UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 04-2882258
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(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
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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.
BALANCE SHEETS
June 30, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Investment in joint venture, at equity $ 75 $ 86
Cash and cash equivalents 770 1,112
-------- ---------
$ 845 $ 1,198
======== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 5 $ 26
Partners' capital 840 1,172
-------- ---------
$ 845 $ 1,198
======== =========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (143) $(3,196)
Net loss (4) (74)
--------- -------
Balance at June 30, 1996 $ (147) $(3,270)
======== =======
Balance at March 31, 1997 $ 83 $ 1,089
Cash distributions - (308)
Net loss (1) (23)
-------- -------
Balance at June 30, 1997 $ 82 $ 758
======== =======
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except for per Unit data)
1997 1996
---- ----
Revenues:
Rental income $ - $ 366
Interest and other income 15 9
------- -------
15 375
Expenses:
Property operating expenses - 178
Interest expense - 130
Depreciation - 65
Partnership management fees - 22
General and administrative 28 33
------- -------
28 428
------- -------
Operating loss (13) (53)
Partnership's share of
unconsolidated venture's loss (11) (25)
------- -------
Net loss $ (24) $ (78)
======= =======
Net loss per Limited Partnership Unit $ (0.89) $ (2.90)
======= =======
Cash distributions per Limited Partnership
Unit $ 12.00 $ -
======= =======
The above net loss and cash distributions per Limited Partnership Unit are
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 CASH FLOWS
For the three months ended June 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (24) $ (78)
Adjustments to reconcile net loss to net
cash used in operating activities:
Partnership's share of unconsolidated
venture's loss 11 25
Depreciation - 65
Deferred management fees - 22
Amortization of deferred financing costs - 14
Changes in assets and liabilities:
Prepaid expenses - 5
Accounts payable and accrued expenses (21) (3)
Accrued interest payable - 8
Advances from consolidated venture - (65)
--------- ----------
Total adjustments (10) 71
--------- ----------
Net cash used in operating activities (34) (7)
Cash flow from financing activities:
Distributions to partners (308) -
--------- ----------
Net decrease in cash and cash equivalents (342) (7)
Cash and cash equivalents, beginning of period 1,112 801
--------- ----------
Cash and cash equivalents, end of period $ 770 $ 794
========= ==========
Cash paid during the period for interest $ - $ 108
========= ==========
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, 1997. 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.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of June 30, 1997 and March 31, 1997 and
revenues and expenses for each of the three-month periods ended June 30,
1997 and 1996. Actual results could differ from the estimates and
assumptions used.
As discussed further in Note 3, as a result of the sale of the operating
property owned by the Summerwind joint venture in December 1996, the
Partnership has one remaining joint venture investment, the Woodchase
Apartments (see Note 4). Management of the Partnership is currently
evaluating a potential liquidation of the Partnership which could be
accomplished prior to the end of fiscal 1998. There are no assurances,
however, that the disposition of the Partnership's remaining asset will be
accomplished within this time frame.
2. Related Party Transactions
The Adviser earned management fees of $22,000 for the three-month period
ended June 30, 1996. A limitation on cumulative management fees payable to
the Adviser was reached in the first quarter of fiscal 1997. The Advisor had
deferred payment of management fees beginning in September 1986 pending the
generation of cash flow from the Partnership's investment properties. As
part of the settlement agreement finalized in the fourth quarter of fiscal
1997 regarding the class action lawsuit discussed in the Annual Report, the
Adviser agreed to waive any amounts due to it under the advisory contract
with the Partnership. Consequently, $1,265,000 of deferred management fees
were written off and recognized as an extraordinary gain in fiscal 1997. See
the Partnership's Annual Report for further information regarding management
fees.
Included in general and administrative expenses for both of the three-month
periods ended June 30, 1997 and 1996 is $11,000, 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, 1997 and 1996 is $1,000, representing
fees earned by an affiliate, Mitchell Hutchins Institutional Investors,
Inc., for managing the Partnership's cash assets.
3. Sale of Operating Investment Property
The Partnership previously had an investment in one operating investment
property; the Summerwind Apartments, owned by Tara Associates, Ltd., a
majority owned and controlled joint venture. 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.
On December 27, 1996, Tara Associates, Ltd. sold the Summerwind Apartments
to an unrelated third party for a net price of $550,000 plus the assumption
of the outstanding principal balance of the mortgage loan secured by the
property of $8,330,000. The Partnership received net proceeds of
approximately $319,000 after deducting closing costs and other credits to
the buyer. The Partnership made a special distribution to the Limited
Partners on June 13, 1997 in the amount of approximately $308,000, or $12
per original $1,000 investment, from the proceeds of this transaction.
For income tax reporting purposes, the Summerwind joint venture was required
to maintain its accounting records on a calendar year basis. As a result,
the Partnership had accounted for its joint venture investment based on
financial information which was three months in arrears to that of the
Partnership. The following is a summary of property operating expenses
reported on the Partnership's consolidated statements of operations for the
three months ended March 31, 1996 (in thousands):
1996
----
Property operating expenses:
Repairs and maintenance $ 66
Utilities 18
Property taxes 25
Management fees 18
Salaries and administrative 51
------
$ 178
======
4. 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 months ended March 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Revenues:
Rental revenues $ 385 $ 358
Other income 16 15
------- -------
401 373
Expenses:
Interest expense 158 158
Property operating expenses 128 134
Real estate taxes 23 22
Depreciation 108 95
------- -------
417 409
Net loss $ (16) $ (36)
======= =======
Net loss:
Partnership's share of net loss $ (11) $ (25)
Co-venturer's share of net loss (5) (11)
------- -------
$ (16) $ (36)
======= =======
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended March 31, 1997 under the heading "Certain Factors Affecting Future
Operating Results", which could cause actual results to differ materially from
historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
During the third quarter of fiscal 1997, the Partnership signed a letter of
intent with an unrelated third party to sell the Summerwind Apartments for a net
price of $550,000 in cash. The net purchase price reflected the assumption by
the purchaser of the $8,330,000 first mortgage loan secured by the operating
investment property. The Partnership received net proceeds of approximately
$319,000 after deducting closing costs and other credits to the buyer. The
Partnership made a special distribution to the Limited Partners on June 13, 1997
in the amount of approximately $308,000, or $12 per original $1,000 investment,
from the proceeds of this transaction. The Partnership's original investment in
the Summerwind joint venture, which represented 13% of the original portfolio
investment, totalled approximately $2.4 million. Despite recovering less than
15% of the original investment, management believes it was the right time to
sell this asset in light of the property's estimated market value, the limited
potential for near-term appreciation and the lack of options for extending or
refinancing the venture's long-term debt.
The Summerwind joint venture had been 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 was being used to pay
Partnership operating expenses. The debt secured by the Summerwind property,
which required interest-only payments on a monthly basis, consisted of
tax-exempt revenue bonds issued by a local housing authority. The interest rate
on such debt, which was tied to comparable tax-exempt bond obligations, was
significantly lower than rates on conventional mortgage financing. In fact, the
venture's cash flow would likely not have been sufficient to support
conventional financing, including monthly principal amortization, at current
market interest rates. The mortgage loan secured by the Summerwind Apartments
was subject to various prepayment provisions including a mandatory redemption on
March 16, 1997, the first scheduled remarketing date, as defined, which
coincided with the expiration of the letter of credit agreement which secured
the underlying bonds. Unless the letter of credit was replaced or extended, the
venture's mortgage loan would have been immediately due and payable upon this
scheduled expiration date. Management's estimate of the fair market value of the
Summerwind Apartments put the value of the property at or slightly above the
amount of the outstanding first mortgage loan as of December 1996. Accordingly,
it was unlikely that the property would have satisfied a letter of credit
issuer's loan-to-value ratio requirements for issuing a new letter of credit.
Consequently, the property would likely have been subject to foreclosure
proceedings during fiscal 1997 if the Partnership had not completed the sale
transaction. The price that the buyer was willing to pay for the Summerwind
property was based mainly upon the ability to receive current net cash flow
after completing a modification and extension agreement with the mortgage
lender. The modification and extension agreement required that the buyer deposit
significant additional collateral with the mortgage lender.
As a result of the sale of the Summerwind Apartments, the Partnership has one
remaining joint venture investment, the Woodchase Apartments. Management of the
Partnership is currently focusing on achieving a near-term sale of the property
and possibly completing a liquidation of the Partnership by the end of fiscal
1998. There are no assurances, however, that both the disposition of the
remaining investment and the liquidation of the Partnership will be accomplished
within this time frame. 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. In refinancing the
Woodchase debt obligation, management obtained assumable financing which reduced
the venture's debt service costs and enhances the marketability of the property
for a possible sale. The occupancy level at the Woodchase Apartments averaged
94% for the quarter ended June 30, 1997, compared to 93% for the prior quarter.
Local market conditions for multi-family properties in the St. Louis area remain
strong with a limited amount of new construction activity in progress, and
concessions are longer offered to prospective renters at the Woodchase property.
As a result, the property's leasing team has implemented a 4% rental rate
increase on new and renewal leases currently being signed. The property's
management team is also continuing its efforts to remain competitive with newer
properties in the market by replacing the roofs on three buildings and repairing
deteriorating wood on a number of apartment balconies. A program of significant
property repairs and improvements was initiated at Woodchase during fiscal 1995
in anticipation of the venture's refinancing efforts and has continued
subsequent to the refinancing in anticipation of a potential sale of the
property. This program, combined with the continued improvements in the
apartment segment of the real estate market, has enhanced the market value of
the Woodchase property over the past several years. As a result, the Partnership
is expected to recover its original net investment in the Woodchase property, of
$2.3 million, from a near term sale transaction. As previously reported, the
Partnership and its co-venture partner have been exploring the potential for
selling Woodchase Apartments and have had discussions with brokerage firms.
Subsequent to the end of the first quarter, the Partnership reached an agreement
with the joint venture partner and selected a broker to offer the property for
sale. The marketing process has begun, and sales packages are being distributed
to prospective buyers.
At June 30, 1997, the Partnership had available cash and cash equivalents
of approximately $770,000. Such cash and cash equivalents will be used for the
working capital needs of the Partnership through its expected liquidation. The
source of future liquidity and distributions to the partners is expected to be
through the proceeds received from the sale or refinancing of the Partnership's
remaining investment property. Subsequent to the eventual sale of the Woodchase
investment, the net sale proceeds, along with the remaining Partnership reserves
after the payment of all liquidation-related expenses, will be distributed to
the Limited Partners.
Results of Operations
Three Months Ended June 30, 1996
- --------------------------------
The Partnership reported a net loss of $24,000 for the three months ended
June 30, 1997 as compared to a net loss of $78,000 for the same period in the
prior year. This $54,000 decrease in the Partnership's net loss is due to a
$40,000 decrease in the Partnership's operating loss and a $14,000 decrease in
the Partnership's share of unconsolidated venture's loss. The Partnership's
operating loss decreased mainly because the operating results for the three
months ended June 30, 1996 included $22,000 of management fee expense and a net
operating loss of $7,000 from the consolidated Summerwind joint venture.
Management fees are no longer charged to the Partnership as a result of the
settlement agreement finalized during fiscal 1997 regarding the class action
lawsuit, as discussed in the Annual Report. As discussed above, the Summerwind
Apartments were sold to an unrelated third party on December 27, 1996. In
addition, a $6,000 increase in interest and other income and a $5,000 decrease
in general and administrative expenses contributed to the decline in the
Partnership's operating loss for the current three-month period. Interest and
other income increased due to the higher average outstanding cash balances for
the current three-month period resulting from the temporary investment of the
proceeds from the December 1996 sale of the Summerwind Apartments prior to the
special distribution to the Limited Partners which occurred on June 13, 1997.
General and administrative expenses decreased mainly due to a reduction in
certain required professional services during the current three-month period.
The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Woodchase joint venture, decreased by $14,000
primarily due to a $27,000 increase in rental revenue which was partially offset
by a $13,000 increase in depreciation expense. Rental revenue increased mainly
due to an increase in average rental rates during the current three-month
period. Depreciation expense increased due to additional capital improvements at
the property during fiscal 1997 which were made in an effort to remain
competitive with newer properties in the St.
Louis market, as discussed further above.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
NONE
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, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30, 1997
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-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 770
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 770
<PP&E> 75
<DEPRECIATION> 0
<TOTAL-ASSETS> 845
<CURRENT-LIABILITIES> 5
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 840
<TOTAL-LIABILITY-AND-EQUITY> 845
<SALES> 0
<TOTAL-REVENUES> 15
<CGS> 0
<TOTAL-COSTS> 28
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (24)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> (0.89)
</TABLE>
