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 DECEMBER 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.
(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
December 31, 1995 and March 31, 1995 (Unaudited)
(In thousands)
ASSETS
December 31 March 31
Operating investment properties:
Land $ 18,190 $ 18,190
Buildings and improvements 76,831 76,825
---------- ---------
95,021 95,015
Less accumulated depreciation (24,650) (22,386)
---------- ---------
70,371 72,629
Cash and cash equivalents 3,101 1,292
Restricted cash 2,256 3,045
Accounts receivable - affiliates 15 11
Prepaid and other assets 74 67
Deferred expenses, net 797 880
------------ ------------
$ 76,614 $ 77,924
========= =========
LIABILITIES AND PARTNERS' DEFICIT
Long-term debt in technical default $ 83,745 $ 83,745
Accounts payable and accrued expenses 436 390
Accrued interest and fees 4,052 3,156
Tenant security deposits 430 441
Minority interest in net assets of
consolidated ventures 1,217 1,221
Equity in losses of unconsolidated joint venture
in excess of investments and advances 2,167 2,099
Deferred gain on forgiveness of debt 3,830 4,087
Long-term debt 9,125 9,125
Partners' deficit (28,388) (26,340)
---------- ----------
$ 76,614 $ 77,924
========= =========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the ninemonths ended December 31, 1995 and 1994 (Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at March 31, 1994 $(2,396) $(21,862)
Net loss (64) (1,217)
------- --------
Balance at December 31, 1994 $(2,460) $(23,079)
======= ========
Balance at March 31, 1995 $(2,500) $(23,840)
Net loss (102) (1,946)
------- --------
Balance at December 31, 1995 $(2,602) $(25,786)
======= ========
See accompanying notes.
<PAGE>
PAINEWEBBER DEVELOPMENT PARTNERS FOUR, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1995 and 1994 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Rental income $ 2,445 $ 2,409 $7,289 $7,165
Interest income 61 41 159 100
Other income 109 119 327 337
------- -------- ------ ------
2,615 2,569 7,775 7,602
Expenses:
Property operating expenses 1,031 1,068 2,781 2,811
Real estate taxes 39 31 533 577
Interest expense 1,301 1,141 3,995 3,070
Depreciation 751 746 2,264 2,251
General and administrative 62 51 186 168
-------- - -------- --------- --------
3,184 3,037 9,759 8,877
------- -------- -------- -------
Operating loss (569) (468) (1,984) (1,275)
Partnership's share of
unconsolidated
venture's loss (24) (11) (68) (11)
Co-venturers' share of
consolidated
ventures' losses 2 3 4 5
-------- --------- -------- -------
Net loss $ (591) $ (476) $(2,048) $(1,281)
========= ======== ======= =======
Net loss per Limited
Partnership Unit $(13.50) $ (10.85) $(46.73) $(29.21)
======= ========= ======= ======
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 nine months ended December 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
(In thousands)
1995 1994
Cash flows from operating activities:
Net loss $(2,048) $(1,281)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation 2,264 2,251
Amortization of deferred financing costs 83 226
Amortization of deferred gain on forgiveness of debt (257) (257)
Partnership's share of unconsolidated venture's loss 68 11
Co-venturers' share of consolidated ventures' losses (4) (5)
Changes in assets and liabilities:
Accounts receivable - affiliates (4) (12)
Prepaid and other assets (7) (7)
Accounts payable and accrued expenses 46 298
Accrued interest and fees 896 222
Tenant security deposits (11) 8
Advances from consolidated ventures - (100)
--------- ---------
Total adjustments 3,074 2,635
--------- ---------
Net cash provided by operating activities 1,026 1,354
--------- ---------
Cash flows from investing activities:
Additions to buildings and improvements (6) (206)
----------- ----------
Net cash used for investing activities (6) (206)
----------- ----------
Cash flows from financing activities:
Release of funds from restricted cash 789 765
Repayment of long term debt - (490)
----------- ---------
Net cash provided by financing activities 789 275
----------- ---------
Net increase in cash and cash equivalents 1,809 1,423
Cash and cash equivalents, beginning of period 1,292 1,252
---------- --------
Cash and cash equivalents, end of period $ 3,101 $ 2,675
========= ========
Cash paid during the period for interest $ 3,273 $ 2,879
========= ========
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, 1995.
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 and nine
months ended September 30, 1995 and 1994
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Rental revenues $ 279 $ 281 $ 876 $ 808
Interest and other income 18 17 41 102
-------- -------- -------- -------
297 298 917 910
Property operating expenses 154 148 464 446
Interest expense 119 88 379 321
Depreciation and amortization 59 78 174 156
-------- -------- ------- -------
332 314 1,017 923
------- ------- ------ -------
Net loss $ (35) $ (16) $ (100) $ (13)
======= ======= ====== =======
Net loss:
Partnership's share of
net loss $ (23) $ (10) $ (65) $ (8)
Co-venturer's share of
net loss (12) (6) (35) (5)
-------- -------- -------- --------
$ (35) $ (16) $ (100) $ (13)
======= ======= ======== =======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and nine months ended September 30, 1995 and 1994
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Partnership's share of
operations, as shown above $ (23) $ (10) $ (65) $ (8)
Amortization of excess basis (1) (1) (3) (3)
------- ------- ------- -------
Partnership's share of
unconsolidated venture's loss $ (24) $ (11) $ (68) $ (11)
======= ====== ======= =====
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 and nine months ended September 30, 1995 and 1994 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Property operating expenses:
Repairs and maintenance $ 210 $ 165 $ 644 $ 440
Utilities 166 165 463 433
Other operating and
administrative 655 738 1,674 1,938
------ ------ ------ -------
$1,031 $1,068 $2,781 $2,811
====== ====== ====== ======
4. Related Party Transactions
Included in general and administrative expenses for the nine months ended
December 31, 1995 and 1994 is $61,000 and $64,000, 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 nine
months ended December 31, 1995 and 1994 is $3,000, 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 December 31, 1995 and
March 31, 1995 consists of the following (in thousands):
December 31 March 31
Nonrecourse, variable rate mortgage
note pay-able 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 carries a variable
interest rate, 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
11% 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 4,584
Prior indebtedness principal
payable to bank. This
obligation, which is related to
The Lakes Joint Venture, bears
interest at 11% per annum and
is nonrecourse. 3,561 3,561
---------- ----------
92,870 92,870
Less: Long-term debt in
technical default (see
discussion below) (83,745) (83,745)
--------- ---------
$ 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 $1,229,000 and $999,000 at September 30, 1995 and December
31, 1994, 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. 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 sheets as of December 31, 1995 and 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 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
September 30, 1995 and December 31, 1994, $3,830,000 and $4,087,000,
respectively, of such forgiven debt (net of accumulated amortization) is
reflected in the accompanying balance sheets.
6. Contingencies
The Partnership is involved in certain legal actions. The Managing
General Partner believes that these actions will be resolved without
material adverse effect 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 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 during the first nine
months of fiscal 1996 to cover required current debt service, the Lakes Joint
Venture still has over $1,000,000 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.
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. 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 upgrading the hallways,
elevator landings and lobbies and painting 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 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, appliance replacement and the installation of individual
water meters in all units. The amount and timing of the funds to be spent on
property improvements at Lincoln Garden and Harbour Pointe will depend upon the
availability of cash flow from the respective property's operations.
At December 31, 1995, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately $3,101,000. 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.
Results of Operations
Three Months Ended December 31, 1995
The Partnership's net loss increased by $115,000 for the three-month
period ended December 31, 1995, as compared to the same period in the prior
year. This unfavorable change in net loss for the third quarter of fiscal 1996
resulted primarily from an increase in the Partnership's operating loss of
$101,000. Operating loss increased mainly due to a $160,000 increase in the
combined interest expense of the consolidated joint ventures as a result of an
increase in the variable interest rates on the respective ventures' mortgage
loans. A small increase in rental income and a decline in property operating
expenses of the consolidated joint ventures partially offset the increase in
interest expense. The Partnership's share of the net loss of the Lincoln Garden
joint venture increased slightly due to an increase in the venture's interest
expense resulting from a higher variable interest rate on the unconsolidated
venture's mortgage loan in the current three-month period.
Nine Months Ended December 31, 1995
The Partnership's net loss increased by $767,000 for the nine-month period
ended December 31, 1995, as compared to the same period in the prior year. This
unfavorable change in net loss resulted from increases in the Partnership's
operating loss and the Partnership's share of unconsolidated venture's loss of
$709,000 and $57,000, respectively. Operating loss increased mainly due to an
increase in interest expense of $925,000, attributable to an increase in the
variable interest rates on the mortgage loans secured by The Lakes at South
Coast Apartments and the Harbour Pointe Apartments. This increase in interest
expense was partially offset by an increase in rental income of $124,000, due to
increases in rental income at both of the Partnership's consolidated joint
ventures, and an increase in interest income of $59,000, attributable largely to
an increase in the average outstanding cash balances during the current year.
The Partnership's share of unconsolidated venture's loss, which represents
the operating results of the Lincoln Garden joint venture, increased by $57,000
for the current nine-month period. This increase in the Partnership's share of
the venture's net loss is mainly due to an increase in interest expense, as a
result of an increase in the variable interest rate on the venture's mortgage
loan. A decline in other income at the Lincoln Garden joint venture for the
current nine-month period was offset by an increase in rental income.
<PAGE>
PART II
Other Information
Item 1. 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 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.
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.
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 which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in PaineWebber Development Partners
Four, Ltd. 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. Management has had
discussions with representatives of PaineWebber and, based on such discussions,
the Partnership does not believe that PaineWebber intends to invoke the
aforementioned indemnifications in connection with the settlement of this
litigation.
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: February 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended March 31, 1995 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 3,101
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,446
<PP&E> 95,021
<DEPRECIATION> 24,650
<TOTAL-ASSETS> 76,614
<CURRENT-LIABILITIES> 4,918
<BONDS> 96,700
<COMMON> 0
0
0
<OTHER-SE> (28,388)
<TOTAL-LIABILITY-AND-EQUITY> 76,614
<SALES> 0
<TOTAL-REVENUES> 7,775
<CGS> 0
<TOTAL-COSTS> 5,764
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,995
<INCOME-PRETAX> (2,048)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,048)
<EPS-PRIMARY> (46.73)
<EPS-DILUTED> (46.73)
</TABLE>
