PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and March 31, 1994
(Unaudited)
ASSETS
December 31 March 31
Operating investment properties:
Land $ 8,968,538 $ 5,008,793
Buildings and improvements 43,531,189 36,514,727
52,499,727 41,523,520
Less accumulated depreciation (11,466,267) (8,946,838)
41,033,460 32,576,682
Investments in unconsolidated joint ventures,
at equity 43,004,240 65,519,150
Cash and cash equivalents 3,396,256 4,289,661
Escrowed cash 374,286 243,660
Accounts receivable 314,924 23,929
Accounts receivable - affiliates 75,305 67,805
Prepaid expenses 41,604 21,680
Deferred rent receivable 192,710 258,190
Deferred expenses and other assets, net 1,204,304 390,504
$ 89,637,089 $103,391,261
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 667,153 $ 211,591
Advances from consolidated ventures 153,991 387,859
Tenant security deposits 99,907 85,644
Bonds payable 2,832,014 2,864,047
Notes payable and accrued interest 24,198,112 33,964,059
Minority interest in net assets of
consolidated joint ventures 784,059 331,249
Partners' capital 60,901,853 65,546,812
$ 89,637,089 $103,391,261
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1994 and 1993
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1993 1994 1993
REVENUES:
Rental income and expense
reimbursements $ 925,126 $ 906,974 $2,979,761 $3,153,612
Interest and other income 83,040 24,082 193,306 133,180
1,008,166 931,056 3,173,067 3,286,792
EXPENSES:
Interest expense 634,541 850,325 2,293,565 2,420,775
Property operating expenses 465,335 317,617 1,343,214 991,634
Depreciation and amortization 456,931 370,185 1,369,878 1,117,946
General and administrative 230,785 143,651 548,614 460,915
1,787,592 1,681,778 5,555,271 4,991,270
Operating loss (779,426) (750,722) (2,382,204) (1,704,478)
Investment income:
Interest income on note
receivable from joint
venture 27,851 27,273 80,515 80,123
Partnership's share of
unconsolidated ventures'
income 551,883 589,499 1,659,730 1,783,334
NET INCOME (LOSS) $ (199,692) $ (133,950) $ (641,959) $ 158,979
Net income (loss)
per 1,000 Limited
Partnership Units $(1.47) $(0.99) $(4.73) $ 1.17
Cash distributions per 1,000
Limited Partnership Unit $ 4.72 $12.38 $29.48 $37.14
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 nine months ended December 31, 1994 and 1993
(Unaudited)
General Limited
Partner Partners
Balance at March 31, 1993 $(410,582) $72,759,396
Cash distributions (50,432) (4,992,720)
Net income 1,590 157,389
BALANCE AT DECEMBER 31, 1993 $(459,424) $67,924,065
Balance at March 31, 1994 $(478,641) $66,025,453
Cash distributions (40,030) (3,962,970)
Net loss (6,740) (635,219)
BALANCE AT DECEMBER 31, 1994 $(525,411) $61,427,264
See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1994 1993
Cash flows from operating activities:
Net income (loss) $ (641,959) $ 158,979
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Partnership's share of unconsolidated
ventures' income (1,659,730) (1,783,334)
Interest expense on zero coupon loans 1,467,079 2,279,517
Depreciation and amortization 1,369,878 1,117,946
Changes in assets and liabilities:
Escrowed cash (97,178) (309,066)
Accounts receivable 30,878 119,561
Accounts receivable - affiliates (7,500) (7,500)
Deferred rent receivable 65,480 20,991
Deferred expenses and other assets (29,047) -
Prepaid expenses (14,759) (6,783)
Tenant security deposits (5,487) 4,672
Accounts payable - affiliates - (11,775)
Accounts payable and accrued expenses 290,775 50,530
Advances from consolidated ventures (328,807) (196,810)
Total adjustments 1,081,582 1,277,949
Net cash provided by operating
activities 439,623 1,436,928
Cash flows from investing activities:
Distributions from unconsolidated ventures 15,207,151 3,622,745
Additional investments in unconsolidated ventures (893,876) -
Payment of leasing commissions (299,145) (42,744)
Additions to operating investment properties (58,879) (29,350)
Net cash provided by investing
activities 13,955,251 3,550,651
Cash flows from financing activities:
Distributions to partners (4,003,000) (5,043,152)
Proceeds from issuance of mortgage loan 7,000,000 -
Payment of deferred financing costs (259,676) -
Payments of principal and interest on notes
payable (18,233,032) -
Repayment of principal on bonds payable (32,033) (33,524)
Net cash used for financing
activities (15,527,741) (5,076,676)
Net decrease in cash and cash equivalents (1,132,867) (89,097)
Cash and cash equivalents, beginning of period:
Partnership 4,289,661 4,494,420
West Ashley Shoppes Associates 239,462 -
4,529,123 4,494,420
Cash and cash equivalents, end of period $ 3,396,256 $ 4,405,323
Cash paid during the period for interest $ 10,990,244 $ 141,258
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 December 31, 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 nine months ended
December 31, 1994. The unconsolidated joint venture partnerships are
accounted for on the equity method in the Partnership's financial statements
because the Partnership does not have a voting control interest in these
joint ventures. 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. As noted above, the results for the three and
nine months ended September 30,1993 include the operations of the West
Ashley Shoppes joint venture which was accounted for on the equity method
prior to fiscal 1995.
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended September 30, 1994 and 1993
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Rental revenues and
expense recoveries $3,200,000 $3,258,000 $9,209,000 $9,721,000
Interest and other income 102,000 129,000 287,000 318,000
3,302,000 3,387,000 9,496,000 10,039,000
Property operating expenses 1,008,000 1,047,000 2,803,000 2,993,000
Real estate taxes 770,000 761,000 2,289,000 2,252,000
Interest expense 43,000 40,000 124,000 121,000
Depreciation and amortization 832,000 887,000 2,386,000 2,660,000
2,653,000 2,735,000 7,602,000 8,026,000
Net income $ 649,000 $ 652,000 $1,894,000 $2,013,000
Net income:
Partnership's share of
combined income $ 572,000 $ 613,000 $1,720,000 $1,857,000
Co-venturers' share of
combined income 77,000 39,000 174,000 156,000
$ 649,000 $ 652,000 $1,894,000 $2,013,000
Reconciliation of Partnership's Share of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Partnership's share of
operations, as shown above $ 572,000 $ 613,000 $1,720,000 $1,857,000
Amortization of excess basis (20,000) (24,000) (60,000) (74,000)
Partnership's share of
unconsolidated ventures'
income $ 552,000 $ 589,000 $1,660,000 $1,783,000
3. Operating Investment Properties
At December 31, 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 nine months ended September 30, 1994 and
the Saratoga Center and EG&G Plaza and the Asbury Commons Apartments for the
nine months ended September 30, 1993.
Nine Months Ended
September 30,
1994 1993
Property operating expenses:
Real estate taxes $ 360,542 $ 272,080
Repairs and maintenance 325,462 114,177
Utilities 171,104 136,523
Salaries and related costs 136,448 109,393
Insurance 45,061 23,908
Management fees 105,538 99,112
Administrative and other 199,059 236,441
$1,343,214 $ 991,634
4.Related Party Transactions
Included in general and administrative expenses for the nine months ended
December 31, 1994 and 1993 is $198,774 and $199,095, 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 December 31, 1994 and 1993 is $7,623 and $7,500, respectively,
representing fees earned by Mitchell Hutchins Institutional Investors, Inc.
for managing the Partnership's cash assets.
Accounts receivable - affiliates at December 31, 1994 consists of investor
services fees of $60,000 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, 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 bore interest at an annual
rate of 10%, compounded annually. As of March 31, 1994, such loans had an
outstanding balance, including accrued interest, of approximately $23,560,000
and 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. During fiscal 1991, the Partnership had 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. 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 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. On October 22, 1994, the Partnership
applied a portion of the excess proceeds from the refinancings of the Treat
Commons and Asbury Commons properties described above and repaid the portion
of the zero coupon loan which had been secured by the West Ashley Shoppes of
approximately $2,703,000 and made a partial prepayment toward the portion of
the zero coupon loan secured by Hacienda Business Park of $3,000,000. On
November 7, 1994, the Partnership repaid the portion of the zero coupon loans
secured by The Gables Apartments and the Richland Terrace and Richmond Park
apartment complexes of approximately $2,353,000 and $2,106,000, respectively,
with the proceeds of a new $5.2 million loan secured by The Gables
Apartments. The new $5.2 million loan bears interest at 8.72% and matures in
7 years. The loan requires monthly principal and interest payments of
$42,646. Legal liability for the repayment of the new mortgage loans secured
by the Treat Commons and Gables properties rests with the respective joint
ventures. Accordingly the mortgage loan liabilities are recorded on the
books of the joint ventures. The Partnership has indemnified the Treat
Commons and Gables joint ventures, and the related co-venture partners,
against all liabilities, claims and expenses associated with these
borrowings. The proceeds of these loans were recorded as distributions to
the Partnership by the joint ventures. The remaining balances of the zero
coupon loans and the related accrued interest, aggregating approximately
$7,535,000, are reflected on the balance sheet of the Partnership as of
December 31, 1994. Management has loan applications in process to complete
the refinancing of the remaining portion of the zero coupon loans, which are
secured by Hacienda Business Park and Loehmann's Plaza. Management currently
plans to complete these refinancing transactions by the end of the fiscal
year.
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 fiscal year the Partnership
successfully refinanced the zero coupon loans secured by the 625 North Michigan
Office Building, Treat Commons Phase II Apartments, the Asbury Commons
Apartments and the Gables Apartments. As discussed further in the Annual
Report, the Partnership's focus over the last 12-to-24 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 was
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 consolidated 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. On October 22, 1994, the Partnership applied a
portion of the excess proceeds from the refinancings of the Treat Commons and
Asbury Commons properties described above to the repayment of the portion of the
zero coupon loan which had been secured by the West Ashley Shoppes, of
approximately $2,703,000, and made a partial prepayment toward the portion of
the zero coupon loan secured by Hacienda Business Park of $3,000,000. On
November 7, 1994, the Partnership refinanced the portion of the zero coupon loan
secured by The Gables Apartments of approximately $2,353,000, and repaid the
portion of the zero coupon loan which had been secured by the Richland Terrace
and Richland Park apartment complexes of approximately $2,106,000, with the
proceeds of a new $5.2 million loan obtained by the Richmond Gables Associates
joint venture. The new $5.2 million loan is secured by The Gables Apartments
carries an annual interest rate of 8.72% and matures in 7 years. The loan
requires monthly principal and interest payments of $42,646. Legal liability
for the repayment of the new mortgage loans secured by the Treat Commons and
Gables properties rests with the respective joint ventures. Accordingly the
mortgage loan liabilities are recorded on the books of the joint ventures. The
Partnership has indemnified the Treat Commons and Gables joint ventures, and the
related co-venture partners, against all liabilities, claims and expenses
associated with these borrowings. The proceeds of these loans were recorded as
distributions to the Partnership by the joint ventures. The remaining balances
of the zero coupon loans and the related accrued interest, aggregating
approximately $7,535,000, are reflected on the balance sheet of the Partnership
as of December 31, 1994. Management has loan applications in process to
complete the refinancing of the remaining portion of the zero coupon loans,
which are secured by Hacienda Plaza and Loehmann's Plaza. Management currently
plans to complete these refinancing transactions by the end of the fiscal year.
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. The reduction in cash flows from
the properties, combined with capital needs, required management to reduce the
quarterly distribution rate from 5.25% per annum to 2% beginning with the
payment 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. During the
current year, the Partnership secured a new tenant, under a seven-year lease,
for the vacant 31,000 square foot building at Hacienda Park. The Partnership
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 totalled 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 December 31, 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.
The improvement program is necessary in order for the property to remain
competitive in its market. As discussed further below, significant capital
improvements may also 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 December 31, 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 December 31, 1994, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately $3,396,000. 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 $642,000 for the nine-month
period ended December 31, 1994, as compared to net income of approximately
$159,000 for the same period in the prior year. This unfavorable change in the
Partnership's net operating results is attributable to an increase in the
Partnership's operating loss of approximately $678,000 combined with a decrease
in the Partnership's share of unconsolidated ventures' income of approximately
$124,000.
The Partnership's operating loss increased mainly due to a decline in the
net operating results of the consolidated Hacienda Park joint venture. The net
income of the Hacienda Park joint venture declined by approximately $797,000 in
comparison with the prior period primarily due to a decline in rental revenues.
Revenues at Hacienda Park were lower in the current period as a result of the
combined effects of a temporary drop in occupancy and the renewal of a major
lease at lower current market rents, as discussed above. 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 ventures' income in the
prior period includes approximately $185,000 attributable to the West Ashley
joint venture. The Partnership's share of unconsolidated ventures' income
excluding West Ashley increased by approximately $61,000 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 by approximately $67,000 in the current period
generally due to rising 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: February 13, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the nine months ended December
31, 1994 and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<S> <C>
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<PERIOD-END> DEC-31-1994
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