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, 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.
--------------------------------------
(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.
BALANCE SHEETS
September 30, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
September 30 March 31
------------ --------
Investment in joint venture, at equity $ 4 $ 86
Cash and cash equivalents 822 1,112
-------- --------
$ 826 $ 1,198
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 21 $ 26
Partners' capital 805 1,172
-------- --------
$ 826 $ 1,198
======== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended September 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (143) $ (3,196)
Net loss (6) (118)
------- --------
Balance at September 30, 1996 $ (149) $ (3,314)
======= ========
Balance at March 31, 1997 $ 83 $ 1,089
Cash distributions - (308)
Net loss (3) (56)
------- --------
Balance at September 30, 1997 $ 80 $ 725
======= ========
See accompanying notes.
<PAGE>
PAINEWEBBER GROWTH PARTNERS THREE L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1997 and 1996 (Unaudited)
(In thousands, except for per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income $ - $ 372 $ - $ 738
Interest and other income 11 10 26 19
------ ------ ------ -------
11 382 26 757
Expenses:
Property operating expenses - 181 - 359
Interest expense - 139 - 269
Depreciation - 71 - 136
Partnership management fees - - - 22
General and administrative 41 23 69 56
------ ------ ------ -------
41 414 69 842
------ ------ ------ -------
Operating loss (30) (32) (43) (85)
Partnership's share of
unconsolidated venture's loss (5) (14) (16) (39)
------ ------ ------ -------
Net loss $ (35) $ (46) $ (59) $ (124)
====== ====== ====== =======
Net loss per Limited
Partnership Unit $(1.29) $(1.69) $(2.18) $ (4.59)
====== ======= ====== =======
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 six months ended September 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (59) $ (124)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Partnership's share of unconsolidated venture's
loss 16 39
Depreciation - 136
Deferred management fees - 22
Amortization of deferred financing costs - 28
Changes in assets and liabilities:
Prepaid expenses - 16
Accounts payable and accrued expenses (4) 24
Accrued interest payable - 17
Advances from consolidated venture - (45)
----- ------
Total adjustments 12 237
----- ------
Net cash (used in) provided by operating
activities (47) 113
Cash flow from investing activities:
Contribution to unconsolidated venture - (61)
Distribution from unconsolidated venture 65 -
------ ------
Net cash provided by (used in) investing
activities 65 (61)
Cash flow from financing activities:
Distributions to partners (308) -
------ ------
Net (decrease) increase in cash and cash
equivalents (290) 52
Cash and cash equivalents, beginning of period 1,112 801
------ ------
Cash and cash equivalents, end of period $ 822 $ 853
====== ======
Cash paid during the period for interest $ - $ 224
====== ======
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 September 30, 1997 and March 31, 1997 and revenues and
expenses for each of the three and six-month periods ended September 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 pursuing a possible sale of this
final asset and a potential liquidation of the Partnership which could be
accomplished prior to the end of calendar year 1997. There are no assurances,
however, that the disposition of the Partnership's remaining asset, and a
liquidation of the Partnership will be accomplished within this time frame.
2. Related Party Transactions
--------------------------
The Adviser earned management fees of $22,000 for the six-month period
ended September 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 the six-month periods
ended September 30, 1997 and 1996 is $22,000 and $18,000, 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 six-month
periods ended September 30, 1997 and 1996 is $2,000 and $1,000, respectively,
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 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. Subsequent to such date, the venture was reported on a
consolidated basis in the Partnership's financial statements.
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 of Tara
Associates, Ltd. for the three and six months ended June 30, 1996 (in
thousands):
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ------------------
Property operating expenses:
Repairs and maintenance $ 69 $ 135
Utilities 17 35
Property taxes 25 50
Management fees 19 37
Salaries and administrative 51 102
------ -------
$ 181 $ 359
====== =======
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 and six months ended June 30, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental revenues $ 401 $ 376 $ 786 $ 734
Other income 18 17 34 32
----- ------ ------ -----
419 393 820 766
Expenses:
Interest expense 157 157 315 315
Property operating expenses 137 137 265 271
Real estate taxes 23 21 46 43
Depreciation 109 97 217 192
----- ------ ------ -----
426 412 843 821
----- ------ ------ -----
Net loss $ (7) $ (19) $ (23) $ (55)
===== ====== ====== =====
Net loss:
Partnership's share of net loss $ (5) $ (14) $ (16) $ (39)
Co-venturer's share of net loss (2) (5) (6) (16)
----- ------ ------ -----
$ (7) $ (19) $ (23) $ (55)
===== ====== ====== =====
As a result of the sale of the Summerwind Apartments (see Note 3), the
joint venture investment in the Woodchase Apartments is the Partnership's final
remaining asset. Management of the Partnership is currently focusing on
achieving a near-term sale of the Woodchase property and completing a
liquidation of the Partnership. The property has been marketed extensively and
sale packages were distributed to national, regional, and local prospective
purchasers. As a result of these efforts, 15 offers were received and most of
the offers were at a sale price in excess of the property's most recent
independent appraised value. The Partnership and the co-venture partner have
evaluated the offers, as well as the relative strength of the prospective
purchasers, and have selected an offer. A purchase and sale agreement was
negotiated with this prospective purchaser at a price of $13,050,000, and the
contract was signed on October 24, 1997. Consequently, the Partnership expects
to close the sale and complete a liquidation by the end of calendar year 1997.
Following the sale of the Woodchase Apartments, the net sale proceeds along with
the Partnership's remaining cash reserves after paying all liquidation-related
expenses will be distributed to the Limited Partners. This liquidating
distribution could be made by December 31, 1997. However, since the sale of the
Woodchase property remains subject to certain due diligence and financing
contingencies, there are no assurances that the sale and liquidation will be
completed within this time frame.
<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 on December 27, 1996 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 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 on 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
Woodchase property and completing a liquidation of the Partnership. The property
has been marketed extensively and sale packages were distributed to national,
regional, and local prospective purchasers. As a result of these efforts, 15
offers were received and most of the offers were at a sale price in excess of
the property's most recent independent appraised value. The Partnership and the
co-venture partner have evaluated the offers, as well as the relative strength
of the prospective purchasers, and have selected an offer. A purchase and sale
agreement was negotiated with this prospective purchaser at a price of
$13,050,000, and the contract was signed on October 24, 1997. Consequently, the
Partnership expects to close the sale and complete a liquidation by the end of
calendar year 1997. Following the sale of the Woodchase Apartments, the net sale
proceeds along with the Partnership's remaining reserves after paying all
liquidation-related expenses will be distributed to the Limited Partners. This
liquidating distribution could be made by December 31, 1997. However, since the
sale of the Woodchase property remains subject to certain due diligence and
financing contingencies, there are no assurances that the sale and liquidation
will be completed within this time frame.
The occupancy level at the Woodchase Apartments averaged 93% for the
quarter ended September 30, 1997, compared to 94% for the prior quarter. 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 more than its original net
investment in the Woodchase property, of $2.3 million, from the proposed sale
transaction. At the agreed upon sale price of $13,050,000, the Partnership would
realize approximately $4.7 million of net proceeds after the repayment of the
outstanding first mortgage loan, payment of closing costs and the co-venture
partner's share of the proceeds.
At September 30, 1997, the Partnership had available cash and cash
equivalents of approximately $822,000. 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 September 30, 1997
- -------------------------------------
The Partnership reported a net loss of $35,000 for the three months ended
September 30, 1997 as compared to a net loss of $46,000 for the same period in
the prior year. This decrease of $11,000 in the Partnership's net loss is mainly
due to a $9,000 decrease in the Partnership's share of unconsolidated venture's
loss. The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Woodchase joint venture, decreased mainly due to an
increase in rental revenue of $25,000. Rental revenue increased due to an
increase in average rental rates during the period. The increase in rental
revenue was partially offset by an increase in depreciation expense of $12,000.
Depreciation expense increased due to additional capital improvements made at
the property during fiscal 1997 as part of the process of preparing the property
for a potential sale, as discussed further above. In addition, the Partnership's
operating loss decreased by $2,000 due to the inclusion of the operating loss of
the consolidated Summerwind joint venture during the same period in the prior
year. As a result of the December 1996 sale discussed further above, there are
no results of the Summerwind joint venture included in the current period
operations.
Six Months Ended September 30, 1997
- -----------------------------------
The Partnership reported a net loss of $59,000 for the six months ended
September 30, 1997 as compared to a net loss of $124,000 for the same period in
the prior year. This decrease of $65,000 in the Partnership's net loss is the
result of a $42,000 decrease in the Partnership's operating loss and a decrease
of $23,000 in the Partnership's share of unconsolidated venture's loss. The
Partnership's operating loss decreased primarily due to the inclusion of $22,000
in management fees and an operating loss of $22,000 from the consolidated
Summerwind joint venture in the six months ended September 30, 1996. Management
fees are no longer charged to the Partnership as a result of the class action
settlement agreement finalized during fiscal 1997, as discussed further in the
Annual Report. As discussed above, the Summerwind Apartments were sold to an
unrelated third party on December 27, 1996. In addition, interest and other
income increased by $7,000 due to higher average outstanding cash balances for
the current six-month period resulting from the temporary investment of the
proceeds from the sale of the Summerwind Apartments. The decreases in management
fees and Summerwind operating loss and the increase in interest and other income
were partially offset by an increase in general and administrative expenses.
General and administrative expenses increased by $13,000 primarily due to the
timing of certain required professional fees when compared to 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, decreased by $23,000
mainly due to an increase in rental revenue. Rental revenue increased by $52,000
due to an increase in average rental rates during the period. The increase in
rental revenue was partially offset by an increase in depreciation expense of
$25,000. Depreciation expense increased due to additional capital improvements
which were completed at the property during fiscal 1997 as part of the process
of preparing the property for a potential sale, 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: November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the six months ended September
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 822
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 822
<PP&E> 4
<DEPRECIATION> 0
<TOTAL-ASSETS> 826
<CURRENT-LIABILITIES> 21
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 805
<TOTAL-LIABILITY-AND-EQUITY> 826
<SALES> 0
<TOTAL-REVENUES> 26
<CGS> 0
<TOTAL-COSTS> 69
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (59)
<INCOME-TAX> 0
<INCOME-CONTINUING> (59)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59)
<EPS-PRIMARY> (2.18)
<EPS-DILUTED> (2.18)
</TABLE>
