UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-17150
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
(Exact name of registrant as specified in its charter)
Texas 76-0147579
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and March 31, 1996 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Operating investment properties:
Land $ 18,190 $ 18,190
Buildings and improvements 77,268 76,995
--------- ---------
95,458 95,185
Less accumulated depreciation (26,233) (25,465)
--------- ---------
69,225 69,720
Cash and cash equivalents 4,035 1,390
Restricted cash 2,031 4,164
Accounts receivable - affiliates 87 16
Prepaid and other assets 62 68
Deferred expenses, net 743 769
---------- ----------
$ 76,183 $ 76,127
========= =========
LIABILITIES AND PARTNERS' DEFICIT
Long-term debt in default $ 87,404 $ 87,489
Accounts payable and accrued expenses 532 355
Accrued interest and fees 4,597 4,258
Tenant security deposits 442 477
Equity in losses of unconsolidated joint venture
in excess of investments and advances 2,259 2,223
Long-term debt 9,125 9,125
Co-venturers' share of net assets of
consolidated ventures 1,153 1,153
Partners' deficit (29,329) (28,953)
---------- ----------
$ 76,183 $ 76,127
========= ==========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the three months ended June 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
--------- --------
Balance at March 31, 1995 $(2,500) $(23,840)
Net loss (36) (698)
-------- --------
Balance at June 30, 1995 $(2,536) $(24,538)
======= ========
Balance at March 31, 1996 $(2,631) $(26,322)
Net loss (19) (357)
-------- --------
Balance at June 30, 1996 $(2,650) $(26,679)
======= ========
See accompanying notes.
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1996 and 1995 (Unaudited)
(In thousands, except per Unit data)
1996 1995
---- ----
Revenues:
Rental income $ 2,518 $ 2,434
Interest income 64 41
Other income 233 118
------- -------
2,815 2,593
Expenses:
Property operating expenses 906 868
Real estate taxes 248 247
Interest expense 1,188 1,382
Depreciation 768 756
General and administrative 45 58
-------- ---------
3,155 3,311
-------- ---------
Operating loss (340) (718)
Partnership's share of unconsolidated
venture's loss (36) (16)
-------- ---------
Net loss $ (376) $ (734)
======== =========
Net loss per Limited Partnership Unit $ (8.57) $ (16.76)
========= =========
The above net loss per Limited Partnership Unit is based upon the 41,644 Limited
Partnership Units outstanding for each period.
See accompanying notes.
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (376) $ (734)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 768 756
Amortization of deferred financing costs 26 26
Amortization of deferred gain on forgiveness of debt (85) (85)
Partnership's share of unconsolidated venture's loss 36 16
Changes in assets and liabilities:
Accounts receivable - affiliates (71) (75)
Prepaid and other assets 6 7
Accounts payable and accrued expenses 177 282
Accrued interest and fees 339 288
Tenant security deposits (35) (42)
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Total adjustments 1,161 1,173
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Net cash provided by operating activities 785 439
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Cash flows from investing activities:
Additions to buildings and improvements (273) -
------- ------
Net cash used in investing activities (273) -
------- ------
-
Cash flows from financing activities:
Decrease in restricted cash 2,133 807
------- ------
Net cash provided by financing activities 2,133 807
------- ------
Net increase in cash and cash equivalents 2,645 1,246
Cash and cash equivalents, beginning of period 1,390 1,292
------- --------
Cash and cash equivalents, end of period $ 4,035 $ 2,538
======= ========
Cash paid during the period for interest $ 908 $ 1,153
======= ========
See accompanying notes.
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization
The accompanying financial statements, footnotes and discussions should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended March 31, 1996.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Investment in Unconsolidated Joint Venture Partnership
The Partnership has an investment in one unconsolidated joint venture which
owns an operating investment property (Lincoln Garden Apartments), as
discussed further in the Annual Report. The unconsolidated joint venture is
accounted for by using the equity method because the Partnership does not
have a voting control interest in the venture. Under the equity method, the
investment is carried at cost adjusted for the Partnership's share of the
unconsolidated venture's earnings, losses and distributions. The
Partnership's policy is to recognize its share of unconsolidated venture's
operations three months in arrears.
Summarized operations of the unconsolidated joint venture, for the periods
indicated, are as follows:
Condensed Summary of Operations
For the three months ended March 31, 1996 and 1995
(in thousands)
1996 1995
---- ----
Rental revenues $ 275 $ 301
Interest and other income 15 11
------- ------
290 312
Property operating expenses 160 152
Interest expense 123 127
Depreciation and amortization 62 56
------- -------
345 335
------- ------
Net loss $ (55) $ (23)
======= =======
Net loss:
Partnership's share of net loss $ (35) $ (15)
Co-venturer's share of net loss (20) (8)
-------- --------
$ (55) $ (23)
======== =======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three months ended March 31, 1996 and 1995
(in thousands)
1996 1995
---- ----
Partnership's share of
operations, as shown above $ (35) $ (15)
Amortization of excess basis (1) (1)
------ ------
Partnership's share of
unconsolidated venture's loss $ (36) $ (16)
====== ======
3. Operating Investment Properties
The Partnership consolidates the results of two majority-owned and controlled
joint ventures in its financial statements. The Partnership's policy is to
report the operations of the consolidated joint ventures on a three month
lag.
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. 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. As a result of the amendment, the Partnership, as the sole general
partner, assumed control of the operations of the property and, accordingly,
presents the financial position and the operating results of the joint
venture on a consolidated basis.
The Lakes Joint Venture ("Venture") was formed on May 30, 1985 in accordance
with the provisions of the laws of the State of California for the purpose of
developing, owning and operating The Lakes at South Coast Apartments, a
770-unit apartment complex located in Costa Mesa, California. As discussed
further in the Annual Report, on September 26, 1991, in conjunction with a
refinancing and modification of the Venture's long-term indebtedness, the
original co-venture partner 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
control over the operations of the Venture. Accordingly, the financial
position and results of operations of the Venture are presented on a
consolidated basis.
The following is a combined summary of property operating expenses for the
Harbour Pointe Apartments and The Lakes at South Coast Apartments for the
three months ended March 31, 1996 and 1995 (in thousands):
1996 1995
---- ----
Property operating expenses:
Repairs and maintenance $ 212 $ 150
Utilities 152 152
Management fees 94 91
Other operating and administrative 448 475
-------- --------
$ 906 $ 868
======= =======
<PAGE>
4. Related Party Transactions
Included in general and administrative expenses for the three months ended
June 30, 1996 and 1995 is $20,000 and $22,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for each of the
three-month periods ended June 30, 1996 and 1995 is $1,000, representing fees
earned by Mitchell Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
5. Long-term Debt
Long-term debt on the Partnership's balance sheet at June 30, 1996 and March
31, 1996 consists of the following (in thousands):
June 30 March 31
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Nonrecourse mortgage note payable
by 71st Street Housing Partners,
Ltd. 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 by The Lakes
Joint Venture which secures County
of Orange, California Tax-Exempt
Apartment Develop-ment 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 by The
Lakes Joint Venture 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 4,584
Prior indebtedness principal by The
Lakes Joint Venture payable to
bank. This obligation is
nonrecourse to the joint venture. 3,561 3,561
Deferred gain on forgiveness of
debt of The Lakes Joint Venture
(net of accumulated amortization of
$1,620 and $1,535 in 1996 and 1995,
respectively) 3,659 3,744
------- -------
96,529 96,614
Less: Long-term debt in
default (see discussion below) (87,404) (87,489)
-------- --------
$ 9,125 $ 9,125
======== ========
<PAGE>
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. 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 Harbour Pointe joint venture
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.
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. 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 and is payable in arrears on the first of each month.
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 the Partnership's Annual Report for a further
discussion of the Reimbursement Agreement). Such Unpaid Accrued Letter of
Credit Fees were $1,383,000 and $1,306,000 at March 31, 1996 and December
31, 1995, 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.
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 amounts 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. In February 1996, the lender issued a formal
notice of default to the Joint Venture pursuant to the Reimbursement
Agreement. During fiscal 1996, the Partnership engaged in discussions with
the lender regarding possible changes in the 1994 appraisal requirement,
however, no agreement has been reached to date. Management expects to
continue such discussions in fiscal 1997, which will address the September
1996 appraisal requirement as well, but there can be no assurances that the
lender will grant any relief in connection with these appraisal covenants.
Accordingly, the carrying amount of the debt related to The Lakes Joint
Venture has been classified as long-term debt in default on the balance
sheets as of June 30, 1996 and March 31, 1996.
In the event that management is successful in negotiating a waiver or
modification of the minimum appraised value requirements described above for
The Lakes Joint Venture, 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. 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 covenants, the lender could choose to initiate
foreclosure proceedings. While 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 its legal defenses the result could
be a foreclosure of the operating property. If such a foreclosure were to
occur within the next 2 years, the Partnership may be unable to recover the
net carrying value of the operating investment property, which exceeded its
estimated market value by approximately $6.7 million as of March 31, 1996.
In the event that the ownership of The Lakes was transferred to the lender
as a result of foreclosure actions, 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. Management will reassess its
future operating strategy once the appraisal covenant compliance issue on
The Lakes is fully resolved. 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 restructuring of the Prior Indebtedness, the Deferred Letter of
Credit Fees and the line of credit borrowings in 1991 was 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 March
31, 1996 and December 31, 1995, $3,659,000 and $3,744,000, respectively, of
such forgiven debt (net of accumulated amortization) is reflected in the
accompanying balance sheets.
6. Contingencies
As discussed in detail in the Partnership's Annual Report for the year
ended March 31, 1996, the Partnership is involved in certain legal actions.
At the present time, the Managing General Partner is unable to determine
what impact, if any, the resolution of these matters might have on the
Partnership's financial statements, taken as a whole.
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As discussed in the Annual Report, 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 revenue 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 have remained 3 to 4 percent per
annum below comparable conventional rates over the past several years. 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. Although such reserves have been drawn
down over the past 12 months to cover required current debt service, The Lakes
Joint Venture still has over $1,200,000 of reserves in place to help cover
possible future debt service shortfalls. 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.
The Letter of Credit which collateralizes the Lincoln Garden mortgage loan
expires on May 1, 1997. Management is currently evaluating its options for
renewing this letter of credit. If this letter of credit is not renewed, the
mortgage loan would become immediately due and payable and would need to be
repaid from the proceeds of a sale or refinancing of the operating investment
property. If a sale or refinancing could not be accomplished, the property could
be subject to foreclosure by the lender. The outcome of this situation cannot
presently be determined.
Despite a general strengthening in the real estate market for multi-family
residential properties over the past several 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. At the present time, the recovery of the local
markets in which the Partnership's remaining properties are located is being
slowed by, in all cases, new construction of competing apartment properties and,
in the case of The Lakes at South Coast Apartments, the state of California's
overall economy, the recovery of which has generally lagged that of the rest of
the country. The new construction activity in the Bradenton, Florida (Harbour
Pointe), Tucson, Arizona (Lincoln Garden) and Costa Mesa, California (The Lakes)
markets represents the first substantial additions to the market supply of
apartment units in these markets in several years and has forced the Partnership
to offer rental concessions at its investment properties in order to maintain
occupancy levels. The supply of new apartment units has also restrained rental
rate growth at the Partnership's properties over the past year.
As previously reported, the Reimbursement Agreement which governs the
secured debt obligations of The Lakes Joint Venture contains certain restrictive
covenants, including, among others, a requirement that the venture provide the
lender, in September 1994 and September 1996, with certified independent
appraisals of the operating property indicating the value of the property to be
equal to or greater than $92 million and $100 million, respectively. Failure to
provide such appraisals 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 as of June 30, 1996. The Managing General
Partner has had preliminary discussions with the lender regarding possible
changes to the 1994 appraisal requirement. Management expects to continue such
discussions in fiscal 1997, which will address the September 1996 appraisal
requirement as well. Preliminary indications have been that the lender might
consider waiving or modifying the minimum appraised value requirements 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 requirements. In February 1996, the lender issued a formal
notice of default to the Joint Venture pursuant to the Reimbursement Agreement.
At this time, management does not expect the lender to take any additional
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 these
appraisal covenants.
In the event that management is successful in negotiating a waiver or
modification of the minimum appraised value requirements 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 covenants, the lender could choose to initiate foreclosure
proceedings. While 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 its legal defenses the result could be a foreclosure of
the operating property. If such a foreclosure were to occur within the next 2
years, the Partnership may be unable to recover the net carrying value of the
operating investment property, which exceeded its estimated market value by
approximately $6.7 million as of March 31, 1996. In the event that the ownership
of The Lakes was transferred to the lender as a result of foreclosure actions,
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. Management
will reassess its future operating strategy once the appraisal covenant
compliance issue on The Lakes is fully resolved.
Barring a significant increase in tax-exempt interest rates, excess cash
flow from Harbour Pointe should be sufficient to cover the Partnership's
operating expenses over the near term. 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 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 values. At The Lakes,
planned capital improvements for calendar 1996 include a continuation of the
program to upgrade the hallways, elevator landings, lobbies, carpeting and
signage, as well as the painting of the building exteriors. Management has
reached an agreement with the mortgage lender regarding the release of certain
restricted cash amounts to pay for these planned improvements. Improvements
planned at Lincoln Garden for calendar 1996 include resurfacing the pool deck,
replacing the roofs on several buildings, repairing the sidewalks and upgrading
the unit interiors on a turnover basis. Future improvements at the Harbour
Pointe Apartments are expected to include new pool furniture, additional
exterior lighting and appliance replacement. During calendar 1995, the
installation of individual water meters in all units at Harbour Pointe was
completed, which transferred the water usage costs from the joint venture to the
tenants. The full twelve-month effect of this reduction in operating expenses
should improve the venture's cash flow in calendar 1996. The amount and timing
of the funds to be spent on future property improvements at both Lincoln Garden
and Harbour Pointe will depend upon the availability of cash flow from the
respective property's operations.
At June 30, 1996, the Partnership and its consolidated joint ventures had
available cash and cash equivalents of approximately $4,035,000. 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 any future operating
deficits of its remaining joint venture investments. The source of future
liquidity and distributions to the partners is expected to be from cash
generated from the operations of the remaining investment properties and from
proceeds received from the sale, refinancing or other disposition of such
properties.
<PAGE>
Results of Operations
Three Months Ended June 30, 1996
The Partnership's net loss decreased by $358,000 for the three-month period
ended June 30, 1996, as compared to the same period in the prior year. This
favorable change in net loss resulted from a decrease in the Partnership's
operating loss of $378,000 which was partially offset by an increase in the
Partnership's share of unconsolidated venture's loss of $20,000. Operating loss
decreased mainly due to increases in rental and other income and a decrease in
interest expense. Rental income increased by $84,000 primarily due to an
increase in average occupancy at The Lakes at South Coast Apartments. Rental
income also increased slightly at Harbour Pointe for the current three-month
period. Other income increased by $115,000 due largely to the receipt of a real
estate tax refund by The Lakes Joint Venture during the current period.
Interest expense decreased by $194,000 mainly due to a decrease in the variable
interest rate on the first mortgage loan secured by The Lakes at South Coast
Apartments.
The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Lincoln Garden Joint Venture, increased by
approximately $20,000 in the current period primarily due to a small decrease
in rental income, resulting from a decrease in average occupancy, and an
increase in real estate taxes.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "New York Limited Partnership Actions")
were filed in the United States District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 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.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the direction of the court. A final hearing on the fairness of the
proposed settlement has been scheduled for October 25, 1996.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Annual Report on Form 10-K for the year ended March 31, 1996.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
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/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the three months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 4035
<SECURITIES> 0
<RECEIVABLES> 87
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6215
<PP&E> 95458
<DEPRECIATION> 26233
<TOTAL-ASSETS> 76183
<CURRENT-LIABILITIES> 92975
<BONDS> 9125
0
0
<COMMON> 0
<OTHER-SE> (29329)
<TOTAL-LIABILITY-AND-EQUITY> 76183
<SALES> 0
<TOTAL-REVENUES> 2815
<CGS> 0
<TOTAL-COSTS> 1967
<OTHER-EXPENSES> 36
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1188
<INCOME-PRETAX> (376)
<INCOME-TAX> 0
<INCOME-CONTINUING> (376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376)
<EPS-PRIMARY> (8.57)
<EPS-DILUTED> (8.57)
</TABLE>
