UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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
(Exact name of registrant as specified in its charter)
Virginia 04-2866287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and March 31, 1996 (Unaudited)
(In Thousands)
ASSETS
June 30 March 31
---------- ----------
Operating investment properties:
Land $ 3,962 $ 3,962
Buildings and improvements 28,040 27,771
---------- ---------
32,002 31,733
Less accumulated depreciation (9,831) (9,499)
----------- ---------
22,171 22,234
Investments in unconsolidated joint ventures 23,436 23,728
Cash and cash equivalents 3,759 4,042
Prepaid expenses 5 13
Accounts receivable, net 291 81
Accounts receivable - affiliates 257 255
Deferred rent receivable - 185
Deferred expenses, net 689 717
--------- ---------
$ 50,608 $ 51,255
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 218 $ 373
Interest payable 60 60
Bonds payable 1,592 1,576
Mortgage notes payable 9,749 9,780
Co-venturer's share of net assets of
consolidated joint venture 187 187
Partners' capital 38,802 39,279
--------- ----------
$ 50,608 $ 51,255
========= ==========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1996 and 1995 (Unaudited)
(In Thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1995 $ (912) $42,464
Net loss (2) (312)
Cash distributions (3) (250)
------ -------
Balance at June 30, 1995 $ (917) $41,902
====== =======
Balance at March 31, 1996 $ (936) $40,215
Net loss (2) (222)
Cash distributions (3) (250)
------ -------
Balance at June 30, 1996 $ (941) $39,743
======= =======
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1996 and 1995 (Unaudited)
(In thousands, except per Unit data)
1996 1995
---- ----
Revenues:
Rental income and expense
reimbursements $ 644 $ 444
Interest and other income 56 85
------ -----
700 529
Expenses:
Property operating expenses 373 271
Depreciation and amortization 376 245
Interest expense 254 265
General and administrative 90 126
Bad debt expense 27 27
------- ------
1,120 934
------- ------
Operating loss (420) (405)
Investment income:
Interest income on notes receivable
from unconsolidated ventures 200 200
Partnership's share of unconsolidated
ventures' losses (4) (109)
------- -------
Net loss $ (224) $ (314)
======== =======
Net loss per Limited
Partnership Unit $ (0.11) $ (0.16)
======== ========
Cash distributions per Limited
Partnership Unit $ 0.13 $ 0.13
======== ========
The above net loss and cash distributions per Limited Partnership Unit are
based upon the 2,000,000 Limited Partnership Units outstanding during each
period.
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (224) $ (314)
Adjustments to reconcile net loss to
net cash used in operating activities:
Partnership's share of unconsolidated
ventures' losses 4 109
Depreciation and amortization 376 245
Amortization of deferred financing costs 5 5
Changes in assets and liabilities:
Escrowed cash - (90)
Prepaid expenses 8 7
Accounts receivable (210) (27)
Accounts receivable - affiliates (2) (44)
Deferred rent receivable 185 29
Deferred expenses (21) (216)
Accounts payable and accrued expenses (155) 238
--------- --------
Total adjustments 190 256
--------- --------
Net cash used in operating activities (34) (58)
--------- --------
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 561 290
Additions to operating investment properties (269) (31)
Additional investments in unconsolidated -
joint ventures (273) (157)
--------- --------
Net cash provided by investing activities 19 102
--------- --------
Cash flows from financing activities:
Repayment of principal on mortgage notes payable (31) (35)
District Bond Assessments 16 -
Distributions to partners (253) (253)
--------- --------
Net cash used in financing activities (268) (288)
--------- --------
Net decrease in cash and cash equivalents (283) (244)
Cash and cash equivalents, beginning of period 4,042 6,460
--------- ---------
Cash and cash equivalents, end of period $ 3,759 $ 6,216
========= ========
Cash paid during the period for interest $ 254 $ 304
========= ========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should
be read in conjunction with the financial statements and footnotes in the
Partnership's Annual Report for the year ended March 31, 1996.
In the opinion of management, the accompanying financial statements,
which have not been audited, reflect all adjustments necessary to present
fairly the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Investments in Unconsolidated Joint Venture Partnerships
As of June 30, 1996 and 1995, the Partnership had investments in five
unconsolidated joint venture partnerships which own operating properties as
more fully described in the Partnership's Annual Report. The unconsolidated
joint ventures are accounted for by using the equity method because the
Partnership does not have a voting control interest in the ventures. Under
the equity method, the assets, liabilities, revenues and expenses of the
unconsolidated joint ventures do not appear in the Partnership's financial
statements. Instead, the investments are carried at cost adjusted for the
Partnership's share of each venture's earnings, losses and distributions.
The Partnership reports its share of unconsolidated joint venture earnings
or losses three months in arrears.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
Condensed Combined Summary of Operations
For the three months ended March 31, 1996 and 1995
(in thousands)
1996 1995
---- ----
Revenues:
Rental revenues and expense
recoveries $ 2,770 $ 2,711
Interest and other income 34 24
--------- --------
2,804 2,735
Expenses:
Property operating expenses 1,048 907
Real estate taxes 495 658
Mortgage interest expense 220 223
Interest expense payable to partner 200 200
Depreciation and amortization 780 774
--------- --------
2,743 2,762
--------- --------
Net income (loss) $ 61 $ (27)
======== =======
Net income (loss):
Partnership's share of
combined income (loss) $ 8 $ (97)
Co-venturers' share of
combined incomes (loss) 53 70
--------- -------
$ 61 $ (27)
========= =======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three months ended June 30, 1996 and 1995
(in thousands)
1996 1995
---- ----
Partnership's share of combined income (loss),
as shown above $ 8 $ (97)
Amortization of excess basis (12) (12)
------- --------
Partnership's share of unconsolidated
ventures' losses $ (4) $ (109)
======= ========
3. Operating Investment Properties
At June 30, 1996 and March 31, 1996, the Partnership's balance sheet
includes two operating investment properties: the wholly-owned Crystal Tree
Commerce Center and the Sunol Center Office Buildings, owned by Sunol Center
Associates, a majority-owned and controlled joint venture. The Crystal Tree
Commerce Center 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 40,115 square feet of leasable space, located in North
Palm Beach, Florida. The Sunol Center Office Buildings comprise 116,680
square feet of leasable space, located in Pleasanton, California. The
Partnership reports the operations of Sunol Center Associates on a
three-month lag.
The following is a combined summary of property operating expenses for
the Crystal Tree Commerce Center and the Sunol Center Office Buildings as
reported in the Partnership's consolidated statements of operations for the
three months ended June 30, 1996 and 1995 (in thousands):
1996 1995
---- ----
Property operating expenses:
Real estate taxes $ 79 $ 32
Repairs and maintenance 115 57
Utilities 41 36
Management fees 23 23
Administrative and other 194 123
------ -----
$ 452 $ 271
====== =====
4. Related Party Transactions
Accounts receivable - affiliates at both June 30, 1996 and March 31,
1996 includes $113,000 and $117,000, respectively, due from two joint
ventures for interest earned on permanent loans and $129,000 and $123,000,
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 both June 30, 1996 and March 31, 1996 also includes $15,000 of
expenses paid by the Partnership on behalf of the joint ventures during
fiscal 1993.
<PAGE>
Included in general and administrative expenses for the three-month
periods ended June 30, 1996 and 1995 is $50,000 and $54,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
Also included in general and administrative expenses for both of the
three-month periods ended June 30, 1996 and 1995 is $1,000, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
5. Notes Payable
Notes payable at June 30, 1996 and March 31, 1996 consist of the
following (in thousands):
June 30 March 31
------- --------
9.125% nonrecourse loan payable to
an insurance company, which is secured
by the 625 North Michigan Avenue
operating investment property (see
discussion below). The terms of the note
were modified effective May 31, 1994.
Monthly payments, including interest, of
$55 are due beginning July 1, 1994
through maturity on May 31, 1999. The
fair value of the mortgage note payable
approximated its carrying value at June
30, 1996 and March 31, 1996. $ 6,342 $6,362
8.39% nonrecourse note payable to
an insurance company, which is secured
by the Crystal Tree Commerce Center
operating investment property (see
discussion below). Monthly payments,
including interest, of $28 are due
beginning November 15, 1994 through
maturity on September 19, 2001. The fair
value of the mortgage note payable
approximated its carrying value at June
30, 1996 and March 31, 1996. 3,407 3,418
-------- --------
$ 9,749 $ 9,780
======== ========
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 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, 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 will bear interest at 2.875% per annum
and monthly principal and interest payments of $24,000 will be required. In
addition, the lender required a participation in the proceeds of a future
sale or debt refinancing in order to enter into this agreement. Accordingly,
upon the sale or refinancing of the Warner/Red Hill 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 were 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 unconsolidated 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.
6. 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 operating
investment property is subject to assessment bear interest at rates ranging
from 5% to 7.87%, with an average rate of 7.2%. Principal and interest are
payable in semi-annual installments. In the event the operating investment
property is sold, Sunol Center Associates will no longer be liable for the
bond assessments.
7. Contingencies
As discussed in detail in the Partnership's Annual Report for the year
ended March 31, 1996, the Partnership is involved in certain legal actions.
At the present time, the Managing General Partner is unable to determine
what impact, if any, the resolution of these matters may have on the
Partnership's financial statements, taken as a whole.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As discussed further in the Annual Report, quarterly distributions of
Partnership net cash flow 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. Current cash flow generated by the Partnership's seven
operating investment properties exceeds the level of these distributions.
However, management believes that it is prudent to distribute cash flow
conservatively at the present time due to the capital needs associated with the
Partnership's four commercial office/R&D buildings and one retail/office
property. Significant capital improvements are planned at 625 North Michigan
over the next two years, including the completion of facade repairs, common area
enhancements, elevator control system upgrading and a possible lobby area retail
space expansion and renovation. The 625 North Michigan Office Building was 89%
occupied as of June 30, 1996. As discussed further below, substantial leasing
costs were incurred at Sunol Center during fiscal 1996 and the first quarter of
fiscal 1997, and significant leasing costs could be incurred at 1881 Worcester
Road and the Crystal Tree Commerce Center in the near term.
The leasing level at Sunol Center remained at 100% as of June 30, 1996. A
tenant that signed a 7-year lease on 39,085 square feet took occupancy during
the first quarter of fiscal 1996, and a tenant which has committed to lease
60,000 square feet took occupancy of 48,000 square feet of such space during
fiscal 1996. This tenant will take occupancy of the remaining 12,000 square feet
of its leased space over the next 4 months. During fiscal 1996 and the first
three months of fiscal 1997, the Partnership had funded approximately $2.7
million to the Sunol Center joint venture primarily to pay for tenant
improvements and leasing commissions in connection with the new leases. The
remaining required capital improvement work related to these new leases is
expected to be substantially completed by the end of the second quarter of
fiscal 1997. With the new leasing activity, once all the required capital work
is completed, no further cash flow deficits are expected at Sunol Center for the
next several years. None of the current leases at Sunol Center expire before
October 2001.
At the Crystal Tree Commerce Center, occupancy remained at 92% as of June
30, 1996, unchanged from the previous quarter. During the current quarter,
leases were signed with two new tenants that will occupy 1,785 square feet of
total space. In addition, leases were renewed with three tenants that occupy a
total of 4,086 square feet of space, and two tenants occupying 1,728 square feet
vacated their space during the quarter. Market conditions in the south Florida
area remain very competitive and continued tenant turnover is likely in the near
term. Property improvements during the current quarter were comprised mainly of
the replacement of brick on portions of the exterior wall of the office tower.
While the leasing level at the 1881 Worcester Road Office Building stood at
100% as of June 30, 1996, a lease with the property's largest tenant expired on
July 31, 1996. During the current quarter, this tenant, which had occupied 49%
of the building's net leasable area, vacated the building in order to
consolidate its area lease obligations at another location. In addition, another
tenant occupying 19% of the net leasable area will be moving out of the building
in the summer of 1996, although its lease obligation continues until December
1998. Management expects that this tenant will continue to make the required
lease payments subsequent to vacating the property. If management is successful
in finding a replacement tenant for this space prior to the lease expiration
date, negotiations would commence with the current lessee on a buyout of their
remaining obligation in order to regain control of the space. The market for
office space in the suburban Boston area in which 1881 Worcester Road is located
has strengthened recently. Average vacancy levels at similar buildings in the
area have now declined below 10%. As a result, management is cautiously
optimistic that the majority of the vacant space at 1881 Worcester Road will be
re-leased within a relatively short period of time.
The occupancy level at Warner/Red Hill was 82% as of June 30, 1996, down
from 83% at the end of the previous quarter. Throughout fiscal 1996, the
California real estate market in general continued to be adversely affected by
the state of the region's economy, which, over the past several years, has been
hit hard by the cutbacks in government defense spending and by the reduced rate
of growth in the high technology industries. The state's economic recovery has
generally lagged that of the rest of the country. The leasing activity at Sunol
Center during the latter half of fiscal 1996, as discussed further above,
reflects an overall improvement in California's economic climate in recent
months. If this general trend were to continue, it could have a positive impact
on the leasing status of the Warner/Red Hill property in the near term.
While market values for commercial office buildings have generally
stabilized over the past two years, such values continue to be depressed due to
the residual effects of the overbuilding which occurred in the late 1980's and
the trend toward corporate downsizing and restructurings which occurred in the
wake of the last national recession. In addition, at the present time real
estate values for retail shopping centers in certain markets are being adversely
impacted by the effects of overbuilding and consolidations among retailers which
have resulted in an oversupply of space. As a result of these market conditions,
the current estimated market values of the Partnership's four office building
properties and its one mixed-use retail/office property are significantly below
their acquisition prices. In light of such circumstances, and as previously
reported, in fiscal 1995 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. In fiscal 1995, 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. Also in fiscal 1995, 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 as of December 31, 1994. Based on
management's analysis in the fourth quarter of fiscal 1996, the estimated fair
values of the Sunol Center, 625 North Michigan and Crystal Tree properties were
below their net carrying amounts as of December 31, 1995. Management's estimates
of undiscounted cash flows for all three properties indicated that such carrying
amounts were expected to be recovered, but, in the case of 625 North Michigan
and Crystal Tree, the reversion values could be less than the carrying amounts
at the time of disposition. As a result of such assessment, the 625 North
Michigan joint venture commenced recording an additional annual depreciation
charge of $350,000 in calendar 1995, and the Partnership commenced recording an
additional annual depreciation charge of $65,000 on the Crystal Tree property in
fiscal 1996. Both adjustments were reflected in the Partnership's consolidated
financial statements effective for the fourth quarter of fiscal 1996. Such
annual charges will continue to be recorded in future periods. Based on
management's analysis, no change to the depreciation on Sunol Center was
required.
The Partnership has no current plans to market any of its operating
investment properties for sale. As discussed further above, the market for
office properties in general has just begun to stabilize after several years of
decline and the market for retail properties is considered weak at the present
time. For these reasons, the Partnership's strategy, at present, would be to
hold the office and retail properties until the respective markets recover
sufficiently to provide favorable sales opportunities. Notwithstanding this, it
is unlikely that the values of the Partnership's office and retail properties
will fully recover to their levels of the mid-to-late 1980's within the
Partnership's remaining holding period. With respect to the Partnership's two
apartment properties, while the market for sales of multi-family properties in
most markets has been strong over the past two years, the Monterra and
Chandler's Reach properties, which represent a combined 26% of the original
investment portfolio, generate a stable cash flow which contributes to the
payment of the Partnership's operating costs and operating cash flow
distributions. As a result, the Partnership will most likely delay any active
sales efforts for these two apartment properties until conditions become more
favorable for potential dispositions of the five commercial properties.
Management's hold versus sell decisions will continue to be based on an
assessment of the best expected overall returns to the Limited Partners.
At June 30, 1996, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $3,759,000. 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, the funding of capital enhancements and potential leasing
costs for the commercial property investments, and for distributions to the
partners. The source of future liquidity and distributions to the partners is
expected to be from the sales or refinancings of the operating investment
properties. Such sources of liquidity are expected to be sufficient to meet the
Partnership's needs on both a short-term and long-term basis.
Results of Operations
Three Months Ended June 30, 1996
The Partnership's net loss decreased by $90,000 for the three months ended
June 30, 1996 when compared to the same period in the prior year. This favorable
change in net loss is largely attributable to a decrease of $105,000 in the
Partnership's share of unconsolidated ventures' losses. The decrease in the
Partnership's share of unconsolidated ventures' losses for the first quarter of
fiscal 1997 is primarily due to a $48,000 increase in net income at the
Warner/Red Hill joint venture and decreases in the net losses of the Monterra
and Chandler's Reach joint ventures of $50,000 and $20,000, respectively. Net
income at Warner/Red Hill increased mainly due to the receipt of a real estate
tax refund in the current period which related to calendar 1995 taxes. The
favorable change in the Monterra joint venture's net operating results is mainly
due to an increase in rental income, resulting from rental rate increases
implemented over the past year, and a decrease in professional fees. The
favorable change in the net loss of the Chandler's Reach joint venture is
primarily due to a small increase in rental revenues and a decrease in certain
professional fees. The favorable changes in the net operating results of the
Warner/Red Hill, Monterra and Chandlers Reach joint ventures were partially
offset by an unfavorable change in the net operating results of the 625 North
Michigan joint venture. At 625 North Michigan, an increase in repairs and
maintenance expenditures associated with the renovation of the building's
facade, which is currently in progress, and an increase in depreciation expense,
resulting from the analysis described above, contributed to a decline in the
venture's net income for the first quarter.
The Partnership's operating loss, which includes the operating results of
the wholly-owned Crystal Tree Commerce Center and the consolidated Sunol Center
joint venture, increased by $15,000 for the first quarter of fiscal 1997 mainly
due to an increase in depreciation expense. Depreciation expense on the Crystal
Tree property increased as a result of the analysis discussed further above.
Depreciation expense of the Sunol Center joint venture increased due to the
substantial tenant improvement work which has occurred at the property over the
past year, as discussed further above. The impact of the increase in
depreciation expense on the Partnership's operating loss was partially offset by
an increase in rental income, primarily due to the aforementioned leasing
activity at Sunol Center.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in prior quarterly and annual reports, 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 70 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.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the direction of the court. A final hearing on the fairness of the
proposed settlement has been scheduled for October 25, 1996.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Annual Report on Form 10-K for the year ended March 31, 1996.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
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/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's financial statements for the quarter ended June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 3,759
<SECURITIES> 0
<RECEIVABLES> 292
<ALLOWANCES> 1
<INVENTORY> 0
<CURRENT-ASSETS> 4,312
<PP&E> 55,438
<DEPRECIATION> 9,831
<TOTAL-ASSETS> 50,608
<CURRENT-LIABILITIES> 278
<BONDS> 11,341
0
0
<COMMON> 0
<OTHER-SE> 38,802
<TOTAL-LIABILITY-AND-EQUITY> 50,608
<SALES> 0
<TOTAL-REVENUES> 900
<CGS> 0
<TOTAL-COSTS> 839
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 254
<INCOME-PRETAX> (224)
<INCOME-TAX> 0
<INCOME-CONTINUING> (224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (224)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
