UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-17148
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
December 31, 1995 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
Operating Investment Property:
Land $ 5,488 $ 5,488
Buildings, equipment and improvements 24,282 24,245
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29,770 29,733
Less accumulated depreciation (9,968) (9,733)
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19,802 20,000
Investments in joint ventures, at equity 345 412
Cash and cash equivalents 979 1,362
Cash reserved for capital expenditures 694 618
Accounts receivable 287 240
Due from Marriott Corporation - 680
Inventories 122 124
Other assets 47 50
Deferred expenses, net 132 137
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$ 22,408 $ 23,623
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LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 196 $ 182
Accounts payable - affiliates 2 2
Accrued interest payable 941 1,242
Due to Marriott Corporation 94 -
Loan payable to Marriott Corporation 6,487 6,328
Mortgage debt payable 36,060 36,060
Partners' deficit (21,372) (20,191)
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$ 22,408 $ 23,623
========= =========
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the three months ended December 31, 1995 and 1994 (Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at September 30, 1994 $ (495) $ (10,162)
Net loss (9) (924)
------ ---------
Balance at December 31, 1994 $ (504) $ (11,086)
====== =========
Balance at September 30, 1995 $ (595) $ (19,596)
Net loss (12) (1,169)
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Balance at December 31, 1995 $ (607) $(20,765)
====== =========
See accompanying notes.
<PAGE>
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three months ended December 31, 1995 and 1994(Unaudited)
(In thousands, except per Unit data)
1995 1994
---- ----
Revenues:
Hotel revenues $1,949 $1,694
Interest and other income 20 23
------ -------
1,969 1,717
Expenses:
Hotel operating expenses 1,391 1,308
Interest expense 1,291 763
Depreciation and amortization 240 241
General and administrative 91 63
------- -------
3,013 2,375
------- -------
Operating loss (1,044) (658)
Partnership's share of
ventures' losses (137) (275)
-------- --------
Net loss $(1,181) $ (933)
======= ======
Net loss per 1,000 Limited
Partnership Units $(32.88) $(25.98)
======= =======
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 three months ended December 31, 1995 and 1994 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994
---- ----
Cash flows from operating activities:
Net loss $(1,181) $ (933)
Adjustments to reconcile net loss
to net cash used for operating activities:
Interest expense on loan payable
to Marriott Corporation 159 144
Partnership's share of ventures' losses 137 275
Depreciation and amortization 240 241
Amortization of deferred gain on
forgiveness of debt - (201)
Changes in assets and liabilities:
Accounts receivable (47) (47)
Due to/from Marriott Corporation 774 (208)
Inventories 2 7
Other assets 3 (13)
Accounts payable and accrued expenses 14 (244)
Accrued interest payable (301) 50
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Total adjustments 981 4
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Net cash used for operating activities (200) (929)
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Cash flows from investing activities:
Distributions from joint ventures - 160
Additional investments in joint ventures (70) (104)
Additions to operating investment property (37) (94)
Net deposits to (withdrawals from)
capital expenditure reserve (76) 250
Net cash provided by (used for)
investing activities (183) 212
Cash flows from financing activities:
Proceeds from issuance of notes payable - 510
------ -------
Net decrease in cash and cash equivalents (383) (207)
Cash and cash equivalents, beginning of period 1,362 1,496
------ ------
Cash and cash equivalents, end of period $ 979 $1,289
====== ======
Cash paid during the period for interest $1,433 $ 769
====== ======
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. Operating Investment Property
The Partnership directly owns 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
1993 loan modification agreement. As of December 31, 1995, the Partnership
was in default of the mortgage loan 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. It is uncertain at this time whether the lender
will agree to a further modification of the loan terms and an extension of
the August 1996 maturity date. In the event that an agreement with the
lender cannot be reached, the result could be a foreclosure on the operating
investment property.
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 current 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, are 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. Because the net carrying value of the
Hotel is below the balance of the nonrecourse debt obligation secured by the
property as of December 31, 1995, the Partnership would recognize a sizable
net gain for financial reporting purposes upon a foreclosure of the
operating investment property and settlement of the debt obligation.
<PAGE>
The following is a summary of Hotel revenues and operating expenses for
the three months ended December 31, 1995 and 1994 (in thousands):
1995 1994
---- ----
Revenues:
Guest rooms $1,483 $1,235
Food and beverage 366 412
Other revenue 100 47
------ ------
$1,949 $1,694
====== ======
Operating expenses:
Guest rooms $ 420 $ 368
Food and beverage 310 300
Other operating expenses 538 541
Management fees - Manager 39 31
Real estate taxes 84 68
------ ------
$1,391 $1,308
====== ======
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 months
ended December 31, 1995 and 1994 are as follows:
Condensed Combined Summary of Operations
For the three months ended December 31, 1995 and 1994
(in thousands)
1995 1994
---- ----
Rental revenues $ 927 $ 946
Other income 62 41
------ ------
989 987
Property operating expenses 550 613
Interest expense 390 385
Depreciation and amortization 227 239
------ -------
1,167 1,237
------ -------
Net loss $ (178) $ (250)
====== ======
<PAGE>
Net loss:
Partnership's share of
combined income (loss) $ (134) $ (272)
Co-venturers' share of
combined income (loss) (44) 22
------ -------
$ (178) $ (250)
====== ======
Reconciliation of Partnership's Share of Operations
Partnership's share of combined
loss, as shown above $ (134) $ (272)
Amortization of excess basis (3) (3)
------ -------
Partnership's share of ventures' losses $ (137) $ (275)
====== ======
4. Related Party Transactions
Included in general and administrative expenses for three months ended
December 31, 1995 and 1994 is $23,000 and $28,000, 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 the three months
ended December 31,195 and 1994 is $200 and $500, respectively of fees paid to
Mitchell Hutchins Institutional Investors, Inc. for managing the
Partnership's cash assets.
5. Mortgage Notes Payable in Default
Mortgage notes payable at December 31, 1995 and September 30, 1995
consists of the following (in thousands):
December 31 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 (6.19% and 5.91% at
December 31, 1995 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 (6.19% and 5.91% at
December 31, 1995 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 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 (6.19% at December 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. 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 December 31,
1995, approximately $941,000 of accrued interest on the mortgage loan and the
additional loan facility remained unpaid. The Partnership continues to remit the
net cash flow produced by the Hotel to the lender. However, subsequent to the
date of the default, the Partnership has suspended the monthly supplemental
payments referred to above. 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. During fiscal 1995, this deferred gain was fully
amortized.
<PAGE>
6. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes that these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
<PAGE>
PAINEWEBBER 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 (6.19% at December 31, 1995), plus
2.5% from August 11, 1995 through the final maturity date. The Partnership is
obligated to pay 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 was to be payable on a monthly basis in arrears for forty-two
months.
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, 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 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 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
December 31, 1995, approximately $941,000 of accrued interest on the mortgage
loan and the additional loan facility remained unpaid. The Partnership continues
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
additional debt service contributions of $8,333 referred to above. After
preliminary discussions, it is unclear whether the lender will be willing to
allow for further modifications to the loan and an extension of the August 1996
maturity date. Despite an improvement in the Hotel's operating results over the
last year, the estimated value of the Hotel property is substantially less than
the obligation to the mortgage lender at the present time. While increased
demand from institutional buyers and an absence of any significant new
construction activity have led to an improvement in the market for hotel
properties in many areas of the country during calendar 1995, it appears
unlikely that continued improvement will occur as rapidly or to the extent
necessary for the Partnership to recover any portion of its original net
investment in the Newport Beach Marriott. Management will continue to make every
prudent effort to preserve the Partnership's ownership of the Hotel property,
but if the mortgage holder were to choose to initiate foreclosure proceedings,
as a practical matter, there is very little that the Partnership could do to
prevent foreclosure from occurring.
In light of the circumstances facing the Newport Beach Marriott Hotel,
management reviewed the carrying value of the Hotel for potential impairment as
of September 30, 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 current 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, are 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 December 31, 1995, the Partnership would recognize a sizable
net gain for both book and tax purposes upon a 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 unlikely 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. 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. 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 52% occupied as
of December 31, 1995. 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 will occupy 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 sublease tenant, which will open for business in the
second quarter of fiscal 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 re-stabilization for the shopping
center, would be provided primarily by the Partnership. The Partnership funded
cash flow deficits of approximately $9,000 for the Norman Crossing joint venture
during the quarter. The Partnership has also been funding its share of the
deficits at the Maplewood joint venture. While occupancy levels have been
maintained in the mid-90% range at the Maplewood property, gross collections
have declined over the past twelve months due to slightly deteriorating local
market conditions. During the current quarter, 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.
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 slight cash flow deficit.
Under the terms of the venture's 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 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. During fiscal 1995,
management evaluated a proposal from the existing mortgage lender to repay the
outstanding debt at a significant discount. Such a plan would have required a
sizable equity contribution by the Partnership. Management evaluated whether an
additional investment of funds in the venture would be economically prudent in
light of the future appreciation potential of the properties and determined that
the discount offered by the lender would not be sufficient to justify putting
additional funds at risk. The loans secured by Spinnaker Landing and Bay Club
are scheduled to mature in December 1996. Unless the lender is willing to
increase the amount of the discount it would be willing to take upon repayment,
it is unlikely that a refinancing transaction could be completed. Under such
circumstances, the lender may choose to foreclose on the properties. 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.
Repairs to the construction defects at The Meadows in the Park Apartments,
in Birmingham, Alabama, continued during the first quarter using the proceeds of
the insurance settlement which were escrowed with the venture's new mortgage
lender. As previously reported, 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. As of
December 31, 1995, approximately $515,000 remains in escrow for future repairs.
Such funds are expected to be sufficient to complete the repair work. All of the
repair work is expected to be completed by the end of fiscal 1996. The occupancy
level at Meadows had dropped significantly to 81% at December 31, 1995 due to
the ongoing construction activities related to the repair work which have
resulted in apartment units being taken out of service while the repair work is
performed. The overall Birmingham, Alabama market remains strong and the
occupancy level is expected to increase back to stabilized levels as repairs to
the property are completed. 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 completion of the repair work discussed above. While there are
no assurances that a sale transaction will be completed, if the Partnership were
to sell its investment in the Meadows property, management would have to
determine whether to distribute all of the net proceeds from such a transaction
to the Limited Partners or to withhold all or a portion of such proceeds for
potential reinvestment in the remaining investment properties as part of a plan
to create value for the Partnership's remaining investment positions. Under such
circumstances, management would base its decisions on an assessment of the
expected overall returns to the Limited Partners. Management is currently in the
process of identifying and evaluating alternative operating plans for the
Partnership in light of the pending resolution of the Newport Beach Marriott
default situation, the potential future sale of the Meadows property and the
status of the Partnership's existing cash reserves.
At December 31, 1995, the Partnership had available cash and cash
equivalents of $979,000. Approximately $397,000 of such cash is held at the
wholly-owned Newport Beach Marriott Suites Hotel and is designated for use to
pay hotel operating expenses and required debt service. The balance of 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 $694,000 as of December 31,
1995, which is held by Marriott Corporation and is available exclusively to be
used 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. 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 December 31, 1995
The Partnership had a net loss of $1,181,000 for the three months ended
December 31, 1995, as compared to a net loss of $933,000 for the same period in
the prior year. The primary reason for this increase in net loss is an increase
in the Partnership's operating loss of $386,000. This increase in operating loss
is mainly due to an increase in interest expense of $528,000, 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 Hotel loan facility was higher than during the same period in the
prior year. The increase in interest expense was partially offset by an increase
in Hotel revenues of $255,000, which was the result of an increase in average
occupancy and rental rates over the same period in the prior year. The Hotel
averaged 81% occupancy with an average daily room rate of $91.38 for the first
quarter of fiscal 1996, as compared to an occupancy level of 76% and an average
room rate of $87.21 in the prior year.
The increase in operating loss was partially offset by a decrease in the
Partnership's share of ventures' losses of $138,000. This decrease is primarily
attributable to a special allocation of the net loss of the Meadows joint
venture for the current three-month period to the Partnership's co-venture
partner in accordance with the terms of the joint venture agreement. In
addition, rental revenues at Maplewood and Norman Crossing increased slightly
over the same period in the prior year. Combined property operating expenses
also declined in the current period, mainly due to a decrease in repairs expense
at the Meadows joint venture. The favorable changes in the ventures' net
operating results were partially offset by a decrease in revenues at The
Meadows, due to the occupancy decline referred to above.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of 70 limited partnership investments, including those offered by
the Partnership. The lawsuits were brought against PaineWebber Incorporated and
Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including Eighth Income Properties, Inc. and Properties
Associates 1986, L.P. ("PA1986") which are the General Partners of the
Partnership and affiliates of PaineWebber. On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in PaineWebber Income Properties
Eight Limited Partnership, PaineWebber, Eighth Income Properties, Inc. and
PA1986 (1) failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in PaineWebber Income
Properties Eight Limited Partnership, also allege that following the sale of the
partnership interests, PaineWebber, Eighth Income Properties, Inc. and PA1986
misrepresented financial information about the Partnerships value and
performance. The amended complaint alleges that PaineWebber, Eighth Income
Properties, Inc. and PA1986 violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs seek
unspecified damages, including reimbursement for all sums invested by them in
the partnerships, as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships. In addition, the plaintiffs also
seek treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in PaineWebber Income Properties
Eight Limited Partnership. 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., PA1986 and their
affiliates for costs and liabilities in connection with this litigation.
Management has had discussions with representatives of PaineWebber and, based on
such discussions, the Partnership does not believe that PaineWebber intends to
invoke the aforementioned indemnifications in connection with the settlement of
this litigation.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINEWEBBER 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: February 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the 3 months ended December 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1995
<CASH> 979
<SECURITIES> 0
<RECEIVABLES> 287
<ALLOWANCES> 0
<INVENTORY> 122
<CURRENT-ASSETS> 2,082
<PP&E> 30,115
<DEPRECIATION> 9,968
<TOTAL-ASSETS> 22,408
<CURRENT-LIABILITIES> 1,233
<BONDS> 42,547
<COMMON> 0
0
0
<OTHER-SE> (21,372)
<TOTAL-LIABILITY-AND-EQUITY> 22,408
<SALES> 0
<TOTAL-REVENUES> 1,969
<CGS> 0
<TOTAL-COSTS> 1,722
<OTHER-EXPENSES> 137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,291
<INCOME-PRETAX> (1,181)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,181)
<EPS-PRIMARY> (32.88)
<EPS-DILUTED> (32.88)
</TABLE>
