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 June 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
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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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and March 31, 1999 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
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Operating investment properties:
Land $ 1,256 $ 3,700
Building and improvements 4,413 18,767
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5,669 22,467
Less accumulated depreciation (3,236) (10,215)
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2,433 12,252
Investments in unconsolidated joint
ventures, at equity 15,223 15,129
Cash and cash equivalents 5,674 5,753
Accounts receivable 20 29
Accounts receivable - affiliates 32 36
Deferred rent receivable 153 138
Deferred expenses, net 163 292
Other assets 478 478
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$24,176 $ 34,107
======= ========
LIABILITIES AND PARTNERS' CAPITAL
Net advances from consolidated ventures $ 99 $ 48
Accounts payable and accrued expenses 61 368
Mortgage notes payable (net of discount) 10,182 13,527
Mortgage participation liability 2,160 1,830
Partners' capital 11,674 18,334
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$24,176 $ 34,107
======= ========
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1999 and 1998 (Unaudited)
(In thousands, except per Unit data)
1999 1998
---- ----
Revenues:
Rental income and expense
reimbursements $ 516 $ 1,077
Interest and other income 131 51
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647 1,128
Expenses:
Interest expense 568 516
Depreciation and amortization 153 481
Property operating expenses 439 397
Real estate taxes 92 96
General and administrative 96 89
Bad debt expense 4 -
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1,352 1,579
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Operating loss (705) (451)
Gain on sale of operating investment property 563 -
Investment income:
Interest income on notes receivable
from unconsolidated ventures - 200
Partnership's share of unconsolidated
ventures' income 182 236
------ -------
Net income (loss) $ 40 $ (15)
====== =======
Net income (loss) per Limited
Partnership Unit $ 0.02 $ (0.01)
====== =======
Cash distributions per Limited
Partnership Unit $ 3.35 $ 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 three months ended June 30, 1999 and 1998 (Unaudited)
(In thousands)
General Limited
Partners Partners
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Balance at March 31, 1998 $ (973) $ 36,560
Net loss - (15)
Cash distributions (5) (500)
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Balance at June 30, 1998 $ (978) $ 36,045
========= ========
Balance at March 31, 1999 $ (729) $ 19,063
Net income - 40
Cash distributions - (6,700)
-------- --------
Balance at June 30, 1999 $ (729) $ 12,403
======== ========
See accompanying notes
<PAGE>
PAINEWEBBER EQUITY PARTNERS ONE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1999 and 1998 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ 40 $ (15)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Partnership's share of unconsolidated ventures'
income (182) (236)
Gain on sale of operating investment property (563) -
Depreciation and amortization 153 481
Amortization of discount on mortgage note payable 307 233
Amortization of deferred financing costs 3 5
Changes in assets and liabilities:
Prepaid expenses - 13
Accounts receivable 9 (333)
Accounts receivable - affiliates 4 6
Other assets - 29
Deferred rent receivable (15) 318
Deferred expenses 107 (42)
Accounts payable and accrued expenses (307) 78
Interest payable - (13)
Net advances from consolidated ventures 51 194
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Total adjustments (433) 733
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Net cash (used in) provided by operating
activities (393) 718
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Cash flows from investing activities:
Net proceeds from sale of operating investment
property 10,255 -
Distributions from unconsolidated joint ventures 228 650
Additions to operating investment properties (7) (75)
Additional investments in unconsolidated joint
ventures (140) (96)
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Net cash provided by investing activities 10,336 479
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Cash flows from financing activities:
Repayment of principal on mortgage notes payable (3,322) (72)
Distributions to partners (6,700) (505)
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Net cash used in financing activities (10,022) (577)
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Net (decrease) increase in cash and cash equivalents (79) 620
Cash and cash equivalents, beginning of period 5,753 3,268
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Cash and cash equivalents, end of period $ 5,674 $ 3,888
======= ========
Cash paid during the period for interest $ 258 $ 291
======= ========
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, 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 June 30, 1999 and March 31, 1999 and revenues and expenses
for each of the three-month periods ended June 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 three 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. The Partnership is currently focusing on potential disposition
strategies for the three remaining investments in its portfolio. Although no
assurances can be given, it is currently contemplated that sales of the
Partnership's remaining assets could be completed by the end of calendar year
1999. The disposition of the remaining investments would be followed by a
liquidation of the Partnership.
2. Related Party Transactions
--------------------------
Accounts receivable - affiliates at both June 30, 1999 and March 31, 1999
include $26,000 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
June 30, 1999 and March 31, 1999 also includes $6,000 and $10,000, respectively,
of expenses paid by the Partnership on behalf of the joint ventures during
fiscal 1993.
Included in general and administrative expenses for the three-month
periods ended June 30, 1999 and 1998 is $47,000 and $45,000, 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 three-month
periods ended June 30, 1999 and 1998 is $3,000 and $1,000, 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 June 30, 1999, the Partnership had investments in two unconsolidated
joint venture partnerships (four at June 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.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows:
Condensed Combined Summary Of Operations
For the three months ended March 31, 1999 and 1998
(in thousands)
1999 1998
---- ----
Revenues:
Rental revenues and expense recoveries $ 2,109 $ 2,791
Interest and other income 7 40
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2,116 2,831
Expenses:
Property operating expenses 653 817
Real estate taxes 447 421
Mortgage interest expense - 175
Interest expense payable to partner - 200
Depreciation and amortization 699 758
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1,799 2,371
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Net income $ 317 $ 460
======= =======
Net income:
Partnership's share of combined income $ 186 $ 248
Co-venturers' share of combined income 131 212
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$ 317 $ 460
======= =======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended June 30, 1999 and 1998
(in thousands)
1999 1998
---- ----
Partnership's share of combined
income, as shown above $ 186 $ 248
Amortization of excess basis (4) (12)
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Partnership's share of unconsolidated
ventures' income $ 182 $ 236
======= =======
4. Operating Investment Properties
-------------------------------
At June 30, 1999, the Partnership's balance sheet includes one operating
investment property (three at June 30, 1998): the Warner/Red Hill Business
Center, owned by Warner/Red Hill Associates, a majority-owned and controlled
joint venture. 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.
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 assumed control of the operations of the Warner/Red
Hill joint venture. Accordingly, the venture is presented on a consolidated
basis in the accompanying financial statements. 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's policy is
to report the operations of the consolidated joint ventures on a three-month
lag.
5. Mortgage Notes Payable
----------------------
Mortgage notes payable at June 30, 1999 and March 31, 1999 consist of the
following (in thousands):
June 30 March 31
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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 June 30, 1999 and March
31, 1999. $ 6,061 $ 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 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. 5,042 5,076
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11,103 14,425
Less: Discount on Warner/Red Hill
debt, net of amortization of $1,239
and $932 at March 31, 1999 and
December 31, 1998, respectively.
(See discussion below). (921) (898)
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$10,182 $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 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. It is not practicable for management to estimate the
fair value of the mortgage note secured by the Warner/Red Hill property without
incurring excessive costs due to the unique terms of the note.
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 $2,160,000 and $1,830,000 at June 30, 1999 and March 31, 1999,
respectively. Due to the expected sale of the Warner/Red Hill property during
fiscal 2000, the Partnership has 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. Amortization of the debt discount charged to interest
expense totalled $307,000 and $233,000 for the three months ended June 30, 1999
and June 30, 1998, respectively.
<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
- -------------------------------
As previously reported, in light of the continued strength in the national
real estate market with respect to multi-family apartment properties and the
improvements in the office/R&D property markets, management believes that this
is an opportune time to sell the Partnership's portfolio of properties. As a
result, management has been 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 by the end of calendar year 1999. The sale
of the three remaining real estate investments would be followed by the
liquidation of the Partnership.
With the sales of the Chandler's Reach Apartments, Monterra Apartments and
Sunol Center Office Buildings during fiscal 1999, and the resulting reduction in
distributable cash flow to be received by the Partnership, the payment of a
regular quarterly distribution was discontinued beginning with the quarter ended
March 31, 1999. A final regular quarterly distribution of $5.00 per original
$1,000 investment, which is equivalent to a 2% annualized rate of return on an
original $1,000 investment, was made on February 12, 1999 for the quarter ended
December 31, 1998.
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 64,000 square foot 1881 Worcester Road Office Building remained 100%
leased as of June 30, 1999. As previously reported, while this two-story
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. This new tenant is
expected to take occupancy during the quarter ending September 30, 1999. Now
that this new lease has been signed, the Partnership and its co-venture partner
have decided to sell 1881 Worcester Road. A firm has been selected to market the
property for sale, and a sales package was finalized. Comprehensive sale efforts
were underway by early May 1999. As a result of such efforts, several offers
have been 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. However, since any sale
transaction remains contingent upon, among other things, the satisfactory
completion of the buyer's due diligence, there are no assurances that a sale
will be completed.
1881 Worcester Road is under a contract for sale to this unrelated
third-party buyer for $7,950,000. The Partnership is expected to receive
distributable net sale proceeds of approximately $6,825,000 after deducting
estimated closing costs and property proration adjustments of approximately
$400,000, and the co-venture partner is expected to receive $725,000 as its
share of the sale proceeds. If this potential sale transaction closes as
described, a Special Distribution of approximately $68.25 per original $1,000
investment is expected to be paid to the Limited Partners by October 31, 1999.
As previously reported, the owner of a gas station abutting the 1881 Worcester
Road property notified the Partnership of a leak in an underground storage tank
on the gas station property. They also notified the Partnership that
contamination has migrated to the 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. Any buyer of the 1881 Worcester Road property will
receive these same protections through an assignment of the indemnification
agreement which would be made as part of any sale. The Partnership continues to
assess the contamination of the property as well as monitor the status of any
assessment and remediation activities by the operator of the gas station.
The 625 North Michigan Office Building in Chicago, Illinois, was 92%
leased as of June 30, 1999, compared to 93% leased as of March 31, 1999. Over
the next year, eight leases representing a total of 12,939 square feet are
scheduled to expire. The property's leasing team expects that two of these
tenants occupying 3,547 square feet will renew, and that the remaining space
will be leased to new tenants. The property's leasing team continues to
negotiate with two prospective tenants that would lease a total of approximately
7,450 square feet. As previously reported, the local market continues to display
an improving trend. In this local market, where there is no current or planned
new construction of office space, the market vacancy level at June 30, 1999 has
been reduced to 8.6%, which places more upward pressure on rental rates. The
higher effective rents currently being achieved at 625 North Michigan Avenue are
expected to increase cash flow and value as new tenants sign leases and existing
tenants sign lease renewals in calendar year 1999. 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. Subsequent to the quarter ended June 30,
1999, the Partnership selected a real estate brokerage firm to market the 625
North Michigan property for sale. Materials for the marketing packages are
currently being finalized and comprehensive sale efforts are expected to begin
by September 30, 1999.
As previously reported, with a strong occupancy level and a stable base of
tenants, the Partnership believes it is an 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 to market Warner/Red Hill for sale. 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. As of April 30, 1999, seven offers had been 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 then asked to
submit best and final offers. After completing an evaluation of these offers and
the relative strength of the prospective purchasers, the Partnership negotiated
a purchase and sale agreement with a prospective buyer 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. The sale transaction is
currently expected to close by September 30, 1999.
Warner/Red Hill is under a contract for sale to his unrelated third-party
buyer for $10,900,000. The Partnership is expected to receive distributable net
sale proceeds of approximately $3,240,000 after deducting estimated closing
costs and property proration adjustments of approximately $500,000, payment of
approximately $5,000,000 for the first mortgage loan secured by the property and
payment to the lender of approximately $2,160,000 as its share of the sale
proceeds. The lender received a 40% participation in the residual value of this
property as part of a loan workout dated as of August 15, 1993. As part of that
same workout, the interest rate on the loan was reduced from approximately 9.36%
to 2.875%. If this potential sale transaction closes as described, a Special
Distribution of approximately $32.40 per original $1,000 investment is expected
to be paid to the Limited Partners by October 31, 1999.
At June 30, 1999, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $5,674,000. 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 and the funding of capital enhancements and potential
leasing costs for its commercial property investments. 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. As noted above, the Partnership expects to 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 June 30, 1999
- --------------------------------
There was a $55,000 favorable change in the Partnership's net operating
results for the three months ended June 30, 1999 when compared to the same
period in the prior year. This favorable change in the Partnership's net
operating results 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 wholly-owned Crystal Tree Commerce Center on May 14,
1999 and realized a gain of $563,000. The gain realized on the sale of the
Crystal Tree Commerce Center was partially offset by a $254,000 increase in the
Partnership's operating loss, a $200,000 decrease in interest income on notes
receivable from unconsolidated ventures and a $54,000 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 Crystal Tree
operating investment property, as discussed above. The results for the quarter
ended June 30, 1998 include three months of Crystal Tree operations as compared
to only one and one-half months during the current period. In addition, the
current period results include various write-offs in conjunction with the sale
of the Crystal Tree operating investment property. The increase in operating
loss attributable to the sale of Crystal Tree was partially offset by an
increase in interest and other income. Interest and other income increased due
to the interest earned on the Crystal Tree sale proceeds which were temporarily
invested in money-market instruments pending the distribution to the Limited
Partners which was made on June 15, 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 $104,000
at 625 North Michigan during the current period due to professional cleaning,
painting, and other maintenance work performed at the property.
<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 May 14, 1999 was filed by the
Partnership during the current quarter to report the sale of the wholly-owned
Crystal Tree Commerce 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: August 9, 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 June 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-END> Jun-30-1999
<CASH> 5,674
<SECURITIES> 0
<RECEIVABLES> 205
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,726
<PP&E> 20,892
<DEPRECIATION> 3,236
<TOTAL-ASSETS> 24,176
<CURRENT-LIABILITIES> 160
<BONDS> 10,182
0
0
<COMMON> 0
<OTHER-SE> 11,674
<TOTAL-LIABILITY-AND-EQUITY> 24,176
<SALES> 0
<TOTAL-REVENUES> 1,392
<CGS> 0
<TOTAL-COSTS> 784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 568
<INCOME-PRETAX> 40
<INCOME-TAX> 0
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
