SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: MARCH 31, 1994
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: 0-14857
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
Virginia 04-2866287
(State of organization) (I.R.S.Employer
Identification
No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Parts III and IV
July 18, 1985, as supplemented
_
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
1994 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of
Security Holders I-3
PART II
Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-6
PART III
Item 10 Directors and Executive Officers of the
Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial
Owners and Management III-3
Item 13 Certain Relationships and Related Transactions III-4
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
SIGNATURES IV-2
INDEX TO EXHIBITS IV-3
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 to F-40
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership offered limited partnership interests to the public from July
18, 1985 to July 17, 1986 pursuant to a Registration Statement filed under the
Securities Act of 1933. Gross proceeds of $100,000,000 were received by the
Partnership from the sale of Partnership Units. As discussed further below, the
Partnership also received proceeds of $17,000,000 from the issuance of four zero
coupon loans. The proceeds of such borrowings, net of financing expenses of
approximately $275,000, were used to pay the offering and organizational
expenses, acquisition fees and acquisition-related expenses of the Partnership
and to fund the Partnership's cash reserves. The Partnership initially invested
approximately $97,472,000 (excluding acquisition fees of $2,830,000) in seven
operating properties through joint venture investments. In fiscal 1990, the
Partnership received approximately $7,479,000 from the proceeds of a sale of a
part of one of the operating properties. The Partnership used the proceeds from
this sale to repay a zero coupon loan and replenish its cash reserves. As of
March 31, 1994, the Partnership retained an ownership interest in seven
operating investment properties, which consist of four office/R&D complexes, two
multi-family apartment complexes and one mixed-use retail/office property. The
Partnership does not have any commitments for additional investments but may be
called upon to fund its portion of operating deficits or capital improvements of
the joint ventures in accordance with the respective joint venture agreements.
The Partnership's focus during fiscal 1994 continued to be on efforts to
restructure or refinance the zero coupon loans secured by the Warner/Red Hill,
Monterra, Chandler's Reach and 625 North Michigan Avenue properties prior to
their scheduled maturities between August 1993 and August 1995. As previously
reported, effective for the quarter ended December 31, 1992, the Managing
General Partner suspended the Partnership's regular quarterly distributions
until further notice as part of an overall strategy to accelerate the timetable
for repayment of the zero coupon loans. As noted above, the Partnership
originally borrowed $17,000,000 in zero coupon loans to finance its offering
costs and related acquisition expenses in order to invest a greater portion of
the initial offering proceeds in real estate assets. A portion of such
borrowings were repaid in fiscal 1991 from the proceeds of the sale of the Sunol
Center Courthouse Building. The four outstanding loans are with three different
financial institutions, the first of which issued loans secured by the
Warner/Red Hill and Monterra properties in the initial principal amounts of
$3,000,000 and $4,500,000, respectively, the second of which issued a loan in
the initial amount of $1,886,473 which is secured by the Chandler's Reach
Apartments, and the third of which issued a loan secured by the 625 North
Michigan Office Building in the initial principal amount of $4,000,000. Due to
declines in the market values of the Warner/Red Hill and 625 North Michigan
properties over the past several years, management's efforts have been directed
toward negotiating modification and extension agreements with the existing
lenders on these loans. Such declines in value have mirrored the state of
commercial office buildings nationwide, and particularly in major metropolitan
areas such as Chicago. Limited sources for the financing of commercial office
buildings in general and the stringent loan-to-value requirements for such loans
would have made refinancing the Warner/Red Hill and 625 North Michigan
properties by conventional means very difficult.
As of March 31, 1994, the Partnership's efforts to modify and extend the
note secured by the Warner/Red Hill Business Center had not been successfully
completed and the note was in default. Subsequent to year-end, the Partnership
reached an agreement in principle with the lender regarding an extension and
modification of the note payable. The terms of the extension and modification
agreement are expected to provide for a 10-year extension of the note effective
as of the original maturity date of August 15, 1993. During the term of the
agreement, the loan will bear interest at 2.875% per annum and monthly principal
and interest payments of $23,906 will be required. In addition, the lender
required a participation in the proceeds of a future sale or debt refinancing in
order to enter into this agreement. Accordingly, upon the sale or refinancing
of the property, the lender will receive 40% of the residual value of the
property, as defined, after the payment of the outstanding balance of the loan
payable and unpaid interest. The extension and modification agreement also
requires the Partnership to establish an escrow account in the name of the joint
venture and to fund such escrow with an equity contribution of $350,000. The
escrowed funds are to be used solely for the payment of capital and tenant
improvements, leasing commissions and real estate taxes related to the
Warner/Red Hill property. The balance of the escrow account is to be maintained
at a minimum level of $150,000. In the event that the escrow balance falls
below $150,000, all net cash flow from the property is to be deposited into the
escrow until the minimum balance is re-established. The agreement remains
contingent upon the execution of definitive modification documents which
management expects will be completed in the second quarter of fiscal 1995. The
Warner/Red Hill loan modification was structured with some unconventional terms,
including a below market interest rate and an equity participation, due to the
extremely high loan-to-value ratio. Based on current cash flow levels, the
Partnership would not expect the value of the Warner/Red Hill property to
generate any significant proceeds above the level of the current debt obligation
if the property were to be sold in the near-term. However, the property should
generate sufficient cash flow to cover its current debt service requirements and
may provide some excess cash flow to support Partnership operations if further
gains in occupancy can be achieved and market rental rates remain stable or
increase.
Throughout fiscal 1994, management was engaged in negotiations with the 625
North Michigan lender. The terms of the original loan agreement required that
if the loan ratio, as defined, exceeded 80%, then the Partnership would be
required to deposit additional collateral in an amount sufficient to reduce the
loan ratio to 80%. During fiscal 1994, the lender informed the Partnership that
based on an interim property appraisal, the loan ratio exceeded 80% and that a
deposit of additional collateral was required. Subsequently, the Partnership
submitted an appraisal which demonstrated that the loan ratio exceeded 80% by an
amount less than previously demanded by the lender. In December 1993, the
Partnership deposited additional collateral of approximately $144,000 in
accordance with the higher appraised value. The lender accepted the
Partnership's deposit of additional collateral but disputed whether the
Partnership had complied with the terms of the loan agreement regarding the 80%
loan ratio. Subsequent to year-end, an agreement was reached with the lender on
a proposal to refinance the loan and resolve the outstanding disputes. The
terms of the agreement call for the Partnership to make a principal paydown on
the loan of approximately $552,000, including the application of the additional
collateral referred to above. The new loan will have an initial principal
balance of approximately $6.5 million and a scheduled maturity date of May 1999.
From the date of the formal closing of the modification and extension agreement
to the new maturity date of the loan, the loan will bear interest at a rate of
9.125% per annum and will require monthly payments of principal and interest
aggregating approximately $57,000. The terms of the loan agreement also require
the establishment of an escrow account for real estate taxes, as well as a
capital improvement escrow which is to be funded with monthly deposits from the
Partnership aggregating approximately $714,000 through the scheduled maturity
date. Formal closing of the modification and extension agreement occurred on
May 31, 1994. Subsequent to the modification agreement, the 625 North Michigan
property is expected to generate a small amount of cash flow from operations
after debt service, but prior to capital expenditures. However, the majority of
such cash flow will likely be required by the joint venture to pay for capital
and tenant improvements in order to maintain the property's current occupancy
rate in light of the extremely competitive market conditions which continue to
adversely affect the market for office space in downtown Chicago.
The Partnership is presently involved in negotiations with the other zero
coupon note lenders regarding possible modification and extension agreements for
the notes secured by the Monterra Apartments and Chandler's Reach Apartments.
As noted above, the zero coupon loan secured by the Monterra Apartments, which
has an outstanding balance as of March 31, 1994 of approximately $8,501,000, is
with the same lender as the Warner/Red Hill note. This lender informed the
Partnership that it did not wish to engage in substantive discussions concerning
the Monterra note until the Warner/Red Hill modification was completed. Since
this modification did not formally close until June 1994, only minimal progress
had been made on the negotiations prior to the scheduled maturity date of the
Monterra note of June 5, 1994. As a result, the Partnership is in technical
default of this loan agreement; however, management does not expect the lender
to take any actions relative to the default as long as progress is being made
toward a modification or refinancing of this obligation. The zero coupon loan
secured by the Chandler's Reach Apartments has a current balance of
approximately $3,301,000 as of March 31, 1994 and is scheduled to mature in
August of 1995. Any modification or refinancing transactions involving these
two obligations would likely involve the conversion of the zero coupon notes to
conventional current-pay loans with monthly principal amortization. If the
Partnership were to pursue modification agreements with the current lenders they
might also require initial principal paydowns similar to the 625 North Michigan
transaction described above. There are no assurances that the Partnership and
the lenders will reach agreement on mutually acceptable terms for a modification
and extension of these loans. Consequently, management is also investigating
other refinancing options for these obligations. Since the properties which
secure these loans are multi-family residential properties, a strong market
sector as compared to commercial office buildings, the Partnership should have
other viable alternatives in the event that agreements cannot be reached with
the current lenders. Consent of the Partnership's co-venture partners may be
required in connection with any extension or refinancing transactions.
Regardless of whether the Partnership obtains extensions or refinances the
outstanding obligations, these transactions are likely to require the current
use of cash reserves to make required principal paydowns and/or to cover
transaction costs, in addition to adversely impacting current cash flow due to
the commencement of regular debt service payments. Management continues to
believe that these outcomes will result in higher overall returns to the Limited
Partners than would result from allowing the interest on the zero coupon loans
to continue to accrue and compound.
As previously reported, the office building segment of the real estate market
in general continues to be adversely affected by an oversupply of space, and
management believes this segment will take longer to recover than other segments
from the downturn in the real estate markets due to the impact of general
economic conditions on the demand for office space. The prior national
recession and the related efforts by many businesses to streamline their
operations are expected to create less demand for office space over the next few
years. As a result, tenants who are in the market for office space have many
different options available to them from building owners with different
investment objectives and varying levels of financial resources. In this
intensely competitive market environment, the Partnership's leasing agents are
being directed to actively seek to retain the existing tenant base while
aggressively and creatively marketing the vacant space within the constraints of
the Partnership's available financial resources. During fiscal 1994, the
Partnership advanced approximately $212,000 to the Warner/Red Hill joint venture
to pay for tenant improvements and leasing costs. The leasing level of the
Warner/Red Hill Business Center has improved from 55% as of March 31, 1992 to
86% as of March 31, 1994. Also during fiscal 1994, the Partnership funded
approximately $269,000 and $40,000, respectively, to the Sunol Center and 1881
Worcester Road joint ventures in order to cover operating deficits. The
Managing General Partner expects that additional leasing costs will continue to
be funded at Warner/Red Hill, Sunol Center, 1881 Worcester Road and 625 North
Michigan Avenue in future periods, as efforts to lease vacant space at these
properties continue. Leasing efforts at the 625 North Michigan property during
fiscal 1994 targeted smaller tenants with minimal needs for tenant improvements.
Two new leases were signed during fiscal 1994 at 1881 Worcester Road which
increased the occupancy level at the property to 62% from its level of 38% as of
one year earlier. This leasing activity should eliminate the cash flow deficits
of the property for fiscal 1995.
The Partnership received operating cash flow distributions totalling
approximately $2,493,000 from its operating investment properties during fiscal
1994 (including approximately $505,000 from the wholly-owned investment
property). These property distributions represent the primary source of future
liquidity for the Partnership prior to the sales or refinancings of its
operating investment properties. At March 31, 1994, the Partnership and its
consolidated joint venture had available cash and cash equivalents of
approximately $6,263,000. In light of the progress made during fiscal 1994
toward the refinancing of the Partnership's zero coupon loans and the positive
leasing developments during the year at the Warner/Red Hill and 1881 Worcester
Road properties, management now believes that the Partnership has sufficient
cash reserves to meet its near-term and long-term capital needs, including the
remaining refinancing transactions and the potential leasing costs referred to
above. Also, it is expected that, once all of the zero coupon loans have been
refinanced, the properties will generate excess cash flow in the aggregate after
the payment of their operating expenses and new debt service obligations. The
Partnership's share of such excess cash flow is expected to be more than
sufficient to cover the Partnership's operating costs. Accordingly, it is
likely that the Partnership will be able to reinstate small quarterly
distributions after the last zero coupon loan is refinanced. The Partnership's
cash reserves, along with the future cash flow distributions from the operating
properties, will be utilized for the working capital requirements of the
Partnership, distributions to partners, loan repayments and refinancing expenses
and for the funding of capital enhancements, tenant improvements and operating
deficits for the operating investment properties.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
The Partnership's net loss for fiscal 1994 increased by approximately
$196,000 when compared to the prior year, mainly due to an increase in the
Partnership's operating loss. The Partnership's operating loss increased by
approximately $171,000 primarily due to decreases in rental income and interest
and other income of approximately $69,000 and $99,000, respectively, and
increases in interest expense and general and administrative expenses of
approximately $63,000 and $96,000, respectively. Such unfavorable changes were
partially offset by a decline of approximately $163,000 in bad debt expense
related to the Crystal Tree Commerce Center. The decline in rental revenues was
the result of increased rental concessions required at the Crystal Tree Commerce
Center due to the impact of prolonged sluggishness of the South Florida economy
on retail sales in general. Average occupancy levels at both Crystal Tree and
Sunol Center for fiscal 1994 remained virtually unchanged in comparison to the
prior year. The decline in interest and other income was primarily the result
of the receipt of approximately $90,000 of insurance proceeds by the Sunol
Center joint venture during the prior year in settlement of a claim for weather-
related damages. Interest expense increased as the interest on the
Partnership's zero coupon loans continued to compound through March 31, 1994.
General and administrative expenses rose during the current year mainly due to
an increase in required legal services. These items which increased the
Partnership's operating loss were partially offset by a decrease in the bad debt
expense related to the Crystal Tree property of approximately $163,000. An
increase in the Partnership's share of unconsolidated ventures' losses also
contributed to the increase in net loss for the current year. The Partnership's
share of unconsolidated ventures' losses increased by approximately $24,000
during fiscal 1994. This unfavorable change is primarily due to an increase in
bad debt expense and property operating expenses, particularly repairs and
maintenance, at 625 North Michigan Avenue and an increase in interest expense at
the Monterra Apartments, as the interest on the zero coupon loan continued to
compound. These items were partially offset by an increase in other income from
the 625 North Michigan joint venture and a decrease in real estate taxes at the
Warner/Red Hill Business Center due to the receipt of a tax refund in the
current year. Increased rental revenues at the Warner/Red Hill, Monterra
Apartments, Chandler's Reach Apartments and 1881 Worcester Road properties were
offset by a decline in rental revenues at 625 North Michigan. The decline in
rental revenues at 625 North Michigan resulted from a slight decrease in average
occupancy and the continued deterioration of effective rental rates, which
reflects the extremely competitive market conditions described above. Average
occupancy at 625 North Michigan declined from 82% in the prior year to 80% for
calendar 1993.
1993 COMPARED TO 1992
The Partnership's net loss for fiscal 1993 remained relatively unchanged when
compared to fiscal 1992 because an increase in the Partnership's operating loss
was offset by a decrease in the Partnership's share of losses from its
unconsolidated joint venture investments. The Partnership's operating loss
increased by approximately $314,000 during fiscal 1993 when compared to fiscal
1992. The primary reasons for the increase in operating loss during fiscal 1993
were an increase in the bad debt expense recognized in connection with the
operations of the Crystal Tree Commerce Center of approximately $199,000, an
increase in general and administrative expenses of approximately $68,000
primarily due to an increase in legal and appraisal expenses, and an increase in
property operating expenses of approximately $105,000 due primarily to increases
in landscaping maintenance expenses at the Sunol Center office buildings. In
addition, interest expense increased by approximately $92,000 as the interest on
the Partnership's zero coupon loans continued to compound. These increases in
expenses were partially offset by an increase in rental income and expense
reimbursements of approximately $91,000 and a decrease in depreciation and
amortization expense of approximately $79,000. Rental income increased at the
Crystal Tree operating property almost entirely as a result of an increase in
the property's average occupancy level, and tenant reimbursements increased at
the Sunol Center operating property mainly as a result of the increase in
certain reimbursable landscaping maintenance expenses referred to above.
Depreciation and amortization expense decreased as a result of certain tenant
improvements having become fully depreciated at Sunol Center.
The Partnership's share of losses from its unconsolidated ventures decreased
by approximately $316,000. This decrease in the Partnership's share of losses
was primarily due to improved operating results at the Warner Red/Hill and 625
North Michigan joint ventures. The increase in operating income at Warner
Red/Hill was mainly due to the write-off in fiscal 1992 of certain receivables,
in the amount of approximately $215,000, which were the result of the straight-
line recognition of rental revenues on the leases of certain former tenants of
the property. Such write-off was required due to the early termination of the
tenants' leases as a result of their bankruptcy or the suspension of their
operations. The increase in operating income at 625 North Michigan was due to a
slight increase in rental revenues and a decrease in repairs and maintenance
expenses due to the completion of a general improvement program implemented
during fiscal 1992 to enhance the building's appeal.
1992 COMPARED TO 1991
In fiscal 1992, the Partnership's operating results included the consolidated
results of the Sunol Center office buildings, owned by Sunol Center Associates.
The Partnership assumed complete control over the affairs of the joint venture
during fiscal 1992 as a result of the withdrawal of the co-venture partner and
the assignment of its remaining interest to First Equity Partners, Inc., the
Managing General Partner of the Partnership. In prior years, the Partnership's
share of the operating results of the Sunol property had been reflected, under
the equity method, in the Partnership's share of unconsolidated ventures'
losses.
The Partnership reported a net loss of approximately $2,275,000 for the
fiscal year ended March 31, 1992, as compared to net income of approximately
$1,629,000 for fiscal 1991. The fiscal 1991 results reflected a gain of
approximately $1,746,000 on the sale of the Sunol Center Courthouse Building.
Excluding the effect of the gain, the Partnership's net loss increased by
approximately $2,158,000 in fiscal 1992. This significant increase in net loss
could be attributed primarily to the deterioration of the operating results of
the Partnership's four commercial office building properties. In particular,
declines in occupancy and rental rates at Warner/Red Hill, 625 North Michigan
Avenue and Sunol Center resulted in a decrease in combined rental revenues in
the aggregate amount of approximately $1.9 million. All three of these
properties experienced significant declines in average occupancy levels in
calendar 1991. Average occupancy at Warner/Red Hill declined from 76% for
calendar 1990 to 56% for calendar 1991. Average occupancy at Sunol Center also
sustained a 20 point drop, from 35% in calendar 1990 to 15% in calendar 1991.
Average occupancy at 625 North Michigan decreased from its level of 92% for
calendar 1990 to 84% for calendar 1991. In addition, increases in property
operating expenses and interest expense contributed to the unfavorable change in
net operating results. Property operating expenses increased most notably at
625 North Michigan Avenue, where a general improvement program was implemented
during fiscal 1992 to enhance the building's appeal as part of management's
efforts to retain existing tenants and attract new tenants. Interest expense on
the Partnership's zero coupon loans increased by approximately $70,000 in fiscal
1992 due to the compounding effect referred to above.
INFLATION
The Partnership commenced operations in 1985 and completed its eighth full
year of operations in the current fiscal year. The effects of inflation and
changes in prices on the Partnership's operating results to date have not been
significant.
Inflation in future periods may increase revenues, as well as operating
expenses, at the Partnership's operating investment properties. Most of the
existing leases with tenants at the Partnership's shopping center and office
buildings contain rental escalation and/or expense reimbursement clauses based
on increases in tenant sales or property operating expenses. Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration. Rental rates at these properties can be adjusted, to the
extent market conditions allow, to keep pace with inflation as the leases are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses.
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2) AND ITEM 14(D)
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP:
Reports of independent auditors F-2
Consolidated balance sheets as of March 31, 1994 and 1993 F-5
Consolidated statements of operations for the years ended
March 31, 1994, 1993 and 1992 F-6
Consolidated statements of changes in partners' capital
(deficit) for the years ended March 31, 1994, 1993 and 1992 F-7
Consolidated statements of cash flows for the years ended
March 31, 1994, 1993 and 1992 F-8
Notes to consolidated financial statements F-9
Schedule XI - Real Estate and Accumulated Depreciation F-27
COMBINED JOINT VENTURES OF PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP:
Reports of independent auditors F-28
Combined balance sheets as of December 31, 1993 and 1992 F-31
Combined statements of operations and changes in venturers'
capital for the years ended December 31, 1993, 1992 and 1991 F-32
Combined statements of cash flows for the years ended
December 31, 1993, 1992 and 1991 F-33
Notes to combined financial statements F-34
Schedule XI - Real Estate and Accumulated Depreciation F-40
Other financial statement schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners
PaineWebber Equity Partners One Limited Partnership:
We have audited the accompanying consolidated balance sheets of PaineWebber
Equity Partners One Limited Partnership as of March 31, 1994 and 1993, and the
related consolidated statements of operations, changes in partners' capital
(deficit) and cash flows for each of the three years in the period ended March
31, 1994. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of Warner/Red Hill
Associates, a joint venture investee of the Partnership. The Partnership's
financial statements reflect the Partnership's equity investment in Warner/Red
Hill Associates of $4,264,000 and $4,603,000 at March 31, 1994 and 1993,
respectively, and the Partnership's equity in Warner/Red Hill Associates' net
loss of $491,000, $799,000 and $964,000 for the years ended March 31, 1994, 1993
and 1992, respectively. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to data
included for Warner/Red Hill Associates, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated June 24, 1994, which
report contained an explanatory paragraph due to the uncertainty regarding the
Partnership's ability to realize its investment interests in Warner/Red Hill
Associates and Crow PaineWebber LaJolla Ltd. (joint venture investees), the
joint ventures have successfully refinanced their indebtedness. Therefore, the
conditions that raised uncertainty regarding the Partnership's ability to
realize its investment interests in Warner/Red Hill Associates and Crow
PaineWebber LaJolla Ltd. no longer exist.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of PaineWebber Equity Partners One Limited
Partnership at March 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/S/ Ernst & Young
ERNST & YOUNG LLP
Boston, Massachusetts
June 24, 1994,
except for Note 9, as to which the date is
September 27, 1994
INDEPENDENT AUDITORS' REPORT
The Partners
Warner/Redhill Associates:
We have audited the accompanying balance sheets of Warner/Redhill Associates
(a California general partnership) as of December 31, 1993 and 1992 and the
related statements of operations, changes in partners' capital and cash flows
for the years then ended. These financial statements are the responsibility of
management of Warner/Redhill Associates. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Warner/Redhill Associates as
of December 31, 1993 and 1992 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Los Angeles, California
January 7, 1994
INDEPENDENT AUDITORS' REPORT
The Partners
Warner/Redhill Associates:
We have audited the accompanying balance sheet of Warner/Redhill Associates
(a California general partnership) as of December 31, 1991 and the related
statements of operations, changes in partners' capital and cash flows for the
year then ended. These financial statements are the responsibility of
management of Warner/Redhill Associates. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Warner/Redhill Associates as
of December 31, 1991 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Los Angeles, California
January 31, 1992
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
March 31, 1994 and 1993
ASSETS
1994 1993
Operating investment properties:
Land $ 3,962,243 $ 3,962,243
Building and improvements 25,674,103 25,524,030
29,636,346 29,486,273
Less accumulated depreciation (7,229,205) (6,248,191)
22,407,141 23,238,082
Investments in unconsolidated joint ventures 34,924,925 37,733,352
Cash and cash equivalents 6,262,903 4,470,421
Escrowed cash 144,074 -
Prepaid expenses 10,494 10,759
Accounts receivable, less allowance for possible
uncollectible amounts of $158,531 in 1994
($81,167 in 1993) 54,656 138,094
Accounts receivable - affiliates 368,937 340,928
Deferred rent receivable 46,205 49,469
Deferred expenses, net 150,490 187,628
$64,369,825 $66,168,733
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 228,253 $ 331,620
Accounts payable - affiliates - 102,246
Bonds payable 1,884,120 1,944,714
Notes payable and accrued interest 10,263,737 9,327,812
Minority interest in net assets of
consolidated joint venture 187,383 187,383
Total liabilities 12,563,493 11,893,775
Commitments
Partners' capital:
General Partners:
Capital contributions 1,000 1,000
Cumulative net income 172,430 198,399
Cumulative cash distributions (977,663) (977,663)
Limited Partners ($50 per unit; 2,000,000
Units outstanding):
Capital contributions, net of
offering costs 90,054,639 90,054,639
Cumulative net income (loss) (1,662,287) 780,370
Cumulative cash distributions (35,781,787) (35,781,787)
Total partners' capital 51,806,332 54,274,958
$64,369,825 $66,168,733
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1994, 1993 and 1992
1994 1993 1992
REVENUES:
Rental income and expense
reimbursements $ 1,776,114 $ 1,845,009 $ 1,754,182
Interest and other income 194,622 294,048 297,527
1,970,736 2,139,057 2,051,709
EXPENSES:
Interest expense 1,062,515 999,610 908,057
Depreciation and amortization 1,056,594 1,038,022 1,116,999
Property operating expenses 963,026 944,744 839,713
Real estate taxes 306,934 336,380 319,605
General and administrative 700,455 604,718 537,207
Bad debt expense 77,364 240,253 41,112
4,166,888 4,163,727 3,762,693
Operating loss (2,196,152) (2,024,670) (1,710,984)
Investment income:
Interest income on notes receivable
from unconsolidated ventures 800,000 800,000 800,000
Partnership's share of
unconsolidated ventures' losses (1,072,474) (1,048,035) (1,364,390)
NET LOSS $(2,468,626) $(2,272,705) $(2,275,374)
Net loss per Limited Partnership Unit $(1.22) $(1.12) $(1.13)
Cash distributions per Limited
Partnership Unit $ - $ 0.75 $ 1.00
The above net loss and cash distributions per Limited Partnership Unit are based
upon the 2,000,000 Limited Partnership Units outstanding for each year.
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended March 31, 1994, 1993 and 1992
General Limited
Partners Partners Total
Balance at March 31, 1991 $(696,249) $ 63,054,671 $ 62,358,422
Cash distributions (20,202) (2,000,032) (2,020,234)
Net loss (22,753) (2,252,621) (2,275,374)
BALANCE AT MARCH 31, 1992 (739,204) 58,802,018 58,062,814
Cash distributions (15,151) (1,500,000) (1,515,151)
Net loss (23,909) (2,248,796) (2,272,705)
BALANCE AT MARCH 31, 1993 (778,264) 55,053,222 54,274,958
Net loss (25,969) (2,442,657) (2,468,626)
BALANCE AT MARCH 31, 1994 $(804,233) $52,610,565 $ 51,806,332
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
Cash flows from operating activities:
Net loss $ (2,468,626)$ (2,272,705)$(2,275,374)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Partnership's share of unconsolidated
ventures' losses 1,072,474 1,048,035 1,364,390
Depreciation and amortization 1,056,594 1,038,022 1,116,999
Bad debt expense 77,364 240,253 41,112
Interest expense 935,925 876,556 770,642
Changes in assets and liabilities:
Escrowed cash (144,074) - -
Prepaid expenses 265 (951) (4,372)
Accounts receivable 6,074 (176,899) (35,769)
Accounts receivable - affiliates (28,009) (170,978) 636,449
Deferred rent receivable 3,264 (8,620) (40,849)
Deferred expenses (38,442) (18,621) (27,910)
Accounts payable and accrued
expenses (103,367) 144,343 (184,252)
Accounts payable - affiliates (102,246) 19,525 61,122
Other liabilities - (112,263) (132,535)
Total adjustments 2,735,822 2,878,402 3,565,027
Net cash provided by
operating activities 267,196 605,697 1,289,653
Cash flows from investing activities:
Additions to operating investment
properties (150,073) (137,823) (706,923)
Reductions to operating investment
properties resulting from
mandatory payments - 33,452 20,273
Distributions from unconsolidated
joint ventures 1,988,152 1,575,012 1,154,630
Additional investments in
unconsolidated joint ventures (252,199) (205,643) (600,406)
Net cash provided by (used for)
investing activities 1,585,880 1,264,998 (132,426)
Cash flows from financing activities:
Payments on district bond assessments (60,594) (22,922) (1,603)
District bond assessments - 29,576 -
Distributions to partners - (1,515,151) (2,020,234)
Net cash used for financing
activities (60,594) (1,508,497) (2,021,837)
Net increase (decrease) in cash and cash
equivalents 1,792,482 362,198 (864,610)
Cash and cash equivalents, beginning
of year 4,470,421 4,108,223 4,972,833
Cash and cash equivalents, end of year $6,262,903 $ 4,470,421 $ 4,108,223
Cash paid during the year for interest $ 126,590 $ 123,054 $ 137,415
Write-off of fully depreciated
tenant improvements $ - $ 447,768 $ -
See accompanying notes.
1. Organization
PaineWebber Equity Partners One Limited Partnership (the "Partnership") is
a limited partnership organized pursuant to the laws of the State of
Virginia on April 17, 1985 for the purpose of investing in a diversified
portfolio of existing newly constructed or to-be-built income-producing real
properties. The Partnership authorized the issuance of units (the "Units")
of Limited Partner interests (at $50 per Unit) of which 2,000,000 were
subscribed and issued between July 18, 1985 and July 17, 1986.
2. Summary of Significant Accounting Policies
The accompanying financial statements include the Partnership's investment
in six joint venture partnerships which own operating properties. In
addition, the Partnership owns one property directly, as further described
in Note 4. Except as described below, the Partnership accounts for its
investments in joint venture partnerships using the equity method. Under
the equity method the ventures are carried at cost adjusted for the
Partnership's share of the ventures' earnings and losses and
distributions. All of the unconsolidated joint ventures partnerships are
required to maintain their accounting records on a calendar year basis for
income tax reporting purposes. As a result, the Partnership records its
share of joint ventures' income or losses based on financial information of
the ventures which is three months in arrears to that of the Partnership.
See Note 5 for a description of the unconsolidated joint venture
partnerships.
As further discussed in Note 4, the Partnership acquired control of the
Sunol Center joint venture in fiscal 1992. Accordingly, the joint venture
is presented on a consolidated basis in the accompanying financial
statements. As discussed above, the Sunol Center joint venture has a
December 31 year-end and operations of the venture continue to be reported
on a three-month lag. All material transactions between the Partnership
and its consolidated joint venture, except for lag-period cash transfers,
have been eliminated in consolidation.
The operating investment properties (Crystal Tree Commerce Center and
Sunol Center Office Buildings) are carried at the lower of cost, adjusted
for certain mandatory payments and accumulated depreciation, or net
realizable value. The net realizable value of a property held for long-term
investment purposes is measured by the recoverability of the Partnership's
investment from expected future cash flows on an undiscounted basis, which
may exceed the property's current market value. The net realizable value of
a property held for sale approximates its market value. The Partnership's
investments in Sunol Center and the Crystal Tree Commerce Center were
considered to be held for long-term investment purposes as of March 31, 1994
and 1993. Depreciation expense is computed using the straight-line method
over estimated useful lives of five-to-thirty years. Interest and taxes
incurred during the construction period, along with acquisition fees paid to
PaineWebber Properties Incorporated and costs of identifiable improvements,
have been capitalized and are included in the cost of the operating
investment properties. Maintenance and repairs are charged to expense when
incurred.
At March 31, 1994, escrowed cash consists of funds escrowed as additional
collateral under the terms of the loan agreement secured by the 625 North
Michigan operating property (see Note 6).
For purposes of reporting cash flows, the Partnership considers all highly
liquid investments with original maturities of 90 days or less to be cash
and cash equivalents.
Deferred expenses generally consist of deferred leasing commissions and
costs associated with the loans described in Note 6. The leasing
commissions are being amortized using the straight-line method over the term
of the related lease, and the loan costs are being amortized, on a straight-
line basis, over the terms of the respective loans.
Certain fiscal 1993 and 1992 amounts have been reclassified to conform to
the fiscal 1994 presentation.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are First Equity Partners, Inc.
(the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group Inc. ("PaineWebber") and Properties Associates 1985, L.P. (the
"Associate General Partner"), a Virginia limited partnership, certain
limited partners of which are also officers of PaineWebber Properties
Incorporated ("PWPI") and the Managing General Partner. Subject to the
Managing General Partner's overall authority, the business of the
Partnership is managed by PWPI pursuant to an advisory and asset management
contract. PWPI is a wholly-owned subsidiary of PaineWebber. The General
Partners and PWPI receive fees and compensation, determined on an agreed-
upon basis, in consideration of various services performed in connection
with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership
investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to
the General Partners until the Limited Partners have received an amount
equal to a 6% noncumulative annual return on their adjusted capital
contributions. The General Partners and PWPI will then receive
distributions until they have received concurrently an amount equal to 1.01%
and 3.99%, respectively, of all distributions to all partners. The balance
will be distributed 95% to the Limited Partners, 1.01% to the General
Partners, and 3.99% to PWPI. Payments to PWPI represent asset management
fees for PWPI's services in managing the business of the Partnership. Due
to the reduction in the Partnership's quarterly distribution rate from 6% to
2% during fiscal 1991, no management fees were earned for the fiscal years
ending March 31, 1994, 1993 and 1992, in accordance with the terms of the
advisory agreement. During fiscal 1993, the Partnership suspended all
distributions to Limited Partners until further notice. All sale or
refinancing proceeds shall be distributed in varying proportions to the
Limited and General Partners, as specified in the Partnership Agreement.
Taxable income (other than from a Capital Transaction) in each taxable
year will be allocated to the Limited Partners and the General Partners in
an amount equal to the distributable cash (excluding the asset management
fee) to be distributed to the partners for such year and in the same ratio
as distributable cash has been distributed. Any remaining taxable income,
or if no distributable cash has been distributed for a taxable year, shall
be allocated 98.94802625% to the Limited Partners and 1.05197375% to the
General Partners. Tax losses (other than from a Capital Transaction) will
be allocated 98.94802625% to the Limited Partners and 1.05197375% to the
General Partners. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes
have been made in conformity with the allocations of taxable income or tax
loss.
Selling commissions incurred by the Partnership and paid to an affiliate
of the Managing General Partner for the sale of Limited Partnership
interests aggregated $8,415,506 through the conclusion of the offering
period.
In connection with the acquisition of properties, PWPI was entitled to
receive acquisition fees in an amount not greater than 3% of the gross
proceeds from the sale of Partnership Units. Total acquisition fees of
$2,830,000 were incurred and paid by the Partnership in connection with the
acquisition of its operating property investments. In addition PWPI
received an acquisition fee of $170,000 from Sunol Center Associates in
1986.
The Managing General Partner and its affiliates are reimbursed for their
direct expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operations of the Partnership's real
property investments. Accounts payable - affiliates at March 31, 1993
consisted of reimbursements of out-of-pocket expenses owed to PWPI of
$102,246.
Included in general and administrative expenses for the years ended March
31, 1994, 1993 and 1992 is $201,900, $236,673 and $231,801, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell
Hutchins earned fees of $7,359, $7,917 and $7,873 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1994, 1993 and 1992, respectively.
At March 31, 1994 and 1993, accounts receivable - affiliates includes
$100,000 due from a certain unconsolidated joint venture for interest earned
on a permanent loan and $78,036 and $55,536, respectively, of investor
servicing fees due from several joint ventures for reimbursement of certain
expenses incurred in reporting Partnership operations to the Limited
Partners of the Partnership. Accounts receivable - affiliates at March 31,
1994 and 1993 also includes $14,534 of expenses paid by the Partnership on
behalf of the joint ventures during fiscal 1993. The balance of accounts
receivable - affiliates at March 31, 1994 and 1993 represents cash transfers
between the Partnership and the consolidated Sunol Center joint venture
during the three-month lag period (see Note 2).
4. Operating Investment Properties
At March 31, 1994 and 1993, the Partnership's balance sheet includes two
operating investment properties: (1) the wholly-owned Crystal Tree
Commerce Center; and (2) the Sunol Center Office Buildings, owned by Sunol
Center Associates, a majority owned and controlled joint venture. The
Partnership acquired a controlling interest in Sunol Center Associates
during fiscal 1992. Accordingly, the accompanying financial statements
present the financial position and results of operations of this joint
venture on a consolidated basis. Descriptions of the operating investment
properties and the agreements through which the Partnership acquired its
interests in the properties are provided below.
Crystal Tree Commerce Center
The Partnership acquired an interest in North Palm Crystal Associates (the
"joint venture"), a Florida general partnership organized on October 23,
1985 in accordance with a joint venture agreement between the Partnership
and Caruscan of Palm Beach Inc., a Florida corporation (the "co-venturer")
to own and operate the Crystal Tree Commerce Center (the "property"). The
property consists of three one-story retail plazas containing an aggregate
of 74,923 square feet of leasable space and one four-story office building
containing an aggregate of 40,115 square feet of leasable office space, each
of which was completed in 1983. The property, which was 97% occupied as of
March 31, 1994, is located in North Palm Beach, Florida.
The aggregate cash investment made by the Partnership for its initial
interest was $19,367,216 (including a $200,000 consulting fee and a $540,000
acquisition fee paid to PaineWebber Properties Inc.).
Effective February 1, 1988, the venture partners restructured the joint
venture agreement to transfer full ownership and control of the operating
property to the Partnership. Additionally, all shortfall loans made by the
co-venturer prior to the restructuring, which were to be refunded (plus
interest) from sales proceeds, were cancelled. To complete the transaction,
during fiscal 1989 the co-venturer paid the Partnership approximately
$884,000 as a settlement of amounts owed through the date of the
restructuring and in exchange for a release from further obligations for
tenant improvements, as well as a release of a letter of credit which was to
be drawn down over the next eight years. The cash received was used at the
property to finance tenant improvements required to re-lease vacant space.
The Sunol Center Office Buildings
Sunol Center Associates, a California general partnership (the "joint
venture"), was formed by the Partnership and Callahan Pentz Properties,
Pleasanton-Site Thirty-four A, a California general partnership ("co-
venturer") on August 15, 1986 to acquire and operate the Sunol Center (the
"Property"), which originally consisted of three office buildings on an 11.6-
acre site in the Hacienda Business Park located in Pleasanton, California.
Prior to the formation of the Partnership, the Property was owned and
operated by the co-venturer. The initial aggregate cash investment made by
the Partnership for its interest was $15,610,124 (including a $445,000
acquisition fee paid to the Adviser). The joint venture assumed liability
for public bonds of $2,141,119 upon acquisition of the property (see Note
7). The Partnership paid the co-venturer an additional $1,945,405 toward
the purchase price of its interest upon the occurrence of certain events
which were defined in the joint venture agreement, as amended.
On February 28, 1990 one of the three office buildings, comprising
approximately 31% of the total net rentable square feet, was sold for
$8,150,000. After payment of transaction costs and the deduction of the co-
venturer's share of the net proceeds, a distribution of approximately
$7,479,000 was made to the Partnership. A portion of these proceeds, in the
amount of approximately $4,246,000, was used to repay a zero coupon loan,
including accrued interest, that was secured by all three office buildings.
The joint venture agreement provided that for the period from August 15,
1986 to July 31, 1989 for two buildings (one of these two buildings was sold
on February 28, 1990) and August 15, 1986 to July 31, 1990 for one building,
to the extent that the Partnership required funds to cover operating
deficits or to fund shortfalls in the Partnership's Preference Return, as
defined, the co-venturer was required to contribute such amounts to the
Partnership. For financial reporting purposes, certain of the contributions
made by the co-venturer to cover such deficits and shortfalls were treated
as a reduction of the purchase price of the Property. The co-venturer
defaulted on the guaranty obligation in fiscal 1990 and negotiations between
the Partnership and the co-venturer to reach a resolution of the default
were ongoing until fiscal 1992 when the venturers reached a settlement
agreement. During fiscal 1992, the co-venturer assigned its remaining joint
venture interest to the Managing General Partner of the Partnership. The co-
venturer also executed a three-year non-interest bearing promissory note
payable to the Partnership in the amount of $126,000. In exchange, it was
agreed that the co-venturer or its affiliates would have no further
liability to the Partnership for any guaranteed preference payments. Due to
the uncertainty regarding the collection of the note receivable, such
compensation will be recognized as payments are received. During calendar
1993, 1992 and 1991, payments of $0, $33,452 and $20,273, respectively, were
received on the note and recorded as reductions to the carrying value of the
operating investment properties. Concurrent with the execution of the
settlement agreement, the property's management contract with an affiliate
of the co-venturer was terminated.
The joint venture's remaining two buildings are comprised of 116,680
square feet, of which 18% is leased to one tenant with a remaining lease
obligation of approximately $388,000 through December 31, 1995. The results
of the joint venture's operations have been substantially below the results
anticipated in its original business plan primarily due to high vacancy
levels in recent years. The joint venture incurred net losses and cash flow
deficits in calendar 1993, and currently projects net losses and cash flows
deficits for the next year. The ability of the joint venture to fund
operations, service debt, and recover its investment in the property is
dependent upon the success of future operations, including the leasing of
vacant space, the Partnership's funding of near-term cash flow deficits
and/or the sale of the property. Management's present intentions are to
hold the property for long-term investment purposes, to fund cash flow
requirements, and to lease the vacant space.
The joint venture agreement provides for the allocation of profits and
losses, cash distributions, and a preference return, as defined to the
venture partners. Generally, until the preference return provisions are
met, all profits, losses and cash distributions are allocated to the
Partnership. Allocations of income or loss for financial reporting purposes
have been made in accordance with the allocations of taxable income or tax
loss.
The following is a combined summary of property operating expenses for the
Crystal Tree Commerce Center and Sunol Center Office Building for the years
ended March 31, 1994, 1993 and 1992.
1994 1993 1992
Property operating expenses:
Repairs and maintenance $ 164,596 $ 144,329 $ 134,858
Utilities 130,172 132,168 149,292
Insurance 54,335 57,992 49,737
Administrative and other 522,919 519,251 418,575
Management fees 91,004 91,004 87,251
$ 963,026 $ 944,744 $ 839,713
5. Investments in Unconsolidated Joint Ventures
As of March 31, 1994 and 1993, the Partnership had investments in five
unconsolidated joint ventures which own operating investment properties.
The unconsolidated joint ventures are accounted for on the equity method in
the Partnership's financial statements. As discussed in Note 2, these joint
ventures report their operations on a calendar year basis.
Condensed combined financial statements of the unconsolidated joint
ventures, for the periods indicated, are as follows:
CONDENSED COMBINED BALANCE SHEETS
December 31, 1993 and 1992
Assets
1993 1992
Current assets $ 3,102,884 $ 3,350,354
Operating investment properties, net 71,188,310 73,173,864
Other assets 3,381,792 3,425,371
$ 77,672,986 $ 79,949,589
Liabilities and Capital
Current liabilities, including
mortgage notes payable in default $ 19,113,693 $ 9,699,852
Other liabilities 201,836 204,517
Long-term debt and notes payable to venturers 8,000,000 15,565,642
Partnership's share of combined capital 24,262,745 27,269,179
Co-venturers' share of combined capital 26,094,712 27,210,399
$ 77,672,986 $ 79,949,589
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the years ended December 31, 1993, 1992 and 1991
1993 1992 1991
Rental income and expense
recoveries $10,653,522 $10,635,337 $10,315,265
Interest income 31,621 46,793 144,546
Other income 306,289 183,352 148,211
Total revenues 10,991,432 10,865,482 10,608,022
Property operating expenses 4,102,621 3,707,515 3,920,256
Real estate taxes 2,581,129 2,637,345 2,709,204
Mortgage interest expense 1,371,477 1,289,389 1,145,033
Interest expense payable to partner 800,000 800,000 800,000
Depreciation and amortization 3,107,504 3,003,252 3,123,921
11,962,731 11,437,501 11,698,414
Net loss $ (971,299) $ (572,019) $(1,090,392)
Net income (loss):
Partnership's share of combined
income (loss) $ (987,279) $ (962,840) $(1,279,195)
Co-venturers' share of combined
income (loss) 15,980 390,821 188,803
$ (971,299) $ (572,019) $(1,090,392)
Reconciliation of Partnership's Investment
March 31, 1994 and 1993
1994 1993
Partnership's share of capital at
December 31, as shown above $24,262,745 $27,269,179
Excess basis due to investment in joint
ventures, net (1) 1,628,777 1,713,972
Partnership's share of ventures' current
liabilities and long-term debt 9,324,377 8,907,780
Timing differences due to distributions
received from and contributions sent to
joint ventures subsequent to December 31
(see Note 2) (290,974) (157,579)
Investments in unconsolidated joint
ventures, at equity at March 31 $34,924,925 $37,733,352
(1)The Partnership's investments in joint ventures exceeds its share of the
combined joint ventures' capital accounts by approximately $1,629,000 and
$1,714,000 at March 31, 1994 and 1993, respectively. This amount, which
represents acquisition fees and other expenses incurred by the Partnership
in connection with the acquisition of its joint venture interests is being
amortized over the estimated useful lives of the related operating
properties (generally 30 years).
Reconciliation of Partnership's Share of Operations
March 31, 1994, 1993 and 1992
1994 1993 1992
Partnership's share of operations,
as shown above $ (987,279) $ (962,840) $(1,279,195)
Amortization of excess basis (85,195) (85,195) (85,195)
Partnership's share of
unconsolidated ventures' losses $(1,072,474) $(1,048,035) $(1,364,390)
Investments in unconsolidated joint ventures, at equity is the
Partnership's net investment in the unconsolidated joint venture
partnerships. These joint ventures are subject to Partnership agreements
which determine the distribution of available funds, the disposition of the
ventures' assets and the rights of the partners, regardless of the
Partnership's percentage ownership interest in the venture. Substantially
all of the Partnership's investments in these joint ventures are restricted
as to distributions.
Investments in unconsolidated joint ventures at equity on the balance sheet
at March 31, 1994 and 1993 is comprised of the following investment carrying
values:
1994 1993
Investments in joint ventures, at equity:
Warner/Red Hill Associates $ 4,263,912 $ 4,603,148
Crow PaineWebber LaJolla, Ltd. (813,682) 526,112
Lake Sammamish Limited Partnership 3,082,837 3,299,134
Framingham 1881 - Associates 5,495,316 5,573,118
Chicago-625 Partnership 14,896,542 15,731,840
26,924,925 29,733,352
Notes receivable:
Crow PaineWebber LaJolla, Ltd. 4,000,000 4,000,000
Lake Sammamish Limited Partnership 4,000,000 4,000,000
8,000,000 8,000,000
$34,924,925 $37,733,352
Cash distributions received from the Partnership's unconsolidated joint
ventures for the years ended March 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
Warner/Red Hill Associates $ 60,551 $ 57,728 $ -
Crow PaineWebber LaJolla, Ltd. 800,000 550,000 300,000
Lake Sammamish Limited Partnership 263,884 333,888 240,241
Framingham 1881 - Associates - - -
Chicago - 625 Partnership 863,717 633,396 614,389
$ 1,988,152 $ 1,575,012 $ 1,154,630
For each of the years ended March 31, 1994, 1993 and 1992, the Partnership
earned interest income of $800,000 from the notes receivable described below
in the discussions of the Crow PaineWebber LaJolla, Ltd. and Lake Sammamish
Limited Partnership joint ventures.
Descriptions of the properties owned by the unconsolidated joint ventures
and the terms of the joint venture agreements are summarized as follows:
a. Warner/Red Hill Associates
The Partnership acquired an interest in Warner/Red Hill Associates (the
"joint venture"), a California general partnership organized on December 18,
1985 in accordance with a joint venture agreement between the Partnership
and Los Angeles Warner Red Hill Company Ltd., (the co-venturer), to own and
operate the Warner/Red Hill Business Center (the "Property"). The co-
venturer is an affiliate of The Paragon Group. The Property consists of
three two-story office buildings totalling 93,895 net rentable square feet
on approximately 4.76 acres of land. The Property, which was 86% leased as
of March 31, 1994, is part of a 4,200 acre business complex in Tustin,
California.
The aggregate cash investment in the joint venture by the Partnership was
$12,657,950 (including acquisition fees of $366,600 paid to the Adviser and
closing costs of $5,902). The property was encumbered by a construction
loan payable to a bank and a note payable to the co-venturer totalling
$11,200,000 at the time of purchase. The construction loan was repaid
during 1986 from the proceeds of the Partnership's capital contribution. At
March 31, 1994 the property is encumbered by a $3,000,000 nonrecourse zero
coupon loan, and the related accrued interest of $2,974,667, which matured
on August 15, 1993. Subsequent to year-end, the Partnership reached an
agreement in principle with the lender regarding a modification and
extension; however, definitive modification documents have not yet been
executed (see Note 6).
The co-venturer agreed to contribute, in the form of loans to the joint
venture, all funds that were necessary so the joint venture could distribute
the Partnership's full minimum preference return (described below) through
December 31, 1989. Such contributions (the "Mandatory Capital") will accrue
a return to the co-venturer at prime plus 1%, compounded annually. Through
December 31, 1989 the co-venturer had contributed $523,743 pursuant to such
requirements. The unpaid accrued preference return on Mandatory Capital was
$256,594 and $205,544 at December 31, 1993 and 1992, respectively. If the
joint venture requires additional funds subsequent to December 31, 1989,
such funds are to be provided in the form of loans, 85% by the Partnership
and 15% by the co-venturer. In the event that a partner does not
contribute its share of additional funds (Defaulting Partner), the other
partner may contribute such funds to the joint venture in the form of loans
(Default Loans). Such Default Loans bear interest at twice the rate of
regular notes to partners up to the maximum rate legally allowed. In
addition, the Defaulting Partner's share of net cash flow and cash flow from
the sale or refinancing proceeds are to be reduced, with a corresponding
increase in the other partner's share, in accordance with a formula defined
in the partnership agreement. The Partnership advanced 100% of the funds
required by the joint venture during calendar 1993. Such advances totalled
$275,397, of which $62,382 was classified as Default Loans. Unpaid accrued
interest on Notes to Partners totals $341,571 and $248,315 at December 31,
1993 and 1992, respectively.
The joint venture agreement provides that net cash flow (as defined), to the
extent available, will be distributed as follows: First, the Partnership
will receive a cumulative preference return, payable quarterly until paid in
full, of $1,225,000 per year (or, if less, 10% per annum of the
Partnership's investment). Second, remaining available net cash flow shall
be used to make payments to the partners at a percentage equal to the prime
rate of interest plus 1% on additional loans, (as described above) made by
the partners to the Partnership. Third, remaining available net cash flow
shall be used to make a payment to the co-venturer at a percentage equal to
the prime rate of interest plus 1%, compounded annually, of capital
contributions which, in accordance with the joint venture agreement, were
required to be made by the co-venturer during 1988 and 1989 if net cash flow
was insufficient to fund the Partnership's preference return. Fourth, any
remaining net cash flow shall be used to make a payment to the Partnership
at a percentage equal to the prime rate of interest plus 1% of any
accumulated but unpaid Partnership preference return. Fifth, any remaining
net cash flow shall be distributed on an annual basis in the ratio of 87.25%
to the Partnership and 12.75% to the co-venturer (including adjustments for
Default Loans). The cumulative unpaid preference return due the Partnership
at December 31, 1993 and 1992 is $4,022,860 and $2,766,246, including
accrued interest of $509,411 and $276,764, respectively.
Net income is allocated in a manner similar to the distribution of net cash
flows. Net losses will be allocated in proportion to the partners'
positive capital accounts, provided that any deductions attributable to any
fees paid to the Partnership pursuant to the joint venture agreement shall
be allocated solely to the Partnership, and further provided that the co-
venturer shall be allocated any additional losses in an amount equal to the
lesser of the amount of additional capital contributed by it or 15% of such
losses.
Proceeds from sale or refinancing shall be distributed as follows: 1) to
the Partnership in an amount equal to the Partnership's original investment
(including the additional contributions discussed above; 2) to the co-
venturer in an amount equal to any required additional capital contributions
made by it as discussed above; 3) to the Partnership in an amount equal to
the cumulative Partnership preference return not yet paid; 4) to each
partner pro rata to the extent of any other additional contributions of
capital made by that partner and 5) the remaining balance 83% to the
Partnership and 17% to the co-venturer (including adjustments for Default
Loans).
Gains resulting from the sale or refinancing of the property shall be
allocated as follows: capital gains shall first be used to bring any
negative balances of the capital accounts to zero. The remaining capital
profits shall be allocated in a manner similar to the allocation of proceeds
from sale or refinancing. Capital losses shall be allocated to the partners
in an amount up to and in proportion to their positive capital balances. If
additional losses exist, then the losses shall be allocated to the
Partnership to bring its capital account to zero, then to the co-venturer to
bring its capital account to zero and finally, all remaining capital losses
shall be allocated 80% to the Partnership and 20% to the co-venturer.
The joint venture agreement provides that beginning in 1991, either partner
may elect to purchase the property. The partner not initiating such a
purchase, however, has the option to purchase the property on the same terms
contemplated by the initiating partner. In addition, beginning in 1991 the
Partnership has the right to compel a sale of the property.
The Partnership is entitled to receive an annual investor servicing fee of
$2,500 for the reimbursement of certain costs incurred to report the
operations of the joint venture to the Limited Partners of the Partnership.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer cancelable at the joint venture's option upon
the occurrence of certain events. The management fee is equal to 4% of
gross rents, as defined.
b. Crow PaineWebber LaJolla, Ltd.
On July 1, 1986 the Partnership acquired an interest in Crow PaineWebber
LaJolla, Ltd. (the "joint venture"), a Texas limited partnership organized
in accordance with a joint venture agreement between the Partnership and
Crow-Western #302 - San Diego Limited Partnership, a Texas limited
partnership (the "co-venturer"), to construct and operate the Monterra
Apartments (the "Property"). The co-venturer is an affiliate of the
Trammell Crow organization. The Property, which was 99% occupied as of
March 31, 1994, consists of garden-style apartments and includes 180 one-and
two-bedroom units, comprising approximately 136,000 square feet in LaJolla,
California.
The aggregate cash investment (including a Permanent Loan of $4,000,000) in
the joint venture by the Partnership was $15,363,056 (including acquisition
fees of $490,000 paid to the Adviser). The Property was encumbered by a
construction loan payable to a bank of $11,491,167 at the time of purchase.
The construction loan was repaid upon completion of construction during
fiscal 1988 from the proceeds of the Partnership's capital contribution. At
March 31, 1994, the property is encumbered by a $4,500,000 nonrecourse zero
coupon loan, and the related accrued interest of $3,804,970, which was
scheduled to mature in June of 1994, at which time a total payment of
approximately $8,645,000 was due. Subsequent to year-end, this maturity
date was reached and the joint venture is in technical default of the
related loan agreement (see Note 6).
In accordance with the joint venture agreement, upon the completion of
construction of the operating property the co-venturer received, as a
capital withdrawal, 10% of certain development costs incurred, as defined in
the joint venture agreement.
Net cash flow from operations of the joint venture is to be distributed
quarterly in the following order of priority: 1) the Partnership and the co-
venturer will each be repaid accrued interest and principal, in that order,
on any optional loans (as described below) they made to the joint venture;
2) the Partnership will receive a cumulative annual preferred return of 10%
per annum on the Partnership's Investment; and 3) any remaining net cash
flow will be distributed 85% to the Partnership and 15% to the co-venturer.
The cumulative unfunded amount relating to the Partnership's preferential
return is $2,534,500 at December 31, 1993.
Proceeds from the sale or refinancing of the Property in excess of debt
repayment will be distributed in the following order of priority: (1) the
Partnership and the co-venturer will each receive proceeds to repay accrued
interest and principal on any outstanding optional loans they made to the
joint venture, (2) the Partnership will receive the aggregate amount of its
cumulative annual 10% preferred return not theretofore paid; (3) the
Partnership will receive an amount equal to the Partnership Investment; and
(4) thereafter, any remaining proceeds will be distributed 85% to the
Partnership and 15% to the co-venturer.
To the extent that there are distributable funds, as defined, net income
(other than gain from a sale or other disposition of the Property) will be
allocated to the Partnership to the extent of its preferential return, with
the remainder 85% to the Partnership and 15% to the co-venturer. In the
event there are no distributable funds, as defined, net income will be
allocated 85% to the Partnership and 15% to the co-venturer; net losses
(other than losses from a sale or other disposition of the Property) shall
be allocated 99% to the Partnership and 1% to the co-venturer, provided that
if the co-venturer has a credit balance in its capital account, it shall be
entitled to its appropriate share of losses to offset any such credit
balance prior to any further allocation of net losses to the Partnership.
Gains from a sale or other disposition of the Property will be allocated as
follows: (i) to the Partners to the extent of, and among them in the ratio
of, their respective capital account deficit balances; (ii) to the
Partnership until the Partnership's capital account has been increased to a
credit equal to the net proceeds to be distributed to the Partnership
pursuant to subparagraphs (2) and (3) of the distribution of net proceeds
paragraph, (iii) to the co-venturer in the ratio necessary to cause the co-
venturer's capital account balance to be in the ratio of 85% to the
Partnership and 15% to the co-venturer, and (iv) the balance, if any, 85% to
the Partnership and 15% to the co-venturer.
The joint venture has a note payable to the Partnership in the amount of
$4,000,000 which bears interest at 10% per annum. The note is secured by
the personal property of the joint venture, including all rents, deposits,
and proceeds earned on the joint venture. All unpaid principal and interest
on the note is due on July 1, 2011. Interest expense on the note, which is
payable on a quarterly basis, amounted to $400,000 for each of the years
ended March 31, 1994, 1993 and 1992.
The Partnership receives an annual investor servicing fee of $10,000 for the
reimbursement of certain costs incurred to report the operations of the
joint venture to the Limited Partners of the Partnership.
The joint venture entered into a management contract with an affiliate of
the co-venturer which is cancelable at the option of the Partnership upon
the occurrence of certain events. The management fee is 5% of gross rents
collected.
c. Lake Sammamish Limited Partnership
The Partnership acquired an interest in Lake Sammamish Limited Partnership
(the "Joint Venture"), a Texas limited partnership organized on October 1,
1986 in accordance with a joint venture agreement between the Partnership,
Crow-Western #504-Lake Sammamish Limited Partnership ("Crow") and Trammell
S. Crow (the "Limited Partner") to own and operate Chandler's Reach
Apartments (the "Property"). The Property consists of 166 units with
approximately 135,110 net rentable square feet in eleven two-and three-story
buildings. The property, which was 97% occupied as of March 31, 1994, is
located in Redmond, Washington.
The aggregate cash investment (including a Permanent Loan of $4,000,000) in
the joint venture by the Partnership was $10,540,576 (including an
acquisition fee of $340,000 paid to the Adviser). As further discussed in
Note 6, at March 31, 1994 the property was encumbered by a nonrecourse zero
coupon loan in the initial principal amount of $1,886,473, plus related
accrued interest of $1,414,354.
Net cash flow (as defined) is to be distributed quarterly in the following
order of priority: First, the Partnership and Crow will each be repaid
accrued interest and principal, in that order, on any optional loans.
Second, the Partnership will receive a cumulative annual preferred return of
10% per annum of its Investment. Third, to the extent of available net cash
flow prior to the end of the Guaranty Period, the Partnership will receive a
distribution equal to $350,000. Fourth, any remaining net cash flow will be
distributed 75% to the Partnership and 25% to Crow and the Limited
Partnership (subject to "Adjustment" as defined below). The preference
payable to the Partnership pursuant to the second clause above will be
reduced by any amounts distributed as a return on capital and in proportion
to the amount distributed as a return of capital through sale or
refinancing. The cumulative amount of the preference return due to the
Partnership at December 31, 1993 is approximately $1,371,000.
Proceeds from the sale or refinancing of the Property in excess of debt
repayment will be distributed in the following order of priority: First,
the Partnership and Crow will each receive proceeds to repay accrued
interest and principal on any outstanding optional loans. Second, the
Partnership will receive the aggregate amount of its cumulative annual 10%
preferred return not theretofore paid. Third, the Partnership will receive
an amount equal to its Investment. Fourth, thereafter, any remaining
proceeds will be distributed 75% to the Partnership and 25% to Crow and the
Limited Partners (subject to Adjustment as defined above).
Net income (other than gains from a sale or other disposition of the
Property) will be allocated to the Partnership, to the extent of
distributable funds distributed to the Partnership with the remainder
allocated 75% to the Partnership and 25% to Crow. In the event there are no
distributable funds from operations, net income will be allocated 75% to the
Partnership and 25% to Crow and the Limited Partner; net losses (other than
losses from a sale or other disposition) shall be allocated 99% to the
Partnership and 1% to Crow and the Limited Partner, provided that if Crow or
the Limited Partner has a credit balance in its capital account, it shall be
entitled to its appropriate share of losses to offset any such credit
balance prior to any further allocation of net losses to the Partnership.
The Partnership and Crow agreed that until the fifth anniversary of the
closing date, the joint venture would not be entitled to sell the Property
without the prior written consent of both Crow and the Partnership.
Thereafter, Crow and the Partnership shall each have the right of first
refusal to acquire the other's interest in the Property on the same terms as
any offer made by a third party.
If the joint venture requires additional funds, such funds may be provided,
in the form of optional loans, by either one of the co-venturers or 75% by
the Partnership and 25% by Crow and the Limited Partner. Optional loans
will bear interest at the rate of 1% over the prime rate.
The joint venture has a note payable to the Partnership in the amount of
$4,000,000 which bears interest at 10% per annum. The note is secured by
real and personal property (including leases and rents earned from the
property). All unpaid principal and interest on the note is due on October
1, 2011. Interest expense on the note, which is payable on a quarterly
basis, amounted to $400,000 for each of the years ended March 31, 1994, 1993
and 1992.
The Partnership receives an annual investor servicing fee of $10,000 for the
reimbursement of certain expenses incurred to report the operations of the
joint venture to the Limited Partners of the Partnership.
Crow or an affiliate will receive an annual management fee of $10,000 for
services rendered in managing the joint venture. In addition, the joint
venture entered into a management contract with an affiliate of Crow, which
is cancelable at the option of the Partnership upon the occurrence of
certain events. The annual management fee, payable monthly, is 5% of gross
rents collected.
d. Framingham - 1881 Associates
The Partnership acquired an interest in Framingham - 1881 Associates (the
"joint venture"), a Massachusetts general partnership on December 12, 1986
in accordance with a joint venture agreement between the Partnership,
Furrose Associates Limited Partnership, and Spaulding and Slye Company, to
own and operate the 1881 Worcester Road office building (the "Property").
Prior to the Partnership's acquisition, Furrose Associates Limited
Partnership and Spaulding & Slye Company had formed an existing Partnership.
They each had sold a portion of their interest to the Partnership and
hereafter will be referred to as "the Selling Partners". The Property
consists of 64,189 net rentable square feet in one two-story building. The
Property is located in Framingham, Massachusetts.
The aggregate cash investment in the joint venture by the Partnership was
$7,376,732 (including an acquisition fee of $265,000 paid to the Adviser and
legal and audit fees of $7,287). The Property was originally encumbered by
a construction note payable totalling $4,029,083. This note was repaid from
the proceeds of the contribution from the Partnership.
As of March 31, 1994, the property was 62% occupied. Since the property is
not encumbered by any mortgage financing, it is management's intention to
hold the property for long-term investment purposes and lease the vacant
space under terms and conditions that will result in sufficient cash flow to
meet the joint venture's operating expenses, recover its investment and
provide a normal operating profit.
The Selling Partners agreed to contribute to the joint venture through
November 30, 1987 the amount by which the Partnership's minimum preference
return (described below) for each month exceeds the greater of (i) the
amount of Net Cash Flow (if Net Cash Flow was a positive amount) or (ii)
zero (if Net Cash Flow was a negative amount). Such contributions (the
"Mandatory Contributions") will be deemed as capital contributions by the
Selling Partners. Thereafter, and until November 30, 1989, the Selling
Partners agreed to contribute, as capital contributions, to the joint
venture all funds that were required to eliminate the Net Cash Flow
Shortfall and enable the Partnership to receive its monthly Preference
Return. Any contributions made in the period commencing December 1, 1987
and ending November 30, 1989 were subject to a cumulative rate of return
payable out of available Net Cash Flow of 9.5% per annum from the date the
Mandatory Contribution was made until returned (or until November 30, 1991)
and if still outstanding as of November 30, 1991 at the rate of 9.75% per
annum thereafter. Amounts contributed by the Selling Partners and not yet
returned aggregate $287,500 at December 31, 1993. The cumulative return
payable on year three mandatory contributions approximated $131,000 at
December 31, 1993. These contributions commencing December 1, 1987 are also
subject to a priority return from Capital Proceeds as outlined in the joint
venture agreement.
The joint venture agreement provides that net cash flow (as defined), to the
extent available, will generally be distributed monthly in the following
order of priority: First, beginning December 31, 1989 the Partnership and
the Selling Partners will each be paid accrued interest on any advances they
made to the Partnership. Second, the Partnership will receive a cumulative
annual preferred return of 9.5% per annum on its Net Investment for the
first five years after the Closing Date and 9.75% per annum on its Net
Investment thereafter. Third, the Partnership and the Selling Partners will
be paid accrued interest on advances from net cash flow generated through
November 30, 1989. Fourth, the Selling Partners will receive an amount
equal to Mandatory Contributions. Fifth, the Selling Partners will receive
a preferred return on Mandatory Contributions made in year 2 and year 3, if
any, of 9.5% per annum through November 30, 1991 and 9.75% per annum
thereafter. Sixth, payment will be made to the Capital Reserve, as defined
in the joint venture agreement. Seventh, remaining net cash flow will be
distributed 70% to the Partnership and 30% to the Selling Partners. The
amount of the preference payable to the Partnership pursuant to the second
clause above is calculated as a percentage of capital remaining after any
amounts are distributed as a return on capital and by any amounts
distributed as a return of capital through sale or refinancing. The
Partnership did not receive any Preferred return for 1993 and 1992. The
cumulative unpaid preference return payable to the Partnership at December
31, 1993 was approximately $2,494,000.
Proceeds from the sale or refinancing of the Property will be distributed in
the following order of priority: First, to the Partnership and the Selling
Partners in proportion to accrued interest and outstanding principal on any
advances to the Partnership. Second, to the Selling Partners until any
Mandatory Contributions are returned and the Selling Partners have received
any previously unpaid preferred return on such Mandatory Contributions.
Third, the Partnership will receive the aggregate amount of its cumulative
annual preferred return not theretofore paid. Fourth, the Partnership will
receive an amount equal to its Net Investment. Fifth, thereafter, any
remaining proceeds will be distributed 70% to the Partnership and 30% to the
Selling Partners.
Net income and losses will be allocated to the Partnership and the Selling
Partners in any year in the same proportions as actual cash distributions.
Any remaining net income or net losses shall be allocated 70% to the
Partnership and 30% to the Selling Partners. Gains resulting from the sale
or refinancing of the Property shall be allocated as follows: First,
capital gains shall be used to bring any negative balances of the capital
accounts to zero. Second, the Selling Partners and then the Partnership in
an amount to each equal to the excess of the distributions to the received
over the positive capital account of each immediately prior to the sale or
refinancing. Third, remaining capital gains distributed 70% to the
Partnership and 30% to the Selling Partners. Capital losses shall be
allocated to the Partners in an amount up to and in proportion to their
positive capital balances. Additional losses shall be allocated 70% to the
Partnership and 30% to the Selling Partners.
The joint venture entered into a management contract with Spaulding and Slye
Company (the "Manager"), an affiliate of the Selling Partners, which is
cancelable at the option of the Partnership upon the occurrence of certain
events. The Manager will receive an annual management fee at prevailing
market rates.
e. Chicago - 625 Partnership
The Partnership acquired an interest in Chicago - 625 Partnership (the
"joint venture"), an Illinois general partnership organized on December 16,
1986 in accordance with a joint venture agreement between the Partnership,
an affiliate of the Partnership and Michigan-Ontario Limited, an Illinois
limited partnership and affiliate of Golub & Company (the "co-venturer"), to
own and operate 625 North Michigan Avenue Office Tower (the "property").
The property is a 27-story commercial office tower containing an aggregate
of 324,829 square feet of leasable space on approximately .38 acres of
land. The property, which was 82% leased as of March 31, 1994, is located
in Chicago, Illinois.
The aggregate cash investment made by the Partnership for its current
interest was $17,278,096 (including an acquisition fee of $383,400 paid to
the Adviser). At the same time the Partnership acquired its interest in the
joint venture, PaineWebber Equity Partners Two Limited Partnership (PWEP2),
an affiliate of the Managing General Partner with investment objectives
similar to the Partnership's investment objectives, acquired an interest in
this joint venture. PWEP2's initial cash investment for its interest was
$31,350,000 plus an acquisition fee of $1,316,000 paid to PWPI. In
addition, the Partnership had an option to purchase from PWEP2 $6,880,000 of
additional interest in the joint venture. On June 12, 1987, the Partnership
exercised a portion of its option by purchasing an additional interest of
$3,500,000 from PWEP2. On May 18, 1988, the Partnership exercised the
remainder of its option by purchasing the remaining interest of $3,380,000
from PWEP2. No gain or loss was recorded on these transactions.
During 1990 the joint venture agreement was amended to allow the
Partnership and PWEP2 the option to make contributions to the joint venture
equal to total costs of capital improvements, leasehold improvements and
leasing commissions ("Leasing Expense Contributions") incurred since April
1, 1989, not in excess of the accrued and unpaid Preference Return due to
the Partnership and PWEP2. The Partnership made Leasing Expense
Contributions in the amounts of approximately $112,000 and $584,000 during
fiscal 1993 and 1992, respectively. No Leasing Expense Contributions were
made during fiscal 1994.
The joint venture agreement provides for aggregate distributions of cash
flow and sale or refinancing proceeds to the Partnership and PWEP2
(collectively, the "PWEP Partners"). These amounts are then distributed to
the Partnership and PWEP2 based on their respective cash investments in the
joint venture exclusive of acquisition fees. As a result of the transfers
of PWEP2's interests to the Partnership as discussed above, cash flow
distributions and sale or refinancing proceeds will now be split
approximately 41% to the Partnership and 59% to PWEP2.
Net cash flow, as defined, is to be distributed, within 15 days after the
end of each calendar month, in the following order of priority: First, to
the PWEP Partners until the PWEP Partners have received an amount equal to
one-twelfth of the lesser of $3,721,500 or 9% of the PWEP net investment, as
defined, for the month ("PWEP Preference Return") plus any amount of PWEP
Preference Return not theretofore paid in respect to that fiscal year for
which such distribution is made. Second, to the payment of all unpaid
accrued interest on all outstanding default notes, as defined in the
Agreement, and then to the repayment of any principal amounts on such
outstanding default notes. Third, to the payment of all unpaid accrued
interest on all outstanding operating notes, as defined in the Agreement,
and then to the repayment of any principal amounts on such outstanding
operating notes. Fourth, 70% to the PWEP Partners and 30% to Michigan-
Ontario. The cumulative unpaid and unaccrued Preference Return due to the
Partnership totalled $3,510,212 at December 31, 1993 ($2,786,589 at December
31, 1992).
Net income shall be allocated in the same proportion as net cash flow
distributed to the Partners for each fiscal year to the extent that such
profits do not exceed the net cash flow distributed in the year. Net income
in excess of net cash flow shall be allocated 99% to the PWEP Partners and
1% to Michigan-Ontario. Losses shall be allocated 99% to the PWEP Partners
and 1% to Michigan-Ontario.
Proceeds from sale or refinancing shall be distributed in the following
order of priority:
First, to the payment of all unpaid accrued interest on all outstanding
default notes, as defined in the Agreement, and then to the repayment of any
principal amounts on such outstanding default notes. Second, to the PWEP
Partners and Michigan-Ontario for the payment of all unpaid accrued interest
on all outstanding operating notes, as defined in the Agreement, and then to
the repayment of any principal amounts on such outstanding operating notes.
Third, 100% to the PWEP Partners until they have received the aggregate
amount of the PWEP Preference Return not theretofore paid. Fourth, 100% to
the PWEP Partners until they have received an amount equal to its net
investment. Fifth, 100% to the PWEP Partners until they have received an
amount equal to the PWEP leasing expense contributions less any amount
previously distributed, pursuant to this provision. Sixth, 100% to Michigan-
Ontario until it has received an amount equal to $6,000,000, less any amount
of proceeds previously distributed to Michigan-Ontario, pursuant to this
provision. Seventh, 100% to Michigan-Ontario until it has received an
amount equal to any reduction in the amount of Net Cash Flow that it would
have received had the Partnership not incurred indebtedness in the form of
operating notes. Eighth, 100% to the PWEP Partners until they have received
$2,067,500, less any amount of proceeds previously distributed to the PWEP
Partners, pursuant to this provision. Ninth, 75% to the PWEP Partners and
25% to Michigan-Ontario until the PWEP Partners have received $20,675,000,
less any amount previously distributed to the PWEP Partners, pursuant to
this provision. Tenth, 100% to the PWEP partners until the PWEP partners
have received an amount equal to a cumulative return of 9% on the PWEP
leasing expense contributions. Eleventh, any remaining balance thereof 55%
to the PWEP Partners and 45% to Michigan-Ontario.
Gains resulting from the sale of the property shall be allocated as
follows:
First, capital profits shall be allocated to Partners having negative
capital account balances, until the balances of the capital accounts of such
Partners equal zero. Second, any remaining capital profits up to the amount
of capital proceeds distributed to the Partners pursuant to distribution of
proceeds of a sale or refinancing with respect to the capital transaction
giving rise to such capital profits shall be allocated to the Partners in
proportion to the amount of capital proceeds so distributed to the Partners.
Third, capital profits in excess of capital proceeds, if any, shall be
allocated between the Partners in the same proportions that capital proceeds
of a subsequent capital transaction would be distributed if the capital
proceeds were equal to the remaining amount of capital profits to be
allocated.
Capital losses shall be allocated as follows:
First, capital losses shall be allocated to the Partners in an amount up to
and in proportion to their respective positive capital balances. Then, all
remaining capital losses shall be allocated 70% in total to the Partnership
and PWEP1 and 30% to the co-venturer.
The Partnership has a property management agreement with an affiliate of
the co-venturer that provides for management and leasing commission fees to
be paid to the property manager. The management fee is 4% of gross rents
and the leasing commission is 7%, as defined. The property management
contract is cancellable at the Partnership's option upon the occurrence of
certain events and is currently cancellable by the co-venturer at any time.
6. Notes Payable
Notes payable and accrued interest on the books of the Partnership at
March 31, 1994 and 1993 consist of the following:
1994 1993
$4,000,000 nonrecourse note payable to an
insurance company, which is secured by the
625 North Michigan Avenue operating
investment property. The note has a term of
7 years and bears interest at an effective
compounded rate of 9.8% per annum. Interest
and principal totalling approximately
$7,705,000 is due and payable by the
Partnership at maturity, May 1, 1995.
Accrued interest through March 31, 1994 and
1993 amounted to $2,962,910
and $2,340,635, respectively. $ 6,962,910 $ 6,340,635
$1,886,473 nonrecourse note payable to a
financial institution which is secured by the
Lake Sammamish Limited Partnership operating
investment property. The note has a term of
seven years and bears interest at 10.5% per
annum compounded annually. Interest and
principal totalling approximately $3,797,000
is due and payable by the Partnership at
maturity, August 1, 1995. Accrued interest
through March 31, 1994 and 1993 amounted to
$1,414,354 and
$1,100,705, respectively. 3,300,827 2,987,177
$10,263,737 $ 9,327,812
On April 29, 1988, the Partnership borrowed $4,000,000 in the form of a
zero coupon loan which had a scheduled maturity date in May of 1995. The
note bears interest at an effective compounded annual rate of 9.8% and is
secured by the 625 North Michigan Avenue Office Building. Payment of all
interest is deferred until maturity, at which time principal and interest
totalling approximately $7,705,000 was to be due and payable. The carrying
value on the Partnership's balance sheet at March 31, 1994 of the loan plus
accrued interest aggregated approximately $6,963,000. The terms of the loan
agreement require that if the loan ratio, as defined, exceeds 80%, the
Partnership is required to deposit additional collateral in an amount
sufficient to reduce the loan ratio to 80%. During fiscal 1994, the lender
informed the Partnership that based on an interim property appraisal, the
loan ratio exceeded 80% and that a deposit of additional collateral was
required. Subsequently, the Partnership submitted an appraisal which
demonstrated that the loan ratio exceeded 80% by an amount less than
previously demanded by the lender. In December 1993, the Partnership
deposited additional collateral of $144,074 in accordance with the higher
appraised value. The lender accepted the Partnership's deposit of
additional collateral (included in escrowed cash on the accompanying balance
sheet at March 31, 1994) but disputed whether the Partnership had complied
with the terms of the loan agreement regarding the 80% loan ratio.
Subsequent to the Partnership's year-end, an agreement was reached with the
lender of the zero coupon loan on a proposal to refinance the loan and
resolve the outstanding disputes. The terms of the agreement call for the
Partnership to make a principal pay down of approximately $552,000,
including the application of the additional collateral referred to above.
The new loan will have an initial principal balance of approximately $6.5
million and a scheduled maturity date of May 1999. From the date of the
formal closing of the modification and extension agreement to the new
maturity date of the loan, the loan will bear interest at a rate of 9.125%
per annum. Monthly payments of principal and interest aggregating
approximately $57,000 will be required. The terms of the loan agreement
also require the establishment of an escrow account for real estate taxes,
as well as a capital improvement escrow which is to be funded with monthly
deposits from the Partnership aggregating approximately $714,000 through the
scheduled maturity date. Formal closing of the modification and extension
agreement occurred on May 31, 1994.
In addition to the above loans, the Partnership has received the proceeds
from two additional nonrecourse zero coupon loans in the initial amounts of
$3 million and $4.5 million which are secured by the Warner/Red Hill office
building and Monterra Apartments, respectively. Legal liability for the
repayment of these two loans rests with the related joint ventures and,
accordingly, these amounts are recorded on the books of the joint ventures.
Interest expense on both loans accrues at 9.36% compounded annually and was
due at maturity in August of 1993 and June of 1994, respectively, at which
time total principal and interest payments aggregating approximately
$5,763,000 and $8,645,000, respectively, became due and payable. Total
accrued interest on these two loans aggregated approximately $7,116,000 and
$5,809,000 at March 31, 1994 and 1993, respectively. The Partnership has
indemnified Crow/PaineWebber - LaJolla, Ltd. and Warner/Red Hill Associates,
along with the related co-venture partners against all liabilities, claims
and expenses associated with any defaults by the Partnership on these
borrowings.
During fiscal 1994,
the Partnership attempted to obtain refinancing or extend the Warner/Red
Hill note; however, as of March 31, 1994, such efforts had not been
successfully completed and the note was in default. Subsequent to year-end,
the Partnership reached an agreement in principle with the lender regarding
an extension and modification of the note payable. The terms of the
extension and modification agreement are expected to provide for a 10-year
extension of the note effective as of the original maturity date of August
15, 1993. During the term of the agreement, the loan will bear interest at
2.875% per annum and monthly principal and interest payments of $23,906 will
be required. In addition, the lender required a participation in the
proceeds of a future sale or debt refinancing in order to enter into this
agreement. Accordingly, upon the sale or refinancing of the Warner/Red Hill
investment property, the lender will receive 40% of the residual value of
the property, as defined, after the payment of the outstanding balance of
the loan payable and unpaid interest. The extension and modification
agreement also requires the Partnership to establish an escrow account in
the name of Warner/Red Hill Associates and to fund such escrow with an
equity contribution of $350,000. The escrowed funds are to be used solely
for the payment of capital and tenant improvements, leasing commissions and
real estate taxes related to the property. The balance of the escrow
account is to be maintained at a minimum level of $150,000. In the event
that the escrow balance falls below $150,000, all net cash flow from the
property is to be deposited into the escrow until the minimum balance is re-
established. The agreement remains contingent upon the execution of
definitive modification documents. While management does not anticipate any
problems with the execution of these final documents, there can be no
assurances that the lender will consummate this agreement (see Note 9).
The source for the funding of the payment due in June 1994 on the note
secured by the Monterra Apartments has not yet been determined. Management
is presently involved in negotiations with the zero coupon lender regarding
a possible modification and extension agreement regarding the note. In
addition, alternative financing sources are being evaluated. Consent of the
Partnership's co-venture partner may be required in connection with any
extension or refinancing transaction. Subsequent to year-end, the
scheduled maturity date was reached and, as a result, the venture is in
technical default of this loan agreement. The eventual outcome of this
matter cannot be determined at the present time (see Note 9).
7. Bonds Payable
Bonds payable consist of the Sunol Center joint venture's share of
liabilities for bonds issued by the City of Pleasanton, California for
public improvements that benefit the Sunol Center operating investment
property. Bond assessments are levied on a semi-annual basis as interest
and principal become due on the bonds. The bonds for which the property is
subject to assessment bear interest at rates ranging from 5% to 7.875%, with
an average rate of 7.2%. Principal and interest are payable in semi-annual
installments.
Future scheduled principal payments on bond assessments are as follows:
Year ending December 31,
1994 $ 47,388
1995 55,084
1996 60,295
1997 66,340
` 1998 72,629
Thereafter 1,582,384
$ 1,884,120
In the event that
the operating investment property is sold, the Sunol Center joint venture
will no longer be liable for the bond assessments.
8. Rental Revenues
The Crystal Tree and Sunol Center operating investment properties have
operating leases with tenants which provide for fixed minimum rents and
reimbursements of certain operating costs. Rental revenues are recognized
on a straight-line basis over the life of the related lease agreements.
Approximate minimum future rental revenues to be recognized on the straight-
line basis in the future on noncancellable leases are as follows:
Year ending December 31, Amount
1994 $ 1,555,343
1995 1,382,446
1996 887,712
1997 604,687
1998 371,350
$4,801,538
9. Subsequent Events
As discussed in Note 6, the mortgage indebtedness secured by the
Warner/Red Hill Business Center and the Monterra Apartments was in technical
default as of June 24, 1994. Subsequently, the respective joint ventures
have successfully completed refinancing transactions which have cured these
defaults. The 10-year modification and extension agreement with respect to
the Warner/Red Hill debt, as described in Note 6, was finalized and executed
on August 2, 1994. On September 27, 1994, the Partnership obtained three
new nonrecourse, conventional current-pay mortgage loans and used the
proceeds to pay off the zero coupon loans secured by the Monterra Apartments
and the Chandler's Reach Apartments (see Note 6). The three new loans are
in the amounts of $3,600,000 secured by the Chandler's Reach Apartments,
$4,920,000 secured by the Monterra Apartments and $3,480,000 secured by the
Crystal Tree Commerce Center. The legal liability for the loans secured by
the Chandler's Reach Apartments and the Monterra Apartments rests with the
related joint ventures and, accordingly, these amounts will be recorded on
the books of the joint ventures. The additional proceeds required to pay
off the Monterra zero coupon loan obligation were contributed to the venture
by the Partnership. The proceeds from the new Chandler's Reach loan were
recorded as a distribution by the joint venture to the Partnership. The
Partnership has indemnified the Monterra and Chandler's Reach joint
ventures, along with the related co-venture partners, against all
liabilities, claims and expenses associated with the new borrowings. The
three new nonrecourse loans have terms of seven years and mature in
September of 2001. The Chandler's Reach loan bears interest at a rate of
8.33% and requires a monthly principal and interest payment of approximately
$28,600. This loan will have an outstanding balance of approximately
$3,193,000 at maturity. The Monterra loan bears interest at a rate of 8.45%
and requires a monthly principal and interest payment of approximately
$39,500. This loan will have an outstanding balance of approximately
$4,372,000 at maturity. The Crystal Tree loan bears interest at a rate of
8.39% and requires a monthly principal and interest payment of approximately
$27,800. This loan will have an outstanding balance of approximately
$3,089,000 at maturity. In order to close the above refinancings, the
Partnership was required to contribute capital of approximately $583,000
from its existing cash reserves. This amount consisted of approximately
$348,000 for closing costs, approximately $128,000 for interest payments for
August and September due on the matured Monterra note balance and a partial
pay down of outstanding principal of approximately $107,000.
REPORT OF INDEPENDENT AUDITORS
The Partners
PaineWebber Equity Partners One Limited Partnership:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of PaineWebber Equity Partners One Limited Partnership as of
December 31, 1993 and 1992 and the related combined statements of operations,
changes in venturers' capital and cash flows for each of the three years in the
period ended December 31, 1993. Our audits also included the financial
statement schedule listed in Index at Item 14(a). These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Warner/Red Hill Associates, which statements reflect 15% and 14%, respectively,
of the combined assets of the Combined Joint Ventures of Equity Partners One
Limited Partnership at December 31, 1993 and 1992, and 10%, 7% and 6%,
respectively, of the combined revenues of the Combined Joint Ventures of Equity
Partners One Limited Partnership for each of the three years in the period ended
December 31, 1993. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for Warner/Red Hill Associates, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards referred to above require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 10, 1994,
except for Note 6 and the second paragraph of Note 7, as to which the dates are
June 24, 1994, which report contained an explanatory paragraph due to conditions
which raised substantial doubt about the ability of Warner/Red Hill Associates
and Crow PaineWebber LaJolla Ltd. to continue as going concerns, the joint
ventures have successfully refinanced their indebtedness. Therefore, the
conditions that raised substantial doubt about the ability of Warner/Red Hill
Associates and Crow PaineWebber LaJolla Ltd. to continue as going concerns no
longer exist.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Combined Joint Ventures of PaineWebber
Equity Partners One Limited Partnership at December 31, 1993 and 1992, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, based on our audits and
the report of other auditors, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1994, except for Note 6 and
the second paragraph of Note 7,
as to which the dates are
June 24, 1994, and Note 8,
as to which the date is
September 27, 1994
INDEPENDENT AUDITORS' REPORT
The Partners
Warner/Redhill Associates:
We have audited the accompanying balance sheets of Warner/Redhill Associates
(a California general partnership) as of December 31, 1993 and 1992 and the
related statements of operations, changes in partners' capital and cash flows
for the years then ended. These financial statements are the responsibility of
management of Warner/Redhill Associates. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Warner/Redhill Associates as
of December 31, 1993 and 1992 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Los Angeles, California
January 7, 1994
INDEPENDENT AUDITORS' REPORT
The Partners
Warner/Redhill Associates:
We have audited the accompanying balance sheet of Warner/Redhill Associates
(a California general partnership) as of December 31, 1991 and the related
statements of operations, changes in partners' capital and cash flows for the
year then ended. These financial statements are the responsibility of
management of Warner/Redhill Associates. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Warner/Redhill Associates as
of December 31, 1991 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Los Angeles, California
January 31, 1992
COMBINED JOINT VENTURES OF
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
December 31, 1993 and 1992
ASSETS
1993 1992
Current assets:
Cash and cash equivalents $ 927,929 $ 2,091,102
Investments 729,558 -
Accounts receivable, less allowance for
doubtful accounts of $1,989 ($7,349 in 1992) 1,441,385 1,247,438
Other current assets 4,012 11,814
Total current assets 3,102,884 3,350,354
Operating investment properties, at cost:
Land 19,541,358 19,541,358
Building, improvements and equipment 70,296,209 69,738,478
89,837,567 89,279,836
Less accumulated depreciation (18,649,257) (16,105,972)
71,188,310 73,173,864
Long-term rents receivable 1,796,586 1,879,418
Due from partners 269,479 269,479
Deferred expenses, net of accumulated
amortization of $1,204,057 ($910,102
in 1992) 1,239,572 1,189,122
Other assets 76,155 87,352
$ 77,672,986 $ 79,949,589
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Current portion of long-term debt
and accrued interest $ 8,304,970 $ 5,435,774
Mortgage note payable in default 5,974,667 -
Accounts payable and accrued liabilities 786,800 530,096
Accounts payable - affiliates 139,349 238,536
Real estate taxes payable 2,286,106 2,268,610
Distributions payable to venturers 1,527,986 1,112,107
Other current liabilities 93,815 114,729
Total current liabilities 19,113,693 9,699,852
Tenant security deposits 201,836 204,517
Notes payable to venturers 8,000,000 8,000,000
Long-term debt and accrued interest - 7,565,642
Venturers' capital 50,357,457 54,479,578
$ 77,672,986 $ 79,949,589
See accompanying notes.
COMBINED JOINT VENTURES OF PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL
For the years ended December 31, 1993, 1992 and 1991
1993 1992 1991
REVENUES:
Rental income and expense
recoveries $10,653,522 $ 10,635,337 $10,315,265
Interest income 31,621 46,793 144,546
Other income 306,289 183,352 148,211
10,991,432 10,865,482 10,608,022
EXPENSES:
Depreciation and amortization 3,107,504 3,003,252 3,123,921
Real estate taxes 2,581,129 2,637,345 2,709,204
Mortgage interest expense 1,371,477 1,289,389 1,145,033
Property operating expenses 1,418,755 1,209,800 1,303,922
Repairs and maintenance 935,477 823,916 1,007,672
Interest expense payable to partner 800,000 800,000 800,000
Utilities 778,444 781,775 773,588
Management fees 423,243 421,199 415,861
Salaries and related expenses 300,371 307,779 308,991
Insurance 79,592 84,764 99,790
Bad debt expense 166,739 78,282 10,432
Total expenses 11,962,731 11,437,501 11,698,414
NET LOSS (971,299) (572,019) (1,090,392)
Accounts payable - affiliate converted
to venturers' capital - 434,452 -
Contributions from venturers - 311,111 1,714,073
Distributions to venturers (3,150,822) (2,510,574) (2,593,196)
Venturers' capital, beginning of year 54,479,578 56,816,608 58,786,123
Venturers' capital, end of year $50,357,457 $ 54,479,578 $56,816,608
See accompanying notes.
COMBINED JOINT VENTURES OF
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1993, 1992 and 1991
Increase (Decrease) in Cash and Cash Equivalents
1993 1992 1991
Cash flows from operating activities:
Net loss $ (971,299) $ (572,019)$(1,090,392)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Increase in accrued interest on
long-term debt 1,272,861 1,157,416 1,054,380
Depreciation and amortization 3,107,504 3,003,252 3,123,921
Changes in assets and liabilities:
Accounts receivable (188,587) (1,464) 335,991
Other current assets 7,802 7,993 7,492
Long-term rents receivable 82,832 (143,083) (664,908)
Deferred expenses (344,405) (286,888) (707,634)
Other assets 11,197 8,107 14,246
Accounts payable and accrued
liabilities 256,704 107,969 (10,920)
Accounts payable - affiliates (99,187) (44,979) 104,301
Real estate taxes payable 17,496 (31,390) 100,000
Other current liabilities (20,914) 31,925 (27,123)
Tenant security deposits (2,681) (3,092) (23,699)
Total adjustments 4,100,622 3,805,766 3,306,047
Net cash provided by operating
activities 3,129,323 3,233,747 2,215,655
Cash flows from investing activities:
Additions to operating investment
properties (827,995) (429,242) (1,079,952)
Purchase of investment securities (729,558) - -
Net cash used for investing
activities (1,557,553) (429,242) (1,079,952)
Cash flows from financing activities:
Contributions from venturers - 311,111 1,714,073
Distributions to venturers (2,734,943) (2,399,395) (2,268,624)
Principal payments under capital
lease obligation - (111,639) (89,391)
Net cash used for financing
activities (2,734,943) (2,199,923) (643,942)
Net increase (decrease) in cash and
cash equivalents (1,163,173) 604,582 491,761
Cash and cash equivalents,
beginning of year 2,091,102 1,486,520 994,759
Cash and cash equivalents,
end of year $ 927,929 $2,091,102 $1,486,520
Cash paid during the year for
interest $ 800,000 $ 808,301 $ 821,668
Write-off of fully depreciated
building improvements $ 270,264 $ 42,716 $ -
See accompanying notes.
1. Organization
The accompanying financial statements of the Combined Joint Ventures of
PaineWebber Equity Partners One Limited Partnership (Combined Joint
Ventures) include the accounts of Warner/Red Hill Associates (Warner/Red
Hill), a California general partnership, Crow PaineWebber LaJolla, Ltd.
(Crow PaineWebber), a Texas limited partnership; Lake Sammamish Limited
Partnership (Lake Sammamish), a Texas limited partnership; Framingham - 1881
Associates (1881 Worcester Road), a Massachusetts general Partnership; and
Chicago-625 Partnership (Chicago-625), an Illinois limited partnership. The
financial statements of the Combined Joint Ventures are presented in
combined form due to the nature of the relationship between each of the
joint ventures and PaineWebber Equity Partners One Limited Partnership
(PWEP1).
The dates of PWEP1's acquisition of interests in the joint ventures are as
follows:
Date of Acquisition
Joint Venture of Interest
Warner/Red Hill Associates December 18, 1985
Crow PaineWebber LaJolla, Ltd. July 1, 1986
Lake Sammamish Limited Partnership October 1, 1986
Framingham 1881 - Associates December 12, 1986
Chicago-625 Partnership December 16, 1986
2. Summary of significant accounting policies
Operating investment properties
The operating investment properties are carried at the lower of cost,
reduced by accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the investment from expected future cash
flows on an undiscounted basis, which may exceed the property's current
market value. The net realizable value of a property held for sale
approximates its market value. All of the operating investment properties
owned by the Combined Joint Venturers were considered to be held for long-
term investment purposes as of December 31, 1993 and 1992. One of the Joint
Ventures was acquired prior to the completion of construction. Interest
costs and property taxes incurred during the construction period were
capitalized. Depreciation expense is computed on a straight-line basis over
the estimated useful life of the buildings, improvements and equipment,
generally five to forty years.
Deferred expenses
Deferred expenses consist primarily of organization costs which have been
amortized over five years, loan fees which are being amortized over the
terms of the related loans, and lease commissions and rental concessions
which are being amortized over the term of the applicable lease.
Cash and cash equivalents
For purposes of the statement of cash flows, the Combined Joint Ventures
consider all highly liquid investments, money market funds and certificates
of deposit purchased with original maturity dates of three months or less to
be cash equivalents.
Investments
Investments consist of United States Treasury Bills with maturities
greater than three months from the date of purchase. The fair value
approximates cost at December 31, 1993.
Rental revenues
Certain joint ventures have operating leases with tenants which provide
for fixed minimum rents and reimbursements of certain operating costs.
Rental revenues are recognized on a straight-line basis over the term of the
related lease agreements.
Minimum rental revenues to be recognized on the straight-line basis in the
future on noncancellable leases are as follows:
1994 $ 6,135,000
1995 5,471,000
1996 4,855,000
1997 4,144,000
1998 3,821,000
Thereafter 10,193,000
$34,619,000
Leases with four tenants of the 625 North Michigan Office Building
accounted for approximately $2,231,000 (44%) of the rental revenue generated
by that property for 1993.
Income tax matters
The Combined Joint Ventures are comprised of entities which are not
taxable and, accordingly, the results of their operations are included on
the tax returns of the various partners. Accordingly, no income tax
provision is reflected in the accompanying combined financial statements.
3. Joint Ventures
See Note 5 to the financial statements of PWEP1 included in this Annual
Report for a more detailed description of the joint venture partnerships.
Descriptions of the ventures' properties are summarized below:
a. Warner/Red Hill Associates
The joint venture owns and operates the Warner/Red Hill Business
Center consisting of three two-story office buildings totalling 93,895
net rentable square feet on approximately 4.76 acres of land. The
business center is part of a 4,200 acre business complex in Tustin,
California.
b. Crow PaineWebber LaJolla, Ltd.
The joint venture constructed and operates the Monterra Apartments
consisting of garden-style apartments and includes 180 one- and two-
bedroom units totalling approximately 136,000 square feet in LaJolla,
California.
c. Lake Sammamish Limited Partnership
The joint venture owns and operates the Chandler's Reach
Apartments consisting of 166 units with approximately 135,110 net
rentable square feet in eleven two- and three-story buildings located in
Redmond, Washington.
d. Framingham - 1881 Associates
The joint venture owns and operates the 1881 Worcester Road office
building consisting of 64,189 net rentable square feet in one two-story
building located in Framingham, Massachusetts.
e. Chicago - 625 Partnership
The joint venture constructed and operates the 625 North Michigan
office building consisting of a 27-story commercial office tower
containing an aggregate of 387,000 square feet (324,829 rentable space)
located in Chicago, Illinois.
The following description of the joint venture agreements provides certain
general information.
Allocations of net income and loss
The agreements generally provide that net income and losses (other than
those resulting from sales or other dispositions of the projects) will be
allocated to the venture partners in the same proportions as actual cash
distributions from operations.
Gains or losses resulting from sales or other dispositions of the projects
shall be allocated according to the formulas provided in the joint venture
agreements.
Distributions
Distributable funds will generally be distributed first, to repay co-
venturer negative cash flow contributions; second, to repay accrued interest
and principal on certain loans and, third, specified amounts to PWEP1, with
the balance distributed in amounts ranging from 85% to 29% to PWEP1 and 15%
to 71% to the co-venturers, as described in the joint venture agreements.
Distributions of net proceeds upon the sale or disposition of the projects
shall be made in accordance with formulas provided in the joint venture
agreements.
Other
As of December 31, 1993, the 1881 Worcester Road office building was 62%
leased. Since the property is not encumbered by any mortgage financing, it
is management's intention to hold the property for long-term investment
purposes and lease the vacant space under terms and conditions that will
result in sufficient cash flow to meet the venture's operating expenses,
recover its investment and to provide a normal operating profit.
4. Related Party Transactions
The joint ventures entered into management contracts with affiliates of
the co-venturers which are cancelable at the option of PWEP1 upon the
occurrence of certain events. The management fees generally range from 3%
to 5% of gross rents collected.
Accounts payable - affiliates at December 31, 1993 and 1992 principally
consist of accrued interest on notes payable to venturers, advances from
venturers, and management fees and reimbursements payable to the property
managers.
Certain of the Combined Joint Ventures are also required to pay an
investor servicing fee to PWEP1 ranging from $2,500 to $10,000 per year.
5. Notes Payable to Venturers
Notes payable to venturers at December 31, 1993 and 1992 include a
permanent loan provided by PWEP1 to the Lake Sammamish joint venture in the
amount of $4,000,000. The permanent loan is secured by a deed of trust and
security agreement on the joint venture operating property with an
assignment of rents. Interest-only payments on the permanent loan are at
10% per annum, payable quarterly. Principal is due in October 2011. Notes
payable to venturers at December 31, 1993 and 1992 also include a second
lien mortgage note payable to PWEP1 from the Crow PaineWebber joint venture
of $4,000,000. This note bears interest at 10% per annum. Accrued interest
is payable quarterly. Principal is due on July 1, 2011. Interest expense
on these two notes payable aggregated $800,000 for each of the three years
in the period ended December 31, 1993.
6. Mortgage Notes Payable
Mortgage notes payable and accrued interest at December 31, 1993 and 1992
consists of the following:
1993 1992
Nonrecourse note payable at December 31,
1993 and 1992 consists of a $3,000,000 note
payable to an insurance company which is
secured by the Warner/Red Hill operating
investment property. The note bore
interest at 9.36% per annum compounded
monthly. All interest and principal,
aggregating approximately $5,763,000, was
due at maturity, August 15, 1993. Interest
owed through December 31, 1993 and 1992,
aggregated $2,974,667 and $2,435,774,
respectively (see
discussion below). $ 5,974,667 $ 5,435,774
First lien mortgage note payable to a third
party of $4,500,000 at December 31, 1993
and 1992. This note bears interest at
9.36% per annum. Interest accrues and
compounds monthly, but the payment of
accrued interest is deferred until maturity
of the note. All unpaid principal and
accrued interest, aggregating approximately
$8,645,000, was due June 5, 1994. The
mortgage note is nonrecourse to the
partners and is collateralized by the
Monterra Apartments operating property and
all revenues derived therefrom. Interest
owed through December 31, 1993 and 1992
aggregated $3,804,970 and $3,065,642,
respectively (see discussion below). 8,304,970 7,565,642
14,279,637 13,001,416
Less: current portion (8,304,970) (5,435,774)
$ 5,974,667 $ 7,565,642
The repayment of principal and interest on the loans secured by the
Warner/Red Hill and Monterra properties is the responsibility of PWEP1,
which received the loan proceeds. PWEP1 has indemnified Crow PaineWebber-
LaJolla, Ltd. and Warner/Red Hill Associates from all liabilities, claims
and expenses associated with any defaults by PWEP1 in connection with these
borrowings.
While liability under the Warner/Red Hill note is the sole liability and
responsibility of PWEP1, the note is secured by a first trust deed on the
Warner/Red Hill operating investment property. During 1993, the Partnership
attempted to obtain refinancing or extend the note; however, as of December
31, 1993, such efforts had not been successfully completed and the note was
in default. Subsequent to year-end, the Partnership reached an agreement in
principle with the lender regarding an extension and modification of the
note payable. The terms of the extension and modification agreement are
expected to provide for a 10-year extension of the note effective as of the
original maturity date of August 15, 1993. During the term of the
agreement, the loan will bear interest at 2.875% per annum and monthly
principal and interest payments of $23,906 will be required. In addition,
the lender required a participation in the proceeds of a future sale or debt
refinancing in order to enter into this agreement. Accordingly, upon the
sale or refinancing of Warner/Red Hill investment property, the lender will
receive 40% of the residual value of the property, as defined, after the
payment of the outstanding balance of the loan payable and unpaid interest.
The extension and modification agreement also requires PWEP1 to establish an
escrow account in the name of Warner/Red Hill Associates and to fund such
escrow with an equity contribution of $350,000. The escrowed funds are to
be used solely for the payment of capital and tenant improvements, leasing
commissions and real estate taxes related to the Warner/Red Hill property.
The balance of the escrow account is to be maintained at a level of no less
than $150,000. In the event that the escrow balance falls below $150,000,
all net cash flow from the property is to be deposited into the escrow until
the minimum balance is re-established. The agreement remains contingent
upon the execution of definitive modification documents. While management
of PWEP1 does not anticipate any problems with the execution of these final
documents, there can be no assurances that the lender will consummate this
agreement. As the modification and extension agreement had not been
finalized as of December 31, 1993, the entire balance of the mortgage note
and related accrued interest payable is shown as a current liability on the
accompanying 1993 balance sheet and interest on the note payable in 1993 has
continued to be accrued at the rates in effect for the note prior to
maturity (see Note 8).
The debt secured by the Monterra Apartments was scheduled to mature on
June 5, 1994. Sources for funding payment of the obligation have not yet
been determined. At this time the venture partners plan to refinance the
existing debt or secure new permanent debt; however, there can be no
assurance that this objective will be achieved. Subsequent to year-end, the
scheduled maturity date was reached and, as a result, the venture is in
technical default of this loan agreement (see Note 8).
7. Encumbrances
Under the terms of the joint venture agreements, PWEP1 is entitled to use
the joint venture operating properties as security for certain borrowings,
subject to various restrictions. As of December 31, 1993 and 1992 PWEP1
(together in one instance with an affiliated partnership) had borrowed
$11,886,473 under two zero coupon loan agreements pursuant to this
arrangement. These obligations are direct obligations of PWEP1 and its
affiliated partnership and, therefore, are not reflected in the accompanying
financial statements. The outstanding balance of principal and accrued
interest outstanding under the borrowing arrangements aggregated
approximately $20,225,000 and $18,397,000 at December 31, 1993 and 1992,
respectively. The operating investment properties of the Lake Sammamish and
Chicago-625 joint ventures have been pledged as security for these loans
which mature in 1995, at which time payments aggregating approximately
$23,056,000 is scheduled to become due and payable. Under these borrowing
arrangements, PWEP1 is required to make all loan payments and has
indemnified the joint ventures and the other partners against all
liabilities, claims and expenses associated with the borrowings.
The zero coupon loan secured by the 625 North Michigan Office Building,
requires that if the loan ratio, as defined, exceeds 80%, then PWEP1,
together with its affiliated partnership, shall be required to deposit
additional collateral in an amount sufficient to reduce the loan ratio to
80%. During 1993, the lender informed PWEP1 and its affiliated partnership
that based on an interim property appraisal, the loan ratio exceeded 80% and
demanded that additional collateral be deposited. Subsequently, PWEP1 and
its affiliated partnership submitted an appraisal which demonstrated that
the loan ratio exceeded 80% by an amount less than previously demanded by
the lender and deposited additional collateral in accordance with the higher
appraised value. The lender accepted the deposit of additional collateral,
but disputed whether PWEP1 and its affiliated partnership had complied with
the terms of the loan agreement regarding the 80% loan ratio. Subsequent to
year-end, an agreement was reached with the lender on a proposal to
refinance the loan and resolve the outstanding disputes. The terms of the
agreement, which was formally executed on May 31, 1994, extend the maturity
date of the loan to May 1999. The new principal balance of the loan, after
a principal paydown to be funded by PWEP1 and its affiliated partnership,
will be approximately $16,225,000. The new loan will bear interest at a
rate of 9.125% per annum and will require the current payment of interest
and principal on a monthly basis based on a 25-year amortization period.
The terms of the loan agreement also require the establishment of an escrow
account for real estate taxes, as well as a capital improvement escrow which
is to be funded with monthly deposits from PWEP1 and its affiliated
partnership aggregating $1,750,000 through the scheduled maturity date of
the loan.
8. Subsequent Events
As discussed in Note 6, the mortgage indebtedness secured by the
Warner/Red Hill Business Center and the Monterra Apartments was in technical
default as of June 24, 1994. Subsequently, the respective joint ventures
have successfully completed refinancing transactions which have cured these
defaults. The 10-year modification and extension agreement with respect to
the Warner/Red Hill debt, as described in Note 6, was finalized and executed
on August 2, 1994. On September 27, 1994, PWEP1 refinanced the mortgage
debt secured by the Monterra Apartments, as well as the mortgage debt
secured by the Chander's Reach Apartments (see Note 7). In connection with
these refinancings, PWEP1 obtained new loans in the amounts of $3,600,000
secured by the Chandler's Reach Apartments and $4,920,000 secured by the
Monterra Apartments. The legal liability for these new loans rests with the
related joint ventures and, accordingly, these amounts will be recorded on
the books of the joint ventures. The additional proceeds required to pay
off the Monterra zero coupon loan obligation were contributed to the venture
by PWEP1. The proceeds from the new Chandler's Reach loan were recorded as
a distribution by the joint venture to PWEP1. PWEP1 has indemnified the
Monterra and Chandler's Reach joint ventures, along with the related co-
venture partners, against all liabilities, claims and expenses associated
with the new borrowings. The two new nonrecourse loans both have terms of
seven years and mature in September of 2001. The Chandler's Reach loan
bears interest at a rate of 8.33% and requires a monthly principal and
interest payment of approximately $28,600. This loan will have an
outstanding balance of approximately $3,193,000 at maturity. The Monterra
loan bears interest at a rate of 8.45% and requires a monthly principal and
interest payment of approximately $39,500. This loan will have an
outstanding balance of approximately $4,372,000 at maturity.
<TABLE>
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
COMBINED JOINT VENTURES OF
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
Life on
Cost Which
Capitalized Depreciation
Initial Cost to (Removed) in Latest
Partnership Subsequent to Gross Amount at Which Carried at Income
Venture Acquisition End of Year Statement
Buildings & Buildings & Buildings & Accumulated Date of Date is
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired Computed
COMBINED JOINT VENTURES:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office Building
Chicago,
IL $17,006,196 $ 8,112,250 $35,682,472 $5,116,364 $8,112,250 $40,798,836 $48,911,086 $10,806,555 1968 12/16/86 5-30 yrs.
Office Building
Tustin,
CA 5,974,667 3,123,750 9,126,250 754,862 3,123,750 9,881,112 13,004,862 2,437,309 1984 12/18/85 35 yrs.
Apartment Complex
LaJolla,
CA 12,304,970 4,615,143 7,218,724 617,737 4,615,143 7,836,461 12,451,604 1,941,620 1987 7/1/86 30 yrs.
Apartment Complex
Redmond,
WA 7,219,186 2,362,298 6,163,204 - 2,362,298 6,163,204 8,525,502 1,845,019 1987 10/1/86 5-27.5 yrs
Office Building
Framingham,
MA - 1,317,119 5,510,152 117,242 1,327,917 5,616,596 6,944,513 1,618,754 1987 12/12/86 5-40 yrs.
$42,505,019 $19,530,560 $63,700,802 $6,606,205$19,541,358 $70,296,209 $89,837,567 $18,649,257
Notes
(A) The aggregate cost of real estate owned at December 31, 1993 for Federal
income tax purposes is approximately $77,538,000.
(B) See Notes 5, 6 and 7 to the Combined Financial Statements for a
description of the terms of the debt encumbering the properties.
(C) Reconciliation of real estate owned:
1993 1992 1991
Balance at beginning of period $ 89,279,836 $ 88,893,310 $ 87,314,804
Increase due to additions 827,995 429,242 1,079,952
Deferred expenses reclassified
as tenant improvements - - 498,554
Write-offs due to disposals (270,264) (42,716) -
Balance at end of period $ 89,837,567 $ 89,279,836 $ 88,893,310
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 16,105,972 $ 13,380,777 $ 10,398,987
Depreciation expense 2,813,549 2,767,911 2,981,790
Write-offs due to disposals (270,264) (42,716) -
Balance at end of period $ 18,649,257 $ 16,105,972 $ 13,380,777
F-40
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1994
Cost Which
Capitalized Depreciation
Initial Cost to (Removed) in Latest
Partnership Subsequent to Gross Amount at Which Carried at Income
Venture Acquisition End of Year Statement
Buildings & Buildings & Buildings & Accumulated Date of Date is
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center
North Palm
Beach,
FL $ - $3,216,811 $15,597,411 $(2,188,202) $2,444,458 $14,181,562 $16,626,020 $4,266,923 1983 10/23/85 5-30 yrs.
Office Building
Pleasanton,
CA 1,844,120 2,317,985 15,429,340 (4,736,999) 1,517,785 11,492,541 13,010,326 2,962,282 1985 8/15/86 30 yrs.
$1,844,120 $5,534,796 $31,026,751 $(6,925,201) $3,962,243 $25,674,103 $29,636,346 $7,229,205
Notes
(A) The aggregate cost of real estate owned at December 31, 1993 for Federal income
tax purposes is approximately $29,920,000.
(B) For financial reporting purposes, the initial cost of the operating investment
properties have been reduced by payments from former joint venture partners
related to a guaranty to pay the Partnership a certain Preference Return.
(C) See Note 7 to the financial statements for a description of the terms of the
debt encumbering the property.
(D) Reconciliation of real estate owned:
1994 1993 1992
Balance at beginning of period $29,486,273 $29,829,670 $16,367,718
Increase due to additions 150,073 137,823 177,444
Write-off of fully depreciated
tenant improvements - (447,768) -
Consolidation of joint venture - - 13,304,781
Reduction of costs basis - see
(B) above - (33,452) (20,273)
Balance at end of period $29,636,346 $29,486,273 $29,829,670
(E) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 6,248,191 $ 5,740,190 $ 2,810,529
Consolidation of joint venture - - 1,878,673
Depreciation expense 981,014 955,769 1,050,988
Write-off of fully depreciated
tenant improvements - (447,768) -
Balance at end of period $ 7,229,205 $ 6,248,191 $ 5,740,190
(F) On February 28, 1990 one of the three office buildings owned by Sunol Center
Associates was sold for $8,150,000 to an independent third party. See Note 4
to the financial statements for a further discussion.
F-27
</TABLE>
