PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and March 31, 1994
(Unaudited)
ASSETS
September 30 March 31
Operating investment properties:
Land $ 8,968,538 $ 5,008,793
Buildings and improvements 42,913,955 36,514,727
51,882,493 41,523,520
Less accumulated depreciation (11,055,861) (8,946,838)
40,826,632 32,576,682
Investments in unconsolidated joint ventures,
at equity 48,089,873 65,519,150
Cash and cash equivalents 9,071,065 4,289,661
Escrowed cash 485,085 243,660
Accounts receivable 366,861 23,929
Accounts receivable - affiliates 72,805 67,805
Prepaid expenses 10,463 21,680
Deferred rent receivable 214,470 258,190
Deferred expenses and other assets, net 1,025,281 390,504
$100,162,535 $103,391,261
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 402,459 $ 211,591
Advances from consolidated ventures 94,263 387,859
Tenant security deposits 115,324 85,644
Bonds payable 2,832,014 2,864,047
Notes payable and accrued interest 34,191,972 33,964,059
Minority interest in net assets of
consolidated joint ventures 784,059 331,249
Partners' capital 61,742,444 65,546,812
$100,162,535 $103,391,261
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1994 and 1993
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1994 1993 1994 1993
REVENUES:
Rental income and expense
reimbursements $1,052,934 $1,164,820 $2,054,635 $2,246,638
Interest and other income 55,631 58,953 110,266 109,098
1,108,565 1,223,773 2,164,901 2,355,736
EXPENSES:
Interest expense 816,280 775,840 1,659,024 1,570,450
Property operating expenses 381,981 335,622 877,879 674,017
Depreciation and amortization 492,118 373,463 912,947 747,761
General and administrative 164,107 135,914 317,829 317,264
1,854,486 1,620,839 3,767,679 3,309,492
Operating loss (745,921) (397,066) (1,602,778) (953,756)
Investment income:
Interest income on note
receivable from joint
venture 26,695 26,136 52,664 52,850
Partnership's share of
unconsolidated ventures'
income 512,360 477,270 1,107,847 1,193,835
NET INCOME (LOSS) $(206,866) $106,340 $(442,267) $ 292,929
Net income (loss)
per 1,000 Limited
Partnership Units $(1.52) $ 0.78 $(3.26) $ 2.16
Cash distributions per 1,000
Limited Partnership Units $12.38 $12.38 $24.76 $24.76
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 six months ended September 30, 1994 and 1993
(Unaudited)
General Limited
Partner Partners
Balance at March 31, 1993 $(410,582) $72,759,396
Cash distributions (33,621) (3,328,479)
Net income 2,929 290,000
BALANCE AT SEPTEMBER 30, 1993 $(441,274) $69,720,917
Balance at March 31, 1994 $(478,641) $66,025,453
Cash distributions (33,621) (3,328,480)
Net loss (4,643) (437,624)
BALANCE AT SEPTEMBER 30, 1994 $(516,905) $62,259,349
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1994 1993
Cash flows from operating activities:
Net income (loss) $ (442,267) $ 292,929
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Partnership's share of unconsolidated
ventures' income (1,107,847) (1,193,835)
Interest expense on zero coupon loans 1,428,583 1,487,453
Depreciation and amortization 912,947 747,761
Changes in assets and liabilities:
Escrowed cash (207,977) (139,922)
Accounts receivable (21,059) 123,121
Accounts receivable - affiliates (5,000) (5,000)
Deferred rent receivable 43,720 11,770
Other assets - (27,334)
Prepaid expenses 16,382 10,706
Tenant security deposits 9,930 (3,222)
Accounts payable - affiliates 28,120 11,103
Accounts payable and accrued expenses (2,047) (73,766)
Advances from consolidated ventures (377,596) 102,041
Total adjustments 18,156 1,050,876
Net cash provided by operating
activities 275,889 1,343,805
Cash flows from investing activities:
Distributions from unconsolidated ventures 9,674,584 2,449,026
Additional investments in unconsolidated
ventures (383,884) -
Additions to operating investment
properties (58,879) (29,350)
Net cash provided by investing
activities 9,231,821 2,419,676
Cash flows from financing activities:
Distributions to partners (3,362,101) (3,362,100)
Proceeds from issuance of mortgage loan 7,000,000 -
Payment of deferred financing costs (583,018) -
Payments of principal and interest on
notes payable (7,988,616) -
Repayment of principal on bonds payable (32,033) (33,524)
Net cash used for financing
activities (4,965,768) (3,395,624)
Net increase in cash and cash equivalents 4,541,942 367,857
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 $ 9,071,065 $ 4,862,277
Cash paid during the period for interest $ 4,369,589 $ 82,997
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 September 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 and six months ended
September 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 and six months ended June 30, 1994 and 1993
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Rental revenues and
expense recoveries $2,983,000 $3,098,000 $6,009,000 $6,463,000
Interest and other income 97,000 60,000 185,000 189,000
3,080,000 3,158,000 6,194,000 6,652,000
Property operating expenses 935,000 997,000 1,795,000 1,946,000
Real estate taxes 761,000 725,000 1,519,000 1,491,000
Interest expense 41,000 41,000 81,000 81,000
Depreciation and
amortization 781,000 882,000 1,554,000 1,773,000
2,518,000 2,645,000 4,949,000 5,291,000
Net income $ 562,000 $ 513,000 $1,245,000 $1,361,000
Net income:
Partnership's share of
combined income $ 532,000 $ 502,000 $1,148,000 $1,244,000
Co-venturers' share of
combined income 30,000 11,000 97,000 117,000
$ 562,000 $ 513,000 $1,245,000 $1,361,000
Reconciliation of Partnership's Share of Operations
Three Months Ended Six Months Ended
September 30, September 30,
1994 1993 1994 1993
Partnership's share of
operations, as shown
above $ 532,000 $ 502,000 $1,148,000 $1,244,000
Amortization of excess
basis (20,000) (25,000) (40,000) (50,000)
Partnership's share of
unconsolidated
ventures' income $ 512,000 $ 477,000 $1,108,000 $1,194,000
3. Operating Investment Properties
At September 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 in fiscal 1995, 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 and six months ended June 30, 1994
and the Saratoga Center and EG&G Plaza and the Asbury Commons Apartments for
the three and six months ended June 30, 1993.
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Property operating expenses:
Real estate taxes $102,163 $ 83,159 $225,245 $193,661
Repairs and maintenance 74,657 47,844 220,843 117,891
Utilities 53,120 44,745 101,880 84,193
Salaries and related costs 48,048 32,303 90,371 71,723
Insurance 14,723 12,655 29,340 22,272
Management fees 32,994 35,405 71,112 69,460
Administrative and other 56,276 79,511 139,088 114,817
$381,981 $335,622 $877,879 $674,017
4.Related Party Transactions
Included in general and administrative expenses for the six months ended
September 30, 1994 and 1993 is $130,845 and $138,537, 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 six months
ended September 30, 1994 and 1993 is $6,983 and $2,474, respectively,
representing fees earned by Mitchell Hutchins Institutional Investors, Inc.
for managing the Partnership's cash assets.
Accounts receivable - affiliates at September 30, 1994 consists of investor
services fees of $57,500 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. 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, exceeded 80%, the
Partnership was 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, the Partnership resolved the outstanding disputes and
refinanced the zero coupon loan secured by the 625 North Michigan Avenue
Office Building. The terms of the agreement called for the Partnership to
make a principal pay down of approximately $801,000, 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 required 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.
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, as of March 31, 1994, were 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. On September 27, 1994, the Partnership refinanced the portion of
the zero coupon loan secured by the Treat Commons Phase II apartment complex,
of approximately $3,353,000, with the proceeds of a new $7.4 million loan
secured by the Treat Commons property with an annual interest rate of 8.54%
and a 7-year term. Legal liability for the repayment of this new mortgage
loan rests with the joint venture. Accordingly the mortgage loan liability
is recorded on the books of the joint venture. The proceeds of the loan
were recorded as a distribution to the Partnership by the joint venture.
The loan requires monthly
principal and interest payments of $59,786. The Partnership has indemnified
the Treat Commons joint venture, and the related co-venture partner, against
all liabilities, claims and expenses associated with this borrowing. On
September 28, 1994, the Partnership repaid the portion of the zero coupon
loan secured by the Asbury Commons apartment complex, of approximately
$3,836,000, with the proceeds of a new $7 million loan obtained by the
consolidated Asbury Commons joint venture. The $7 million loan is secured by
the Asbury Commons apartment complex, carries an annual interest rate of
8.75% and matures in 7 years. The loan requires monthly principal and
interest payments of $87,575. The remaining balances of the zero coupon
loans and the related accrued interest, aggregating approximately
$17,482,000, are reflected on the balance sheet of the Partnership as of
September 30, 1994. Subsequent to the quarter-end, the Partnership applied a
portion of the excess proceeds from the financings described above for the
Treat Commons and Asbury Commons properties to the paydown of the outstanding
balance of the zero coupon loans. The total amount of the principal and
accrued interest paydown was approximately $5,703,000. Management has loan
applications in process to complete the refinancing of the remaining portion
of the zero coupon loans. Management currently plans to complete these
refinancing transactions by the end of calendar 1994.
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 below, during the current period the Partnership
successfully refinanced the zero coupon loans secured by the 625 North Michigan
Office Building, Treat Commons Phase II Apartments and the Asbury Commons
Apartments. As discussed further in the Annual Report, the Partnership's focus
over the last 12-to-18 months has been 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. The zero coupon loans were 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 were 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 were 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 quarter ended June 30, 1994, an agreement was reached
with the lender 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 paydown on the loan of approximately $801,000, 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 required 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 zero coupon loans secured by the other seven investment properties had
scheduled maturity dates in June of 1995 and became prepayable without penalty
beginning September of 1994. On September 27, 1994, the Partnership refinanced
the portion of the zero coupon loan secured by the Treat Commons Phase II
apartment complex, of approximately $3,353,000, with the proceeds of a new $7.4
million loan obtained by the TCR Walnut Creek joint venture. The $7.4 million
loan is secured by the Treat Commons property carries an annual interest rate of
8.54% and matures in 7 years. The loan requires monthly principal and interest
payments of $59,786. On September 28, 1994, the Partnership repaid the portion
of the zero coupon loan secured by the Asbury Commons apartment complex, of
approximately $3,836,000, with the proceeds of a new $7 million loan obtained by
the Asbury Commons joint venture. The $7 million loan is secured by the Asbury
Commons apartment complex, carries an annual interest rate of 8.75% and matures
in 7 years. The loan requires monthly principal and interest payments of
$87,575. The remaining balance of the zero coupon loans and the related accrued
interest aggregated approximately $17,482,000 as of September 30, 1994.
Subsequent to quarter-end, on October 27, 1994, the Partnership used a portion
of the excess loan proceeds from the Treat Commons and Asbury Commons
refinancings described above to pay down the remaining balance of the zero
coupon loans. The total amount of the principal and accrued interest paydown
was approximately $5,703,000. Management presently has loan applications in
process to complete the refinancing of the remaining portion of the zero coupon
loans. Management currently plans to complete these refinancing transactions by
the end of calendar 1994.
As previously reported, the refinancing of the zero coupon loans with
conventional loans requiring monthly principal and interest payments will
significantly reduce the 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 requirements at the Partnership's commercial properties,
including planned capital alterations, tenant improvements and leasing
commissions. Thereduction in cash flows from the properties, combined with
capital needs, requires that the current quarterly distribution rate of 5.25%
per annum be reduced to 2% beginning with the payment to be made on November 15,
1994 for the quarter ended 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 year, the Partnership 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 September 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 major capital enhancement program which includes 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 improvements
may be required at West Ashley Shoppes within the next 18-to-24 months.
In May 1994, 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 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 69% leased as of September 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.
At September 30, 1994, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately $9,071,000. This
amount includes the approximately $5,703,000 which was paid to the zero coupon
loan holder subsequent to the end of the quarter, as discussed further above.
The balance of such cash and cash equivalents 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 remaining 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 West Ashley Shoppes property during the first quarter of
fiscal 1995 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 $442,000 for the six-month
period ended September 30, 1994, as compared to net income of approximately
$293,000 for the same period in the prior year. This adverse change in net
operating results is attributable to an increase in the Partnership's operating
loss of approximately $649,000 combined with a decrease in the Partnership's
share of unconsolidated ventures' income of approximately $86,000.
The Partnership's operating loss increased mainly from a combination of a
decline in net income of the consolidated Hacienda Park joint venture and an
increase in interest expense. The net income of the Hacienda Park joint venture
declined by approximately $567,000 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. Interest expense increased by approximately
$89,000, mainly due to the compounding effect of interest on the Partnership's
zero coupon loans. As discussed further above, the Partnership is in the
process of refinancing its zero coupon loans with lower rate, current pay
mortgage loans. As a result of these actions, aggregate interest expense should
decline in future quarters. The Partnership's share of unconsolidated ventures'
income decreased in the current period primarily due to the consolidation of the
West Ashley joint venture's operations. The Partnership's share of
unconsolidated venture's income in the prior period includes approximately
$141,000 attributable to the West Ashley joint venture. The Partnership's share
of unconsolidated ventures' income excluding West Ashley increased by
approximately $55,000 in the current period mainly due to an increase in rental
revenues from the Portland Pacific joint venture. Rental revenues at the
Portland Pacific joint venture (Richmond Park and Richland Terrace) increased
due to increases in occupancy and rental rates associated with a strong local
market.
PAINEWEBBER EQUITY PARTNERS TWO 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 EQUITY PARTNERS TWO
LIMITED PARTNERSHIP
By: Second Equity Partners, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: November 10, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
FORM 10-Q
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
partnership's interim financial statements for the six months ended September
30, 1994 and is qualified in its entirety by refernce to such financial
statments.</LEGEND>
<CIK> 0000793973
<NAME> PAINEWEBBER EQUITY PARTNERS TWO, L.P.
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> MAR-31-1994
<PERIOD-END> SEP-30-1994
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