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, 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
December 31, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
December 31 March 31
----------- --------
Operating investment properties:
Land $ 5,390 $ 3,962
Building and improvements 33,155 28,322
-------- --------
38,545 32,284
Less accumulated depreciation (14,723) (10,823)
-------- --------
23,822 21,461
Investments in unconsolidated joint ventures 24,569 22,525
Cash and cash equivalents 3,647 4,325
Prepaid expenses - 13
Accounts receivable 424 139
Accounts receivable - affiliates 305 260
Deferred rent receivable 153 353
Other assets 697 -
Deferred expenses, net 858 660
-------- --------
$ 54,475 $ 49,736
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 532 $ 474
Net advances from consolidated ventures 185 -
Interest payable 900 60
Bonds payable 1,472 1,503
Mortgage notes payable 14,791 9,649
Note payable to co-venture partner 134 -
Co-venturer's share of net assets of
consolidated joint venture 187 187
Partners' capital 36,274 37,863
-------- --------
$ 54,475 $ 49,736
======== ========
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income and expense
reimbursements $ 1,459 $ 756 $ 2,971 $2,080
Interest and other income 112 63 246 178
------- ------ -------- ------
1,571 819 3,217 2,258
Expenses:
Interest expense 361 252 846 760
Depreciation and amortization 480 360 1,183 1,053
Property operating expenses 673 277 1,230 905
Real estate taxes 71 76 230 191
General and administrative 156 155 396 315
Bad debt expense - - 16 30
------- ------ -------- ------
1,741 1,120 3,901 3,254
------- ------ -------- ------
Operating loss (170) (301) (684) (996)
Investment income:
Interest income on notes
receivable from
unconsolidated ventures 200 200 600 600
Partnership's share of
unconsolidated ventures'
income (losses) (17) 123 10 207
------- ------ -------- ------
Net income (loss) $ 13 $ 22 $ (74) $ (189)
======= ====== ======== ======
Net income (loss) per Limited
Partnership Unit $ 0.01 $ 0.01 $ (0.04) $(0.09)
======= ====== ======== ======
Cash distributions per Limited
Partnership Unit $ 0.25 $ 0.13 $ 0.75 $ 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 CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended December 31, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (936) $40,215
Net loss (2) (187)
Cash distributions (8) (750)
------- -------
Balance at December 31, 1996 $ (946) $39,278
======= =======
Balance at March 31, 1997 $ (950) $38,813
Net loss (1) (73)
Cash distributions (15) (1,500)
------ -------
Balance at December 31, 1997 $ (966) $37,240
====== =======
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (74) $ (189)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Partnership's share of unconsolidated
ventures' income (10) (207)
Depreciation and amortization 1,183 1,053
Amortization of deferred financing costs 15 15
Changes in assets and liabilities:
Prepaid expenses 123 13
Accounts receivable (284) (347)
Accounts receivable - affiliates (45) -
Other assets (7) -
Deferred rent receivable 353 185
Deferred expenses (333) (60)
Accounts payable and accrued expenses (21) 276
Net advances from consolidated ventures 112 -
------- -------
Total adjustments 1,086 928
------- -------
Net cash provided by operating activities 1,012 739
------- -------
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 852 1,658
Additions to operating investment properties (110) (747)
Additional investments in unconsolidated joint
ventures (971) (781)
------- -------
Net cash (used in) provided by
investing activities (229) 130
------- -------
Cash flows from financing activities:
Repayment of principal on mortgage notes payable (207) (97)
District bond assessments (31) (29)
Distributions to partners (1,515) (758)
------- -------
Net cash used in financing activities (1,753) (884)
------- -------
Net decrease in cash and cash equivalents (970) (15)
Cash and cash equivalents, beginning of period:
Partnership 4,325 4,042
Warner/Red Hill Associates 292 -
------- -------
4,617 4,042
------- -------
Cash and cash equivalents, end of period $ 3,647 $ 4,027
======= =======
Cash paid during the period for interest $ 831 $ 745
======= =======
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, 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 December 31, 1997 and March 31, 1997 and revenues and
expenses for each of the three- and nine-month periods ended December 31, 1997
and 1996. Actual results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
Accounts receivable - affiliates at December 31, 1997 and March 31, 1997
includes $128,000 and $100,000, respectively, due from one joint venture for
interest earned on permanent loans and $162,000 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 December
31, 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 nine-month periods
ended December 31, 1997 and 1996 is $136,000 and $131,000, 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, 1997 and 1996 is $10,000 and $9,000, 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, 1997, the Partnership had investments in four
unconsolidated joint venture partnerships (five at December 31, 1996) 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. As discussed further in Note 4, effective in fiscal
1998 the Partnership assumed control over the affairs of Warner/Red Hill
Associates. Accordingly, this venture, which had been accounted for under the
equity method in prior years, is presented on a consolidated basis beginning in
fiscal 1998.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
<PAGE>
Condensed Combined Summary of Operations
For the three and nine months ended September 30, 1997 and 1996
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental revenues and
expense recoveries $2,142 $2,827 $7,693 $8,335
Interest and other income 52 52 144 165
------ ------ ------ ------
2,194 2,879 7,837 8,500
Expenses:
Property operating expenses 762 1,015 2,912 2,941
Real estate taxes 526 442 1,577 1,509
Mortgage interest expense 106 204 538 643
Interest expense payable
to partner 200 200 600 600
Depreciation and amortization 552 805 2,153 2,375
------ ------ ------ ------
2,146 2,666 7,780 8,068
------ ------ ------ ------
Net income $ 48 $ 213 $ 57 $ 432
====== ====== ====== ======
Net income:
Partnership's share of
combined income (loss) $ (5) $ 135 $ 45 $ 242
Co-venturers' share of
combined income (loss) 53 78 12 190
------ ------ ------ ------
$ 48 $ 213 $ 57 $ 432
====== ====== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended December 31, 1997 and 1996
(in thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of
combined income,
as shown above $ (5) $ 135 $ 45 $ 242
Amortization of excess basis (12) (12) (35) (35)
------ ------- ------ ------
Partnership's share of
unconsolidated ventures'
income (losses) $ (17) $ 123 $ 10 $ 207
====== ======= ====== ======
4. Operating Investment Properties
-------------------------------
At December 31, 1997, the Partnership's balance sheet includes three
operating investment properties (two at March 31, 1997): the wholly-owned
Crystal Tree Commerce Center, the Sunol Center Office Buildings, owned by Sunol
Center Associates, and the Warner/Red Hill Business Center, owned by Warner/Red
Hill Associates, which are majority-owned and controlled joint ventures.
Effective August 1, 1997, the co-venture partner in Warner/Red Hill Associates
assigned its interest in the joint venture to First Equity Partners, Inc., the
Managing General Partner of the Partnership, in return for a release from any
further obligations under the terms of the joint venture agreement. As a result,
the Partnership has assumed control of the operations of the Warner/Red Hill
joint venture. Accordingly, the venture is presented on a consolidated basis in
the Partnership's financial statements beginning in fiscal 1998. Prior to fiscal
1998, the venture was accounted for on the equity method (see Note 3). 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
Warner/Red Hill Business Center consists of three two-story office buildings
totalling 93,895 net rentable square feet located in Tustin, California. The
Partnership reports the operations of Sunol Center Associates and Warner/Red
Hill Associates on a three-month lag.
<PAGE>
The following is a combined summary of property operating expenses for the
Crystal Tree Commerce Center, the Sunol Center Office Buildings and the
Warner/Red Hill Business Center (fiscal 1998 only) as reported in the
Partnership's consolidated statements of operations for the three and nine
months ended December 31, 1997 and 1996 (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Property operating expenses:
Insurance $ 36 $ 15 $ 66 $ 45
Repairs and maintenance 248 87 438 324
Utilities 169 36 264 124
Management fees 56 41 106 87
Administrative and other 164 98 356 325
----- ----- ------ ------
$ 673 $ 277 $1,230 $ 905
===== ===== ====== ======
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.
6. Mortgage Notes Payable
----------------------
Mortgage notes payable at December 31, 1997 and March 31, 1997 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, 1997 and March 31,
1997. $ 6,211 $ 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
December 31, 1997 and March 31, 1997. 3,331 3,370
Nonrecourse note payable to an
insurance company which is secured by
the Warner/Red Hill operating investment
property. The note was amended and
restated during 1994 (see discussion
below). The note bears interest at
2.875% per annum, requires monthly
payments of $24 and has a scheduled
maturity date of August 1, 2003. 5,249 -
-------- --------
$ 14,791 $ 9,649
======== ========
<PAGE>
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 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, above
a specified level after the repayment 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.
In addition to the long-term mortgage debt described above, the
Partnership has indemnified 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 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 seven 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. As discussed further below, the two multi-family apartment
properties in which the Partnership has an interest continue to experience
strong occupancy levels and increasing rental rates. In addition, the operations
of the five commercial office and retail properties in the Partnership's
portfolio are either stable or improving.
Sunol Center, in Pleasanton, California, remained 100% leased to three
tenants at December 31, 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. 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 under construction in this
market. Both of these projects are expected to be leased at or shortly after
completion of construction. 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 would 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. During
the third quarter of fiscal 1998, management learned that the largest tenant at
Sunol Center, which occupies 52% of the property's leasable area, is considering
vacating in order to consolidate its operations at another building in the local
market and may be interested in negotiating an early termination of their lease
agreement. This potential lease termination may provide the Partnership with an
opportunity to capture the expected increase in the value of Sunol Center sooner
than had been expected. In light of this situation, and given the current
strength of the local market conditions, management is currently reviewing the
Pleasanton office market to assess the appropriate timing for the sale of the
Sunol Center property.
The 64,000 square foot 1881 Worcester Road Office Building was 100% leased
as of December 31, 1997, unchanged from 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 sole 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. During August 1997, a new
tenant signed a lease for the entire first floor, comprising 31,400 square feet.
Construction of the improvements to this space was completed during the current
quarter and the tenant took occupancy in December 1997. The property is now 100%
leased to two financially strong tenants with no lease expirations until 2002.
Accordingly, management is currently developing potential sale strategies for
this asset and expects to market the property for sale during calendar 1998.
The Warner/Red Hill Business Center was 86% leased as of December 31,
1997, down from 91% at the end of the prior quarter. During the third quarter, a
tenant occupying 8,837 square feet vacated the property at the expiration of its
lease term, and another tenant downsized by 537 square feet. A third tenant
expanded its space by 5,677 square feet. Leases for three tenants occupying
3,941 square feet are scheduled to expire over the next twelve months. Of these
three tenants, two are expected to renew, and the other, totalling 1,467 square
feet, is expected to vacate. In addition, the largest tenant at Warner/Red Hill,
which currently leases 14,000 square feet, filed for Chapter 7 bankruptcy during
the third quarter and was expected to vacate during the fourth quarter. The
leasing team believes that there will be a number of potential tenants
interested in this space when it becomes available. Local rental rates for
office space continue to experience modest increases due to the lack of
speculative office construction in the local market and the continued demand for
office space. The property's leasing team is cautiously optimistic that the
general market conditions will continue to improve throughout calendar 1998.
Effective August 1, 1997, the co-venture partner in Warner/Red Hill Associates
assigned its interest in the joint venture to First Equity Partners, Inc., the
Managing General Partner of the Partnership, in return for a release from any
further obligations under the terms of the joint venture agreement. As a result,
the Partnership has assumed control of the operations of the Warner/Red Hill
joint venture. Accordingly, the venture is presented on a consolidated basis in
the Partnership's financial statements beginning in fiscal 1998. Prior to fiscal
1998, the venture was accounted for on the equity method.
The 625 North Michigan Office Building in Chicago, Illinois, was 89%
leased at December 31, 1997, unchanged from the end of the prior quarter. During
the quarter ended December 31, 1997, two tenants renewed a total of 5,288 square
feet and expanded their spaces by a total of 2,276 square feet. One tenant
occupying 1,378 square feet vacated its space. During the next twelve months,
leases for eight tenants occupying 19,685 square feet will expire. The
property's leasing team expects seven of the eight tenants occupying 16,302
square feet to renew, and the remaining space is expected to be leased to a new
tenant. Currently, the property's leasing team is negotiating with a potential
new tenant which would occupy 22,000 square feet of space. This lease, if
completed, would increase the property's occupancy by 7%. Occupancy levels and
rental rates in the local market continue to improve steadily. The elevator
modernization project is nearing completion now that all four low-rise elevators
and three of the four high-rise cars are complete. The remaining high-rise car
is expected to be completed by the end of the fourth quarter. Management
continues to analyze a potential project to upgrade the building lobby,
recapture currently unleasable first floor space, and convert all of the
leasable first floor space at 625 North Michigan 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 Crystal Tree Commerce Center in North Palm Beach, Florida was 100%
leased as of December 31, 1997, a 4% increase from the prior quarter. During the
quarter, two new tenants signed leases to occupy a total of 4,501 square feet,
and five existing tenants occupying a total of 10,985 square feet renewed their
leases. One tenant vacated the property prior to its lease expiration and
assigned its 3,676 square foot lease to a new tenant. During the next twelve
months, leases for eleven tenants occupying 11,836 square feet will expire. All
eleven of these tenants are expected to renew their leases. Capital improvements
completed during the third quarter included refurbishment of two elevators and
six office tower rest rooms, partial resurfacing of the parking lot, staining
and repainting walkways and office tower stairwells, and pressure-cleaning and
partial replacement of the tile roof. Capital improvements planned for calendar
1998 include additional roof repairs. 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. 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, 51% of the
leases at the property are on a triple-net basis, up from 39% in 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 49% 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 December 31, 1997, unchanged from the
previous quarter. This high occupancy level 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 rental rates by a total of 10% during
calendar 1997. The Redmond Town Center Mall, located approximately two miles
from the property, opened during August 1997, and occupancy of the Mall had
reached 90% by December 31, 1997. This new mall consists of 400,000 square feet
of retail space, a 44-acre park and bike trails covering 120 acres. These nearby
amenities add to the appeal of Chandler's Reach Apartments. Capital improvements
completed during the third quarter included repairs to the dock and sundeck and
water/sewer sub-metering. This sub-metering project, which is expected to lower
the property owner's costs by passing water/sewer expenses through to the
tenants, is currently scheduled for completion next quarter. Given the positive
performance of the Chandler's Reach property and the current strength of the
national real estate market for the sale of apartment properties, management
intends to test the market by exploring potential sale opportunities for
Chandler's Reach during calendar 1998.
The average occupancy level at the Monterra Apartments in La Jolla,
California, was 96% for the quarter ended December 31, 1997, unchanged from the
prior quarter. This occupancy level is consistent with competitive properties
within the local market. 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 a total of 7%
during calendar year 1997. A 1,250 unit apartment project is beginning
construction on one of the few land parcels available in the local market and is
expected to be completed in phases over the next three years. Monterra will not
compete directly with this property, which is expected to have the highest
rental rates in the market. The capital project to repair and replace
water-damaged stair towers and landings continued during the quarter and was
completed subsequent to the quarter end. As is the case with Chandler's Reach,
management intends to explore potential sale opportunities for the Monterra
property during calendar 1998.
At December 31, 1997, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $3,647,000. 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 December 31, 1997
- ------------------------------------
There was a $9,000 decrease in the Partnership's net income for the three
months ended December 31, 1997 when compared to the same period in the prior
year. This decline in net income was due to a $140,000 unfavorable change in the
Partnership's share of unconsolidated ventures' income (losses), which was
offset by a $131,000 decrease in the Partnership's operating loss. The
Partnership's share of unconsolidated ventures' income (losses) changed largely
due to the consolidation of the Warner/Red Hill joint venture during the current
year, as discussed further above, and an unfavorable change in the net operating
results at the 1881 Worcester Road joint venture which was primarily
attributable to a $96,000 increase in operating expenses due to costs incurred
during the quarter to bring the property into compliance with the Americans with
Disabilites Act (ADA). The impact of the consolidation of Warner/Red Hill
Associates and the unfavorable change in the net operating results of the 1881
Worcester Road joint venture were partially offset by favorable changes in the
net operating results of the Monterra and Chandler's Reach joint ventures of
$41,000 and $23,000, respectively. The favorable changes in the net operating
results of the Monterra and Chandler's Reach joint ventures were mainly due to
an increase in average rental rates during the current three-month period as a
result of the strong local apartment markets, along with reductions in certain
administrative expenses.
The Partnership's operating loss, which includes the operating results of
the wholly-owned Crystal Tree Commerce Center, the consolidated Sunol Center
joint venture and the consolidated Warner/Red Hill joint venture (fiscal 1998
only), decreased mainly due to the inclusion of the results of Warner/Red
Associates in the current quarter. In addition, rental income increased at
Crystal Tree due to an increase in occupancy when compared to the same period in
the prior year, and property operating expenses decreased at Sunol Center mainly
due to decreases in repairs and maintenance costs.
Nine Months Ended December 31, 1997
- -----------------------------------
The Partnership's net loss decreased by $115,000 for the nine months ended
December 31, 1997 when compared to the same period in the prior year. This
favorable change in net loss was due to a $312,000 decrease in the Partnership's
operating loss, which was partially offset by a $197,000 decline 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, the consolidated Sunol Center joint venture and the
consolidated Warner/Red Hill joint venture (fiscal 1998 only), decreased largely
due to the consolidation of the Warner/Red Hill joint venture during the current
year, as discussed further above. Increases in rental income at Sunol Center and
Crystal Tree of $145,000 and $63,000, respectively, also contributed to the
decline in operating loss for the current nine-month period. Rental income
increased due to increases in the average occupancy levels of both properties.
The Partnership's share of unconsolidated ventures' income decreased
largely due to the consolidation of the Warner/Red Hill joint venture during the
current year and unfavorable changes of $280,000 and $162,000 in 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 the temporary decrease in occupancy
which occurred during the quarter ended June 30, 1997 and a $174,000 increase in
operating expenses due to costs incurred during the current period to bring the
property into compliance with the Americans with Disabilities Act (ADA). The
unfavorable change in the net operating results at 625 North Michigan was mainly
due to a $173,000 increase in repairs and maintenance expense. Repairs and
maintenance increased due to the modernization of the building's elevator
controls. 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 $115,000 and $76,000 in the net operating results of the
Monterra and Chandler's Reach joint ventures, respectively. The favorable
changes in the net operating results of the Monterra and Chandler's Reach joint
ventures were mainly due to an increase in average rental rates during the
current nine-month period 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: February 12, 1998
<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, 1997 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-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 3,647
<SECURITIES> 0
<RECEIVABLES> 882
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,376
<PP&E> 63,114
<DEPRECIATION> 14,723
<TOTAL-ASSETS> 54,475
<CURRENT-LIABILITIES> 1,617
<BONDS> 16,263
0
0
<COMMON> 0
<OTHER-SE> 36,274
<TOTAL-LIABILITY-AND-EQUITY> 54,475
<SALES> 0
<TOTAL-REVENUES> 3,827
<CGS> 0
<TOTAL-COSTS> 3,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 846
<INCOME-PRETAX> (74)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
