UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to _______ .
Commission File Number: 0-15705
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 04-2918819
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| . No |_| .
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and March 31, 1996 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Operating investment properties:
Land $ 7,351 $ 7,351
Buildings and improvements 40,044 40,018
---------- ----------
47,395 47,369
Less accumulated depreciation (12,650) (12,155)
---------- ----------
34,745 35,214
Investments in unconsolidated ventures, at equity 31,895 31,784
Cash and cash equivalents 5,194 5,322
Escrowed cash 342 279
Accounts receivable 255 151
Prepaid expenses 35 50
Deferred rent receivable 807 832
Deferred expenses, net 614 646
---------- ----------
$ 73,887 $ 74,278
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 494 $ 271
Net advances from consolidated ventures 438 400
Tenant security deposits 69 116
Bonds payable 2,197 2,297
Mortgage notes payable 19,582 19,650
Other liabilities 331 331
Partners' capital 50,776 51,213
---------- ----------
$ 73,887 $ 74,278
========== ==========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $ (494) $ 56,173
Cash distributions (3) (297)
Net loss (2) (247)
-------- ---------
Balance at June 30, 1996 $ (499) $ 55,629
======== =========
Balance at March 31, 1997 $ (539) $ 51,752
Cash distributions (3) (297)
Net loss (2) (135)
-------- ---------
Balance at June 30, 1997 $ (544) $ 51,320
======== =========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
1997 1996
---- ----
Revenues:
Rental income and expense reimbursements $1,352 $1,197
Interest and other income 100 76
------ ------
1,452 1,273
Expenses:
Property operating expenses 421 348
Depreciation and amortization 519 481
Interest expense 473 515
Real estate taxes 136 116
General and administrative 94 138
------ ------
1,643 1,598
------ ------
Operating loss (191) (325)
Partnership's share of unconsolidated
ventures' income 54 76
------ ------
Net loss $ (137) $ (249)
====== ======
Net loss per 1,000 Limited
Partnership Units $(1.01) $(1.86)
====== ======
Cash distributions per 1,000 Limited
Partnership Units $ 2.21 $ 2.21
====== ======
The above per 1,000 Limited Partnership Units information is based upon the
134,425,741 Limited Partnership Units outstanding during each period.
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (137) $ (249)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Partnership's share of unconsolidated
ventures' income (54) (76)
Depreciation and amortization 519 481
Amortization of deferred financings costs 10 16
Changes in assets and liabilities:
Escrowed cash (63) (57)
Accounts receivable (104) 149
Prepaid expenses 15 18
Deferred rent receivable 25 (64)
Deferred expenses (2) (70)
Accounts payable and accrued expenses 223 94
Advances to (from) consolidated ventures 38 346
Tenant security deposits (47) 18
--------- --------
Total adjustments 560 855
--------- --------
Net cash provided by operating activities 423 606
--------- --------
Cash flows from investing activities:
Distributions from unconsolidated ventures 456 600
Additional investments in unconsolidated ventures (513) (512)
Additions to operating investment properties (26) (112)
--------- --------
Net cash used in investing activities (83) (24)
--------- --------
Cash flows from financing activities:
Distributions to partners (300) (300)
Repayment of principal on long term debt (168) (74)
--------- --------
Net cash used in financing activities (468) (374)
--------- --------
Net (decrease) increase in cash and cash equivalents (128) 208
Cash and cash equivalents, beginning of period 5,322 5,126
--------- --------
Cash and cash equivalents, end of period $ 5,194 $ 5,334
========= ========
Cash paid during the period for interest $ 463 $ 476
========= ========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended March 31, 1997. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected
in the accompanying interim financial statements are of a normal recurring
nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of June 30, 1997 and March 31, 1997 and
revenues and expenses for each of the three-month periods ended June 30,
1997 and 1996. Actual results could differ from the estimates and
assumptions used.
2. Investments in Unconsolidated Joint Ventures
As of June 30, 1997, the Partnership had investments in three
unconsolidated joint venture partnerships which own operating investment
properties as described further in the Partnership's Annual Report 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.
Condensed Combined Summary of Operations
For the three months ended March 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Revenues:
Rental revenues and expense recoveries $2,224 $2,319
Interest and other income 164 160
------ ------
2,388 2,479
Expenses:
Property operating expenses 805 778
Real estate taxes 503 542
Interest expense 204 221
Depreciation and amortization 790 806
------ ------
2,302 2,347
------ ------
Net income $ 86 $ 132
====== ======
Net income:
Partnership's share of combined income $ 68 $ 90
Co-venturers' share of combined income 18 42
------- ------
$ 86 $ 132
======= ======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three months ended June 30, 1997 and 1996
(in thousands)
1997 1996
---- ----
Partnership's share of operations,
as shown above $ 68 $ 90
Amortization of excess basis (14) (14)
------- -------
Partnership's share of unconsolidated
ventures' income $ 54 $ 76
======= =======
3. Operating Investment Properties
The Partnership's balance sheets at June 30, 1997 and March 31,1997
include three operating investment properties owned by joint ventures in
which the Partnership has a controlling interest; 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. 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
Saratoga Center and EG&G Plaza, Asbury Commons Apartments and the West
Ashley Shoppes shopping center for the three months ended March 31, 1997 and
1996 (in thousands):
1997 1996
---- ----
Property operating expenses:
Repairs and maintenance $ 156 $ 96
Utilities 53 47
Salaries and related costs 50 42
Insurance 16 17
Management fees 47 39
Administrative and other 99 107
------- -------
$ 421 $ 348
======= =======
4. Related Party Transactions
Included in general and administrative expenses for the three months
ended June 30, 1997 and 1996 is $59,000 and $65,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
Also included in general and administrative expenses for the three
months ended June 30, 1997 and 1996 is $6,000 and $7,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
<PAGE>
5. 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 and mature in years 2004 through 2017. In the
event the operating investment property is sold, the liability for the bond
assessments would be transferred to the buyer. Therefore, the Hacienda Park
joint venture would no longer be liable for the bond assessments.
6. Mortgage Notes Payable
Mortgage notes payable on the consolidated balance sheets of the
Partnership at June 30, 1997 and March 31, 1997 consist of the following (in
thousands):
June 30 March 31
------- --------
9.125% mortgage note payable by the
Partnership to an insurance company
secured by the 625 North Michigan
Avenue operating investment
property. The terms of the note
were modified effective May 31,
1994. The loan requires monthly
principal and interest payments of
$83 through maturity on May 1,
1999. In addition, the loan
requires monthly deposits to a
capital improvement escrow. The
fair value of the mortgage note
approximated its carrying value at
June 30, 1997 and March 31, 1997. $ 9,385 $ 9,418
8.75% mortgage note payable by the
consolidated Atlanta Asbury
Partnership to an insurance company
secured by the Asbury Commons
operating investment property. The
loan requires monthly principal and
interest payments of $55 through
maturity on October 15, 2001. The
fair value of the mortgage note
approximated its carrying value at
March 31, 1997 and December 31,
1996. 6,782 6,806
9.04% mortgage note payable by the
consolidated Hacienda Park
Associates to an insurance company
secured by the Saratoga Center and
EG&G Plaza operating investment
property. The loan requires monthly
principal and interest payments of
$36 through maturity on January 20,
2002. The fair value of the
mortgage note approximated its
carrying value at March 31, 1997
and December 31, 1996. 3,415 3,426
--------- --------
$ 19,582 $ 19,650
========= ========
On November 7, 1994, the Partnership repaid certain outstanding 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
obtained by Richmond Gables Associates and 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 $43,000. On
February 10, 1995, the Partnership repaid an outstanding zero coupon loan
secured by the Loehmann's Plaza shopping center, of approximately
$4,093,000, with the proceeds of a new $4 million loan obtained by
Daniel/Metcalf Associates Partnership along with additional funds
contributed by the Partnership. The $4 million loan is secured by the
Loehmann's Plaza shopping center, carries an annual interest rate of 9.04%
and matures on February 15, 2003. The loan requires monthly principal and
interest payments of $34,000. Legal liability for the repayment of the new
mortgage loans secured by the Gables and Loehmann's Plaza properties rests
with the respective unconsolidated joint ventures. Accordingly the mortgage
loan liabilities are recorded on the books of these unconsolidated joint
ventures. The Partnership has indemnified Richmond Gables Associates and
Daniel/Metcalf Associates Partnership and the related co-venture partners,
against all liabilities, claims and expenses associated with these
borrowings.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended March 31, 1997 under the heading "Certain Factors Affecting Future
Operating Results", which could cause actual results to differ materially from
historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
In light of the continued strength in the national real estate market with
respect to multi-family apartment properties and the recent improvements in the
office/R&D property markets, management believes that this may be an opportune
time to sell the Partnership's remaining operating investment properties. As a
result, management is currently focusing on potential disposition strategies for
the remaining investments in the Partnership's portfolio. Although there are no
assurances, it is currently contemplated that sales of the Partnership's
remaining assets could be completed within the next 2-to-3 years.
As discussed in the Annual Report, management discovered the existence of
certain potential construction problems at the Asbury Commons Apartments during
fiscal 1997. The initial analysis of the construction problems at Asbury Commons
revealed extensive deterioration of the wood trim and evidence of potential
structural problems affecting the exterior breezeways, the decks of certain
apartment unit types and the stairway towers. A design and construction team was
organized to further evaluate the potential problems, make cost-effective
remediation recommendations and implement the repair program. Based on this
evaluation, the structural problems may be more extensive and cost significantly
more than originally estimated. It will also require further investigation which
together with eventual construction repair work may result in disruptions to
property operations while units are possibly taken out of service for testing
and repairs. The cost of the repair work required to remediate this situation is
currently estimated at between approximately $1.5 to $2 million. During the
first quarter of fiscal 1998, the Partnership filed a warranty claim against the
manufacturer of the wood-composite siding used throughout Asbury Commons.
Subsequent to the end of the first quarter, the Partnership filed a warranty
claim against the manufacturer of the fiberglass-composite roofing shingles
installed when the property was built. While there can be no assurances
regarding the Partnership's ability to successfully recover any damages relating
to the siding and roofing shingles, the Partnership will diligently pursue these
and other potential recovery sources. The Partnership believes that it has
adequate cash reserves to fund the repair work at Asbury Commons regardless of
whether any recoveries are realized. Nonetheless, because of the seriousness of
the construction problems at Asbury Commons, the Partnership has suspended the
distribution increase which was planned to begin in the fourth quarter of fiscal
1997. The Partnership had planned to increase the distribution rate from 1% to
2.5% per annum on a Limited Partner's remaining capital account of $882 per
original $1,000 investment. However, in light of the magnitude of the repair
work required at Asbury Commons, as well as other potential near-term capital
needs of the Partnership's commercial properties, as discussed further below,
management concluded that it would be prudent to continue distributions at a
conservative level for the foreseeable future.
The average occupancy level at the Asbury Commons Apartments was 84% for
the quarter ended June 30, 1997, compared to 87% for the prior quarter and 93%
for the same period one year ago. As of June 30, 1997, the property was 92%
leased, which was equal to the local market average. During the quarter ended
March 31, 1997, the continued lease-up of over 3,500 new apartments in the local
area resulted in an increase in the use of concessions and a decrease in
effective rents by 5% for comparable properties. However, the use of substantial
concessions decreased during the current fiscal quarter and effective rents
stabilized. The outlook for additional apartment construction in the local
market over the next year is more moderate, with only one new development
breaking ground to date this year. In March 1997, a national property management
firm was hired to take over management at Asbury Commons effective April 1,
1997. The new management firm has completed its initial market and positioning
surveys for Asbury Commons. The property's management and leasing team is
confident that the property will perform at average occupancies similar to
comparable properties in the market, including newly constructed communities,
once the repair program discussed above has been completed. The team has also
indicated that effective rents can be increased at Asbury Commons through
improved signage, targeted advertising and promotion, and selected unit interior
upgrades.
Loehmann's Plaza Shopping Center in Overland Park, Kansas was 90% leased
as of June 30, 1997, as compared to 84% at the end of the previous quarter.
Physical occupancy at the Center increased to 89% from 80% the previous quarter.
As previously reported, the property's leasing team signed a 13,410 square foot
lease, representing 9% of the Center's leasable area, with Gateway 2000 Country
Stores to occupy the former Loehmann's space. Gateway 2000 Country Stores, a
manufacturer and retailer of personal computers, opened its new store on June
30, 1997. The property's management team reports that the opening of the Gateway
2000 store is already significantly increasing the number of customers in the
Center. In addition, a 6,102 square foot expansion of the shopping center was
completed during the current quarter for an existing 7,058 square foot tenant
that opened for business in late June. With the opening of these two stores,
representing almost 20% of the Center's leasable area, the leasing team believes
that prospective tenant interest in the remaining 14,000 square feet available
for lease will improve. Other tenant activity during the quarter included the
signing of a three-year lease extension agreement with an existing 1,920 square
foot tenant, the closing on the April 30, 1997 lease expiration date of a 4,289
square foot store with weak sales, and the closing of a 2,000 square foot store
of a credit tenant whose lease expires in July 2000. It is anticipated that this
tenant will continue to pay its rental payments and contractual share of
operating expenses through the lease expiration date or until the space is
re-leased to another tenant. With the July grand opening of a new grocery store
near Loehmann's Plaza, increased shopper traffic levels along the Center's road
frontage are projected. As a result of the Gateway 2000 lease and the completion
of the expansion referred to above, the Loehmann's Plaza property should be in a
position to be marketed for a potential sale in the relatively near term.
A portion of the funds required to pay for the capital improvement work at
Loehmann's Plaza was expected to come from a $550,000 Renovation and Occupancy
Escrow withheld by the lender from the proceeds of a $4 million loan secured by
the property which was obtained in February 1995. Funds were to be released from
the Renovation and Occupancy Escrow to reimburse the venture for the costs of
the planned renovations in the event that the venture satisfied certain
requirements, which included specified occupancy and rental income thresholds.
If such requirements were not met within 18 months from the date of the loan
closing, the lender would have the right to apply the balance of the escrow
account to the payment of loan principal. As of August 1996, 18 months from the
date of the loan closing, such requirements had not been met. Therefore, the
lender may apply the balance of the escrow account to the payment of loan
principal. As of June 30, 1997, such application of escrow funds by the lender
had not occurred. In addition, the lender required that the Partnership
unconditionally guaranty up to $1,400,000 of the loan obligation. This guaranty
will be released in the event that the joint venture satisfies the requirement
for the release of the Renovation and Occupancy Escrow funds or upon the
repayment, in full, of the entire outstanding mortgage loan liability.
A significant amount of funds may also be needed to pay for tenant
improvement costs to re-lease the vacant 36,000 square foot anchor tenant space
at West Ashley Shoppes. As previously reported, Children's Palace closed its
retail store at the center in May 1991 and subsequently filed for bankruptcy
protection from creditors. West Ashley's other major anchor tenant, Phar-Mor,
emerged from the protection of Chapter 11 of the U.S. Bankruptcy Code during
fiscal 1996. While Phar-Mor closed a number of its stores nationwide as part of
its bankruptcy reorganization, the company remains obligated under a lease at
West Ashley which runs through August 2002. On September 9, 1996, Phar-Mor
announced plans to merge with ShopKo, another major pharmacy store chain. During
the current quarter, such merger plans were terminated. Because Phar-Mor leases
52,000 square feet at West Ashley Shoppes, the property's leasing team is
attempting to ascertain Phar-Mor's future plans for their store at the Center.
The property's leasing team continues to focus its efforts on finding another
national credit tenant or tenants to fill the vacant Children's Palace space at
West Ashley Shoppes. During the first quarter of fiscal 1998, the property's
leasing team showed the former Children's Palace space to several prospective
tenants, one of whom has shown serious interest. The leasing team is cautiously
optimistic that negotiations will result in a lease-up of this space. Securing
an anchor tenant would enhance the value of the shopping center and provide
stability for the small shop tenants. At the June 30, 1997 quarter end, West
Ashley Shoppes was 64% leased and occupied, compared to 68% leased and 67%
occupied at the end of the previous quarter. During the period, a 1,050 square
foot tenant moved from the Center. Also, a lease expired with a 1,400 square
foot tenant which had moved from the Center last quarter. At quarter end, the
Center's small shop tenant space was 74% leased.
The 625 North Michigan Office Building in Chicago, Illinois, was 87% leased
at June 30, 1997, compared to 82% at the end of the prior quarter. Four new
tenants with a total of 8,422 square feet took occupancy during the quarter, and
one tenant expanded its space by 720 square feet. Another tenant occupying 1,509
square feet moved from the building at the end of its lease term. During the
quarter, two leases were signed with new tenants that will occupy 7,840 square
feet, and one existing tenant signed a lease for a 1,023 square foot expansion.
These tenants are expected to move into their spaces during the second quarter.
Over the remainder of calendar year 1997, leases with six tenants occupying a
total of 11,594 square feet will expire. The property's leasing team expects
most of these tenants to renew their leases. The modernization of the building's
elevator controls is currently underway. This work is expected to continue for
the remainder of calendar year 1997 at an estimated total cost of approximately
$700,000.
The four buildings comprising the Hacienda Business Park investment
property in Pleasanton, California, remained 100% leased to four tenants at the
end of the first quarter. The local market continues to experience rental rate
growth with market occupancy levels over 98%. During May, a new BART (Bay Area
Rapid Transit) station opened, which will serve this Pleasanton office market.
As previously reported, one of the property's tenants, which occupies 51,683
square feet, or 28% of the property's leasable area, under several leases with
expiration dates in 1998, 1999 and 2001, announced that it will relocate from
Hacienda Business Park into a new building under construction in the local
market. One of the buildings contains 41,656 square feet and is fully leased by
this tenant. The tenant's remaining 10,027 square feet is leased in an adjoining
building. As previously reported, the tenant will consolidate its operations
into the new building which is expected to be ready for occupancy in September
1997. This tenant will remain responsible for rental payments and its
contractual share of operating expenses until the leases expire. Nonetheless,
the property's leasing team is diligently working to secure replacement tenants
for this 51,683 square feet. Because the existing rental rates on the leases of
this tenant are significantly below current market rates, the Partnership could
have an opportunity to re-lease any vacated space at the higher prevailing
market rental rates. In any event, provided there is no dramatic increase in
either planned speculative development or build-to-suit development with current
tenants in the local market, the Partnership can be expected to achieve a
materially higher sale price for the Hacienda Park property as the existing
below-market leases approach their expiration dates. Accordingly, management
plans to defer any sale efforts for the immediate future in order to capture
this expected increase in value. In the meantime, management will continue to
closely monitor all planned development activity in this market.
The average occupancy level at The Gables Apartments increased to 96% for
the quarter ended June 30, 1997, compared to 91% for the prior quarter and 94%
for the same period a year ago. The upward trend reflects a seasonal increase in
the number of prospective tenants looking to rent apartments and strong demand
for apartments resulting from strong job, household formation and population
growth in the Richmond, Virginia market. As job growth is projected to continue
during the next few years, the economic outlook for Richmond remains strong. Two
significant employers include the White Oaks semiconductor plant, which is under
construction and projected to employ 1,500 people, and the nearly completed
Capital One credit facility, which will employ 1,000 people. While there are
three apartment communities, comprising approximately 900 units, under
construction in the local market, only one 280-unit community is considered
competition for The Gables Apartments. The other communities are located at
least five miles from The Gables and offer larger units at significantly higher
rents. The primary property improvements scheduled at The Gables for the
remainder of calendar 1997 include exterior wood-trim replacement in preparation
for a complete painting of the building exteriors.
At June 30, 1997, the Partnership and its consolidated joint ventures had
available cash and cash equivalents of approximately $5,194,000. Such cash and
cash equivalent amounts will be utilized for the working capital requirements of
the Partnership, for reinvestment in certain of the Partnership's properties
including the anticipated construction repair work at Asbury Commons and the
capital needs of the Partnership's commercial properties (as discussed further
above) 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
Three Months Ended June 30, 1997
- --------------------------------
The Partnership reported a net loss of $137,000 for the three months ended
June 30, 1997, as compared to a net loss of $249,000 for the same period in the
prior year. This decrease in net loss is the result of a decline in the
partnership's operating loss which was partially offset by a decrease in the
Partnership's share of unconsolidated ventures' income. The Partnership's
operating loss decreased by $134,000, when compared to the same period in the
prior year, due to an increase in total revenues of $179,000, which was
partially offset by an increase in total expenses of $45,000. The increase in
the Partnership's revenue consisted of a $156,000 increase in rental income and
a $24,000 increase in interest and other income. Rental income increased due to
an increase in rental income at the consolidated Hacienda Park and West Ashley
Shoppes joint ventures. Rental income at Hacienda Park increased due to the
expansion of a major tenant and a lease renewal of another major tenant, both at
substantially higher rates. Rental income increased at West Ashley Shoppes due
to substantial increases in common area maintenance reimbursements and tax
reimbursements. Rental income decreased at Asbury Commons due to a decrease in
average occupancy. Interest and other income increased as a result of a small
increase in the average amount of cash and cash equivalents outstanding when
compared to the same period in the prior year.
The $45,000 increase in total expenses is mainly attributable to an
increase in property operating expenses of $73,000. The increase in property
operating expenses is mainly attributable to increases in repairs and
maintenance costs and salaries at the consolidated Asbury Commons joint venture.
Repairs and maintenance costs increased primarily due to the preliminary
investigative work related to the construction defects discussed further above.
In addition, there were small increases in depreciation and amortization expense
and real estate tax expense of $38,000 and $20,000, respectively. Depreciation
and amortization expense increased due to an increase in depreciation expense at
West Ashley Shoppes. Real estate taxes increased due to a higher expense
recorded by the Asbury Commons joint venture. The increases in property
operating expenses, depreciation and amortization and real estate taxes were
partially offset by decreases in general and administrative expenses and
interest expense of $44,000 and $42,000, respectively. General and
administrative expenses decreased as a result of a decrease in certain required
professional fees during the current quarter. Interest expense decreased due to
scheduled amortization of the mortgage principal balances outstanding.
The Partnership's share of unconsolidated ventures' income decreased by
$22,000 primarily due to decreases in net income at the 625 North Michigan and
Richmond Gables joint ventures of $28,000 and $29,000, respectively. Net income
decreased at 625 North Michigan due to a decrease in rental income as a result
of a decline in average occupancy. Net income decreased at Richmond Gables
primarily due to an increase in utilities expense. The decreases in net income
at 625 North Michigan and Richmond Gables were partially offset by an increase
in net income at Loehmann's Plaza of $35,000 due to decreases in insurance and
repairs and maintenance expenses.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the period covered by this
report.
<PAGE>
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: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 5,194
<SECURITIES> 0
<RECEIVABLES> 255
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,826
<PP&E> 79,290
<DEPRECIATION> 12,650
<TOTAL-ASSETS> 73,887
<CURRENT-LIABILITIES> 1,001
<BONDS> 21,779
0
0
<COMMON> 0
<OTHER-SE> 50,776
<TOTAL-LIABILITY-AND-EQUITY> 73,887
<SALES> 0
<TOTAL-REVENUES> 1,506
<CGS> 0
<TOTAL-COSTS> 1,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> (137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (137)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
