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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-17148
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 .
<PAGE>
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1996 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
-------- ------------
Operating investment property:
Land $ - $ 5,488
Buildings, equipment and improvements - 24,245
- 29,733
Less accumulated depreciation - (9,733)
-------- --------
- 20,000
Assets of operating investment property
subject to foreclosure 21,182 -
Investments in joint ventures, at equity - 412
Cash and cash equivalents 459 1,362
Cash reserved for capital expenditures - 618
Accounts receivable 3 240
Due from Marriott Corporation - 680
Inventories - 124
Other assets - 50
Deferred expenses, net 2 137
-------- --------
$ 21,646 $ 23,623
======== ========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 33 $ 182
Accounts payable - affiliates 2 2
Accrued interest payable - 1,242
Liabilities of operating investment property
subject to foreclosure 44,579 -
Equity in losses of joint ventures in excess
of investments 115 -
Loan payable to Marriott Corporation - 6,328
Mortgage debt payable - 36,060
Partners' deficit (23,083) (20,191)
-------- --------
$ 21,646 $ 23,623
======== ========
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the nine months ended June 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1994 $ (495) $ (10,162)
Net loss (32) (3,012)
-------- --------
Balance at June 30, 1995 $ (527) $(13,174)
======== ========
Balance at September 30, 1995 $ (595) $(19,596)
Net loss (30) (2,862)
-------- --------
Balance at June 30, 1996 $ (625) $(22,458)
======== ========
See accompanying notes.
<PAGE>
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1996 and 1995
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Hotel revenues $ 2,185 $ 1,973 $ 6,402 $ 5,607
Interest and other income 14 28 51 116
------ ------- ------- -------
2,199 2,001 6,453 5,723
Expenses:
Hotel operating expenses 1,606 1,436 4,471 4,235
Interest expense 1,068 1,369 3,371 3,055
Depreciation and amortization 224 241 673 722
General and administrative 66 159 225 262
------ ------- ------- -------
2,964 3,205 8,740 8,274
Operating loss (765) (1,204) (2,287) (2,551)
Partnership's share of
ventures' losses (209) (195) (605) (493)
------ ------- ------- -------
Net loss $ (974) $ (1,399) $ (2,892) $(3,044)
====== ======== ======== =======
Net loss per 1,000 Limited
Partnership Units $(27.11) $(38.95) $(80.49) $(84.74)
======= ======= ======= =======
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.
<PAGE>
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $(2,892) $(3,044)
Adjustments to reconcile net loss
to net cash used in operating activities:
Interest expense on loan payable
to Marriott Corporation 490 444
Partnership's share of ventures' losses 605 493
Depreciation and amortization 673 722
Amortization of deferred gain on
forgiveness of debt - (323)
Changes in assets and liabilities:
Hotel cash subject to foreclosure (429) -
Accounts receivable (104) (72)
Due to/from Marriott Corporation 517 (140)
Inventories 12 15
Other assets (12) (3)
Accounts payable and accrued expenses 11 (250)
Accrued interest payable 299 581
----- ------
Total adjustments 2,062 1,467
----- ------
Net cash used in operating activities (830) (1,577)
----- ------
Cash flows from investing activities:
Distributions from joint ventures - 220
Additional investments in joint ventures (78) (151)
Additions to operating investment property (77) (183)
Net withdrawals from capital expenditure reserve 82 205
----- ------
Net cash (used in) provided by
investing activities (73) 91
----- ------
Cash flows from financing activities:
Proceeds from issuance of notes payable - 1,147
----- ------
Net decrease in cash and cash equivalents (903) (339)
Cash and cash equivalents, beginning of period 1,362 1,496
----- ------
Cash and cash equivalents, end of period $ 459 $1,157
======== =======
Cash paid during the period for interest $ 2,582 $2,354
====== ======
See accompanying notes.
<PAGE>
PAINEWEBBER INCOME PROPERTIES
EIGHT LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
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, 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. Related Party Transactions
Included in general and administrative expenses for nine months ended June
30, 1996 and 1995 is $71,000 and $69,000, 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 June 30, 1996 and 1995 is $2,000 of fees paid to Mitchell
Hutchins Institutional Investors, Inc. for managing the Partnership's cash
assets.
3. Operating Investment Property
As of June 30, 1996, the Partnership directly owned one operating investment
property, the Newport Beach Marriott Suites Hotel. 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 discussed further in the Annual Report, the Hotel has
experienced substantial recurring losses after debt service. During fiscal
1995, the Partnership reached the limit on the debt service deferrals imposed
by the fiscal 1993 loan modification agreement and became in default under
the mortgage loan agreement (see Note 5). During the third quarter of fiscal
1995, the Partnership received a notice of default from the mortgage lender,
and subsequent to the end of the third quarter of fiscal 1996, the
Partnership received notice of a foreclosure sale scheduled for August 7,
1996. On this date, subsequent to the quarter-end, title to the Newport Beach
Marriott Suites Hotel was transferred to the mortgage lender pursuant to
these foreclosure proceedings. As a result, the Partnership no longer has any
ownership interest in the Newport Beach Marriott Suites Hotel.
<PAGE>
As a result of the subsequent foreclosure of the operating investment
property, the following assets and liabilities, which were transferred to the
lender or otherwise disposed of upon foreclosure, have been aggregated and
separately classified on the accompanying balance sheet as of June 30, 1996
(in thousands):
Assets:
Operating investment property, net $19,422
Cash 429
Escrow reserve for repairs and replacements 536
Accounts receivable 341
Due from Marriott Corporation 163
Inventories 112
Prepaid expenses and other assets 62
Deferred expenses, net 117
-------
Assets of operating investment property
subject to foreclosure $21,182
=======
Liabilities:
Accounts payable and accrued expenses $ 160
Accrued interest payable 1,541
Operating note and accrued interest
payable to Marriott Corporation 6,818
Mortgage note payable in default 36,060
--------
Liabilities of operating investment property
subject to foreclosure $44,579
=======
The Partnership will recognize an extraordinary gain of approximately $23
million in fiscal 1996 to reflect the foreclosure of the Hotel property. The
extraordinary gain will equal the amount by which the carrying value of the
Hotel's debt obligations, including deferred and default interest, exceeded
the estimated fair value of the property at the time of the foreclosure. As
discussed further in the Partnership's Annual Report for the year ended
September 30, 1995, the Partnership elected early application of SFAS 121
effective for fiscal 1995. The effect of such application was the recognition
of an impairment loss on the wholly-owned Hotel property. The impairment loss
resulted because, in management's judgment, the default status of the
mortgage loan secured by the property, combined with the lack of near-term
prospects for sufficient future improvement in market conditions in the
Orange County market in which the property is located, were not expected to
enable the Partnership to recover the adjusted cost basis of the property.
The Partnership recognized an impairment loss of $6,369,000 to write down the
operating investment property to its estimated fair value of $20,000,000 as
of September 30, 1995. Fair value was estimated using an independent
appraisal of the operating property.
<PAGE>
The following is a summary of Hotel revenues and operating expenses for the
three and nine months ended June 30, 1996 and 1995 (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Guest rooms $1,674 $1,513 $4,906 $4,230
Food and beverage 405 366 1,177 1,094
Other revenue 106 94 319 283
---- ---- ---- ----
$2,185 $1,973 $6,402 $5,607
====== ====== ====== ======
Operating expenses:
Guest rooms $ 442 $ 416 $1,302 $1,197
Food and beverage 247 210 938 920
Other operating expenses 748 641 1,738 1,653
Management fees 44 40 128 110
Selling, general and
administratio 37 37 106 103
Real estate taxes 88 92 259 252
---- ---- ---- ----
$1,606 $1,436 $4,471 $4,235
====== ====== ====== ======
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.
4. 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, 1996 and 1995 are as follows:
<PAGE>
Condensed Combined Summary of Operations
For the three and nine months ended June 30, 1996 and 1995
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- -----
Rental revenues $ 967 $ 905 $2,821 $2,760
Other income 33 32 75 126
------ ------ ------ ------
1,000 937 2,896 2,886
Property operating expenses 625 509 1,727 1,539
Interest expense 376 405 1,143 1,214
Depreciation and amortization 214 270 670 752
------ ------ ------ ------
1,215 1,184 3,540 3,505
------ ------ ------ ------
Net loss $ (215) $ (247) $ (644) $ (619)
======= ====== ======== =======
Net loss:
Partnership's share of
combined income (loss) $ (177) $ (192) $ (510) $ (484)
Co-venturers' share of
combined income (loss) (38) (55) (134) (135)
------ ------ ------ ------
$ (215) $ (247) $ (644) $ (619)
======= ====== ======== =======
Reconciliation of Partnership's Share of Operations
Partnership's share of combined
loss, as shown above $ (177) $ (192) $ (510) $ (484)
Amortization of excess basis (32) (3) (95) (9)
------ ------ ------ ------
Partnership's share of
ventures' losses $ (209) $ (195) $ (605) $ (493)
======= ====== ======== =======
5. Mortgage Notes Payable in Default
Mortgage notes payable at June 30, 1996 and September 30, 1995 consist of the
following (in thousands):
June 30 September 30
------- -----------
Permanent mortgage loan secured by
the Marriott Suites Hotel-Newport Beach,
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 (5.48% and 5.91% at
June 30, 1996 and September 30, 1995,
respectively), 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
modification and default below. $ 32,060 $ 32,060
Nonrecourse senior promissory notes
payable, bearing interest at a variable
rate of adjusted LIBOR (5.48% and 5.91%
at June 30, 1996 and September 30, 1995,
respectively), 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 4,000
------- -------
$ 36,060 $ 36,060
======== =======
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 was
comprised of the original principal of $29,400,000 plus $2,660,518 of unpaid
interest and fees. 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 was to
be contributed $100,000 per year, payable on a monthly basis in arrears for
forty-two months.
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. Interest on the new loan facility was payable currently to the extent of
available cash flow from Hotel operations. Interest deferred due to the lack of
available cash flow could be added to the principal balance of the new loan
until the loan balance reached 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 accrued 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, 1996,
approximately $1,541,000 of accrued interest on the mortgage loan and the
additional loan facility remained unpaid. The Partnership continued to remit the
net cash flow produced by the Hotel to the lender. However, subsequent to the
date of the default, the Partnership suspended the monthly supplemental payments
referred to above. On February 19, 1996, the first mortgage loan on the property
was purchased by a new lender, and the Partnership subsequently received formal
notice of default from this new lender. Subsequent to the end of the third
quarter of fiscal year 1996, the Partnership received a notice of a foreclosure
sale scheduled for August 7, 1996. On this date, subsequent to the quarter-end,
title to the Hotel was transferred to the mortgage lender pursuant to these
foreclosure proceedings. Given the significant deficiency which existed between
the estimated fair value of the Hotel and the outstanding indebtedness,
management believed that it would not be prudent to use any of the Partnership's
capital resources to cure the default or contest the foreclosure action 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.
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. During fiscal 1995, this deferred gain was fully
amortized.
<PAGE>
6. Contingencies
The Partnership is involved in certain legal actions. At the present time, the
Managing General Partner is unable to determine what impact, if any, the
resolution of these matters may have on the Partnership's financial statements,
taken as a whole.
<PAGE>
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, the Partnership had been in default under the
modified terms of the mortgage loan secured by the Newport Beach Marriott Suites
Hotel since March of 1995, upon reaching the $4,000,000 maximum threshold for
additional debt service shortfall advances. 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 accrued at a rate of
4% per annum on the loan amount of $32,060,518 and the additional loan facility
of $4,000,000. On February 19, 1996, the first mortgage loan secured by the
Newport Beach Marriott Suites Hotel was purchased by a new lender, and the
Partnership subsequently received formal notice of default from this new lender.
Subsequent to the end of the third quarter of fiscal 1996, the Partnership
received a notice of a foreclosure sale scheduled for August 7, 1996. On this
date, subsequent to the quarter-end, title to the Newport Beach Marriott Suites
Hotel was transferred to the mortgage lender pursuant to these foreclosure
proceedings. As a result, the Partnership no longer has any ownership interest
in the Hotel. Despite an improvement in the Hotel's operating results over the
last year, the estimated value of the Hotel property remained substantially less
than the obligation to the mortgage lender. Given the significant deficiency
which existed between the estimated fair value of the Hotel and the outstanding
debt obligation payable to the mortgage lender, management believed that it
would not be prudent to use any of the Partnership's capital resources to cure
the default or contest the foreclosure 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 light of the circumstances facing the Newport Beach Marriott Hotel as
of September 30, 1995, management had reviewed the carrying value of the Hotel
for potential impairment in fiscal 1995. In conjunction with such review, the
Partnership elected early application of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). In accordance with SFAS 121, an
impairment loss with respect to an operating investment property is recognized
when the sum of the expected future net cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset. An impairment
loss is measured as the amount by which the carrying amount of the asset exceeds
its fair value, where fair value is defined as the amount at which the asset
could be bought or sold in a current transaction between willing parties, that
is other than a forced or liquidation sale. In conjunction with the application
of SFAS 121, the Partnership recognized an impairment loss of $6,369,000 to
write down the Newport Beach Marriott property to its estimated fair value of
$20,000,000 as of September 30, 1995. Fair value was estimated using an
independent appraisal of the operating property. The impairment loss resulted
because, in management's judgment, the default status of the mortgage loan
secured by the property discussed above, combined with the lack of near-term
prospects for sufficient future improvement in market conditions in the Orange
County market in which the property is located, were not expected to enable the
Partnership to recover the adjusted cost basis of the property. Because the net
carrying value of the Hotel is below the balance of the nonrecourse debt
obligation secured by the property as of June 30, 1996, the Partnership will
recognize a sizable gain, which will be recorded in the fourth quarter of fiscal
1996, for both book and tax purposes upon the foreclosure of the operating
property and settlement of the debt obligation.
The loss of the Atlanta Marriott Suites to foreclosure in fiscal 1992 and
the loss of the Newport Beach Marriott Suites to foreclosure in fiscal 1996,
mean that the Partnership will be unable to return any meaningful portion 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. Based on the current
estimated market values of these investments, only the Partnership's interest in
the Meadows in the Park Apartments has any significant value above the
outstanding mortgage indebtedness secured by the properties. As discussed
further in the Partnership's Annual Report, despite achieving stabilized
occupancy levels subsequent to the repairs of the construction defects at the
Spinnaker Landing and Bay Club Apartments, the joint venture which owns the
properties continues to operate at a cash flow deficit. Under the terms of the
venture's loan modification, which was executed in March 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 through July 1, 1993, which was added to the loan
principal. Additional amounts owed to the lender as a result of the deferred
payments, 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
estimated market values of the two apartment complexes are below the amount of
the outstanding debt obligations which total approximately $6.1 million. During
fiscal 1995, management evaluated a proposal from the mortgage lender to repay
the outstanding debt at a significant discount. Such a plan would have required
a sizable equity contribution by the Partnership. At the time, management had
determined that the required additional investment of funds in the venture would
not be economically prudent in light of the future appreciation potential of the
properties.
The loans secured by Spinnaker Landing and Bay Club are scheduled to mature
in December 1996. During the third quarter of fiscal 1996, the Partnership was
notified that the first mortgage lender and the related loans were purchased by
another financial institution. The Partnership met with the new lender during
the third quarter in an attempt to negotiate repayment of the existing loans at
a large enough discount to result in an economically sound transaction for the
Partnership. No significant progress was made during these negotiations.
Furthermore, due to semi-annual real estate tax payments made during the third
fiscal quarter, as well as the payment of ongoing operating expenses, the
monthly cash flow available from the properties was insufficient to pay the
minimum debt service required in May, June and July of 1996. The venture has
remitted only the available cash flow from operations to the lender for these
past three months. A notice of default was issued by the mortgage lender
subsequent to the end of the third fiscal quarter. As a result, it is expected
that the Spinnaker Landing and Bay Club properties will be lost through a
foreclosure action by the lender prior to loan maturity dates in December 1996.
In October 1993, the sole anchor tenant of the Norman Crossing Shopping
Center vacated the center to relocate its operations. This anchor tenant, which
occupied 26,700 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 anchor tenant vacancy resulted in several tenants receiving rental
abatements during fiscal 1995 and has had an adverse effect on the ability to
lease other vacant shop space at the center, which had been 100% occupied prior
to the anchor tenant's departure. The center was 86% occupied as of June 30,
1996. During the last quarter of fiscal 1995, the former anchor tenant reached
an agreement to sub-lease its space to a new tenant. This new sublease tenant is
a health club operator which occupies 19,000 square feet of the former anchor's
space and will sublease the remaining 7,700 square feet. As a result of the new
health club tenant opening for business in February 1996, the rental abatements
granted to the other tenants have been terminated. However, the long-term impact
of this subleasing arrangement on the operations of the property remains
uncertain at the present time. The joint venture may have to continue to make
significant tenant improvements and grant further rental concessions in order to
maintain a high occupancy level. Funding for such improvements, along with any
operating cash flow deficits incurred during this period of restabilization for
the shopping center, would be provided primarily by the Partnership. The
Partnership funded cash flow deficits of approximately $16,000 for the Norman
Crossing joint venture during the first nine months of fiscal 1996. The
Partnership has also been funding its share of the deficits at the Maplewood
joint venture. During the first quarter of fiscal 1996, the Partnership funded
an additional $63,000 to the Maplewood joint venture to cover its share of the
venture's annual debt service principal payment.
Repairs to the construction defects at the Meadows in the Park Apartments
in Birmingham, Alabama, were substantially completed during the current quarter
using the proceeds of the insurance settlement which were escrowed with the
venture's new mortgage lender. As previously reported, the loan is 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 becomes non-recourse.
The average occupancy level at the Meadows property increased to 96% for the
quarter ended June 30, 1996 from 83% for the previous quarter. The dramatic
increase in average occupancy is the result of the completion of structural
repairs in May. As reported during the structural repair program, certain
apartment units were out of service each month, which depressed average
occupancy levels relative to competing properties in the surrounding market
area. With the completion of the construction at Meadows, average occupancy
levels and rental rates do not compare favorably to other apartment communities
in its sub-market. As stated above, the Meadows in the Park Apartments is the
only one of the Partnership's investments which would appear to have any
significant value above the related mortgage loan obligations based on current
estimated market values. Assuming that the overall market for multi-family
apartment properties remains strong in the near term, the Meadows joint venture
may have a favorable opportunity to sell the operating investment property
subsequent to the restabilization of occupancy levels and rental rates which
should follow the completion of the repair work discussed above. Management is
currently in the process of identifying and evaluating alternative operating
plans for the Partnership in light of the foreclosure of the Newport Beach
Marriott, the impending foreclosure of the Spinnaker Landing and Bay Club
properties, the potential future sale of the Meadows property and the status of
the Partnership's existing cash reserves.
At June 30, 1996, the Partnership had available cash and cash equivalents
of $459,000. 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. 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. Such sources of liquidity are expected to be
sufficient to meet the Partnership's needs on a short-term basis. As discussed
further above, management is currently evaluating alternative operating
strategies to address the Partnership's long-term liquidity needs.
Results of Operations
Three Months Ended June 30, 1996
The Partnership had a net loss of $974,000 for the three months ended June
30, 1996, as compared to a net loss of $1,399,000 for the same period in the
prior year. The primary reason for this decrease in net loss for the third
quarter of fiscal 1996 is a decrease in the Partnership's operating loss of
$439,000. The Partnership's operating loss decreased mainly due to a decrease in
interest expense of $301,000 and an increase in Hotel revenues of $212,000.
Interest expense decreased primarily due to a decrease in the interest rate on
the mortgage loan secured by the Newport Beach Marriott Suites Hotel from a
fixed interest rate during the prior period to a lower floating interest rate
during the current period. In addition, the interest rate on the accrual loan
facility secured by the Hotel bore a lower floating interest rate during the
current period. Hotel revenues increased due to an increase in average occupancy
and rental rates over the same period in the prior year. The Hotel averaged 82%
occupancy with an average daily room rate of $97.01 for the current quarter, as
compared to an occupancy level of 80% and an average room rate of $89.63 during
the same period in the prior year. The decrease in interest expense and increase
in Hotel revenues was partially offset by an increase in Hotel operating
expenses of $170,000. Hotel operating expenses increased primarily due to an
increase in repairs and maintenance expenses.
In addition, the Partnership's share of ventures' losses increased by
$14,000 for the three months ended June 30, 1996, as compared to the same period
in the prior year. The primary reason for this increase is that the Partnership
accelerated the amortization of its excess basis in the joint venture
investments during the current period as a result of the overall Partnership
outlook. Such adjustment resulted in an increase in the amortization of the
Partnership's excess basis by $29,000 for the current three-month period. The
Partnership's share of ventures' losses prior to the amortization of excess
basis decreased by $15,000 primarily due to a decrease in the operating loss of
the venture which owns the Norman Crossing Shopping Center. Operating loss at
the Norman Crossing joint venture decreased primarily due to a decrease in
depreciation expense.
Nine Months Ended June 30, 1996
The Partnership had a net loss of $2,892,000 for the nine months ended June
30, 1996, as compared to a net loss of $3,044,000 for the same period in the
prior year. The primary reason for this decrease in net loss is a decrease in
the Partnership's operating loss of $264,000. The decrease in operating loss is
mainly due to an increase in Hotel revenues of $795,000, which was the result of
an increase in average occupancy and rental rates over the same period in the
prior year. The increase in Hotel revenues was offset by an increase in interest
expense of $316,000, which is the result of default interest being accrued on
the outstanding mortgage loan and accrual loan facility secured by the Newport
Beach Marriott Suites Hotel, as discussed further above. In addition, the
average outstanding balance of the floating rate accrual loan facility was
higher than during the same period in the prior year. Hotel operating expenses
increased by $236,000, mainly due to an increase in repairs and maintenance, and
also offset the increase in Hotel revenues for the current nine-month period.
In addition, the Partnership's share of ventures' losses increased by
$112,000 for the nine months ended June 30, 1996, as compared to the same period
in the prior year. The primary reason for this increase is that the Partnership
accelerated the amortization of its excess basis in the joint venture
investments during the current period as a result of the overall Partnership
outlook. Such adjustment resulted in an increase in the amortization of the
Partnership's excess basis by $86,000 for the current nine-month period.
Operating losses also increased at the Bay Club and Spinnaker Landing Apartments
and at the Norman Crossing Shopping Center. The net loss of the Bay Club and
Spinnaker Landing Apartments joint venture increased primarily due to an
increase in interest expense resulting from the addition of unpaid interest to
the principal balance of the outstanding mortgage indebtedness and an increase
in depreciation expense. The net loss of the Norman Crossing joint venture
increased primarily due to a decrease in tenant reimbursement income and an
increase in property operating expenses.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in the prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "New York Limited Partnership Actions")
were filed in the United States District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 limited
partnership investments, including those offered by the Partnership. The
lawsuits were brought against PaineWebber Incorporated and Paine Webber Group
Inc. (together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated under
the title In re PaineWebber Limited Partnership Litigation, the plaintiffs
amended their complaint to assert claims against a variety of other defendants,
including Eighth Income Properties, Inc. and Properties Associates 1986, L.P.
("PA1986"), which are General Partners of the Partnership and affiliates of
PaineWebber. On May 30, 1995, the court certified class action treatment of the
claims asserted in the litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the direction of the court. A final hearing on the fairness of the
proposed settlement has been scheduled for October 25, 1996.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Quarterly Report on Form 10-Q for the period ended March 31, 1996.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINEWEBBER 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 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1996
<CASH> 459
<SECURITIES> 0
<RECEIVABLES> 3
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 462
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21646
<CURRENT-LIABILITIES> 35
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (23083)
<TOTAL-LIABILITY-AND-EQUITY> 21646
<SALES> 0
<TOTAL-REVENUES> 6453
<CGS> 0
<TOTAL-COSTS> 5369
<OTHER-EXPENSES> 605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3371
<INCOME-PRETAX> (2,892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,892)
<EPS-PRIMARY> (80.49)
<EPS-DILUTED> (80.49)
</TABLE>
