay
the mortgage loan and purchase the underlying land during fiscal 1996.
As discussed in the Annual Report, during the last quarter of fiscal 1995,
the Partnership received 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 under the terms of the ground lease as
its share of the appreciation of the Appletree property has not been agreed upon
to date. The terms of the ground lease provide for the possible resolution of
disputes between the parties over value issues through an arbitration process.
Presently, the Partnership and the borrower continue to try to resolve their
differences regarding the value of the property. If an agreement cannot be
reached, the borrower could require the Partnership to submit to arbitration
during fiscal 1996. In addition to the amount to be determined as the
Partnership's share of the property's appreciation under the ground lease, the
terms of the Appletree mortgage loan 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 transaction would be distributed to the Limited Partners.
However, the transaction remains contingent on, among other things, a resolution
of the value issue and the borrower obtaining sufficient financing to repay its
obligations to the Partnership. Accordingly, there are no assurances that this
transaction will be consummated.
At November 30, 1995 the Partnership had available cash and cash equivalents
of approximately $829,000. Such cash and cash equivalents will be used for
working capital requirements 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, repayment of the
mortgage loans receivable and the proceeds from the sales or refinancings of the
underlying land and the investment property. Such sources of liquidity are
expected to be adequate to meet the Partnership's needs on both a short-term and
long-term basis. However, to the extent that the potential loan prepayment and
land sale transactions discussed above are completed and the net proceeds are
returned to the Limited Partners, the Partnership's quarterly distribution rate
on remaining invested capital may have to be adjusted downward to reflect the
reduction in cash flows which would result from such transactions.
Results of Operations
Three Months Ended November 30, 1995
The Partnership's net income decreased by $21,000 for the three month
period ended November 30, 1995 when compared to the same period in the prior
year. The decrease in net income resulted from a decrease in the Partnership's
operating income of $18,000 and a decline in the net income from the operations
of the wholly-owned Westside Creek Apartments of $3,000. Operating income
decreased due to decreases in interest earned on short-term investments and
other income. Interest earned on short-term investments decreased by $12,000 due
to a decrease in the Partnership's average outstanding cash reserve balances as
a result of the distribution to the Limited Partners of excess cash reserves
during the fourth quarter of fiscal 1995. This distribution was included with
the distribution of the proceeds from the sale of the Cordova Creek Apartments.
Other income of $6,000 in the prior year represented cash flow distributions
from the Partnership's interest in the Cordova Creek Apartments. No such amounts
were received in the current quarter as a result of the sale of the Cordova
Creek Apartments in April 1995. The decrease in net income from the operations
of the Westside Creek Apartments was mainly due to an increase to utility
expenses.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in the Partnership's annual report on Form 10-K for the period
ended August 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. The status of such litigation
remains unchanged at the present time. Refer to the description of the claims in
the fiscal 1995 annual 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.
<PAGE>
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: January 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the period ended November 30,
1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 829
<SECURITIES> 0
<RECEIVABLES> 9,270
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 962
<PP&E> 5,870
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,029
<CURRENT-LIABILITIES> 78
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,951
<TOTAL-LIABILITY-AND-EQUITY> 16,029
<SALES> 0
<TOTAL-REVENUES> 448
<CGS> 0
<TOTAL-COSTS> 90
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 358
<INCOME-TAX> 0
<INCOME-CONTINUING> 358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 358
<EPS-PRIMARY> 9.91
<EPS-DILUTED> 9.91
</TABLE>
