UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: MARCH 31, 1994
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: 0-15035
PAINE WEBBER GROWTH PARTNERS THREE L.P.
Delaware 04-2882258
(State of organization) (I.R.S.Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts
02110
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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
---
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K
Reference
Prospectus of registrant dated Parts III and
IV
September 3, 1985, as supplemented
PAINEWEBBER GROWTH PARTNERS THREE L. P.
1994 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business I-1
Item 2 Properties I-2
Item 3 Legal Proceedings I-2
Item 4 Submission of Matters to a Vote of Security HoldersI-2
PART II
Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-6
PART III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial
Owners and Management III-3
Item 13 Certain Relationships and Related TransactionsIII-4
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
SIGNATURES IV-2
INDEX TO EXHIBITS IV-3
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 to F-24
(2)The significant decline in deferred interest payable and notes payable as of
March 31, 1992 resulted from the foreclosure, on April 21, 1992, of the
Partnership's wholly-owned operating investment property. As more fully
explained in Note 4 to the accompanying financial statements of the
registrant, at March 31, 1992 the remaining assets and liabilities of this
operating investment property were aggregated and separately classified on
the Partnership's balance sheet as assets of investment property subject to
foreclosure ($40,474,691) and liabilities of operating investment property
subject to foreclosure ($48,803,999).
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the 25,657
Limited Partnership Units outstanding during each year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership offered limited partnership interests to the public from
September 3, 1985 to July 31, 1986 pursuant to a Registration Statement filed
under the Securities Act of 1933. Gross proceeds of $25,657,000 were received
by the Partnership and, after deducting selling expenses and offering costs,
approximately $17,085,000 was originally invested directly or through joint
venture interests in three operating investment properties. As previously
reported, the Partnership's investment in the LaJolla Marriott Hotel, which
represented 74% of the original investment portfolio, was lost through
foreclosure proceedings in April 1992, after a protracted period of negotiations
failed to produce a mutually acceptable restructuring, refinancing, or sale
agreement.
At the present time, the estimated values of the Partnership's two remaining
residential properties are below their acquisition prices due to the
unprecedented level of overbuilding which characterized the latter half of the
1980's. Such overbuilding put considerable downward pressure on occupancies and
rental rates, which was a trend that continued through the early 1990's. Over
the past two years, this trend has been reversed due to the lack of any
significant new construction of multi-family properties in most markets.
However, it is unlikely that this next market cycle will result in peak property
values which equal or exceed the values in effect at the time of the
Partnership's inception. As a result, management does not expect that the
Partnership will recover the full amounts of its initial investments in the
Summerwind and Woodchase apartment complexes. The portion of such investments
which will be recovered, if any, will depend upon the ultimate selling prices
obtained for the properties at the time of their final dispositions, which
cannot presently be determined. The Summerwind joint venture is currently
generating excess cash flow from operations as a result of the low level of the
variable interest rate on the venture's first mortgage loan. The debt secured
by the Summerwind property was provided by tax-exempt municipal bonds issued by
a local housing authority. The interest rate on such debt, which is tied to
comparable tax-exempt bond obligations, fluctuated at between approximately 3%
and 4% per annum on the venture's $8.3 million debt obligation during calendar
1993. Cash flow from the venture's operations during calendar 1993 would have
been sufficient to cover debt service at a rate of approximately 6.5% per annum
on the outstanding debt. The variable interest rate on the venture's debt is
expected to rise in calendar 1994, which will reduce the amount of the excess
cash flow available to cover the Partnership's operating expenses. Nonetheless,
the venture is expected to operate above breakeven throughout calendar 1994.
However, due to the rates of return demanded by potential buyers of multi-family
residential properties at the present time, analysis of the venture's cash flow
before debt service implies a market value which is significantly below the
current debt obligation. Furthermore, it appears unlikely that market
conditions will improve sufficiently in the near-to-intermediate term to
generate any value above the debt position. Management intends to continue to
operate the property to maximize cash flow until a disposition decision is made
on the Woodchase property or until the variable interest rate increases to such
an extent that the venture operates at below breakeven and the current debt
service reserve fund is exhausted. Since management does not believe there is
any current value to the Partnership's equity interest in Summerwind, the
Partnership would not support cash flow deficits of the venture under the
existing debt structure. Under such circumstances, the mortgage loan would be
allowed to go into default and foreclosure, in all likelihood, would not be
contested.
On March 1, 1994, the Partnership, along with its co-venture partner,
successfully refinanced the mortgage debt secured by the Woodchase Apartments
with the existing lender. The debt had originally matured in September 1993,
and negotiations on the terms of an extension, which had been initiated well in
advance of the maturity date, took a considerable period of time to finalize.
The length of time necessary to negotiate the extension was due, at least in
part, to management's desire obtain an agreement which permitted the greatest
flexibility to the Woodchase joint venture in terms of a possible near-term sale
or refinancing transaction. As part of the terms of the extension agreement,
the venture was able to negotiate the right to prepay the loan in full without
penalty during the first 24 months of the extension period. Based on then
stringent loan-to-value lending criteria, the cash flow from property operations
was not sufficient to permit the underwriting of a new loan of sufficient size
to repay the outstanding obligation at maturity. However, to the extent that
property operations improve and/or lending criteria become less stringent, the
venture retains the maximum flexibility to pursue a long-term refinancing
transaction during this 2-year period. In addition, as discussed further below,
the venture could choose to sell the operating investment property in the near-
term. The new nonrecourse mortgage loan agreement contains a five-year
extension of the maturity date to November 1, 1998. The note bears interest at
a rate of 10.75% per annum. New payment terms require minimum principal and
interest payments totalling $66,667 on a monthly basis. Of such payments,
interest at a rate of 9% per annum is deducted and the remainder is applied
toward the outstanding principal balance. The difference between interest at
10.75% and the minimum payments made by the venture which are attributable to
interest will accrue and bear interest on a compounded basis. Cash flow
generated by the property in excess of the minimum principal and interest
payments will be payable to the lender on a quarterly basis to be applied
against the outstanding accrued interest. Any unpaid accrued interest will be
payable at maturity. The venture had been operating at approximately breakeven
while making interest-only payments of 10% per annum under the terms of the
prior debt agreement.
Management negotiated the prepayment right on the Woodchase debt extension
agreement at least partially in anticipation of the possibility of pursuing a
liquidation of the Partnership in the near-term. Despite the lack of
significant excess operating cash flow, an analysis of the estimated value of
the Woodchase property places the potential sales price above the level of the
current debt. However, based on the terms of the negotiated extension
agreement, additional interest may accrue on the loan amount, causing the total
obligation to increase. As a result, future appreciation in the property's
value may be at least partially offset by an increase in the outstanding debt
obligation. For this reason, depending on management's view of the relevant
market factors affecting the property's long-term appreciation potential,
management may determine that a sale of the Woodchase property in the near-term
would be in the Partnership's best interests. In order to prepare the Woodchase
property for either a sale or refinancing, significant property repairs and
improvements are needed over the next 12-to-18 months. Such improvements
include repairing exterior wood siding and apartment balconies, painting the
exterior of the buildings, replacing some of the roofs and redecorating the
clubhouse. Management believes that cash flow from property operations will be
sufficient to cover the costs of the planned improvements. If the Partnership's
interest in Woodchase were sold, a liquidation of the Partnership would likely
be initiated, and the Partnership's interest in Summerwind would be sold or
assigned, most likely only for a nominal amount. In any event, management must
weigh the costs of continued operations against the realistic hopes for any
future additional recoveries of the Partnership's original investments in
Woodchase and Summerwind. Management is currently evaluating the Partnership's
possible future operating strategies in light of these circumstances.
Upon the sale or disposition of the Partnership's investments, the taxable
gain or loss incurred will be allocated among the partners. In the case where a
taxable gain would be incurred, gain would first be allocated to the General
Partners in an amount at least sufficient to eliminate their deficit capital
balance. Any remaining gain would then be allocated to the Limited Partners.
In certain cases, the Limited Partners could be allocated taxable income in
excess of any liquidation proceeds that they may receive. Additionally, in
cases where the disposition of any investment involves a foreclosure by, or
voluntary conveyance to, the mortgage lender, taxable income could occur without
distribution of cash. Income from the sale or disposition of the Partnership's
investments would represent passive income to the partners which could be offset
by each partners' existing passive losses, including any carryovers from prior
years.
At March 31, 1994, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $367,000. As discussed
further above, the consolidated Summerwind joint venture currently generates
positive cash flow because the variable interest rate on the venture's
outstanding mortgage indebtedness is presently at a very low level. As long as
this long-term rate remains low, the venture should provide excess cash flow
sufficient to cover the Partnership's operating expenses (excluding Partnership
management fees which have been deferred since September of 1986). In the event
that long-term interest rates rise significantly in the near future, this cash
flow, which represents the Partnership's sole source of liquidity, may be
impaired. The Partnership also had restricted cash of approximately $202,000
which is reserved solely for debt-service shortfalls of the Summerwind joint
venture. The balance of cash and cash equivalents will be used for the working
capital needs of the Partnership and its consolidated joint venture. The source
of future liquidity and distributions to the partners is expected to be through
proceeds received from the sale or refinancing of the two remaining investment
properties.
RESULTS OF OPERATIONS
1994 Compared to 1993
The Partnership had a net loss of approximately $672,000 for fiscal 1994,
as compared to net income of approximately $7,633,000 in the prior year. The
prior year net income resulted from the foreclosure of the LaJolla Marriott
Hotel which, as explained below, resulted in an extraordinary gain from
settlement of debt obligation of approximately $11,532,000. The extraordinary
gain was partially offset by a loss on transfer of assets at foreclosure of
approximately $2,928,000. The transfer of the Hotel's title to the lender
through foreclosure proceedings was accounted for as a troubled debt
restructuring in accordance with Statement of Financial Accounting Standards No.
15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring". The
extraordinary gain arose due to the fact that the balance of the mortgage loan
and related accrued interest exceeded the estimated fair value of the Hotel
investment and other assets transferred to the lender at the time of the
foreclosure. The loss on transfer of assets resulted from the fact that the net
carrying value of the Hotel exceeded the Hotel's estimated fair value at the
time of foreclosure. Net loss prior to the extraordinary gain and the loss on
foreclosure recognized in the prior year totalled approximately $971,000.
Net loss also includes operating loss and the Partnership's share of
unconsolidated venture's loss. Operating loss decreased by approximately 40%
during fiscal 1994 primarily due to the foreclosure of the Hotel, which had been
generating significant losses from operations prior to its foreclosure. In
addition, there was a small decrease in the net operating loss from the
Summerwind joint venture primarily due to an increase in rental income and a
decrease in the interest expense on the venture's floating rate long-term debt.
Occupancy at the Summerwind Apartments has been stable, in the high 90's,
throughout each of the past two years. The increase in revenues has been due to
the gradual increase in rental rates made possible by the improving market
conditions referred to above. The increase in rental income and decrease in
interest expense exceeded an increase in property operating expenses which
resulted from an increase in repairs and maintenance expenses. Partnership
general and administrative expenses and management fees remained stable, but
increased as a percentage of revenues due to the fiscal 1993 Hotel foreclosure.
General and administrative expenses have not declined with the loss of the Hotel
property to foreclosure because there is a large fixed component to the costs
associated with the Partnership's operations, which include accounting,
auditing, investor communications and regulatory compliance expenses.
Partnership management fees, which have been accrued but unpaid since September
1986, are equal to 1/2 of 1% of the Partnership's original gross offering
proceeds. The Partnership's share of unconsolidated venture's loss, which
represents the operating results of the Woodchase joint venture, decreased due
to a small increase in rental income and a large decrease in real estate taxes,
which were offset in part by an increase in repairs and maintenance expense and
higher interest expense in the current year. Interest expense increased due to
an increase in the interest rate on the venture's debt as part of the
refinancing transaction completed during the current year, as discussed above.
The increase in rental revenues at both the Summerwind and Woodchase properties
in the current year is reflective of the gradually improving market conditions
described above. Higher repairs and maintenance expenses is also a trend which
reflects the increasing age of the properties.
1993 Compared to 1992
The Partnership had net income of approximately $7,633,000 for fiscal 1993,
as compared to a net loss of approximately $5,683,000 in the prior year. The
net income for fiscal 1993 was due to the foreclosure of the LaJolla Marriott
Hotel which, as explained above, resulted in an extraordinary gain from
settlement of debt obligation of approximately $11,532,000. The extraordinary
gain was partially offset by a loss on transfer of assets at foreclosure of
approximately $2,928,000.
The Partnership's net operating results also included operating loss and the
Partnership's share of unconsolidated venture's loss. Operating loss decreased
by approximately 87% in fiscal 1993 primarily due to the foreclosure of the
Hotel, which had been generating significant losses from operations. In
addition, net operating results from the Summerwind joint venture improved in
fiscal 1993 primarily due to a slight increase in rental income and $141,000
decrease in interest expense. Interest expense of the Summerwind joint venture
declined due to lower interest rates on the floating rate mortgage which
encumbers the operating investment property. The Partnership's share of
unconsolidated venture's loss, which represents the operating results of the
Woodchase joint venture, decreased slightly due to a small increase in rental
income and a small decrease in property operating expenses.
1992 Compared to 1991
Net loss for fiscal 1992 was comprised of operating loss and the
Partnership's share of unconsolidated venture's loss. The Partnership's net
loss increased approximately 11% in 1992. This increase was primarily the
result of an increase in interest expense and a decrease in net income from
Hotel operations, prior to interest expense and depreciation. The increase in
interest expense was a result of the Partnership's default under the terms of
the modification agreement for the mortgage loan secured by the LaJolla
Marriott. Upon receipt of the formal default notice from the lender in October
1991, interest began to accrue on the mortgage loan at the default rate of 15%.
The entire amount of the principal and all unpaid interest (including default
interest) outstanding under the La Jolla Marriott mortgage loan was nonrecourse
to the Partnership. As a result, the Partnership was legally relieved of the
entire obligation to the mortgage lender in April of 1992, upon the foreclosure
of the operating property. The default interest accrual was required to be
recorded in order for the Partnership's financial statements to be stated in
accordance with generally accepted accounting principles as of March 31, 1992.
Net income from Hotel operations, excluding interest expense and
depreciation, decreased by approximately $418,000 in fiscal 1992. This decline
was a result of hotel revenues decreasing by a larger percentage than the
accompanying decrease in hotel expenses. Hotel revenues decreased due to
further declines in occupancy levels and average room rates during the year.
This was a result of the continued effects of the general downturn in the
corporate and vacation travel business, along with intense competition from
other hotels in the local area in which the Hotel operated. Average occupancy
at the Hotel decreased from 78% for fiscal 1991 to 74% for fiscal 1992. In
addition, the average room rate declined over this same period from $99 per
night to $96 per night.
The increase in interest expense and decrease in net income from Hotel
operations were partially offset by a decrease in depreciation expense and a
decrease in the Partnership's share of unconsolidated venture's loss. The
decrease in depreciation expense was a result of furniture and fixtures at the
Summerwind investment property having become fully depreciated in the prior
year. The decrease in the Partnership's share of unconsolidated venture's loss
from the Woodchase joint venture also resulted from a significant decrease in
depreciation expense caused by furniture and fixtures having become fully
depreciated in the prior year. In addition, rental revenues from the Woodchase
Apartments increased by approximately 8% over the prior year, reflecting
continued improvement in the local market conditions. Average occupancy at the
Woodchase Apartments improved to 95% for calendar 1991, as compared to the level
of 90% achieved for calendar 1990. In addition, the increase in revenues was
partially attributable to an increase in rental rates made possible by such
improving market conditions.
Inflation
The Partnership commenced operations in 1985 and completed its eighth full
year of operations in the current fiscal year. The effects of inflation and
changes in prices on the Partnership's operating results to date have not been
significant.
Inflation in future periods may increase revenues, as well as operating
expenses, at the Partnership's operating investment properties. Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration. Rental rates at these properties can be adjusted to keep
pace with inflation, to the extent market conditions allow, as the leases are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14
of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 GROWTH PARTNERS THREE L. P.
By: Third PW Growth Properties, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: March 29, 1995
IV-2
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2) AND ITEM 14(D)
PAINEWEBBER GROWTH PARTNERS THREE L. P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
PAINEWEBBER GROWTH PARTNERS THREE L. P.:
Report of independent auditors F-2
Consolidated balance sheets as of March 31, 1994 and 1993 F-3
Consolidated statements of operations for the years ended March 31, 1994,
1993 and 1992 F-4
Consolidated statements of changes in partners' deficit for the years ended
March 31, 1994, 1993 and 1992 F-5
Consolidated statements of cash flows for the years ended March 31, 1994,
1993 and 1992 F-6
Notes to consolidated financial statements F-7
Schedule XI - Real Estate and Accumulated Depreciation F-16
ST. LOUIS WOODCHASE ASSOCIATES:
Report of independent auditors F-17
Balance sheets as of December 31, 1993 and 1992 F-18
Statements of operations and changes in partners' capital (deficit) for the
years ended December 31, 1993, 1992 and 1991 F-19
Statements of cash flows for the years ended December 31, 1993, 1992 and 1991
F-20
Notes to financial statements F-21
Schedule XI - Real Estate and Accumulated Depreciation F-24
Other financial statement schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners
PaineWebber Growth Partners Three L.P.:
We have audited the accompanying consolidated balance sheets of PaineWebber
Growth Partners Three L.P. as of March 31, 1994 and 1993, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for each of the three years in the period ended March 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PaineWebber
Growth Partners Three L.P. at March 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young
ERNST & YOUNG
Boston, Massachusetts
June 10, 1994
PAINEWEBBER GROWTH PARTNERS THREE L. P.
CONSOLIDATED BALANCE SHEETS
March 31, 1994 and 1993
ASSETS
1994 1993
Operating investment property, at cost:
Land $ 670,233 $ 670,233
Buildings 7,931,513 7,931,513
Equipment and improvements 524,790 523,498
9,126,536 9,125,244
Less accumulated depreciation (2,795,034) (2,525,816)
6,331,502 6,599,428
Investment in unconsolidated joint
venture, at equity 489,553 722,644
Cash and cash equivalents 366,821 206,470
Restricted cash 201,543 197,184
Accounts receivable 1,760 127,155
Prepaid expenses 19,775 32,838
Deferred expenses, net of accumulated
amortization of $209,555
($154,289 in 1993) 177,314 232,580
Other assets 226,604 226,604
$ 7,814,872 $ 8,344,903
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 90,263 $ 98,347
Accrued interest payable 166,824 141,812
Accounts payable - affiliates - 3,522
Loans payable to affiliates 357,318 357,318
Deferred management fees 987,101 858,816
Notes payable 8,330,000 8,330,000
Total liabilities 9,931,506 9,789,815
Partners' deficit:
General Partners:
Capital contribution 1,000 1,000
Cumulative net loss (83,149) (49,563)
Limited Partners ($1,000 per Unit, 25,657
units outstanding at March 31, 1994 and 1993):
Capital contributions, net of offering
costs of $3,192,941 22,464,059 22,464,059
Cumulative net loss (24,197,669)(23,559,533)
Cumulative cash distributions (300,875) (300,875)
Total partners' deficit (2,116,634) (1,444,912)
$ 7,814,872$ 8,344,903
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L. P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1994, 1993 and 1992
1994 1993 1992
REVENUES:
Hotel revenues $ - $ 1,244,277 $16,469,941
Rental income 1,325,374 1,269,658 1,251,830
Other revenues - - 648,750
Interest income 15,967 6,857 11,659
1,341,341 2,520,792 18,382,180
EXPENSES:
Hotel operating expenses - 1,112,360 14,425,108
Loss on transfer of assets at foreclosure - 2,927,984 -
Interest expense and related fees 362,501 694,207 5,801,426
Depreciation and amortization 324,484 427,835 2,606,690
Property operating expenses 798,940 717,571 673,906
Partnership management fees 128,285 128,285 128,285
General and administrative 165,762 166,501 180,995
1,779,972 6,174,743 23,816,410
Operating loss (438,631) (3,653,951) (5,434,230)
Partnership's share of unconsolidated
venture's loss (233,091) (245,290) (249,097)
Loss before extraordinary gain (671,722) (3,899,241) (5,683,327)
Extraordinary gain from settlement
of debt obligation - 11,532,447 -
Net income (loss) $ (671,722)$ 7,633,206 $(5,683,327)
Net income (loss) per Limited
Partnership Unit:
Loss before extraordinary gain $ (24.87) $(129.37) $(210.44)
Extraordinary gain - 367.93 -
Net income (loss) $ (24.87) $ 238.56 $(210.44)
The above per Limited Partnership Unit information is based upon the 25,657
Limited Partnership Units outstanding for each year.
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the years ended March 31, 1994, 1993 and 1992
General Limited
Partners Partners Total
Balance at March 31, 1991 $(1,276,950) $(2,117,841) $(3,394,791)
Net loss (284,166) (5,399,161) (5,683,327)
BALANCE AT MARCH 31, 1992 (1,561,116) (7,517,002) (9,078,118)
Net income 1,512,553 6,120,653 7,633,206
BALANCE AT MARCH 31, 1993 (48,563) (1,396,349) (1,444,912)
Net loss (33,586) (638,136) (671,722)
BALANCE AT MARCH 31, 1994 $ (82,149) $(2,034,485) $(2,116,634)
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1994, 1993 and 1992
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
Cash flows from operating activities:
Net income (loss) $ (671,722) $ 7,633,206 $(5,683,327)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Partnership's share of
unconsolidated venture's loss 233,091 245,290 249,097
Depreciation and amortization 324,484 427,835 2,606,690
Deferred interest - 299,296 -
Deferred management fees 128,285 161,265 810,686
Interest expense on note payable - 4,297 -
Loss on transfer of assets at foreclosure - 2,927,984 -
Extraordinary gain from settlement of debt - (11,532,447) -
Changes in assets and liabilities:
Cash subject to transfer at foreclosure - (7,715) -
Accounts receivable 125,395 (226,789) 112,072
Inventories - (89,854) 76,412
Prepaid expenses 13,063 2,807 (37,115)
Other assets - (6,362) -
Due to Marriott - 44,707 -
Accounts payable and accrued expenses (8,084) (65,991) (182,058)
Accrued interest payable 25,012 28,229 2,090,593
Accounts payable - affiliates (3,522) (9,386) 443,036
Total adjustments 837,724 (7,796,834) 6,169,413
Net cash provided by (used for)
operating activities 166,002 (163,628) 486,086
Cash flows from investing activities:
Net withdrawals from escrow
reserve for repairs and replacements - 56,399 567,214
Additions to operating investment
properties (1,292) - (810,621)
Net cash provided by (used for)
investing activities (1,292) 56,399 (243,407)
Cash flows from financing activities:
Decrease in escrow reserve for debt service - - 170,481
Deposits to restricted cash (4,359) (5,093) (9,010)
Net cash provided by (used for)
financing activities (4,359) (5,093) 161,471
Net increase (decrease) in cash and
cash equivalents 160,351 (112,322) 404,150
Less: Cash subject to transfer at
foreclosure - - (432,123)
160,351 (112,322) (27,973)
Cash and cash equivalents,
beginning of year 206,470 318,792 346,765
Cash and cash equivalents, end of year $ 366,821 $ 206,470 $ 318,792
Cash paid during the year for interest $ 214,275 $ 366,682 $3,710,833
See accompanying notes.
1. General
PaineWebber Growth Partners Three L. P. (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in May
1985 for the purpose of investing in a portfolio of rental apartments or
commercial properties which had potential for capital appreciation. The
Partnership authorized the issuance of units (the "Units") of limited
partnership interests (at $1,000 per Unit) of which 25,657 were subscribed
and issued between September 3, 1985 and July 31, 1986. The Partnership
originally invested the proceeds of the offering in three operating
properties. As further discussed in Note 4, on April 21, 1992 the
Partnership's largest asset, the LaJolla Marriott Hotel, was foreclosed on
by the mortgage lender after extensive workout negotiations failed to
produce an acceptable modification agreement.
2. Summary of Significant Accounting Policies
The joint ventures in which the Partnership has invested are required to
maintain their accounting records on a calendar year basis for income tax
reporting purposes. As a result, the Partnership records its share of the
operations of the joint ventures based on financial information which is
three months in arrears to that of the Partnership.
The accompanying consolidated financial statements include the
Partnership's investments in two joint venture partnerships which own opera-
ting properties. As further discussed in Note 4, the Partnership acquired
complete control of Tara Associates, Ltd. in fiscal 1990 as a result of an
amendment to the joint venture agreement. Accordingly, the accompanying
financial statements present the financial position and results of
operations of this joint venture on a consolidated basis. As discussed
above, the joint venture has a December 31 year-end and operations of the
venture continue to be reported on a three-month lag. All material
transactions between the Partnership and the joint venture have been
eliminated upon consolidation, except for lag period cash transfers. The
joint venture's operating investment property (Summerwind Apartments) is
carried at the lower of cost, adjusted for certain guaranteed payments (see
Note 4) and accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the Partnership's investment through
expected future cash flows on an undiscounted basis, which may exceed the
property's current market value. The net realizable value of a property
held for sale approximates its market value. The Partnership's investment
in the Summerwind Apartments was considered to be held for long-term
investment purposes as of March 31, 1994 and 1993.
Depreciation expense is computed using the straight-line method over an
estimated useful life of thirty years for buildings and five years for the
equipment and improvements. Acquisition fees paid to PaineWebber Properties
Incorporated (PWPI) have been capitalized and are included in the cost of
the operating investment property.
The Partnership accounts for its other joint venture investment using
the equity method. Under the equity method the investment in a joint
venture is carried at cost adjusted for the Partnership's share of the
venture's earnings and losses and distributions. See Note 5 for a
description of this joint venture partnership.
The consolidated joint venture leases apartment units under leases with
terms generally of one year or less. Rental income is recorded monthly as
earned.
As more fully discussed in Note 4, on April 21, 1992, the holder of the
mortgage debt secured by the Partnership's wholly-owned hotel property in La
Jolla, California, foreclosed on the property due to the Partnership's
failure to make full and timely debt service payments. As a result of the
foreclosure, all of the remaining assets and liabilities related to this
operating investment property were transferred to the lender or otherwise
disposed of upon foreclosure. The wholly-owned operating investment
property (the LaJolla Marriott Hotel) had been carried at cost less
accumulated depreciation. Depreciation expense had been computed using the
straight-line method over an estimated useful life of thirty years for the
building and ten years for equipment and improvements. Acquisition fees
paid to PWPI and other expenses, including certain professional fees and a
guaranty fee paid to Marriott Corporation, were capitalized as part of the
cost of the operating investment property.
Deferred expenses at March 31, 1994 and 1993 consist of loan fees of
Tara Associates, Ltd., the Partnership's consolidated joint venture, which
are being amortized on a straight-line basis over the remaining term of the
loan.
For purposes of reporting cash flows, the Partnership considers all
highly liquid investments with original maturities of 90 days or less to be
cash equivalents.
No provision for income taxes has been made as the liability for such
taxes is that of the individual partners rather than the Partnership. Upon
the sale or disposition of the Partnership's investments, the taxable gain
or loss incurred will be allocated among the partners. In the case where a
taxable gain would be incurred, gain would first be allocated to the
General Partners in an amount at least sufficient to eliminate their
deficit capital balance. Any remaining gain would then be allocated to
the Limited Partners. In certain cases, the Limited Partners could be
allocated taxable income in excess of any liquidation proceeds that they
may receive. Additionally, in cases where the disposition of any
investment involves a foreclosure by, or voluntary conveyance to, the
mortgage lender, taxable income could occur without distribution of cash.
Income from the sale or disposition of the Partnership's investments would
represent passive income to the partners which could be offset by each
partners' existing passive losses, including any carryovers from prior
years.
.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are Third PW Growth Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber") and Properties Associates 1985, L.P.
(the "Associate General Partner"), a Virginia limited partnership, certain
limited partners of which are also officers of PWPI and the Managing General
Partner. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by PWPI pursuant to an advisory
contract. The General Partners, PWPI and other affiliates receive fees and
compensation, determined on an agreed upon basis, in consideration of
various services performed in connection with the sale of the Units, the
management of the Partnership and the acquisition, management, financing and
disposition of Partnership investments. In addition, the General Partners
and their affiliates are reimbursed for their direct expenses relating to
the offering of units, the administration of the Partnership and the
operations of the Partnership's real property investments.
Selling commissions paid by the Partnership to PaineWebber Incorporated,
a wholly-owned subsidiary of PaineWebber, for the sale of Limited
Partnership interests aggregated $2,180,845 through the conclusion of the
offering period. In connection with investing Partnership capital in
investment properties, PWPI was paid acquisition fees of $1,282,850, equal
to 5% of the gross proceeds of the offering.
All distributable cash, as defined, for each fiscal year will be
distributed annually in the ratio of 95% to the Limited Partners and 5% to
the General Partners. All sale or refinancing proceeds shall be distributed
in varying proportions to the Limited and General Partners, as specified in
the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income and
tax losses of the Partnership from both current operations and capital
transactions generally will be allocated 95% to the Limited Partners and 5%
to the General Partners, except that the General Partners shall be allocated
an amount of taxable income from a capital transaction at least sufficient
to eliminate their deficit capital account balance. Allocations of the
Partnership's operations between the General Partners and the Limited
Partners for financial accounting purposes have been made in conformity with
the allocations of taxable income or tax loss.
Under the advisory contract, PWPI has specific management
responsibilities: to administer the day-to-day operations of the
Partnership, and to report periodically the performance of the Partnership
to the Managing General Partner. PWPI earns an annual management fee of up
to 1/2 of 1% of the gross offering proceeds. PWPI earned management fees of
approximately $128,000 for each of the three years ended March 31, 1994,
1993 and 1992. PWPI has deferred payment of its management fee since
September of 1986 pending the generation of cash flow from the Partnership's
investment properties. Deferred management fees at March 31, 1994 and 1993
consists of $987,101 and $858,816, respectively, due to PWPI.
Included in general and administrative expenses for the years ended
March 31, 1994, 1993 and 1992 is $44,754, $53,325 and $57,329, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership. Accounts payable -affiliates at March 31, 1993
consists of $3,522 payable to an affiliate of the Managing General Partner
for reimbursement of such expenses.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell
Hutchins earned fees of $183, $1,649 and $354 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1994, 1993 and 1992, respectively.
.
4. Operating Investment Properties
As of March 31, 1994 and 1993, the Partnership's balance sheet includes
one consolidated operating investment property: the Summerwind Apartments,
owned by Tara Associates, Ltd., a majority owned and controlled joint
venture. As described below, the holder of the first mortgage loan on the
LaJolla Marriott Hotel took title to the property through foreclosure
proceedings on April 21, 1992.
LaJolla Marriott Hotel- LaJolla, California
The LaJolla Marriott Hotel (the "Hotel"), is a 14-story, 274,200 square
foot complex with 360 guest rooms located on approximately 4.6 acres of land
in LaJolla, California. The Hotel was purchased by the Partnership in
December of 1985.
The transfer of the Hotel's title to the lender was accounted for as a
troubled debt restructuring in accordance with Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". As a result, the Partnership recorded an
extraordinary gain from settlement of debt obligation of approximately
$11,532,000, partially offset by a loss on transfer of assets at foreclosure
of approximately $2,928,000. The extraordinary gain arises due to the fact
that the balance of the mortgage loan and related accrued interest exceeded
the estimated fair market value of the Hotel investment, and other assets
transferred to the lender, at the time of the foreclosure. The loss on
transfer of assets results from the fact that the net carrying value of the
Hotel exceeded its estimated fair value at the time of the foreclosure.
The following is a summary of Hotel revenues and operating expenses from
April 1, 1992 through the date of foreclosure, April 21, 1992 and for the
year ended March 31, 1992.
Period Year
ended ended
April 12, 1992 March 31, 1992
REVENUES:
Guest rooms $ 670,339 $ 8,755,713
Food and beverage 464,949 6,084,021
Other revenues 108,989 1,630,207
$ 1,244,277 $16,469,941
OPERATING EXPENSES:
Guest rooms $ 168,212 $ 2,074,960
Food and beverage 382,658 4,822,355
Management fees 70,308 1,486,928
Selling, general and
administrative 11,395 1,848,380
Operating expenses 437,687 2,533,620
Repairs and maintenance - 806,102
Real estate and personal
property tax 42,100 582,851
Advertising - 269,912
$ 1,112,360 $14,425,108
The operating expenses noted above include significant transactions with
Marriott Corporation. All Hotel employees were employees of Marriott and
the related payroll costs were allocated to the Hotel operations by
Marriott. A majority of the supplies and food purchased by the Hotel were
purchased from an affiliate of Marriott. In addition, Marriott also
allocated employee benefit costs, advertising costs and management training
costs to the Hotel.
Summerwind Apartments - Jonesboro, Georgia
Tara Associates, Ltd., a Georgia limited partnership (the "joint
venture") was organized on December 19, 1983 to acquire and operate a 208-
unit apartment complex, Summerwind Apartments, located in Jonesboro,
Georgia. On October 8, 1985 the Partnership acquired a 70% general
partnership interest in the joint venture. The remaining 30% general and
limited partnership interests were owned by John Lie-Nielson (the "co-
venturer").
Effective February 23, 1990, the Tara Associates, Ltd. joint venture
agreement was amended to provide that the co-venturer's entire general
partnership interest be converted to a limited partnership interest. In
addition, the amended agreement specifies that the co-venturer shall have no
further liability for guaranty fees or mandatory loans, as discussed further
below. The conversion of the co-venturer's interest to that of a limited
partner effectively gave the Partnership complete control over the
investment property. As a result, the accompanying financial statements
present the financial position and results of operations of the joint
venture on a consolidated basis. As discussed in Note 2, the Partnership's
policy is to report the operations of the joint venture on a three-month
lag. The aforementioned amendment did not change the partners' ownership
percentages in the venture or any other terms of the original joint venture
agreement besides those referred to above.
The aggregate cash investment by the Partnership for its interest was
approximately $2,427,000 (including an acquisition fee of $141,000 paid to
the Adviser). The apartment complex was acquired subject to a mortgage loan
of $8,330,000 at the time of closing. On March 15, 1990, the mortgage loan
was refinanced, as discussed further in Note 6. As part of the refinancing
agreement, the Partnership was required to place $200,000 into a debt
service fund, held jointly by the Partnership and the lender. These monies
are restricted solely for debt service shortfalls of the operating property,
but may be returned to the Partnership if the property achieves specified
operating results. The balance of restricted cash for this reserve account
was $201,543 and $197,184 at December 31, 1993 and 1992, respectively.
The joint venture agreement provides that distributable funds will be
distributed as follows: 1) to repay interest and principal on optional
loans; 2) to repay interest and principal on mandatory loans; 3) to the
Partnership until it has received $180,800 per calendar year for the period
from the date of organization; and 4) any remainder 70% to the Partnership
and 30% to the co-venturer. Net proceeds from a sale or refinancing shall
be made in the same manner as (1) through (3) above; and then: (4) to the
Partnership until it shall have received cumulative distributions of
$2,599,000; and; (5) any remainder, 70% to the Partnership and 30% to the
co-venturer.
Losses shall be allocated 100% to the Partnership and income shall be
allocated in the same proportion as distributable funds. If no funds were
distributed, then income is to be allocated 100% to the Partnership.
The joint venture agreement provides that if additional cash was required
to fund negative cash flow for a period of 24 months ending in October 1987
(the guaranty period), the co-venturer and an affiliate of the co-venturer
were obligated to fund any capital deficits, as defined, of the joint
venture. The joint venture received payments aggregating $647,485 through
the end of the Guaranty Period. Such payments have been recorded as a
reduction in the basis of the operating investment property for financial
reporting purposes. For a period of twelve months following the guaranty
period, the co-venturer and an affiliate were obligated to make mandatory
loans to the joint venture to fund any negative cash flow. The mandatory
loans bear interest at the prime rate plus 1% of the lending institution.
At December 31, 1993 and 1992, the joint venture had mandatory loans
outstanding from the co-venturer and an affiliate of approximately $357,000.
Subsequent to October 1988, if the joint venture requires additional cash,
it may be provided by either partner as optional loans. Optional loans bear
interest at the prime rate plus 1% per annum. The Partnership has made
optional loans totalling $1,149,181 to the joint venture as of December 31,
1993. Outstanding accrued interest payable to the Partnership totalled
$29,610 as of December 31, 1993. The principal balance of these optional
loans, along with the related interest expense, are eliminated in
consolidation.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the Partnership's option upon
the occurrence of certain events. The management fee is equal to 5% of the
gross receipts, as defined.
The following is a summary of property operating expenses for the years
ended December 31, 1993, 1992 and 1991.
1993 1992 1991
Property operating expenses:
Repairs and maintenance $ 288,399 $ 220,046$ 182,511
Salaries and related expenses 131,906 145,433 150,701
Administrative and other 117,641 111,969 112,683
Property taxes 91,937 89,767 86,528
Utilities 102,391 86,688 79,190
Management fee 66,666 63,668 62,293
$ 798,940 $ 717,571 $ 673,906
5. Investment in Unconsolidated Joint Venture
The Partnership has an investment in one unconsolidated joint venture,
St. Louis Woodchase Associates. The unconsolidated joint venture is
accounted for on the equity method in the Partnership's financial statements
based on financial information of the venture which is three months in
arrears to that of the Partnership.
Condensed financial statements of the unconsolidated joint venture, for
the periods indicated, are as follows:
CONDENSED BALANCE SHEETS
December 31, 1993 and 1992
Assets
1993 1992
Current assets $ 93,564 $ 81,095
Operating investment property, net 8,320,135 8,657,110
Deferred expenses, net 61,768 12,361
$8,475,467 $ 8,750,566
Liabilities and Venturers' Capital (Deficit)
Current portion of long-term mortgage debt $ 84,639 $ 8,000,000
Other current liabilities 156,865 100,644
Other liabilities 35,368 38,218
Loans from partners and accrued interest 322,604 304,704
Long-term mortgage debt 7,901,978 -
Partnership's share of venturers' capital 480,160 713,251
Co-venturer's share of venturers' deficit (506,147) (406,251)
$ 8,475,467 $ 8,750,566
CONDENSED SUMMARY OF OPERATIONS
For the years ended December 31, 1993, 1992 and 1991
1993 1992 1991
Rental revenues $ 1,387,082 $ 1,367,975 $ 1,347,647
Interest income 2,585 3,312 7,081
Other income 34,797 37,380 41,008
Total revenues 1,424,464 1,408,667 1,395,736
Property operating expenses 583,951 601,047 609,073
Interest expense 814,831 800,000 800,000
Depreciation and amortization 358,669 358,034 350,097
Total expenses 1,757,451 1,759,081 1,759,170
Net loss $ (332,987)$ (350,414)$ (363,434)
Net loss:
Partnership's share of net loss $ (233,091)$ (245,290)$ (249,097)
Co-venturer's share of net loss (99,896) (105,124) (114,337)
$ (332,987)$ (350,414)$ (363,434)
RECONCILIATION OF PARTNERSHIP'S INVESTMENT
March 31, 1994 and 1993
1994 1993
Partnership's share of capital at
December 31, as shown above $ 480,160 $ 713,251
Partnership's share of venture's
current liabilities 9,393 9,393
Investments in joint venture, at
equity at March 31 $ 489,553 $ 722,644
Investment in unconsolidated joint venture, at equity, at March 31, 1994 and
1993 is the Partnership's net investment in the Woodchase joint venture.
The joint venture is subject to a partnership agreement which determines the
distribution of available funds, the disposition of the venture's assets and
the rights of the partners, regardless of the Partnership's percentage
ownership interest in the venture. Substantially all of the Partnership's
investment in this joint venture is restricted as to distributions.
A description of the unconsolidated joint venture's property and the terms of
the joint venture agreement are summarized below:
St. Louis Woodchase Associates - St. Louis, Missouri
St. Louis Woodchase Associates, a Missouri general partnership (the "joint
venture") was organized on December 27, 1985 by PaineWebber Growth Partners
Three, L. P., a Delaware limited partnership (the "Partnership") and St.
Louis Woodchase Company, Ltd. (the "co-venturer") to acquire and operate
Woodchase Apartments, a 186-unit apartment complex in St. Louis, Missouri.
The co-venturer is an affiliate of The Paragon Group. The property was
purchased on December 31, 1985.
The aggregate cash investment by the Partnership for its interest was
approximately $2,465,000 (including an acquisition fee of $145,000 paid to
the Adviser). The apartment complex was encumbered by a mortgage loan of
$10,200,000 at the time of purchase. On June 7, 1988 the joint venture
which owns the Woodchase Apartments entered into an agreement with the
original mortgage holder which permitted the repayment of the mortgage on
July 1, 1988 at a discount of more than $2 million.
During fiscal 1994, the joint venture refinanced its $8,000,000 nonrecourse
mortgage notes payable secured by the operating investment property with the
existing lender. The original mortgage notes payable matured on September
27, 1993. The new note payable has an effective date of November 1, 1993
and formally closed on March 1, 1994. The note bears interest at 9% and is
payable in monthly installments, including principal and interest of $66,667
through November 1, 1998. Additional interest at the rate of 1.75% shall
accrue monthly on the outstanding principal balance and 10.75% shall accrue
on the unpaid interest balance. Subject to the terms of the loan agreement,
net cash flow from operations, as defined and if available, will be applied
to fund the additional interest quarterly. In addition, the joint venture
is required to submit monthly escrow deposits of $3,875 for an operating
investment property replacement reserve. Amounts in the replacement reserve
have been pledged as additional collateral for the operating investment
property.
The joint venture agreement provides that the Partnership will receive from
available cash flow (after payment of any interest on operating loans by the
parties to the joint venture) an annual, cumulative preferred base return,
payable monthly, of 8% of the Partnership's net investment. Thereafter any
remaining cash flow shall be distributed 70% to the Partnership and 30% to
the co-venturer. The Partnership's cumulative preference return in arrears
totalled approximately $1,479,000 and $1,292,000 at December 31, 1993 and
1992, respectively.
After the end of each month during the year in which the Partnership has not
received its cumulative preference return, the co-venturer shall distribute
to the Partnership the lesser of (a) the excess, if any, of the
Partnership's cumulative preference return over the aggregate amount of net
cash flow previously distributed to the Partnership during the year or (b)
any net cash flow distributed to the co-venturer during the year.
Net income and net loss from operations shall be allocated in any year in
the same proportions as actual cash distributions, provided that the co-
venturer shall not be allocated less than 30% of the net income or net loss
after the Partnership has received cumulative losses equal to $4,086,250.
The Partnership was allocated cumulative losses equal to this threshold
during 1990. Additionally, the co-venturer shall not be allocated net
income in excess of cash distributions distributed to it during any year.
Upon sale or refinancing, proceeds shall be distributed in the following
order of priority (after payment of mortgage debt and other indebtedness of
the joint venture): 1) the Partnership and the co-venturer shall receive
any amounts due for operating loans or additional cash contributions; 2) the
Partnership shall receive $2,685,250 plus certain closing costs incurred; 3)
the Partnership shall receive the aggregate amount of its cumulative annual
preference return not previously distributed; 4) the co-venturer shall
receive any accrued interest and principal of mandatory loans (as described
below); 5) the manager of the complex, an affiliate of the co-venturer,
shall receive any subordinated management fees. Any remaining proceeds
shall be distributed 70% to the Partnership and 30% to the co-venturer.
The co-venturer guaranteed payment of all operating expenses and debt
service plus a $3,000 annual return to the Partnership from the date of
closing through December 31, 1987 (the Guaranty Period). The joint venture
received payments aggregating $347,290 during the Guaranty Period. Such
amounts have been recorded as a reduction of the basis of the operating
property for financial reporting purposes. The co-venturer was required to
make mandatory loans to the joint venture to pay all operating expenses and
debt service plus a $3,000 annual return to the Partnership for the twelve-
month period following the Guaranty Period. Mandatory loans totalling
$130,211 have been made by the co-venturer. Such loans bear interest at 1%
above the prime lending rate. The co-venturer was paid a fee of $288,000 in
consideration for its agreement to provide the guaranty and make the
mandatory loans. After the mandatory loan period, if additional cash is
required in connection with the joint venture, it may be provided by the
Partnership and the co-venturer as loans (evidenced by operating notes) to
the joint venture. Such loans are to be provided 70% by the Partnership and
30% by the co-venturer. Operating loans totalling $86,593 have been made
100% by the co-venturer through December 31, 1993. Interest payable to the
co-venturer on the mandatory and optional loans totalled $105,800 and
$87,900 at December 31, 1993 and 1992, respectively.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the joint venture
upon the occurrence of certain events. The management fee is equal to 5% of
the gross receipts, as defined.
6. Notes payable
Notes payable at March 31, 1994 and 1993 consists of the following:
1994 1993
Mortgage loan payable which secures Housing
Authority of Clayton County Collateralized
Loan-to-Lender Housing Revenue Bonds. The
nonrecourse mortgage loan is secured by a deed
to secure debt and a security agreement
covering Tara Associates Ltd.'s real and
personal property. See discussion below
regarding
refinancing in calendar year 1990. $ 8,330,000 $ 8,330,000
The Summerwind Apartments were originally financed with the proceeds of a
10 7/8% mortgage loan which secured $8,330,000 1983 Series A Housing
Authority of Clayton County Collateralized Loan-to-Lender Housing Revenue
Bonds. On March 15, 1990, the original loan secured by the Summerwind
Apartments was refinanced through the issuance of $8,330,000 of 1989 Series
Housing Authority of Clayton County Collateralized Loan-to-Lender Revenue
Bonds. The refinancing changed the interest rate on the bond from a fixed
rate of 10-7/8% per annum to a floating rate. The floating rate is reset
weekly based on the market rate for tax exempt securities with similar
maturities, as determined by the bond underwriter (3.4% and 4.2% at December
31, 1993 and 1992, respectively). The maximum interest rate is 15%. During
the floating rate period, the Partnership may elect, with the written consent
of the lender and the Credit Facility obligor, as defined, to have the
floating rate converted to a fixed rate. If the floating rate is converted
to a fixed rate, the bonds would then be subject to a redemption premium as
specified in the Bond Agreement. Interest only is payable monthly in arrears
on the first day of each month and on the maturity date of the loan. The new
mortgage loan is subject to various prepayment provisions including a
mandatory redemption on March 16, 1997, the first scheduled remarketing date,
as defined.
The revenue bonds, which are secured by the mortgage loan, are also
secured by an irrevocable letter of credit agreement (the Agreement) between
the lender and the Housing Authority of Clayton County. The letter of
credit, which will expire on March 16, 1997, is an irrevocable obligation of
the lender up to an amount sufficient to pay the then outstanding principal
of the bonds plus 45 days interest calculated at 15% per annum. Under the
terms of the Agreement, the joint venture must pay a fee to the lender at an
annual rate of 1% of the mortgage loan. The fee is payable monthly in
arrears until termination of the Agreement. During 1993, 1992 and 1991, fees
incurred under the letter of credit were $83,300 in each year and have been
included in interest expense and related fees in the accompanying statement
of operations.
The Summerwind mortgage loan agreement provides, among other things, that
at least 20% of the project units are to be set aside for "low income
housing", as defined. In addition, the loan has certain prepayment
penalties, including the mandatory repayment of the outstanding balance of
the loan upon a determination that interest on the underlying revenue bonds
is includable for Federal income tax purposes in income of the recipients.
Also, as part of the refinancing agreement for the Summerwind mortgage
loan, the Partnership was required to place $200,000 into a debt service
fund, held jointly by the Partnership and the lender. These monies are
restricted solely for debt service shortfalls of the operating property, but
may be returned to the Partnership if the property achieves specified
operating results. The balance of the restricted cash was $201,543 and
$197,184 at December 31, 1993 and 1992, respectively.
7. Commitments
Tara Associates, Ltd. has entered into a security contract which covers
fire, burglary, and emergency protection on the apartment units. The
contract expires August 15, 1994. Future minimum payments are $18,626 for
the year ended December 31, 1994.
<TABLE>
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
PAINE WEBBER GROWTH PARTNERS THREE, L.P.
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
March 31, 1994
<CAPTION>
Life
Costs on Which
Capitalized Depreciation
Initial Cost to (Removed) in Latest
Partnership Subsequent to Gross Amount at Which Carried at Income
Venture Acquisition End of Year Statement
Buildings & Buildings & Buildings & Accumulated Date of Date is
Description Encumbrances Land Improvements Improvements Land Improvements TotalDepreciation ConstructionAcquired Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summerwind
Apartments
Jonesboro,
GA $ 8,330,000 $ 720,091 $ 8,610,789 $(204,344) $670,233 $8,456,303 $ 9,126,536 $ 2,795,034 1985 10/8/85 5-30 yrs
Notes
(A) The aggregate cost of real estate owned at March 31, 1994 for Federal income tax purposes is approximately $9,332,000.
(B) See Note 6 of Notes to Financial Statements for a description of the debt encumbering the property.
(C) Reconciliation of real estate owned:
1994 1993 1992
Balance at beginning of period $9,125,244 $ 9,125,244 $60,403,884
Acquisitions and improvements 1,292 - 810,621
Assets foreclosed on subsequent
to year-end (1) - - (52,089,261)
Balance at end of period $9,126,536 $ 9,125,244 $ 9,125,244
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $2,525,816 $ 2,256,727 $13,035,515
Accumulated depreciation on
assets foreclosed on
subsequent to year-end <FN1> - - (13,330,210)
Depreciation expense 269,218 269,089 2,551,422
Balance at end of period $2,795,034 $ 2,525,816 $ 2,256,727
<FN>
<FN1> See Note 4 of Notes to Financial Statements
for a discussion regarding the foreclosure of the Partnership's wholly-owned
operating property (the La Jolla Marriott Hotel) on April 21, 1992.
</FN>
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Partners
St. Louis Woodchase Associates:
We have audited the accompanying balance sheets of St. Louis Woodchase
Associates (the "Joint Venture") as of December 31, 1993 and 1992 and the
related statements of operations and changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1993.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Joint Venture's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of St. Louis Woodchase Associates
at December 31, 1993 and 1992, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young
ERNST & YOUNG
Boston, Massachusetts
January 20, 1994
except for Note 4,
as to which the date is
March 1, 1994
ST. LOUIS WOODCHASE ASSOCIATES
BALANCE SHEETS
December 31, 1993 and 1992
ASSETS
1993 1992
CURRENT ASSETS:
Cash and cash equivalents $ 43,053 $ 70,815
Escrow deposits 973 773
Rent receivable - 325
Prepaid expenses 9,538 9,182
Refinancing deposit 40,000 -
Total current assets 93,564 81,095
Operating investment property, at cost:
Land 982,568 982,568
Building and improvements 9,994,152 9,994,152
Furniture and fixtures 753,595 747,513
11,730,315 11,724,233
Less accumulated depreciation (3,410,180) (3,067,123)
Net operating investment property 8,320,135 8,657,110
Deferred expenses, net of accumulated
amortization of $3,251
($101,051 in 1992) 61,768 12,361
$ 8,475,467 $ 8,750,566
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 84,639 $ 8,000,000
Accounts payable 12,609 17,714
Accrued interest 94,870 66,667
Accrued expenses 49,224 13,725
Payable to property manager 162 2,538
Total current liabilities 241,504 8,100,644
Tenant security deposits 25,975 28,825
Distribution payable to partner 9,393 9,393
Partner loans and accrued interest 322,604 304,704
Long-term debt 7,901,978 -
Partners' capital (deficit) (25,987) 307,000
$ 8,475,467 $ 8,750,566
See accompanying notes.
ST. LOUIS WOODCHASE ASSOCIATES
STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1993, 1992 and 1991
1993 1992 1991
REVENUES:
Rental income $ 1,387,082 $ 1,367,975 $ 1,347,647
Interest income 2,585 3,312 7,081
Other revenues 34,797 37,380 41,008
1,424,464 1,408,667 1,395,736
EXPENSES:
Depreciation and amortization 358,669 358,034 350,097
Mortgage interest 814,831 800,000 800,000
Interest expense on partner loans 17,900 18,600 24,800
Repairs and maintenance 94,549 59,744 89,623
Salaries and related costs 130,000 121,222 115,156
Real estate taxes 103,608 158,635 149,196
Management fees 71,118 70,137 69,476
Utilities 51,777 59,066 59,242
General and administrative 74,515 77,197 65,845
Insurance 27,048 23,991 23,144
Professional fees 13,436 12,455 12,591
1,757,451 1,759,081 1,759,170
Net loss (332,987) (350,414) (363,434)
Distributions to partners - - (9,393)
Partners' capital,
beginning of year 307,000 657,414 1,030,241
Partners' capital (deficit),
end of year $ (25,987) $ 307,000 $ 657,414
See accompanying notes.
ST. LOUIS WOODCHASE ASSOCIATES
STATEMENT OF CASH FLOWS
For the years ended December 31, 1993, 1992 and 1991
Increase (Decrease) in Cash and Cash Equivalents
1993 1992 1991
Cash flows from operating activities:
Net loss $ (332,987) $ (350,414) $(363,434)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 358,669 358,034 350,097
Changes in assets and liabilities:
Escrow deposits (200) 1,819 (2,592)
Rents receivable 325 - 3,028
Prepaid expenses (356) 646 (9,828)
Accounts payable (5,105) 2,574 7,782
Accrued expenses 35,499 1,725 (1,591)
Accrued interest 28,203 - -
Accrued interest on partner loans 17,900 18,600 24,800
Tenant security deposits (2,850) (8,958) (1,575)
Payable to property manager (2,376) (153) (26,804)
Total adjustments 429,709 374,287 343,317
Net cash provided by (used for)
operating activities 96,722 23,873 (20,117)
Cash flows from investing activities:
Additions to operating investment property (6,082) (1,643) -
Cash flows from financing activities:
Increase in deposit (40,000) - -
Increase in deferred expenses (65,019) - -
Payments of principal on long-term debt (13,383) - -
Net cash used for financing activities (118,402) - -
Net increase (decrease) in cash and
cash equivalents (27,762) 22,230 (20,117)
Cash at beginning of year 70,815 48,585 68,702
Cash and cash equivalents, end of year $ 43,053 $ 70,815 $ 48,585
Cash paid during the year for interest $ 786,628 $ 800,000 $ 800,000
See accompanying notes.
1. Summary of Significant Accounting Policies
General
St. Louis Woodchase Associates, a Missouri general partnership, (the
"Joint Venture") was organized on December 27,1985 in accordance with a
Joint Venture Agreement between PaineWebber Growth Partners Three Limited
Partnership (the "Partnership") and St. Louis Woodchase Company, Ltd. (the
"Co-Venturer"). The Joint Venture was organized to purchase and operate an
apartment complex in St. Louis County, Missouri.
Basis of Presentation
Generally, the records of the joint venture are maintained on the
accrual basis of accounting used for federal income tax purposes and
adjusted to generally accepted accounting principles for financial reporting
purposes, principally for depreciation.
Operating investment property
The operating investment property is carried at the lower of cost,
adjusted for certain guaranteed payments and accumulated depreciation, or
net realizable value. The net realizable value of a property held for long-
term investment purposes is measured by the recoverability of the investment
from expected future cash flows on an undiscounted basis, which may exceed
the property's market value. The net realizable value of a property held
for sale approximates its current market value. The operating investment
property was considered to be held for long-term investment purposes as of
December 31, 1993 and 1992. Depreciation expense is computed using the
straight-line method over an estimated useful life of thirty years for
buildings and improvements and five years for furniture and fixtures.
Acquisition fees have been capitalized and are included in the cost of the
operating investment properties.
Deferred expenses
Deferred expenses at December 31, 1993 relate to costs associated with
the refinancing of debt in 1993. Deferred expenses at December 31, 1992
related to costs associated with the refinancing of debt in 1988. Deferred
financing costs are amortized using the straight-line method over the
respective terms of the loans.
Refinancing deposit
The deposit represents an amount related to refinancing long-term debt.
The deposit is refundable at the closing date of the loan refinancing (See
Note 4).
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, cash deposited with banks and certificates of deposit with
original maturities of three months or less.
Income tax matters
The Joint Venture is not a taxable entity and the results of its
operations are included in the tax returns of the partners. Accordingly, no
income tax provision is reflected in the accompanying financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. The Partnership Agreement
The joint venture agreement provides that the Partnership will receive
from available cash flow (after payment of any interest on operating loans
by the parties to the joint venture) an annual, cumulative preferred base
return, payable monthly, of 8% of the Partnership's net investment.
Thereafter any remaining cash flow shall be distributed 70% to the
Partnership and 30% to the Co-Venturer. The Partnership's cumulative
preference returns in arrears were approximately $1,479,000 and $1,292,000
at December 31, 1993 and 1992, respectively.
After the end of each month during the year in which the Partnership has
not received its cumulative preference return, the Co-Venturer shall
distribute to the Partnership the lesser of (a) the excess, if any, of the
Partnership's cumulative preference return over the aggregate amount of net
cash flow previously distributed to the Partnership during the year or (b)
any net cash flow distributed to the Co-Venturer during the year.
Net income and net loss from operations shall be allocated in any year
in the same proportions as actual cash distributions, provided that the Co-
Venturer shall not be allocated less than 30% of the net income or net loss
after the Partnership has received cumulative losses equal to $4,086,250.
The Partnership was allocated cumulative losses equal to this threshold
during 1990. Additionally, the Co-Venturer shall not be allocated net
income in excess of cash distributions distributed to it during any year.
Upon sale or refinancing, proceeds shall be distributed in the following
order of priority (after payment of mortgage debt and other indebtedness of
the Joint Venture): 1) the Partnership and the Co-Venturer shall receive
any amounts due for operating loans or additional cash contributions; 2) the
Partnership shall receive $2,685,250 plus certain closing costs incurred; 3)
the Partnership shall receive the aggregate amount of its cumulative annual
preference return not previously distributed; 4) the Co-Venturer shall
receive any accrued interest and principal on mandatory loans (as described
below); 5) the manager of the complex, an affiliate of the Co-Venturer,
shall receive any subordinated management fees. Any remaining proceeds
shall be distributed 70% to the Partnership and 30% to the Co-Venturer.
The Co-Venturer guaranteed payment of all operating expenses and debt
service plus a $3,000 annual return to the Partnership from the date of
closing through December 31, 1987 (the Guaranty Period). The Joint Venture
received payments aggregating $347,290 during the Guaranty Period. Such
amounts have been recorded as a reduction of the basis of the operating
property for financial reporting purposes. The Co-Venturer was required to
make mandatory loans to the joint venture to pay all operating expenses and
debt service plus a $3,000 annual return to the Partnership for the twelve-
month period following the Guaranty Period. Mandatory loans totalling
$130,211 have been made by the Co-Venturer. Such loans bear interest at 1%
above the prime lending rate. The Co-Venturer was paid a fee of $288,000 in
consideration for its agreement to provide the guaranty and make the
mandatory loans. After the mandatory loan period, if additional cash is
required in connection with the Joint Venture, it may be provided by the
Partnership and the Co-Venturer as loans (evidenced by operating notes) to
the Joint Venture. Such loans would be provided 70% by the Partnership and
30% by the Co-Venturer and would bear interest at the prime rate. In the
event that a partner fails to make its respective share of a loan, the other
partner may make the loan to the Joint Venture for the defaulting partner's
share at twice the prime rate. Operating loans totalling $86,593 have been
made 100% by the Co-Venturer through December 31, 1993.
The joint venture has entered into a property management contract with
an affiliate of the Co-Venturer, cancellable at the option of the joint
venture upon the occurrence of certain events. The management fee is equal
to 5% of the gross receipts, as defined.
3. Partner loans
Partner loans consist of the following:
1993 1992
Deficit loans, payable to the
Co-Venturer, interest
at 1% over prime (7.0% at
December 31, 1993) $130,211 $130,,211
Operating loans, payable to the
Co-Venturer,interest
at prime (6.0% at December 31, 1993) 25,978 25,978
Operating loans, payable to the Co-Venturer,
interest at twice the prime rate
(12.0% at December 31, 1993) 60,615 60,615
$216,804 $216,804
Repayment of the above loans (and accrued interest) is limited to net
cash flow and capital proceeds, as defined. The loans are nonrecourse to
the Joint Venture.
Unpaid interest on partner loans at December 31, 1993 and 1992 totalled
approximately $105,000 and $87,900, respectively. Interest on the $60,615
operating loan is first in priority for payment from net cash flow available
for distribution.
4. Long-term debt
At December 31, 1992, the entire $8,000,000 balance of the venture's
mortgage notes payable was shown as current portion of long-term debt since
no agreement was in place then to refinance the debt which had a scheduled
maturity date of September 27, 1993. Current portion of long-term debt at
December 31, 1992 consisted of two notes payable for $7,600,000 and $400,000
bearing interest 9.95% and 10.95%, respectively, secured by the operating
investment property. Subsequent to December 31, 1993, the Joint Venture
refinanced its $8,000,000 nonrecourse mortgage notes payable with the
existing mortgage lender. The new note payable has an effective date of
November 1, 1993 and formally closed on March 1, 1994. The note bears
interest at 9% and is payable in monthly installments, including principal
and interest of $66,667 through November 1, 1998. Additional interest at
the rate of 1.75% shall accrue monthly on the outstanding principal balances
and 10.75% shall accrue on the unpaid interest balance. Subject to the
terms of the loan agreement, net cash flow from operations, as defined and
if available, will be applied to fund the additional interest quarterly. In
addition, the Joint Venture is required to submit monthly escrow deposits of
$3,875 for an operating investment property replacement reserve. Amounts in
the replacement reserve have been pledged as additional collateral for the
operating investment property.
The scheduled annual principal payments to retire the long-term debt are
as follows:
1994 $ 84,639
1995 92,579
1996 101,264
1997 110,763
1998 7,597,372
$ 7,986,617
<TABLE>
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
ST. LOUIS WOODCHASE ASSOCIATES
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1993
<CAPTION>
Life
Cost on Which
Capitalized Depreciation
Initial Cost to (Removed) in Latest
Partnership Subsequent to Gross Amount at Which Carried Income
Venture Acquisition at End of Year Statement
Buildings & Buildings & Buildings & Accumulated Date of Date is
Description Encumbrances Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Woodchase
Apartments
St. Louis,
MO $ 7,986,617 $1,012,782 $9,924,099 $793,434 $982,568 $10,747,747 $11,730,315 $ 3,410,180 1985 12/31/85 5 - 30 yrs
Notes
(A) The aggregate cost of real estate owned at December 31, 1993 for Federal income tax purposes is approximately $11,917,000.
(B) See Note 4 of Notes to Financial Statements for a description of the debt encumbering the property.
(C) Reconciliation of real estate owned:
1993 1992 1991
Balance at beginning of period $11,724,233 $11,722,590 $11,722,590
Acquisitions and improvements 6,082 1,643 -
Balance at end of period $11,730,315 $11,724,233 $11,722,590
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 3,067,123 $ 2,724,879 $ 2,390,572
Depreciation expense 343,057 342,244 334,307
Balance at end of period $ 3,410,180 $ 3,067,123 $ 2,724,879
</TABLE>
