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, 1998
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: 0-15036
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
--------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2841746
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No |_|
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
BALANCE SHEETS
May 31, 1998 and August 31, 1997 (Unaudited)
(In thousands)
ASSETS
May 31 August 31
------ ---------
Real estate investments:
Investment properties held for sale, net $ 8,700 $12,100
Land - 770
Mortgage loan - 4,230
-------- -------
8,700 17,100
Cash and cash equivalents 6,799 1,711
Interest receivable - 32
Accounts receivable 44 9
Deferred expenses, net - 70
Other assets 1 19
-------- -------
$ 15,544 $18,941
======== =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 20 $ 32
Accounts payable and accrued expenses 117 190
Unearned rental income 9 3
Tenant security deposits 13 72
Partners' capital 15,385 18,644
-------- -------
$ 15,544 $18,941
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1998 and 1997 (Unaudited)
(In thousands, except per Unit amounts)
Three Months Ended Nine Months Ended
May 31, May 31,
------------------ --------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest from mortgage
loans $ - $ 179 $ 148 $ 537
Land rent - 39 114 93
Interest and other income 30 27 122 75
----- ------- ------- -------
30 245 384 705
Expenses:
Management fees 21 35 81 106
General and administrative 97 96 276 267
Amortization of deferred
expenses - 5 70 14
----- ------- ------- -------
118 136 427 387
----- ------- ------- -------
Operating income (loss) (88) 109 (43) 318
Income from operations of
investment properties
held for sale, net 383 333 1,083 705
Gain on sale of operating
investment property 1,601 - 1,601 -
Gain on sale of land - - 1,516 -
----- ------- ------- -------
Net income $1,896 $ 442 $ 4,157 $ 1,023
====== ======= ======= =======
Net income per Limited
Partnership Unit $2.10 $0.49 $4.59 $1.13
===== ===== ===== =====
Cash distributions per
Limited Partnership Unit $0.30 $0.36 $8.26 $1.07
===== ===== ===== =====
The above net income and cash distributions per Limited Partnership Unit
are based upon the 896,993 Units ($50 per Unit) of Limited Partnership Interest
outstanding during each period.
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the nine months ended May 31, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1996 $ 11 $22,486
Net income 10 1,013
Cash distributions (10) (960)
----- -------
Balance at May 31, 1997 $ 11 $22,539
===== =======
Balance at August 31, 1997 $ 12 $18,632
Net income 42 4,115
Cash distributions (9) (7,407)
----- --------
Balance at May 31, 1998 $ 45 $15,340
===== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 4,157 $ 1,023
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of operating investment property (1,601) -
Gain on sale of land (1,516) -
Amortization of deferred expenses 70 14
Changes in assets and liabilities:
Interest receivable 32 -
Accounts receivable (35) (3)
Other assets 18 18
Accounts payable - affiliates (12) -
Accounts payable and accrued expenses (73) (123)
Unearned rental income 6 (23)
Tenant security deposits (59) 27
-------- -------
Total adjustments (3,170) (90)
-------- -------
Net cash provided by operating
activities 987 933
-------- -------
Cash flows from investing activities:
Proceeds from repayment of mortgage loan 4,230 -
Net proceeds from sale of land 2,286 -
Net proceeds from sale of operating investment
property 5,001 -
-------- -------
Net cash provided by investing
activities 11,517 -
-------- -------
Cash flows from financing activities:
Distributions to partners (7,416) (970)
-------- -------
Net increase (decrease) in cash and cash
equivalents 5,088 (37)
Cash and cash equivalents, beginning of period 1,711 2,060
-------- -------
Cash and cash equivalents, end of period $ 6,799 $ 2,023
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, 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, 1997. In the opinion
of management, the accompanying financial statements, which have not been
audited, reflect all adjustments necessary to present fairly the results for the
interim period. All of the accounting adjustments reflected in the accompanying
interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of May 31, 1998 and August 31, 1997 and revenues and expenses
for the three and nine months ended May 31, 1998 and 1997. Actual results could
differ from the estimates and assumptions used.
As discussed further in Note 2, the Partnership's mortgage loan and land
investments secured by the Park South Apartments were repaid in January 1998. In
addition, as discussed further in Note 3, the Partnership sold a wholly-owned
real estate investment, the Martin Sunnyvale Research and Development Center in
May 1998. Subsequent to these transactions, the Partnership has one remaining
real estate investment, the wholly-owned Bell Forge Square Shopping Center (see
Note 3). This property is being actively marketed for sale. The goal of the
Managing General Partner is to complete the sale of the remaining asset and a
liquidation of the Partnership by December 31, 1998. There are no assurances,
however, that the sale of the remaining asset and the liquidation of the
Partnership will be completed within this time frame.
2. Mortgage Loan and Land Investments
----------------------------------
The outstanding first mortgage loan and the cost of the related land to
the Partnership at August 31, 1997 were as follows (in thousands):
Property Amount of Mortgage Loan Cost of Land
-------- ----------------------- ------------
Park South Apartments
Charlotte, North Carolina $4,230 $ 770
On January 20, 1998, the Partnership received $4,230,000 from the borrower
of the mortgage loan secured by the Park South Apartments, which represented the
full repayment of the first leasehold mortgage loan held by the Partnership.
Simultaneously, the Park South owner purchased the Partnership's interest in the
underlying land at a price of $2,286,000 which included a premium of $1,516,000
over the Partnership's cost basis in the land of $770,000. This premium
represented a 50% share in the appreciation in the value of the operating
investment property above a specified base amount as called for under the terms
of the ground lease. The Park South mortgage loan opened to prepayment without
penalty on December 29, 1997. The Partnership owned a 77% interest in the land
underlying the Park South Apartments and had an equivalent interest in the first
mortgage loan secured by the improvements. The remaining 23% interest in the
land and mortgage loan receivable was owned by an affiliated partnership,
PaineWebber Mortgage Partners Five, LP.
The Park South loan was secured by a first mortgage on the property, the
owner's leasehold interest in the land and an assignment of all tenant leases.
Interest was payable monthly and the principal was due at maturity on December
28, 2001. The annual interest rate on the Park South mortgage loan was 9%. The
land lease had a term of 40 years. Among the provisions of the lease agreement,
the Partnership was entitled to additional rent based upon gross revenues of the
underlying property in excess of a base amount, as defined. During the nine
months ended May 31, 1998 and 1997, the Partnership received additional rent
under the terms of the Park South Apartments land lease totalling $87,000 and
$13,000, respectively.
3. Investment Properties Held for Sale
-----------------------------------
Martin Sunnyvale Research and Development Center
------------------------------------------------
The Partnership foreclosed under the terms of the mortgage loan secured by
the Martin Sunnyvale Research and Development Center on July 12, 1991. The
borrower had defaulted on the payment terms of the loan due to significant lease
turnover during 1991. The property contains 39,000 rentable square feet, is
located in Sunnyvale, California and was 100% leased during May 1998. The
combined carrying value of the original land and loan investments, of
$5,100,000, was adjusted to management's estimate of the fair value of the
property as of the date of the foreclosure, of $3,400,000, and reclassified to
investment properties held for sale. Subsequent to the date of the foreclosure
and through August 31, 1994, the Partnership had recorded provisions for
possible investment loss totalling $900,000 to write down the carrying value of
the Martin Sunnyvale investment property to $2,500,000 to reflect additional
declines in its estimated fair value, net of selling expenses. During fiscal
1996, real estate values for R&D office properties in Northern California began
to recover as a result of the resurgence in the growth of the high technology
industries. As a result of lower market vacancy levels and increasing rental
rates, the estimated fair value of the Martin Sunnyvale property improved
significantly during fiscal 1996 to an amount which exceeded the cost basis
established for the property in fiscal 1991 of $3,400,000. Accordingly, the
Partnership adjusted the valuation account with respect to the Martin Sunnyvale
property and recognized a recovery of possible investment loss of $900,000
effective in the fourth quarter of fiscal 1996. The resulting carrying value of
the investment, of $3,400,000, was included in the balance of investment
properties held for sale on the accompanying balance sheet as of August 31,
1997.
During fiscal 1997, the Partnership contracted with a national real estate
firm with a strong background in selling R&D buildings in the Silicon Valley
area to market the property for sale. As a result of these marketing efforts,
the Partnership received several offers from qualified third-party buyers to
acquire the property. After reviewing the offers, the Partnership accepted an
offer from one of these potential buyers and negotiated and executed a purchase
and sale agreement during the first quarter of fiscal 1998. The sale remained
subject to the satisfactory completion of the buyer's due diligence which was
scheduled to be completed in December 1997. At the conclusion of the buyer's due
diligence period, the offer to purchase the property was withdrawn. In early
calendar year 1998 the Partnership and its marketing agent decided to refocus
attention on a select group of potential investors that had expressed previous
interest in acquiring the property. These potential buyers were contacted which
resulted in the receipt of two written offers. Subsequently, one of these offers
was selected and negotiations on a purchase and sale agreement were successfully
completed. A purchase and sale agreement was executed by the Partnership and the
prospective buyer on March 11, 1998. On May 29, 1998, after an extension of the
due diligence period, the Partnership successfully closed the sale of this
property. It was sold for a gross sale price of $5,125,000. After closing costs,
expense prorations and adjustments, the sale generated net proceeds to the
Partnership of $4,938,000, of which $109 per original $1,000 investment, or
approximately $4,889,000 was distributed to the Limited Partners subsequent to
the quarter-end, on June 15, 1998.
Bell Forge Square Shopping Center
---------------------------------
On October 4, 1991, the Partnership received a deed in lieu of foreclosure
on the mortgage loan secured by the Bell Forge Square Shopping Center. The
property, which was 97% occupied as of May 31, 1998, is comprised of 130,470
leasable square feet and is located in Nashville, Tennessee. The Managing
General Partner estimated that the fair value of the investment property, net of
selling expenses, at the date title to the mortgaged property was transferred
was approximately equal to the combined cost of the land and the face amount of
the Partnership's mortgage loan. Accordingly, the combined value of the land and
the face amount of the mortgage loan, of $9,000,000, was reclassified to
investment properties held for sale. During fiscal 1992, the Partnership had
recorded a provision for possible investment loss of $600,000 to write down the
carrying value of the Bell Forge Square investment property to reflect a decline
in its estimated fair value, net of selling expenses, as of August 31, 1992.
During fiscal 1993, the Partnership recorded an adjustment to reduce the
valuation allowance by $300,000 to reflect an increase in the estimated fair
value of the Bell Forge Square property as of August 31, 1993. The resulting net
carrying value of $8,700,000 is included in the balance of investment properties
held for sale on the accompanying balance sheets at May 31, 1998 and August 31,
1997.
During the quarter ended May 31, 1998, the Partnership negotiated a
purchase and sale agreement with a prospective buyer for the Bell Forge Square
property. Subsequent to the quarter-end, the buyer completed its initial due
diligence work and made a non-refundable deposit on June 11, 1998. While there
are no assurances that this transaction will be completed, the sale is expected
to close by the end of July 1998. A sale of this final asset would be followed
by an orderly liquidation of the Partnership.
The Partnership recognizes income from the investment properties held for
sale equal to its share of the excess of the properties' gross revenues over
property operating expenses (including capital improvement costs), taxes and
insurance. Combined summarized operating results of the Martin Sunnyvale
Research and Development Center (through the date of sale) and Bell Forge Square
Shopping Center for the three and nine months ended May 31, 1998 and 1997 are as
follows (in thousands):
<PAGE>
Three Months Ended Nine Months Ended
May 31, May 31,
------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rental income $ 413 $ 393 $ 1,222 $ 1,136
Other income 76 54 238 220
------ ------- ------- -------
489 447 1,460 1,356
Expenses:
Property operating
expenses 54 65 216 513
Property taxes and
insurance 52 49 161 138
------ ------- ------- -------
106 114 377 651
------ ------- ------- -------
Income from operations,
net $ 383 $ 333 $ 1,083 $ 705
====== ======= ======= =======
4. Related Party Transactions
--------------------------
The Adviser earned basic management fees of $81,000 and $106,000 for the
nine-month periods ended May 31, 1998 and 1997, respectively. Accounts payable -
affiliates at May 31, 1998 and August 31, 1997 consist of management fees of
$20,000 and $32,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the nine months ended
May 31, 1998 and 1997 is $134,000 and $141,000, 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 both of the
nine-month periods ended May 31, 1998 and 1997 is $4,000, representing fees
earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc., for
managing the Partnership's cash assets.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As discussed further below, the Partnership's mortgage loan and land
investments secured by the Park South Apartments were repaid on January 20,
1998. In addition, on May 29, 1998 the Partnership sold one of its wholly-owned
real estate investments, the Martin Sunnyvale Research and Development Center.
Subsequent to these transactions, the Partnership has one remaining real estate
investment, the wholly-owned Bell Forge Square Shopping Center. The Partnership
assumed direct ownership of this property in October 1991 following foreclosure
proceedings resulting from a default under the terms of the Partnership's first
leasehold mortgage loan. This property is currently in the process of being
actively marketed for sale, and management's goal would be to complete the sale
of the remaining asset and a liquidation of the Partnership by December 31,
1998. There are no assurances, however, that the sale of the remaining asset and
the liquidation of the Partnership will be completed within this time frame. The
net proceeds from the final sale transaction will be distributed to the Limited
Partners along with the remaining Partnership cash reserves after the payment of
all liquidation-related expenses.
The first mortgage loan secured by the Park South Apartments was scheduled
to mature on December 28, 2001; however, it opened to prepayment without penalty
on December 29, 1997. On January 20, 1998, the Partnership received $4,230,000
from the borrower of the mortgage loan secured by Park South, which represented
the full repayment of the first leasehold mortgage loan held by the Partnership.
Simultaneously, the Park South owner purchased the Partnership's interest in the
underlying land at a price of $2,286,000 which included a premium of $1,516,000
over the Partnership's cost basis in the land of $770,000. This premium
represented a 50% share in the appreciation in the value of the operating
investment property above a specified base amount as called for under the terms
of the ground lease. The Partnership owned a 77% interest in the land underlying
the Park South Apartments and had an equivalent interest in the first mortgage
loan secured by the improvements. The remaining 23% interest in the land and
mortgage loan receivable was owned by an affiliated partnership, PaineWebber
Mortgage Partners Five, LP. The net proceeds of the Park South transaction were
distributed to the Limited Partners on February 27, 1998 in the form of a
special distribution totalling approximately $6,548,000, or $146 per original
$1,000 investment.
On May 29, 1998, the Partnership sold its wholly-owned investment
property, the Martin Sunnyvale Research and Development Center, located in
Sunnyvale, California, to an unrelated third party for $5,125,000. After closing
costs, expense prorations and adjustments, the Partnership realized net proceeds
of approximately $4,938,000. As a result of the sale of the Martin Sunnyvale
Research and Development Center, a Special Distribution was made subsequent to
the quarter-end, on June 15, 1998, to unitholders of record as of May 29, 1998.
The Special Distribution included the net proceeds from the sale of the Martin
Sunnyvale Research and Development Center in the amount of $109 per original
$1,000 investment.
As previously reported, during fiscal 1997 the Partnership had contracted
with a national real estate firm with a strong background in selling R&D
buildings in the Silicon Valley area to market the Martin Sunnyvale property for
sale. As a result of these marketing efforts, the Partnership received several
offers from qualified third-party buyers to acquire the property. After
reviewing the offers, the Partnership accepted an offer from one of these
potential buyers and negotiated and executed a purchase and sale agreement
during the first quarter of fiscal 1998. The sale remained subject to the
satisfactory completion of the buyer's due diligence which was scheduled to be
completed in December 1997. At the conclusion of the buyer's due diligence
period, the offer to purchase the property was withdrawn. In early calendar year
1998 the Partnership and its marketing agent decided to refocus attention on a
select group of potential investors that had expressed previous interest in
acquiring the property. These potential buyers were contacted which resulted in
the receipt of two written offers. Subsequently, one of these offers was
selected and negotiations on a purchase and sale agreement were successfully
completed. A purchase and sale agreement was executed by the Partnership and the
eventual buyer on March 11, 1998. The Partnership granted the eventual buyer
several extensions of the due diligence period in return for certain
non-refundable deposits prior to the final closing of the transaction on May 29,
1998.
The Bell Forge Square Shopping Center, located in Nashville, Tennessee,
was 97% leased as of May 31, 1998, up from 92% as of August 31, 1997. During the
third quarter of fiscal 1998, lease renewal negotiations resulted in the signing
of a 2-year lease extension with a 2,010 square foot beauty supply retailer
whose lease was scheduled to expire in January 1999. Subsequent to the end of
the third quarter, a 3-year lease extension was signed with a 1,440 square foot
tanning spa whose lease was set to expire in February 1999. As previously
reported, a 6,000 square foot sports grill opened for business at Bell Forge
Square during the quarter ended November 30, 1997. During the second quarter,
lease renewal negotiations resulted in the signing of a 3-year lease extension
with a 3,300 square foot furniture store whose lease was due to expire in August
1998, as well as a 3-year lease extension with a 3,165 square foot hot tub
dealership, whose lease was due to expire in September 1998. Also during the
second quarter, a 3,300 square foot jewelry store, whose lease expires on August
31, 1999, filed for bankruptcy and vacated its space at the Center. In addition
to pursuing the Partnership's claims for unpaid rent, the property's leasing
team is pursuing a replacement tenant for this space as well as a currently
vacant space of 4,002 square feet which was occupied by a furniture store which
closed its operations last year. This former tenant remains obligated to pay
rent on this space through October 31, 2000, the end of its lease term. This
tenant had been meeting its rental obligations through September 1997, however,
it has not made any rental payments since then. The property's management team
is pursuing legal action on this matter.
As discussed further in the Annual Report, the Partnership decided to
explore potential opportunities to sell the Bell Forge Square property during
fiscal 1997 and hired a Nashville-based real estate firm specializing in the
sale of retail properties to market the property for sale. As a result of this
firm's marketing efforts, the Partnership received offers from two prospective
third-party buyers. After reviewing the offers, the Partnership accepted an
offer from one of these potential buyers and negotiated a purchase and sale
agreement which was signed on January 5, 1998. On February 10, 1998, the
Partnership received notice that the potential buyer would not be proceeding
with its efforts to close the sale transaction upon the expiration of its due
diligence period due to its inability to secure a financing commitment. On March
20, 1998, the Partnership executed a new brokerage agreement with another
Nashville-based firm to re-market the property. During the quarter ended May 31,
1998, the Partnership negotiated a purchase and sale agreement with a new
prospective buyer for the Bell Forge Square property. Subsequent to the
quarter-end, the prospective buyer completed its initial due diligence work and
made a non-refundable deposit on June 11, 1998. While there are no assurances
that this transaction will be completed, the sale is expected to close by the
end of July 1998. A sale of this final asset would be followed by an orderly
liquidation of the Partnership.
At May 31, 1998, the Partnership had available cash and cash equivalents
of $6,799,000. Such cash and cash equivalents includes the net proceeds from the
sale of the Martin Sunnyvale property, in the amount of $4.9 million, which was
distributed to the Limited Partners in June 1998, as discussed further above.
The remainder of such cash and cash equivalents will be used for the working
capital needs of the Partnership, distributions to the partners and, if
necessary, for tenant improvement expenses and other leasing costs of the
Partnership's remaining wholly-owned investment property. The source of future
liquidity and distributions to the partners is expected to be through cash
generated from the operations and future sale of the Partnership's remaining
real estate investment and interest income on the Partnership's cash reserves.
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, 1998
- -------------------------------
The Partnership reported net income of $1,896,000 for the three months
ended May 31, 1998, as compared to net income of $442,000 for the same period in
the prior year. This $1,454,000 increase in net income is primarily due to the
gain of $1,601,000 recognized on the sale of the wholly-owned Martin Sunnyvale
Research and Development Center on May 29, 1998, as discussed further above.
This increase is also partly attributable to a $50,000 increase in net income
from the operations of investment properties held for sale (Martin Sunnyvale and
Bell Forge Square). Net income from the operations of investment properties held
for sale increased primarily due to a decrease in property operating expenses at
Martin Sunnyvale. Property operating expenses decreased at Martin Sunnyvale due
to capital expenditures and leasing commissions incurred in May 1997 related to
new tenants. In accordance with the Partnership's accounting policy for assets
held for sale, all capital improvements and leasing costs are expensed as
incurred. In addition, net income increased at Bell Forge Square for the current
three-month period due to an increase in rental income. Rental income increased
due to an increase in the property's leasing level.
An unfavorable change in the Partnership's operating income (loss)
partially offset the gain on the sale of Martin Sunnyvale and the increase in
the net income from the Martin Sunnyvale and Bell Forge Square properties. The
Partnership reported an operating loss of $88,000 for the three months ended May
31, 1998 as compared to operating income of $109,000 for the same period in the
prior year. This $197,000 unfavorable change was due to a reduction in interest
from mortgage loans and land rents of $179,000 and $39,000, respectively, as a
result of the repayment of the Park South first leasehold mortgage loan and the
termination of the related ground lease on January 20, 1998, as discussed
further above. The decreases in interest from mortgage loans and land rents was
partially offset by a decline in management fee expense of $14,000. Management
fees decreased due to a reduction in adjusted capital contributions, upon which
such fees are based, due to the sale and prepayment of the Park South land and
mortgage loan investments, as described above. Management fees will decline
further in future quarters as a result of the distribution of the Martin
Sunnyvale net sale proceeds in June 1998.
<PAGE>
Nine Months Ended May 31, 1998
- ------------------------------
The Partnership reported net income of $4,157,000 for the nine months ended
May 31, 1998, as compared to net income of $1,023,000 for the same period in the
prior year. This $3,134,000 increase in net income is primarily due to the gain
of $1,516,000 recognized on the sale of the land underlying the Park South
Apartments on January 20, 1998 and the gain of $1,601,000 recognized on the sale
of the Martin Sunnyvale property on May 29, 1998, as discussed further above.
This increase in net income is also partly attributable to a $378,000 increase
in net income from the operations of investment properties held for sale (Martin
Sunnyvale and Bell Forge Square) which was mostly offset by an unfavorable
change in the Partnership's operating income (loss) of $361,000. Net income from
the operations of investment properties held for sale increased primarily due to
a decrease in property operating expenses. Property operating expenses decreased
due to the capital expenditures and leasing commissions incurred in 1997 related
to new tenants at Martin Sunnyvale and tenant improvements related to the
Michael's store expansion at Bell Forge Square in 1997. As noted above, in
accordance with the Partnership's accounting policy, such costs are expensed as
incurred. In addition, rental income increased due to an increase in revenues
from Bell Forge Square due to an increase in the property's leasing level.
The Partnership reported an operating loss of $43,000 for the nine months
ended May 31, 1998 as compared to operating income of $318,000 for the same
period in the prior year. This unfavorable change was due to a decrease in
interest from mortgage loans of $389,000 as a result of the repayment of the
Park South first leasehold mortgage loan on January 20, 1998. In addition, total
expenses increased due to the write-off of the deferred expenses related to the
Park South Apartments as a result of the repayment of the first mortgage loan
and the sale of the underlying land. Land rent actually increased by $21,000 for
the current nine-month period despite the termination of the Park South ground
lease due to the receipt of additional rent owed through the date of the
termination. An increase in interest and other income of $47,000 and a decrease
in management fee expense of $25,000 also partially offset the decrease in
interest from mortgage loans and the increase in amortization expense. Interest
and other income increased as a result of interest earned on the proceeds from
the Park South transactions which were temporarily invested in money-market
instruments pending the distribution to the Limited Partners in February 1998.
Management fees decreased due to a reduction in adjusted capital contributions,
upon which such fees are based, due to the sale and prepayment of the Park South
land and mortgage loan investments, as described above.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Items 2 through 5: NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
A Current Report on Form 8-K dated May 29, 1998 was filed to report the
sale of the Partnership's wholly-owned real estate investment, the Martin
Sunnyvale Research and Development Center, and is hereby incorporated herein by
reference.
<PAGE>
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND FOUR, 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 FOUR, LP
By: FOURTH QUALIFIED PROPERTIES, INC.
---------------------------------
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: July 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended May 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 6,799
<SECURITIES> 0
<RECEIVABLES> 44
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,843
<PP&E> 8,700
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,544
<CURRENT-LIABILITIES> 159
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,385
<TOTAL-LIABILITY-AND-EQUITY> 15,544
<SALES> 0
<TOTAL-REVENUES> 4,584
<CGS> 0
<TOTAL-COSTS> 427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,157
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,157
<EPS-PRIMARY> 4.59
<EPS-DILUTED> 4.59
</TABLE>
