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 JUNE 30, 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
June 30, 1995 and September 30, 1994
(Unaudited)
ASSETS
June 30 September 30
Operating investment property:
Land $ 6,664,525 $ 6,664,525
Building and improvements 25,973,821 25,790,930
Furniture, fixtures and equipment 3,481,880 3,481,880
36,120,226 35,937,335
Less accumulated depreciation (9,564,511) (8,894,088)
26,555,715 27,043,247
Investments in joint ventures, at equity 496,395 1,058,322
Cash and cash equivalents 1,157,279 1,496,258
Cash reserved for capital expenditures 553,001 757,747
Accounts receivable 358,067 286,022
Due from Marriott Corporation 127,619 -
Inventories 123,430 137,940
Other assets 53,035 50,471
Deferred expenses, net 208,592 260,175
$29,633,133 $31,090,182
LIABILITIES AND PARTNERS' DEFICIT
Mortgage notes payable in default $36,060,518 $35,237,055
Accrued interest payable 867,898 287,335
Accounts payable and accrued expenses 232,502 481,014
Accounts payable - affiliates 1,886 1,886
Due to Marriott Corporation - 12,365
Loan payable to Marriott Corporation 6,172,018 5,727,829
Partners' deficit (13,701,689) (10,657,302)
$ 29,633,133 $31,090,182
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the nine months ended June 30, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at September 30, 1993 $(452,802) $ (6,228,144)
Net loss (36,067) (3,392,417)
BALANCE AT JUNE 30, 1994 $(488,869) $(9,620,561)
Balance at September 30, 1994 $(494,632) $(10,162,670)
Net loss (32,026) (3,012,361)
BALANCE AT JUNE 30, 1995 $(526,658) $(13,175,031)
See accompanying notes.
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES:
Hotel revenues $1,973,159 $1,722,013 $5,606,591 $5,236,039
Interest and
other income 27,935 17,669 116,643 47,836
2,001,094 1,739,682 5,723,234 5,283,875
EXPENSES:
Hotel operating expenses 1,435,543 1,464,375 4,235,380 4,275,676
Interest expense 1,369,148 746,787 3,055,014 2,212,200
Depreciation and
amortization 240,599 379,990 722,006 1,139,967
General and
administrative 160,545 76,367 262,682 285,949
3,205,835 2,667,519 8,275,082 7,913,792
Operating loss (1,204,741) (927,837) (2,551,848) (2,629,917)
Partnership's share of
ventures' losses (194,644) (285,954) (492,539) (798,567)
NET LOSS $(1,399,385) $(1,213,791)$(3,044,387)$(3,428,484)
Net loss per 1,000 Limited
Partnership Units $(38.95) $(33.79) $ (84.74) $(95.43)
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 nine months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net loss $(3,044,387) $(3,428,484)
Adjustments to reconcile net loss
to net cash used for operating activities:
Interest expense on loan payable
to Marriott Corporation 444,189 402,085
Partnership's share of ventures' losses 492,539 798,567
Depreciation and amortization 722,006 1,139,967
Amortization of deferred gain
on forgiveness of debt (323,497) (571,190)
Changes in assets and liabilities:
Accounts receivable (72,045) (136,830)
Due to/from Marriott Corporation (139,984) 51,428
Inventories 14,510 (5,331)
Other assets (2,564) 4,812
Accounts payable and accrued expenses (248,512) (85,757)
Accounts payable - affiliates - (20,771)
Accrued interest payable 580,563 75,350
Total adjustments 1,467,205 1,652,330
Net cash used for
operating activities (1,577,182) (1,776,154)
Cash flows from investing activities:
Distributions from joint ventures 220,500 397,897
Additional investments in joint ventures (151,112) -
Additions to operating investment property (182,891)
Net withdrawals from capital
expenditure reserve 204,746 -
Net cash provided by
investing activities 91,243 397,897
Cash flows from financing activities:
Proceeds from issuance of
notes payable 1,146,960 1,372,400
Net decrease in cash and cash equivalents (338,979) (5,857)
Cash and cash equivalents,
beginning of period 1,496,258 2,292,646
Cash and cash equivalents, end of period $ 1,157,279 $ 2,286,789
Cash paid during the period for interest $2,353,759 $ 2,305,955
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 June 30, 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 June 30, 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 nine months ended June 30, 1995 and 1994:
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES:
Guest rooms $1,512,538 $1,312,679 $4,229,441 $3,922,178
Food and beverage 366,001 328,829 1,094,497 1,149,988
Other revenues 94,620 80,505 282,653 163,873
$1,973,159 $1,722,013 $5,606,591 $5,236,039
OPERATING EXPENSES:
Guest rooms $ 415,840 $ 389,951 $1,197,124 $1,107,497
Food and beverage 210,294 285,240 920,212 1,014,158
Other operating expenses 641,030 579,370 1,653,086 1,596,389
Management fees - Manager 39,463 35,331 109,997 104,416
Selling, general
and administration 37,266 81,213 103,432 167,913
Real estate taxes 91,650 93,270 251,529 285,303
$1,435,543 $1,464,375 $4,235,380 $4,275,676
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 nine
months ended June 30, 1995 and 1994 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended June 30, 1995 and 1994
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
Rental revenues $905,000 $902,000 $2,760,000 $2,712,000
Other income 32,000 10,000 126,000 129,000
937,000 912,000 2,886,000 2,841,000
Property operating expenses 509,000 517,000 1,539,000 1,603,000
Interest expense 405,000 390,000 1,214,000 1,167,000
Depreciation and amortization 270,000 254,000 752,000 752,000
1,184,000 1,161,000 3,505,000 3,522,000
Net loss $(247,000) $(249,000) $(619,000) $ (681,000)
Net loss:
Partnership's share of
combined income (loss) $(192,000) $(283,000) $(484,000) $ (790,000)
Co-venturers' share of
combined income (loss) (55,000) 34,000 (135,000) 109,000
$ (247,000) $(249,000) $(619,000) $(681,000)
RECONCILIATION OF PARTNERSHIP'S SHARE OF OPERATIONS
Partnership's share
of combined loss,
as shown above $(192,000) $(283,000) $(484,000) $(790,000)
Amortization of excess
basis (3,000) (3,000) (9,000) (9,000)
Partnership's share
of ventures' losses $(195,000) $(286,000) $(493,000) $(799,000)
4.Related Party Transactions
Included in general and administrative expenses for nine months ended June
30, 1995 and 1994 is $69,338 and $89,424, 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 nine months
ended June 30, 1995 and 1994 is $2,303 and $3,299, 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 June 30, 1995 and September 30, 1994 consists of
the following:
June 30 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. 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 of $32,060,518 is
comprised of the original principal of $29,400,000 plus $2,660,518 of unpaid
interest and fees. 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 (7.05% at June 30, 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. As of March 31, 1995, the
Partnership had exhausted the entire $4,000,000 of this additional loan
facility. On April 11, 1995, the Partnership received a default notice from the
lender. Under the terms of the loan agreement, as of April 25, 1995 additional
default interest accrues at a rate of 4% per annum on the loan amount of
$32,060,518 and the additional loan facility of $4,000,000. At June 30, 1995,
approximately $475,000 of accrued interest on this additional loan facility
remained unpaid and default interest of approximately $261,000 had accrued. The
Partnership continues to remit the net cash flow produced by the Hotel to the
lender. After preliminary discussions, it is unclear whether the lender will be
willing to allow for further modifications to the loan. Given the significant
deficiency which exists between the estimated fair value of the Hotel and the
outstanding indebtedness, management believes that it would not be prudent to
use the Partnership's reserves to cure the default without substantial
modifications to the loan terms 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. 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 June 30, 1995, this deferred gain had been
amortized in its entirety.
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.
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 (7.0547% at
June 30, 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. As of March 31, 1995, the Partnership had
exhausted the entire $4,000,000 of this additional loan facility. On April 11,
1995, the Partnership received a default notice from the lender. Under the
terms of the loan agreement, as of April 25, 1995 additional default interest
accrues at a rate of 4% per annum on the loan amount of $32,060,518 and the
additional loan facility of $4,000,000. At June 30, 1995, approximately
$475,000 of accrued interest on this additional loan facility remained unpaid
and default interest of approximately $261,000 had accrued. After preliminary
discussions, it is unclear whether the lender will 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 quarter ended March
31, 1995, one of two vacant shops was leased, and, during the current quarter,
the other shop was leased, both at depressed rent levels necessitated by the
anchor tenant vacancy. The center was 49% occupied as of June 30, 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. During the quarter ended June 30, 1995, the former anchor
tenant reached a tentative agreement to sub-lease its space to a new tenant.
However, this new tenant would only need a portion of the space and the
transaction is dependent on the ability to further sub-lease the excess space.
As a result, the timing of any future leasing of this anchor space remains
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 $56,000 through the first nine months
of fiscal 1995.
As previously reported, significant progress was made during 1994 and the
first nine months 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. 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 mid-90% range
as of June 30, 1995. However, the venture had negative operating cash flow
during fiscal 1994 and continues to generate a modest cash flow deficit in
fiscal 1995, which is being 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 June 30, 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 have been
collected during the first nine months 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 two apartment complexes is below the amount of the debt obligation.
Furthermore, under the terms of the second modification agreement, 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 8.125% per annum as
of June 30, 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. The occupancy level
at Meadows dropped significantly to 83% for the quarter ended June 30, 1995,
down from 93% last quarter. This decline is due to ongoing construction
activities related to the repair work. The overall market remains strong and
the occupancy level is expected to increase as repairs to the property are
completed. At the end of the quarter, the repairs were approximately 60%
complete with all of the work expected to be finished during calendar year 1995.
To date, approximately $900,000 has been expended on these repairs, all of which
has been funded from the $1.7 million of litigation proceeds referred to above.
The remaining proceeds are expected to be sufficient to cover the costs of
completing the repair work.
At June 30, 1995, the Partnership had available cash and cash equivalents
of approximately $1,157,000. 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 $553,000 as of June 30, 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 June 30, 1995
The Partnership's net loss increased by approximately $186,000 for the
three months ended June 30, 1995 as compared to the same period in the prior
year. This increase in net loss is a result of an increase in the Partnership's
operating loss of approximately $277,000. The increase in operating loss is
primarily due to an increase in interest expense of approximately $622,000 which
is partly a result of default interest being accrued on the outstanding mortgage
loan and accrual loan facility secured by the Newport Beach Marriott Suites
Hotel. In addition, both the interest rate and average outstanding balance of
the floating rate Hotel loan facility were higher than during the same period in
the prior year. General and administrative expenses also increased by
approximately $84,000 as a result of certain costs incurred in conjunction with
an independent valuation of the Partnership's investment properties which was
commissioned in conjunction with management's ongoing portfolio management
responsibilities. These increases in interest expense and general and
administrative expenses were partially offset by an increase in Hotel revenues
of approximately $251,000 and a decrease in depreciation and amortization
expense of approximately $139,000. Hotel revenues increased due to an increase
in average occupancy to 82% during the current quarter from 73% for the same
period in the prior year. Depreciation and amortization expense decreased
because certain deferred costs were fully amortized in the prior year. The
increase in the Partnership's operating loss was partially offset by a decrease
in the Partnership's share of ventures' losses of approximately $91,000. 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 from the lease-up
of the renovated Spinnaker Landing and Bay Club Apartments contributed to the
decrease in joint venture losses for the third quarter of fiscal 1995.
Nine Months Ended June 30,1995
The Partnership had a net loss of approximately $3,044,000 for the nine
months ended June 30, 1995, as compared to a net loss of approximately
$3,428,000 for the same period in the prior year. The primary reason for this
decrease in net loss was a decrease in the Partnership's share of ventures'
losses. The decrease in the Partnership's share of ventures' losses of
approximately $306,000 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 partly attributable to the lease-up achieved at the
renovated Spinnaker Landing and Bay Club Apartments, as discussed further above.
In addition, the Partnership's operating loss decreased by approximately $78,000
mainly due to an increase in revenues from the Newport Beach Marriott Suites
Hotel, of approximately $371,000, due to higher occupancy levels achieved at the
Hotel in the current year, and a decrease in depreciation and amortization
expense of approximately $418,000, due to certain deferred fees being fully
amortized in the prior year. In addition, interest and other income increased
by approximately $69,000 as a result of higher interest rates being earned on
the Partnership's cash reserves as compared to the prior year. These favorable
improvements in the Partnership's operating loss were almost entirely offset by
an increase in interest expense of approximately $843,000. The increase in
interest expense is mainly a result of default interest being accrued on the
outstanding mortgage loan and accrual loan facility secured by the Newport Beach
Marriott Suites Hotel. In addition, both the interest rate and average
outstanding balance of the floating rate Hotel loan facility were higher than
during the same period in the prior year.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's quarterly report on Form 10-Q for the
period ended March 31, 1995, 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. On May 30, 1995, the
court certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partners continue to believe 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: August 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the nine months ended June 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,157,279
<SECURITIES> 0
<RECEIVABLES> 485,686
<ALLOWANCES> 0
<INVENTORY> 123,430
<CURRENT-ASSETS> 2,319,396
<PP&E> 36,616,621
<DEPRECIATION> 9,564,511
<TOTAL-ASSETS> 29,633,133
<CURRENT-LIABILITIES> 1,102,286
<BONDS> 42,232,536
<COMMON> 0
0
0
<OTHER-SE> (13,701,689)
<TOTAL-LIABILITY-AND-EQUITY> 29,633,133
<SALES> 0
<TOTAL-REVENUES> 5,723,234
<CGS> 0
<TOTAL-COSTS> 5,220,068
<OTHER-EXPENSES> 492,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,055,014
<INCOME-PRETAX> (3,044,387)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,044,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,044,387)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
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