UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
----------------------------------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED 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 : 0-17148
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2921780
(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 .
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, 1995 and September 30, 1994
(Unaudited)
ASSETS
March 31 September 30
Operating investment property:
Land $ 6,664,525 $ 6,664,525
Buildings and improvements 25,918,690 25,790,930
Furniture, fixtures and equipment 3,481,880 3,481,880
36,065,095 35,937,335
Less accumulated depreciation (9,341,108) (8,894,088)
26,723,987 27,043,247
Investments in joint ventures, at equity 674,166 1,058,322
Cash and cash equivalents 1,373,023 1,496,258
Cash reserved for capital expenditures 536,169 757,747
Accounts receivable 319,684 286,022
Due from Marriott Corporation 99,434 -
Inventories 125,958 137,940
Other assets 58,831 50,471
Deferred expenses, net 225,787 260,175
$30,137,039 $31,090,182
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable in default $36,060,518 $35,237,055
Accounts payable and accrued expenses 225,235 481,014
Accounts payable - affiliates 1,886 1,886
Accrued interest payable 131,450 287,335
Due to Marriott Corporation - 12,365
Loan payable to Marriott Corporation 6,020,254 5,727,829
Partners' deficit (12,302,304)(10,657,302)
$ 30,137,039 $31,090,182
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the six months ended March 31, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at September 30, 1993 $ (452,802) $(6,228,144)
Net loss (23,298) (2,191,395)
BALANCE AT MARCH 31, 1994 $ (476,100) $(8,419,539)
Balance at September 30, 1994 $ (494,632) $(10,162,670)
Net loss (17,305) (1,627,697)
BALANCE AT MARCH 31, 1995 $ (511,937) $(11,790,367)
See accompanying notes.
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1995 and 1994
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
REVENUES:
Hotel revenues $1,986,499 $1,975,402 $3,633,432 $3,514,026
Interest and other income 65,761 16,890 88,708 30,167
2,052,260 1,992,292 3,722,140 3,544,193
EXPENSES:
Hotel operating expenses 1,491,809 1,502,143 2,799,837 2,811,301
Interest expense 923,338 735,431 1,685,866 1,465,413
Depreciation and
amortization 240,047 379,989 481,408 759,977
General and administrative 38,913 157,834 102,136 209,582
2,694,107 2,775,397 5,069,247 5,246,273
Operating loss (641,847) (783,105) (1,347,107) (1,702,080)
Partnership's share of
ventures' losses (22,944) (212,855) (297,895) (512,613)
NET LOSS $(664,791) $(995,960)$(1,645,002)$(2,214,693)
Net loss per 1,000 Limited
Partnership Units $(18.50) $(27.72) $(45.79) $(61.64)
The above net loss per 1,000 Limited Partnership Units is based upon the
35,548,976 Limited Partnership Units outstanding during each period.
See accompanying notes.
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net loss $(1,645,002) $(2,214,693)
Adjustments to reconcile net loss
to net cash used for operating activities:
Interest expense on loan payable to Marriott
Corporation 292,425 264,706
Partnership's share of ventures' losses 297,895 512,613
Depreciation and amortization 481,408 759,977
Amortization of deferred gain on forgiveness
of debt (323,497) (377,445)
Changes in assets and liabilities:
Accounts receivable (33,662) (257,803)
Due to/from Marriott Corporation (111,799) (53,671)
Inventories 11,982 (1,232)
Other assets (8,360) (5,119)
Accounts payable and accrued expenses (255,779) (30,264)
Accounts payable - affiliates - (20,771)
Accrued interest payable (155,885) 40,849
Total adjustments 194,728 831,840
Net cash used for operating activities (1,450,274) (1,382,853)
Cash flows from investing activities:
Distributions from joint ventures 220,500 398,343
Additional investments in joint ventures (134,239) -
Additions to operating investment property (127,760) -
Net withdrawals from capital expenditure reserve 221,578 -
Net cash provided by investing activities 180,079 398,343
Cash flows from financing activities:
Proceeds from issuance of notes payable 1,146,960 1,073,274
Net (decrease) increase in cash and cash equivalents (123,235) 88,764
Cash and cash equivalents, beginning of period 1,496,258 2,292,646
Cash and cash equivalents, end of period $1,373,023 $ 2,381,410
Cash paid during the period for interest $1,872,823 $ 1,537,303
See accompanying notes.
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained
in the Partnership's Annual Report for the year ended September 30, 1994.
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. Operating Investment Property
The Partnership directly owns one operating investment property, the
Newport Beach Marriott Suites Hotel. As of March 31, 1995, the Partnership
was in default of the mortgage loans secured by the operating investment
property (see Note 5). The Partnership's ability to realize its investment
in the Newport Beach Marriott Suites Hotel is dependent upon future events,
including restructuring of the outstanding mortgage indebtedness and
improved Hotel operations. The Partnership acquired a 100% interest in the
Marriott Suites Hotel located in Newport Beach, California from the
Marriott Corporation on August 10, 1988. The Hotel consists of 254 two-
room suites encompassing 201,606 square feet located on approximately 4.8
acres of land. It is managed by Marriott and its affiliates. As of March
31, 1995 and September 30, 1994, the operating investment property was
carried at cost, adjusted for certain guaranty payments received from
Marriott (see the Annual Report), less accumulated depreciation.
The following is a summary of Hotel revenues and operating expenses for the
three and six months ended March 31, 1995 and 1994.
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
REVENUES:
Guest rooms $1,482,095 $1,464,071 $2,716,903 $2,609,499
Food and beverage 316,371 427,963 728,496 821,159
Other revenues 188,033 83,368 188,033 83,368
$1,986,499 $1,975,402 $3,633,432 $3,514,026
OPERATING EXPENSES:
Guest rooms $ 413,536 $ 383,771 $ 781,284 $ 717,546
Food and beverage 409,668 335,534 709,918 728,918
Other operating
expenses 471,059 566,457 1,012,056 1,017,019
Management fees -
Manager 39,730 38,313 70,534 69,085
Selling, general
and administration 66,166 84,798 66,166 86,700
Real estate taxes 91,650 93,270 159,879 192,033
$1,491,809 $1,502,143 $2,799,837 $2,811,301
The operating expenses of the Hotel noted above include significant
transactions with the Manager. All Hotel employees are employees of the
Manager and the related payroll costs are allocated to the Hotel operations
by the Manager. A majority of the supplies and food purchased during both
periods were purchased from an affiliate of the Manager. In addition, the
Manager also allocates employee benefit costs, advertising costs and
management training costs to the Hotel.
3. Investments in Joint Venture Partnerships
The Partnership has investments in four joint ventures which own five
operating properties as more fully described in the Partnership's Annual
Report. The joint ventures are accounted for under the equity method in
the Partnership's financial statements because the Partnership does not
have a voting control interest in the ventures. Under the equity method,
the investment in a joint venture is carried at cost adjusted for the
Partnership's share of the venture's earnings, losses and distributions.
Summarized operations of the four joint ventures for the three and six
months ended March 31, 1995 and 1994 are as follows:
CONDENSED SUMMARY OF OPERATIONS
For the three and six months ended March 31, 1995 and 1994
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
Rental revenues $909,000 $906,000 $1,855,000 $1,810,000
Other income 53,000 80,000 94,000 119,000
962,000 986,000 1,949,000 1,929,000
Property operating
expenses 417,000 527,000 1,030,000 1,086,000
Interest expense 424,000 387,000 809,000 777,000
Depreciation and
amortization 243,000 230,000 482,000 498,000
1,084,000 1,144,000 2,321,000 2,361,000
Net loss $(122,000) $(158,000) $(372,000) $ (432,000)
Net loss:
Partnership's share of
combined income (loss) $(20,000) $(210,000) $(292,000) $ (507,000)
Co-venturers' share of
combined income (loss) (102,000) 52,000 (80,000) 75,000
$ (122,000) $(158,000) $(372,000) $ (432,000)
RECONCILIATION OF PARTNERSHIP'S SHARE OF OPERATIONS
Partnership's share of
combined loss, as
shown above $ (20,000) $(210,000) $(292,000) $ (507,000)
Amortization of excess
basis (3,000) (3,000) (6,000) (6,000)
Partnership's share of
ventures' losses $ (23,000) $(213,000) $(298,000) $(513,000)
4.Related Party Transactions
Included in general and administrative expenses for six months ended March
31, 1995 and 1994 is $43,568 and $59,040, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months ended
March 31, 1995 and 1994 is $2,059 and $1,223, respectively, representing fees
earned by Mitchell Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
5.Mortgage Notes Payable in Default
Mortgage notes payable at March 31, 1995 and September 30, 1994 consists of
the following:
March 31 September 30
Permanent mortgage loan secured by the Newport
Beach Marriott Suites Hotel (see Note 2),
bearing interest at 10.09% per annum from
disbursement through August 10, 1992.
Interest accrues at 9.59% per annum from
August 11, 1992 through August 10, 1995 and at
a variable rate of adjusted LIBOR, as defined,
plus 2.5% per annum from August 11, 1995 until
maturity. On August 11, 1996 the balance of
principal together with all accrued but unpaid
interest thereon shall be due. See discussion
regarding default below. $ 32,060,518 $32,060,518
Add: Unamortized deferred gain from
forgiveness of debt - 323,497
32,060,518 32,384,015
Nonrecourse senior promissory notes payable,
bearing interest at a variable rate of
adjusted LIBOR, as defined, plus one percent
per annum. Payments on the loan are to be
made from available cash flow of the Newport
Beach Marriott Suites Hotel (see discussion
below). 4,000,000 2,853,040
$36,060,518 $35,237,055
As discussed in the Annual Report, the Partnership was in default under the
terms of the Newport Beach Marriott loan agreement from the second quarter of
fiscal 1991 through the first quarter of fiscal 1993. On January 25, 1993, the
Managing General Partner and the lender finalized an agreement on a modification
of the first mortgage loan secured by the Hotel which was retroactive to August
11, 1992. Per the terms of the modification, the maturity date of the loan was
extended one year to August 11, 1996. The new loan amount is $32,060,518 (the
original principal of $29,400,000 plus $2,660,518 of unpaid interest and fees).
The new loan amount bears interest at a rate of 9.59% commencing on August 11,
1992 through August 11, 1995 and at a variable rate of the adjusted LIBOR index,
as defined, plus 2.5% from August 11, 1995 through the final maturity date. The
Partnership is obligated to pay to the lender on a monthly basis as debt
service, an amount equal to Hotel Net Cash, as defined in the Hotel management
agreement. In order to increase Hotel Net Cash, Marriott agreed to reduce its
Base Management Fee by one percent of total revenue through calendar year 1996.
In addition, the reserve for the replacement of equipment and improvements,
which is funded out of a percentage of gross revenues generated by the Hotel,
was reduced to two percent of gross revenues in 1992 and to three percent of
gross revenues thereafter. As part of the modification agreement, the
Partnership agreed to make additional debt service contributions to the lender
of $400,000, of which $50,000 was paid at the closing of the modification and
the balance is to be contributed $100,000 per year, payable on a monthly basis
in arrears for forty-two months. Under the terms of the modification, events of
default include payment default with respect to the Partnership's additional
debt service contributions to the lender, failure of the Hotel to meet certain
performance tests, as defined, plus additional default provisions as specified
in the modification agreement.
An additional loan facility from the existing lender of up to $4,000,000 was
available to be used to pay expected debt service shortfalls after August 11,
1992. This additional loan facility bears interest at a variable rate of
adjusted LIBOR (7.1719% at March 31, 1995), as defined, plus one percent per
annum. Interest on the new loan facility is payable currently to the extent of
available cash flow from Hotel operations. Interest deferred due to the lack of
available cash flow can be added to the principal balance of the new loan until
the loan balance reaches the $4,000,000 limitation. At March 31, 1995, the
Partnership had exhausted the entire $4,000,000 of this additional loan
facility. Subsequent to the end of the quarter, on April 11, 1995,
approximately $169,000 of accrued interest on this additional loan facility
remained unpaid. Subsequent to the quarter-end, the Partnership received a
default notice from the lender. The non-payment of interest constitutes an
event of default under the modification agreement which gives the lender the
right to declare the entire indebtedness to be immediately due and payable.
After preliminary discussions, it is unclear whether the lender would be willing
to allow for further modifications to the loan. In the event that an agreement
with the lender cannot be reached, the result could be a foreclosure on the
operating investment property. The eventual outcome of this matter cannot be
determined at this time.
The restructuring of the mortgage note payable completed in fiscal 1993 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 $1,766,609, which represented
the difference between accrued interest and fees recorded under the original
loan agreement and the agreed upon amount of the outstanding interest and fees
of $2,660,518 per the terms of the modification at September 30, 1992, was
deferred and amortized as a reduction of interest expense prospectively, using
the effective interest method. As of March 31,1995, this deferred gain had been
amortized in its entirety.
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As previously reported, on January 25, 1993 the Managing General Partner
and the lender on the Newport Beach Marriott Suites Hotel finalized an agreement
on a modification of the first mortgage loan secured by the Hotel which was
retroactive to August 11, 1992. Per the terms of the modification, the maturity
date of the loan was extended one year to August 11, 1996. The principal amount
of the loan was adjusted to $32,060,518 (the original principal of $29,400,000
plus $2,660,518 of unpaid interest and fees). The outstanding balance of the
loan bears interest at a rate of 9.59% through August 11, 1995 and at a variable
rate of the adjusted LIBOR index, as defined, plus 2.5% from August 11, 1995
through the final maturity date. The Partnership is obligated to pay to the
lender on a monthly basis as debt service, an amount equal to Hotel Net Cash, as
defined in the Hotel management agreement. In order to increase Hotel Net Cash,
Marriott agreed to reduce its Base Management Fee by one percent of total
revenue through January 3, 1997. In addition, the reserve for the replacement
of equipment and improvements, which is funded out of a percentage of gross
revenues generated by the Hotel, was reduced to two percent of gross revenues in
1992 and is equal to three percent of gross revenues thereafter through January
3, 1997. As part of the modification agreement, the Partnership agreed to make
additional debt service contributions to the lender of $400,000, of which
$50,000 was paid at the closing of the modification and the balance is to be
payable on a monthly basis in arrears through the maturity date of the loan.
Under the terms of the modification, events of default include payment default
with respect to the Partnership's additional debt service contributions to the
lender, failure of the Hotel to meet certain performance tests, as defined, plus
additional default provisions as specified in the modification agreement.
As part of the agreement to modify the Hotel's mortgage debt, an
additional loan facility of up to $4,000,000 was made available from the
existing lender to be used to pay debt service shortfalls. This additional
loan facility bears interest at a variable rate of adjusted LIBOR (7.125% at
December 31, 1994), as defined, plus one percent per annum. Interest on the
new loan facility is payable currently to the extent of available cash flow
from Hotel operations. Interest deferred due to the lack of available cash
flow can be added to the principal balance of the new loan until the loan
balance reaches the $4,000,000 limitation. At March 31, 1995, the Partnership
had exhausted the entire $4,000,000 of this additional loan facility.
Subsequent to the end of the quarter, on April 11, 1995, approximately $169,000
of accrued interest on this additional loan facility remained unpaid.
Subsequent to the quarter-end, the Partnership received a default notice from
the lender. The non-payment of interest constitutes an event of default under
the modification agreement which gives the lender the right to declare the
entire indebtedness to be immediately due and payable. After preliminary
discussions, it is unclear whether the lender would be willing to allow for
further modifications to the loan. The estimated value of the Hotel property
is substantially less than the obligation to the mortgage lender at the present
time. Accordingly, the Partnership would only agree to provide additional debt
service support if the lender agreed to grant significant concessions which
would afford the Partnership the opportunity to recover such additional
investments plus a portion of its original investment in the Hotel. In the
event that an agreement with the lender cannot be reached, the result could be
a foreclosure on the operating investment property. Under any circumstances,
the operating results of the Hotel will have to improve dramatically in order
for the Partnership to recover any of its original investment in the Newport
Beach Marriott Suites Hotel. The eventual outcome of this matter cannot be
determined at the present time.
The loss of the Atlanta Marriott Suites to foreclosure in fiscal 1992 and
the uncertain prospects for recovery of the Partnership's investment in the
Newport Beach Marriott, as discussed further above, mean that the Partnership
will be unable to return the full amount of the original invested capital to the
Limited Partners. The two hotel investments represented 63% of the
Partnership's original investment portfolio. The amount of capital which will
be returned will depend upon the proceeds received from the disposition of the
Partnership's other investments, which cannot presently be determined. The
Partnership's other investments consist of four multi-family apartment complexes
and one retail shopping center. In October 1993, the sole anchor tenant of the
Norman Crossing property vacated the center to relocate its operations. This
anchor tenant, which occupied 25,000 square feet of the property's 52,000 net
leasable square feet, is still obligated under the terms of its lease which runs
through the year 2007. To date, all rents due from this tenant have been
collected. Nonetheless the significant vacancy has had, and likely will
continue to have, an adverse effect on the ability to retain existing shop space
tenants and to lease other vacant shop space at the center, which had been 100%
occupied prior to the anchor tenant's departure. During the current quarter one
of two vacant shops was leased, and, subsequent to the end of the quarter, the
other shop was also leased, both at depressed rent levels necessitated by the
anchor tenant vacancy. The center was 49% occupied as of March 31, 1995.
Management has begun an aggressive campaign to fill the vacant anchor tenant
space and to renew other tenant leases. The property manager is working with
the former anchor tenant to find a replacement tenant for this space, either
under a direct lease agreement with the joint venture or under a sub-lease with
the former anchor. However, the timing of any future leasing of this anchor
space is uncertain. The joint venture may have to make significant tenant
improvements and grant further rental concessions in order to stabilize the
operations of this property. Funding for such improvements, along with any
operating cash flow deficits incurred during this period of re-stabilization for
the shopping center, would be provided primarily by the Partnership. The
Partnership has funded cash flow deficits of approximately $39,000 through the
first six months of fiscal 1995.
Conditions in the markets for multi-family residential properties across
the country continue to demonstrate gradual improvement as the ongoing absence
of large-scale new construction activity continues to improve the markets'
supply and demand characteristics. Management expects further improvements in
these conditions in fiscal 1995. In addition, significant progress was made
during 1994 and the first half of fiscal 1995 toward resolving the remedial
repair work and associated litigation affecting the Partnership's investments in
the Meadows, Spinnaker Landing and Bay Club Apartments. The current status of
such matters is discussed in more detail below.
Management renewed marketing and leasing efforts at the Spinnaker Landing
and Bay Club Apartments during the latter part of fiscal 1993 upon the
completion of the repair work to correct the construction defects, and occupancy
levels had stabilized in the low to mid-90's as of March 31, 1995. However, the
venture had negative operating cash flow during fiscal 1994, and management
expects a modest cash flow deficit for fiscal 1995, which will be funded from
available recoveries on certain legal claims, as discussed further below.
Management is hopeful that further improvement in market conditions, combined
with further local market acceptance of the improved physical condition and
appearance of the renovated apartment properties, will enable the venture to
achieve above breakeven cash flow levels by the end of fiscal 1995. As of March
31, 1995, the venture has settled substantially all of the outstanding
litigation related to the construction defects. In addition to the net cash
proceeds received at the time of the primary settlement between the venture and
the developer of both properties, which was executed in fiscal 1992, the venture
also received a note in the amount of $161,500 from the developer which was due
in 1994. During fiscal 1993, the venture agreed to accept a discounted payment
of $113,050 in full satisfaction of the note if payment was made by December 31,
1993. The developer made this discounted payment to the venture in the first
quarter of fiscal 1994. In addition, during fiscal 1994 the venture received
additional settlement proceeds totalling approximately $351,000 from its pursuit
of claims against certain subcontractors of the development company and other
responsible parties. Additional settlements totalling approximately $210,000
were collected during the first half of fiscal 1995. No significant further
litigation proceeds are expected at the present time.
As part of the initial settlement with the developer of the Spinnaker
Landing and Bay Club Apartments, the venture also negotiated a loan modification
agreement which provided the majority of the additional funds needed to complete
the repairs to the operating properties and extended the maturity date for
repayment of the obligation to December 1996. Under the terms of the loan
modification, which was executed in December 1991, the lender agreed to loan to
the joint venture 80% of the additional amounts necessary to complete the repair
of the properties up to a maximum of $760,000. Advances through the completion
of the repair work totalled approximately $617,000. The loan modification
agreement also required the lender to defer all past due interest and all of the
interest due in calendar 1992. During 1993, the joint venture was not in
compliance with the loan modification agreement with respect to scheduled
payments of principal and interest due to negative cash flow from operations.
However, on November 1, 1993 a second loan modification was reached in which the
lender agreed to an additional deferral of debt service payments, through July
1, 1993, which was added to the loan principal. The execution of this second
modification agreement cured any defaults on the part of the joint venture.
Additional amounts owed to the lender as a result of the deferred payments,
after the effect of the second modification agreement and including accrued
interest, total in excess of $1 million. These additional amounts owed to the
lender, while critical and necessary to the process of correcting the
construction defects, have further subordinated the equity position of the
Partnership in these investment properties. The current aggregate estimated
value of the investment properties is below the amount of the debt obligation.
Furthermore, under the terms of the second modification agreement, beginning in
1993, 100% of any net cash flow available after the payment of current debt
service requirements will be payable to the lender until all deferred interest
has been paid; thereafter 50% of any net cash flow will be payable to the lender
to be applied against outstanding principal. During the quarter ended December
31,1994, the venture used a portion of the proceeds from the legal claim
settlements described above to repay the Partnership for its prior advances and
accrued interest thereon in the aggregate amount of approximately $207,000.
However, due to the terms of the venture's debt agreement, no additional funds
are expected to be received from this venture for the foreseeable future.
Management is currently evaluating a proposal from the existing mortgage lender
to repay the outstanding debt at a discount. Such a plan would require a
sizable equity contribution by the Partnership. Management has been evaluating
whether an additional investment of funds in the venture would be economically
prudent in light of the future appreciation potential of the properties. At the
present time it does not appear likely that the Partnership will choose to
commit the additional equity investment required to effect the proposed debt
restructuring. Management continues to examine alternative value creation
scenarios, however, there are no assurances that the partnership will realize
any future proceeds from the ultimate disposition of its interests in these two
properties.
During fiscal 1991, the Partnership discovered that certain materials used
to construct The Meadows in the Park Apartments, in Birmingham, Alabama, were
manufactured incorrectly and would require substantial repairs. During fiscal
1992, the Meadows joint venture engaged local legal counsel to seek recoveries
from the venture's insurance carrier, as well as various contractors and
suppliers, for the venture's claim of damages, which were estimated at between
$1.6 and $2.1 million, not including legal fees and other incidental costs.
During fiscal 1993, the insurance carrier deposited approximately $522,000 into
an escrow account controlled by the venture's mortgage lender in settlement of
the undisputed portion of the venture's claim. During fiscal 1994, the insurer
agreed to enter into non-binding mediation towards settlement of the disputed
claims out of court. On October 3, 1994, the joint venture verbally agreed to
settle its claims against the insurance carrier, architect, general contractor
and the surety/completion bond insurer for $1,714,000, which is in addition to
the $522,000 previously paid by the insurance carrier. These settlement
proceeds were escrowed with the mortgage holder. The nonrecourse mortgage
payable secured by the Meadows' operating property matured on November 1, 1994.
During the first quarter of fiscal 1995, the venture obtained an extension of
the maturity date from the lender to January 1, 1995. Delays in the closing
process for a new loan resulted in the inability to repay the mortgage loan upon
the expiration of the forbearance period. On January 3, 1995, the mortgage
lender sent a formal default notice to the venture stating that a default
interest rate of 15.5% per annum would be applied to the loan effective January
1, 1995. On February 7, 1995, the venture closed on a new loan and fully repaid
the prior mortgage debt obligation. The new debt, in the initial principal
amount of $5,500,000, bears interest at a variable rate equal to the 30-day
LIBOR rate plus 2.25% (equivalent to a rate of approximately 9.5% per annum as
of March 31, 1995). The loan has a 5-year term and requires monthly interest
and principal payments based on a 25-year amortization schedule. Under the
terms of the new loan, the settlement proceeds will be used to complete the
required repairs. The loan will be fully recourse to the joint venture and to
the partners of the joint venture until the repairs are completed, at which time
the entire obligation will become non-recourse. Now that the refinancing is
completed, these repairs will be made as soon as possible. There should be
minimal disruption to the property's tenants during this repair process, which
is expected to be completed by the end of fiscal 1995, and the situation, once
corrected, is not expected to have an adverse effect on the future market value
of the investment property.
At March 31, 1995, the Partnership had available cash and cash equivalents
of approximately $1,373,000. Such cash and cash equivalents will be utilized as
needed for Partnership requirements such as the payment of operating expenses
and the funding of joint venture capital improvements, operating deficits or
refinancing expenses. In addition, the Partnership had a cash reserve of
approximately $536,000 as of March 31, 1995, which is held by Marriott
Corporation and is to be used exclusively for repairs and replacements related
to the Newport Beach Marriott Suites Hotel. The source of future liquidity and
distributions to the partners is expected to be through cash generated from
operations of the Partnership's income-producing investment properties and
proceeds received from the sale or refinancing of such properties.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995
The Partnership recognized a net loss of approximately $665,000 for the
three months ended March 31, 1995, as compared to a net loss of approximately
$996,000 for the same period in the prior year. This favorable improvement in
net operating results for the second quarter of fiscal 1995 is mainly due to a
reduction in depreciation and amortization expense of approximately $140,000, a
decrease in general and administrative expenses of approximately $119,000, and a
decline in the Partnership's share of ventures' losses of approximately
$190,000. These favorable changes were partially offset by an increase in
interest expense on the Marriott debt of approximately $188,000 due to increased
advances received under the additional loan facility discussed further above, as
well as an increase in the variable interest rate on this loan.
The decrease in depreciation and amortization expense for the current
three-month period resulted because certain deferred costs were fully amortized
in the prior year. General and administrative expenses were higher in the prior
year due to certain costs incurred in connection with an independent valuation
of the Partnership's investment properties. The decrease in the Partnership's
share of ventures' losses is primarily attributable to a special allocation of
the net loss of the Meadows joint venture to the Partnership's co-venture
partner in accordance with the terms of the joint venture agreement. In
addition, increased revenues form the lease-up of the renovated Spinnaker
Landing and Bay Club Apartments contributed to the decrease in joint venture
losses for the second quarter of fiscal 1995.
Six Months Ended March 31,1995
The Partnership had a net loss of approximately $1,645,000 for the six
months ended March 31, 1995, as compared to a net loss of approximately
$2,215,000 for the same period in the prior year. The primary reason for this
decrease in net loss of approximately $570,000 was a decrease in the
Partnership's operating loss in fiscal 1995. The Partnership's operating loss
decreased by approximately $355,000 mainly due to an increase in net operating
income from the Newport Beach Marriott Suites Hotel, due to higher occupancy
levels achieved at the Hotel in the current year, a decrease in depreciation and
amortization expense, due to certain deferred fees being fully amortized in the
prior year, and a decrease in general and administrative expenses, as a result
of certain costs incurred in the prior year in connection with an independent
valuation of the Partnership's investment properties. These favorable
improvements in the Partnership's net operating results were partially offset by
an increase in interest expense, which was the result of the increased advances
under the additional loan facility from the Hotel's mortgage lender to pay debt
service shortfalls and an increase in the variable interest rate on this loan
facility. The decrease in the Partnership's net loss can also be partially
attributed to a decrease in the Partnership's share of ventures' losses. This
decrease of approximately $215,000 is mainly the result of the special
allocation of the net loss of the Daniel Meadows II General Partnership to the
Partnership's co-venture partner, as discussed above. The decrease in the
Partnership's share of ventures' losses is also attributable to the lease-up
achieved at the renovated Spinnaker Landing and Bay Club Apartments, as
discussed further above.
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 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 Eighth Income Properties, Inc., an affiliate of
PaineWebber and the Managing General Partner in the Partnership.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Income Properties
Eight LP, PaineWebber and Eighth Income Properties, Inc. (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 Paine Webber Income Properties Eight LP,
also allege that following the sale of the partnership interests, PaineWebber
and Eighth Income Properties, Inc. misrepresented financial information about
the Partnership's value and performance. The amended complaint alleges that
PaineWebber and Eighth Income Properties, Inc. 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 Eighth Income Properties, Inc. and its affiliates for costs and
liabilities in connection with this litigation. The Managing General Partner
intends to vigorously contest the allegations of the action, and believes that
the action will be resolved without material adverse effect on the Partnership's
financial statements, taken as a whole.
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.
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
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 INCOME PROPERTIES
EIGHT LIMITED PARTNERSHIP
By: Eighth Income Properties, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the 6 months ended 3-31-95 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,909,192
<SECURITIES> 0
<RECEIVABLES> 419,118
<ALLOWANCES> 0
<INVENTORY> 125,958
<CURRENT-ASSETS> 2,454,268
<PP&E> 36,739,261
<DEPRECIATION> (9,341,108)
<TOTAL-ASSETS> 30,137,039
<CURRENT-LIABILITIES> 358,571
<BONDS> 42,080,772
<COMMON> 0
0
0
<OTHER-SE> (12,302,304)
<TOTAL-LIABILITY-AND-EQUITY> 30,137,039
<SALES> 0
<TOTAL-REVENUES> 3,722,140
<CGS> 0
<TOTAL-COSTS> 3,383,381
<OTHER-EXPENSES> 297,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,685,866
<INCOME-PRETAX> (1,645,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,645,002)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,645,002)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
