UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
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
PAINEWEBBER GROWTH PARTNERS THREE L.P.
(Exact name of registrant as specified in its charter)
Delaware 04-2882258
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and March 31, 1995
(Unaudited)
(In Thousands)
ASSETS
June 30 March 31
Operating investment property, at cost:
Land $ 670 $ 670
Buildings 7,932 7,932
Equipment and improvements 541 541
9,143 9,143
Less accumulated depreciation (3,132) (3,065)
6,011 6,078
Investment in unconsolidated joint
venture, at equity 368 254
Cash and cash equivalents 574 704
Accounts receivable 2 2
Prepaid expenses 1 15
Deferred expenses, net 108 122
Other assets 227 227
$ 7,291 $ 7,402
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 82 $ 96
Accrued interest payable 205 196
Loans payable to affiliates 357 357
Advances from consolidated venture 32 37
Deferred management fees payable to affiliate 1,147 1,115
Notes payable 8,330 8,330
Total partners' deficit (2,862) (2,729)
$ 7,291 $ 7,402
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1995 and 1994
(Unaudited)
(In Thousands, except for per Unit data)
1995 1994
REVENUES:
Rental income $ 354 $ 332
Interest and other income 9 5
363 337
EXPENSES:
Property operating expenses 166 183
Interest expense 140 105
Depreciation and amortization 67 67
Partnership management fees 32 32
General and administrative 41 37
446 424
Operating loss (83) (87)
Partnership's share of unconsolidated
venture's loss (50) (75)
Net loss $ (133) $ (162)
Net loss per Limited Partnership Unit $ (4.95) $ (6.00)
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 three months ended June 30, 1995 and 1994
(Unaudited)
(In Thousands)
General Limited
Partners Partners
Balance at March 31, 1994 $ (82) $(2,035)
Net loss (8) (154)
BALANCE AT JUNE 30, 1994 $ (90) $(2,189)
Balance at March 31, 1995 $ (113) $(2,616)
Net loss (6) (127)
BALANCE AT JUNE 30, 1995 $ (119) $ (2,743)
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In Thousands)
1995 1994
Cash flows from operating activities:
Net loss $ (133) $ (162)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Partnership's share of unconsolidated
venture's loss 50 75
Depreciation and amortization 67 67
Deferred management fees 32 32
Amortization of deferred financing costs 14 14
Changes in assets and liabilities:
Prepaid expenses 14 7
Accounts payable and accrued expenses (14) 3
Accrued interest payable 9 6
Advance from consolidated venture (5) 150
Total adjustments 167 354
Net cash provided by
operating activities 34 192
Cash flows from investing activities:
Contribution to unconsolidated venture (164) -
Cash flows from financing activities:
Deposits to restricted cash - (1)
Net increase (decrease) in cash and
cash equivalents (130) 191
Cash and cash equivalents, beginning of period 704 367
Cash and cash equivalents, end of period $ 574 $ 558
Cash paid during the period for interest $ 117 $ 86
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, 1995.
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 June 30, 1995 and March 31, 1995; 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
months ended March 31, 1995 and 1994 (in thousands):
1995 1994
Property operating expenses:
Repairs and maintenance $ 55 $ 50
Utilities 16 25
Property taxes 25 23
Management fees 18 17
Salaries and administrative 52 68
$ 166 $ 183
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 (in thousands):
CONDENSED SUMMARY OF OPERATIONS
For the three months ended March 31, 1995 and 1994
(in thousands)
1995 1994
REVENUES:
Rental revenues $ 358 $ 331
Other income 10 7
368 338
EXPENSES:
Interest expense 217 218
Property operating expenses 110 118
Real estate taxes 26 26
Depreciation and amortization 87 83
440 445
Net loss $ (72) $ (107)
Net loss:
Partnership's share of net loss $ (50) $ (75)
Co-venturer's share of net loss (22) (32)
$ (72) $ (107)
Note Payable
Note payable at June 30, 1995 and March 31, 1995 consists of the following (in
June 30 March 31
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 $ 8,330
Related Party Transactions
The Adviser earned management fees of $32,000 for each of the three-month
periods ended June 30, 1995 and 1994. Deferred management fees at June 30, 1995
and March 31, 1995 consists of $1,147,000 and $1,115,000, respectively, due to
PWPI. See the Partnership's Annual Report for further information regarding
deferred management fees.
Included in general and administrative expenses for both of the three-month
periods ended June 30, 1995 and 1994 is $12,000, 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 both of the three-
month periods ended June 30, 1995 and 1994 is $1,000, representing fees earned
by Mitchell Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
6.Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes that these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Despite generally improving conditions in the markets for multi-family
apartment properties across the country, the estimated values of the
Partnership's two remaining investment properties, the Summerwind and Woodchase
apartment complexes, remain below their acquisition prices at the present time
as a result of the impact on real estate values caused by the unprecedented
level of overbuilding which characterized the latter half of the 1980s. Such
overbuilding put considerable downward pressure on occupancy levels and
effective rental rates, which was a trend that continued through the early
1990s. Over the past three years, this trend has been reversed due to the lack
of significant new construction of multi-family properties in most markets.
However, management believes it is unlikely that this current 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. However, based on the current estimated market
value of the property, management is of the opinion that the property cannot be
sold for an amount which would yield any significant proceeds to the Partnership
above the outstanding debt balance. In addition, management believes that the
property could not be refinanced, given the current debt structure, without a
significant discount on the existing first mortgage loan. The debt secured by
the Summerwind property, which requires interest-only payments until maturity
in March 1997, was provided by tax-exempt bonds issued by a local housing
authority. During fiscal 1995, the interest rate on such debt, which is tied
to comparable tax-exempt bond obligations, fluctuated at between approximately
4% and 6% per annum on the venture's $8.3 million debt obligation. Cash flow
from the venture's operations for calendar 1994 would have been sufficient to
cover interest costs at an average rate of approximately 7%. Nonetheless,
such cash flow would not be sufficient to support conventional financing,
including monthly principal amortization, at current market interest rates.
Furthermore, 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 below the current
debt obligation. It appears unlikely that market conditions will improve
sufficiently in the near-to-intermediate term to generate any significant
value above the outstanding debt position. Consequently, in the event that
operations deteriorate or the variable interest rate on the Summerwind debt
increases to such an extent that cash flow from property operations is
insufficient to cover the required debt service, the Partnership would not
support cash flow deficits. Under such circumstances, the mortgage loan would
be allowed to go into default, and foreclosure, in all likelihood, would not be
contested. Management intends to continue to operate the property to maximize
cash flow in the near term at least until a decision is reached as to whether
to hold or sell the Partnership's Woodchase investment, as discussed further
below. Although interest rates have recently decreased after steadily rising
throughout fiscal 1995, any future increase in interest rates would reduce the
amount of the excess cash flow currently generated by the Summerwind joint
venture which is being used to cover the Partnership's operating expenses.
Nonetheless, the venture is expected to operate above breakeven throughout
fiscal 1996 due to a slight increase in rental rates and a decrease in repairs
and maintenance expenses. No significant capital improvements were made during
fiscal 1995 and none are planned for the current year.
As discussed in the Annual Report, during fiscal 1994 the Partnership,
along with its co-venture partner, refinanced the mortgage debt secured by the
Woodchase Apartments with the existing lender. 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 is 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 for
fiscal 1995 was slightly in excess of the minimum principal and interest
payments due on the mortgage loan. The outstanding first mortgage loan is fully
prepayable without penalty through September 1995, after which time a prepayment
penalty would be owed on any prepayment prior to maturity. Management is
currently focusing on efforts to refinance this loan prior to the end of this
open prepayment period and has received a loan commitment which should enable
the venture to complete a refinancing transaction within this time frame.
However, since the loan remains contingent upon, among other things, execution
of final loan documents, there are no assurances that such a refinancing
transaction will be consummated. On May 31, 1995, the Partnership made a loan
of $164,000 to the joint venture. The joint venture used the $164,000 to pay an
application fee with respect to this potential new loan.
In seeking to refinance the Woodchase debt obligation, management expects
to obtain attractive, assumable financing which would reduce debt service costs,
result in net cash flow to the Partnership and enhance the marketability of the
property for a possible sale. Despite the lack of significant excess operating
cash flow under the current debt structure, an analysis of the estimated value
of the Woodchase property places the potential sales price above the level of
the current debt. 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
the potential sale and/or refinancing transactions, a program of significant
property repairs and improvements was initiated during calendar 1994 and will
continue throughout most of calendar 1995. 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.
At June 30, 1995, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $574,000. 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 fairly 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
Three Months Ended June 30, 1995
The Partnership's net loss decreased by $29,000 for the three months ended
June 30, 1995, when compared to the same period in the prior year. The primary
reason for the decrease in net loss is the decrease in the Partnership's share
of unconsolidated venture's loss of $25,000. The Partnership's share of
unconsolidated venture's loss, which represents the operating results of the
Woodchase joint venture, decreased in the current period primarily as a result
of an increase in rental revenues of approximately $27,000. The slight increase
in revenues is attributable to rental rate increases implemented at the
Woodchase property as a result of the fairly strong market conditions existing
the suburban St. Louis market. In addition, the Partnership's operating loss,
which includes the operating results of the consolidated Summerwind joint
venture, decreased by $4,000 for the three months ended June 30, 1995 as
compared to the same period in the prior year. Operating loss decreased due to
an increase in rental income of $22,000 and a decrease in property operating
expenses of $17,000 at the Summerwind Apartments. Rental income increased due
to an increase in rental rates. Property operating expenses decreased as a
result of certain non-recurring administrative expenses incurred in the prior
period. The increase in rental income and decrease in property operating
expenses were partially offset by an increase in interest expense of $35,000.
Interest expense increased due to an increase in market interest rates which
resulted in a higher rate being paid on the variable Summerwind mortgage loan.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's annual report on Form 10-K for the year
ended March 31, 1995, in November 1994, a series of purported class actions (the
"New York Limited Partnership Actions") were filed in the United States District
Court for the Southern District of New York concerning PaineWebber
Incorporated's sale and sponsorship of various limited partnership investments,
including those offered by the Partnership. On May 30, 1995, the court
certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partners continue to believe that the action will be
resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
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: August 11, 1995
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the three months ended June 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 574
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<PP&E> 9,511
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<BONDS> 8,330
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<OTHER-SE> (2,862)
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<INCOME-PRETAX> (133)
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