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
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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
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(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, 1997 and September 30, 1996 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Investments in joint ventures, at equity $ 108 $ -
Cash and cash equivalents 635 433
Accounts receivable 1 1
Other assets - 9
-------- ------
$ 744 $ 443
======== ======
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable and accrued expenses $ 48 $ 43
Equity in losses of joint ventures in excess
of investments and advances - 810
Partners' capital (deficit) 696 (410)
-------- ------
$ 744 $ 443
======== ======
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1995 $ (595) $(19,596)
Net loss (30) (2,862)
------ --------
Balance at June 30, 1996 $ (625) $(22,458)
====== ========
Balance at September 30, 1996 $ (387) $ (23)
Net income 12 1,094
------ --------
Balance at June 30, 1997 $ (375) $ 1,071
====== ========
See accompanying notes.
<PAGE>
PAINEWEBBER INCOME PROPERTIES EIGHT LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Hotel revenues $ - $2,185 $ - $6,402
Interest and other income 10 14 27 51
------ ------ ------- ------
10 2,199 27 6,453
Expenses:
Hotel operating expenses - 1,606 - 4,471
Interest expense - 1,068 - 3,371
Depreciation and amortization - 224 - 673
General and administrative 84 66 226 225
------ ------ ------- ------
84 2,964 226 8,740
------ ------ ------- ------
Operating loss (74) (765) (199) (2,287)
Partnership's share of
ventures' losses (161) (209) (516) (605)
Partnership's share of gain
on sale of operating
investment properties - - 477 -
------ ------ ------- ------
Loss before extraordinary gain (235) (974) (238) (2,892)
Partnership's share of
extraordinary gain from
forgiveness of indebtedness - - 1,344 -
------ ------ ------- ------
Net income (loss) $ (235) $ (974) $1,106 $(2,892)
======= ====== ====== =======
Per 1,000 Limited Partnership Units:
Loss before extraordinary
gain $ (6.57) $(27.11) $(6.62) $(80.49)
Extraordinary gain from
forgiveness of
indebtedness - - 37.41 -
------- ------- ------- -------
Net income (loss) $ (6.57) $(27.11) $ 30.79 $(80.49)
======== ======= ======= =======
The above per 1,000 Limited Partnership Units information 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, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $1,106 $(2,892)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Interest expense on loan payable
to Marriott Corporation - 490
Partnership's share of ventures' losses 516 605
Depreciation and amortization - 673
Gain on sale of operating investment properties (477) -
Extraordinary gain from forgiveness of
indebtedness (1,344) -
Changes in assets and liabilities:
Hotel cash subject to transfer at foreclosure - (429)
Accounts receivable - (104)
Due to/from Marriott Corporation - 517
Inventories - 12
Other assets 9 (12)
Accounts payable and accrued expenses 5 11
Accrued interest payable - 299
------ ------
Total adjustments (1,291) 2,062
------ ------
Net cash used in operating activities (185) (830)
------ ------
Cash flows from investing activities:
Distributions from joint ventures 407 -
Additional investments in joint ventures (20) (78)
Additions to operating investment property - (77)
Net withdrawals from capital expenditure reserve - 82
------ ------
Net cash provided by (used in)
investing activities 387 (73)
------ ------
Net increase (decrease) in cash and cash equivalents 202 (903)
Cash and cash equivalents, beginning of period 433 1,362
------ ------
Cash and cash equivalents, end of period $ 635 $ 459
====== ======
Cash paid during the period for interest $ - $2,582
====== ======
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, 1996. 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.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of June 30, 1997 and September 30, 1996
and revenues and expenses for the three- and nine-month periods ended June
30, 1997 and 1996. Actual results could differ from the estimates and
assumptions used.
2. Foreclosure of Operating Investment Property
The Partnership acquired a 100% interest in the Marriott Suites Hotel
located in Newport Beach, California from the Marriott Corporation
("Marriott") 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.
The Hotel was managed for the Partnership by Marriott and its affiliates (the
"Manager"). The Partnership purchased the operating investment property for
approximately $39,946,000, including an acquisition fee paid by Marriott to
the Adviser of $580,000 and a $325,000 guaranty fee paid to Marriott. The
Hotel was acquired subject to a first mortgage loan with an initial principal
balance of $29,400,000. In addition, the Partnership provided an initial
working capital reserve of approximately $554,000 to the Manager for Hotel
operations.
From the time of its acquisition, the Hotel experienced substantial
recurring losses after debt service. Through September 30, 1991, the Hotel's
cash flow deficits were funded by Marriott under the terms of a guaranty
agreement. After Marriott had fulfilled its obligation to fund deficits, the
Partnership and the lender reached an agreement, which was finalized in
fiscal 1993, to modify the terms of the first mortgage loan. During fiscal
1995, the Partnership reached the limit on the debt service deferrals imposed
by the 1993 loan modification agreement. 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. Subsequently, the Partnership
received a notice of a foreclosure sale scheduled for August 7, 1996, at
which time title to the Newport Beach Marriott Suites Hotel was transferred
to the mortgage lender. The transfer of the Hotel's title to the lender was
accounted for as a troubled debt restructuring in accordance with Statement
of Financial Accounting Standards No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings." As a result, the Partnership
recorded an extraordinary gain from settlement of debt obligation of
$23,459,000 and a loss on transfer of assets at foreclosure of $137,000 in
the fourth quarter of fiscal 1996. The extraordinary gain resulted from the
fact that the balance of the mortgage loan and related accrued interest
exceeded the estimated fair market value of the Hotel investment and other
assets transferred to the lender at the time of the foreclosure. The loss on
transfer of assets resulted from the fact that the net carrying value of the
Hotel exceeded its estimated fair value at the time of the foreclosure.
<PAGE>
The following is a summary of Hotel revenues and operating expenses for
the three and nine months ended June 30, 1996 (in thousands):
Three Months Ended Nine Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
Revenues:
Guest rooms $ 1,674 $4,906
Food and beverage 405 1,177
Other revenue 106 319
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$ 2,185 $6,402
======= ======
Operating expenses:
Guest rooms $ 442 $1,302
Food and beverage 247 938
Other operating expenses 748 1,738
Management fees - Manager 44 128
Selling, general and
administrative 37 106
Real estate taxes 88 259
------- ------
$ 1,606 $4,471
======= ======
The operating expenses of the Hotel noted above included significant
transactions with the Manager. All Hotel employees were employees of the
Manager and the related payroll costs were allocated to the Hotel operations
by the Manager. A majority of the supplies and food purchased during the
prior period were purchased from an affiliate of the Manager. In addition,
the Manager also allocated employee benefit costs, advertising costs and
management training costs to the Hotel.
3. Investments in Joint Venture Partnerships
As of September 30, 1996, the Partnership had investments in four joint
ventures which owned five operating properties as more fully described in the
Partnership's Annual Report. On March 17, 1997, Spinnaker Bay Associates, a
joint venture comprised of two operating properties, Spinnaker Landing
Apartments and Bay Club Apartments, located in Des Moines, Washington, sold
both of its operating investment properties to an unrelated third party for
$5.5 million. The gross sales price for the two apartment properties was
below the outstanding balance of Spinnaker Bay Associates' first mortgage
debt. However, under the terms of a Property Disposition Agreement between
the mortgage lender and the joint venture, the Partnership was eligible to
receive a payment of $100,000 from the net sale proceeds. The venture
recognized a gain on the sale of $505,000 for the amount by which the sale
price, net of certain closing costs, exceeded the net carrying values of the
operating investment properties. The venture also recognized an extraordinary
gain from forgiveness of indebtedness of $1,422,000 which represented the
difference between the outstanding obligations and the amount accepted by the
lender in full satisfaction of the first mortgage loans secured by the
operating investment properties. The Partnership's share of the gain on the
sale and the gain from the debt forgiveness was $477,000 and $1,344,000,
respectively.
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.
<PAGE>
Summarized operations of the joint ventures for the three and nine months
ended June 30, 1997 and 1996 are as follows:
Condensed Combined Summary of Operations
For the three and nine months ended June 30, 1997 and 1996
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and expense
reimbursements $ 665 $ 967 $2,522 $2,821
Other income 19 33 114 75
------- ------ ------ ------
684 1,000 2,636 2,896
Property operating expenses 406 625 1,476 1,727
Interest expense 233 376 950 1,143
Depreciation and amortization 166 214 601 670
------- ------ ------ ------
805 1,215 3,027 3,540
------- ------ ------ ------
Operating loss (121) (215) (391) (644)
Gain on sale of operating
investment properties - - 505 -
Extraordinary gain from
forgiveness of
indebtedness - - 1,422 -
------- ------ ------ ------
Net income (loss) $ (121) $ (215) $1,536 $ (644)
======= ====== ====== ======
Net income (loss):
Partnership's share of
combined income (loss) $ (134) $ (177) $1,405 $ (510)
Co-venturers' share of
combined income (loss) 13 (38) 131 (134)
------- ------ ------ ------
$ (121) $ (215) $1,536 $ (644)
======= ====== ====== ======
Reconciliation of Partnership's Share of Operations
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of combined
income (loss), as shown above $ (134) $ (177) $ 1,405 $ (510)
Amortization of excess basis (27) (32) (100) (95)
------- ------- ------- -------
Partnership's share of ventures'
net income (loss) $ (161) $ (209) $ 1,305 $ (605)
======= ======= ======= =======
<PAGE>
The Partnership's share of ventures' net income (loss) is presented as
follows on the accompanying statements of operations (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of ventures'
losses $ (161) $ (209) $ (516) $ (605)
Partnership's share of gain on
sale of operating investment
property - - 477 -
Partnership's share of
extraordinary gain from
forgiveness of indebtedness - - 1,344 -
------ ------- ------ -------
$ (161) $ (209) $1,305 $ (605)
====== ======= ====== =======
4. Related Party Transactions
Included in general and administrative expenses for the nine months ended
June 30, 1997 and 1996 is $68,000 and $71,000, 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, 1997 and 1996 is $2,000 of fees paid to an affiliate,
Mitchell Hutchins Institutional Investors, Inc., for managing the
Partnership's cash assets.
<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 loans secured by the Spinnaker Landing and Bay
Club Apartments matured in December 1996. Due to semi-annual real estate tax
payments made during the third quarter of fiscal 1996, 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 1996. A notice
of default was issued by the mortgage lender in the fourth quarter of fiscal
1996. The estimated combined fair value of the properties, while higher than
their net carrying values, was significantly less than the debt balance at the
time of the loan default. The original balance of the first mortgage loans
secured by the Spinnaker Landing and Bay Club properties aggregated $4,250,000.
However, the balance owed to the first mortgage lender had increased to
approximately $6,150,000 at the date of the loan maturities as a result of funds
contributed by the lender to pay for the costs of repairing the construction
defects at the properties and interest deferrals granted during the period in
which the repairs were completed. In light of these circumstances, effective in
September 1996 the venture partners entered into a Property Disposition
Agreement with the lender. Under the terms of the agreement, the lender agreed
to delay foreclosure of the properties in order to provide the venture with an
opportunity to complete a sale. In December 1996, the Spinnaker Bay joint
venture executed a purchase and sale agreement with an unrelated third party to
sell the properties for an amount less than the total debt obligation.
Nonetheless, the Partnership was eligible to receive a nominal payment out of
the net sale proceeds under the terms of the Property Disposition Agreement if
this transaction was successfully consummated. On March 17, 1997, Spinnaker Bay
Associates sold its operating investment properties, located in Des Moines,
Washington, to an unrelated third party for $5.5 million. The sale generated net
proceeds of $100,000 to the Partnership in accordance with the Property
Disposition Agreement. The joint venture realized a gain on the sale of $505,000
for the amount by which the sale price, net of certain closing costs, exceeded
the net carrying values of the operating investment properties. After the
application of the net proceeds to the mortgage balance, the joint venture
realized an extraordinary gain from forgiveness of indebtedness of $1,422,000.
The Partnership's share of the gain on the sale and the gain from the debt
forgiveness was $477,000 and $1,344,000, respectively.
Together with the prior foreclosure losses of the Newport Beach and
Atlanta Marriott Suites Hotels, which represented a combined 63% of the
Partnership's original investment portfolio, the sale of the Spinnaker Landing
and Bay Club Apartments for an amount which yielded only a nominal return of the
Partnership's investment in those properties means that the Partnership will be
unable to return any significant portion of the original capital contributed by
the Limited Partners. The amount of capital which will be returned will depend
upon the proceeds recovered from the final liquidation of the three remaining
investments. The amount of such proceeds will ultimately depend upon the value
of the underlying investment properties at the time of their final disposition,
which, for the most part, cannot presently be determined. Nonetheless, at the
present time the Partnership's interest in The Meadows in the Park Apartments is
the only investment with any significant value to the Partnership based on the
estimated current market values of the underlying properties. The status of the
remaining investments is discussed in more detail below.
During the first quarter of fiscal 1997, the Partnership's co-venture
partner in the Maplewood joint venture made a request for the Partnership to
fund 70% of the $95,000 principal payment on the venture's mortgage loan which
was due on December 2, 1996. Based on an analysis of the expected future
economic benefits from the Maplewood joint venture, management concluded that it
would not be in the Partnership's best interests to continue to fund its share
of the venture's cash flow deficits. Accordingly, management informed the
co-venture partner that the Partnership would not be making the requested
capital contribution. In January 1997, the co-venture partner contributed 100%
of the funds required to make the aforementioned principal payment. The mortgage
debt secured by the Maplewood Park Apartments was provided with tax-exempt
revenue bonds issued by a local housing authority. The bonds are secured by a
standby letter of credit issued to the joint venture by a bank. The letter of
credit, which is scheduled to expire in October 1998, is secured by a first
mortgage on the venture's operating property. The revenue bonds bear interest at
a floating rate that is determined daily by a remarketing agent based on
comparable market rates for similar tax-exempt obligations. In addition, the
venture is obligated to pay a letter of credit fee, a remarketing fee and a
housing authority fee under the terms of the financing agreement. The operating
property produces excess net cash flow after the debt service and related fees
due under the terms of the bond financing arrangement because of the low
tax-exempt interest rate paid on the bonds. However, as part of the joint
venture agreement the Partnership's co-venture partner receives a guaranteed
cash distribution on a monthly basis to the extent that the interest cost of the
venture's debt is less than 8.25% per annum. Conversely, the co-venture partner
is obligated to contribute funds to the venture to the extent that the interest
cost exceeds 8.25%. Over the past three years, the interest rate differential
distributions to the co-venturer under the foregoing arrangement have averaged
$189,000 per year. As of June 30, 1997, the Partnership and the co-venturer were
not in agreement regarding the cumulative cash flow distributed to the
co-venturer pursuant to this interest rate differential calculation. The
Partnership believes that the co-venturer has received an additional $102,000
over the amount it is entitled to under the terms of the joint venture agreement
through June 30, 1997.
Since all of the economic benefits of the Maplewood joint venture currently
accrue to the co-venture partner in the form of the interest rate differential
payments described above, management concluded that continued funding of the
venture's annual cash flow deficits would not be prudent. Subsequently,
management made a proposal to the co-venture partner to sell the Partnership's
interest in the joint venture. Negotiations for this potential sale continued
through the third quarter. Subsequent to the quarter-end, a tentative agreement
was reached with the co-venture partner to sell the Partnership's interest for
approximately $335,000. Because the sale is still subject to final negotiations
and documentation, there can be no assurances that any transaction will be
completed. Although the $335,000 is substantially less than the amount of the
Partnership's original investment in this joint venture of $2,563,839,
management believes it is fully reflective of the current value of the
Partnership's interest. The current estimated market value of the Maplewood
property, while higher than the property's carrying value, may be at or only
slightly above the amount of the outstanding principal balance owed on the first
mortgage loan as of June 30, 1997. As a result, it is unlikely that the letter
of credit underlying the mortgage loan would be renewed upon its expiration in
October 1998. The net carrying value of the Partnership's investment in the
Maplewood joint venture was $248,000 as of June 30, 1997. Management believes
that this net carrying value is recoverable if the sale agreement can be
finalized with the co-venture partner. If, however, a sale agreement or letter
of credit extension cannot be achieved and a foreclosure of the operating
property results, the Partnership would recognize a loss equal to its remaining
investment balance. The ultimate outcome of this situation cannot be determined
at the present time.
The Norman Crossing Shopping Center, which comprises 52,086 square feet of
leasable space located in Charlotte, North Carolina, was 100% leased and 88%
occupied as of June 30, 1997. In October 1993, the sole anchor tenant of the
Norman Crossing Shopping Center vacated the center to relocate its operations.
The tenant, which had occupied 26,752 square feet of the property's net leasable
area, is a national credit grocery store chain which 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. 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 which opened for business in February 1996, is
a health club operator which occupies 20,552 square feet of the former anchor's
space and continues to market the remaining 6,200 square feet for lease. During
the quarter ended June 30, 1997, JC Penney Co., Inc, which owns Eckerd Drug
Stores, purchased the Kerr Drug chain of drug stores. At Norman Crossing, Kerr
Drug leases 9,600 square feet, or 18% of the Center's leasable area, through
December 2007. The property's leasing team has been informed by Kerr Drug that
the store will be remodeled and will operate as an Eckerd Drug store. Currently,
there is an Eckerd Drug store operating in a grocery store anchored shopping
center across the street from Norman Crossing. The terms of the lease on the
Norman Crossing store do not allow for a closing of the drug store.
Consequently, the Norman Crossing store is expected to remain open. Despite
being 100% leased, the Norman Crossing property does not currently generate
positive cash flow after debt service and capital expenses. The Partnership has
funded the operating deficits of the Norman Crossing joint venture to date.
However, given the Partnership's limited capital resources, the Partnership
cannot fund such deficits indefinitely. Consequently, the Partnership may look
to sell the operating property or its interest in the joint venture in the near
future. At the present time, market values for retail shopping centers in
certain markets are being adversely impacted by the effects of overbuilding and
consolidations among retailers which have resulted in an oversupply of space and
by the generally flat rate of growth in retail sales. Based on the current
estimated fair value of the Norman Crossing Shopping Center, a sale under the
existing market conditions would not result in any significant proceeds above
the mortgage loan balance.
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.
During the first quarter of fiscal 1997, the Partnership and its co-venture
partner received unsolicited proposals from some prospective purchasers
regarding a possible sale of The Meadows in the Park Apartments. After reviewing
the offers, the Partnership determined that the property could be sold at a
higher price and directed the co-venture partner to market the property for
sale. Subsequent to the end of the current quarter, an offer was received from a
qualified buyer which could fit the Partnership's sale criteria. This offer is
currently under review by the Partnership and its co-venture partner. If this
potential transaction were to close in accordance with the proposed terms, the
property would be sold for $9,600,000 and the Partnership would realize net
proceeds of approximately $3.7 million after closing costs, repayment of the
outstanding first mortgage loan and the co-venturer's share of the net proceeds.
However, since any sale transaction remains contingent upon, among other things,
the execution of definitive sale agreements and the satisfactory completion of
the buyer's due diligence, there are no assurances that a sale will be
completed. In addition, as discussed further above, the Partnership is focusing
on potential disposition strategies for its Maplewood and Norman Crossing
investments as well. Although no assurances can be given, it is currently
contemplated that the dispositions of the Partnership's remaining investments
could be completed within the next two years.
At June 30, 1997, the Partnership had available cash and cash equivalents
of $635,000. 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 or operating deficits, to the
extent economically justified. 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. If the Partnership is able to
dispose of its remaining investments and complete a liquidation within the next
two years, as discussed further above, the Partnership should have sufficient
liquidity to meet its obligations.
Results of Operations
Three Months Ended June 30, 1997
- --------------------------------
The Partnership recognized a net loss of $235,000 for the three months
ended June 30, 1997, as compared to a net loss of $974,000 for the same period
in the prior year. The primary reason for this favorable change in net operating
results is a decrease in the Partnership's operating loss of $691,000. The
decrease in operating loss can be attributed to the foreclosure of the Newport
Beach Marriott Suites Hotel on August 7, 1996. The Hotel had been generating
sizable operating losses prior to its foreclosure. In addition, the
Partnership's share of ventures' losses decreased by $48,000 mainly as a result
of three months of operating losses of the Spinnaker Bay joint venture being
recorded during the prior period. No losses from Spinnaker Bay are reflected
during the current three-month period as a result of the March 17, 1997 sale
transaction discussed further above. An improvement in the operating results of
the Meadows joint venture also contributed to the decrease in the Partnership's
share of ventures' losses for the current period. Such improvement was mainly
the result of an increase in rental revenues and a decline in repairs and
maintenance expenses. These favorable changes in the Partnership's share of
ventures' losses were partially offset by a decrease in rental income from the
Maplewood joint venture as a result of several apartment units being taken out
of service to be repaired due to fire damage.
Nine Months Ended June 30, 1997
- -------------------------------
The Partnership recognized net income of $1,106,000 for the nine months
ended June 30, 1997, as compared to a net loss of $2,892,000 for the same period
in the prior year. The primary reason for this favorable change in net operating
results is the gains totalling $1,821,000 which were realized from the sale of
the Spinnaker Landing and Bay Club apartment properties, as discussed further
above. The Partnership also had decreases in operating loss of $2,088,000 and in
its share of ventures' losses of $89,000. The decrease in operating loss can be
attributed to the foreclosure of the Newport Beach Marriott Suites Hotel on
August 7, 1996. The Hotel had been generating sizable operating losses prior to
its foreclosure. The Partnership's share of ventures' losses decreased by
$89,000 mainly as a result of the prior period including nine months of
operating losses of the Spinnaker Bay joint venture. Only five and one-half
months of operating losses from Spinnaker Bay are included in the current period
results due to the March 17, 1997 sale transaction discussed further above. An
improvement in the operating results of the Meadows joint venture also
contributed to the decrease in the Partnership's share of ventures' losses for
the current period. Such improvement was mainly the result of an increase in
rental revenues and a decline in repairs and maintenance expenses. These
favorable changes in the Partnership's share of ventures' losses were partially
offset by a decrease in rental income from the Maplewood joint venture as a
result of several apartment units being taken out of service to be repaired due
to fire damage.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, the Partnership's General Partners were named as
defendants in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
various limited partnership investments and REIT stocks, including those offered
by the Partnership. In January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action 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 a plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs 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 and REITs. 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 was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds has not occurred to date
pending the resolution of an appeal of the settlement agreement by two of the
plaintiff class members. As part of the settlement agreement, PaineWebber has
agreed not to seek indemnification from the related partnerships and real estate
investment trusts at issue in the litigation (including the Partnership) for any
amounts that it is required to pay under the settlement. In addition, in
December 1996 PaineWebber agreed to settle the Abbate and Bandrowski actions
discussed further in the Annual Report. Final releases and dismissals with
regard to these actions were received during the quarter ended June 30, 1997.
Based on the settlement agreements discussed above covering all of the
outstanding unitholder litigation, and notwithstanding the appeal of the class
action settlement referred to above, management does not expect that the
resolution of these matters will have a material impact 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:
A Current Report on Form 8-K was filed by the registrant on April 3, 1997
reporting the March 17, 1997 sale of Spinnaker Landing Apartments and Bay Club
Apartments.
<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, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the six months ended June 30,
1997 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-30-1997
<CASH> 635
<SECURITIES> 0
<RECEIVABLES> 1
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 636
<PP&E> 108
<DEPRECIATION> 0
<TOTAL-ASSETS> 744
<CURRENT-LIABILITIES> 48
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 696
<TOTAL-LIABILITY-AND-EQUITY> 744
<SALES> 0
<TOTAL-REVENUES> 504
<CGS> 0
<TOTAL-COSTS> 226
<OTHER-EXPENSES> 516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,344
<CHANGES> 0
<NET-INCOME> 1,106
<EPS-PRIMARY> 30.79
<EPS-DILUTED> 30.79
</TABLE>
