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, 1996
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
June 30, 1996 and March 31, 1996 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Operating investment property, at cost:
Land $ 670 $ 670
Buildings 7,932 7,932
Equipment and improvements 572 572
------- --------
9,174 9,174
Less accumulated depreciation (3,401) (3,336)
------- --------
5,773 5,838
Investment in unconsolidated joint venture, at equity 48 73
Cash and cash equivalents 794 801
Accounts receivable 2 2
Prepaid expenses 11 16
Deferred expenses, net 53 67
Other assets 227 227
------- --------
$ 6,908 $ 7,024
========= =========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 104 $ 107
Accrued interest payable 239 231
Loans payable to affiliates 357 357
Advances from consolidated venture 30 95
Deferred management fees payable to affiliate 1,265 1,243
Note payable 8,330 8,330
Partners' deficit (3,417) (3,339)
-------- --------
$ 6,908 $ 7,024
========= =========
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATION
For the three months ended June 30, 1996 and 1995 (Unaudited)
(In thousands, except per Unit data)
1996 1995
---- ----
Revenues:
Rental income $ 366 $ 354
Interest and other income 9 9
------- -------
375 363
Expenses:
Property operating expenses 178 166
Interest expense 130 140
Depreciation 65 67
Partnership management fees 22 32
General and administrative 33 41
---- ----
428 446
---- ----
Operating loss (53) (83)
Partnership's share of
unconsolidated venture's loss (25) (50)
---- ----
Net loss $ (78) $ (133)
======== =======
Net loss per Limited Partnership Unit $ (2.90) $ (4.95)
======== =======
The above net loss per Limited Partnership Unit is based upon the 25,657
Limited Partnership Units outstanding during each period.
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the three months ended June 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1995 $ (113) $(2,616)
Net loss (6) (127)
-------- --------
Balance at June 30, 1995 $ (119) $(2,743)
======== =======
Balance at March 31, 1996 $ (143) $(3,196)
Net loss (4) (74)
-------- --------
Balance at June 30, 1996 $ (147) $(3,270)
======== =======
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (78) $ (133)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Partnership's share of unconsolidated
venture's loss 25 50
Depreciation 65 67
Deferred management fees 22 32
Amortization of deferred financing costs 14 14
Changes in assets and liabilities:
Prepaid expenses 5 14
Accounts payable and accrued expenses (3) (14)
Accrued interest payable 8 9
Advances from consolidated venture (65) (5)
---- ----
Total adjustments 71 167
---- ----
Net cash provided by (used in)
operating activities (7) 34
Cash flows from investing activities:
Contribution to unconsolidated venture - (164)
---- ----
Net decrease in cash and cash equivalents (7) (130)
Cash and cash equivalents, beginning of period 801 704
---- ----
Cash and cash equivalents, end of period $ 794 $ 574
====== ======
Cash paid during the period for interest $ 108 $ 117
====== ======
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE, L.P.
Notes to Consolidated 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, 1996.
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, 1996 and March 31, 1996; 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
months ended March 31, 1996 and 1995 (in thousands):
1996 1995
---- ----
Property operating expenses:
Repairs and maintenance $ 66 $ 55
Utilities 18 16
Property taxes 25 25
Management fees 18 18
Salaries and administrative 51 52
---- ----
$ 178 $166
====== ====
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 months ended March 31, 1996 and 1995
(in thousands)
1996 1995
---- ----
Revenues:
Rental revenues $ 358 $ 358
Other income 15 10
------ ------
373 368
Expenses:
Interest expense 158 217
Property operating expenses 134 110
Real estate taxes 22 26
Depreciation 95 87
------ ------
409 440
------ ------
Net loss $ (36) $ (72)
====== =======
Net loss:
Partnership's share of net loss $ (25) $ (50)
Co-venturer's share of net loss (11) (22)
------ ------
$ (36) $ (72)
====== =======
4. Note Payable
Note payable at June 30, 1996 and March 31, 1996 consists of the following
(in thousands):
June 30 March 31
------ --------
Mortgage loan payable by the
consolidated Tara Associates, Ltd.
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. The
fair value of the mortgage note
payable approximated its carrying
value as of March 31, 1996 and
December 31, 1995. $ 8,330 $ 8,330
======= =======
<PAGE>
5. Related Party Transactions
The Adviser earned management fees of $22,000 and $32,000 for the
three-month periods ended June 30, 1996 and 1995, respectively. Deferred
management fees at June 30, 1996 and March 31, 1996 consist of $1,265,000 and
$1,243,000, 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 three-month
periods ended June 30, 1996 and 1995 is $11,000 and $12,000, 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 both of the
three-month periods ended June 30, 1996 and 1995 is $1,000, representing fees
earned by Mitchell Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
6. Contingencies
As discussed in detail in the Partnership's Annual Report for the year
ended March 31, 1996, the Partnership is involved in certain legal actions. At
the present time, the Managing General Partner is unable to determine what
impact, if any, the resolution of these matters may have 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 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 several 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. Such excess cash flow is being used to pay
Partnership operating expenses, except for Partnership management fees, the
payment of which has been deferred since September of 1986. The debt secured by
the Summerwind property, which requires interest-only payments until maturity
in March 1997, was provided by tax-exempt revenue bonds issued by a local
housing authority. During fiscal 1996, 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. Current cash flow from the venture's operations would be sufficient
to cover interest-only payments at an average rate of approximately 9%.
Nonetheless, such cash flow would likely 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 would not yield any significant proceeds above the current debt
obligation. It appears unlikely that market conditions will improve
sufficiently in the near-to-intermediate term to increase this value
substantially.
The revenue bonds which are secured by the mortgage loan encumbering the
Summerwind property are also secured by an irrevocable letter of credit
agreement between the lender and the Housing Authority of Clayton County. The
letter of credit, which will expire on March 16, 1997, is an irrevocable
obligation of the lender up to an amount sufficient to pay the then outstanding
principal of the bonds plus 45 days interest calculated at 15% per annum. The
mortgage loan secured by the Summerwind Apartments is subject to various
prepayment provisions including a mandatory redemption on March 16, 1997, the
first scheduled remarketing date, as defined, which coincides with the
expiration of the letter of credit agreement. Unless the letter of credit is
replaced or extended, the venture's mortgage loan will become immediately due
and payable upon this scheduled expiration date. Management is currently
assessing the available alternatives with respect to the pending expiration of
the letter of credit, which include selling the property and repaying the
mortgage indebtedness prior to March of 1997, refinancing the bonds with
conventional mortgage financing or negotiating a new letter of credit
agreement. Management will pursue the course of action which it believes will
result in the maximum overall return to the Limited Partners. However, there
are no assurances that any of these alternatives are achievable. As discussed
above, management believes that selling the property would not generate any
significant proceeds after the repayment of the outstanding indebtedness. In
addition, because the venture's cash flow will likely not support the required
debt service payments under conventional financing of the outstanding principal
balance, the current mortgage lender would have to accept a discounted payoff
in order to accomplish a refinancing transaction. Furthermore, it may not be
possible to obtain a replacement or extended letter of credit due to the
extremely high loan-to-value ratio of the underlying mortgage loan.
Nonetheless, management will continue to make every fiscally responsible effort
to recover some portion of the Partnership's original investment in Summerwind.
Management intends to continue to operate the property to maximize cash flow in
the near term.
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 was 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 approximately $57,000 and
matures on October 1, 2002. The proceeds of the new loan were used to repay the
existing $8 million debt which encumbered the Woodchase property, as well as to
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 approximately $112,000 due to the reduction in
the interest rate, resulting in positive cash flow for the joint venture. As a
result, during the quarter ended December 31, 1995 the Partnership received a
cash flow 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 assumable
financing which reduces debt service costs 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 balance by between $2 million to $3 million. Depending on
management's view of the the property's long-term appreciation potential,
management could determine that a sale of the Woodchase property in the
near-term would be in the Partnership's best interests. If the Partnership's
interest in Woodchase were sold, a liquidation of the Partnership would likely
be initiated, and, if the Partnership's interest in Summerwind has not been
sold, restructured or foreclosed on at that time, it would be sold or assigned,
most likely only for a nominal amount.
Upon the sale or disposition of the Partnership's investments, the taxable
gain or loss incurred will be allocated among the partners. In the case where a
taxable gain would be incurred, gain would first be allocated to the General
Partners in an amount at least sufficient to eliminate their deficit capital
balance. Any remaining gain would then be allocated to the Limited Partners. In
certain cases, the Limited Partners could be allocated taxable income in excess
of any liquidation proceeds that they may receive. Additionally, in cases where
the disposition of any investment involves a foreclosure by, or voluntary
conveyance to, the mortgage lender, taxable income could occur without the
distribution of cash. Income from the sale or disposition of the Partnership's
investments would represent passive income to the partners which could be
offset by each partners' existing passive losses, including any carryovers from
prior years.
At June 30, 1996, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $794,000. 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 variable 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 this interest rate rises significantly in the near future, the
Partnership's cash flow 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, if any,
received from the sale or refinancing of the two remaining investment
properties.
Results of Operations
Three Months Ended June 30, 1996
The Partnership's net loss decreased by $55,000 for the three months ended
June 30, 1996, when compared to the same period in the prior year. This
decrease in the Partnership's net loss was the result of a decrease in the
Partnership's operating loss of $30,000 and a decrease in the Partnership's
share of unconsolidated venture's loss of $25,000. Operating loss decreased due
to an increase in rental revenues from the consolidated Summerwind joint
venture of $12,000 and a decrease in total expenses of $18,000. Rental revenues
at Summerwind increased due to an increase in average rental rates. Total
expenses decreased due to decreases in interest expense, management fee expense
and general and administrative expenses of $10,000, $10,000 and $8,000,
respectively. Interest expense decreased as a result of a decrease in the
average interest rate paid during the current three-month period on the
variable rate mortgage loan secured by the consolidated Summerwind Apartments.
Management fees decreased because the Partnership reached a cumulative limit
during the current three-month period on the maximum amount of allowable
management fees per the terms of the Partnership's advisory contract. The
decreases in interest expense, management fee expense and general and
administrative expenses were partially offset by an increase in property
operating expenses of $12,000. Property operating expenses increased due to an
increase in repairs and maintenance expenses at the Summerwind Apartments.
The Partnership's share of unconsolidated venture's loss decreased by
$25,000 for the three months ended June 30, 1996, when compared to the same
period in the prior year. The decrease in the Partnership's share of the net
loss of the Woodchase joint venture was mainly due to a decrease in interest
expense of $59,000. Interest expense decreased due to the September 1995
refinancing of the venture's mortgage debt, which resulted in a significantly
lower interest rate. The decrease in interest expense was partially offset by
small increases in the venture's depreciation, repairs and maintenance and
professional fees expenses.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in prior quarterly and annual reports, 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.
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. On
July 17, 1996, PaineWebber and the class plaintiffs submitted a definitive
settlement agreement which has been preliminarily approved by the court and
provides for the complete resolution of the class action litigation, including
releases in favor of the Partnership and the General Partners, and the
allocation of the $125 million settlement fund among investors in the various
partnerships at issue in the case. As part of the settlement, PaineWebber also
agreed to provide class members with certain financial guarantees relating to
some of the partnerships. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement has been scheduled for
October 25, 1996.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Annual Report on Form 10-K for the year ended March 31, 1996.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
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: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the three months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 794
<SECURITIES> 0
<RECEIVABLES> 2
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 807
<PP&E> 9222
<DEPRECIATION> 3401
<TOTAL-ASSETS> 6908
<CURRENT-LIABILITIES> 730
<BONDS> 8330
0
0
<COMMON> 0
<OTHER-SE> (3417)
<TOTAL-LIABILITY-AND-EQUITY> 6908
<SALES> 0
<TOTAL-REVENUES> 375
<CGS> 0
<TOTAL-COSTS> 298
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> (78)
<INCOME-TAX> 0
<INCOME-CONTINUING> (78)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78)
<EPS-PRIMARY> (2.90)
<EPS-DILUTED> (2.90)
</TABLE>
