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 DECEMBER 31, 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
December 31, 1996 and March 31, 1996 (Unaudited)
(In thousands)
ASSETS
December 31 March 31
----------- --------
Operating investment properties:
Land $ 3,962 $ 3,962
Buildings and improvements 28,518 27,771
----------- ----------
32,480 31,733
Less accumulated depreciation (10,419) (9,499)
----------- ----------
22,061 22,234
Investments in unconsolidated joint ventures 23,031 23,728
Cash and cash equivalents 4,027 4,042
Prepaid expenses - 13
Accounts receivable, net 428 81
Accounts receivable - affiliates 255 255
Deferred rent receivable - 185
Deferred expenses, net 657 717
----------- ----------
$ 50,459 $ 51,255
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 650 $ 373
Interest payable 60 60
Bonds payable 1,547 1,576
Mortgage notes payable 9,683 9,780
Co-venturer's share of net assets of
consolidated joint venture 187 187
Partners' capital 38,332 39,279
----------- ----------
$ 50,459 $ 51,255
=========== ==========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended December 31, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1995 $ (912) $42,464
Net loss (9) (866)
Cash distributions (8) (750)
------ -------
Balance at December 31, 1995 $ (929) $40,848
====== =======
Balance at March 31, 1996 $ (936) $40,215
Net loss (2) (187)
Cash distributions (8) (750)
------ -------
Balance at December 31, 1996 $ (946) $39,278
====== =======
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1996 and 1995 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rental income and expense
reimbursements $ 756 $ 582 $2,080 $1,592
Interest and other income 63 65 178 219
----- ------ ------ ------
819 647 2,258 1,811
Expenses:
Property operating expenses 353 507 1,096 1,084
Depreciation and amortization 360 362 1,053 870
Interest expense 252 247 760 774
General and administrative 155 151 315 428
Bad debt expense - - 30 27
----- ------ ------ ------
1,120 1,267 3,254 3,183
----- ------ ------ ------
Operating loss (301) (620) (996) (1,372)
Investment income:
Interest income on notes
receivable from
unconsolidated ventures 200 200 600 600
Partnership's share of
unconsolidated
ventures' income
(losses) 123 4 207 (103)
----- ------ ------ ------
Net income (loss) $ 22 $ (416) $ (189) $ (875)
===== ====== ====== ======
Net income (loss) per Limited
Partnership Unit $0.01 $(0.20) $(0.09) $(0.43)
===== ====== ====== ======
Cash distributions per Limited
Partnership Unit $0.13 $ 0.13 $ 0.38 $ 0.38
===== ======= ======= ======
The above net income (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 nine months ended December 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (189) $ (875)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Partnership's share of unconsolidated
ventures' income (losses) (207) 103
Depreciation and amortization 1,053 870
Amortization of deferred financing costs 15 15
Changes in assets and liabilities:
Escrowed cash - (161)
Prepaid expenses 13 (9)
Accounts receivable (347) (214)
Accounts receivable - affiliates - (17)
Deferred rent receivable 185 29
Deferred expenses (60) (620)
Accounts payable and accrued expenses 276 477
--------- -------
Total adjustments 928 473
--------- -------
Net cash provided by (used in)
operating activities 739 (402)
--------- -------
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 1,658 987
Additions to operating investment properties (747) (2,130)
Additional investments in unconsolidated
joint ventures (781) (277)
--------- -------
Net cash provided by (used in)
investing activities 130 (1,420)
--------- -------
Cash flows from financing activities:
Repayment of principal on mortgage notes payable (97) (116)
District bond assessments (29) -
Distributions to partners (758) (758)
--------- -------
Net cash used in financing activities (884) (874)
--------- -------
Net decrease in cash and cash equivalents (15) (2,696)
Cash and cash equivalents, beginning of period 4,042 6,460
--------- -------
Cash and cash equivalents, end of period $ 4,027 $ 3,764
========= ========
Cash paid during the period for interest $ 745 $ 759
========= ========
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.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of December 31, 1996 and March 31, 1996
and revenues and expenses for each of the three- and nine-month periods
ended December 31, 1996 and 1995. Actual results could differ from the
estimates and assumptions used.
2. Related Party Transactions
Accounts receivable - affiliates at December 31, 1996 and March 31, 1996
includes $100,000 and $117,000, respectively, due from two joint ventures
for interest earned on permanent loans and $140,000 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 December 31, 1996 and March 31, 1996 also includes
$15,000 of expenses paid by the Partnership on behalf of the joint ventures
during fiscal 1993.
Included in general and administrative expenses for the nine-month
periods ended December 31, 1996 and 1995 is $131,000 and $153,000,
respectively, representing reimbursements to an affiliate of the Managing
General Partner for providing certain financial, accounting and investor
communication services to the Partnership.
Also included in general and administrative expenses for the nine-month
periods ended December 31, 1996 and 1995 is $9,000 and $11,000,
respectively, representing fees earned by an affiliate, Mitchell Hutchins
Institutional Investors, Inc., for managing the Partnership's cash assets.
3. Investments in Unconsolidated Joint Venture Partnerships
As of December 31, 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.
<PAGE>
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
Condensed Combined Summary of Operations
For the three and nine months ended September 30, 1996 and 1995
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rental revenues and expense
recoveries $ 2,827 $ 2,784 $8,335 $8,138
Interest and other income 52 45 165 140
-------- -------- ------ ------
2,879 2,829 8,500 8,278
Expenses:
Property operating expenses 1,015 967 2,941 2,771
Real estate taxes 442 620 1,509 1,879
Mortgage interest expense 204 246 643 682
Interest expense payable to partner 200 200 600 600
Depreciation and amortization 805 768 2,375 2,342
-------- -------- ------ ------
2,666 2,801 8,068 8,274
-------- -------- ------ ------
Net income $ 213 $ 28 $ 432 $ 4
======= ======== ====== ======
Net income (loss):
Partnership's share of combined
income (loss) $ 135 $ 16 $ 242 $ (68)
Co-venturers' share of combined
income (loss) 78 12 190 72
------- -------- ------ ------
$ 213 $ 28 $ 432 $ 4
======= ======== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended December 31, 1996 and 1995
(in thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Partnership's share of
combined income (loss),
as shown above $ 135 $ 16 $ 242 $ (68)
Amortization of excess basis (12) (12) (35) (35)
------ ------- ------ ------
Partnership's share of
unconsolidated
ventures' income (losses) $ 123 $ 4 $ 207 $ (103)
====== ======= ====== ======
4. Operating Investment Properties
At December 31, 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.
<PAGE>
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 and nine months ended December 31, 1996 and 1995 (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Property operating expenses:
Real estate taxes $ 76 $ 89 $ 191 $ 148
Repairs and maintenance 87 169 324 326
Utilities 36 30 124 109
Management fees 41 42 87 87
Administrative and other 113 177 370 414
------ ------ ------ ------
$ 353 $ 507 $1,096 $1,084
====== ====== ====== ======
5. 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.
6. Mortgage Notes Payable
Mortgage notes payable at December 31, 1996 and March 31, 1996 consist
of the following (in thousands):
December 31 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.
In addition, the loan requires
monthly deposits to a capital
improvement escrow. The fair value
of the mortgage note payable
approximated its carrying value at
December 31, 1996 and March 31,
1996. $ 6,301 $ 6,362
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 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 December 31,
1996 and March 31, 1996. 3,382 3,418
------- -------
$ 9,683 $ 9,780
======= =======
In addition to the long-term mortgage debt described above, the
Partnership has indemnified Warner/Red Hill Associates, Crow/PaineWebber
-LaJolla, Ltd. and Lake Sammamish Limited Partnership, along with the
related co-venture partners, against all liabilities, claims and expenses
associated with certain outstanding secured borrowings of the unconsolidated
joint ventures. During the quarter ended December 31, 1993, the Partnership
negotiated and signed a letter of intent with the existing lender to modify
and extend the maturity of a zero coupon loan secured by the Warner/Red Hill
Office Building with an accreted principal balance of $5,763,000. 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, which is recorded on the books of the unconsolidated joint
venture, 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 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 (see description above) secured by the Crystal Tree Commerce
Center. The Chandler's Reach and Monterra nonrecourse loans, which are
recorded on the books of the unconsolidated joint ventures, 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.
7. Contingencies
As discussed in more 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. The
two multi-family apartment properties in which the Partnership has an interest
continue to experience strong occupancy levels and increasing rental rates. As
discussed further below, the operations of the five commercial office and retail
properties in the Partnership's portfolio are either stable or improving. As a
result of the improvement in operations of the properties in the Partnership's
portfolio, particularly at Sunol Center, the Partnership plans to increase the
quarterly distribution to $5.00 per original $1,000 investment, which is
equivalent to a 2% annualized return. This planned increase will be effective
for the distribution to be paid on May 15, 1997 for the quarter ending March 31,
1997.
Sunol Center, in Pleasanton, California, remained 100% leased to three
tenants as of December 31, 1996. During the current quarter, the property's
largest tenant took occupancy of the final 12,000 square feet of its lease
space, representing the remaining vacant space at the property. This tenant now
occupies 61,621 square feet, or approximately 52% of the property's net rentable
area. During the first nine months of fiscal 1997, the Partnership funded
approximately $348,000 to the Sunol Center joint venture to pay for tenant
improvements and leasing commissions in connection with the final build-out of
this major tenant's space. Now that all the required capital work is completed,
the Sunol Center joint venture is not expected to require any further capital
contributions for the next several years. None of the current leases at Sunol
Center expire before October 2001.
Crystal Tree Commerce Center was 94% leased as of December 31, 1996, down
2% from the previous quarter. During the current quarter, three tenants
occupying a total of 4,418 square feet of space moved out, while a replacement
tenant moved into 2,884 square feet. During the next twelve months, leases with
twelve tenants totalling 12,753 square feet will expire. The majority of these
tenants are expected to renew their leases. Market conditions in the South
Florida area remain very competitive and continued tenant turnover is likely.
Property improvements during the first nine months of fiscal 1997 were comprised
mainly of restriping the parking lot, resurfacing the retail walkways and
installing new awnings on the fourth floor balconies in the office section of
the property.
The 64,000 square foot 1881 Worcester Road Office Building was 51% leased
as of December 31, 1996, unchanged from the prior quarter. As previously
reported, a tenant which had occupied 19% of the net leasable area moved out of
the building during the second quarter, although its lease obligation was
scheduled to continue until December 1998. During the third quarter, a
settlement payment in the amount of $100,000 was received from this tenant in
return for a release from its remaining lease obligation. The funds from this
settlement will be used to pay the costs of newly leased space at the property.
During the quarter, a lease expansion and extension agreement was signed with
the building's sole remaining tenant. This tenant, which agreed to extend its
lease term from three to six years, will now occupy the entire second floor of
this two-story building, increasing its occupancy from 29% to 51% of the net
rentable area. The market for office space in the suburban Boston area in which
1881 Worcester Road is located continues to strengthen. Average vacancy levels
at similar buildings in the area have now declined below 5%. As a result, very
few large blocks of space are available. Consequently, management is cautiously
optimistic that the leasing of the vacant first floor at 1881 Worcester Road,
which comprises over 30,000 square feet, will be successfully completed in the
near term.
The 625 North Michigan Office Building was 86% leased at December 31, 1996,
down 3% from the prior quarter. A tenant occupying 15,639 square feet moved out
of the building during the current quarter upon the expiration of its lease
obligation. However, the loss of this tenant was partially offset by certain
positive leasing developments during the quarter. Two tenants expanded their
spaces for a total of 2,358 square feet, two leases were signed with new tenants
occupying 4,724 square feet, and one tenant renewed its lease for 2,109 square
feet. The modernization of the building's elevator controls is currently
underway, and this work is expected to continue for approximately one year at an
estimated total cost of approximately $700,000.
The leasing level at the Warner/Red Hill Business Center was 85% as of
December 31, 1996, unchanged from the previous quarter. During the third
quarter, the property's leasing team finalized one lease renewal with a tenant
occupying 1,080 square feet of space. Leases with four tenants comprising
approximately 16,000 square feet of space will be expiring over the next twelve
months. The property's leasing team expects to renew most of these leases.
As previously reported, 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 fiscal 1995. 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. Based on
management's analysis of potential impairment 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 future 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.
At December 31, 1996, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $4,027,000. 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 December 31, 1996
- ------------------------------------
The Partnership reported net income of $22,000 for the three months ended
December 31, 1996, as compared to a net loss of $416,000 for the same period in
the prior year. This favorable change in net operating results is attributable
to an increase in the Partnership's share of unconsolidated ventures' income of
$119,000 and a decrease in the Partnership's operating loss of $319,000. The
increase in the Partnership's share of unconsolidated ventures' income is
primarily due to an increase in net income of the 625 North Michigan and
Monterra joint ventures. Net income at 625 North Michigan increased primarily as
a result of a property tax reassessment which resulted in a lower valuation and
a decrease in real estate tax expense for the current three-month period. Net
income at Monterra increased largely due to an increase in rental income,
resulting from rental rate increases implemented over the past year.
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, decreased by $319,000 for the three months ended December 31,
1996, mainly due to an increase in rental income and a decrease in property
operating expenses. The increase in rental income was the result of the increase
in occupancy at Sunol Center over the past year. Property operating expenses
decreased mainly due to a decrease in repairs and maintenance and certain other
administrative expenses for both the Sunol Center joint venture and the Crystal
Tree Commerce Center.
<PAGE>
Nine Months Ended December 31, 1996
- -----------------------------------
The Partnership's net loss decreased by $686,000 for the nine months ended
December 31, 1996, when compared to the same period in the prior year. This
decrease in net loss is largely attributable to a favorable change of $310,000
in the Partnership's share of unconsolidated ventures' operations. The
improvement in the Partnership's share of unconsolidated ventures' operations
for the nine months ended December 31, 1996 is primarily due to an increase in
the net income of the Warner/'Red Hill and 625 North Michigan joint ventures and
a decrease in the net loss of the Monterra joint venture. Net income at
Warner/Red Hill increased mainly due to the receipt of a real estate tax refund
during the current period, which related to calendar 1995 taxes, and a small
increase in rental income. Net income at 625 North Michigan increased primarily
as a result of a property tax reassessment which resulted in a lower valuation
and a decrease in real estate tax expense for the current nine-month period. Net
loss at Monterra decreased largely due to an increase in rental income resulting
from rental rate increases implemented over the past year.
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, decreased by $376,000 for the nine months ended December 31,
1996, mainly due to an increase in rental income and a decrease in general and
administrative expenses. The increase in rental income was the result of the
increase in occupancy at Sunol Center over the past year. General and
administrative expenses decreased mainly due to a decrease in certain required
professional services. The increase in rental income and the decrease in general
and administrative expenses were partially offset by an increase in depreciation
expense. 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 a result of the leasing activity. In addition, depreciation
expense on the Crystal Tree Commerce Center is slightly higher in the current
period as a result of the depreciation adjustment discussed further above.
<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 was held in December 1996, and a ruling by the court as a
result of this final hearing is currently pending.
With regard to the Abbate and Bandrowski actions described in the Annual
Report on Form 10-K for the year ended March 31, 1996, in September 1996 the
court dismissed many of the plaintiffs' claims as barred by applicable
securities arbitration regulations. Mediation with respect to both actions was
held in December 1996. As a result of such mediation, a tentative settlement
between PaineWebber and the plaintiffs was reached which would provide for
complete resolution of such actions. PaineWebber anticipates that releases and
dismissals with regard to these actions will be received by February 1997.
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. However, PaineWebber has agreed not to seek indemnification for
any amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. 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: February 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended December
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 4,027
<SECURITIES> 0
<RECEIVABLES> 684
<ALLOWANCES> 1
<INVENTORY> 0
<CURRENT-ASSETS> 4,710
<PP&E> 55,511
<DEPRECIATION> 10,419
<TOTAL-ASSETS> 50,459
<CURRENT-LIABILITIES> 710
<BONDS> 11,230
0
0
<COMMON> 0
<OTHER-SE> 38,332
<TOTAL-LIABILITY-AND-EQUITY> 50,459
<SALES> 0
<TOTAL-REVENUES> 3,065
<CGS> 0
<TOTAL-COSTS> 2,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 760
<INCOME-PRETAX> (189)
<INCOME-TAX> 0
<INCOME-CONTINUING> (189)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (189)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
