PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and March 31, 1994
(Unaudited)
ASSETS
December 31 March 31
Operating investment property, at cost:
Land $ 670,233 $ 670,233
Buildings 7,931,513 7,931,513
Furniture and fixtures 524,790 524,790
9,126,536 9,126,536
Less accumulated depreciation (2,997,044) (2,795,034)
6,129,492 6,331,502
Investment in unconsolidated joint venture,
at equity 318,994 489,553
Cash and cash equivalents 782,791 366,821
Restricted cash - 201,543
Accounts receivable 1,760 1,760
Prepaid expenses 20,342 19,775
Deferred expenses, net 135,864 177,314
Other assets 226,604 226,604
$ 7,615,847 $ 7,814,872
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 142,626 $ 90,263
Accrued interest payable 187,778 166,824
Loans payable to venture partner 357,318 357,318
Advances from consolidated venture 60,000 -
Deferred management fees 1,083,315 987,101
Note payable 8,330,000 8,330,000
Partners' deficit (2,545,190) (2,116,634)
$ 7,615,847 $ 7,814,872
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1994 and 1993
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
REVENUES:
Rental income $ 341,967 $ 342,576 $1,006,424 $ 988,869
Interest and other income 9,917 3,603 21,746 9,519
351,884 346,179 1,028,170 998,388
EXPENSES:
Property operating expenses 179,860 187,885 530,809 528,154
Interest expense 110,981 99,904 306,187 283,789
Depreciation and amortization 81,153 77,014 243,460 243,364
Partnership management fees 32,071 32,071 96,214 96,214
General and administrative 32,005 32,080 109,497 103,663
436,070 428,954 1,286,167 1,255,184
Operating loss (84,186) (82,775) (257,997) (256,796)
Partnership's share of
unconsolidated
venture's loss (40,438) (46,466) (170,559) (184,415)
Net loss $ (124,624) $ (129,241) $ (428,556)$ (441,211)
Net loss per Limited
Partnership Unit $(4.61) $(4.79) $(15.87) $(16.34)
The above net loss per Limited Partnership Unit is based upon the 25,657 Limited
Partnership Units outstanding during each period.
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the nine months ended December 31, 1994 and 1993
(Unaudited)
General Limited
Partner Partners
Balance at March 31, 1993 $ (48,563) $(1,396,349)
Net loss (22,061) (419,150
BALANCE AT DECEMBER 31, 1993 $ (70,624) $(1,815,499)
Balance at March 31, 1994 $ (82,149) $(2,034,485)
Net loss (21,428) (407,128)
BALANCE AT DECEMBER 31, 1994 $ (103,577) $(2,441,613)
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1994 1993
Cash flows from operating activities:
Net loss $ (428,556) $ (441,211)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Partnership's share of unconsolidated
venture's loss 170,559 184,415
Depreciation and amortization 243,460 243,364
Deferred management fees 96,214 96,214
Changes in assets and liabilities:
Accounts receivable - 125,395
Prepaid expenses (567) 19,921
Accounts payable and accrued expenses 52,363 24,505
Accounts payable - affiliates - 7,704
Accrued interest payable 20,954 18,758
Advances from consolidated venture 60,000 -
Total adjustments 642,983 720,276
Net cash provided by operating
activities 214,427 279,065
Cash flows from investing activities:
Additions to operating investment property - (1,292)
Net cash used for financing activities - (1,292)
Cash flows from financing activities:
Deposits to restricted cash (3,338) (3,253)
Release of debt service reserve escrow 204,881 -
Net cash provided by (used for)
financing activities 201,543 (3,253)
Net increase in cash and cash equivalents 415,970 274,520
Cash and cash equivalents, beginning of period 366,821 206,470
Cash and cash equivalents, end of period $ 782,791 $ 480,990
Cash paid during the period for interest $ 285,233 $ 265,031
See accompanying notes.
1. General
The accompanying financial statements, footnotes and discussions should be
read in connection with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended March 31, 1994.
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.
2. Operating Investment Property
The Partnership's balance sheet includes one operating investment property
at December 31, 1994 and March 31, 1994; the Summerwind Apartments, owned by
Tara Associates, Ltd., a majority owned and controlled joint venture. The
balance sheet and operating results of Tara Associates, Ltd. are recorded
three months in arrears to the operating results of the Partnership. 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 co-venturer's general partnership interest was converted to a
limited partnership interest, thereby giving the Partnership complete
control over the operating investment property.
The following is a summary of property operating expenses for the three and
nine months ended September 30, 1994 and 1993:
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Property operating expenses:
Repairs and maintenance $ 63,359 $ 62,845 $177,500 $169,835
Utilities 19,230 30,448 57,699 75,586
Property taxes 23,250 22,491 69,750 67,473
Management fees 16,731 17,025 50,294 49,363
Salaries and administrative 57,290 55,076 175,566 165,897
$179,860 $ 187,885 $530,809 $528,154
3. Unconsolidated Joint Venture Partnership
The Partnership has an investment in one unconsolidated joint venture, St.
Louis Woodchase Associates, which owns and operates an operating investment
property, as more fully described in the Partnership's Annual Report. The
unconsolidated joint venture is accounted for on the equity method in the
Partnership's financial statements because the Partnership does not have a
voting control interest in the venture. Under the equity method, the
investment is carried at cost adjusted for the Partnership's share of
venture's earnings and losses and distributions. The Partnership
recognizes its share of the operating results of its unconsolidated joint
venture based on financial results of the venture which are three months in
arrears to that of the Partnership.
Summarized operating results of the unconsolidated joint venture, for the
periods indicated, are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended September 30, 1994 and 1993
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
REVENUES:
Rental revenues $ 380,000 $ 367,000 $1,078,000 $1,059,000
Other income 9,000 6,000 24,000 23,000
389,000 373,000 1,102,000 1,082,000
EXPENSES:
Interest expense 214,000 200,000 641,000 600,000
Property operating expenses 116,000 109,000 359,000 357,000
Real estate taxes 26,000 40,000 80,000 119,000
Depreciation and amortization 91,000 90,000 266,000 269,000
447,000 439,000 1,346,000 1,345,000
Net loss $ (58,000) $ (66,000) $ (244,000) $ (263,000)
Net loss:
Partnership's share of
combined loss $ (40,000) $ (46,000) $ (171,000) $(184,000)
Co-venturer's share of
combined loss (18,000) (20,000) (73,000) (79,000)
$ (58,000) $ (66,000) $ (244,000) $(263,000)
4.Note Payable
Note payable consists of the following:
December 31, 1994 March 31, 1994
Mortgage loan payable which secures
Housing Authority of Clayton County
Collateralized Loan-to-Lender Housing
Revenue Bonds. The non-recourse mortgage
loan is secured by a deed to secure debt
and a security agreement covering Tara
Associates Ltd.'s real and personal
property. The loan bears interest at a
floating rate which is reset weekly based
on the market rate for tax exempt
securities with similar maturities. The
loan is subject to various prepayment
provisions including a mandatory
redemption on March 16, 1997, the first
scheduled remarketing date, as defined. $ 8,330,000 $ 8,330,000
5.Related Party Transactions
The Adviser earned management fees of $96,214 for each of the nine-month
periods ended December 31, 1994 and 1993. Substantially all management fees due
to the Adviser since the Partnership's inception have been deferred. Deferred
management fees at December 31, 1994 and March 31, 1994 consist of $1,083,315
and $987,101, respectively, due to PWPI. See the Partnership's Annual Report
for further information regarding deferred management fees.
Included in general and administrative expenses for the nine months ended
December 31, 1994 and 1993 is $34,152 and $33,228, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended December 31, 1994 and 1993 is $1,496 and $183, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At the present time, the estimated values of the Partnership's two remaining
properties, the Summerwind and Woodchase apartment complexes, are below their
acquisition prices as a result of the impact on real estate values caused by the
unprecedented level of overbuilding which characterized the latter half of the
1980's. Such overbuilding put considerable downward pressure on occupancy
levels and effective 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 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. During the first three quarters of fiscal 1995, the
interest rate on such debt, which is tied to comparable tax-exempt bond
obligations, has been fluctuating at between approximately 3% and 5% per annum
on the venture's $8.3 million debt obligation. Current cash flow from the
venture's operations would not be sufficient to support conventional financing
at current market interest rates. The variable interest rate on the venture's
debt is expected to rise further during the fourth quarter of fiscal 1995, 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 the current fiscal year. However, due to the
rates of return demanded by potential buyers of multi-family residential
properties at the present time, an 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. During the current period, the venture
achieved a milestone specified in the mortgage loan agreement which called for
the release of the restricted cash which had been set aside to cover debt
service shortfalls. The lender released such funds, totalling approximately
$205,000, to the venture in September.
As discussed in the Annual Report, 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 to 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 the stringent loan-to-value lending criteria
which existed at the time of the original maturity, 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. 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 the initial 2-year period of the extension agreement. 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's operating cash flow
is approximately equal to the minimum principal and interest payment due on the
mortgage loan.
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 indicates that the potential sales price of the property
may be in excess of the amount of the outstanding 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 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 in the process of preparing to market the Woodchase property for
sale. A decision regarding the future operating plans for the Partnership will
be made after evaluating any offers which are received as a result of these
marketing efforts.
At December 31, 1994, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $783,000. 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 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
The Partnership's net loss decreased by approximately $13,000 for the nine
months ended December 31, 1994, as compared to the same period in the prior
year, primarily as a result of a decrease in the Partnership's share of
unconsolidated venture's loss. The Partnership's share of unconsolidated
venture's loss, which represents the operating results of the Woodchase joint
venture, decreased by approximately $14,000 in the current period primarily as a
result of a slight increase in rental revenues and a decrease in real estate
taxes. The combination of these items exceeded the increase in the venture's
interest expense resulting from the increase in the interest rate accruing on
the outstanding principal balance of the venture's mortgage note, effective
November 1, 1993, as a result of the modification and extension agreement
described above. The Partnership's operating loss, which includes the results
of the consolidated Summerwind joint venture, remained relatively unchanged for
the nine months ended December 31, 1994 as compared to the same period in the
prior year despite an increase in interest expense of approximately $22,000 and
an increase in general and administrative expenses of approximately $6,000. The
higher interest expense reflects an increase in the variable interest rate on
the Summerwind mortgage loan. General and administrative expenses increased
mainly due to an independent valuation of the Partnership's investment
properties which is currently in process as part of management's ongoing
portfolio management responsibilities. The adverse changes in operating loss
were offset by an increase in interest income earned on invested cash reserves
due to an increase in the average outstanding balance of such revenues and an
improvement in interest rates during the first three quarters of fiscal 1995.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant 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
Date: February 13, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the nine months ended December
31, 1994 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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