U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: MARCH 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: 0-17150
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
Texas 76-0147579
(State of organization) (I.R.S.Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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 .
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
Prospectus of registrant dated Part IV
September 11, 1985, as supplemented
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
1995 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of
Security Holders I-4
PART II
Item 5 Market for the Partnership's Limited
Partnership Interests and
Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of
Financial Condition
and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-6
PART III
Item 10 Directors and Executive Officers of the
Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial
Owners and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K IV-1
SIGNATURES IV-2
INDEX TO EXHIBITS IV-3
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1 to F-21
PART I
Item 1. Business
PaineWebber Development Partners Four, Ltd. (the ``Partnership') is a
limited partnership formed in June 1985 under the Uniform Limited Partnership
Act of the State of Texas to invest either directly or through the acquisition
of joint venture interests in a diversified portfolio of newly-constructed and
to-be-constructed income-producing properties. On September 9, 1986, the
Partnership elected to extend the offering period to the public through
September 10, 1987 and reduced the maximum offering amount to 42,000 Partnership
Units (at $1,000 per Unit) from 100,000 Units. At the conclusion of the
offering period 41,644 Units had been issued representing capital contributions
of $41,644,000. Limited Partners will not be required to make any additional
capital contributions.
As of March 31, 1995, the Partnership has investments, through joint
ventures and limited partnerships, in three residential apartment complexes
referred to below:
Name of Joint Venture
or Limited Partnership Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
The Lakes Joint Venture 770 units 11/1/85 Fee ownership of land and
The Lakes at South improvements (through
Coast Apartments joint venture partnership)
Costa Mesa, California
Lincoln Garden Apartments 200 units 11/15/85 Fee ownership of land and
Joint Venture improvements (through
Lincoln Garden Apartments joint venture partnership)
Tucson, Arizona
71st Street Housing Partners,
Ltd. 234 units 12/16/85 Fee ownership of land and
Harbour Pointe Apartments improvements (through
Bradenton, Florida limited partnership)
[FN]
(1)See Notes to the financial statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
The Partnership originally had investments in six operating investment
properties. Through March 31, 1995, three of these properties had been
forfeited through foreclosure proceedings. During the fourth quarter of fiscal
1991, due to a default by the Quinten's Crossing Joint Venture under the terms
of its mortgage loan, the lender was granted, by Court order, the right to
foreclose on the venture's operating property. As a result, on April 1, 1991,
the Partnership's co-venturer filed an involuntary petition under Chapter 11 of
the United States Bankruptcy Code on behalf of the venture. The bankruptcy
petition prevented an immediate foreclosure action. However, the venture
partners and the lender were unable to reach an agreement on an acceptable
modification of the mortgage obligation. Accordingly, on August 27, 1992, the
Partnership and its co-venturer forfeited their interests in Quinten's Crossing
to the mortgage lender. The Parrot's Landing Joint Venture had not made
required debt service payments since February 1, 1990. Because of the defaults,
the mortgage lender had the right to accelerate payment on the entire balance
ofthe mortgage note. The mortgage lender had given the joint venture formal
notice of default and had filed for foreclosure. On October 16, 1992, the
Partnership and the co-venturer forfeited their interests in Parrot's Landing to
the mortgage holder in settlement of the foreclosure proceedings, after
protracted negotiations failed to produce an acceptable loan modification
agreement. The Partnership also originally had an investment, through a limited
partnership, in a sixth apartment complex, the Clipper Cove Apartments, located
in Boynton Beach, Florida. On March 5, 1990, the Clipper Cove Apartments, owned
by The Landing Apartments, Ltd., was foreclosed on by the mortgage lender. The
lender was entitled to foreclose on the property because of the inability of the
venture to make the required debt service payments due on the mortgage loan.
Negotiations to modify the loan terms and efforts by the Partnership to locate a
buyer for the property were unsuccessful. As a result of these transactions,
the Partnership no longer owns any interest in these three properties.
The Partnership's original investment objectives were:
(1)to preserve and protect the original capital invested in the Partnership;
(2)to achieve long-term capital appreciation through potential appreciation in
the values of Partnership properties;
(3)to obtain tax losses during the early years of operations from deductions
generated by investments;
(4)to provide annual distributions of cash flow from operations of the
Partnership;
(5)to achieve accumulation of equity through reduction of mortgage loans on
Partnership properties.
The Partnership's operating investment properties have been adversely
affected by an oversupply of competing rental apartment properties in the
markets in which the properties are located. The effects of the resulting
competition, combined with high debt service costs and weakened local economies,
resulted in the inability of all of the joint ventures to meet their original
debt service obligations without contributions from the venture owners. This
situation has caused the Partnership to lose its investments in the Clipper Cove
Apartments, Quinten's Crossing Apartments and Parrot's Landing Apartments
through foreclosure proceedings, as discussed above. These three properties
comprised approximately 38% of the Partnership's original investment portfolio.
Furthermore, while the three remaining ventures have obtained more favorable
financing terms, additional relief from debt service obligations and continued
financial support from the venture partners may be required if the properties'
operations do not improve. The Managing General Partner, along with the
Partnership's co-venture partners, has pursued workout negotiations with the
mortgage holders on all of the operating investment properties in efforts to
obtain relief from debt service obligations, in order to protect the
Partnership's invested capital. Despite such efforts, which have been partially
successful, the Partnership will be unable to achieve most of its original
objectives due to the foreclosure losses of a substantial portion of the
original investment portfolio.
The Managing General Partner's strategy has been, and continues to be, to
marshall the Partnership's resources for use in protecting the investment
properties with the best long-term financial prospects in order to return as
much of the invested capital as possible. The portion of the Partnership's
original invested capital which may be returned to the Limited Partners will
depend upon the ultimate selling prices obtained for the three remaining
investment properties, which cannot presently be determined. At the present
time, all three remaining properties have estimated market values which are
below the balances of their outstanding debt obligations. The Partnership has
generated tax losses since inception. However, the benefits of such losses to
investors have been significantly reduced by changes in the federal income tax
laws subsequent to the organization of the Partnership. Furthermore, the
Partnership's investment properties have not produced sufficient cash flow from
operations to provide the Limited Partners with cash distributions to date.
All of the Partnership's investment properties are located in real estate
markets in which they face significant competition for the revenues they
generate. The apartment complexes compete with numerous projects of similar
type generally on the basis of price and amenities. Apartment properties in all
markets also compete with the local single family home market for prospective
tenants. Despite this competition, the lack of significant new construction of
multi-family housing over the past 2- to - 3 years has allowed the oversupply
which existed in most markets to begin to be absorbed, with the result being a
gradual improvement in occupancy levels and effective rental rates and a
corresponding increase in property values. Management of the Partnership
expects to continue to see improvement in this sector of the real estate market
in the near-term.
The Partnership has no real property investments located outside the United
States. The Partnership is engaged solely in the business of real estate
investment, therefore presentation of information about industry segments is not
applicable.
The Partnership has no employees; it has, however, entered into an Advisory
Contract with PaineWebber Properties Incorporated (the "Adviser''), which is
responsible for the day-to-day operations of the Partnership. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ('PWI''), a wholly-owned
subsidiary of PaineWebber Group Inc. (`PaineWebber'').
The general partners of the Partnership (the ``General Partners') are Fourth
Development Fund Inc., and Property Associates 1985, L.P. Fourth Development
Fund Inc. (the `Managing General Partner''), a wholly-owned subsidiary of
PaineWebber, is the managing general partner of the Partneship. The associate
general partner is Properties Associates 1985, L.P. (the ``Associate General
Partner'), a Virginia limited partnership, certain limited partners of which
are also officers of the Adviser and the Managing General Partner.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
Item 2. Properties
As of March 31,1995, the Partnership owns interests in three operating
properties through joint ventures and limited partnerships. These joint
ventures and limited partnerships and the related properties are referred to
under Item 1 above to which reference is made for the name, location and
description of each property.
Occupancy figures for each fiscal quarter during 1995, along with an
average for the year, are presented below for each property:
Percent Occupied at
Fiscal
1995
6/30/94 9/30/94 12/31/94 3/31/95 Average
The Lakes 94% 96% 93% 94% 94%
Lincoln Garden
Apartments 98% 94% 93% 95% 95%
Harbour Pointe
Apartments 94% 91% 95% 97% 94%
Item 3. 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 Fourth Development Fund 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 Development
Partners Four, Ltd., PaineWebber, Fourth Development Fund 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
Development Partners Four, Ltd., also allege that following the sale of the
partnership interests, PaineWebber, Fourth Development Fund Inc. and PA1985
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, Fourth Development
Fund 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. The defendants' time to move against or answer
the complaint has not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify Fourth Development Fund Inc., PA1985 and their affiliates for costs
and liabilities in connection with this litigation. The General Partners intend
to vigorously contest the allegations of the action, and believe that the action
will be resolved without material adverse effect on the Partnership's financial
statements, taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
None. PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
At March 31, 1995 there were 3,153 record holders of Units in the
Partnership. There is no public market for the resale of Units, and it is not
anticipated that a public market for the resale of Units will develop. The
Managing General Partner will not redeem or repurchase Units.
Item 6. Selected Financial Data
[CAPTION]
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
FOR THE YEARS ENDED MARCH 31, 1995, 1994, 1993, 1992 AND 1991
(IN THOUSANDS EXCEPT FOR PER UNIT DATA)
Years ended March 31,
1995 1994 1993 1992 (1) 1991
[S] [C] [C] [C] [C] [C]
Revenues $ 10,275 $ 10,481 $ 10,359 $ 10,542 $ 1,590
Operating loss $ (2,047) $ (1,503)$ (2,141)$ (7,582) $ (650)
Partnership's share of
unconsolidated ventures'
losses $ (35) $ (101) $(1,032) $ (1,788) $ (8,793)
Partnership's share of
gain on transfer of assets
at foreclosure - - $ 821 - -
Loss before extraordinary
items $ (2,082) $ (1,604)$ (2,350)$ (5,535)$ (9,385)
Extraordinary loss - - - $ (1,338) -
Partnership's share of
extraordinary gains on
settlement of debt obligations - - $ 6,968 - -
Net income (loss) $ (2,082) $ (1,604)$ 4,618 $ (6,873) $ (9,385)
Per Limited Partnership Unit:
Loss before extraordinary
items $ (47.48)$ (36.59)$ (54.64) $ (126.27) $(219.88)
Extraordinary loss - - - $ (30.52) -
Extraordinary gains - - $ 150.23 - -
Net income (loss) $ (47.48) $ (36.59) $ 95.59 $ (156.79)$ (219.88)
Total assets $ 77,924 $ 80,500 $ 83,600 $ 86,988 $ 11,510
Mortgage loans payable $ 92,870 $ 93,518 $ 95,083 $ 97,375 $ 9,125
[FN]
(1)During fiscal 1992, as further discussed in Note 4 to the accompanying
financial statements, the Partnership assumed complete control of the joint
venture which owns and operates The Lakes at South Coast Apartments.
Accordingly, the joint venture, which had been accounted for under the
equity method in prior periods, has been consolidated in the Partnership's
financial statements for years subsequent to fiscal 1991.
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the 41,644
Limited Partnership Units outstanding during each year.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership offered limited partnership interests to the public from
September 11, 1985 to September 5, 1987 pursuant to a Registration Statement on
Form S-11 filed under the Securities Act of 1933. Gross proceeds of $41,644,000
were received by the Partnership and, after deducting selling expenses and
offering costs, approximately $32,751,000 was originally invested in joint
venture interests in six residential apartment properties. The performance of
the Partnership's investment properties has been adversely impacted by an
oversupply of competing apartment units throughout the country and in the six
local markets in which the properties are located. Through March 31, 1995,
these conditions have resulted in the loss of three of the properties to
foreclosure: Clipper Cove Apartments in March 1990, Quinten's Crossing
Apartments in August 1992 and Parrot's Landing Apartments in October 1992. The
foreclosures of these three properties represent a loss of approximately 38% of
the original investment portfolio. The operations of the three remaining
assets, The Lakes at South Coast Apartments, the Harbour Pointe Apartments and
the Lincoln Garden Apartments,have been stabilized as a result of successful
debt restructurings, and the properties do not currently require the use of the
Partnership's cash reserves to support operations. Nonetheless, the properties
would not operate at or above breakeven under conventional financing terms based
on the current outstanding principal amounts owed. All three of these
properties have been financed with tax-exempt bonds issued by local housing
authorities. The interest rates on all three of these restructured debt
obligations are now variable rates which are based on comparable rates on
similar tax-exempt obligations. Such rates rose during fiscal 1995 along with
the general increase in market interest rates, but remained 3 to 4 percent per
annum below comparable conventional rates. As previously reported, the debt
modification agreement for The Lakes was structured with certain debt service
reserves and accrual features intended to help absorb interest rate
fluctuations. The Lakes Joint Venture still has significant reserves in place
to help absorb possible future increases in the mortgage interest rate. The
Harbour Pointe and Lincoln Garden joint ventures would require advances from
the venture partners, principally the Partnership in the case of Harbour
Pointe, if future cash flows are insufficient to cover any increases in debt
service payments.
Despite a general strengthening in the real estate market for multi-family
residential properties over the past three years, based on current cash flows
generated from operations, all three of the Partnership's remaining properties
have estimated current market values which are below the balances of their
outstanding debt obligations. It remains to be seen whether further improvement
in market conditions will occur as rapidly or to the extent necessary to enable
the Partnership to recover any meaningful portion of its original investment in
these three remaining properties. In addition, the Reimbursement Agreement
which governs the secured debt obligations of The Lakes Joint Venture contains
certain restrictive covenants, including a provision that required the venture
to provide the lender, in September 1994, with an independent appraisal of the
operating property showing the value of the property to be equal to or greater
than $92 million. Failure to provide such an appraisal is defined as an event of
default under the Reimbursement Agreement. Based on current cash flow levels and
the prevailing market conditions, the value of the property could be expected to
be considerably less than $92 million. The Managing General Partner has had
preliminary discussions with the lender regarding possible changes to the 1994
appraisal requirement. Preliminary indications have been that the lender might
consider waiving or modifying the minimum appraised value requirement for
September 1994 in exchange for a rearrangement of the timing and amounts of
certain payment priorities, as specified in the Reimbursement Agreement.
However, to date the venture has not provided the lender with an appraisal which
meets the $92 million requirement, and the lender has not waived or modified the
minimum appraised value requirement. Accordingly, the venture is technically in
default under the Reimbursement Agreement. Management does not expect the lender
to take any actions as long as progress continues to be made in negotiations for
modification to the terms of the Reimbursement Agreement. However, there can be
no assurances that the lender will grant any relief in connection with this
appraisal covenant.
In the event that management is successful in negotiating a waiver or
modification of the minimum appraised value requirement described above for The
Lakes Joint Venture, which represents approximately 49% of the Partnership's
original investment portfolio, the Partnership will continue to direct the
management of the remaining operating properties in order to generate sufficient
cash flow to sustain operations in the near-term while attempting to maximize
their long-term values. As discussed above, even under these circumstances, it
remains to be seen whether such a strategy would result in the return of any
significant amount of invested capital to the Limited Partners. If management
cannot reach an agreement with The Lakes' mortgage lender regarding the
appraisal covenant, the lender could choose to initiate foreclosure proceedings.
The Partnership is prepared to exercise all available legal remedies in the
event that the lender takes such actions. If the Partnership were not successful
with such legal defenses and the result was a foreclosure of the operating
property, the Partnership would have to weigh the costs of continued operations
against the realistic hopes for any future recovery of capital from the other
two investments. Under such circumstances, the Managing General Partner might
determine that it would be in the best interests of the Limited Partners to
liquidate the remaining investments and terminate the Partnership. In light of
these circumstances, the independent auditors' report on the Partnership's
financial statements as of and for the year ended March 31, 1995 includes
qualifying language which expresses uncertainty regarding the Partnership's
ability to continue as a going concern. Management will reassess its future
operating strategy once the appraisal covenant compliance issue on The Lakes is
resolved.
As a result of the lower tax-exempt interest rates on their respective loan
obligations, each of the remaining joint ventures is generating cash flow in
excess of their current debt service requirements. For The Lakes Joint Venture,
such excess cash flow continues to be applied toward the reduction of the
venture's outstanding indebtedness. Additional principal paydowns during fiscal
1995 totalled approximately $648,000. In the near term, barring a significant
further increase in tax-exempt interest rates, excess cash flow from Harbour
Pointe should be sufficient to cover the Partnership's operating expenses.
Excess cash flow from the Lincoln Garden joint venture has been minimal and is
primarily payable to the co-venturer for the repayment of prior advances. To
the extent that the Partnership's operating properties continue to generate
excess cash flow after current debt service, a substantial portion of such
amounts will be reinvested in the properties to make certain repairs and
improvements aimed at maximizing long-term value. At The Lakes, planned capital
improvements for the next fiscal year include the completion of a major capital
program begun during fiscal 1995. Such improvements include upgrading the
hallways, elevator landings and lobbies and painting. Improvements planned at
Lincoln Garden for fiscal 1996 include resurfacing the pool deck, replacing the
roofs on several buildings, repairing the sidewalks and upgrading the unit
interiors on a turnover basis. Management completed an improvement program at
Harbour Pointe during the first quarter of calendar 1994 which included exterior
painting and the installation of new window awnings. Future improvements at
this property are expected to include new pool furniture, additional exterior
lighting and the installation of individual water meters in all units. The
amount and timing of the funds to be spent on property improvements at all three
of the remaining ventures will depend upon the availability of cash flow from
the respective property's operations.
At March 31, 1995 the Partnership and its consolidated joint ventures had
available cash and cash equivalents of approximately $1,292,000. Such cash and
cash equivalents will be used for the working capital requirements of the
Partnership and the consolidated ventures and, to the extent necessary and
economically justified, to fund the Partnership's share of capital improvements
and operating deficits of its remaining joint venture investments. The source
of future liquidity and distributions to the partners is expected to be through
proceeds received from the sale, refinancing or other disposition of the
remaining investment properties and, to a lesser extent, from cash generated
from the operations of such properties.
RESULTS OF OPERATIONS
1995 Compared to 1994
The Partnership's net loss increased by $478,000 during fiscal 1995 as
compared to the prior year. The primary reasons for this increase in net loss
were increases in property operating expenses, an increase in interest expense
and a decrease in other income. Property operating expenses increased by
$183,000 primarily due to an increase in repairs and maintenance expenses at The
Lakes at South Coast Apartments. Repairs and maintenance expenses increased as a
result of the start of a major capital improvement and deferred maintenance
program at the property, particularly to upgrade common areas, elevator landings
and lobbies. Interest expense increased by $87,000 primarily due to an increase
in the variable interest rates on the mortgage loans secured by the
Partnership's consolidated joint ventures, The Lakes at South Coast Apartments
and the Harbour Point Apartments. In addition, the interest cap on The Lakes
debt which fixed the interest rate on the mortgage loan at less than 4% per
annum expired at the end of calendar 1993. Other income decreased by $313,000
primarily due to the receipt of real estate tax refunds by The Lakes Joint
Venture during the prior year. Rental revenues at the two consolidated
investment properties were fairly flat compared to the prior year, which
reflects the competitive local market conditions facing The Lakes and Harbour
Pointe Apartments. At The Lakes, a combination of a still depressed Southern
California economy and some newly constructed competing projects have forced
management to offer substantial concessions to maintain average occupancy levels
in the mid-90% range. At Harbour Pointe, rental rate increases implemented in
calendar 1993 had pushed rents at the property to the top of its local market.
Competition from some newly constructed projects during calendar 1994 made it
impossible to continue the pace of these rental rate increases. The market had
stabilized somewhat by the end of the year and management expects to be able to
increase rents further in calendar 1995. In addition, management expects to
improve net cash flow at Harbour Pointe upon the completion of the individual
water meter installation referred to above, which will transfer water usage
costs to the tenants. The increases in property operating expenses and interest
expense and the decrease in other income were partially offset by an increase of
$64,000 in interest income earned on short-term investments and a decrease of
$66,000 in the Partnership's share of the unconsolidated venture's loss. The
increase in interest income earned on short term investments is a result of a
steady increase in interest rates earned on such investments throughout the
year. The decrease in the Partnership's share of the unconsolidated venture's
loss, which represents the operating results of the Lincoln Garden joint
venture, was mainly the result of an increase in rental rates at the Lincoln
Garden Apartments. Although average property occupancy levels fell slightly
from the high to low 90% range during the middle two quarters of the year,
rental rates increased by approximately 6% over the prior year.
1994 Compared to 1993
The Partnership had a net loss of approximately $1,604,000 for the year
ended March 31, 1994 as compared to net income of approximately $4,618,000 in
the prior year. The primary reason for this significant change in reported net
operating results is the impact of the foreclosures of the Quinten's Crossing
and Parrot's Landing properties during fiscal year 1993. The effects of the
foreclosures were partially offset by the continued improvement in the net
operating results of The Lakes Joint Venture, as discussed further below.
During the prior year, the foreclosures of the Quinten's Crossing Apartments and
Parrot's Landing Apartments generated extraordinary gains on settlement of debt
obligations of approximately $9,322,000. The Partnership's share of such gains
was approximately $6,969,000. The transfers of Quinten Crossing's and Parrot's
Landing to the lenders through foreclosure proceedings were accounted for as
troubled debt restructurings in accordance with Statement of Financial
Accounting Standards No. 15, `Accounting by Debtors and Creditors for Troubled
Debt Restructurings.'' The extraordinary gains arise due to the fact that the
balance of the mortgage loans and related accrued interest exceeded the
estimated fair value of the respective joint ventures' investment properties and
certain other assets transferred to the lenders at the time of the foreclosure.
The Partnership also recognized a net gain during the prior year on the
transfers of assets at foreclosure in the amount of approximately $821,000. In
accordance with SFAS No. 15, a gain or loss on transfer of assets is calculated
as the difference between the net carrying value of the operating investment
property and its fair value at the time of foreclosure. Quinten's Crossing had
a loss on transfer of assets of approximately $4,897,000, of which approximately
$3,065,000 was allocated to the Partnership. Parrot's Landing had a gain on
transfer of assets of approximately $3,764,000 of which approximately $3,886,000
was allocated to the Partnership. The Partnership's share of the Parrot's
Landing ordinary gain was greater than the gain recognized by the joint venture
due to the method of allocating the gain as called for in the joint venture
agreement.
The Partnership's operating loss decreased by approximately $637,000 during
fiscal 1994 as compared to the prior year primarily as a result of the continued
reduction in the net operating loss of the consolidated Lakes Joint Venture. The
net loss of the Lakes Joint Venture decreased by approximately $652,000 mainly
as a result of a decrease in interest expense on the venture's variable rate
long-term debt of approximately $716,000. Interest expense decreased due to the
venture's purchase of a one-year interest rate cap, which fixed the interest
rate on the mortgage loan at less than 4% per annum for calendar 1993. In
addition, the variable interest rate on the venture's long-term debt fell below
the rate specified by the cap during portions of calendar 1993. The operating
results of the consolidated Harbour Pointe joint venture improved by
approximately $29,000 during calendar 1993. The operating results of Harbour
Pointe also improved as a result of a decrease in interest expense of
approximately $49,000 on the venture's variable rate debt. The decrease in
interest expense was a result of a lower average rate on the variable rate debt
during calendar 1993 as compared to the prior year.
The Partnership's share of unconsolidated ventures' losses decreased by
approximately $931,000 during fiscal 1994 as compared to the prior year. The
Partnership's share of unconsolidated ventures' losses for fiscal 1993 included
the operating losses of the Quinten's Crossing and Parrot's Landing properties
prior to their foreclosures during fiscal 1993. The operating loss of the
Partnership's remaining unconsolidated venture, the Lincoln Garden Apartments,
decreased by approximately $50,000 as a result of an increase in rental income
and a decrease in interest expense on the venture's variable rate mortgage.
Rental income at Lincoln Garden increased by approximately 9%, almost entirely
due to an increase in rental rates. Property occupancy remained stable, in the
low 90's, throughout both calendar 1992 and 1993.
1993 Compared to 1992
The Partnership had net income of approximately $4,618,000 for the year
ended March 31, 1993, as compared to a net loss of approximately $6,873,000 in
the prior year. The primary reasons for this significant change in reported net
operating results were a substantial improvement in the net operating results of
the Partnership's consolidated joint ventures and the impact of the foreclosures
of the Quinten's Crossing and Parrot's Landing properties. The net operating
losses of The Lakes Joint Venture declined significantly in fiscal 1993 and
contributed an additional amount of approximately $1,446,000 to the
Partnership's net operating results as compared to the prior year, primarily due
to substantial decreases in interest expense and real estate taxes. The
decrease in interest expense was a result of the successful restructuring of the
venture's long-term debt, which had been in default. As noted above, the
interest rate on the restructured debt is a variable rate which was at its
lowest level in many years during calendar 1992. Interest was accruing on the
debt at a default rate for a portion of the prior year. In addition, the
venture's real estate tax expense declined by approximately $766,000 as a result
of certain refunds and abatements received. The Partnership also realized a
decrease in the operating loss of the consolidated Harbour Pointe joint venture
of approximately $272,000 primarily due to a decrease in interest expense of
approximately $173,000. This decrease was a result of the refinancing of the
loan secured by the Harbour Pointe Apartments in fiscal 1991. The variable
interest rate on the new loan continued to decline with general market rates
during calendar 1992.
The Partnership's net operating results were also favorably impacted by the
foreclosures of the Quinten's Crossing Apartments and Parrot's Landing
Apartments, which, as discussed further above, generated extraordinary gains on
settlement of debt obligations of approximately $9,322,000. The Partnership's
share of such gains was approximately $6,969,000. Quinten's Crossing had a loss
on transfer of assets of approximately $4,897,000, of which approximately
$3,065,000 was allocated to the Partnership. Parrot's Landing had a gain on
transfer of assets of approximately $3,764,000 of which approximately $3,886,000
was allocated to the Partnership.
A decrease in the Partnership's share of unconsolidated ventures' losses of
approximately $756,000 also contributed to the change in the Partnership's net
operating results and could be primarily attributed to the foreclosures of
Quinten's Crossing and Parrot's Landing, which had generated net operating
losses prior to their foreclosures. The operations of the Partnership's
remaining unconsolidated venture, Lincoln Garden, did not change significantly
as compared to the prior year. However, the Partnership's share of the
venture's net loss increased by approximately $103,000 in fiscal 1993 due to the
method of allocating such losses between the venture partners as required by the
joint venture agreement.
Inflation
The Partnership commenced operations in 1985 and completed its ninth full
year of operations in the current fiscal year. The effects of inflation and
changes in prices on the Partnership's operating results to date have not been
significant.
Inflation in future periods may increase revenues as well as operating
expenses at the Partnership's operating investment properties. Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration. Rental rates at these properties can be adjusted to keep
pace with inflation, to the extent market conditions allow, as the leases are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None. PART III
Item 10. Directors and Executive Officers of the Partnership
The General Partners of the Partnership are Fourth Development Fund Inc.
(the `Managing General Partner''), a Texas corporation, which is a wholly-owned
subsidiary of PaineWebber, and Properties Associates 1985, L.P. (the `Associate
General Partner'), a Virginia limited partnership, certain limited partners of
which are officers and employees of the Managing General Partner.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
Lawrence Cohen President and Chief Executive Officer 41 5/1/91
Albert Pratt Director 84 6/24/85 *
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President and Chief Financial
Officer 47 10/29/85
James A. Snyder Senior Vice President 49 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and Assistant
Treasurer 52 6/24/85 *
Timothy J. Medlock Vice President and Treasurer 33 6/1/88
Thomas W. Boland Vice President 32 12/1/91
* The date of incorporation of the Managing General Partner.
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors or
executive officers of the Managing General Partner of the Partnership. All of
the foregoing directors and officers have been elected to serve until the annual
meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber.
They are also officers and employees of PaineWebber Properties Incorporated
("PWPI"), a wholly-owned subsidiary of PWI. The business experience of each of
the directors and principal executive officers of the Managing General Partner
is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of PWPI which he
joined in January 1989. He is also a member of the Board of Directors and the
Investment Committee of PWPI. From 1984 to 1988, Mr. Cohen was First Vice
President of VMS Realty Partners where he was responsible for origination and
structuring of real estate investment programs and for managing national broker-
dealer relationships. He is a member of the New York Bar and is a Certified
Public Accountant.
Albert Pratt is a Director of the Managing General Partner, a Consultant of
PWI and a general partner of the Associate General Partner. Mr. Pratt joined
PWI as Counsel in 1946 and since that time has held a number of positions
including Director of both the Investment Banking Division and the International
Division, Senior Vice President and Vice Chairman of PWI and Chairman of
PaineWebber International, Inc.
J. Richard Sipes is a Director of the Managing General Partner and a Director
of the Adviser. Mr. Sipes is an Executive Vice President at PaineWebber. He
joined the firm in 1978 and has served in various capacities within the Retail
Sales and Marketing Division. Before assuming his current position as Director
of Retail Underwriting and Trading in 1990, he was a Branch Manager, Regional
Manager, Branch System and Marketing Manager for a PaineWebber subsidiary,
Manager of Branch Administration and Director of Retail Products and Trading.
Mr. Sipes holds a B.S. in Psychology from Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and Senior Vice President and Chief Financial
Officer of PWPI which he joined in October 1985. Mr. Arnold joined PWI in 1983
with the acquisition of Rotan Mosle, Inc. where he had been First Vice President
and Controller since 1978, and where he continued until joining PWPI. Mr.
Arnold is a Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company. John B. Watts III is a
Senior Vice President of the Managing General Partner and a Senior Vice
President of PWPI which he joined in June 1988. Mr. Watts has had over 16
years of experience in acquisitions, dispositions and finance of real estate.
He received degrees of Bachelor of Architecture, Bachelor of Arts and Master
of Business Administration from the University of Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an Assistant Treasurer
of PWPI which he joined in March 1980. From 1972 to 1980, Mr. Brooks was an
Assistant Treasurer of Property Capital Advisors and also, from March 1974 to
February 1980, the Assistant Treasurer of Capital for Real Estate, which
provided real estate investment, asset management and consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing General
Partner and Vice President and Treasurer of PWPI which he joined in 1986. From
June 1988 to August 1989, Mr. Medlock served as the Controller of the Managing
General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was associated
with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate University in
1983 and received his Masters in Accounting from New York University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner and a
Vice President and Manager of Financial Reporting of the Adviser which he joined
in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur Young &
Company. Mr. Boland is a Certified Public Accountant licensed in the state of
Massachusetts. He holds a B.S. in Accounting from Merrimack College and an
M.B.A. from Boston University.
(f) None of the directors and officers was involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer. (g) Compliance With Exchange Act Filing Requirements:
The Securities Exchange Act of 1934 requires the officers and directors of the
Managing General Partner, and persons who own more than ten percent of the
Partnership's limited partnership units, to file certain reports of ownership
and changes in ownership with the Securities and Exchange Commission.
Officers, directors and ten-percent beneficial holders are required by SEC
regulations to furnish the Partnership with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended March 31, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed renumeration from the Partnership.
The General Partners are entitled to receive a share of Partnership cash
distributions and a share of profits and losses. These items are described in
Item 13.
The Partnership has never paid regular quarterly distributions of excess
cash flow. Furthermore, the Partnership's Limited Partnership Units are not
actively traded on any organized exchange, and no efficient secondary market
exists. Accordingly, no accurate price information is available for these
Units. Therefore, a presentation of historical unitholder total returns would
not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, Fourth Development Fund Inc., is owned by
PaineWebber. Properties Associates 1985, L.P. the Associate General Partner,
is a Virginia limited partnership, certain limited partners of which are also
officers of the Managing General Partner. No limited partner is known by the
Partnership to own beneficially more than 5% of the outstanding interests of
the Partnership.
(b) Neither directors nor officers of the Managing General Partner nor the
limited partners of the Associate General Partner, individually, own any Units
of limited partnership interest of the Partnership. No officer or director of
the Managing General Partner, nor any limited partner of the Associate General
Partner, possesses a right to acquire beneficial ownership of Units of limited
partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation
of which may, at a subsequent date, result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are Fourth Development Fund Inc.
(the `Managing General Partner''), a wholly-owned subsidiary of PaineWebber
Group Inc. (`PaineWebber'') and Properties Associates 1985, L.P. (the
`Associate General Partner''), a Virginia limited partnership, certain limited
partners of which are also officers of the Managing General Partner and
PaineWebber Properties Incorporated (`PWPI''), a wholly-owned subsidiary of
PaineWebber Incorporated (`PWI''). PWI, a wholly-owned subsidiary of
PaineWebber, acted as the selling agent for the Limited Partnership Units. The
General Partners, PWPI and PWI will receive fees and compensation, determined
on an agreed-upon basis, in consideration of various services performed in
connection with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership investments.
The Managing General Partner and its affiliates are reimbursed for their direct
expenses relating to the offering of Units, the administration of the
Partnership and the acquisition and operation of the Partnership's real property
investments.
All distributable cash, as defined, for each fiscal year shall be
distributed annually in the ratio of 95% to the Limited Partners and 5% to the
General Partners. All sale or refinancing proceeds shall be distributed in
varying proportions to the Limited and General Partners, as specified in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, net income or loss of
the Partnership, other than net gains resulting from Capital Transactions, as
defined, will generally be allocated 95% to the Limited Partners and 5% to the
General Partners.
Additionally, the Partnership Agreement provides for the allocation of net
gains resulting from Capital Transactions, as defined, first, to those partners
whose capital accounts reflect a deficit balance (after all distributions for
the year and all allocations of net income and losses from operations have been
made) in the ratio of such deficits and up to an amount equal to the sum of
such deficits; second, to the General and Limited Partners in such amounts as
are necessary to bring the General Partners' capital account balance in the
ratio of 5 to 95 to the Limited Partners' capital account balances; then, 95%
to the Limited Partners and 5% to the General Partners. Selling commissions
incurred by the Partnership and paid to PWI for the sale of Partnership
interests were approximately $3,540,000 through the completion of the offering
period which expired in September of 1987.
In connection with the acquisition of properties, PWPI was entitled to
receive acquisition fees in an amount not greater than 5% of the gross proceeds
from the sale of the Partnership units. Total acquisition fees incurred by the
Partnership and paid to PWPI aggregated $2,077,000.
The Partnership recorded as income a total of $5,000 of investor servicing
fees from certain of its joint ventures for the year ended March 31, 1995.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended March 31, 1995 is $84,000, representing reimbursements to this
affiliate of the Managing General Partner for providing such services to the
Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. (`Mitchell Hutchins'') for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc.,
an independently operated subsidiary of PaineWebber. Mitchell Hutchins earned
fees of $4,000 (included in general and administrative expenses) for managing
the Partnership's cash assets during fiscal 1995. Fees charged by Mitchell
Hutchins are based on a percentage of invested cash reserves which varies based
on the total amount of invested cash which Mitchell Hutchins manages on behalf
of the Adviser. PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedule at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page IV-3 are filed as part of this Report.
(b) No reports on Form 8-K were filed during the last quarter of fiscal
1995.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedule at page F-1.
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINEWEBBER DEVELOPMENT
PARTNERS FOUR, LTD.
By: Fourth Development Fund Inc.
Managing General Partner
By: /s/ Lawrence A. Cohen
Lawrence A. Cohen
President and
Chief Executive Officer
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: June 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
By:/s/ Albert Pratt Date: June 28, 1995
Albert Pratt
Director
By: /s/ J. Richard Sipes Date: June 28, 1995
J. Richard Sipes
Director
IV-2
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(3)
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
INDEX TO EXHIBITS
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
(3) and (4) Prospectus of the Partnership Filed with the Commission
dated September 11, 1985, as pursuant to Rule 424(c) and
supplemented, with particular incorporated herein
reference to the Amended and by reference.
Restated Agreement and Certificate
of Limited Partnership
(10) Material contracts previously Filed with the Commission
filed as exhibits to registration pursuant to Section 13 or
statements and amendments thereto 15(d) of the Securities
of the registrant together with all Act of 1934 and Icorporated
such contracts filed as exhibigs of by reference.
previously filed Forms 8-K and Forms
10-K are hereby incorporated herein
by reference.
(13) Annual Report to Limited Partners No Annual Report for the
fiscal year 1995 has been
sent to the Limited
Partners. An Annual Report
will be sent to the Limited
Partners subsequent to this
filing.
(22) List of subsidiaries Included in Item I of Part
1 of this Report pages I-1
and I-2, to which reference
is hereby made.
IV-3
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2) AND ITEM 14(D)
PAINEWEBBER DEVELOPMENT
PARTNERS FOUR, LTD.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Reference
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.:
Reports of independent auditors F-2
Consolidated balance sheets as of March 31,1995 and 1994 F-4
Consolidated statements of operations for the years ended
March 31, 1995, 1994 and 1993 F-5
Consolidated statements of changes in partners' deficit for the
years ended March 31,1995, 1994 and 1993 F-6
Consolidated statements of cash flows for the years
ended March 31, 1995, 1994 and 1993 F-7
Notes to consolidated financial statements F-8
Schedule III - Real Estate and Accumulated Depreciation F-21
Other financial statement schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements, including the notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners
PaineWebber Development Partners Four, Ltd.:
We have audited the accompanying consolidated balance sheets of PaineWebber
Development Partners Four, Ltd. as of March 31, 1995 and 1994, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for each of the three years in the period ended March 31, 1995. We have
also audited the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of 71st Street Housing Partners, Ltd. for the years ended
December 31, 1994 and 1993, which statements reflect 10% of the Partnership's
consolidated total assets as of March 31, 1995 and 1994, and 1% of the
Partnership's consolidated net loss for the years ended March 31, 1995 and 1994.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to data included for 71st Street
Housing Partners, Ltd., is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of PaineWebber Development
Partners Four, Ltd. at March 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the financial statements, the ability of The Lakes
Joint Venture (a consolidated joint venture investee) to continue as a going
concern is dependent upon future events, including the waiver or modification of
a restrictive covenant on its existing non-recourse debt requiring The Lakes to
provide, by September 1994, a certified independent appraisal of The Lakes'
operating investment property for an amount equal to or greater than
$92,000,000. Failure to provide such an appraisal constitutes an event of
default under The Lakes' loan agreement. These conditions raise substantial
doubt about the Partnership's ability to continue as a going concern.
Management's plans as to these matters are also described in Note 7 and include
negotiating with the lender regarding a possible waiver or modification of this
appraisal requirement. However, there are no assurances that the lender will
grant any relief. The accompanying financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
/s/ Ernst & Young
ERNST & YOUNG LLP
Boston, Massachusetts
June 23, 1995
Reznick Fedder & Silverman
Certified Public Accountants
217 East Redwood Street, Suite 1900
Baltimore, MD 21202
INDEPENDENT AUDITORS' REPORT
To the Partners
71st Street Housing Partners, Ltd.
We have audited the accompanying balance sheets of 71st Street Housing
Partners, Ltd. as of December 31, 1994 and 1993, and the related statements of
operations, changes in partners' deficit and cash flows for each of the two
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of 71st Street Housing Partners, Ltd. for the year ended
December 31, 1992, were audited by other auditors whose report, dated January
28, 1993, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the 1994 and 1993 financial statements referred to above present
fairly, in all material respects, the financial position of 71st Street Housing
Partners, Ltd. as of December 31, 1994 and 1993, and the results of its
operations, changes in partners' deficit and its cash flows for each of the two
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
/S/ Reznick Fedder & Silverman
Reznick Fedder & Silverman
Baltimore, Maryland
January 11, 1995
PAINEWEBBER DEVELOPMENT
PARTNERS FOUR, LTD.
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and 1994
(In Thousands, except for per Unit data)
ASSETS
1995 1994
Operating investment properties:
Land $ 18,190 $ 18,190
Building and improvements 76,825 76,400
95,015 94,590
Less accumulated depreciation (22,386) (19,339)
72,629 75,251
Cash and cash equivalents 1,292 1,252
Restricted cash 3,045 2,900
Accounts receivable - affiliates 11 39
Prepaid and other assets 67 67
Deferred expenses, net of accumulated
amortization of $514 ($508 in 1994) 880 991
$ 77,924 $ 80,500
LIABILITIES AND PARTNERS' DEFICIT
Long-term debt in technical default $ 83,745 $ -
Accounts payable and accrued expenses 390 311
Accrued interest and fees 3,156 2,716
Advances from consolidated ventures - 100
Tenant security deposits 441 398
Minority interest in net assets of
consolidated ventures 1,221 1,221
Equity in losses of unconsolidated joint venture
in excess of investments and advances 2,099 2,064
Deferred gain on forgiveness of debt 4,087 4,430
Long-term debt 9,125 93,518
Total liabilities 104,264 104,758
Partners' deficit:
General Partners:
Capital contributions 1 1
Cumulative net loss (2,501) (2,397)
Limited Partners ($1,000 per unit;
41,644 Units issued):
Capital contributions, net of
offering costs 36,641 36,641
Cumulative net loss (60,481) (58,503)
Total partners' deficit (26,340) (24,258)
$ 77,924 $ 80,500
See accompanying notes.
PAINEWEBBER DEVELOPMENT
PARTNERS FOUR, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1995, 1994 and 1993
(In thousands, except for per unit data)
1995 1994 1993
REVENUES:
Rental income $ 9,894 $ 9,851 $ 9,759
Interest income 163 99 171
Other income 218 531 429
10,275 10,481 10,359
EXPENSES:
Interest expense 4,207 4,120 4,723
Property operating expenses 3,744 3,561 3,606
Depreciation and amortization 3,053 3,010 3,008
Real estate taxes 1,033 1,007 942
General and administrative 285 286 221
12,322 11,984 12,500
Operating loss (2,047) (1,503) (2,141)
Co-venturers' share of consolidated
ventures' losses - - 2
Partnership's share of unconsolidated
ventures' losses (35) (101) (1,032)
Partnership's share of net gain on
transfers of assets at foreclosure - - 821
Loss before extraordinary items (2,082) (1,604) (2,350)
Partnership's share of extraordinary
gains on settlement of debt
obligations - - 6,968
NET INCOME (LOSS) $ (2,082) $ (1,604) $ 4,618
Per Limited Partnership Unit:
Loss before extraordinary items $ (47.48) $ (36.59) $ (54.64)
Partnership's share of
extraordinary gains on
settlement of debt obligations - - 150.23
Net income (loss) $ (47.48) $ (36.59) $ 95.59
The above per Limited Partnership Unit information is based upon the 41,644
Limited Partnership Units outstanding for each year.
See accompanying notes.
PAINEWEBBER DEVELOPMENT
PARTNERS FOUR, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the years ended March 31, 1995, 1994 and 1993
(In Thousands)
General Limited
Partners Partners Total
Balance at March 31, 1992 $ (2,954) $ (24,318) $ (27,272)
Net income 638 3,980 4,618
BALANCE AT MARCH 31, 1993 (2,316) (20,338) (22,654)
Net loss (80) (1,524) (1,604)
BALANCE AT MARCH 31, 1994 (2,396) (21,862) (24,258)
Net loss (104) (1,978) (2,082)
BALANCE AT MARCH 31, 1995 $ (2,500) $ (23,840) $ (26,340)
See accompanying notes.
PAINEWEBBER DEVELOPMENT
PARTNERS FOUR, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ (2,082) $ (1,604) $ 4,618
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Co-venturers' share of consolidated
ventures' losses - - (2)
Partnership's share of unconsolidated
ventures' losses 35 101 1,032
Depreciation and amortization 3,053 3,010 3,008
Amortization of deferred expenses 105 294 121
Amortization of deferred gain on
forgiveness of debt (343) (343) (346)
Partnership's share of net gain on transfers
of assets at foreclosure - - (821)
Partnership's share of extraordinary gains
from settlement of debt obligations - - (6,968)
Changes in assets and liabilities:
Accounts receivable - - 2
Accounts receivable - affiliates 28 (30) 4
Deferred expenses - - (126)
Accounts payable and accrued expenses 79 (133) 6
Accrued interest and fees 440 397 1,329
Tenant security deposits 43 41 18
Accounts payable - affiliates - (14) 10
Advances from consolidated ventures (100) 18 38
Total adjustments 3,340 3,341 (2,695)
Net cash provided by operating
activities 1,258 1,737 1,923
Cash flows from investing activities:
Additional investments in joint ventures - - (10)
Additions to operating investment properties (425) (155) (129)
Net cash used for investing
activities (425) (155) (139)
Cash flows from financing activities:
Decrease (increase) in restricted cash (145) 14 323
Repayment of long-term debt (648) (1,565) (2,292)
Net cash used for financing
activities (793) (1,551) (1,969)
Net increase (decrease) in cash and cash
equivalents 40 31 (185)
Cash and cash equivalents, beginning of year 1,252 1,221 1,406
Cash and cash equivalents, end of year $ 1,292 $ 1,252 $ 1,221
Cash paid for interest $ 3,965 $ 3,786 $ 3,589
See accompanying notes.
1. Organization
PaineWebber Development Partners Four, Ltd. (the ``Partnership'') is a
limited partnership organized pursuant to the laws of the State of Texas on
June 24, 1985 for the purpose of investing in a diversified portfolio of
newly-constructed and to-be-constructed income-producing real properties.
On September 9, 1986 the Partnership elected to extend the offering period
to the public through September 10, 1987 (beyond its original termination
date of September 10, 1986) and reduced the maximum offering amount to
42,000 Partnership Units (at $1,000 per Unit) from 100,000 Units. Through
the conclusion of the offering period, 41,644 Units were issued representing
capital contributions of $41,644,000.
The Partnership originally invested the net proceeds of the offering,
through joint venture partnerships, in six rental apartment properties. As
further discussed in Notes 4 and 5, the Partnership's operating properties
have encountered major adverse business developments which, to date, have
resulted in the loss of three of the original investments to foreclosure.
As of March 31, 1995, the remaining three joint ventures, which had obtained
more favorable financing terms, were generating net cash flow sufficient to
satisfy their current debt service requirements. However, as discussed
further in Note 7, one of these ventures is in technical default of the
terms of its debt agreement.
2. Summary of Significant Accounting Policies
The accompanying financial statements include the Partnership's
investments in three joint venture partnerships which own operating
properties. The joint ventures in which the Partnership has invested are
F-9
required to maintain their accounting records on a calendar year basis for
income tax purposes. As a result, the Partnership records its share of
ventures' income or losses based on financial information of the ventures
which is three months in arrears to that of the Partnership.
The Partnership accounts for one of its three remaining investments in
joint venture partnerships using the equity method because the Partnership
does not have majority voting control. Under the equity method the
investment is carried at cost adjusted for the Partnership's share of the
ventures' earnings and losses and distributions. See Note 5 for a
description of the unconsolidated joint venture partnerships. As further
discussed in Note 4, the Partnership acquired complete control of 71st
Street Housing Partners, Ltd., which owns the Harbour Pointe Apartments, in
fiscal 1990. In addition, the Partnership acquired complete control of The
Lakes Joint Venture, which owns The Lakes at South Coast Apartments, in
fiscal 1992. As a result, the accompanying financial statements present the
financial position and results of operations of these joint ventures on a
consolidated basis. As discussed above, the joint ventures have December 31
year-ends and operations of the consolidated ventures continue to be
reported on a three-month lag. All material transactions between the
Partnership and the joint ventures have been eliminated in consolidation,
except for lag-period cash transfers. Such lag period cash transfers are
accounted for as advances from consolidated ventures on the accompanying
balance sheets.
The consolidated joint ventures' operating investment properties are
carried at the lower of cost, reduced by accumulated depreciation, or net
realizable value. The net realizable value of a property held for long-term
investment purposes is measured by the recoverability of the investment
through expected future cash flows on an undiscounted basis, which may
exceed the property's current market value. The net realizable value of a
property held for sale approximates its market value. Both of the
consolidated ventures' operating investment properties were considered to be
held for long-term investment purposes as of March 31, 1995 and 1994.
Depreciation expense is computed using the straight-line method over
estimated useful lives of five-to-thirty years. Interest and taxes incurred
during the construction period, along with acquisition fees paid to
PaineWebber Properties Incorporated and costs of identifiable improvements,
have been capitalized and are included in the cost of the operating
investment properties. Maintenance and repairs are charged to expense when
incurred.
The Partnership has reviewed FAS No. 121 ``Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of'' which is
effective for financial statements for years beginning after December 15,
1995, and believes this new pronouncement will not have a material effect on
the Partnership's financial statements.
The consolidated joint ventures lease apartment units under leases with
terms generally of one year or less. Rental income is recorded monthly as
earned.
For purposes of reporting cash flows, the Partnership considers all highly
liquid investments with original maturities of 90 days or less to be cash
equivalents. In connection with the restructuring of the debt of The Lakes
Joint Venture, $191,338 of accrued interest payable and $190,755 of accrued
legal fees incurred in 1990 were forgiven in fiscal 1993 pursuant to the
debt restructuring. Such forgiveness of debt has been treated as a noncash
transaction.
Deferred expenses on the balance sheet at March 31, 1995 and 1994 consist
of joint venture modification expense and deferred loan costs. Joint
venture modification expense represents a payment by the Partnership to the
co-venturer in 71st Street Housing Partners, Ltd. during fiscal 1990, in
return for the relinquishment of the general partner's rights to control the
operations of the joint venture, and is being amortized on a straight-line
basis over the term of the joint venture's mortgage note payable. Deferred
loans costs are being amortized using the straight-line method over the term
of the related debt. Amortization of deferred loan costs is included in
interest expense on the accompanying statements of operations.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership. 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 an investment involves a
foreclosure by, or voluntary conveyance to, the mortgage lender, taxable
income could occur without 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 partner's existing passive
losses, including any carryovers from prior years.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are Fourth Development Fund Inc.
(the ``Managing General Partner'', a wholly-owned subsidiary of PaineWebber
Group Inc. (``PaineWebber') and Properties Associates 1985, L.P. (the
``Associate General Partner'', a Virginia limited partnership, certain
limited partners of which are also officers of the Managing General Partner
and PaineWebber Properties Incorporated (``PWPI'', a wholly-owned subsidiary
of PaineWebber Incorporated (``PWI'). PWI, a wholly-owned subsidiary of
PaineWebber, acted as the selling agent for the Limited Partnership Units.
The General Partners, PWPI and PWI will receive fees and compensation,
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management, financing and disposition of
Partnership investments. The Managing General Partner and its affiliates
are reimbursed for their direct expenses relating to the offering of Units,
the administration of the Partnership and the acquisition and operation of
the Partnership's real property investments.
All distributable cash, as defined, for each fiscal year shall be
distributed annually in the ratio of 95% to the Limited Partners and 5% to
the General Partners. All sale or refinancing proceeds shall be distributed
in varying proportions to the Limited and General Partners, as specified in
the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, net income or loss of
the Partnership, other than net gains resulting from Capital Transactions,
as defined, will generally be allocated 95% to the Limited Partners and 5%
to the General Partners.
Additionally, the Partnership Agreement provides for the allocation of
net gains resulting from Capital Transactions, as defined, first, to those
partners whose capital accounts reflect a deficit balance (after all
distributions for the year and all allocations of net income and losses from
operations have been made) in the ratio of such deficits and up to an amount
equal to the sum of such deficits; second, to the General and Limited
Partners in such amounts as are necessary to bring the General Partners'
capital account balance in the ratio of 5 to 95 to the Limited Partners'
capital account balances; then, 95% to the Limited Partners and 5% to the
General Partners.
Selling commissions incurred by the Partnership and paid to PWI for the
sale of Partnership interests were approximately $3,540,000 through the
completion of the offering period which expired in September of 1987.
In connection with the acquisition of properties, PWPI was entitled to
receive acquisition fees in an amount not greater than 5% of the gross
proceeds from the sale of the Partnership units. Total acquisition fees
incurred by the Partnership and paid to PWPI aggregated $2,077,000.
The Partnership recorded as income a total of $5,000, $83,000 and $48,000
of investor servicing fees from certain of its joint ventures for the years
ended March 31, 1995, 1994 and 1993, respectively.
Included in general and administrative expenses for the years ended March
31, 1995, 1994 and 1993 is $84,000, $93,000 and $82,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. (``Mitchell Hutchins') for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell
Hutchins earned fees of $4,000, $2,000 and $3,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1995, 1994 and 1993, respectively.
4. Operating Investment Properties
As of March 31, 1995 and 1994, the Partnership owns majority and
controlling interests in two joint venture partnerships which own operating
investment properties as described below. As discussed in Note 2, the
Partnership's policy is to report the operations of the joint ventures on a
three-month lag.
71st Street Housing Partners, Ltd.
On December 16, 1985, the Partnership acquired an interest in 71st Street
Housing Partners, Ltd., a joint venture formed to develop, own and operate
the Harbour Pointe Apartments, a 234-unit two-story garden apartment complex
located in Bradenton, Florida. Construction of this complex was completed
in January, 1987. The Partnership's co-venture partners are affiliates of
The Lieberman Corporation. The Partnership made a capital investment of
$2,658,000 (including an acquisition fee of $150,000 paid to PWPI) for a 60%
interest in the Joint Venture. The property was acquired subject to a
nonrecourse mortgage note in the amount of $9,200,000. On May 1, 1990, the
joint venture refinanced its mortgage note under more favorable terms, as
further discussed in Note 7. Pursuant to an Amended and Restated Agreement
of the Limited Partnership dated August 4, 1989, the general partner
interests of the co-venturers were converted to limited partnership
interests. The co-venturers received a payment of $125,000 from the
Partnership in return for their agreement to relinquish their general
partner rights and the property management contract. As a result of the
amendment, the Partnership, as the sole general partner, assumed full
control of the operations of the property and hired a third-party property
manager to manage the day-to-day operations of the apartment complex.
Per the terms of the amended joint venture agreement, income is allocated
to the Partnership until such time as the Partnership's capital account
balance equals 250% of all capital contributions theretofore made by the
Partnership. Thereafter, income is allocated 60% to the Partnership and 40%
to the co-venturers. Net losses are generally allocated 95% to the
Partnership and 5% to the co-venturers.
Allocations of gains and losses from capital transactions will be
allocated according to the formulas provided in the joint venture agreement.
Distributions of cash from a sale or operations of the operating property
will be made in the following order of priority: first, to repay accrued
interest and principal on optional loans (none outstanding as of March 31,
1995 and 1994); second, to the Partnership until the Partnership has
received an amount equal to 250% of all capital contributions theretofore
made by the Partnership; and third, any remainder, will be distributed 60%
to the Partnership and 40% to the co-venturers. Distributions of cash from
a refinancing of the operating property shall be distributed 60% to the
Partnership and 40% to the co-venturers.
The Lakes Joint Venture
The Lakes Joint Venture ("Venture") was formed May 30, 1985 (inception) in
accordance with the provisions of the laws of the State of California for
the purpose of developing, owning and operating a 770-unit apartment complex
(operating investment property) in Costa Mesa, California. On November 1,
1985 the Partnership acquired a 65% general partnership interest in the
joint venture. The Partnership's original co-venture partner was The Lakes
Development Company ("Developer"), a California general partnership and an
affiliate of Regis Homes Corporation. Construction of the operating
investment property was completed in December 1987. The initial aggregate
cash investment made by the Partnership for its interest was approximately
$16,226,000 (including an acquisition fee of $1,130,000 paid to PWPI).
Construction of the property was financed from the proceeds of a nonrecourse
$76,000,000 mortgage loan. On September 26, 1991, in conjunction with a
refinancing and modification of the Venture's long-term indebtedness, the
Developer transferred its interest in the Venture to Development Partners,
Inc. ("DPI"), a Delaware corporation and a wholly-owned subsidiary of Paine
Webber Group, Inc., and withdrew from the Venture. As a result of the
original co-venturer's withdrawal, the Partnership assumed full control over
the operations of the Venture. The debt secured by the The Lakes at South
Coast Apartments is in technical default as of March 31, 1995 due to the
failure of the Venture to satisfy a covenant of the loan agreement. See
Note 7 for a further discussion.
Concurrent with the Developer's withdrawal from the Venture and the
admission of DPI as a Venturer, the Venture Agreement was amended and
restated effective September 26, 1991. The Venture Agreement between the
Partnership and DPI provides that, if the Venture's operating revenues are
insufficient to pay its operating expenses, the Venturers shall have the
right, but not the obligation, to arrange third-party loans to the Venture.
Alternatively, the Venturers may choose to make Optional Loans to the
Venture. If both Venturers desire to make such loans, the loans shall be
made in the ratio of 99.98% from the Partnership and .02% from DPI.
Distributable Funds and Net Proceeds of the Venture are to be allocated
first to the Partnership until the Partnership shall have received
cumulative distributions equal to any Additional Capital Contributions, as
defined. Thereafter, any remaining Distributable Funds or Net Proceeds are
to be distributed next to repay accrued interest and principal on any
Optional Loans and then to the Partnership until the Partnership shall have
received cumulative distributions equal to $17,250,000. Any remainder is to
be distributed 99.98% to the Partnership and .02% to DPI.
Net losses are to be allocated 99.98% to the Partnership and .02% to DPI.
Net income shall be allocated to Venturers to the extent of and in the ratio
of the distribution of Distributable Funds, with any remainder allocated
99.98% to the Partnership and .02% to DPI. In the event that there are no
Distributable Funds, net income would be allocated 99.98% to the Partnership
and .02% to DPI. Allocations of gain or losses from sales or other
dispositions of the operating investment property are set forth in the
Venture Agreement.
The following is a summary of combined property operating expenses for
Harbour Pointe Apartments and for The Lakes at South Coast Apartments for
the years ended December 31, 1994, 1993 and 1992:
1994 1993 1992
(in thousands)
Property operating expenses:
Repairs and maintenance $ 915 $ 768 $ 776
Salaries and related expenses 672 635 663
Utilities 504 547 541
Administrative and other 1,062 1,032 1,036
Management fee 349 354 350
Leasing commissions and fees 124 112 126
Insurance 118 113 114
$ 3,744 $ 3,561 $ 3,606
5. Investments in Unconsolidated Joint Ventures
The Partnership has an investment in one unconsolidated joint venture at
March 31, 1995 and 1994. During fiscal 1993, two of the Partnership's joint
venture investment properties were transferred to the respective mortgage
lenders through foreclosure proceedings. The unconsolidated joint ventures
are accounted for on the equity method in the Partnership's financial
statements. As discussed in Note 2, these joint ventures report their
operations on a calendar year basis.
The two unconsolidated joint ventures (Quinten's Crossing and Parrot's
Landing) that lost their operating properties to foreclosure in fiscal 1993
had been in violation of their mortgage loan agreements for extended periods
of time and had incurred significant cash flow deficits. In both of these
cases, management determined that the expense of continuing to contest the
lenders' foreclosure actions was not in the best interests of the
Partnership because the joint venture interests had no current or potential
future value without substantial concessions that the lenders were
ultimately unwilling or unable to give. The Partnership forfeited its
interest in Quinten's Crossing to the mortgage lender on August 27, 1992.
This transaction resulted in a net gain to the Partnership of approximately
$1,024,000, comprised of an extraordinary gain of approximately $4,089,000
and an ordinary loss of approximately $3,065,000. The Parrot's Landing
joint venture had filed for bankruptcy in fiscal 1992 in order to forestall
the lender's foreclosure actions. Under generally accepted accounting
principles, entities in reorganization under a Chapter 11 bankruptcy
proceeding generally recognize interest expense on a nonrecourse debt
obligation only to the extent that such interest is paid in cash. This
accounting treatment resulted in the non-recognition of contractual interest
expense in the amount of approximately $510,000 for calendar 1992. On
October 16, 1992, the Partnership and its co-venture partner forfeited their
interests in the Parrot's Landing Apartments to the mortgage lender in
settlement of the foreclosure litigation. This transaction resulted in a
net gain to the Partnership of approximately $6,765,000, comprised of an
extraordinary gain of approximately $2,879,000 and an ordinary gain of
approximately $3,886,000. The transfer of each joint venture's operating
property to the lender was accounted for as a troubled debt restructuring in
accordance with Statement of Financial Accounting Standards No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructurings". As
a result, each joint venture's extraordinary gain from settlement of debt
obligation arose due to the fact that the balance of the mortgage loan and
related accrued interest exceeded the estimated fair market value of each
joint venture's operating property and other assets transferred to the
lender at the time of the foreclosure. In accordance with SFAS No. 15, an
ordinary gain or loss on transfer of assets is calculated as the difference
between the net carrying value of each joint venture's net operating
investment property and its estimated fair value at the time of the
foreclosure.
Condensed combined financial statements of the unconsolidated joint
ventures, for the periods indicated, follow. The operating results
reflected in the condensed combined summary of operations for 1992 include
the results of the Quinten's Crossing and Parrot's Landing apartment
complexes up through the date that the operating properties were transferred
to the lenders.
CONDENSED COMBINED BALANCE SHEETS
December 31, 1994 and 1993
Assets
(in thousands)
1994 1993
Current assets $ 126 $ 17
Operating investment property, net 4,996 5,082
Other assets 375 447
$ 5,497 $ 5,546
Liabilities and Partners' Deficit
Current liabilities $ 427 $ 363
Loans payable to affiliates 537 537
Long-term debt 6,900 6,964
Partnership's share of combined deficit (2,239) (2,208)
Co-venturer's share of combined deficit (128) (110)
$ 5,497 $ 5,546
Condensed Combined Summary of Operations
For the years ended December 31, 1994, 1993 and 1992
(in thousands)
1994 1993 1992
Rental revenues $ 1,102 $ 1,038 $ 3,897
Interest and other income 109 51 190
1,211 1,089 4,087
Property operating expenses 636 656 2,273
Depreciation and amortization 212 282 866
Interest expense (contractual
interest of $2,566,000 in 1992) 411 301 2,056
1,259 1,239 5,195
Net loss from operations (48) (150) (1,108)
Net loss on transfer of assets
at foreclosure - - (1,133)
Loss before extraordinary gains (48) (150) (2,241)
Extraordinary gains on
settlement of debt obligations - - 9,323
Net income (loss) $ (48) $ (150) $ 7,082
Net income (loss):
Partnership's share of
income (loss) $ (31) $ (97) $ 6,761
Co-venturers' share of
income (loss) (17) (53) 321
F-23
$ (48) $ (150) $ 7,082
Reconciliation of Partnership's Investment
March 31, 1995 and 1994
(in thousands)
1995 1994
Partnership's share of combined deficit
as shown above at December 31 $ (2,239) $ (2,208)
Partnership's share of current liabilities 60 60
Excess basis due to investment in joint
venture, net (1) 80 84
Equity in losses of unconsolidated joint
venture in excess of investment
and advances at March 31 (2) $ (2,099) $ (2,064)
(1) At March 31, 1995 and 1994, the Partnership's investment exceeds its
share of the combined joint venture's deficit account by approximately
$80,000 and $84,000, respectively. These amounts, which relate to certain
expenses incurred by the Partnership in connection with acquiring its
remaining unconsolidated joint venture investment, are being amortized
using the straight-line method over the estimated useful life of the
related operating investment property.
(2) Investments in unconsolidated joint venture, at equity at March 31,
1995 and 1994 represents the Partnership's net investment in the Lincoln
Garden joint venture partnership. This joint venture is subject to a
partnership agreement which determines the distribution of available
funds, the disposition of the venture's assets and the rights of the
partners, regardless of the Partnership's percentage ownership interest in
the venture. Substantially all of the Partnership's investment in this
joint venture is restricted as to distributions.
Reconciliation of Partnership's Share of Operations
For the years ended March 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
Partnership's share of
operations, as shown above $ (31) $ (97) $ 6,761
Amortization of excess basis (4) (4) (4)
Partnership's share of
unconsolidated ventures' net
income (loss) $ (35) $ (101) $ 6,757
The Partnership's share of unconsolidated ventures' net income (loss) is
presented as follows on the accompanying statement of operations:
1994 1993 1992
Partnership's share of
unconsolidated ventures' losses $ (35) $(101) $(1,032)
Partnership's share of net gain on
transfers of assets at foreclosure - - 821
Partnership's share of extraordinary
gains on settlement of debt obligations - - 6,968
Partnership's share of unconsolidated
ventures' net income (loss) $ (35) $(101) $6,757
A description of the property owned by the remaining unconsolidated joint
venture and certain other matters are summarized below:
Lincoln Garden Apartments Joint Venture
On November 15, 1985, the Partnership acquired an interest in a joint
venture which developed, owns and operates Lincoln Garden Apartments, a 200-
unit complex located on an 8.1-acre tract of land in Tucson, Arizona.
Construction of this complex was completed in June, 1986. The Partnership's
co-venture partner is an affiliate of Lincoln Property Company. The
Partnership made a cash investment of approximately $1,762,000 (including an
acquisition fee of $103,125 paid to PWPI) for a 65% interest in the Joint
Venture. The property was acquired subject to a nonrecourse mortgage note
in the amount of $7,700,000.
During fiscal 1989, the joint venture ceased to meet the debt service
requirements of its mortgage financing and, technically, was in default of
the loan agreements. In March 1989, the Partnership refinanced its loan and
obtained a lower interest rate which reduced the venture's debt service
requirements. Interest rates on the previous financing arrangement ranged
from 7.2% to 8.8% per annum. The new financing arrangement bore interest at
varying rates ranging from 2.26% to 3.77% and 2.515% to 3.112% during
calendar 1994 and 1993, respectively. The venture has remained current on
its debt service payments since the date of the refinancing. The mortgage
note has a remaining principal balance of $6,900,000 as of December 31, 1994
and is scheduled to mature on May 1, 1997. To improve the credit rating of
the outstanding debt and provide a more favorable variable interest rate, in
1993 the lender provided to the joint venture a confirming letter of credit
for $7,109,500. The confirming letter of credit requires annual fees equal
to 0.3% of the letter of credit amount and expires on June 4, 1996.
The co-venturer guaranteed to fund negative cash flow, as defined, of the
Joint Venture during the guarantee period, which ended September 30, 1988.
Operating expenses and debt service, if any, in excess of the amounts
available for expenditure were to be funded by the co-venturer during the
guarantee period. The co-venturer's obligation to fund cash pursuant to
these guarantees was in the form of nonreturnable capital contributions
through September 30, 1987, and mandatory additional capital contributions,
as defined, through September 30, 1988. From October 1, 1988 until July 2,
1990, the co-venturer was required to make mandatory loans, as defined, to
the Joint Venture to the extent operating revenues were insufficient to pay
the operating expenses. Thereafter, if operating revenues are insufficient
to pay operating expenses, either the co-venturer or the Partnership may
make optional loans, as defined, to the Joint Venture, but there is no
assurance that any will be made. All mandatory and optional loans bear
interest at prime (8.5% at December 31, 1994) plus 1% per annum and are to
be repaid from distributable funds, as defined. At December 31, 1994,
mandatory and optional loans payable to the co-venturer amounted to
$522,000. Unpaid interest on mandatory and optional loans at December 31,
1994, amounted to $284,000. Loans payable to the Partnership at December
31, 1994, amounted to $14,000 and are being accounted for as optional loans
similar to those made by the co-venturer.
The joint venture agreement provides that distributable funds, as defined,
and net proceeds arising from the sale, refinancing, or other disposition of
the Operating Investment Property of the Joint Venture, as defined, will be
distributed as follows: 1) for repayment of accrued interest and principal
on optional loans, 2) for repayment of accrued interest and principal on
mandatory loans, 3) to the Partnership until the Partnership has received
cumulative distributions equal to $1,897,500, 4) to the co-venturer until
the co-venturer has received a cumulative distribution equal to, first, a
preferred return on mandatory additional capital contributions of prime plus
1% per annum and, second, any mandatory additional capital contributions,
and 5) the balance, 65% to the Partnership and 35% to the co-venturer. The
obligation to distribute distributable funds is cumulative.
Losses of the joint venture, other than losses resulting from the sale of
the Operating Investment Property, were allocated 100% to the Partnership
through December 31, 1990, and thereafter, are allocated 65% to the
Partnership and 35% to the co-venturer unless the allocation of additional
losses to the Partnership would result in the Partnership's capital account
having a deficit balance while the co-venturer's capital account has a
credit balance. In such cases, the co-venturer will be allocated losses
until the capital account of the co-venturer is reduced to zero. Income of
the Joint Venture, other than gains resulting from the sale or other
disposition of the Operating Investment Property, will be allocated 65% to
the Partnership and 35% to the co-venturer if there are no distributable
funds. If there are distributable funds, income will be allocated as
follows: 1) to the Partnership to the extent of its preferred
distributions, 2) to the co-venturer to the extent of its preferred
distributions, and 3) the balance, 65% to the Partnership and 35% to the co-
venturer.
Gains arising from the sale, refinancing, or other disposition of the
Operating Investment Property are to be allocated in accordance with
specific formulas set forth in the joint venture agreement.
6. Restricted Cash
In September 1991, The Lakes Joint Venture entered into an agreement with
its mortgage lender whereby restricted cash accounts were established for
the purpose of making specific disbursements for debt service, property
taxes and insurance, security deposit refunds, and funding operating
deficits. These accounts are controlled by the bank in which all
disbursements and transfers are dictated by the related Reimbursement
Agreement (see Note 7). These cash accounts are included in Restricted Cash
on the accompanying balance sheet.
7. Long-term debt
Long-term debt on the Partnership's balance sheet at March 31, 1995 and 1994
consists of the following:
1995 1994
(in thousands)
Nonrecourse mortgage note payable which
secures Manatee County Housing Finance
Authority Revenue Refunding Bonds. The
mortgage loan is secured by a deed to
secure debt and a security agreement
covering the real and personal property
of the Harbour Pointe Apartments. $ 9,125 $ 9,125
Developer loan payable which secures
County of Orange, California Tax-Exempt
Apartment Development Revenue Bonds. The
mortgage loan is nonrecourse and is
secured by a first deed of trust plus all
future rents and income generated by The
Lakes at South Coast Apartments. 75,600 75,600
Nonrecourse loan payable to bank secured
by a third deed of trust plus all future
rents and income generated by The Lakes
at South Coast Apartments. 4,584 5,232
Prior indebtedness principal payable to
bank. This obligation is related to The
Lakes Joint Venture and is nonrecourse. 3,561 3,561
92,870 93,518
Less: Long-term debt in technical
default (see discussion below) (83,745) -
$ 9,125 $ 93,518
Mortgage loan secured by the Harbour Pointe Apartments
Original financing for construction of the Harbour Pointe Apartments was
provided through $9,200,000 of Multi-Family Housing Mortgage Revenue Bonds,
Series 1985 E due December 1, 2007 (the original Bonds) issued by the
Manatee County Housing Finance Authority which bore interest at 8.25% plus a
1.25% letter of credit fee. An amount of $75,000 was paid on the original
bonds prior to the refinancing. The original bond issue was refinanced on
May 1, 1990 with $9,125,000 Weekly Adjustable/Fixed Rate Multi-Family
Housing Revenue Refunding Bonds, Series 1990A, due December 1, 2007 (the
Bonds).
The interest rate on the Bonds is adjusted weekly to a minimum rate that
would be necessary to remarket the Bonds in a secondary market as determined
by a bank remarketing agent. During calendar 1994, the interest rate
averaged 3.36% (3.03% in 1993). The Bonds are secured by the Harbour Pointe
Apartments.
Interest on the underlying bonds is intended to be exempt from federal
income tax pursuant to Section 103 of the Internal Revenue Code. In
connection with obtaining the mortgage, the partnership executed a Land Use
Restriction Agreement with the Manatee County Housing Finance Authority
which provides, among other things, that substantially all of the proceeds
of the Bonds issued be utilized to finance multi-family housing of which 20%
or more of the units are to be leased to low and moderate income families as
established by the United States Department of Housing and Urban
Development. In the event that the underlying Bonds do not maintain their
tax-exempt status, whether by a change in law or by noncompliance with the
rules and regulations related thereto, repayment of the note may be
accelerated.
Pursuant to the financing agreement, a bank has issued an irrevocable
letter of credit to the Bond trustee in the joint venture's name for
$9,247,500. An annual fee equal to 1% of the letter of credit balance is
payable monthly to the extent of net cash operating income available to pay
such fees. Accrued letter of credit fees currently due as of December 31,
1994 were $12,072.
Debt secured by The Lakes at South Coast Apartments
Original financing for construction of The Lakes at South Coast Apartments
was provided from a developer loan in the amount of $76,000,000 funded by
the proceeds of a public offering of tax-exempt apartment development
revenue bonds. The Venture had been in default of the developer loan since
December 1989 for failure to make full and timely payments on the loan. As
a result of the Venture's default, the required semi-annual interest and
principal payments due to the bond holders through June of 1991 were made by
the bank which had issued an irrevocable letter of credit securing the
bonds. Under the terms of the loan agreement, the Venture was responsible
for reimbursing the letter of credit issuer for any draws made against the
letter of credit which totalled $7,748,000.
The original bond issue was refinanced during 1991 and the original
developer loan was extinguished. The new developer loan (1991 Developer
Loan), in the amount of $75,600,000, is payable to the County of Orange and
was funded by the proceeds of a public offering of tax-exempt apartment
development revenues bonds issued, at par, by the County of Orange,
California in September 1991. Principal is payable upon maturity, December
1, 2006. Interest on the bonds is variable, with the rate determined weekly
by a remarketing agent (ranging from 1.7% to 6.8% during calendar 1994), and
is payable in arrears on the first of each month. In November 1992, the
Venture entered into an interest rate cap agreement for an amount which
covered the $75,600,000 Developer's loan. The cap agreement, which cost the
Venture $208,000, provided an interest rate ceiling of 3.49% and was
effective from November 30, 1992 to December 15, 1993. The cost of the
interest rate cap was amortized on a straight-line basis over the 13-month
period covered by the agreement.
The loan is secured by a first deed of trust plus all future rents and
income generated by the operating investment property. Bond principal and
interest payments are secured by and payable from an irrevocable letter of
credit issued by a bank in the amount of $76,569,000, expiring December 15,
1998. The Venture pays an annual letter of credit fee equal to 1.0% of the
outstanding amount, payable 60% monthly with the remaining 40% (Unpaid
Accrued Letter of Credit Fees) deferred and paid in accordance with the
Reimbursement Agreement (see below). Such Unpaid Accrued Letter of Credit
Fees were $999,000 and $693,000 at December 31, 1994 and 1993, respectively.
The bank letter of credit is secured by a second deed of trust on the
operating investment property and future rents and income from the operating
investment property.
In conjunction with the 1991 Developer Loan, the Venture entered into a
Reimbursement Agreement with the letter of credit issuer regarding the
unreimbursed letter of credit draws referred to above. The letter of credit
issuer agreed to forgive all outstanding accrued interest through September
26, 1991, aggregating $1,132,000, along with a portion of the outstanding
principal in the amount of $300,000. In return, the Venture made a
principal payment of $926,000, leaving an unpaid balance of $6,523,000
(Prior Indebtedness). Such amount bears interest payable to the letter of
credit issuer at the rate of 11% per annum. Interest accrued on the Prior
Indebtedness from the date of closing through June 1992 was forgiven by the
letter of credit issuer. At the time of the refinancing the Venture also
owed the letter of credit issuer of credit fees totalling $2,184,000. The
letter of credit issuer agreed to forgive $1,259,000 of such unpaid fees,
leaving an unpaid balance of $925,000 (Deferred Prior Letter of Credit
Fees). The Venture has a limited right to defer payment of interest and
principal on the Prior Indebtedness and the Unpaid Accrued Letter of Credit
Fees to the extent that the net cash flow from operations is not sufficient
after the payment of debt service on the 1991 Developer Loan and the funding
of certain required reserves. In addition, upon a sale or other disposition
of the operating property, the Reimbursement Agreement allows for the
payment to the Venture of an amount of $5,500,000, plus accrued interest at
the rate of 8% per annum, prior to the repayment to the letter of credit
issuer of the accrued interest on the Prior Indebtedness and the Deferred
Prior Letter of Credit Fees.
The 1991 Developer Loan required the establishment of a $2,000,000 deficit
reserve account, funded from the Venturers' 1991 contributions. The loan
also requires the funding of an additional reserve account on a monthly
basis from available cash flow (as defined) to the extent that the interest
rate on the bonds is below 6%, until the balance in this reserve account
totals $1,000,000. The requirement for this additional reserve account may
be eliminated if the operating property generates a certain minimum level of
net operating income. The $2,000,000 deficit reserve account and the
additional reserve account funded by operations may be used under certain
circumstances to fund the Venture's debt service obligations to the extent
that net operating income is insufficient. In the event that such reserves
no longer become necessary under the terms of the Reimbursement Agreement,
any remaining balances in the reserve accounts are to be paid to the letter
of credit issuer to be applied against certain of the Venture's outstanding
obligations. In November 1992, the bank and the Venture agreed to release
$1,764,000 from the deficit reserve account to pay down the Prior
Indebtedness. As of December 31, 1994, the balances in the deficit reserve
account and the additional reserve account totalled $150,000 and $1,051,000,
respectively, ($150,000 and $1,017,000 in 1993, respectively), and are
included in restricted cash on the accompanying balance sheets. The
remaining balance in restricted cash relates to operating cash accounts of
the Venture in which disbursements are restricted by the bank.
The 1991 Developer Loan contains several restrictive covenants, including,
among others, a requirement that the Venture furnish the letter of credit
issuer in September 1994 and September 1996 with certified independent
appraisals of the fair market value of the operating investment property for
an amount equal to or greater than $92,000,000 and $100,000,000,
respectively. Failure to provide such appraisals constitute events of
default under the Reimbursement Agreement. To date, the Lakes Joint Venture
has not provided the lender with an appraisal which meets the $92,000,000
requirement, and the lender has not waived or modified the minimum appraised
value requirement. Accordingly, the Venture is technically in default under
the Reimbursement Agreement. The Managing General Partner has had
preliminary discussions with the lender regarding possible changes to the
1994 appraisal requirement. Preliminary indications have been that the
lender might consider waiving or modifying the minimum appraised value
requirement for September 1994 in exchange for a rearrangement of the timing
and amounts of certain priorities, as specified in the Reimbursement
Agreement. Management does not expect the lender to take any actions as
long as progress continues to be made in negotiations for modification to
the terms of the Reimbursement Agreement. However, there can be no
assurances that the lender will grant any relief in connection with this
appraisal covenant and, accordingly, the principal amount of the debt
related to The Lakes Joint Venture has been classified as long-term debt in
technical default on the balance sheet as of March 31, 1995. These
conditions raise substantial doubt about the Venture's and the Partnership's
ability to continue as going concerns. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty. The total assets, total liabilities, gross revenues and total
expenses of The Lakes Joint Venture included in the 1995 consolidated
financial statements total $67,718,000, $91,578,000, $8,713,000 and
$10,511,000, respectively.
In November 1988, a borrowing arrangement with a bank was entered into to
provide funds for The Lakes. The Venture obtained a line of credit secured
by a third trust deed on the subleasehold interest, buildings and
improvements, and rents and income in the amount of $6,300,000. Interest on
the line of credit was originally payable monthly at 1-1/2% over the
Citibank, N.A. prime rate. However, because of the default status of this
obligation during 1990, interest had accrued at a rate of prime plus 4%
through September 26, 1991. Accrued interest on the line of credit, which
is payable to the same bank which issued the letter of credit in connection
with the bonds, totalled $1,841,000 at September 26, 1991. In conjunction
with the refinancing of the developer loan described above, the lender
agreed to forgive all of the outstanding accrued interest at the date of the
refinancing. Interest accrues on the outstanding principal balance at the
rate of 11% per annum beginning September 27, 1991. Payment of interest and
principal on the line of credit borrowings, prior to a sale or other
disposition of the operating property, is limited to the extent of available
cash flow after the payment of debt service on the developer loan and the
funding of certain required reserves. In addition, as with the Prior
Indebtedness principal and interest described above, upon a sale or other
disposition of the operating property, the payment of accrued interest on
the line of credit borrowings is subordinated to the receipt by the Venture
of $5,500,000 plus a simple return thereon of 8% per annum.
The restructuring of the Prior Indebtedness, the Deferred Letter of Credit
Fees and the line of credit borrowings, as described above, have been
accounted for in accordance with Statement of Financial Accounting Standards
No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings". Accordingly, the forgiveness of debt, aggregating
$5,279,000, has been deferred and is being amortized as a reduction of
interest expense prospectively using a method approximating the effective
interest method over the estimated remaining term of the Venture's
indebtedness. At December 31, 1994 and 1993, $4,087,000 and $4,430,000,
respectively of such forgiven debt (net of accumulated amortization) has
been reflected in the accompanying balance sheet and $343,000, $343,000 and
$346,000 for the years ended December 31, 1994, 1993 and 1992, respectively,
has been amortized as a reduction of interest expense in the accompanying
statements of operations.
8. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
Schedule III - Real Estate and Accumulated Depreciation
PAINEWEBBER DEVELOPMENT PARTNERS FOUR LTD.
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
March 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
Life on
Which
Costs Depreication
Initial Cost to Capitalized in Latest
Consolidated Subsequent to Gross Amount at Which Carried at Income
Joint Venture Acquisition End of Year Statement
Buildings & Buildings & Buildings & Accumulated Date of Date is
Description Encumbrances (B) Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Complex
Bradenton, FL $ 9,125 $ 1,543 $ 8,309 $ 321 $ 1,543 $ 8,630 $10,173 $ 2,351 1987 12/16/85 5-30 yrs
Apartment
Complex
Costa Mesa, CA 83,745 16,647 64,350 3,845 16,647 68,195 84,842 20,035 1987 11/1/85 5-30 yrs
$92,870 $ 18,190 $ 72,659 $ 4,166 $18,190 $76,825 $95,015 $ 22,386
Notes
(A) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax purposes is approximately $84,273.
(B) See Note 7 to the financial statements for a description of the terms of the debt encumbering the property.
(C) Reconciliation of real estate owned:
1994 1993 1992
Balance at beginning of period $ 94,590 $ 94,435 $ 94,306
Increase due to additions 425 155 129
Balance at end of period $ 95,015 $ 94,590 $ 94,435
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 19,339 $ 16,337 $ 13,336
Depreciation expense 3,047 3,002 3,001
Balance at end of period $ 22,386 $ 19,339 $ 16,337
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's annual financial statements for the year ended 3/31/95 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,337
<SECURITIES> 0
<RECEIVABLES> 11
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,415
<PP&E> 95,015
<DEPRECIATION> (22,386)
<TOTAL-ASSETS> 77,924
<CURRENT-LIABILITIES> 3,987
<BONDS> 96,957
<COMMON> 0
0
0
<OTHER-SE> (26,340)
<TOTAL-LIABILITY-AND-EQUITY> 77,924
<SALES> 0
<TOTAL-REVENUES> 10,275
<CGS> 0
<TOTAL-COSTS> 8,115
<OTHER-EXPENSES> 35
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,207
<INCOME-PRETAX> (2,082)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,082)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,082)
<EPS-PRIMARY> (47.48)
<EPS-DILUTED> (47.48)
