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 DECEMBER 31, 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 .
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and March 31, 1995 (Unaudited)
(In thousands)
ASSETS
December 31 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 (3,267) (3,065)
---------- ---------
5,876 6,078
Investment in unconsolidated joint venture, at equity 103 254
Cash and cash equivalents 813 704
Accounts receivable 2 2
Prepaid expenses - 15
Deferred expenses, net 81 122
Other assets 227 227
---------- ----------
$ 7,102 $ 7,402
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 144 $ 96
Accrued interest payable 222 196
Loans payable to affiliates 357 357
Advances from consolidated venture 32 37
Deferred management fees payable to affiliate 1,211 1,115
Notes payable 8,330 8,330
Partners' deficit (3,194) (2,729)
----------- -----------
$ 7,102 $ 7,402
=========== ===========
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1995 and 1994 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Rental income $ 363 $ 342 $1,070 $1,006
Interest and other income 8 10 25 22
------- ------- ------ ------
371 352 1,095 1,028
Expenses:
Property operating expenses 189 180 541 531
Interest expense 144 111 432 306
Depreciation 67 81 202 243
Partnership management fees 32 32 96 96
General and administrative 51 32 138 110
---------- --------- -------- --------
483 436 1,409 1,286
--------- -------- ------- -------
Operating loss (112) (84) (314) (258)
Partnership's share of
unconsolidated
venture's loss (40) (40) (151) (171)
--------- ----------- -------- -------
Net loss $ (152) $ (124) $ (465) $ (429)
======= ======== ======= ======
Net loss per Limited
Partnership Unit $(5.66) $ (4.61) $(17.23) $ (15.87)
====== ======== ======= ========
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, 1995 and 1994 (Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at March 31, 1994 $ (82) $(2,035)
Net loss (22) (407)
-------- --------
Balance at December 31, 1994 $ (104) $(2,442)
======= =======
Balance at March 31, 1995 $ (113) $(2,616)
Net loss (23) (442)
-------- --------
Balance at December 31, 1995 $ (136) $(3,058)
======== ========
See accompanying notes.
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1995 and 1994 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994
---- ----
Cash flows from operating activities:
Net loss $ (465) $ (429)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Partnership's share of unconsolidated
venture's loss 151 171
Depreciation 202 202
Deferred management fees 96 96
Amortization of deferred financing costs 41 41
Changes in assets and liabilities:
Prepaid expenses 15 -
Accounts payable and accrued expenses 48 52
Accrued interest payable 26 21
Advances from consolidated venture (5) 60
------------ ---------
Total adjustments 574 643
Net cash provided by
operating activities 109 214
Cash flows from investing activities:
Contribution to unconsolidated venture (164) -
Distribution from unconsolidated venture 164 -
---------- ------------
Net cash provided by
investing activities - -
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 in cash and cash equivalents 109 416
Cash and cash equivalents, beginning of period 704 367
--------- ---------
Cash and cash equivalents, end of period $ 813 $ 783
========= ========
Cash paid during the period for interest $ 365 $ 285
========= ========
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE, L.P.
Notes to Financial Statements
(Unaudited)
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 December 31, 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 control over
the operating investment property.
The following is a summary of property operating expenses for the three and
nine months ended September 30, 1995 and 1994 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Property operating expenses:
Repairs and maintenance $ 74 $ 64 $ 197 $ 177
Utilities 18 19 51 58
Property taxes 25 23 74 70
Management fees 18 17 53 50
Salaries and administrative 54 57 166 176
------- ------- ------- ------
$ 189 $ 180 $ 541 $ 531
====== ===== ====== =====
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.
<PAGE>
Summarized operating results of the unconsolidated joint venture for the
periods indicated are as follows:
Condensed Summary of Operations
For the three and nine months ended September 30, 1995 and 1994
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Rental revenues $ 388 $ 380 $1,124 $1,078
Other income 17 9 38 24
-------- --------- --------- ---------
405 389 1,162 1,102
Expenses:
Interest expense 224 214 657 641
Property operating expenses 123 116 378 359
Real estate taxes 26 26 78 80
Depreciation and amortization 90 91 265 266
-------- -------- -------- --------
463 447 1,378 1,346
------- ------- ------- -------
Net loss $ (58) $ (58) $ (216) $ (244)
======= ======== ======= =======
Net loss:
Partnership's share of
net loss $ (40) $ (40) $ (151) $ (171)
Co-venturer's share
of net loss (18) (18) (65) (73)
-------- -------- ------- --------
$ (58) $ (58) $ (216) $ (244)
======== ========= ======= =======
4. Note Payable
Note payable at December 31, 1995 and March 31, 1995 consists of the
following (in thousands):
December 31 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
========= =========
<PAGE>
5. Related Party Transactions
The Adviser earned management fees of $96,000 for each of the nine-month
periods ended December 31, 1995 and 1994. Deferred management fees at December
31, 1995 and March 31, 1995 consist of $1,212,000 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 the nine-month periods
ended December 31, 1995 and 1994 is $35,000 and $23,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner for
providing certain financial, accounting and investor communication services to
the Partnership.
Also included in general and administrative expenses for the nine-month
periods ended December 31, 1995 and 1994 is $2,000 and $1,000, respectively,
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 such actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
<PAGE>
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, which represent a combined 26%
of the Partnership's original investment portfolio. 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. The interest rate on such debt, which is tied to comparable
tax-exempt bond obligations, has fluctuated at between approximately 4% and 6%
per annum on the venture's $8.3 million debt obligation over the past two years.
Cash flow from the venture's operations is currently sufficient to cover
interest costs at an average rate of approximately 8%. 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 initial principal 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 $57,000 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 have been 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. During the quarter ended
December 31, 1995, the Partnership received a distribution of $164,000 from the
joint venture in repayment of the advances referred to above which were made in
connection with the September 1995 refinancing transaction.
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 sale 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 has continued throughout
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. The work on the exterior siding and
the balconies has been completed and was paid for out of cash flow from property
operations. Additional planned improvements will be worked on in calendar 1996
as cash flow is available. 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
continues to evaluate the Partnership's possible future operating strategies in
light of these circumstances.
At December 31, 1995, the Partnership and its consolidated joint venture
had available cash and cash equivalents of approximately $813,000. 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 December 31, 1995
The Partnership's net loss increased by $28,000 for the three months ended
December 31, 1995 as compared to the same period in the prior year. The increase
in the Partnership's net loss for the third quarter of fiscal 1996 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 $33,000. Interest expense increased as a result of an increase in the
average interest rate paid during the current three-month period on the variable
rate mortgage loan secured by the consolidated Summerwind Apartments. In
addition, property operating expenses increased at Summerwind by $9,000 due to a
small increase in repairs and maintenance costs. The increases in interest and
property operating expenses were partially offset by an increase in rental
income at Summerwind of $21,000 for the current three-month period. 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, remained unchanged when
compared to the same period in the prior year as increases in interest expense
and property operating expenses were offset by increases in rental income.
Interest expense increased as a result of the compounding of interest which
occured under the terms of the venture's prior mortgage debt which was
refinanced in September 1995, as discussed further above. Rental income
increased 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.
Nine Months Ended December 31, 1995
The Partnership's net loss increased by $36,000 for the nine months ended
December 31, 1995, as compared to the same period in the prior year. This
increase in the Partnership's net loss was the result of an increase in the
Partnership's operating loss of $56,000. The Partnership's operating loss
increased primarily due to an increase in interest expense of $126,000. 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 $64,000. 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 $20,000 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 at Woodchase in the current period. The
increase in rental income, of $46,000, 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
for the current nine-month period.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
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. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including Third PW Growth Properties, Inc. and Properties
Associates 1985, L.P. ("PA1985"), which are the General Partners of the
Partnership and affiliates of PaineWebber. On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in PaineWebber Growth Partners
Three L.P., PaineWebber, Third PW Growth Properties, Inc. and PA1985 (1) failed
to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in PaineWebber Growth
Partners Three L.P., also allege that following the sale of the partnership
interests, PaineWebber, Third PW Growth Properties, Inc. and PA1985
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, Third PW Growth
Properties, Inc. and PA1985 violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs seek
unspecified damages, including reimbursement for all sums invested by them in
the partnerships, as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships. In addition, the plaintiffs also
seek treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in PaineWebber Growth Partners
Three L.P. Pursuant to provisions of the Partnership Agreement and other
contractual obligations, under certain circumstances the Partnership may be
required to indemnify Third PW Growth Properties, Inc., PA1985 and their
affiliates for costs and liabilities in connection with this litigation.
Management has had discussions with representatives of PaineWebber and, based on
such discussions, the Partnership does not believe that PaineWebber intends to
invoke the aforementioned indemnifications in connection with the settlement of
this litigation.
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.
<PAGE>
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, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the 9 months ended December 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 813
<SECURITIES> 0
<RECEIVABLES> 2
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 815
<PP&E> 9,246
<DEPRECIATION> 3,267
<TOTAL-ASSETS> 7,102
<CURRENT-LIABILITIES> 755
<BONDS> 8,330
<COMMON> 0
0
0
<OTHER-SE> (3,194)
<TOTAL-LIABILITY-AND-EQUITY> 7,102
<SALES> 0
<TOTAL-REVENUES> 1,095
<CGS> 0
<TOTAL-COSTS> 977
<OTHER-EXPENSES> 151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> (465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (465)
<EPS-PRIMARY> (17.23)
<EPS-DILUTED> (17.23)
</TABLE>
