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 QUARTER ENDED September 30, 1999
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
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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, 1999 and March 31, 1999 (Unaudited)
(In thousands)
ASSETS
September 30 March 31
------------ --------
Operating investment properties:
Land $ - $ 3,700
Building and improvements - 18,767
------------ -----------
- 22,467
Less accumulated depreciation - (10,215)
------------ -----------
- 12,252
Investments in unconsolidated joint
ventures, at equity 14,707 15,129
Cash and cash equivalents 9,485 5,753
Accounts receivable - 29
Accounts receivable - affiliates 6 36
Deferred rent receivable - 138
Deferred expenses, net - 292
Other assets - 478
------------ -----------
$ 24,198 $ 34,107
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Net advances from consolidated ventures $ - $ 48
Accounts payable and accrued expenses 43 368
Mortgage notes payable (net of discount
at March 31) 6,035 13,527
Mortgage participation liability - 1,830
Partners' capital 18,120 18,334
------------ -----------
$ 24,198 $ 34,107
============ ===========
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1999 and 1998 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental income and
expense reimbursements $ 671 $ 1,035 $ 1,187 $ 2,112
Interest and other income 93 63 224 114
------- ------- ------- -------
764 1,098 1,411 2,226
Expenses:
Interest expense 526 283 1,094 566
Depreciation and amortization 85 486 238 967
Property operating expenses 459 333 898 730
Real estate taxes 39 64 131 160
General and administrative 187 119 283 208
Bad debt expense 21 - 25 -
------- ------- ------- -------
1,317 1,285 2,669 2,631
------- ------- ------- -------
Operating loss (553) (187) (1,258) (405)
Gain on sales of operating
investment properties 7,488 - 8,051 -
Consolidated venture partner's
share of operations (534) - (534) -
Investment income:
Interest income on notes
receivable from unconsolidated
ventures - 200 - 400
Partnership's share of
unconsolidated ventures'
income 45 281 227 517
------- ------- ------- -------
Net income $ 6,446 $ 294 $ 6,486 $ 512
======= ======= ======= =======
Net income per Limited
Partnership Unit $ 3.19 $ 0.14 $ 3.21 $ 0.25
======= ======= ======= =======
Cash distributions per Limited
Partnership Unit $ - $ 0.25 $ 3.35 $ 0.50
======= ======= ======= =======
The above net income 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, 1999 and 1998 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1998 $ (973) $ 36,560
Net income 5 507
Cash distributions (10) (1,000)
------- --------
Balance at September 30, 1998 $ (978) $ 36,067
======== ========
Balance at March 31, 1999 $ (729) $ 19,063
Net income 68 6,418
Cash distributions - (6,700)
------- --------
Balance at September 30, 1999 $ (661) $ 18,781
======= ========
See accompanying notes
<PAGE>
<TABLE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1999 and 1998 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,486 $ 512
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Partnership's share of unconsolidated ventures' income (227) (517)
Gain on sales of operating investment properties (8,051) -
Consolidated venture partner's share of operations 534 -
Depreciation and amortization 238 967
Amortization of discount on mortgage note payable 1,193 -
Amortization of deferred financing costs 3 10
Changes in assets and liabilities:
Accounts receivable 29 (318)
Accounts receivable - affiliates 30 114
Other assets 478 13
Deferred rent receivable 138 318
Deferred expenses (964) (95)
Accounts payable and accrued expenses (325) 350
Net advances from consolidated ventures (48) 130
-------- --------
Total adjustments (6,972) 972
-------- --------
Net cash (used in) provided by operating activities (486) 1,484
-------- --------
Cash flows from investing activities:
Net proceeds from sales of operating investment properties 20,886 -
Distributions from unconsolidated joint ventures 789 1,476
Additions to operating investment properties (102) (126)
Net withdrawals from restricted cash - 24
Additional investments in unconsolidated joint ventures (140) (377)
-------- --------
Net cash provided by investing activities 21,433 997
-------- --------
Cash flows from financing activities:
Repayment of principal on mortgage notes payable (8,390) (146)
Payment of mortgage participation liability (2,125) -
Repayment of district bond assessments - (35)
Distributions to partners (6,700) (1,010)
-------- --------
Net cash used in financing activities (17,215) (1,191)
-------- --------
Net increase in cash and cash equivalents 3,732 1,290
Cash and cash equivalents, beginning of period 5,753 3,118
-------- --------
Cash and cash equivalents, end of period $ 9,485 $ 4,408
======== ========
Cash paid during the period for interest $ 430 $ 497
======== ========
See accompanying notes.
</TABLE>
<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, 1999. 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, 1999 and March 31, 1999 and revenues and
expenses for each of the three and six-month periods ended September 30, 1999
and 1998. Actual results could differ from the estimates and assumptions used.
The Partnership initially invested approximately $97,472,000 (excluding
acquisition fees of $2,830,000) in seven operating properties through joint
venture investments. In fiscal 1990, the Partnership received approximately
$7,479,000 from the proceeds of a sale of a part of one of the operating
properties. The Partnership used the proceeds from this sale to repay a zero
coupon loan and replenish its cash reserves. During fiscal 1999, the Partnership
sold its interests in an office/R&D complex and two multi-family apartment
complexes. As of March 31, 1999, the Partnership retained an ownership interest
in four operating investment properties, which consisted of one commercial
office property, two office/R&D complexes and one mixed-use retail/office
property. During the quarter ended June 30, 1999, the Partnership sold its
interest in the mixed-use retail/office property. During the quarter ended
September 30, 1999, the Partnership sold its interest in one of the office/R&D
complexes. In addition, subsequent to the quarter ended September 30, 1999, the
Partnership closed on the sale of the other office/R&D complex. After these sale
transactions, the Partnership retains a joint venture interest in one operating
property, the 625 North Michigan Office Building. The Partnership is currently
focusing on potential disposition strategies for the remaining investment in its
portfolio. Materials for the marketing packages for the 625 North Michigan
property have been finalized and initial sale efforts are currently underway.
While the Partnership expects to have the 625 North Michigan Avenue property
under a contract for sale before December 31, 1999, it is unlikely that both a
sale of the property and a subsequent liquidation of the Partnership can be
completed by December 31, 1999. While no assurances can be given, management
currently expects the liquidation of the Partnership to be completed by March
31, 2000.
2. Related Party Transactions
--------------------------
Accounts receivable - affiliates at September 30, 1999 and March 31, 1999
includes $6,000 and $10,000, respectively, of expenses paid by the Partnership
on behalf of the joint ventures during fiscal 1993. Accounts receivable -
affiliates at March 31, 1999 also included $26,000 of investor servicing fees
due from a joint venture for reimbursement of certain expenses incurred in
reporting Partnership operations to the Limited Partners of the Partnership.
Included in general and administrative expenses for the six-month periods
ended September 30, 1999 and 1998 is $94,000 and $91,000, 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 six-month
periods ended September 30, 1999 and 1998 is $6,000 and $2,000, 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 September 30, 1999, the Partnership had investments in two
unconsolidated joint venture partnerships (four at September 30, 1998) 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.
On October 2, 1998, Lake Sammamish Limited Partnership and Crow
PaineWebber LaJolla Limited Partnership, two joint ventures in which the
Partnership had an interest, sold the properties known as the Chandler's Reach
Apartments and the Monterra Apartments to the same unrelated third parties.
Chandler's Reach, located in Redmond, Washington, was sold for $17.85 million,
and Monterra, located in LaJolla, California, was sold for $20.1 million. The
Partnership received net proceeds of approximately $12,359,000 from the sale of
Chandler's Reach after deducting closing costs of approximately $561,000,
closing proration adjustments of approximately $55,000, the repayment of the
existing mortgage note of approximately $3,415,000 and a prepayment penalty of
approximately $354,000 (of which $205,000 was paid by the buyer), and a payment
of approximately $1,311,000 to the Partnership's co-venture partner for its
share of the sale proceeds in accordance with the joint venture agreement. The
Partnership received net proceeds of approximately $14,796,000 from the sale of
Monterra after deducting closing costs of approximately $306,000, closing
proration adjustments of approximately $114,000, the repayment of the existing
mortgage note of approximately $4,672,000 and a prepayment penalty of
approximately $500,000 (of which $295,000 was paid by the buyer), and a payment
of approximately $7,000 to the Partnership's co-venture partner for its share of
the sale proceeds in accordance with the joint venture agreement. The
Partnership distributed $24,800,000 of the net proceeds from the sales of the
Chandler's Reach and Monterra properties in the form of a special distribution
to the Limited Partners of $248 per original $1,000 investment on November 13,
1998. The remainder of the net proceeds were retained and added to the
Partnership's cash reserves to ensure that the Partnership has sufficient
capital resources to fund its share of potential capital improvement expenses at
its remaining investment properties.
In addition, subsequent to the quarter-end, on November 2, 1999,
Framingham - 1881 Associates, a joint venture in which the Partnership has an
interest, sold the property known as the 1881 Worcester Road Office Building,
located in Framingham, Massachusetts, to an unrelated third party for
$7,850,000. The Partnership received net proceeds of approximately $6,540,000
after deducting a tenant improvement credit of $295,000, closing costs of
approximately $310,000, net closing proration adjustments of approximately
$133,000, and a payment to the Partnership's co-venture partner of approximately
$572,000 as its share of the sale proceeds in accordance with the joint venture
agreement. The Partnership plans to make a special distribution to the Limited
Partners of $73 per original $1,000 investment, or $7,300,000, on November 15,
1999. Of the $73 total, $65.37 results from the sale of 1881 Worcester Road and
$7.63 is from Partnership reserves which exceed expected future requirements.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
Condensed Combined Summary Of Operations
For the three and six months ended June 30, 1999 and 1998
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental revenues and
expense recoveries $ 1,934 $ 2,822 $ 4,043 $ 5,613
Interest and other income 7 63 14 103
------- ------- ------- -------
1,941 2,885 4,057 5,716
Expenses:
Property operating expenses 769 822 1,422 1,639
Real estate taxes 474 548 921 969
Mortgage interest expense - 176 - 351
Interest expense payable to
partner - 200 - 400
Depreciation and amortization 703 766 1,402 1,524
------- ------- ------- -------
1,946 2,512 3,745 4,883
------- ------- ------- -------
Net income (loss) $ (5) $ 373 $ 312 $ 833
======= ======= ======= =======
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss):
Partnership's share of
combined income (loss) $ 50 $ 292 $ 236 $ 540
Co-venturers' share of
combined income (loss) (55) 81 76 293
------- ------- ------- -------
$ (5) $ 373 $ 312 $ 833
======= ======= ======= =======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and six and nine months ended September 30, 1999 and 1998
(in thousands)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of combined
income, as shown above $ 50 $ 292 $ 236 $ 540
Amortization of excess basis (5) (11) (9) (23)
----- ------- ------- -------
Partnership's share of
unconsolidated ventures'
income $ 45 $ 281 $ 227 $ 517
===== ======= ======= =======
4. Operating Investment Properties
-------------------------------
At September 30, 1999, the Partnership's balance sheet no longer includes
any operating investment properties. As of September 30, 1998, the Partnership
owned one operating investment property directly and had interests in two
consolidated joint ventures that owned operating investment properties. On
September 24, 1999, Warner/Red Hill Associates, a joint venture in which the
Partnership had an interest, sold the property known as the Warner/Red Hill
Business Center located in Tustin, California, to an unrelated third party for
$10.9 million. 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 received net proceeds of approximately $3,452,000
after deducting a purchase price credit to the buyer of $75,000, closing costs
of approximately $194,000, net closing proration adjustments of approximately
$75,000, the repayment of the existing mortgage note of approximately
$4,969,000, accrued interest of approximately $10,000 and a payment to the
lender of approximately $2,125,000 as its share of the sale proceeds. As
discussed further in Note 5, the lender received a 40% participation in the
residual value of this property as part of a loan workout dated August 15, 1993.
On October 15, 1999, the Partnership made a special distribution to the Limited
Partners of $39.00 per original $1,000 investment, or $3,900,000, to unitholders
of record on the September 24, 1999 sale date. Of the $39.00 total, $34.52
resulted from the sale of Warner/Red Hill and $4.48 was from Partnership
reserves which exceeded expected future requirements. The Partnership's policy
is to report the operations of the consolidated joint ventures on a three-month
lag. However, the Partnership's policy is also to record significant lag-period
transactions in the period in which they occur. Accordingly, the Partnership
accelerated the recognition of the operating results of Warner/Red Hill
Associates during the quarter ended September 30, 1999 and recorded a gain of
$7,488,000 on the sale of the operating investment property.
On May 14, 1999, the Partnership sold the wholly-owned property known as
the Crystal Tree Commerce Center, located in North Palm Beach, Florida, to an
unrelated third party for $10.55 million. The Partnership received net proceeds
of approximately $6,690,000 from the sale of Crystal Tree after deducting
closing costs of approximately $295,000, net closing proration adjustments of
approximately $287,000 and the repayment of the outstanding first mortgage loan
and accrued interest of $3,278,000. As a result of the sale, the Partnership
made a special distribution of $6,700,000, or $67 per original $1,000
investment, on June 15, 1999. The Partnership recognized a gain of $563,000 on
the sale of the operating investment property.
On November 20, 1998, Sunol Center Associates, a joint venture in which
the Partnership had an interest, sold the property known as the Sunol Center
Office Buildings, to an unrelated third party for $15.75 million. The Sunol
Center Office Buildings comprise 116,680 square feet of leasable space, located
in Pleasanton, California. The Partnership received net proceeds of
approximately $15,532,000 from the sale of Sunol Center after deducting closing
costs of approximately $161,000 and net closing proration adjustments of
approximately $57,000. As a result of the sale, the Partnership made a special
distribution to the Limited Partners of $15,520,000, or $155.20 per original
$1,000 investment, on December 4, 1998.
<PAGE>
5. Mortgage Notes Payable
----------------------
Mortgage notes payable at September 30, 1999 and March 31, 1999 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,
2000. 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, 1999
and March 31, 1999. $ 6,035 $ 6,088
8.39% nonrecourse note payable to
an insurance company, which was secured
by the Crystal Tree Commerce Center.
Monthly payments, including interest, of
$28 were due beginning November 15, 1994
through maturity on September 19, 2001.
The fair value of the mortgage note
payable approximated its carrying value
at March 31, 1999. This loan was repaid
in full from the proceeds of the sale of
the Crystal Tree property on May 14,
1999 (see Note 4). - 3,261
Nonrecourse note payable to an
insurance company which was secured by
the Warner/Red Hill operating investment
property. The note was amended and
restated during 1994 (see discussion
below). The note bore interest at 2.875%
per annum, required monthly payments of
$24 and had a scheduled maturity date of
August 1, 2003. This loan was repaid in
full from the proceeds of the sale of
the Warner/Red Hill property on
September 24, 1999 (see Note 4). - 5,076
------- -------
6,035 14,425
Less: Discount on Warner/Red Hill
debt, net of amortization of $932 at
December 31, 1998. See discussion below. - (898)
------- -------
$ 6,035 $13,527
======= =======
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 bore interest at
2.875% per annum and monthly principal and interest payments of $24,000 were
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 would 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 participation paid to the lender upon the sale of the property
was approximately $2,125,000. 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 were 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.
Effective in fiscal 1999, the Partnership adopted Statement of Position
97-1, Accounting by Participating Mortgage Loan Borrowers ("SOP 97-1"), which
establishes the borrower's accounting for a participating mortgage loan if the
lender participates in increases in the market value of the mortgaged real
estate project, the results of operations of that mortgaged real estate project,
or both. SOP 97-1 states that if a lender is entitled to participate in the
market value of the mortgaged real estate project, the borrower should determine
the fair value of the participation feature at the inception of the loan and
recognize a participation liability in that amount, with a corresponding entry
to a debt discount account. The debt discount is to be amortized over the life
of the loan using the interest method and the effective interest rate. At the
end of each reporting period, the participation liability should be adjusted to
equal the current fair value of the participation feature. The Partnership's
mortgage participation liability related to the Warner/Red Hill debt was
estimated at $1,830,000 at March 31, 1999. Due to the expected sale of the
Warner/Red Hill property during fiscal 2000, the Partnership elected to amortize
the debt discount over the expected remaining holding period of two years as
opposed to over the remaining term of the mortgage note. The mortgage
participation liability was adjusted to reflect the actual obligation paid to
the mortgage lender in connection with the sale of the property, as discussed
further above, during the six months ended September 30, 1999. Amortization of
the debt discount totalled $1,193,000 for the six months ended September 30,
1999.
<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, 1999 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
- -------------------------------
Subsequent to the sales of the Crystal Tree, Warner/Red Hill and 1881
Worcester Road properties on May 14, 1999, September 24, 1999 and November 2,
1999, respectively, as discussed further below, the Partnership's only remaining
real estate investment is a joint venture interest in the 625 North Michigan
Office Building. As previously reported, management is currently focusing on
potential disposition strategies for the remaining investment in the
Partnership's portfolio. With regard to the remaining commercial office
property, the Partnership is working with the property's leasing and management
team to develop and implement programs that will protect and enhance value and
maximize cash flow at the property while at the same time exploring potential
sale opportunities. The Partnership has recently selected a real estate
brokerage firm to market the 625 North Michigan Avenue property for sale.
Materials for the marketing packages have been finalized and initial sale
efforts are currently underway. While the Partnership expects to have the 625
North Michigan Avenue property under a contract for sale before December 31,
1999, it is unlikely that both a sale of the property and a subsequent
liquidation of the Partnership can be completed by December 31, 1999. While no
assurances can be given, management currently expects the liquidation of the
Partnership to be completed by March 31, 2000.
Subsequent to the quarter-end, on November 2, 1999, Framingham - 1881
Associates, a joint venture in which the Partnership has an interest, sold the
property known as the 1881 Worcester Road Office Building, located in
Framingham, Massachusetts, to an unrelated third party for $7,850,000. The
Partnership received net proceeds of approximately $6,540,000 after deducting a
tenant improvement credit of $295,000, closing costs of approximately $310,000,
net closing proration adjustments of approximately $133,000, and a payment to
the Partnership's co-venture partner of approximately $572,000 as its share of
the sale proceeds in accordance with the joint venture agreement. The
Partnership plans to make a special distribution to the Limited Partners of $73
per original $1,000 investment, or $7,300,000, on November 15, 1999. Of the $73
total, $65.37 results from the sale of 1881 Worcester Road and $7.63 is from
Partnership reserves which exceed expected future requirements.
As previously reported, while the two-story 1881 Worcester Road property
was leased to two financially strong tenants with no lease expirations until
December 31, 2002, the tenant leasing the entire second floor of the property
informed the Partnership that it would be consolidating its operations at
another location and had requested a lease termination. This tenant's lease did
not expire until February 28, 2003. Negotiations with this tenant concerning a
lease termination agreement were completed during the fourth quarter of fiscal
1999. Because of the agreement on a lease termination, the property's leasing
team was then able to negotiate and secure a new lease for all of the space
being vacated by the former tenant. The new lease is at a higher rental rate
than the rate payable under the former tenant's lease. Once this new lease was
signed, the Partnership and its co-venture partner decided to sell 1881
Worcester Road. A firm was selected to market the property for sale, and a sales
package was finalized during the first quarter of fiscal 2000. Comprehensive
sale efforts were underway by early May 1999. As a result of such efforts, nine
offers were received. Subsequent to the end of the first quarter, the
Partnership evaluated the offers, selected a prospective buyer and negotiated a
purchase and sale agreement which was signed on July 30, 1999. The buyer
completed its due diligence on August 31, 1999 and made non-refundable deposits
totalling $450,000 prior to the closing of the transaction, which occurred as
described above on November 2, 1999.
As previously reported, the owner of a gas station abutting the 1881
Worcester Road property notified the Partnership and its co-venture partner of a
leak in an underground storage tank on the gas station property. They also
notified the Partnership that contamination had migrated to the 1881 property
because ground water flows in the direction of the 1881 Worcester Road building.
At the time of the discovery of the gasoline leak, the Partnership received an
indemnification from the operator of the gas station against any loss, cost or
damage resulting from failure to remediate the contamination. As part of the
November 2, 1999 sale, the buyer of the 1881 Worcester Road property received
these same protections through an assignment of the indemnification agreement.
On September 24, 1999, Warner/Red Hill Associates, a joint venture in
which the Partnership had an interest, sold the property known as the Warner/Red
Hill Business Center located in Tustin, California, to an unrelated third party
for $10.9 million. The Partnership received net proceeds of approximately
$3,452,000 after deducting a purchase price credit to the buyer of $75,000,
closing costs of approximately $194,000, net closing proration adjustments of
approximately $75,000, the repayment of the existing mortgage note of
approximately $4,969,000, accrued interest of approximately $10,000 and a
payment to the lender of approximately $2,125,000 as its share of the sale
proceeds. As previously reported, the lender received a 40% participation in the
residual value of this property as part of a loan workout dated August 15, 1993,
as described below. On October 15, 1999, the Partnership made a special
distribution to the Limited Partners of $39.00 per original $1,000 investment,
or $3,900,000, to unitholders of record on the September 24, 1999 sale date. Of
the $39.00 total, $34.52 resulted from the sale of Warner/Red Hill and $4.48 was
from Partnership reserves which exceeded expected future requirements.
As previously reported, because of the strong rental market in Orange
County, California, the Partnership believed it was the opportune time to sell
the Warner/Red Hill Business Center. As part of a plan to market the property
for sale, the Partnership selected a national real estate firm that is a leading
seller of this property type. Preliminary sales materials were prepared and
initial marketing efforts were undertaken in March 1999. A marketing package was
then finalized and comprehensive sale efforts began in early April 1999. Seven
offers were received, all of which were in excess of the property's 1998
year-end estimated value. To reduce the prospective buyer's due diligence work
and the time required to complete it, updated operating reports as well as
environmental information on the property were provided to the top prospective
buyers, who were asked to submit best and final offers. After completing an
evaluation of these offers and the relative strength of the prospective
purchasers, the Partnership selected an offer. The Partnership then negotiated a
purchase and sale agreement which was signed on June 24, 1999. The prospective
buyer completed its due diligence review work on July 23, 1999 and made a
non-refundable deposit of $150,000.
While the Partnership's net sale proceeds of approximately $3,452,000 are
significantly below its original net investment in the property of $12,250,000,
they are higher than any amount that would have been available to distribute in
August 1993 when the original zero coupon mortgage loan secured by the property
matured. The partial return of capital can be attributed to the Partnership's
efforts in negotiating a loan extension and modification agreement with the
first mortgage lender in August 1994. Without this modification which included a
reduction in the annual interest rate from 9.36% to 2.875% and a ten-year
extension of the original August 15, 1993 maturity date of the mortgage loan, it
was highly likely that the property could have been lost to a foreclosure action
by the lender. Due to the deteriorating economic conditions of the early 1990's,
the value of the property in August 1993 and August 1994 was not sufficient to
refinance the loan. Limited sources for the financing of commercial office
buildings in general, as well as the stringent loan-to-value requirements for
such loans, prohibited refinancing the Warner/Red Hill property by conventional
means. As an inducement for the lender to agree to such a modification, the
Partnership negotiated a participation interest contingency that would allow the
lender to share in a future sale or refinancing of the property. This agreement
allowed the new monthly principal and interest payments to the lender on the
$5,763,000 loan balance to be covered from operating cash flow of the property
from August 1993 through the September 1999 sale date. The loan extension also
allowed the Partnership to retain its ownership position in the property while
providing time for revenues and value to rise so that a sale which would provide
proceeds to the Partnership could eventually be completed.
As previously reported, management had been positioning the Crystal Tree
Commerce Center, located in North Palm Beach, Florida, for a possible 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. With an occupancy level of 100% and a
stable base of tenants, the Partnership believed this was an opportune time to
sell the property. As part of its plan to market the property for sale, the
Partnership selected a Florida real estate firm that is a leading seller of this
type of property. Preliminary sales materials were prepared and initial
marketing efforts were undertaken. A marketing package was then finalized and
comprehensive sale efforts began in December 1998. As a result of these sale
efforts, twelve offers were received. As part of the sale efforts to reduce the
prospective buyer's due diligence work and the time required to complete it,
updated operating reports as well as environmental information on the property
were provided to the top prospective buyers, who were then asked to submit best
and final offers and did so. After completing an evaluation of these offers and
the relative strength of the prospective purchasers, the Partnership selected an
offer and negotiated a purchase and sale agreement which was signed on March 4,
1999. On May 14, 1999, Crystal Tree was sold for $10.55 million. The Partnership
received net proceeds of approximately $6,690,000 from the sale of Crystal Tree
after deducting closing costs of approximately $295,000, net closing proration
adjustments of approximately $287,000 and the repayment of the outstanding first
mortgage loan and accrued interest of $3,278,000. As a result of the sale, the
Partnership made a special distribution to the Limited Partners of $6,700,000,
or $67 per original $1,000 investment, on June 15, 1999.
The 625 North Michigan Office Building in Chicago, Illinois was 91% leased
as of September 30, 1999, compared to 92% leased as of June 30, 1999. During the
second quarter of fiscal 2000, two tenants leasing a total of 12,913 square feet
renewed their leases. In addition, two new tenants signed leases and took
occupancy on 2,909 square feet of space. This new leasing was offset when three
tenants occupying a total of 7,530 square feet moved from the building. Over the
next year, 6 leases representing a total of approximately 14,350 square feet
will expire. Two of these leases representing 3,000 square feet will not be
renewed because that space is included in the retail redevelopment plan; three
tenants representing 4,350 square feet will close their operations, and the
sixth tenant currently expects to move from the building when its lease for
7,000 square feet expires on August 31, 2000. The property's leasing team
continues to negotiate with several prospective tenants which have expressed an
interest in leasing space at 625 North Michigan Avenue. As previously reported,
the Partnership has been actively working with the co-venture partner on
potential redevelopment and leasing opportunities with specialty and fashion
retailers looking to locate stores near the building. These retailers pay
significantly higher rental rates than office rental rates. Formal approval
received from the City Council during fiscal 1999 to enclose the arcade sections
of the first floor will greatly improve the chances of adding a major retail
component to the building's North Michigan Avenue frontage. Now that this
approval has been obtained, the Partnership is simultaneously exploring
potential opportunities to sell this property with the development rights.
At September 30, 1999, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $9,485,000. This
balance includes the distribution of $3,900,000 made on October 15, 1999 as a
result of the sale of the Warner/Red Hill property, as discussed further above.
The remainder of such cash and cash equivalents, along with the future cash flow
distributions from the remaining operating property, will be utilized for the
working capital requirements of the Partnership, monthly loan payments and the
funding of capital enhancements and potential leasing costs for its one
remaining commercial property investment. The source of future liquidity and
distributions to the partners is expected to be from the sale or refinancing of
the remaining operating investment property. Such sources of liquidity are
expected to be sufficient to meet the Partnership's needs on both a short-term
and long-term basis.
As noted above, it is possible, although not likely, that the Partnership
could be liquidated prior to the end of calendar year 1999. Notwithstanding
this, the Partnership believes that it has made all necessary modifications to
its existing systems to make them year 2000 compliant and does not expect that
additional costs associated with year 2000 compliance, if any, will be material
to the Partnership's results of operations or financial position.
Results of Operations
Three Months Ended September 30, 1999
- -------------------------------------
There was a $6,152,000 increase in the Partnership's net income for the
three months ended September 30, 1999 when compared to the same period in the
prior year. This favorable change in the Partnership's net income was mainly a
result of the gain realized in the current period from the sale of an operating
investment property. As discussed further above, the Partnership sold the
Warner/Red Hill Business Center on September 24, 1999 and realized a gain of
$7,488,000. The gain realized on the sale of the Warner/Red Hill Business Center
was partially offset by a $366,000 increase in the Partnership's operating loss,
a $200,000 decrease in interest income on notes receivable from unconsolidated
ventures and a $236,000 decrease in the Partnership's share of unconsolidated
ventures' income.
The Partnership's operating loss, which includes the operating results of
the consolidated Warner/Red Hill joint venture, increased mainly due to the sale
of the Warner/Red Hill operating investment property, as discussed above. The
results for the quarter ended September 30, 1998 include only three months of
Warner/Red Hill operations as compared to six months during the current period
as a result of the acceleration of the three-month lag period in conjunction
with the sale, as discussed further in the notes to the accompanying financial
statements. In addition, the current period results include the amortization of
the discount on the Warner/Red Hill debt, as discussed further in the Annual
Report, which was the primary cause of the $243,000 increase in interest expense
for the current three-month period. In addition, the prior year results included
net income of $3,000 from the operations of the wholly-owned Crystal Tree
Commerce Center, which was sold on May 14, 1999. Interest income on note
receivable from unconsolidated ventures decreased as a result of the sales of
the Chandler's Reach and Monterra Apartments during fiscal 1999. The
Partnership's share of unconsolidated ventures' income decreased primarily as a
result of the prior year sales of the properties owned by the Monterra and
Chandler's Reach joint ventures. In addition, property operating expenses
increased by $249,000 at 625 North Michigan during the current period due to
professional cleaning, painting, and other maintenance work performed at the
property along with an increase in real estate taxes.
<PAGE>
Six Months Ended September 30, 1999
- -----------------------------------
There was a $5,974,000 increase in the Partnership's net income for the
six months ended September 30, 1999 when compared to the same period in the
prior year. This favorable change in the Partnership's net income was mainly a
result of the gains realized in the current period from the sales of two
operating investment properties. As discussed further above, the Partnership
sold the wholly-owned Crystal Tree Commerce Center on May 14, 1999 and realized
a gain of $563,000. The Partnership also sold the consolidated Warner/Red Hill
Business Center on September 24, 1999 and realized a gain of $7,488,000. The
gains realized on the sales of the Crystal Tree Commerce Center and the
Warner/Red Hill Business Center were partially offset by an $853,000 increase in
the Partnership's operating loss, a $400,000 decrease in interest income on
notes receivable from unconsolidated ventures and a $290,000 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 Warner/Red
Hill joint venture, increased mainly due to the sale of the Warner/Red Hill
operating investment property, as discussed above. The results for the period
ended September 30, 1998 include only six months of Warner/Red Hill operations
as compared to nine months during the current period as a result of the
acceleration of the three-month lag period in conjunction with the sale, as
discussed further in the notes to the accompanying financial statements. In
addition, the current period results include the amortization of the discount on
the Warner/Red Hill debt, as discussed further in the Annual Report, which was
the primary cause of the $528,000 increase in interest expense for the current
six-month period. In addition, the prior year results included net income of
$30,000 from the operations of the wholly-owned Crystal Tree Commerce Center,
which was sold on May 14, 1999. Interest income on note receivable from
unconsolidated ventures decreased as a result of the sales of the Chandler's
Reach and Monterra Apartments during fiscal 1999. The Partnership's share of
unconsolidated ventures' income decreased primarily as a result of the prior
year sales of the properties owned by the Monterra and Chandler's Reach joint
ventures. In addition, property operating expenses increased by $356,000 at 625
North Michigan during the current period due to professional cleaning, painting,
and other maintenance work performed at the property along with an increase in
real estate taxes.
<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:
A Current Report on Form 8-K dated September 24, 1999 was filed by the
Partnership during the current quarter to report the sale of the Warner/Red Hill
Business Center and is hereby incorporated herein by reference.
<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 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended September 30,
1999 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-31-2000
<PERIOD-END> Sep-30-1999
<CASH> 9,485
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,491
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,198
<CURRENT-LIABILITIES> 43
<BONDS> 6,035
0
0
<COMMON> 0
<OTHER-SE> 18,120
<TOTAL-LIABILITY-AND-EQUITY> 24,198
<SALES> 0
<TOTAL-REVENUES> 9,689
<CGS> 0
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<OTHER-EXPENSES> 534
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<INCOME-PRETAX> 6,486
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</TABLE>
