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 QUARTER ENDED June 30, 1999
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.mployer
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, 1999 and March 31, 1999 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
------- --------
Operating investment properties:
Land $ - $ 2,342
Building and improvements - 5,437
------- ---------
- 7,779
Less accumulated depreciation - (2,307)
------- ---------
- 5,472
Investments in unconsolidated joint
ventures, at equity 27,427 27,774
Cash and cash equivalents 6,671 6,181
Accounts receivable 232 346
Prepaid expenses 2 6
Deferred rent receivable - 135
Deferred expenses, net of accumulated
amortization - 58
Other assets - 17
------- ---------
$34,332 $ 39,989
======= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 128 $ 170
Net advances from consolidated ventures - 156
Mortgage notes payable 9,092 9,132
Partners' capital 25,112 30,531
------- ---------
$34,332 $ 39,989
======= =========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1999 and 1998
(Unaudited)
(In thousands, except per Unit data)
1999 1998
---- ----
Revenues:
Rental income and expense reimbursements $ 439 $1,256
Interest and other income 150 113
------- ------
589 1,369
Expenses:
Property operating expenses 197 315
Depreciation and amortization 192 522
Interest expense 208 477
Real estate taxes 62 136
General and administrative 113 120
------- ------
772 1,570
------- ------
Operating loss (183) (201)
Gain on sale of operating investment property 2,665 -
Partnership's share of unconsolidated
ventures' income 299 341
------- ------
Net income $ 2,781 $ 140
======= ======
Net income per 1,000 Limited
Partnership Unit $ 20.47 $ 1.03
======= ======
Cash distributions per 1,000 Limited
Partnership Unit $ 61.00 $ 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 CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1999 and 1998 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1998 $ (554) $ 50,304
Cash distributions (3) (297)
Net income 1 139
-------- ---------
Balance at June 30, 1998 $ (556) $ 50,146
======== =========
Balance at March 31, 1999 $ (436) $ 30,967
Cash distributions - (8,200)
Net income 29 2,752
-------- ---------
Balance at June 30, 1999 $ (407) $ 25,519
======== =========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1999 and 1998 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents (In thousands)
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 2,781 $ 140
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on sale of operating investment property (2,665) -
Partnership's share of unconsolidated ventures'
income (299) (341)
Depreciation and amortization 192 522
Amortization of deferred financings costs - 10
Changes in assets and liabilities:
Escrowed cash - (135)
Accounts receivable 114 (60)
Prepaid expenses 4 17
Deferred rent receivable - 26
Deferred expenses - (12)
Other assets - -
Accounts payable and accrued expenses (42) 171
Advances from consolidated ventures (156) (537)
Tenant security deposits - 8
-------- ---------
Total adjustments (2,852) (331)
-------- ---------
Net cash used in operating activities (71) (191)
-------- ---------
Cash flows from investing activities:
Net proceeds from sale of operating investment
property 8,155 -
Distributions from unconsolidated ventures 716 740
Additional investments in unconsolidated ventures (70) (193)
Additions to operating investment properties - (44)
-------- ---------
Net cash provided by investing activities 8,801 503
-------- ---------
Cash flows from financing activities:
Distributions to partners (8,200) (300)
Repayment of principal on long term debt (40) (74)
-------- ---------
Net cash used in financing activities (8,240) (374)
-------- ---------
Net increase (decrease) in cash and cash equivalents 490 (62)
Cash and cash equivalents, beginning of period 6,181 6,202
-------- ---------
Cash and cash equivalents, end of period $ 6,671 $ 6,140
======== =========
Cash paid during the period for interest $ 208 $ 467
======== =========
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, 1999. 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, 1999 and March 31, 1999 and revenues and expenses
for each of the three-month periods ended June 30, 1999 and 1998. Actual results
could differ from the estimates and assumptions used.
The Partnership originally invested approximately $132,200,000 (net of
acquisition fees) in ten operating properties through joint venture investments.
Through March 31, 1999, seven of these investments had been sold, including
three during fiscal 1999. In addition, on May 14, 1999 the Partnership sold the
West Ashley Shoppes property (see Note 4). After this sale transaction, the
Partnership retains an interest in two operating properties, which consist of an
office complex and a retail shopping center. The Partnership is currently
focusing on potential disposition strategies for the remaining investments in
its portfolio. Although no assurances can be given, it is currently contemplated
that sales of the Partnership's remaining assets could be completed by the end
of calendar year 1999. The sale of the remaining investments would be followed
by a liquidation of the Partnership.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the three months ended
June 30, 1999 and 1998 is $60,000 and $58,000, 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-month
periods ended June 30, 1999 and 1998 is $3,000 and $4,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the
Partnership's cash assets.
3. Investments in Unconsolidated Joint Ventures
--------------------------------------------
As of June 30, 1999, the Partnership had investments in two unconsolidated
joint venture partnerships (three at June 30, 1998) 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.
On July 2, 1998, Richmond Gables Associates, a joint venture in which the
Partnership held an interest, sold The Gables at Erin Shades Apartments to an
unrelated third party for $11,500,000. After deducting closing costs and
property adjustments of $320,000, The Gables joint venture received net sale
proceeds of $11,180,000. These net sale proceeds were split between the
Partnership and its co-venture partner in accordance with the terms of The
Gables joint venture agreement. The Partnership received $10,602,000 and the
non-affiliated co-venture partner received $578,000 as their share of the sale
proceeds. From its share of the proceeds, the Partnership prepaid its refinanced
original zero coupon loan secured by the property and the related prepayment
fee, the sum of which was $5,449,000. The Partnership distributed the $5,153,000
of net proceeds from the sale of The Gables, along with an amount of cash
reserves that exceeded expected future requirements, in the form of a special
distribution totalling approximately $5,243,000, or $39 per original $1,000
investment, on July 20, 1998.
<PAGE>
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, 1999 and 1998
(in thousands)
1999 1998
---- ----
Revenues:
Rental revenues and expense recoveries $2,444 $2,613
Interest and other income 13 21
------ ------
2,457 2,634
Expenses:
Property operating expenses 641 663
Real estate taxes 472 426
Interest expense 86 207
Depreciation and amortization 855 824
------ ------
2,054 2,120
------ ------
Net income $ 403 $ 514
====== ======
Net income:
Partnership's share of combined income $ 313 $ 355
Co-venturers' share of combined income 90 159
------ ------
$ 403 $ 514
====== ======
Reconciliation of Partnership's Share of Operations
For the three months ended June 30, 1999 and 1998
(in thousands)
1999 1998
---- ----
Partnership's share of operations,
as shown above $ 313 $ 355
Amortization of excess basis (14) (14)
------ ------
Partnership's share of unconsolidated
ventures' net income $ 299 $ 341
====== ======
4. Operating Investment Properties
-------------------------------
The Partnership's balance sheet at March 31, 1999 included one operating
investment property (three at June 30, 1998) owned by a joint venture in which
the Partnership had a controlling interest: West Ashley Shoppes Associates. On
May 14, 1999, West Ashley Shoppes Associates sold the property known as West
Ashley Shoppes, located in Charleston, South Carolina, to an unrelated third
party for $8.1 million. In addition, on May 12, 1999, West Ashley Shoppes
Associates had sold an adjacent outparcel of land to another unrelated third
party for $280,000. The May 14 transaction involved the remaining real estate
owned by the joint venture. The Partnership received total net proceeds from the
two sale transactions of approximately $8,070,000 after deducting closing costs
of approximately $225,000 and net closing proration adjustments of approximately
$85,000. The Partnership distributed the net proceeds of the West Ashley Shoppes
sale transactions to the Limited Partners in the form of a special distribution
in the amount of approximately $60 per original $1,000 investment on June 15,
1999.
On November 20, 1998, Hacienda Park Associates, a joint venture in which
the Partnership had a controlling interest, sold the Hacienda Business Park
property to an unrelated third party for $25 million. The property consisted of
four separate office/R&D buildings comprising approximately 185,000 square feet,
located in Pleasanton, California. The Partnership received net proceeds of
approximately $20,861,000 after deducting closing costs of approximately
$278,000, net closing proration adjustments of approximately $89,000, the
repayment of the existing first mortgage note of approximately $3,769,000 and
accrued interest of approximately $3,000.
On December 21, 1998, Atlanta Asbury Partnership, a joint venture in which
the Partnership had a controlling interest, sold the Asbury Commons to an
unrelated third party for $13.345 million. The Asbury Commons Apartments is a
204-unit residential apartment complex located in Atlanta, Georgia. The
Partnership received net proceeds of approximately $5,613,000 after deducting
closing costs of approximately $291,000, closing proration adjustments of
approximately $90,000, the repayment of the existing mortgage note of
approximately $6,598,000, accrued interest of approximately $10,000 and a
prepayment penalty of approximately $743,000.
The Partnership's policy is to report the operations of the consolidated
joint ventures on a three-month lag. However, the Partnership's policy is also
to record significant lag-period transactions in the period in which they occur.
Accordingly, the Partnership accelerated the recognition of the operating
results of West Ashley Shoppes Associates during the quarter ended June 30, 1999
and recorded a gain of $2,665,000 on the sale of the operating investment
property.
5. Mortgage Notes Payable
-----------------------
Mortgage notes payable on the consolidated balance sheets of the
Partnership at June 30, 1999 and March 31, 1999 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,
2000. 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, 1999 and March 31, 1999 $ 9,092 $ 9,132
======== =======
On April 29, 1988, the Partnership borrowed $6,000,000 in the form of a
zero coupon loan secured by the 625 North Michigan Office Building which had a
scheduled maturity date in May of 1995. 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 but disputed whether the Partnership had complied with the terms of
the loan agreement regarding the 80% loan ratio. During the quarter ended June
30, 1994, an agreement was reached with the lender of the zero coupon loan on a
proposal to refinance the loan and resolve the outstanding disputes. The terms
of the agreement called for the Partnership to make a principal pay down of
$801,000, including the application of the additional collateral referred to
above. The maturity date of the loan, which now requires principal and interest
payments on a monthly basis as set forth above, was extended to May 31, 1999.
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. During the
quarter ended June 30, 1999, the Partnership negotiated a one-year extension of
the maturity date to May 31, 2000. The interest rate of 9.125% and monthly
interest payments of $83,000 remain unchanged. The Partnership paid an extension
fee of $46,000 to obtain the extension.
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 bore interest at 8.72% and was scheduled to mature in 7 years. As discussed
further in Note 3, The Gables Apartments was sold on July 2, 1998 and this
mortgage loan was repaid in full. On February 10, 1995, the Partnership repaid
an outstanding zero coupon loan secured by Gateway Plaza (formerly Loehmann's
Plaza), 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 Gateway
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 loan secured by
the Gateway Plaza property rests with the related unconsolidated joint venture.
Accordingly the mortgage loan liability is recorded on the books of the
unconsolidated joint venture. The Partnership has indemnified Daniel/Metcalf
Associates Partnership and the related co-venture partner against all
liabilities, claims and expenses associated with this borrowing.
<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, 1999 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 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. With regard to the two remaining commercial office and
retail properties, the Partnership is working with each property's leasing and
management team to develop and implement programs that will protect and enhance
value and maximize cash flow at each property while at the same time exploring
potential sale opportunities. Although there are no assurances, it is currently
contemplated that sales of the Partnership's remaining assets could be completed
by the end of calendar year 1999.
With the sale of the Asbury Commons Apartments, Hacienda Business Park and
The Gables Apartments properties during fiscal 1999 and the resulting reduction
in distributable cash flow to be received by the Partnership, the payment of a
regular quarterly distribution was discontinued beginning with the quarter ended
March 31, 1999. A final regular quarterly distribution of $2.21 per original
$1,000 investment was made on February 12, 1999 for the quarter ended December
31, 1998.
On May 14, 1999, West Ashley Shoppes Associates, a joint venture in which
the Partnership had an interest, sold the property known as West Ashley Shoppes,
located in Charleston, South Carolina, to an unrelated third party for $8.1
million. In addition, on May 12, 1999, West Ashley Shoppes Associates had sold
an adjacent outparcel of land to another unrelated third party for $280,000. The
May 14 transaction involved the remaining real estate owned by the joint
venture. The Partnership received total net proceeds from the two sale
transactions of approximately $8,070,000 after deducting closing costs of
approximately $225,000 and net closing proration adjustments of approximately
$85,000. In addition, the Partnership received final net cash flow from the
property of approximately $168,000 after the payment of final operating expenses
and the liquidation of the joint venture. As previously reported, with a strong
occupancy level and a stable base of tenants, the Partnership believed it was
the opportune time to sell West Ashley Shoppes. As part of a plan to market the
property for sale, the Partnership selected a national real estate firm that is
a leading seller of this property type. Preliminary sales materials were
prepared and initial marketing efforts were undertaken. A marketing package was
then finalized and comprehensive sale efforts began in November 1998. As a
result of these efforts, ten offers were received. After completing an
evaluation of those offers and the relative strength of the prospective
purchasers, the Partnership selected an offer. A purchase and sale agreement was
negotiated with an unrelated third-party prospective buyer and a non-refundable
deposit of $150,000 was made on January 29, 1999. This prospective buyer
completed its due diligence review work and the transaction closed on May 14,
1999, as described above. As a result of the sale of West Ashley Shoppes, the
Partnership made a Special Distribution of approximately $8,200,000, or $61 per
original $1,000 investment, on June 15, 1999 to unitholders of record on May 14,
1999. The Partnership recognized a gain of $2,665,000 during the quarter ended
June 30, 1999 in connection with the sale of the West Ashley Shoppes property.
With the sale of West Ashley Shoppes, the Partnership has two remaining
real estate investments which consist of joint venture interests in Gateway
Plaza and 625 North Michigan Avenue. Gateway Plaza Shopping Center is a 143,300
square foot retail property located in Overland Park (Kansas City), Kansas. As
previously reported, during fiscal 1999 the Partnership selected a national real
estate firm that is a leading seller of small retail centers to market the
Gateway Plaza property for sale. Preliminary sales materials were prepared and
initial marketing efforts were undertaken in March 1999. A marketing package was
then finalized and comprehensive sale efforts began in early April 1999. As of
April 30, 1999, several offers had been received. To reduce the prospective
buyer's due diligence work and the time required to complete it, updated
operating reports as well as environmental information on the property were
provided to the top prospective buyers, who were asked to submit best and final
offers. After completing an evaluation of these offers and the relative strength
of the prospective purchasers, the Partnership selected an offer and negotiated
a purchase and sale agreement in May 1999. However, subsequently the prospective
buyer decided to terminate the sales contract at the conclusion of its due
diligence period. The Partnership then decided to remarket the property in June
1999. By early July, 14 offers had been received. After completing an evaluation
of these offers and the relative strength of the prospective purchasers, the
Partnership selected an offer and subsequently negotiated a purchase and sale
agreement which was signed on July 21, 1999. However, since the sale transaction
remains contingent upon, among other things, satisfactory completion of the
buyer's due diligence, there are no assurances that the sale will be completed.
Gateway Plaza is under a contract for sale to this unrelated third-party
buyer for $13,550,000. The Partnership is expected to receive distributable net
sale proceeds of approximately $9,050,000 from the transaction after deducting
estimated closing costs and property proration adjustments of approximately
$500,000 and a deduction for the payment of the $4,000,000 first mortgage debt
secured by the property. If this potential sale transaction closes as described,
a Special Distribution of approximately $67.00 per original $1,000 investment is
expected to be paid to the Limited Partners by October 31, 1999.
The 625 North Michigan Office Building in Chicago, Illinois, was 92%
leased as of June 30, 1999, compared to 93% leased as of March 31, 1999. Over
the next year, eight leases representing a total of 12,939 square feet are
scheduled to expire. The property's leasing team expects that two of these
tenants occupying 3,547 square feet will renew, and that the remaining space
will be leased to new tenants. The property's leasing team continues to
negotiate with two prospective tenants that would lease a total of approximately
7,450 square feet. As previously reported, the local market continues to display
an improving trend. In this local market, where there is no current or planned
new construction of office space, the market vacancy level at June 30, 1999 has
been reduced to 8.6%, which places more upward pressure on rental rates. The
higher effective rents currently being achieved at 625 North Michigan Avenue are
expected to increase cash flow and value as new tenants sign leases and existing
tenants sign lease renewals in calendar year 1999. The Partnership has been
actively working with the co-venture partner on potential redevelopment and
leasing opportunities with specialty and fashion retailers looking to locate
stores near the building. These retailers pay significantly higher rental rates
than office rental rates. Formal approval received from the City Council during
fiscal 1999 to enclose the arcade sections of the first floor will greatly
improve the chances of adding a major retail component to the building's North
Michigan Avenue frontage. Now that this approval has been obtained, the
Partnership is simultaneously exploring potential opportunities to sell this
property with the development rights. Subsequent to the quarter ended June 30,
1999, the Partnership selected a real estate brokerage firm to market the 625
North Michigan property for sale. Materials for the marketing packages are
currently being finalized and comprehensive sale efforts are expected to begin
by September 30, 1999.
At June 30, 1999, the Partnership and its consolidated joint ventures had
available cash and cash equivalents of approximately $6,671,000. Such cash and
cash equivalents will be utilized for the working capital requirements of the
Partnership and, as necessary, for the capital needs of the Partnership's two
remaining commercial properties. 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.
As noted above, the Partnership expects to be liquidated prior to the end
of calendar 1999. Notwithstanding this, the Partnership believes that it has
made all necessary modifications to its existing systems to make them year 2000
compliant and does not expect that additional costs associated with year 2000
compliance, if any, will be material to the Partnership's results of operations
or financial position.
Results of Operations
Three Months Ended June 30, 1999
- --------------------------------
The Partnership reported net income of $2,781,000 for the three months
ended June 30, 1999 as compared to net income of $140,000 for the same period in
the prior year. The increase in net income was primarily a result of the gain
realized from the sale of the operating investment property owned by the
consolidated West Ashley Shoppes joint venture during the current period. As
discussed further above, the Partnership sold the consolidated West Ashley
Shoppes property on May 14, 1999. Due to the Partnership's policy of recognizing
significant lag-period transactions in the period in which they occur, the
Partnership accelerated the recognition of the operating results of the West
Ashley Shoppes joint venture during the quarter ended June 30, 1999 and realized
a gain of $2,665,000 in connection with the sale of the operating investment
property. In addition, the Partnership's operating loss decreased by $18,000
during the current three-month period. The decrease in the Partnership's
operating loss was primarily a result of the sale of the consolidated Hacienda
Park and Asbury Commons operating investment properties, whose operating results
were included in the prior period operating loss.
The gain on the sale of West Ashley Shoppes and the decrease in the
Partnership's operating loss were partially offset by a decrease in the
Partnership's share of unconsolidated ventures' income for the current
three-month period. The Partnership's share of unconsolidated ventures' income
decreased by $42,000 for the three months ended June 30, 1999 when compared to
the same period in the prior year. This decrease was primarily due to a decrease
in net income at the 625 North Michigan and Gateway Plaza properties. Net income
decreased at 625 North Michigan mainly due to an increase in repairs and
maintenance expense and real estate taxes. The decrease in net income at Gateway
Plaza was primarily due to an increase in depreciation expense.
<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:
A Current Report on Form 8-K dated May 14, 1999 was filed during the
current quarter to report the sale of the West Ashley Shoppes property and is
hereby incorporated herein by reference.
<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 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended June 30, 1999
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-31-2000
<PERIOD-END> Jun-30-1999
<CASH> 6,671
<SECURITIES> 0
<RECEIVABLES> 232
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,905
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,332
<CURRENT-LIABILITIES> 128
<BONDS> 9,092
0
0
<COMMON> 0
<OTHER-SE> 25,112
<TOTAL-LIABILITY-AND-EQUITY> 34,332
<SALES> 0
<TOTAL-REVENUES> 3,553
<CGS> 0
<TOTAL-COSTS> 564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208
<INCOME-PRETAX> 2,781
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,781
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,781
<EPS-BASIC> 20.47
<EPS-DILUTED> 20.47
</TABLE>
