UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 SEPTEMBER 30, 1997
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
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(Exact name of registrant as specified in its charter)
Virginia 04-2866287
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(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
September 30, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
September 30 March 31
------------ --------
Operating investment properties:
Land $ 3,962 $ 3,962
Building and improvements 28,322 28,322
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32,284 32,284
Less accumulated depreciation (11,441) (10,823)
---------- -----------
20,843 21,461
Investments in unconsolidated joint ventures 22,658 22,525
Cash and cash equivalents 3,913 4,325
Prepaid expenses - 13
Accounts receivable, net 52 139
Accounts receivable - affiliates 272 260
Deferred rent receivable 336 353
Deferred expenses, net 650 660
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$ 48,724 $ 49,736
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 660 $ 474
Interest payable 60 60
Bonds payable 1,472 1,503
Mortgage notes payable 9,579 9,649
Co-venturer's share of net assets of
consolidated joint venture 187 187
Partners' capital 36,766 37,863
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$ 48,724 $ 49,736
========== ===========
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ --------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income and expense
reimbursements $ 754 $ 680 $ 1,512 $1,324
Interest and other income 60 59 133 115
------ ------ ------- ------
814 739 1,645 1,439
Expenses:
Interest expense 242 254 485 508
Depreciation and amortization 322 317 703 693
Property operating expenses 291 335 556 629
Real estate taxes 79 36 159 115
General and administrative 174 70 240 160
Bad debt expense - 3 16 30
------ ------ ------- ------
1,108 1,015 2,159 2,135
------ ------ ------- ------
Operating loss (294) (276) (514) (696)
Investment income:
Interest income on notes
receivable from
unconsolidated ventures 200 200 400 400
Partnership's share of
unconsolidated
ventures' income 65 89 27 85
------ ------ ------- ------
Net income (loss) $ (29) $ 13 $ (87) $ (211)
====== ====== ======= ======
Net income (loss) per Limited
Partnership Unit $(0.01) $ 0.01 $ (0.04) $(0.10)
====== ====== ======= ======
Cash distributions per Limited
Partnership Unit $ 0.25 $ 0.12 $ 0.50 $ 0.25
====== ====== ======= ======
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 CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended September 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (936) $40,215
Net loss (2) (209)
Cash distributions (5) (500)
------ -------
Balance at September 30, 1996 $ (943) $39,506
====== =======
Balance at March 31, 1997 $ (950) $38,813
Net loss (1) (86)
Cash distributions (10) (1,000)
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Balance at September 30, 1997 $ (961) $37,727
======= =======
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (87) $ (211)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Partnership's share of unconsolidated
ventures' income (27) (85)
Depreciation and amortization 703 693
Amortization of deferred financing costs 10 10
Changes in assets and liabilities:
Prepaid expenses 13 13
Accounts receivable 87 (5)
Accounts receivable - affiliates (12) 6
Deferred rent receivable 17 (80)
Deferred expenses (85) (49)
Accounts payable and accrued expenses 186 90
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Total adjustments 892 593
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Net cash provided by operating activities 805 382
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Cash flows from investing activities:
Distributions from unconsolidated joint ventures 554 1,077
Additions to operating investment properties - (520)
Additional investments in unconsolidated joint
ventures (660) (375)
------- -------
Net cash (used in) provided by investing
activities (106) 182
------- -------
Cash flows from financing activities:
Repayment of principal on mortgage notes payable (70) (64)
Repayment of district bond assessments (31) (13)
Distributions to partners (1,010) (505)
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Net cash used in financing activities (1,111) (582)
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Net decrease in cash and cash equivalents (412) (18)
Cash and cash equivalents, beginning of period 4,325 4,042
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Cash and cash equivalents, end of period $ 3,913 $ 4,024
======== =======
Cash paid during the period for interest $ 475 $ 508
======== =======
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
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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, 1997. In the opinion of
management, the accompanying financial statements, which have not been audited,
reflect all adjustments necessary to present fairly the results for the interim
period. All of the accounting adjustments reflected in the accompanying interim
financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which 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 September 30, 1997 and March 31, 1997 and revenues and
expenses for each of the three- and six-month periods ended September 30, 1997
and 1996. Actual results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
Accounts receivable - affiliates at both September 30, 1997 and March 31,
1997 includes $100,000 due from one joint venture for interest earned on
permanent loans and $157,000 and $145,000, 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 September 30, 1997 and
March 31, 1997 also includes $15,000 of expenses paid by the Partnership on
behalf of one of the joint ventures during fiscal 1993.
Included in general and administrative expenses for the six-month periods
ended September 30, 1997 and 1996 is $90,000 and $81,000, 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
six-month periods ended September 30, 1997 and 1996 is $7,000, 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 September 30, 1997 and 1996, 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:
<PAGE>
Condensed Combined Summary of Operations
For the three and six months ended June 30, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental revenues and
expense recoveries $2,865 $2,737 $5,551 $5,533
Interest and other income 54 79 92 87
------ ------ ------ ------
2,919 2,816 5,643 5,620
Expenses:
Property operating expenses 1,067 876 2,150 1,924
Real estate taxes 578 572 1,051 1,067
Mortgage interest expense 215 219 432 439
Interest expense payable to
partner 200 200 400 400
Depreciation and amortization 821 790 1,601 1,570
------ ------ ------ ------
2,881 2,657 5,634 5,400
------ ------ ------ ------
Net income $ 38 $ 159 $ 9 $ 220
====== ====== ====== ======
Net income:
Partnership's share of
combined income (loss) $ 76 $ 100 $ 50 $ 108
Co-venturers' share of
combined income (loss) (38) 59 (41) 112
------ ------ ------ ------
$ 38 $ 159 $ 9 $ 220
====== ====== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and six months ended September 30, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of
combined income, as
shown above $ 76 $ 100 $ 50 $ 108
Amortization of excess basis (11) (11) (23) (23)
------- ------ ------ ------
Partnership's share of
unconsolidated ventures'
income $ 65 $ 89 $ 27 $ 85
======= ====== ====== ======
<PAGE>
4. Operating Investment Properties
-------------------------------
At September 30, 1997 and March 31, 1997, 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 and six
months ended September 30, 1997 and 1996 (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Property operating expenses:
Insurance $ 15 $ 15 $ 30 $ 30
Repairs and maintenance 109 122 190 237
Utilities 51 47 95 88
Management fees 24 23 50 46
Administrative and other 92 128 191 228
------ ------ ----- ------
$ 291 $ 335 $ 556 $ 629
====== ====== ===== ======
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, the
liability for the bond assessments would be transferred to the buyer. Therefore,
the Sunol Center joint venture would no longer be liable for the bond
assessments.
<PAGE>
6. Mortgage Notes Payable
----------------------
Mortgage notes payable at September 30, 1997 and March 31, 1997 consist of
the following (in thousands):
September 30 March 31
------------ --------
9.125% nonrecourse loan payable to
an insurance company, which is secured
by the 625 North Michigan Avenue
operating investment property. 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 September 30, 1997
and March 31, 1997. $ 6,235 $ 6,279
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 $28 are
due beginning November 15, 1994 through
maturity on September 19, 2001. The fair
value of the mortgage note payable
approximated its carrying value at
September 30, 1997 and March 31, 1997. 3,344 3,370
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$ 9,579 $ 9,649
======= =======
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.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended March 31, 1997 under the heading "Certain Factors Affecting Future
Operating Results", which could cause actual results to differ materially from
historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
In light of the continued strength in the national real estate market with
respect to multi-family apartment properties and the recent improvements in the
office/R&D property markets, management believes that this may be an opportune
time to begin the process of selling the Partnership's operating investment
properties. As a result, management is currently focusing on potential
disposition strategies for the remaining investments in the Partnership's
portfolio. Although there are no assurances, it is currently contemplated that
sales of the Partnership's remaining assets could be completed within the next
2-to-3 years. 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 increased
the quarterly distribution to $5.00 per original $1,000 investment, which is
equivalent to a 2% annualized return, effective for the distribution paid on May
15, 1997 for the quarter ended March 31, 1997.
Sunol Center, in Pleasanton, California, remained 100% leased to three
tenants at September 30, 1997. The BART (Bay Area Rapid Transit) station, which
serves the Hacienda Business Park in which Sunol Center is located, opened ahead
of schedule in early May 1997. None of the current leases at Sunol Center expire
before October 2001. The overall market remains strong with increasing rental
rates and a low vacancy level. Selective development in the area is continuing
as a result of this low vacancy level. Construction on two Pleasanton owner/user
office projects, totalling 132,000 square feet, was completed during the
quarter. Two new Pleasanton build-to-suit office developments, totalling 410,000
square feet, are under construction. Two other office projects totalling 435,000
square feet are also under construction in this market. Both of these projects
are expected to be leased at or shortly after completion of construction.
Construction has recently been completed on another 113,000 square foot office
project, which was 86% leased as of the quarter-end. In addition, Peoplesoft
Corporation, a major employer in the local market, purchased 17 acres in
Hacienda Business Park and has begun construction of an owner/user campus
totalling 350,000 square feet. The existing rental rates on the leases at Sunol
Center are significantly below current market rates. Provided there is not a
dramatic increase in either planned speculative development or build-to-suit
development with current tenants in the local market, the Partnership can be
expected to achieve a materially higher sale price for the Sunol Center property
as the existing leases with below-market rental rates approach their expiration
dates. Accordingly, management plans to defer any sale efforts for the immediate
future in order to capture this expected increase in value. In the meantime,
management will continue to closely monitor all planned development activity in
the market.
The 64,000 square foot 1881 Worcester Road Office Building was 100% leased
as of September 30, 1997, up from 51% for the previous quarter. As previously
reported, a tenant which had occupied 19% of the net leasable area moved out of
the building during the second quarter of fiscal 1997, although its lease
obligation was scheduled to continue until December 1998. During the third
quarter of fiscal 1997, a settlement payment in the amount of $100,000 was
received from this tenant in return for a release from its remaining lease
obligation. Also, during the third quarter of fiscal 1997, a lease expansion and
extension agreement was signed with the building's remaining tenant. This
tenant, which agreed to extend its lease term from three to six years, now
occupies 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 has
continued to strengthen in recent months. Average vacancy levels at similar
buildings in the area have declined to approximately 5%. As a result, very few
large blocks of space are available. As reported last quarter, management
engaged the services of a new leasing agent for the 1881 Worcester Road building
and made various improvements to the lobby and the building signage to make the
overall appearance more appealing. As a result, there was a dramatic increase in
leasing activity. During August 1997, a new tenant signed a lease for 31,400
square feet to occupy the entire first floor. The space is now being renovated
in preparation for the tenant's expected occupancy in December 1997. The
property is now 100% leased to two financially strong tenants with no lease
expirations until 2002. After the move-in of the final tenant in December,
management expects to turn its attention to potential sale strategies for this
asset.
The Warner/Red Hill Business Center was 91% leased as of September 30,
1997, down from 97% at the end of the prior quarter. During the second quarter,
a major tenant extended its lease for five years while downsizing by 5,921
square feet. Another tenant occupying 1,309 square feet renewed its lease.
Leases with three tenants occupying 11,613 square feet are scheduled to expire
over the next twelve months. Recently, the largest of these tenants, which
occupies 8,837 square feet, reported that it will move from the property at the
expiration of its lease next quarter in order to consolidate operations with its
Anaheim office. Of the remaining two tenants, one with 1,309 square feet is
expected to renew, and the other is expected to move. Local rental rates for
office space have experienced a modest increase in recent months. This is the
first positive sign of potentially improving market conditions in the Tustin,
California area in several years. With the lack of speculative office
construction in the local market, the property's leasing team is cautiously
optimistic that general market conditions will continue to improve during fiscal
1998 and that there will be significant interest from potential tenants in the
vacant space at Warner/Red Hill. Since market conditions are improving and the
estimated market value of the Warner/Red Hill property remains below the
outstanding balance of the first mortgage debt, there are no immediate plans to
market this asset for sale.
The 625 North Michigan Office Building in Chicago, Illinois, was 89%
leased at September 30, 1997, compared to 87% at the end of the prior quarter.
During the second quarter, one new tenant signed a lease for 7,011 square feet,
and two tenants totalling 2,577 square feet renewed their leases. During the
next twelve months, leases for eight tenants occupying 14,750 square feet will
expire. The property's leasing team expects four of the eight tenants occupying
7,035 square feet to renew, and the remaining space is expected to be leased to
new tenants. Rental rates in the local market continue to improve steadily. The
elevator modernization project at 625 North Michigan is nearing completion now
that all four low-rise elevators and two of the four high-rise cars are
complete. The remaining two high-rise cars are expected to be completed by the
end of calendar year 1997. The elevator controls upgrade project is progressing
on schedule and within the budgeted cost of approximately $700,000. Management
is currently analyzing a potential project to upgrade the building lobby,
recapture currently unleasable first floor space, and convert all of the
leasable first floor space to retail usage. Rental rates paid by high-end
retailers on North Michigan Avenue are substantially greater than those paid by
office tenants. While the costs of such a project would be substantial, it could
have a significantly positive effect on the market value of the 625 North
Michigan property. A comprehensive cost-benefit analysis of this potential
project is expected to be completed over the next several months.
The occupancy level at the Crystal Tree Commerce Center in North Palm
Beach, Florida was 96% as of September 30, 1997, a 1% increase from the prior
quarter. During the quarter, two new tenants occupying a total of 1,867 square
feet signed leases, and four existing tenants renewed and expanded their leases
by a total of 4,739 square feet. Two other existing tenants renewed their leases
but downsized their space by a total of 2,864 square feet, and two tenants
totalling 2,043 square feet vacated at their lease expiration. During the next
twelve months, leases for nine tenants occupying 8,549 square feet will expire.
Eight of these nine tenants, occupying 7,909 square feet, are expected to renew,
and the remaining space is expected to be leased to a new tenant. Rental rates
and occupancy levels in the local market are continuing to increase gradually.
However, rents are not expected to rise to a level over the near term that would
justify new construction in the local market. Management is continuing to
position Crystal Tree Commerce Center for a future sale by having the property's
management and leasing team negotiate rental rates for new leases on a
triple-net basis. This requires each tenant to be 100% responsible for its share
of operating expenses. Currently, 39% of the leases at the property are on a
triple-net basis, up 19% from the prior quarter. Consequently, at this time the
property owner is responsible for the tenant's portion of operating expenses
above a base amount for a total of 61% of the leases. By the year 2000, the
leasing plan for Crystal Tree calls for 84% of the leases to have been converted
to a triple-net basis. Because most new leases in the local market are on a
triple-net basis, this conversion is expected to increase interest from
prospective buyers of the property and result in a higher sale price.
The average occupancy level at Chandler's Reach Apartments in Redmond,
Washington, was 95% for the quarter ended September 30, 1997, up 1% from the
previous quarter. This increase in occupancy is a direct result of continued
strong employment growth at the major area employers, Microsoft and Boeing. As a
result, the property's leasing team raised the rental rates by 4% on new leases
during the quarter ended March 31, 1997; by an additional 3% during the quarter
ended June 30, 1997; and an additional 2% during the quarter ended September 30,
1997. Capital improvements completed during the second quarter included painting
of the entire property's exterior at a cost of approximately $150,000,
resurfacing and striping of the parking lot, repair of some roof damage and
continuation of the water and sewer sub-metering project that is now 75%
complete. This sub-metering project, which is expected to lower the property
owner's costs by passing water and sewer expenses through to the tenants, is
expected to be fully completed by calendar year-end 1997. Management plans to
explore potential sale opportunities with respect to Chandler's Reach in the
next several months as a result of the current strength of the local market.
There are no assurances, however, that any sale transaction will be completed in
the near term.
The average occupancy level at the Monterra Apartments in La Jolla,
California, was 96% for the quarter ended September 30, 1997, compared to 97%
for the prior quarter. The decrease in occupancy at Monterra Apartments is
primarily attributable to the implementation of aggressive rental rate
increases. The local apartment rental market is strong, and Monterra's leasing
team continues to raise the rental rates on leases being signed by new tenants.
Rental rates for new leases were raised by 2% during the quarter ended March 31,
1997; by an additional 1% for the quarter ended June 30, 1997; and by an
additional 3% in the quarter ended September 30, 1997. Rental rates are expected
to increase another 2% next quarter. This will bring the total rental rate
increase to 8% for calendar year 1997. Rental rate growth of 10% is believed to
be achievable for calendar year 1998. The capital project to repair and replace
water-damaged stair towers and landings has commenced with estimated completion
by calendar year-end 1997 at an expected cost of approximately $250,000.
Management is also evaluating the Monterra property for a possible near-term
sale in light of the strength of the local market conditions.
At September 30, 1997, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $3,913,000. 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 its 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 refinancing 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 September 30, 1997
- -------------------------------------
There was a $42,000 unfavorable change in the Partnership's net operating
results for the three months ended September 30, 1997 when compared to the same
period in the prior year. This unfavorable change in the Partnership's net
operating results was due to a $24,000 decrease in the Partnership's share of
unconsolidated ventures' income and an $18,000 increase in the Partnership's
operating loss. The Partnership's share of unconsolidated ventures' income
decreased largely due to unfavorable changes of $49,000 and $95,000 in the
Partnership's share of the net operating results of the 625 North Michigan and
1881 Worcester Road joint ventures, respectively. The unfavorable change in the
net operating results at 625 North Michigan was mainly due to a $196,000
increase in repairs and maintenance expense due to the modernization of the
building's elevator controls, as discussed further above. The increase in
repairs and maintenance expense at 625 North Michigan was partially offset by an
$89,000 increase in rental income due to an increase in occupancy when compared
to the same period in the prior year. The unfavorable change in the net
operating results at 1881 Worcester Road was primarily attributable to a
significant decrease in occupancy compared to the same period in the prior year.
Due to the Partnership's policy of reporting the results of the joint ventures
on a three-month lag, the results for the current period do not reflect the
lease-up of the vacant first floor, as discussed further above. Once the new
tenant takes occupancy, rental revenues at 1881 Worcester Road will exceed their
fiscal 1997 levels. The unfavorable changes in the net operating results of the
1881 Worcester Road and 625 North Michigan joint ventures were partially offset
by a $68,000 favorable change the net operating results of the Monterra joint
venture. The favorable change in the net operating results of the Monterra joint
venture was mainly due to an increase in average rental rates during the current
three-month period as a result of the strong local apartment market and a
decrease in general and administrative expenses.
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 mainly due to increases in general and administrative
expenses and real estate taxes of $104,000 and $43,000, respectively. General
and administrative expenses increased mainly due to increases in certain
required professional fees during the current three-month period. Real estate
taxes increased due to real estate tax refunds received during the prior
three-month period at Sunol Center. A $74,000 increase in rental income and
expense reimbursements and a $44,000 decrease in property operating expenses
partially offset the increases in general and administrative expenses and real
estate taxes. Rental income increased at both Sunol Center and Crystal Tree by
$65,000 and $9,000, respectively. Property operating expenses decreased mainly
due to decreases in repairs and maintenance at Sunol Center.
<PAGE>
Six Months Ended September 30, 1997
- -----------------------------------
The Partnership's net loss decreased by $124,000 for the six months ended
September 30, 1997 when compared to the same period in the prior year. This
favorable change in net loss was due to a $182,000 decrease in the Partnership's
operating loss which was partially offset by a $58,000 decrease in the
Partnership's share of unconsolidated ventures' income. 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
mainly due to a $188,000 increase in rental income and expense reimbursements.
Rental income and expense reimbursements increased at both Sunol Center and
Crystal Tree by $146,000 and $42,000, respectively. A $24,000 increase in the
Partnership's operating expenses partially offset the increase in rental income
and expense reimbursements. The Partnership's operating expenses increased
primarily due to increases in general and administrative expenses and real
estate taxes of $80,000 and $44,000, respectively. General and administrative
expenses increased mainly due to increases in certain required professional fees
during the current six-month period. Real estate taxes increased due to real
estate tax refunds received during the prior six-month period at Sunol Center. A
$73,000 decrease in property operating expenses partially offset the increases
in general and administrative expenses and real estate taxes. Property operating
expenses decreased mainly due to decreases in repairs and maintenance at Sunol
Center. In addition, interest expense decreased by $23,000 due to the scheduled
principal payments on the debts secured by the Sunol Center, Crystal Tree and
625 North Michigan properties.
The Partnership's share of unconsolidated ventures' income decreased
largely due to unfavorable changes of $183,000 and $69,000 in the Partnership's
share of the net operating results of the 1881 Worcester Road and 625 North
Michigan joint ventures, respectively. The unfavorable change in net operating
results at 1881 Worcester Road is primarily attributable to a significant
decrease in occupancy compared to the same period in the prior year, as
discussed further above. The unfavorable change in the net operating results at
625 North Michigan was mainly due to a $211,000 increase in repairs and
maintenance expense. Repairs and maintenance increased due to the modernization
of the building's elevator controls, as discussed further above. The increase in
repairs and maintenance at 625 North Michigan was partially offset by a $46,000
decrease in the venture's real estate taxes. Real estate taxes decreased as a
result of certain real estate tax refunds received during the current six-month
period at 625 North Michigan. The unfavorable changes in the net operating
results of the 1881 Worcester Road and 625 North Michigan joint ventures were
partially offset by favorable changes of $73,000 and $53,000 in the net
operating results of the Monterra and Chandler's Reach joint ventures,
respectively. The favorable changes in the net operating results of both of
these joint ventures was mainly due to rental rate increases during the current
six-month period which were achieved as a result of the strong local apartment
markets.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
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: November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the six months ended September
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 3,913
<SECURITIES> 0
<RECEIVABLES> 326
<ALLOWANCES> 2
<INVENTORY> 0
<CURRENT-ASSETS> 4,237
<PP&E> 54,942
<DEPRECIATION> 11,441
<TOTAL-ASSETS> 48,724
<CURRENT-LIABILITIES> 720
<BONDS> 11,051
0
0
<COMMON> 0
<OTHER-SE> 36,766
<TOTAL-LIABILITY-AND-EQUITY> 48,724
<SALES> 0
<TOTAL-REVENUES> 2,072
<CGS> 0
<TOTAL-COSTS> 1,674
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 485
<INCOME-PRETAX> (87)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87)
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</TABLE>
