PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and March 31, 1994
(Unaudited)
ASSETS
June 30 March 31
Operating investment properties:
Land $ 8,968,538$ 5,008,793
Buildings and improvements 42,711,674 36,514,727
51,680,212 41,523,520
Less accumulated depreciation (10,678,312) (8,946,838)
41,001,900 32,576,682
Investments in unconsolidated joint ventures,
at equity 55,887,919 65,519,150
Cash and cash equivalents 3,097,320 4,289,661
Escrowed cash 410,896 243,660
Accounts receivable 413,067 23,929
Accounts receivable - affiliates 70,305 67,805
Prepaid expenses 17,639 21,680
Deferred rent receivable 233,170 258,190
Deferred expenses, net 910,459 390,504
$102,042,675 $103,391,261
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 523,006$ 211,591
Advances from consolidated ventures 336,268 387,859
Tenant security deposits 108,273 85,644
Bonds payable 2,864,047 2,864,047
Notes payable and accrued interest 33,924,535 33,964,059
Minority interest in net assets of
consolidated joint ventures 784,059 331,249
Partners' capital 63,502,487 65,546,812
$102,042,675 $103,391,261
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1994 and 1993
(Unaudited)
1994 1993
REVENUES:
Rental income and expense reimbursements $1,001,701 $1,081,818
Interest and other income 54,635 50,145
1,056,336 1,131,963
EXPENSES:
Interest expense 842,744 794,610
Property operating expenses 623,771 338,395
Depreciation and amortization 420,829 374,298
General and administrative 153,722 181,350
2,041,066 1,688,653
Operating loss (984,730) (556,690)
Investment income:
Interest income on note receivable from joint venture 25,969 26,714
Partnership's share of unconsolidated ventures' income595,487 716,565
NET INCOME (LOSS) $ (363,274) $ 186,589
Net income (loss)
per 1,000 Limited
Partnership Units $(2.70) $ 1.37
Cash distributions per 1,000 Limited
Partnership Units $12.38 $12.38
The above net income (loss) and cash distributions per 1,000 Limited Partnership
Units are based upon the 134,425,741 Limited Partnership Units outstanding
during each period.
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1994 and 1993
(Unaudited)
General Limited
Partner Partners
Balance at March 31, 1993 $(410,582) $ 72,759,396
Cash distributions (16,811) (1,664,240)
Net income 1,866 184,723
BALANCE AT JUNE 30, 1993 $(425,527) $ 71,279,879
Balance at March 31, 1994 $(478,641) $ 66,025,453
Cash distributions (16,811) (1,664,240)
Net loss (3,814) (359,460)
BALANCE AT JUNE 30, 1994 $(499,266) $64,001,753
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1994 1993
Cash flows from operating activities:
Net income (loss) $ (363,274) $
186,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Partnership's share of unconsolidated
ventures' income (595,487) (716,565)
Interest expense 772,246 730,761
Depreciation and amortization 420,829 374,298
Changes in assets and liabilities:
Escrowed cash (152,619) (93,120)
Accounts receivable (166,301) (39,058)
Accounts receivable - affiliates (2,500) (2,500)
Deferred rent receivable 124,056 4,758
Deferred expenses (132,867) 15,246
Prepaid expenses 9,206 8,318
Tenant security deposits 21,710 (3,050)
Accounts payable - affiliates - 254
Accounts payable and accrued expenses 146,617 (16,913)
Advances from consolidated ventures (146,591) 169,717
Total adjustments 298,299 432,146
Net cash provided by (used for)
operating activities (64,975) 618,735
Cash flows from investing activities:
Distributions from unconsolidated ventures 1,142,940 1,109,803
Additional investments in unconsolidated ventures - -
Additions to operating investment properties (16,947) -
Net cash provided by investing
activities 1,125,993 1,109,803
Cash flows from financing activities:
Distributions to partners (1,681,051) (1,681,051)
Payments of principal and interest
on notes payable (811,770) -
Net cash used for financing activities (2,492,821) (1,681,051)
Net increase (decrease) in cash
and cash equivalents (1,431,803) 47,487
Cash and cash equivalents, beginning of period:
Partnership 4,289,661 4,494,420
Consolidated joint venture 239,462 -
4,529,123 4,494,420
Cash and cash equivalents, end of period $ 3,097,320 $ 4,541,907
Cash paid during the period for interest $ 882,268 $ 63,849
See accompanying notes.
1. Organization
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 March 31, 1994.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Investments in Unconsolidated Joint Ventures
The Partnership has investments in five unconsolidated joint venture
partnerships which own operating investment properties at June 30, 1994 (six
at March 31, 1994). As discussed further in Note 3, during the first
quarter of fiscal 1995, the Partnership obtained control over the affairs of
the West Ashley Shoppes joint venture. Accordingly, the joint venture is
presented on a consolidated basis at and for the three months ended June 30,
1994. The unconsolidated joint venture partnerships are accounted for on
the equity method in the Partnership's financial statements. The
Partnership's policy is to recognize its share of ventures' operations three
months in arrears.
Summarized operations of the unconsolidated joint ventures for the periods
indicated are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three months ended March 31, 1994 and 1993
1994 1993
Rental revenues and expense recoveries $2,728,000 $3,365,000
Interest and other income 386,000 129,000
3,114,000 3,494,000
Property operating expenses 860,000 949,000
Real estate taxes 758,000 766,000
Interest expense 40,000 40,000
Depreciation and amortization 773,000 891,000
2,431,000 2,646,000
Net income $ 683,000 $ 848,000
Net income:
Partnership's share of combined income $ 616,000 $ 742,000
Co-venturers' share of combined income 67,000 106,000
$ 683,000 $ 848,000
Reconciliation of Partnership's Share of Operations
Partnership's share of operations, as shown above$ 616,000 $ 742,000
Amortization of excess basis (21,000) (25,000)
Partnership's share of unconsolidated
ventures' income $ 595,000 $ 717,000
3. Operating Investment Properties
At June 30, 1994, the Partnership's balance sheet includes three operating
investment properties (two at March 31, 1994); Saratoga Center and EG&G
Plaza, owned by Hacienda Park Associates, the Asbury Commons Apartments,
owned by Atlanta Asbury Partnership, and the West Ashley Shoppes Shopping
Center, owned by West Ashley Shoppes Associates. In May 1994, the
Partnership and the co-venturer in the West Ashley joint venture executed a
settlement agreement whereby the Partnership assumed complete control over
the affairs of the venture. Accordingly, beginning with the three months
ended June 30, 1994, the financial position and the results of operations of
the West Ashley joint venture are presented on a consolidated basis in the
Partnership's financial statements. The Partnership obtained controlling
interests in the other two joint ventures during fiscal 1992. The
Partnership's policy is to report the operations of these consolidated joint
ventures on a three-month lag. Saratoga Center and EG&G Plaza consists of
four separate office/R&D buildings comprising approximately 185,000 square
feet, located in Pleasanton, California. Asbury Commons Apartments is a 204-
unit residential apartment complex located in Atlanta, Georgia. The West
Ashley Shoppes Shopping Center consists of approximately 135,000 square feet
of leasable retail space located in Charleston, South Carolina.
The following is a combined summary of property operating expenses for the
Saratoga Center and EG&G Plaza, the Asbury Commons Apartments, and the West
Ashley Shoppes Associates for the three months ended March 31, 1994 and the
Saratoga Center and EG&G Plaza and the Asbury Commons Apartments for the
three months ended March 31, 1993.
1994 1993
Property operating expenses:
Real estate taxes $ 250,955 $ 110,502
Repairs and maintenance 146,186 70,047
Utilities 48,760 39,448
Salaries and related costs 17,950 39,420
Insurance 14,617 9,617
Management fees 38,118 34,055
Administrative and other 107,185 35,306
$ 623,771 $ 338,395
4.Related Party Transactions
Included in general and administrative expenses for the three months ended
June 30, 1994 and 1993 is $68,925 and $77,979, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended June 30, 1994 and 1993 is $6,983 and $2,213, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
Accounts receivable - affiliates at June 30, 1994 consists of investor
services fees of $55,000 due from the TCR Walnut Creek Limited Partnership
and $15,305 due from certain unconsolidated joint ventures for expenses paid
by the Partnership on behalf of the joint ventures. Accounts receivable -
affiliates at March 31, 1994 consists of investor services fees of $52,500
due from the TCR Walnut Creek Limited Partnership and $15,305 due from
certain unconsolidated joint ventures for expenses paid by the Partnership on
behalf of the joint ventures.
5. Notes Payable
On April 29, 1988, the Partnership borrowed $6,000,000 in the form of a
zero coupon loan which had a scheduled maturity date in May of 1995. The
note bore interest at an effective compounded annual rate of 9.8% and was
secured by the 625 North Michigan Avenue Office Building. Payment of all
interest was deferred until maturity, at which time principal and interest
totalling approximately $11,556,000 was to be due and payable. The carrying
value on the Partnership's balance sheet at March 31, 1994 of the loan plus
accrued interest aggregated approximately $10,404,000. The terms of the loan
agreement required that if the loan ratio, as defined, exceeds 80%, the
Partnership is required to deposit additional collateral in an amount
sufficient to reduce the loan ratio to 80%. During fiscal 1994, the lender
informed the Partnership that based on an interim property appraisal, the
loan ratio exceeded 80% and that a deposit of additional collateral was
required. Subsequently, the Partnership submitted an appraisal which
demonstrated that the loan ratio exceeded 80% by an amount less than
previously demanded by the lender. In December 1993, the Partnership
deposited additional collateral of $208,876 in accordance with the higher
appraised value. The lender accepted the Partnership's deposit of additional
collateral (included in escrowed cash on the accompanying balance sheet at
March 31, 1994) but disputed whether the Partnership had complied with the
terms of the loan agreement regarding the 80% loan ratio. During the quarter
ended June 30, 1994, an agreement was reached with the lender of the zero
coupon loan on a proposal to refinance the loan and resolve the outstanding
disputes. The terms of the agreement called for the Partnership to make a
principal pay down of approximately $812,000, including the application of
the additional collateral referred to above. The new loan has an initial
principal balance of approximately $9.7 million and a scheduled maturity date
of May 1999. From the date of the formal closing of the modification and
extension agreement to the new maturity date of the loan, the loan will bear
interest at a rate of 9.125% per annum. Monthly payments of principal and
interest aggregating approximately $83,000 will be required. The terms of
the loan agreement also require the establishment of an escrow account for
real estate taxes, as well as a capital improvement escrow which is to be
funded with monthly deposits from the Partnership aggregating approximately
$1 million through the scheduled maturity date. Formal closing of the
modification and extension agreement occurred on May 31, 1994. The carrying
value on the Partnership's balance sheet at June 30, 1994 of the loan plus
accrued interest aggregated approximately $9,809,000.
On June 20, 1988, the Partnership borrowed $17,000,000 in the form of zero
coupon loans due in June of 1995. These notes bear interest at an annual
rate of 10% compounded annually and are secured by Saratoga Center and EG&G
Plaza, Loehmann's Plaza Shopping Center, Richland Terrace and Richmond Park
Apartments, West Ashley Shoppes, The Gables Apartments, Treat Commons Phase
II Apartments and Asbury Commons Apartments. Payment of all interest is
deferred until maturity. During fiscal 1991, the Partnership repaid the
portion of the zero coupon loans which had been secured by the Highland
Village Apartments, which was sold in May of 1990. The aggregate amount of
principal and accrued interest repaid on May 31, 1990 amounted to
approximately $1,660,000. Additionally, a paydown of principal and accrued
interest, totalling approximately $2,590,000, was made on August 20, 1990.
This paydown represented a mandatory repayment of the full amount of the
principal and accrued interest which had been secured by the Ballston Place
property, which was sold in fiscal 1990, and an optional partial prepayment
of the principal and accrued interest secured by The Gables Apartments. The
remaining balances of these loans and the related accrued interest,
aggregating approximately $24,115,000, are reflected on the balance sheet of
the Partnership as of June 30, 1994. Based on the current loan balances,
principal and interest aggregating approximately $26,419,000 will be due and
payable at maturity, in June of 1995.
6. Bonds Payable
Bonds payable consist of the Hacienda Park joint venture's share of
liabilities for bonds issued by the City of Pleasanton, California for public
improvements that benefit Hacienda Business Park and the operating investment
property and are secured by liens on the operating investment property. The
bonds for which the operating investment property is subject to assessment
bear interest at rates ranging from 5% to 7.87%, with an average rate of
approximately 7.2%. Principal and interest are payable in semi-annual
installments. In the event the operating investment property is sold,
Hacienda Park Associates will no longer be liable for the bond assessments.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As discussed further in the Annual Report, the Partnership's focus during
fiscal 1994 continued to be on efforts to restructure or refinance the zero
coupon loans secured by all of the Partnership's operating investment properties
prior to their scheduled maturity dates in May and June of 1995. The
Partnership originally borrowed $23,000,000 to finance its offering costs and
related acquisition expenses in order to invest a greater portion of the initial
offering proceeds in real estate assets. During fiscal 1991, principal and
interest aggregating approximately $4,250,000 was repaid on these borrowings in
connection with the sale of the Ballston Place and Highland Village investments.
The outstanding loans are with two different financial institutions, the first
of which issued a loan in the initial principal amount of $6,000,000 which is
secured by the 625 North Michigan Office Building, and the other of which issued
loans which are secured by the seven remaining investment properties. Due to
declines in the market value of the 625 North Michigan property over the past
several years, management's efforts have been directed toward negotiating a
modification and extension agreement with the existing lender on this loan.
Such declines in value have mirrored the state of commercial office buildings
nationwide, and particularly in major metropolitan areas such as Chicago.
Limited sources for the financing of commercial office buildings in general and
the stringent loan-to-value ratio requirements for such loans would have made
refinancing the 625 North Michigan property by conventional means very
difficult.
Throughout fiscal 1994, management was engaged in negotiations with the 625
North Michigan lender. The terms of the original loan agreement required that
if the loan ratio, as defined, exceeded 80%, then the Partnership would be
required to deposit additional collateral in an amount sufficient to reduce the
loan ratio to 80%. During fiscal 1994, the lender informed the Partnership
that, based on an interim property appraisal, the loan ratio exceeded 80% and
that a deposit of additional collateral was required. Subsequently, the
Partnership submitted an appraisal which demonstrated that the loan ratio
exceeded 80% by an amount less than previously demanded by the lender. In
December 1993, the Partnership deposited additional collateral of approximately
$209,000 in accordance with the higher appraised value. The lender accepted the
Partnership's deposit of additional collateral but disputed whether the
Partnership had complied with the terms of the loan agreement regarding the 80%
loan ratio. During the current quarter, an agreement was reached with the
lender on a proposal to refinance the loan and resolve the outstanding disputes.
The terms of the agreement call for the Partnership to make a principal paydown
on the loan of approximately $812,000, including the application of the
additional collateral referred to above. The new loan has an initial principal
balance of approximately $9.7 million and a scheduled maturity date of May 1999.
From the date of the formal closing of the modification and extension agreement
to the new maturity date of the loan, the loan will bear interest at a rate of
9.125% per annum and will require monthly payments of principal and interest
aggregating approximately $83,000. The terms of the loan agreement also require
the establishment of an escrow account for real estate taxes, as well as a
capital improvement escrow which is to be funded with monthly deposits from the
Partnership aggregating approximately $1 million through the scheduled maturity
date. Formal closing of the modification and extension agreement occurred on
May 31, 1994. Subsequent to the modification agreement, the 625 North Michigan
property is expected to generate a small amount of cash flow from operations
after debt service, but prior to capital expenditures. However, the majority of
such cash flow will likely be required by the joint venture to pay for capital
and tenant improvements in order to maintain the property's current occupancy
rate in light of the extremely competitive market conditions which continue to
adversely affect the market for office space in downtown Chicago.
The Partnership has had preliminary discussions with the other zero coupon
note lender regarding a possible modification and extension agreement for the
notes secured by the other seven investment properties. Any such agreement
would likely involve the conversion of the zero coupon notes to conventional
current-pay loans with monthly principal amortization. Such a modification
could also require an initial principal paydown similar to the 625 North
Michigan transaction described above. There are no assurances that the
Partnership and the lender will reach agreement on mutually acceptable terms for
a modification and extension of these loans. Consequently, management is also
investigating other refinancing options for these obligations. This pool of
seven mortgage notes becomes prepayable without penalty at any time after August
1994. Since the pool of properties which secures these loans is comprised
primarily of multi-family residential properties, a strong market sector as
compared to commercial office buildings, the Partnership should have other
viable alternatives in the event that a favorable agreement cannot be reached
with the current lender. Consent of certain of the Partnership's co-venture
partners may be required in connection with any extension or refinancing
transactions. Regardless of whether the Partnership obtains extensions or
refinances the outstanding obligations, these transactions are likely to require
the current use of cash reserves to make required principal paydowns and/or to
cover transaction costs, in addition to adversely impacting current cash flow
due to the commencement of regular debt service payments. As a result of this
additional debt service, there will be a reduction in current cash flows from
the properties to the Partnership. In addition, there is an ongoing need to use
a portion of the earnings to fund expected capital work at the Partnership's
commercial properties. This work involves tenant improvements and leasing
commissions at each of these properties. The reduction in cash flows from the
properties, combined with capital needs, requires that the current annual
distribution rate of 5.25% be reduced to 2% beginning with the payment to be
made on November 15, 1994 for the quarter ending September 30, 1994.
The Hacienda Park investment property consists of four separate office/R&D
buildings comprising approximately 185,000 square feet. As previously reported,
two of these buildings had been leased to a single tenant, lease payments from
which represented approximately 71% of the total rental income from the property
for fiscal 1993. The tenant's lease on one of the buildings expired in June of
1993, while its lease on the second building was scheduled to run through March
of 1994 and contained a one-year renewal option. Due to corporate
reorganization and downsizing measures, this tenant did not renew the lease
which expired in June. However, during fiscal 1994, management negotiated the
renewal of this tenant's other lease for five years, although at market rents
which are substantially lower than the previous lease rental rate. In addition,
management has been aggressively pursuing tenants for the vacated building in
what is an extremely overbuilt office market. During the current quarter, the
Partnership has secured a new tenant, under a seven-year lease, for this 31,000
square foot building. The Partnership has agreed to pay for the tenant
improvement costs to modify this space to the needs of the new tenant. Tenant
improvements and leasing commissions related to this lease will total
approximately $630,000. As a result of these measures, the Hacienda Park
investment property, which was 72% leased as of March 31, 1994, improved to 89%
leased at June 30, 1994. At Loehmann's Plaza, management plans to invest
between approximately $1.2 and $1.6 million over the next 24 months to complete
a general upgrade of the property's exterior, including a 10,000 square foot
expansion, which is necessary in order for the property to remain competitive in
its market. As discussed further below, significant capital requirements are
also expected at West Ashley Shoppes within the next 18-to-24 months.
In May 1994, during the current quarter, the Partnership and the co-venturer
of the West Ashley Shoppes joint venture executed a settlement agreement to
resolve their outstanding disputes regarding the net cash flow shortfall
contributions owed by the co-venturer under the terms of the joint venture's
guaranty agreement. Under the terms of the settlement agreement, the co-
venturer assigned 96% of its interest in the joint venture to the Partnership
and the remaining 4% of its interest in the joint venture to Second Equity
Partners, Inc., the Managing General Partner of the Partnership. Prior to the
assignment of its interest, the co-venturer had agreed to retire certain debt in
the amount of approximately $400,000 which encumbered certain out-parcels of the
West Ashley property. Under the original terms of the venture agreement, the
potential future economic value to be realized from these out-parcels would have
accrued to the co-venturer's benefit. As a result of the assignment, the future
economic value to be realized from the unencumbered out-parcels will accrue
solely to the benefit of the Partnership. In return for such assignment, the
Partnership agreed to release the co-venturer from all claims regarding net cash
flow shortfall contributions owed to the joint venture. In conjunction with the
assignment of its interest and withdrawal from the joint venture, the co-
venturer agreed to release certain outstanding counter claims against the
Partnership. As a result of the settlement agreement, the Partnership has
effectively assumed full control over the affairs of the joint venture. The
Managing General Partner has engaged a local property management company to
oversee the day-to-day operations of the retail center, which was 66% leased as
of June 30, 1994. A significant amount of funds may be needed to pay for tenant
improvement costs to re-lease the vacant anchor tenant space at West Ashley
Shoppes in the near future. As previously reported, Children's Palace closed
its retail store at the center in May 1991 and subsequently filed for bankruptcy
protection from creditors. Management does not expect to receive any
significant proceeds from the bankruptcy liquidation proceedings. Accordingly,
funds for tenant improvements required to re-lease this space will have to come
from property operations, Partnership advances and/or short-term borrowings. In
addition, Phar-Mor, West Ashley's other major anchor tenant is currently
operating under the protection of Chapter 11 of the U.S. Bankruptcy Code. While
Phar-Mor has closed a number of its locations nationwide as part of its
bankruptcy reorganization, the Phar-Mor drugstore at West Ashley Shoppes is
reported to be one of their top performing locations in the southeast. As a
result, management is optimistic that its continued operation is likely,
assuming Phar-Mor successfully emerges from its current Chapter 11 status.
Subsequent to the end of the current quarter, Phar-Mor submitted a
reorganization plan for bankruptcy court approval. Published reports have
indicated that the proposed plan involves no further store closings.
At June 30, 1994, the Partnership and its consolidated joint ventures had
available cash and cash equivalents of approximately $3,097,000. Such amounts
will be utilized for the working capital requirements of the Partnership, as
well as for reinvestment in certain of the Partnership's properties (as
required), principal payments and refinancing expenses related to the
Partnership's zero coupon loans and for distributions to the partners. 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 both a short-term and long-term basis.
RESULTS OF OPERATIONS
In fiscal 1995, the Partnership's operating results include the consolidated
results of the West Ashley Shoppes joint venture As discussed in the Annual
Report, the Partnership assumed complete control over the affairs of the joint
venture which owns the property during the current quarter as a result of the
withdrawal of the co-venture partner and the assignment of its remaining
interest to the Partnership and Second Equity Partners, Inc., the Managing
General Partner of the Partnership. The Partnership reported a net loss of
approximately $363,000 for the three-month period ended June 30, 1994, as
compared to net income of approximately $186,000 for the same period in the
prior year. The significant change in net operating results is attributable to
an increase in the Partnership's operating loss of approximately $428,000
combined with a decrease in the Partnership's share of unconsolidated ventures'
income of approximately $121,000.
The increase in the Partnership's operating loss resulted mainly from a
combination of a decline in net income of the consolidated Hacienda Park joint
venture and the inclusion in the current period of the operating loss of the
West Ashley Shoppes joint venture. The net income of the Hacienda Park joint
venture declined by approximately $210,000 in comparison with the prior period.
The primary reason for this unfavorable change in the venture's operating
results was a decline in rental revenues resulting from the combined effects of
a temporary drop in occupancy and the renewal of a major lease at lower current
market rents, as discussed above. An increase in interest expense of
approximately $48,000, due to the compounding effect of interest on the
Partnership's zero coupon loans, also contributed to the increase in operating
loss for the current period. The Partnership's share of unconsolidated
ventures' income decreased by approximately $121,000 primarily due to a decrease
in net income from the Chicago-625 Partnership. The joint venture's net income
decreased due to a significant decrease in rental income. The decline in rental
income is reflective of the continued downward pressure on rental rates caused
by the competitive market conditions in downtown Chicago.
