SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
u ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: MARCH 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-14857
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. u
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 Part IV
July 18, 1985, as supplemented
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
1995 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-4
Item 4 Submission of Matters to a Vote of
Security Holders I-4
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-7
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure II-7
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-3
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-39
PART I
ITEM 1. BUSINESS
PaineWebber Equity Partners One Limited Partnership (the "Partnership") is
a limited partnership formed on April 17, 1985, under the Uniform Limited
Partnership Act of the State of Virginia to invest in a diversified portfolio of
existing, newly constructed or to-be-built income-producing real properties such
as shopping centers, office buildings, apartment complexes, hotels and other
commercial income-producing properties. The Partnership authorized and issued
the maximum of 2,000,000 Partnership Units (the "Units"), at $50 per Unit,
offered to the public pursuant to a Registration Statement on Form S-11 filed
under the Securities Act of 1933 (Registration No. 2-97158). Gross proceeds of
$100,000,000 were contributed to the capital of the Partnership during the
offering period which ended on July 17, 1986. Limited Partners will not be
required to make any additional contributions.
As of March 31, 1995, the Partnership owns directly or through joint
venture partnerships the properties or interests in the properties set forth in
the following table, which consist of four office/R&D buildings, two apartment
complexes and one mixed-use retail/office property.
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
Crystal Tree Commerce74,923 square 10/23/85 Fee ownership of land and
Center feet of retail improvements
North Palm Beach, FL space and
40,115 square
feet of office
space
Warner/Red Hill Associates 93,895 12/18/85 Fee ownership of land and
Warner/Red Hill Business Net rantable improvements (through
Center square feet of (through joint venture)
Tustin, CA office space
Crow PaineWebber LaJolla, 180 units 7/1/86 Fee ownership of land and
Ltd. improvements (through
Monterra Apartments joint venture)
LaJolla, CA
Sunol Center Associates 116,680 net 8/15/86 Fee ownership of land and
Sunol Center Office rentable improvements (through
Buildings square feet of joint venture)
Pleasantton, CA office space (2)
Lake Sammamish Limited 166 units 10/1/86 Fee ownership of land and
Partnership improvements (through
Chandler's Reach Apartments joint venture)
Redmond, WAFramingham - 1881
Associates 64,189 net 12/12/86 Fee ownership of land and
1881 Worcester Road rentable improvements (through
Office Building square feet of joint venture
Framingham, MA office space
Chicago-625 Partnership 324,829 net 12/16/86 Fee ownership of land and
625 North Michigan Avenue rentable improvements (through
Office Building square feet joint venture)
Chicago, IL
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of agreements through which the Partnership has acquired these
real property investments and for a description of the indebtedness secured
by the Partnership's real property investments.
(2) On February 28, 1990 one of the three buildings comprising the Sunol Center
investment was sold for $8,150,000. The building that was sold consisted
of approximately 53,400 net rentable square feet, or 31% of the original
total net rentable square feet.
The Partnership's investment objectives are to invest the proceeds raised
from the offering of limited partnership units in a diversified portfolio of
income-producing properties in order to:
(i) preserve and protect the original capital invested in the Partnership,
(ii) provide the Limited Partners with quarterly cash distributions, a portion
of which will be sheltered from current federal income tax liability, and
(iii)achieve long-term capital appreciation through potential appreciation in
the values of the Partnership's investment properties.
Through March 31, 1995, the Limited Partners had received cumulative cash
distributions totalling approximately $35,872,000. Quarterly distributions were
paid at the rate of 9% per annum on invested capital from inception through the
quarter ended December 31, 1988. The distributions were reduced to 6% per annum
effective for the quarter ended March 31, 1989 and were paid at that rate
through the quarter ended March 31, 1990, at which point they were reduced to 2%
per annum. Effective for the quarter ended December 31, 1992, the Partnership
suspended the payment of quarterly distributions as part of an overall strategy
aimed at accelerating the timetable for repaying the Partnership's zero coupon
loans. As discussed further in Item 7, during fiscal 1995 the Partnership
completed the refinancings of the zero coupon loans. As a result, subsequent to
year-end distributions were reinstated at a rate of 1% per annum on invested
capital effective for the quarter ended March 31, 1995. A substantial portion
of the distributions paid to date has been sheltered from current federal income
tax liability. In addition, the Partnership retains an ownership interest in
all seven of its original investment properties, although, as noted above, the
Sunol Center joint venture has sold one of its three office buildings. The
proceeds of the sale transaction were used to retire an outstanding zero coupon
loan and for reinvestment in certain of the existing joint ventures.
The Partnership's success in meeting its capital appreciation objective
will depend upon the proceeds received from the final liquidation of the
investments. The amount of such proceeds will ultimately depend upon the value
of the underlying investment properties at the time of their liquidation, which
cannot presently be determined. While real estate values for commercial office
buildings and retail shopping centers have generally stabilized over the past 12
to 24 months, the current market values of the Partnership's commercial office
buildings and retail shopping center are estimated to be below their acquisition
prices due to the residual effects of the overbuilding which occurred in the
late 1980's and, in the case of the office buildings, the trend toward corporate
downsizing and restructurings which occurred in the wake of the last national
recession. The market for multi-family residential properties throughout the
country continued to show signs of improvement during fiscal 1995, as the
ongoing absence of significant new construction activity further improved upon
the supply and demand characteristics facing existing properties. Management
believes that overall real estate market conditions will improve further in the
near term. With respect to the Partnership's office building and shopping
center investments, it remains to be seen whether conditions will improve
sufficiently during the current market cycle to bring the market values back to
or above the amounts of the Partnership's original investments. Management's
plans are presently to hold the majority of the investment properties for
long-term investment purposes and to direct the management of the operations
of the properties to maximize their long-term values.
All of the Partnership's investment properties are located in real estate
markets in which they face significant competition for the revenues they
generate. The apartment complexes compete with numerous projects of similar
type generally on the basis of price and amenities. Apartment properties in all
markets also compete with the local single family home market for prospective
tenants. Despite this competition, the lack of significant new construction of
multi-family housing over the past 2- to- 3 years has allowed the oversupply
which existed in most markets to be absorbed, with the result being a gradual
improvement in occupancy levels and effective rental rates and a corresponding
increase in property values. The Partnership's shopping center and office
buildings also compete for long-term commercial tenants with numerous projects
of similar type generally on the basis of price, location and tenant improvement
allowances. Market conditions for office/R&D space in Pleasanton, California,
where the Partnership's Sunol Center property is located, have begun to
stabilize after several years of decline. During the fourth quarter of fiscal
1995 the Partnership secured its first new lease at Sunol Center in over four
years. Subsequent to year-end another new lease was signed, bringing the
property's occupancy level up to 66%. The competitive conditions faced by the
Partnership's Warner/Red Hill and 1881 Worcester Road investments, on the other
hand, are especially severe at the present time. Conditions in the markets for
suburban office/R&D space in the Orange County and Boston areas, where these
properties are located, continue to be adversely affected by corporate
restructurings, cutbacks in government defense spending and by the reduced rate
of growth in the high technology industries. The recovery of these market areas
appears to be lagging behind recoveries of similar market segments in other
areas of the country. See the further discussion in Item 7. The
Partnership has no real property investments located outside the United
States. The Partnership is engaged solely in the business of real estate
investment, therefore presentation of information about industry segments is not
applicable.
The Partnership has no employees; it has, however, entered into an advisory
agreement with PaineWebber Properties Incorporated (the "Adviser"), which is
responsible for the day-to-day operations of the Partnership. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned
subsidiary of PaineWebber Group Inc. ("PaineWebber").
The general partners of the Partnership (the "General Partners") are First
Equity Partners, Inc. and Properties Associates 1985, L.P. First Equity
Partners, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber, is the managing general partner of the Partnership. The associate
general partner of the Partnership is Properties Associates 1985, L.P. (the
"Associate General Partner"), a Virginia limited partnership, certain limited
partners of which are also officers of the Adviser and the Managing General
Partner.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
ITEM 2. PROPERTIES
At March 31, 1995, the Partnership has interests in seven operating
properties through direct ownership and joint venture partnerships. The
properties and the related joint venture partnerships are referred to under
Item 1 above to which reference is made for the name, location and description
of each property.
Occupancy figures for each fiscal quarter during 1995, along with an
average for the year, are presented below for each property:
Percent Occupied At
Fiscal
1995
6/30/94 9/30/94 12/31/94 3/31/95 Average
Crystal Tree 97% 98% 100% 98% 98%
Warner/Red Hill 86% 86% 86% 83% 85%
Monterra Apartments 99% 98% 98% 99% 98%
Sunol Center 18% 18% 18% 32% 21%
Chandler's Reach Apartments 98% 97% 97% 97% 97%
1881 Worcester Road 100% 92% 79% 79% 87%
625 North Michigan Avenue 83% 83% 85% 87% 84%
ITEM 3. LEGAL PROCEEDINGS
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including First Equity Partners, Inc. and Properties
Associates 1985, L.P. ("PA1985"), which are the General Partners of the
Partnership and affiliates of PaineWebber. On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in PaineWebber Equity Partners
One Limited Partnership, PaineWebber, First Equity Partners, Inc. and PA1985 (1)
failed to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in PaineWebber Equity
Partners One Limited Partnership, also allege that following the sale of the
partnership interests, PaineWebber, First Equity Partners, Inc. and PA1985
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, First Equity
Partners, Inc. and PA1985 violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs seek
unspecified damages, including reimbursement for all sums invested by them in
the partnerships, as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships. In addition, the plaintiffs also
seek treble damages under RICO. The defendants' time to move against or answer
the complaint has not yet expired. Pursuant to provisions of the Partnership
Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify First Equity Partners, Inc., PA1985 and their affiliates for costs and
liabilities in connection with this litigation. The General Partners intend to
vigorously contest the allegations of the action, and believe that the action
will be resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
At March 31, 1995 there were 8,603 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. The Managing General Partner will
not redeem or repurchase Units.
ITEM 6. SELECTED FINANCIAL DATA
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
FOR THE YEARS ENDED MARCH 31, 1995, 1994, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
1995 1994 1993 1992 (1) 1991
Revenues $ 2,346 $ 1,971 $ 2,139 $ 2,052 $ 1,904
Operating loss $ (1,637) $ (2,196) $ (2,025) $ (1,711) $ (858)
Interest income
on notes
receivable from
unconsolidated
ventures $ 800 $ 800 $ 800 $ 800 $ 800
Partnership's share
of unconsolidated
ventures' income
(losses) $ (715) $(1,072) $ (1,048) $(1,364) $ 1,687
Partnership's share
of losses due to
permanent impairment
of operating
investment
properties $ (8,703) - - - -
Net income (loss) $(10,255) $ (2,468) $ (2,273) $ (2,275) $ 1,629
Net income (loss)
per Limited
Partnership Unit $ (5.07) $ (1.22) $ (1.12) $ 1.13) $ 0.77
Cash distributions
per Limited
Partnership Unit - - $ 0.75 $ 1.00 $ 1.50
Total assets $ 53,572 $ 64,370 $ 66,169 $69,022 $70,254
Long-term debt and
deferred interest $11,548 $ 12,148 $ 11,273 $10,389 $ 7,681
(1)During fiscal 1992, as further discussed in Note 4 to the accompanying
consolidated financial statements, the Partnership assumed complete control
of the joint venture which owns and operates the Sunol Center Office
Buildings. Accordingly, the joint venture, which had been accounted for
under the equity method in prior years, has been consolidated in the
Partnership's financial statements for years subsequent to fiscal 1991.
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Annual Report.
The above net income (loss) and cash distributions per Limited Partnership
Unit amounts are based upon the 2,000,000 Limited Partnership Units outstanding
during each year.
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, 1995, 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.
As previously reported, effective for the quarter ended December 31, 1992
the Managing General Partner suspended the Partnership's regular quarterly
distributions in order to accumulate the funds necessary to enable the
Partnership to complete the refinancings of the zero coupon loans secured by the
Warner/Red Hill, Monterra, Chandler's Reach and 625 North Michigan properties.
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. The four
outstanding loans were 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 $5,500,000 which was secured by
the Sunol Center Office Buildings and 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. As noted above, the portion of
the $5.5 million zero coupon loan which was secured by Sunol Center was repaid
from the proceeds of the sale of one of the Sunol buildings in fiscal 1990. 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 were directed
toward negotiating modification and extension agreements with the existing
lenders on these loans. Such declines in value mirrored the state of commercial
office buildings nationwide over this period, and particularly in major
metropolitan areas such as Chicago. As previously reported, the Partnership
executed extension and modification agreements with the 625 North Michigan and
Warner/Red Hill lenders in May 1994 and August 1994, respectively. Both
modification agreements changed the nature of the existing loan obligations from
zero coupons to current paying, principal amortizing indebtedness. 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.
The final terms of the 625 North Michigan agreement required the
Partnership to make a principal paydown on the loan of approximately $541,000.
The new loan, in the initial principal amount of approximately $6.5 million, has
a scheduled maturity date of May 1999. The loan bears interest at a rate of
9.125% per annum and requires monthly payments of principal and interest of
approximately $55,000. The terms of the loan agreement also required 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 $700,000 through the scheduled maturity
date. The final terms of the Warner/Red Hill extension and modification
agreement provided 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 bears interest at 2.875% per annum and monthly principal and interest
payments of $23,906 are required. The Partnership made principal and interest
payments on behalf of the venture totalling approximately $246,000 for the
period from August 15, 1993 through June 30, 1994 in conjunction with the
closing of the modification agreement. 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 property, the lender will receive 40% of the residual value of
the property, as defined, after the repayment of the outstanding balance of the
loan. The extension and modification agreement also required 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 in 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.
During fiscal 1995, the Partnership also completed the refinancings of the
remaining zero coupon loans. The nonrecourse zero coupon loans secured by the
Chandler's Reach and Monterra apartment properties matured on August 1, 1994 and
September 1, 1994 with outstanding balances of approximately $3,462,000 and
$8,645,000, respectively. During September 1994, the Partnership obtained three
new nonrecourse, current-pay mortgage loans and used the proceeds to pay off
these two outstanding zero coupon loans. The new loans were issued in the
initial principal 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 are recorded on the books
of the joint ventures. The proceeds from the new Chandler's Reach loan were
recorded as a distribution by the joint venture to the Partnership. The
additional proceeds required to pay off the Monterra zero coupon loan obligation
were contributed to the venture by 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 all have
terms of seven years and mature in September 2001. The Chandler's Reach loan
bears interest at a rate of 8.33% and requires monthly principal and interest
payments of approximately $28,600. This loan will have an outstanding balance of
approximately $3,199,000 at maturity. The Monterra loan bears interest at a
rate of 8.45% and requires monthly principal and interest payments of
approximately $39,500. This loan will have an outstanding balance of
approximately $4,380,000 at maturity. The Crystal Tree loan bears interest at a
rate of 8.39% and requires monthly principal and interest payments of
approximately $27,800. This loan will have an outstanding balance of
approximately $3,095,000 at maturity. In order to close the above refinancings,
the Partnership was required to contribute net capital of approximately $583,000
from its existing cash reserves. This amount consisted of approximately
$350,000 for transaction fees and closing costs, approximately $128,000 for
interest payments due for August and September on the matured Monterra note
balance and a partial pay down of outstanding principal of approximately
$105,000.
Subsequent to the completion of the last of the refinancing transactions,
management performed an analysis of its cash flows and liquidity needs for the
purpose of determining the timing and amount of the reinstatement of quarterly
distributions to the partners. Based on such analysis, quarterly distributions
were reinstated with the payment made on May 15, 1995 for the quarter ended
March 31, 1995 at the rate of 1% per annum on original invested capital.
Management believes that it is prudent to distribute cash flow conservatively at
the present time due to the potential capital needs associated with the
Partnership's commercial office/R&D buildings and retail property. With the
exception of the Warner/Redhill Business Center, occupancy levels at the
Partnership's commercial office buildings and retail property either increased
or remained steady during fiscal 1995. As of March 31, 1994, the 625 North
Michigan Office Building was 82% occupied. The building's occupancy stood at
87% as of March 31, 1995. Likewise, occupancy at the Crystal Tree Commerce
Center was up slightly, from 97% as of March 31, 1994 to 98% at March 31, 1995.
More significant occupancy gains were achieved at 1881 Worcester Road, which was
79% occupied as of March 31, 1995, as compared to 62% at March 31, 1994 and at
Sunol Center, where occupancy increased to 32% at March 31, 1995 from 18% at
March 31, 1994 as the Partnership's leasing agent finalized negotiations with a
tenant that has occupied 16,400 square feet for a 7-year term. In addition,
subsequent to year-end, a new 40,000 square foot lease was signed, which
increased the property's occupancy level to 66% in June. While rental rates in
the Pleasanton, California market remain well below original projections, these
represent the first positive leasing developments at Sunol Center in over four
years. During fiscal 1995 and subsequent to year-end, the Partnership funded
$713,000 and $1,118,000, respectively, to Sunol Center to cover operating
deficits and to pay for tenant improvements in connection with the new leases.
Occupancy at the Warner/Redhill Business Center decreased to 83% as of March 31,
1995 as compared to 86% at March 31, 1994 as a tenant which occupied 7% of the
rentable area vacated its space when its lease expired during the fourth
quarter.
Despite the leasing gains achieved at most of the properties in fiscal 1995,
there remains a significant amount of vacant space at the office/R&D properties.
In addition, market conditions continue to be extremely competitive and there
continues to be an oversupply of available space in most markets due to the
trend toward corporate downsizing and restructurings which has occurred in the
wake of the last national recession. The competitive conditions faced by the
Partnership's Warner/Red Hill and 1881 Worcester Road investments are especially
severe at the present time. Management's most recent evaluation of the
Partnership's investment properties, performed in the first quarter of fiscal
1996, indicates that conditions in the markets for suburban office/R&D space in
the Orange County and Boston areas, where these properties are located, continue
to be adversely affected by corporate restructurings, cutbacks in government
defense spending and the reduced rate of growth in the high technology
industries. In management's opinion, the recovery of these market areas appears
to be lagging behind recoveries of similar market segments in other areas of the
country. While occupancy at 1881 Worcester Road increased during fiscal 1995, a
lease with the property's largest tenant is due to expire in July 1996. This
tenant, which occupies 41% of the building's net leasable area, has given no
indication of their intention to either renew the lease or vacate the building.
However, management believes that this tenant, which occupies space in other
buildings in the local area, may desire to consolidate their lease obligations
which could preclude them from renewing at 1881 Worcester Road. At Warner/Red
Hill, in addition to the decline in occupancy during fiscal 1995, one of the
property's major tenants that occupies approximately 25% of the property's net
rentable area has been experiencing cash flow problems and has retained a
commercial leasing agent to market a portion of its space for sublease. Unless
its operations improve in the near-term, this tenant is unlikely to renew its
lease which is scheduled to expire in July 1998. Furthermore, to the extent
that its operating results deteriorate further, and if the tenant is unable to
sublease the space, the Partnership may be unable to collect future rent owed
under the lease obligation.
In light of the circumstances facing the 1881 Worcester Road and Warner/Red
Hill properties and given the improving conditions in other market sectors which
may provide the Partnership with opportunities to sell its other remaining
investment properties over next 5 to 7 years, management reviewed the carrying
values of its 1881 Worcester Road and Warner/Red Hill investments for potential
impairment as of March 31, 1995. In conjunction with such review, the
Partnership elected early application of Statement of Financial Accounting
Standards No. 121, `Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of''(SFAS 121). In accordance with SFAS 121,
an impairment loss with respect to an operating investment property is
recognized when the sum of the expected future net cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset. An
impairment loss is measured as the amount by which the carrying amount of the
asset exceeds its fair value, where fair value is defined as the amount at which
the asset could be bought or sold in a current transaction between willing
parties, that is other than a forced or liquidation sale. The effect of such
application was the recognition of impairment losses on the operating
investment properties owned by Warner/Red Hill Associates and Framingham 1881 -
Associates. Both impairment losses resulted because, in management's judgment,
the physical attributes of these properties and their locations relative to
their competition, combined with the lack of near-term prospects for future
improvement in market conditions in the local markets in which the properties
are located, are not expected to enable the ventures to recover the carrying
values of the assets within the practicable remaining holding period given the
improving market conditions of the Partnership's other investment properties and
the possible opportunities to sell these other properties over the next 5 to 7
years. Warner/Red Hill Associates recognized an impairment loss of $6,784,000
to write down the operating investment property to its estimated fair value of
$3,600,000 as of December 31, 1994. Framingham 1881 - Associates recognized an
impairment loss of $2,983,000 to write down the operating investment property to
its estimated fair value of $2,200,000. Fair value was estimated using
independent appraisals of the operating properties. Such appraisals make use of
a combination of certain generally accepted valuation techniques, including
direct capitalization, discounted cash flows and comparable sales analysis. The
Partnership's share of the impairment losses, including the write-off of the
related unamortized excess basis amounts, totalled $8,703,000.
During the fourth quarter of fiscal 1995, the Partnership received an offer
to purchase the 1881 Worcester Road property. The proposed purchase price,
while in excess of the Partnership's most recent independent appraised value for
the property, was substantially below the amount of the Partnership's original
investment. Nonetheless, management had agreed to accept the offer because, in
their judgment, the property's future appreciation potential was limited over
the expected remaining holding period as a result of the market conditions
discussed above. However, subsequent to year-end the prospective buyer withdrew
its offer to purchase 1881 Worcester Road. Management has no current plans to
actively solicit other offers to purchase this property. Management's plans
with respect to both Warner/Red Hill and 1881 Worcester Road are to aggressively
market vacant space to maintain above market occupancy levels and to attempt to
maximize the total returns to the Partnership from these operating assets.
At March 31, 1995, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $6,460,000. These funds,
along with the future cash flow distributions from the operating properties,
will be utilized for the working capital requirements of the Partnership,
monthly loan payments, and for the funding of capital enhancements, potential
leasing costs for its commercial property investments, and operating deficits
for the operating investment properties and for distributions to the partners.
The source of future liquidity and distributions to the partners is expected to
be from the sales of the operating investment properties.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
The Partnership's net loss increased by $7,787,000 in fiscal 1995 when
compared to the prior year due to the permanent impairment losses recognized
with respect to the Warner/Red Hill and 1881 Worcester Road properties in fiscal
1995, as discussed further above. The impact of the impairment losses was
partially offset by decreases in the Partnership's operating loss and the
Partnership's share of unconsolidated ventures' losses of $559,000 and $357,000,
respectively. The Partnership's operating loss decreased primarily due to a
decrease in the net loss of the Partnership's consolidated joint venture, Sunol
Center Associates, and an increase in the net income of the wholly owned Crystal
Tree Commerce Center. The net loss at Sunol Center decreased by $198,000
primarily due to an increase in other revenues. Net income of the Crystal Tree
Commerce Center increased due to an increase in rental income of $62,000 and a
decrease in bad debt expense of $27,000. Rental income increased due to an
increase in average occupancy to 98% in fiscal 1995 from 97% in fiscal 1994. In
addition to the decrease in net loss at Sunol Center and the increase in net
income at Crystal Tree, operating loss decreased due to an increase in interest
income and decreases in general and administrative expenses and interest
expense. Interest income increased by $126,000 due to a steady increase in
interest rates earned on cash and cash equivalents throughout the year. General
and administrative expense decreased by $87,000 mainly due to a decrease in
legal expenses. Interest expense decreased by $41,000 due to the modification
and principal paydown of the loan secured by the 625 North Michigan property and
the refinancing and payoff of the zero coupon loan which was secured by the
Chandler's Reach Apartments. The impact of those two transactions on interest
expense was partially offset by the issuance of mortgage debt secured by the
Crystal Tree property in September 1994.
The Partnership's share of unconsolidated ventures' losses decreased by
$357,000 when compared to the prior year primarily due to a significant decrease
in the net loss at the Warner/Red Hill joint venture prior to the aforementioned
impairment loss. Net loss at the Warner/Red Hill joint venture prior to the
impairment loss decreased by $336,000 primarily due to a decrease in interest
expense as a result of the modification of the zero coupon loan secured by the
property. As explained above, the modification provided for the discontinuation
of the compounding of interest and significantly reduced the interest rate on
the debt. Rental revenues declined by $200,000 at Warner/Red Hill during
calendar 1994 due to the decrease in occupancy during the year. Operations at
the Monterra and Chandler's Reach joint ventures remained relatively unchanged
in the current year as slight increases in rental revenues were offset by higher
property operating expenses. At 625 North Michigan operations remained stable
despite a $219,000 drop in rental revenues due to a substantial decline in real
estate taxes for calendar 1994. Operations of the 1881 Worcester Road joint
venture improved slightly during calendar 1994 as the increase in occupancy at
the property resulted in a $51,000 increase in rental revenues.
1994 COMPARED TO 1993
The Partnership's net loss for fiscal 1994 increased by $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 $171,000
primarily due to decreases in rental income and interest and other income of
$69,000 and $99,000, respectively, and increases in interest expense and general
and administrative expenses of $63,000 and $96,000, respectively. Such
unfavorable changes were partially offset by a decline of $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 $90,000 of insurance proceeds by the
Sunol Center joint venture during fiscal 1993 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 fiscal 1994 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 $163,000. An increase in the
Partnership's share of unconsolidated ventures' losses also contributed to the
increase in net loss for fiscal 1994. The Partnership's share of unconsolidated
ventures' losses increased by $24,000 during fiscal 1994. This unfavorable
change was 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 fiscal 1994. 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 in the downtown Chicago office market. Average
occupancy at 625 North Michigan declined from 82% in calendar 1992 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 $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 $199,000, an increase in general and
administrative expenses of $68,000 primarily due to an increase in legal and
appraisal expenses, and an increase in property operating expenses of $105,000
due primarily to increases in landscaping maintenance expenses at the Sunol
Center office buildings. In addition, interest expense increased by $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 $91,000 and a decrease in depreciation and
amortization expense of $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 levels, 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 $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
$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.
INFLATION
The Partnership commenced operations in 1985 and completed its ninth 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14
of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None. PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Managing General Partner of the Partnership is First Equity Partners,
Inc., a Virginia corporation, which is a wholly-owned subsidiary of PaineWebber
Group, Inc. The Associate General Partner of the Partnership is Properties
Associates 1985, L.P., a Virginia limited partnership, certain limited partners
of which are also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operations, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
Lawrence A. Cohen President and Chief
Executive Officer 41 5/1/91
Albert Pratt Director 84 4/17/85 *
J. Richard Sipes Director
Walter V. Arnold Senior Vice President and
Chief Financial Officer 47 10/29/85
James A. Snyder Senior Vice President 49 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 52 4/17/85 *
Timothy J. Medlock Vice President and Treasurer 33 6/1/88
Thomas W. Boland Vice President 32 12/1/91 *
The date of incorporation of the Managing General Partner.
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors or
executive officers of the Managing General Partner of the Partnership. All of
the foregoing directors and executive officers have been elected to serve until
the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
investment adviser. The business experience of each of the directors and
principal executive officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is also a member of the Board of Directors and
the Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First
Vice President of VMS Realty Partners where he was responsible for origination
and structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is a Director of the Managing General Partner, a Consultant of
PWI and a general partner of the Associate General Partner. Mr. Pratt joined
PWI as Counsel in 1946 and since that time has held a number of positions
including Director of both the Investment Banking Division and the International
Division, Senior Vice President and Vice Chairman of PWI and Chairman of
PaineWebber International, Inc.
J. Richard Sipes is a Director of the Managing General Partner and a Director
of the Adviser. Mr. Sipes is an Executive Vice President at PaineWebber. He
joined the firm in 1978 and has served in various capacities within the Retail
Sales and Marketing Division. Before assuming his current position as Director
of Retail Underwriting and Trading in 1990, he was a Branch Manager, Regional
Manager, Branch System and Marketing Manager for a PaineWebber subsidiary,
Manager of Branch Administration and Director of Retail Products and Trading.
Mr. Sipes holds a B.S. in Psychology from Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI
in 1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. Mr. Arnold is a Certified Public Accountant licensed in the state of
Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company. John B. Watts III is a
Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser which he joined in June 1988. Mr.
Watts has had over 16 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and Assistant Treasurer of
the Adviser which he joined in March 1980. From 1972 to 1980, Mr. Brooks was an
Assistant Treasurer of Property Capital Advisors, Inc. and also, from March 1974
to February 1980, the Assistant Treasurer of Capital for Real Estate, which
provided real estate investment, asset management and consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing General
Partner and Vice President and Treasurer of the Adviser which he joined in 1986.
From June 1988 to August 1989, Mr. Medlock served as the Controller of the
Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner and a
Vice President and Manager of Financial Reporting of the Adviser which he joined
in 1988. From 1984 to 1987 Mr. Boland was associated with Arthur Young &
Company. Mr. Boland is a Certified Public Accountant licensed in the state of
Massachusetts. He holds a B.S. in Accounting from Merrimack College and an
M.B.A. from Boston University.
(f) None of the directors and officers was involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-
percent beneficial holders are required by SEC regulations to furnish the
Partnership with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended March 31, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.
The General Partners are entitled to receive a share of Partnership cash
distributions and a share of profits and losses. These items are described in
Item 13.
The Partnership paid cash distributions to the Limited Partners on a
quarterly basis at a rate of 2% per annum on invested capital from the first
quarter of fiscal 1991 through the second quarter of fiscal 1993. Effective for
the quarter ended December 31, 1992, such distributions were suspended in order
to accumulate cash required to repay and refinance the Partnership's zero coupon
loans. The last of the refinancing transactions was completed during fiscal
1995. Subsequent to year-end, distributions were reinstated at a rate of 1% per
annum on invested capital effective for the quarter ended March 31, 1995.
However, the Partnership's Limited Partnership Units are not actively traded on
any organized exchange, and no efficient secondary market exists. Accordingly,
no accurate price information is available for these Units. Therefore, a
presentation of historical unitholder total returns would not be meaningful.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, First Equity Partners, Inc. is owned by PaineWebber.
Properties Associates 1985, L.P., the Associate General Partner, is a Virginia
limited partnership, certain limited partners of which are also officers of the
Adviser and the Managing General Partner. No limited partner is known by the
Partnership to own beneficially more than 5% of the outstanding interests of the
Partnership.
(b) The directors and officers of the Managing General Partner do not
directly own any Units of limited partnership interest of the Partnership. No
director or officer of the Managing General Partner, nor any limited partner of
the Associate General Partner, possesses a right to acquire beneficial ownership
of Units of limited partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. No management fees were earned for the fiscal year
ended March 31, 1995. 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 $8,416,000 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.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended March 31, 1995 is $210,000, representing reimbursements to this
affiliate of the Managing General Partner for providing such 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 $19,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1995. Fees charged by Mitchell Hutchins
are based on a percentage of invested cash reserves which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of PWPI.
At March 31, 1995, accounts receivable - affiliates includes $100,000 due
from a certain unconsolidated joint venture for interest earned on a permanent
loan and $100,000 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, 1995 also includes $15,000 of expenses paid by the Partnership on
behalf of the joint ventures during fiscal 1993.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a separate
section of this Report. See Index to Financial Statements and
Financial Statement Schedules at page F-1.
(3) Exhibits:
The exhibits on the accompanying index to exhibits at page IV-3 are
filed as part of this Report.
(b) No reports on Form 8-K were filed during the last quarter of fiscal 1995.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this Report. See Index to Financial Statements and Financial
Statement Schedules at page F-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINEWEBBER EQUITY PARTNERS
ONE LIMITED PARTNERSHIP
By: First Equity Partners, Inc.
Managing General Partner
By: /s/ Lawrence A. Cohen
Lawrence A. Cohen
President and
Chief Executive Officer
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: July 7, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
By:/s/ Albert Pratt Date: July 7, 1995
Albert Pratt
Director
By: /s/ J. Richard Sipes Date: July 7, 1995
J. Richard Sipes
Director
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(3)
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
(3) and (4)Prospectus of the Partnership Filed with the Commission pursuant
dated July 18, 1985, as to Rule 424(c) and incorporated
supplemented, with particular herein by reference.
reference to the Restated
Certificate and Agreement of
Limited Partnership
(10) Material contracts previously Filed with the Commission pursuant
filed as exhibits to to Section 13 or 15(d) of the
registration statements and Securities Act of 1934 and
amendments thereto of the incorporated herein by
registrant together will all reference.
such contracts filed as exhibits
of previously filed Forms 8-K and
Forms 10-K are hereby incorporated
herein by reference.
(13) Annual Report to Limited No Annual Report for the
Partners fiscal year 1995 has been
sent to the Limited
Partners. An Annual Report will be
sent to the Limited Partners
subsequent to this filing.
(22) List of subsidiaries Included in Item I of Part I of this
Report Page I-1, to which reference
is hereby made.
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, 1995 and 1994 F-4
Consolidated statements of operations for the years
ended March 31, 1995, 1994 and 1993 F-5
Consolidated statements of changes in partners' capital
(deficit) for the years ended March 31, 1995, 1994 and 1993 F-6
Consolidated statements of cash flows for the years
ended March 31, 1995, 1994 and 1993 F-7
Notes to consolidated financial statements F-8
Schedule III - 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, 1994 and 1993 F-30
Combined statements of operations and changes in venturers'
capital for the years ended December 31, 1994, 1993 and 1992 F-31
Combined statements of cash flows for the years ended
December 31, 1994, 1993 and 1992 F-32
Notes to combined financial statements F-33
Schedule III - Real Estate and Accumulated Depreciation F-39
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, 1995 and 1994, 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, 1995. 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 $(1,325,000) and $4,264,000 at March 31, 1995 and 1994,
respectively, and the Partnership's equity in Warner/Red Hill Associates' net
loss of $5,687,000, $491,000 and $799,000 for the years ended March 31, 1995,
1994 and 1993, 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 and the report of other auditors provide a reasonable
basis for our opinion.
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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1995 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.
As discussed in Note 5 to the consolidated financial statements, in fiscal
1995 the Partnership adopted Statement of Financial Accounting Standards No.
121, `Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of.''
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 28, 1995
INDEPENDENT AUDITORS' REPORT
The PartnersWarner/Redhill Associates:
We have audited the accompanying balance sheets of Warner/Redhill
Associates (a California general partnership) as of December 31, 1994 and 1993
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 and schedule 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, 1994 and 1993 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, Warner/Redhill
Associates changed its method of accounting for its operating investment
property during the year ended December 31, 1994 to adopt the provisions of the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 121, `Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.''
/S/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Los Angeles, California
February 1, 1995, except
for the paragraph entitled
Operating Investment Property in
Note 2 to the financial statements,
which is as of July 7, 1995
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and 1994
(In Thousands, except for per Unit data)
ASSETS
1995 1994
Operating investment properties:
Land $ 3,962 $ 3,962
Building and improvements 25,769 25,674
29,731 29,636
Less accumulated depreciation (8,222) (7,229)
21,509 22,407
Investments in unconsolidated joint ventures 25,036 34,925
Cash and cash equivalents 6,460 6,263
Escrowed cash - 144
Prepaid expenses 12 11
Accounts receivable, less allowance for
possible uncollectible
amounts of $50 ($159 in 1994) 77 55
Accounts receivable - affiliates 215 369
Deferred rent receivable 29 46
Deferred expenses, net 234 150
$ 53,572 $ 64,370
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 285 $ 228
Bonds payable 1,648 1,884
Notes payable and deferred interest 9,900 10,264
Minority interest in net assets of
consolidated joint venture 187 187
Total liabilities 12,020 12,563
Partners' capital:
General Partners: Capital contributions 1 1
Cumulative net income (loss) 65 173
Cumulative cash distributions (978) (978)
Limited Partners ($50 per unit;
2,000,000 Units outstanding):
Capital contributions, net of
offering costs 90,055 90,055
Cumulative net income (loss) (11,809) (1,662)
Cumulative cash distributions (35,782) (35,782)
Total partners' capital 41,552 51,807
$ 53,572 $ 64,370
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1995, 1994 and 1993
(In Thousands, except for per Unit data)
1995 1994 1993
REVENUES:
Rental income and expense
reimbursements $ 1,836 $ 1,776 $ 1,845
Interest and other income 510 195 294
2,346 1,971 2,139
EXPENSES:
Interest expense 1,022 1,063 1,000
Depreciation and amortization 1,068 1,057 1,038
Property operating expenses 982 963 945
Real estate taxes 248 307 336
General and administrative 613 700 605
Bad debt expense 50 77 240
3,983 4,167 4,164
Operating loss (1,637) (2,196) (2,025)
Investment income:
Interest income on notes receivable
from unconsolidated ventures 800 800 800
Partnership's share of
unconsolidated ventures' losses (715) (1,072) (1,048)
Partnership's share of
losses due to permanent
impairment of operating
investment properties (8,703) - -
NET LOSS $ (10,255) $ (2,468) $ (2,273)
Net loss per Limited Partnership Unit $ (5.07) $(1.22) $(1.12)
Cash distributions per Limited
Partnership Unit $ - $ - $ 0.75
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, 1995, 1994 and 1993
(In Thousands)
General Limited
Partners Partners Total
Balance at March 31, 1992 $ (739) $ 58,802 $58,063
Cash distributions (15) (1,500) (1,515)
Net loss (24) (2,249) (2,273)
BALANCE AT MARCH 31, 1993 (778) 55,053 54,275
Net loss (26) (2,442) (2,468)
BALANCE AT MARCH 31, 1994 (804) 52,611 51,807
Net loss (108) (10,147) (10,255)
BALANCE AT MARCH 31, 1995 $ (912) $ 42,464 $ 41,552
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS ONE
LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
1995 1994 1993
Cash flows from operating activities:
Net loss $ (10,255) $ (2,468) $ (2,273)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Partnership's share of losses
due to permanent impairment of
operating investment properties 8,703 - -
Partnership's share of
unconsolidated ventures' losses 715 1,072 1,048
Depreciation and amortization 1,068 1,057 1,038
Amortization of deferred financing costs 10 - -
Bad debt expense 50 77 240
Interest expense 229 936 877
Changes in assets and liabilities:
Escrowed cash 144 (144) -
Prepaid expenses (1) - (1)
Accounts receivable (72) 6 (177)
Accounts receivable - affiliates 154 (28) (171)
Deferred rent receivable 17 3 (9)
Deferred expenses (169) (38) (19)
Accounts payable and accrued expenses 57 (103) 144
Accounts payable - affiliates - (102) 20
Other liabilities - - (112)
Total adjustments 10,905 2,736 2,878
Net cash provided by
operating activities 650 268 605
Cash flows from investing activities:
Additions to operating investment properties (95) (150) (138)
Reductions to operating investment properties
resulting from mandatory payments - - 34
Distributions from unconsolidated
joint ventures 5,654 1,988 1,575
Additional investments in
unconsolidated joint ventures (5,183) (252) (206)
Net cash provided by investing
activities 376 1,586 1,265
Cash flows from financing activities:
Repayment of principal and
deferred interest on long-term debt (4,073) - -
Payments on district bond assessments (297) (61) (23)
District bond assessments 61 - 30
Distributions to partners - - (1,515)
Issuance of note payable 3,480 - -
Net cash used for
financing activities (829) (61) (1,508)
Net increase in cash and
cash equivalents 197 1,793 362
Cash and cash equivalents,
beginning of year 6,263 4,470 4,108
Cash and cash equivalents,
end of year $ 6,460 $ 6,263 $ 4,470
Cash paid during the year
for interest $ 2,322 $ 127 $ 123
Write-off of fully depreciated
tenant improvements $ - $ - $ 448
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 because the Partnership does not have majority voting control. 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.
Effective for fiscal 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), ``Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,'' to account
for its operating investment properties. In accordance with SFAS 121, an
impairment loss with respect to an operating investment property is
recognized when the sum of the expected future net cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset.
An impairment loss is measured as the amount by which the carrying amount of
the asset exceeds its fair value, where fair value is defined as the amount
at which the asset could be bought or sold in a current transaction between
willing parties, that is other than a forced or liquidation sale. In
conjunction with the application of SFAS 121, impairment losses on the
operating investment properties owned by certain unconsolidated joint
ventures were recognized in fiscal 1995. Such losses are described in more
detail in Note 5.
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, 1995 and 1994. 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.
Rental revenues for the operating investment properties are recognized on
a straight-line basis over the life of the related lease agreements.
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. The amortization of
loan costs is included in interest expense on the accompanying statements of
operations.
Certain fiscal 1994 and 1993 amounts have been reclassified to conform to
the fiscal 1995 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, 1995, 1994 and 1993, 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 $8,416,000 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.
Included in general and administrative expenses for the years ended March
31, 1995, 1994 and 1993 is $210,000, $202,000 and $237,000, 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 $19,000, $7,000 and $8,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1995, 1994 and 1993, respectively.
At March 31, 1995 and 1994, accounts receivable - affiliates includes
$100,000 due from a certain unconsolidated joint venture for interest earned
on a permanent loan and $100,000 and $78,000, 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,
1995 and 1994 also includes $15,000 of expenses paid by the Partnership on
behalf of the joint ventures during fiscal 1993. The balance of accounts
receivable at March 31, 1994 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, 1995 and 1994, 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 98% occupied as of March 31, 1995, is located in North Palm Beach,
Florida.
The aggregate cash investment made by the Partnership for its initial
interest was $19,367,000 (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 $15,610,000
(including a $445,000 acquisition fee paid to the Adviser). The joint
venture assumed liability for public bonds of $2,141,000 upon acquisition of
the property (see Note 7). The Partnership paid the co-venturer an
additional $1,945,000 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
1992, a payment of $33,452 was received on the note and recorded as a
reduction to the carrying value of the operating investment properties. No
payments were received during calendar 1994 and 1993. 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 32% is leased to three tenants. 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 1994, 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, 1995, 1994 and 1993 (in thousands):
1995 1994 1993
Property operating expenses:
Repairs and maintenance $ 187 $ 165 $ 145
Utilities 132 130 132
Insurance 55 54 58
Administrative and other 582 523 519
Management fees 26 91 91
$ 982 $ 963 $ 945
5. Investments in Unconsolidated Joint Ventures
As of March 31, 1995 and 1994, 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, 1994 and 1993
(in thousands)
Assets
1994 1993
Current assets $ 1,471 $ 3,103
Operating investment properties, net 59,942 71,188
Other assets 4,223 3,382
$ 65,636 $ 77,673
Liabilities and Capital
Current liabilities, including
mortgage notes payable in default $ 5,169 $ 19,114
Other liabilities 214 202
Long-term debt and notes payable to venturers 21,877 8,000
Partnership's share of combined capital 14,785 24,263
Co-venturers' share of combined capital 23,591 26,094
$ 65,636 $ 77,673
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the years ended December 31, 1994, 1993 and 1992
(in thousands)
1994 1993 1992
Rental income and expense recoveries $10,326 $10,654 $10,635
Interest income 23 32 47
Other income 239 306 183
Total revenues 10,588 10,992 10,865
Property operating expenses 4,107 4,103 3,708
Real estate taxes 2,263 2,581 2,637
Mortgage interest expense 945 1,371 1,289
Interest expense payable to partner 800 800 800
Depreciation and amortization 3,127 3,108 3,003
Losses due to permanent impairment of
operating investment properties 9,767 - -
21,009 11,963 11,437
Net loss $(10,421) $ (971) $ (572)
Net income (loss):
Partnership's share of
combined net loss $ (8,800) $ (987) $ (963)
Co-venturers' share of
combined net income (loss) (1,621) 16 391
$ (10,421) $ (971) $ (572)
Reconciliation of Partnership's Investment
March 31, 1995 and 1994
(in thousands)
1995 1994
Partnership's share of capital at December 31,
as shown above $ 14,785 $ 24,263
Excess basis due to investment in
joint ventures, net (1) 1,011 1,629
Partnership's share of ventures'
current liabilities
and long-term debt 9,536 9,324
Timing differences due to distributions
received from and contributions sent
to joint ventures
subsequent to December 31 (see Note 2) (296) (291)
Investments in unconsolidated joint
ventures, at equity at March 31 $ 25,036 $ 34,925
(1)The Partnership's investments in joint ventures exceeds its share of the
combined joint ventures' capital accounts by approximately $1,011,000 and
$1,629,000 at March 31, 1995 and 1994, 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). Excess basis related to investments in
joint ventures which have recognized impairment losses on their operating
investment properties during calendar 1994 were fully written off in fiscal
1995. Such write-off is included in the Partnership's share of losses due
to permanent impairment of operating investment properties on the
accompanying statement of operations. See the further discussion below.
Reconciliation of Partnership's Share of Operations
March 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
Partnership's share of combined net
loss, as shown above $(8,800) $ (987) $ (963)
Amortization of excess basis (618) (85) (85)
Partnership's share of unconsolidated
ventures' net loss $(9,418) $(1,072) $(1,048)
Partnership's share of unconsolidated ventures' net loss is presented as
follows in the accompanying statements of operations (in thousands):
1995 1994 1993
Partnership's share of unconsolidated
ventures' losses $ (715) $(1,072) $(1,048)
Partnership's share of losses due to
permanent impairment of
operating investment properties (8,703) - -
$(9,418) $(1,072) $(1,048)
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, 1995 and 1994 is comprised of the following investment carrying
values (in thousands):
1995 1994
Investments in joint ventures, at equity:
Warner/Red Hill Associates $ (1,325) $ 4,264
Crow PaineWebber LaJolla, Ltd. 2,485 (814)
Lake Sammamish Limited Partnership (575) 3,083
Framingham 1881 - Associates 2,243 5,495
Chicago-625 Partnership 14,208 14,897
17,036 26,925
Notes receivable:
Crow PaineWebber LaJolla, Ltd. 4,000 4,000
Lake Sammamish Limited Partnership 4,000 4,000
8,000 8,000
$25,036 $34,925
Cash distributions received from the Partnership's unconsolidated joint
ventures for the years ended March 31, 1995, 1994 and 1993 are as follows
(in thousands):
1995 1994 1993
Warner/Red Hill Associates $ 713 $ 60 $ 58
Crow PaineWebber LaJolla, Ltd. 414 800 550
Lake Sammamish Limited Partnership 3,759 264 334
Framingham 1881 - Associates - - -
Chicago - 625 Partnership 768 864 633
$ 5,654 $ 1,988 $ 1,575
For each of the years ended March 31, 1995, 1994 and 1993, 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 83% leased as
of March 31, 1995, is part of a 4,200 acre business complex in Tustin,
California.
As discussed in Note 2, the Partnership elected early application of SFAS
121 effective for fiscal 1995. The effect of such application was the
recognition of an impairment loss on the operating investment property owned
by Warner/Red Hill Associates. The impairment loss resulted because, in
management's judgment, the physical attributes of this property and its
location relative to its competition, combined with the lack of near-term
prospects for future improvement in market conditions in the Orange County
market in which the property is located, are not expected to enable the
venture to recover the carrying value of the asset within the practicable
remaining holding period given the improving market conditions of the
Partnership's other investment properties and the possible opportunities to
sell these other properties over the next 5 to 7 years. Warner/Red Hill
Associates recognized an impairment loss of $6,784,000 to write down the
operating investment property to its estimated fair value of $3,600,000 as
of December 31, 1994. The Partnership's share of the impairment loss was
$5,251,000. Fair value was estimated using an independent appraisal of the
operating property. Such appraisals make use of a combination of certain
generally accepted valuation techniques, including direct capitalization,
discounted cash flows and comparable sales analysis.
The aggregate cash investment in the joint venture by the Partnership was
$12,658,000 (including acquisition fees of $367,000 paid to the Adviser and
closing costs of $6,000). 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, 1995 the property is encumbered by a $5,608,000 loan (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 $524,000 pursuant to such
requirements. The unpaid accrued preference return on Mandatory Capital was
$320,000 and $257,000 at December 31, 1994 and 1993, 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 1994. Such advances totalled
$213,000, of which $32,000 was classified as Default Loans. Unpaid accrued
interest on Notes to Partners totals $483,000 and $342,000 at December 31,
1994 and 1993, 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 89.5%
to the Partnership and 10.5% to the co-venturer (including adjustments for
Default Loans). The cumulative unpaid preference return due the Partnership
at December 31, 1994 is $4,803,000, including accrued interest of $851,000.
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 86% to the
Partnership and 14% 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, 1995, 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 $15,363,000 (including
acquisition fees of $490,000 paid to the Adviser). The Property was
encumbered by a construction loan payable to a bank of $11,491,000 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 was encumbered by a
$4,500,000 nonrecourse zero coupon loan, and the related accrued interest of
$3,805,000, which was scheduled to mature in June of 1994, at which time a
total payment of approximately $8,645,000 was due. During fiscal 1995, this
loan was repaid with the proceeds of a new $4,920,000 loan and a capital
contribution from the Partnership of $3,869,000 (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 $3,047,000 at December 31, 1994.
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. As a result of the debt
modification discussed in Note 6, this note is now unsecured. 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, 1995, 1994 and 1993.
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, 1995, 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 $10,541,000 (including an
acquisition fee of $340,000 paid to the Adviser). At March 31, 1994, the
property was encumbered by a nonrecourse zero coupon loan in the initial
principal amount of $1,887,000, plus related accrued interest of $1,414,000.
During fiscal 1995, this loan was repaid with proceeds of a new loan
recorded directly on the venture's books (see Note 6).
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, 1994 is approximately $1,540,000.
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. As a result of the debt
modification discussed in Note 6, this note is now unsecured. 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, 1995, 1994 and 1993.
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.
As discussed in Note 2, the Partnership elected early application of SFAS
121 effective for fiscal 1995. The effect of such application was the
recognition of an impairment loss on the operating investment property owned
by Framingham 1881 - Associates. The impairment loss resulted because, in
management's judgment, the physical attributes of this property and its
location relative to its competition, combined with the lack of near-term
prospects for future improvement in market conditions in the local Boston
area market in which the property is located, are not expected to enable the
venture to recover the carrying value of the asset within the practicable
remaining holding period given the improving market conditions of the
Partnership's other investment properties and the possible opportunities to
sell these other properties over the next 5 to 7 years. Framingham 1881 -
Associates recognized an impairment loss of $2,983,000 to write down the
operating investment property to its estimated fair value of $2,200,000.
The Partnership's share of the impairment loss was $2,919,000. Fair value
was estimated using an independent appraisal of the operating property.
Such appraisals make use of a combination of certain generally accepted
valuation techniques, including direct capitalization, discounted cash flows
and comparable sales analysis.
The aggregate cash investment in the joint venture by the Partnership was
$7,377,000 (including an acquisition fee of $265,000 paid to the Adviser and
legal and audit fees of $7,000). The Property was originally encumbered by
a construction note payable totalling $4,029,000. This note was repaid from
the proceeds of the contribution from the Partnership.
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 $288,000 at December 31, 1994. 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
cumulative unpaid preference return payable to the Partnership at December
31, 1994 was $3,187,000.
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 generally be allocated to the Partnership and
the Selling Partners in any year in the same proportions as actual cash
distributions. 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 87% leased as of March 31, 1995, is located
in Chicago, Illinois.
The aggregate cash investment made by the Partnership for its current
interest was $17,278,000 (including an acquisition fee of $383,000 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 aggregate cash investment for its current
interest was $26,010,000 (including an acquisition fee of $1,316,000 paid to
PWPI). 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 totalling approximately $2,244,000 through March 31, 1993. No
Leasing Expense Contributions were made during fiscal 1995 and 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 (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 $3,722,000 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 $4,362,000 at December 31, 1994.
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 $2,068,000, 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 and Other Encumbrances
Notes payable and deferred interest on the books of the Partnership at
March 31, 1995 and 1994 consist of the following (in thousands):
1995 1994
9.125% nonrecourse loan payable to an
insurance company, which is secured by the
625 North Michigan Avenue operating
investment property. Monthly payments
including interest of $55,000 are due
beginning July 1, 1994 through maturity on
May 31, 1999. The terms of the note were
modified effective May 31, 1994 (see
discussion below). $6,437 $6,963
8.39% nonrecourse note payable to an
insurance company, which is secured by the
Crystal Tree Commerce Center operating
investment property. Monthly payments
including interest of $28,000 are due
beginning November 15, 1994 through
maturity on September 19, 2001 (see
discussion below). 3,463 -
$1,887,000 nonrecourse note payable to a
financial institution which was secured by
the Lake Sammamish Limited Partnership
operating investment property. The note
had a term of seven years and bore
interest at 10.5% per annum compounded
annually. Interest and principal
totalling $3,797,000 was to be due and
payable by the Partnership at maturity, on
August 1, 1995 (see discussion below). - 3,301
$ 9,900 $10,264
The scheduled annual principal payments to retire notes payable are as
follows (in thousands):
1996 $ 120
1997 131
1998 143
1999 157
` 2000 6,150
Thereafter 3,199
$ 9,900
On April 29, 1988, the Partnership borrowed $4,000,000 in the form of a
zero coupon loan secured by the 625 North Michigan operating property which
had a scheduled maturity date in May of 1995. The terms of the loan
agreement required that if the loan ratio, as defined, exceeded 80%, the
Partnership was 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 $144,000 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. During the quarter
ended June 30, 1994, 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 required the Partnership to make a
principal pay down of $541,000, including the application of the additional
collateral referred to above. The maturity date of the loan which requires
principal and interest payments on a monthly basis as set forth above, was
extended to May 31, 1999. The terms of the loan agreement also required 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 $700,000 through the scheduled
maturity date. Formal closing of the modification and extension agreement
occurred on May 31, 1994.
In addition, during 1986 and 1987 the Partnership received the proceeds
from three additional nonrecourse zero coupon loans in the initial amounts of
$3 million, $4.5 million and approximately $1.9 million, which were secured
by the Warner/Red Hill office building, the Monterra Apartments and the
Chandler's Reach Apartments, respectively. Legal liability for the repayment
of the loans secured by the Warner/Red Hill and Monterra properties rested
with the related joint ventures and, accordingly, these amounts were recorded
on the books of the joint ventures. The Partnership indemnified Warner/Red
Hill Associates and Crow/PaineWebber - LaJolla, Ltd., along with the related
co-venture partners, against all liabilities, claims and expenses associated
with these borrowings. Interest expense on the Warner/Red Hill and Monterra
loans accrued at 9.36%, compounded annually, and was due at maturity in
August of 1993 and September of 1994, respectively, at which time total
principal and interest payments aggregating $5,763,000 and $8,645,000,
respectively, became due and payable. The nonrecourse zero coupon loan
secured by the Chandler's Reach Apartments, which bore interest at 10.5%,
compounded annually, matured on August 1, 1994 with an outstanding balance of
$3,462,000. During the quarter ended December 31, 1993, the Partnership
negotiated and signed a letter of intent to modify and extend the maturity of
the Warner/Red Hill zero coupon loan with the existing lender. The terms of
the extension and modification agreement, which was finalized in August 1994,
provide for a 10-year extension of the note effective as of the original
maturity date of August 15, 1993. During the terms of the agreement, the
loan will bear interest at 2.875% per annum and monthly principal and
interest payments of $24,000 will be required. The Partnership made
principal and interest payments on behalf of the venture totalling
approximately $246,000 for the period from August 15, 1993 through June 30,
1994 in conjunction with the closing of the modification agreement. 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 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. The extension and
modification agreement also required 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.
During September 1994, the Partnership obtained three new nonrecourse,
current-pay mortgage loans and used the proceeds to pay off the zero coupon
loans secured by the Monterra and Chandler's Reach apartment properties.
These 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 are recorded on the books of the joint ventures. The legal
liability for the loan secured by the Crystal Tree Commerce Center rests with
the Partnership and, accordingly, this loan is recorded on the books of 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 these borrowings. The three
new nonrecourse loans all 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 monthly principal and interest payments of $29,000. This loan will
have an outstanding balance of $3,199,000 at maturity. The Monterra loan
bears interest at a rate of 8.45% and requires monthly principal and interest
payments of $40,000. This loan will have an outstanding balance of
approximately $4,380,000 at maturity. The Crystal Tree loan bears interest
at a rate of 8.39% and requires monthly principal and interest payments of
$28,000. This loan will have an outstanding balance of $3,095,000 at
maturity. In order to close the above refinancings, the Partnership was
required to contribute net capital of $583,000. This amount consisted of
$350,000 for transaction fees and closing costs, $128,000 for interest
payments due for August and September on the matured Monterra note balance
and a partial paydown of outstanding principal of $105,000.
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 and mature in years 2004 through 2017. In the event that the
operating investment property is sold, the Sunol Center joint venture will
no longer be liable for the bond assessments.
Future scheduled principal payments on bond assessments are as follows (in
thousands):
Year ending December 31,
1995 $ 55
1996 60
1997 66
1998 73
` 1999 79
Thereafter 1,315
$ 1,648
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. Approximate minimum future
rental revenues to be recognized on the straight-line basis in the future on
noncancellable leases are as follows (in thousands):
Year ending December 31, Amount
1995 $ 1,714
1996 1,463
1997 1,279
1998 1,070
1999 826
Thereafter 1,326
$ 7,678
9. Contingencies
The Partnership is involved in certain legal actions. The Managing
General Partner believes these actions will be resolved without material
effect on the Partnership's financial statements, taken as a whole.
10.Subsequent Events
On May 15, 1995, the Partnership paid distributions to the Limited and
General Partners in the amounts of $250,000 and $2,500, respectively, for
the quarter ended March 31, 1995.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
MARCH 31, 1995
(IN THOUSANDS)
Cost
Capitalized Life on Which
Initial Cost (Removed) Depreciation
to Partnership Subsequent to Gross Amount at Which Carried at in Latest
Venture Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center
North Palm
Beach, FL $ 3,475 $3,217 $15,598 $(2,102) $2,444 $14,269 $16,713 $4,752 1983 10/23/8 5 5-30 yrs.
Office
Building
Pleasanton,
CA 1,898 2,318 15,429 (4,729) 1,518 11,500 13,018 3,470 1985 8/15/86 30 years
$5,373 $5,535 $31,027 $(6,831) $3,962 $25,769 $29,731 $8,222
Notes
(A) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax
purposes is approximately $30,816,000.
(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:
1995 1994 1993
Balance at beginning of period $29,636 $29,486 $29,830
Increase due to additions 95 150 138
Write-off of fully depreciated
tenant improvements - - (448)
Reduction of costs basis -
see (B) above - - (34)
Balance at end of period $29,731 $29,636 $29,486
(E) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 7,229 $ 6,248 $ 5,740
Depreciation expense 993 981 956
Write-off of fully depreciated
tenant improvements - - (448)
Balance at end of period $ 8,222 $ 7,229 $ 6,248
(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.
</TABLE>
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, 1994 and 1993 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, 1994. 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 7% and 15%, respectively,
of the combined assets of the Combined Joint Ventures of Equity Partners One
Limited Partnership at December 31, 1994 and 1993, and 9%, 10% and 7%,
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, 1994. 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 and the report of other auditors provide a reasonable
basis for our opinion.
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, 1994 and 1993, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 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.
As discussed in Note 2 to the combined financial statements, in 1994
certain of the Combined Joint Ventures adopted Statement of Financial Accounting
Standards No. 121, `Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.''
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 28, 1995
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, 1994 and 1993
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 and schedule 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, 1994 and 1993 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, Warner/Redhill
Associates changed its method of accounting for its operating investment
property during the year ended December 31, 1994 to adopt the provisions of the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 121, `Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.''
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Los Angeles, California
February 1, 1995, except
for the paragraph entitled
Operating Investment Property in
Note 2 to the financial statements,
which is as of July 7, 1995
COMBINED JOINT VENTURES OF
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
December 31, 1994 and 1993
(In Thousands)
ASSETS
1994 1993
Current assets:
Cash and cash equivalents $ 438 $ 928
Investments - 730
Accounts receivable, less allowance for
doubtful accounts of $320 ($2 in 1993) 1,030 1,441
Other current assets 3 4
Total current assets 1,471 3,103
Operating investment properties:
Land 17,189 19,541
Building, improvements and equipment 63,016 70,296
80,205 89,837
Less accumulated depreciation (20,263) (18,649)
59,942
71,188
Long-term rents receivable 1,462 1,797
Due from partners 269 269
Deferred expenses, net of accumulated
amortization of $919 ($1,204 in 1993) 1,327 1,240
Other assets 98 76
Escrowed cash 1,067 -
$ 65,636 $ 77,673
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Current portion of long-term debt $ 234 $ 8,305
Mortgage note payable in default - 5,975
Accounts payable and accrued liabilities 699 687
Accounts payable - affiliates 237 239
Real estate taxes payable 2,106 2,286
Distributions payable to venturers 1,741 1,528
Other current liabilities 152 94
Total current liabilities 5,169 19,114
Tenant security deposits 214 202
Notes payable to venturers 8,000 8,000
Long-term debt 13,877 -
Venturers' capital 38,376 50,357
$ 65,636 $ 77,673
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, 1994, 1993 and 1992
(In Thousands)
1994 1993 1992
REVENUES:
Rental income and expense recoveries $ 10,326 $10,654 $10,635
Interest income 23 32 47
Other income 239 306 183
10,588 10,992 10,865
EXPENSES:
Losses due to permanent impairment
of operating investment properties 9,767 - -
Depreciation and amortization 3,127 3,108 3,003
Real estate taxes 2,263 2,581 2,637
Interest expense 945 1,371 1,289
Interest expense payable to partner 800 800 800
Property operating expenses 1,114 1,280 1,210
Repairs and maintenance 1,160 1,075 824
Utilities 713 778 782
Management fees 433 423 421
Salaries and related expenses 300 300 308
Insurance 69 80 85
Bad debt expense 318 167 78
Total expenses 21,009 11,963 11,437
NET LOSS (10,421) (971) (572)
Accounts payable - affiliate converted
to venturers' capital - - 434
Contributions from venturers 5,254 - 311
Distributions to venturers (6,814) (3,151) (2,511)
Venturers' capital, beginning of year 50,357 54,479 56,817
Venturers' capital, end of year $ 38,376 $50,357 $ 54,479
See accompanying notes.
COMBINED JOINT VENTURES OF
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
1994 1993 1992
Cash flows from operating activities:
Net loss $ (10,421) $ (971) $ (572)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Increase in deferred interest on
long-term debt 468 1,273 1,157
Losses due to permanent impairment
of operating investment properties 9,767 - -
Depreciation and amortization 3,127 3,108 3,003
Bad debts 318 - -
Amortization of deferred financing costs 16 - -
Changes in assets and liabilities:
Accounts receivable 93 (189) (1)
Other current assets 1 8 8
Long-term rents receivable 335 83 (143)
Deferred expenses (226) (344) (287)
Other assets (22) 11 8
Accounts payable and accrued liabilities 12 257 108
Accounts payable - affiliates (2) (99) (45)
Real estate taxes payable (180) 17 (31)
Other current liabilities 58 (21) 32
Tenant security deposits 12 (3) (3)
Escrowed cash (1,067) - -
Total adjustments 12,710 4,101 3,806
Net cash provided by operating
activities 2,289 3,130 3,234
Cash flows from investing activities:
Additions to operating investment
roperties (1,256) (828) (429)
Purchase/sale of investment securities 730 (730) -
Net cash used for investing activities (526) (1,558) (429)
Cash flows from financing activities:
Repayment of long-term debt and
eferred interest (9,157) - -
Deferred financing costs (269) - -
Proceeds of new loans 8,520 - -
Contributions from venturers 5,254 - 311
Distributions to venturers (6,601) (2,735) (2,399)
Principal payments under capital
lease obligation - - (112)
Net cash used for financing
activities (2,253) (2,735) (2,200)
Net increase (decrease) in cash
and cash equivalents (490) (1,163) 605
Cash and cash equivalents,
beginning of year 928 2,091 1,486
Cash and cash equivalents, end of year $ 438 $ 928 $ 2,091
Cash paid during the year for interest $5,562 $ 800 $ 808
Write-off of fully depreciated
building improvements $ 1,121 $ 270 $ 43
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
Effective for 1994, Warner/Red Hill Associates and Framingham 1881 -
Associates elected early application of Statement of Financial Accounting
Standards No. 121, ``Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of'' (SFAS 121). In accordance with
SFAS 121, an impairment loss with respect to an operating investment
property is recognized when the sum of the expected future net cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the asset. An impairment loss is measured as the amount by which the
carrying amount of the asset exceeds its fair value, where fair value is
defined as the amount at which the asset could be bought or sold in a
current transaction between willing parties, that is other than a forced or
liquidation sale (see Note 4). All of the other joint ventures record their
investments in operating investment properties at the lower of cost, reduced
by accumulated depreciation, or net realizable value. These joint ventures
have reviewed SFAS 121, which is effective for financial statements for
years beginning after December 15, 1995, and believe this new pronouncement
will not have a material effect on their financial statements.
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, 1994 and 1993. 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 consisted of United States Treasury Bills with maturities
greater than three months from the date of purchase. The fair value
approximated 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. Rental revenues for the residential properties are
recognized when earned.
Minimum rental revenues to be recognized on the straight-line basis in
the future on noncancellable leases are as follows (in thousands):
1995 $ 6,360
1996 5,778
1997 4,642
1998 4,189
1999 3,413
Thereafter 7,153
$31,535
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
(see Note 4).
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 (see Note 4).
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.
4. Losses Due to Permanent Impairment
As discussed in Note 2, Warner/Red Hill Associates and Framingham 1881 -
Associates elected early application of SFAS 121 in 1994. The effect of
such application was the recognition of impairment losses on the operating
investment properties owned by both joint ventures. The impairment losses
resulted because, in management's judgment, the physical attributes of these
properties and their locations relative to their competition, combined with
the lack of near-term prospects for future improvement in market conditions
in the local markets in which the properties are located, are not expected
to enable the ventures to recover the carrying values of the assets within
the practicable remaining holding period given the improving market
conditions of PWEP1's other operating investment properties and the possible
opportunities for PWEP1 to sell these other properties over the next 5 to 7
years.
Warner/Red Hill Associates recognized an impairment loss of $6,784,000 to
write down the operating investment property to its estimated fair value of
$3,600,000. Framingham 1881 - Associates recognized an impairment loss of
$2,983,000 to write down the operating investment property to its estimated
fair value of $2,200,000. In both cases, fair value was estimated using an
independent appraisal of the operating property. Such appraisals make use
of a combination of certain generally accepted valuation techniques,
including direct capitalization, discounted cash flows and comparable sales
analysis.
5. 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, 1994 and 1993 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.
6. Notes Payable to Venturers
Notes payable to venturers at December 31, 1994 and 1993 include a
permanent loan provided by PWEP1 to the Lake Sammamish joint venture in the
amount of $4,000,000. 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, 1994 and 1993 also include a 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, 1994. As a result of the debt modifications discussed
below in Note 7, these notes are unsecured.
7. Mortgage Notes Payable
Mortgage notes payable at December 31, 1994 and 1993 consists of the
following (in thousands):
1994 1993
Nonrecourse note payable to an insurance
company which is secured by the Warner/Red
Hill operating investment property. The
note was amended and restated during 1994
(see discussion below). The note bears
interest at 2.875% per annum, requires
monthly payments of $24,000 and has a
scheduled maturity date of August 1, 2003.
$5,608 $ 5,975
First lien mortgage note payable to a third
party which was secured by the Monterra
Apartments. This note bore interest at
9.36% per annum. Interest accrued and
compounded monthly, but the payment of
accrued interest was deferred until
maturity of the note. All unpaid principal
and accrued interest, aggregating
approximately $8,645,000, was due June 5,
1994 (see discussion regarding refinancing
below). - 8,305
8.45% nonrecourse loan payable to a third
party which is secured by the Monterra
Apartments. The loan requires monthly
principal and interest payments of $40,000
and matures in September 2001. 4,910 -
8.33% nonrecourse loan payable to a third
party which is secured by the Chandler's
Reach Apartments. The loan requires
monthly principal and interest payments of
$29,000 and matures in September 2001 (see
discussion below). 3,593 -
14,111 14,280
Less: current portion (234) (8,305)
$ 13,877 $ 5,975
The scheduled annual principal payments to retire notes payable are as
follows (in thousands):
1995 $ 234
1996 246
1997 260
1998 269
` 1999 284
Thereafter 12,818
$14,111
The repayment of principal and interest on the loans described above is
the responsibility of PWEP1, which received the loan proceeds. PWEP1 has
indemnified Crow PaineWebber-LaJolla, Ltd., Warner/Red Hill Associates and
Lake Sammamish Limited Partnership from all liabilities, claims and expenses
associated with any defaults by PWEP1 in connection with these borrowings.
During 1993, PWEP1 attempted to obtain refinancing or extend the note
secured by the Warner/Red Hill Business Center; however, as of December 31,
1993, such efforts had not been successfully completed and the note was in
default. During 1994, PWEP1 reached an agreement with the lender regarding
an extension and modification of the note payable. The terms of the
extension and modification agreement, which was finalized in August 1994,
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 $24,000 are required. PWEP1 made principal and
interest payments on behalf of the venture totalling $246,000 for the period
from August 15, 1993 through June 30, 1994 in conjunction with the closing
of the modification agreement. 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 required 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. 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 was shown as a
current liability on the accompanying 1993 balance sheet and interest on the
note payable in 1993 continued to be accrued at the rates in effect for the
note prior to maturity.
The debt secured by the Monterra Apartments at December 31, 1993 was
scheduled to mature on June 5, 1994. However, as of the maturity date PWEP1
had not obtained the funds required to repay the outstanding indebtedness.
During September 1994, the note payable secured by the Monterra Apartments
was refinanced in conjunction with the issuance of a new nonrecourse,
current-pay mortgage loan secured by the Monterra property in the initial
principal amount of $4,920,000. PWEP1 was required to contribute capital of
$3,869,000 in connection with this refinancing transaction. This amount
consisted of $146,000 for transaction fees and closing costs and a paydown
of remaining principal of $3,723,000.
The proceeds of the note secured by the Chandler's Reach property were
distributed to PWEP1 in 1994 pursuant to an agreement of the partners.
PWEP1 used the proceeds of this note to retire the prior outstanding
indebtedness secured by the Chandler's Reach Apartments which is described
in Note 8.
8. 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 PWEP1 (together in
one instance with an affiliated partnership) had borrowed $11,886,000 under
two zero coupon loan agreements pursuant to this arrangement. These
obligations were direct obligations of PWEP1 and its affiliated partnership
and, therefore, were not reflected in the accompanying financial statements.
The outstanding balance of principal and accrued interest outstanding under
the borrowing arrangements aggregated $20,225,000 at December 31, 1993. The
operating investment properties of the Lake Sammamish and Chicago-625 joint
ventures had been pledged as security for these loans which were scheduled
to mature in 1995, at which time payments aggregating approximately
$23,056,000 were to become due and payable. As discussed in Note 7, the
note payable secured by the Lake Sammamish operating investment property was
refinanced in September 1994 from the proceeds of a new loan issued directly
to the joint venture.
The zero coupon loan secured by the 625 North Michigan Office Building
required that if the loan ratio, as defined, exceeded 80%, then PWEP1,
together with its affiliated partnership, was 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. On May 31, 1994,
an agreement was reached with the lender to refinance the loan and resolve
the outstanding disputes. The terms of the agreement extended the maturity
date of the loan to May 1999. The new principal balance of the loan, after
a principal paydown of $1,353,000, which was funded by PWEP1 and its
affiliated partnership in the ratios of 41% and 59%, respectively, was
$16,225,000. The new loan bears interest at a rate of 9.125% per annum and
requires 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 required 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. Such escrow accounts are
recorded on the books of the joint venture and are included in the balance
of escrowed cash on the accompanying balance sheet.
.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
COMBINED JOINT VENTURES OF
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
(IN THOUSANDS)
Costs
Capitalized Life on Which
Initial Cost (Removed) Depreciation
to Partnership Subsequent to Gross Amount at Which Carried at in Latest
Venture Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED JOINT VENTURES:
Office Building
Chicago, IL $16,139 $8,112 $35,683 $5,315 $ 8,112 $40,998 $ 49,110 $11,661 1968 12/16/86 5-30 yrs.
Office Building
Tustin, CA 5,608 3,124 9,126 (6,112) 1,428 4,710 6,138 2,538 1984 12/18/85 35 yrs.
Apartment Complex
LaJolla, CA 8,910 4,615 7,219 617 4,615 7,836 12,451 2,234 1987 7/1/86 30 yrs.
Apartment Complex
Redmond, WA 7,593 2,362 6,163 - 2,362 6,163 8,525 2,049 1987 10/1/86 5-27.5 yrs.
Office Building
Framingham, MA - 1,317 5,510 (2,846) 672 3,309 3,981 1,781 1987 12/12/86 5-40 yrs.
$38,250 $19,530 $63,701 $(3,026) $17,189 $63,016 $ 80,205 $20,263
Notes
(A) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax purposes is approximately $78,810,000.
(B) See Notes 6, 7 and 8 to the Combined Financial Statements for a description of the terms of the debt encumbering the
properties.
(C) Reconciliation of real estate owned:
1994 1993 1992
Balance at beginning of period $ 89,837 $ 89,279 $ 88,893
Increase due to additions 1,256 828 429
Write-offs due to disposals (1,121) (270) (43)
Write-offs due to permanent
impairment (see Note 4) (9,767) - -
Balance at end of period $ 80,205 $ 89,837 $ 89,279
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 18,649 $ 16,106 $ 13,381
Depreciation expense 2,735 2,813 2,768
Write-offs due to disposals (1,121) (270) (43)
Balance at end of period $ 20,263 $ 18,649 $ 16,106
(E) Costs removed include guaranty payments from co-venturers (see Note 3)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended March 31, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 6,460
<SECURITIES> 0
<RECEIVABLES> 371
<ALLOWANCES> (50)
<INVENTORY> 0
<CURRENT-ASSETS> 6,764
<PP&E> 54,767
<DEPRECIATION> (8,222)
<TOTAL-ASSETS> 53,572
<CURRENT-LIABILITIES> 285
<BONDS> 11,548
<COMMON> 0
0
0
<OTHER-SE> 41,552
<TOTAL-LIABILITY-AND-EQUITY> 53,572
<SALES> 0
<TOTAL-REVENUES> 3,146
<CGS> 0
<TOTAL-COSTS> 2,911
<OTHER-EXPENSES> 9,418
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 1,022
<INCOME-PRETAX> (10,255)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,255)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,255)
<EPS-PRIMARY> (5.07)
<EPS-DILUTED> (5.07)
</TABLE>
