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 SEPTEMBER 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
September 30, 1995 and March 31, 1995
(Unaudited)
(In Thousands)
ASSETS
September 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 (3,200) (3,065)
5,943 6,078
Investment in unconsolidated joint venture, at equity 307 254
Cash and cash equivalents 625 704
Accounts receivable 2 2
Prepaid expenses - 15
Deferred expenses, net 94 122
Other assets 227 227
$ 7,198 $ 7,402
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 127$ 96
Accrued interest payable 213 196
Loans payable to affiliates 357 357
Advances from consolidated venture 34 37
Deferred management fees payable to affiliate 1,179 1,115
Notes payable 8,330 8,330
Total partners' deficit (3,042) (2,729)
$ 7,198 $ 7,402
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1995 and 1994
(Unaudited)
(In Thousands, except per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
REVENUES:
Rental income $ 353 $ 333 $ 707 $ 664
Interest and other income 8 6 17 12
361 339 724 676
EXPENSES:
Property operating expenses 186 168 352 351
Interest expense 148 117 288 223
Depreciation 68 67 135 134
Partnership management fees 32 32 64 64
General and administrative 46 42 87 78
480 426 926 850
Operating loss (119) (87) (202) (174)
Partnership's share of
unconsolidated venture's
loss (61) (55) (111) (130)
Net loss $ (180) $ (142) $ (313) $ (304)
Net loss per Limited
Partnership Unit $ (6.62) $ (5.25) $(11.57) $ (11.25)
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 six months ended September 30, 1995 and 1994
(Unaudited)
(In Thousands)
General Limited
Partners Partners
Balance at March 31, 1994 $ (82) $(2,035)
Net loss (15) (289)
BALANCE AT SEPTEMBER 30, 1994 $ (97) $(2,324)
Balance at March 31, 1995 $ (113) $(2,616)
Net loss (16) (297)
BALANCE AT SEPTEMBER 30, 1995 $ (129) $(2,913)
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
(In Thousands)
1995 1994
Cash flows from operating activities:
Net loss $ (313) $ (304)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Partnership's share of unconsolidated
venture's loss 111 130
Depreciation 135 134
Deferred management fees 64 64
Amortization of deferred financing costs 28 28
Changes in assets and liabilities:
Prepaid expenses 15 11
Accounts payable and accrued expenses 31 25
Accrued interest payable 17 13
Advance from consolidated venture (3) 44
Total adjustments 398 449
Net cash provided by operating
activities 85 145
Cash flows from investing activities:
Contribution to unconsolidated venture (164) -
Cash flows from financing activities:
Deposits to restricted cash - (3)
Release of debt service reserve escrow - 205
Net cash provided by financing
activities - 202
Net increase (decrease) in cash and
cash equivalents (79) 347
Cash and cash equivalents, beginning of period 704 367
Cash and cash equivalents, end of period $ 625 $ 714
Cash paid during the period for interest $ 243 $ 182
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 September 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 and
six months ended June 30, 1995 and 1994 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Property operating expenses:
Repairs and maintenance $ 68 $ 64 $ 123 $ 114
Utilities 17 14 33 38
Property taxes 24 23 49 47
Management fees 17 17 35 34
Salaries and administrative 60 50 112 118
$ 186 $ 168 $ 352 $ 351
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 SUMMARY OF OPERATIONS
For the three and six months ended June 30, 1995 and 1994
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Revenues:
Rental revenues $ 378 $ 367 $ 736 $ 698
Other income 11 8 21 15
389 375 757 713
Expenses:
Interest expense 216 220 433 434
Property operating expenses 145 125 255 243
Real estate taxes 26 28 52 54
Depreciation and amortization 88 81 175 168
475 454 915 899
Net loss $ (86) $ (79) $ (158) $(186)
Net loss:
Partnership's share of
net loss $ (61) $ (55) $ (111) $(130)
Co-venturer's share of
net loss (25) (24) (47) (56)
$ (86) $ (79) $ (158) $(186)
Note Payable
Note payable at September 30, 1995 and March 31, 1995 consists of the
following:
September 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 $64,000 for each of the six-month
periods ended September 30, 1995 and 1994. Deferred management fees at
September 30, 1995 and March 31, 1995 consist of $1,179,000 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 each of the six-month
periods ended September 30, 1995 and 1994 is $23,000, 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 each of the six-
month periods ended September 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.
On September 13, 1995, the Partnership, along with its co-venture partner,
refinanced the mortgage debt secured by the Woodchase Apartments with a new
lender. The new non-recourse mortgage loan is in the amount of $8,200,000 and
bears interest at a rate of 7.5% per annum. The new loan requires monthly
principal and interest payments of $57,336 and matures on October 1, 2002. The
proceeds of the new loan were used to repay the existing $8 million debt as well
as cover a portion of the refinancing costs. The Partnership advanced $164,000
to the venture to cover the remaining transaction costs. Although the principal
amount of the new loan increased slightly, the venture's annual debt service
payments are reduced by $112,000 due to the reduction in the interest rate,
resulting in positive cash flow for the joint venture, the majority of which
should be due to the Partnership.
In refinancing the Woodchase debt obligation, management obtained
attractive, assumable financing which reduces debt service costs, results in net
cash flow to the Partnership and enhances the marketability of the property for
a possible sale. An analysis of the estimated value of the Woodchase property
places the potential sales price above the level of the current debt by between
$2 million to $3 million. 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
a potential sale transaction, 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 September 30, 1995, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $625,000. The balance
of such cash and cash equivalents will be used for the working capital needs of
the Partnership and its consolidated joint venture. Expected future cash flow
distributions from the Summerwind and Woodchase joint ventures should be
sufficient to cover the Partnership's operating expenses (excluding Partnership
management fees which have been deferred since September of 1986). 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 September 30, 1995
The Partnership's net loss increased by $38,000 for the three months ended
September 30, 1995 as compared to the same period in the prior year. The
increase in the Partnership's net loss was mainly the result of an increase in
the Partnership's operating loss of $32,000. The Partnership's operating loss
increased primarily due to an increase in interest expense of $31,000. Interest
expense increased as a result of an increase in the average interest rate paid
during the period on the variable rate mortgage loan secured by the consolidated
Summerwind Apartments. In addition, property operating expenses increased at
Summerwind by $18,000 due to small increases in repairs and maintenance,
insurance and administrative expenses. The increases in interest and property
operating expenses were partially offset by an increase in rental income at
Summerwind of $20,000. Rental income increased as a result of an increase in
rental rates over the same period in the prior year.
The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Woodchase joint venture, increased by $6,000
primarily due to increases in depreciation and property operating expenses.
Depreciation expense increased as a result of fixed asset additions made during
fiscal 1995. Property operating expenses increased due to increases in
utilities and administrative expenses. The increases in depreciation and
property operating expenses were partially offset by an increase in rental
income. Rental income increased by $11,000 for the current three-month period
due to rental rate increases implemented as a result of the fairly strong market
conditions existing in the suburban St. Louis market.
Six Months Ended September 30, 1995
The Partnership's net loss increased by $9,000 for six months ended
September 30, 1995 as compared to the same period in the prior year. The
increase in the Partnership's net loss was the result of an increase in the
Partnership's operating loss of $28,000. The Partnership's operating loss
increased primarily due to an increase in interest expense of $65,000. Interest
expense increased as a result of an increase in the average interest rate paid
during the period on the variable rate mortgage loan secured by the consolidated
Summerwind Apartments. The increase in interest expense was partially offset by
an increase in rental income at Summerwind of $43,000. Rental income increased
as a result of an increase in rental rates over the same period in the prior
year. The increase in the Partnership's operating loss was partially offset by
a decrease of $19,000 in the Partnership's share of unconsolidated venture's
loss, which represents the operating results of the Woodchase joint venture.
The decrease in the Partnership's share of unconsolidated venture's loss was
mainly a result of an increase in rental income. The increase in rental income,
of $38,000, was attributable to rental rate increases implemented as a result of
the fairly strong market conditions existing in the suburban St. Louis market.
Slight increases in the venture's property operating expenses and depreciation
charges partially offset the increase in rental income.
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: November 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the six months ended September
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 625
<SECURITIES> 0
<RECEIVABLES> 2
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 627
<PP&E> 9,450
<DEPRECIATION> (3,200)
<TOTAL-ASSETS> 7,198
<CURRENT-LIABILITIES> 731
<BONDS> 8,330
<COMMON> 0
0
0
<OTHER-SE> (3,042)
<TOTAL-LIABILITY-AND-EQUITY> 7,198
<SALES> 0
<TOTAL-REVENUES> 724
<CGS> 0
<TOTAL-COSTS> 638
<OTHER-EXPENSES> 111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288
<INCOME-PRETAX> (313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313)
<EPS-PRIMARY> (11.57)
<EPS-DILUTED> (11.57)
</TABLE>
