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 September 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
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(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
September 30, 1999 and March 31, 1999 (Unaudited)
(In thousands)
ASSETS
September 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 17,400 27,774
Cash and cash equivalents 15,798 6,181
Accounts receivable 220 346
Prepaid expenses 2 6
Deferred rent receivable - 135
Deferred expenses, net of accumulated
amortization - 58
Other assets - 17
--------- ---------
$ 33,420 $ 39,989
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 114 $ 170
Net advances from consolidated ventures - 156
Mortgage notes payable 9,052 9,132
Partners' capital 24,254 30,531
--------- ---------
$ 33,420 $ 39,989
========= =========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and six ended September 30, 1999 and 1998 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental income and expense
reimbursements $ - $ 1,367 $ 439 $ 2,623
Interest and other income 100 173 250 286
------ ------- ------- -------
100 1,540 689 2,909
Expenses:
Interest expense 207 479 415 956
Depreciation and amortization - 529 192 1,051
Property operating expenses - 319 197 634
Real estate taxes - 137 62 273
General and administrative 209 138 322 258
------ ------- ------- -------
416 1,602 1,188 3,172
------ ------- ------- -------
Operating loss (316) (62) (499) (263)
Gain on sale of operating
investment property - - 2,665 -
Partnership's share of gains
on sales of unconsolidated
operating investment
properties 75 5,848 75 5,848
Partnership's share of
unconsolidated ventures'
income (losses) (617) (139) (318) 202
------ ------- ------- -------
Net income (loss) $ (858) $ 5,647 $ 1,923 $ 5,787
====== ======= ======= =======
Per 1,000 Limited Partnership Units:
Net income (loss) $(6.31) $ 41.59 $ 14.16 $ 42.62
====== ======= ======= =======
Cash distributions $ - $ 41.21 $ 61.00 $ 43.42
====== ======= ======= =======
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 six months ended September 30, 1999 and 1998 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1998 $ (554) $ 50,304
Cash distributions (6) (5,837)
Net income 58 5,729
-------- ---------
Balance at September 30, 1998 $ (502) $ 50,196
======== =========
Balance at March 31, 1999 $ (436) $ 30,967
Cash distributions - (8,200)
Net income 20 1,903
-------- ---------
Balance at September 30, 1999 $ (416) $ 24,670
========= =========
See accompanying notes.
<PAGE>
<TABLE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1999 and 1998 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,923 $ 5,787
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 gains on sales of operating
investment properties (75) (5,848)
Partnership's share of unconsolidated ventures' income (losses 318 (202)
Depreciation and amortization 192 1,051
Amortization of deferred financings costs - 14
Changes in assets and liabilities:
Escrowed cash - (213)
Accounts receivable 126 13
Prepaid expenses 4 28
Deferred rent receivable - 51
Deferred expenses - (52)
Accounts payable and accrued expenses (56) 143
Advances from consolidated ventures (156) (907)
Tenant security deposits - (24)
--------- --------
Total adjustments (2,312) (5,946)
--------- --------
Net cash used in operating activities (389) (159)
--------- --------
Cash flows from investing activities:
Net proceeds from sale of operating investment property 8,155 -
Distributions from unconsolidated ventures 10,308 6,445
Additional investments in unconsolidated ventures (177) (652)
Additions to operating investment properties - (366)
--------- --------
Net cash provided by investing activities 18,286 5,427
--------- --------
Cash flows from financing activities:
Distributions to partners (8,200) (5,843)
Repayment of principal on long term debt (80) (203)
--------- --------
Net cash used in financing activities (8,280) (6,046)
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Net increase (decrease) in cash and cash equivalents 9,617 (778)
Cash and cash equivalents, beginning of period 6,181 6,202
--------- --------
Cash and cash equivalents, end of period $ 15,798 $ 5,424
========= ========
Cash paid during the period for interest $ 415 $ 942
========= ========
See accompanying notes.
</TABLE>
<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 September 30, 1999 and March 31, 1999 and revenues and
expenses for each of the three-and six-month periods ended September 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). On September 28, 1999, Daniel/Metcalf
Associates Partnership, a joint venture in which the Partnership had an
interest, sold the Gateway Plaza property (see Note 3). After these sale
transactions, the Partnership retains a joint venture interest in one operating
property, the 625 North Michigan Office Building. The Partnership is currently
focusing on potential disposition strategies for the remaining investment in its
portfolio. Materials for the marketing packages for the 625 North Michigan
property have been finalized and initial sale efforts are currently underway.
While the Partnership expects to have the 625 North Michigan Avenue property
under a contract for sale before December 31, 1999, it is unlikely that both a
sale of the property and a subsequent liquidation of the Partnership can be
completed by December 31, 1999. While no assurances can be given, management
currently expects the liquidation of the Partnership to be completed by March
31, 2000.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the three months ended
September 30, 1999 and 1998 is $120,000 and $116,000, 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 September 30, 1999 and 1998 is $4,000 and $8,000, 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 September 30, 1999, the Partnership had an investment in one
unconsolidated joint venture partnership (two at September 30, 1998) which owns
an operating investment property 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.
On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint
venture in the Partnership had an interest, sold the property known as Gateway
Plaza, located in Overland Park, Kansas, to an unrelated third party, for $13.55
million. The Partnership received net proceeds of approximately $8,950,000 after
deducting closing costs of approximately $214,000, closing proration adjustments
of approximately $344,000 and the repayment of the existing mortgage note of
approximately $4,042,000. The Partnership received 100% of the sale proceeds in
accordance with the joint venture agreement. The Partnership made a special
distribution to the Limited Partners totalling approximately $9,679,000, or $72
per original $1,000 investment, on October 15, 1999. Of the $72.00 total, $66.58
resulted from the sale of Gateway Plaza and $5.42 was from Partnership reserves
which exceeded expected future requirements. The Partnership's policy is to
recognize its share of ventures' operations three months in arrears. However,
the Partnership's policy is also to record significant lag-period transaction in
the period in which they occur. Accordingly, the Partnership accelerated the
recognition of the operating results of Daniel Metcalf Associates Partnership
during the quarter ended September 30, 1999 and recorded a gain of $75,000 on
the sale of the operating investment property.
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.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows.
Condensed Combined Summary of Operations
For the three and six months ended June 30, 1999 and 1998
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental revenues and expense
recoveries $ 2,601 $ 2,607 $ 5,045 $ 5,220
Interest and other income 29 31 42 52
------- ------- ------- -------
2,630 2,638 5,087 5,272
Expenses:
Property operating expenses 887 733 1,528 1,396
Real estate taxes 788 564 1,260 990
Interest expense 556 625 642 832
Depreciation and amortization 1,042 903 1,897 1,727
------- ------- ------- -------
3,273 2,825 5,327 4,945
------- ------- ------- -------
Operating income (loss) (643) (187) (240) 327
Gain (loss) on sale of operating
investment property (13) 6,433 (13) 6,433
------- ------- ------- -------
Net income (loss) $ (656) $ 6,246 $ (253) $ 6,760
======= ======= ======== =======
Net income (loss):
Partnership's share of
combined income (loss) $ (418) $ 5,723 $ (105) $ 6,078
Co-venturers' share of
combined income (loss) (238) 523 (148) 682
------ ------- ------- -------
$ (656) $ 6,246 $ (253) $ 6,760
====== ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and six months ended September 30, 1999 and 1998
(in thousands)
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of
operations, as shown above $ (418) $ 5,723 $ (105) $ 6,078
Amortization of excess basis (124) (14) (138) (28)
------ ------- ------ -------
Partnership's share of
unconsolidated ventures'
net income (loss) $ (542) $ 5,709 $ (243) $ 6,050
====== ======= ====== =======
<PAGE>
The Partnership's share of the net income (loss) of the unconsolidated
joint ventures is presented as follows in the accompanying statements of
operations (in thousands):
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of
unconsolidated ventures'
income (losses) $ (617) $ (139) $ (318) $ 202
Partnership's share of gains
on sales of unconsolidated
operating investment
properties 75 5,848 75 5,848
------- ------- ------ ------
$ (542) $ 5,709 $ (243) $6,050
====== ======= ====== ======
4. Operating Investment Properties
-------------------------------
The Partnership's balance sheet at March 31, 1999 included one operating
investment property (three at September 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. 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.
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.
5. Mortgage Notes Payable
----------------------
Mortgage notes payable on the consolidated balance sheets of the
Partnership at September 30, 1999 and March 31, 1999 consist of the following
(in thousands):
September 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
September 30, 1999 and March 31, 1999 $ 9,052 $ 9,132
========= =========
<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
- -------------------------------
Subsequent to the sale of the Gateway Plaza property on September 28,
1999, as discussed further below, the Partnership's only remaining real estate
investment is a joint venture interest in the 625 North Michigan Office
Building. As previously reported, management is currently focusing on potential
disposition strategies for the remaining investment in the Partnership's
portfolio. With regard to the remaining commercial office property, the
Partnership is working with the property's leasing and management team to
develop and implement programs that will protect and enhance value and maximize
cash flow at the property while at the same time exploring potential sale
opportunities. The Partnership has recently selected a real estate brokerage
firm to market the 625 North Michigan Avenue property for sale. Materials for
the marketing packages have been finalized and initial sale efforts are
currently underway. While the Partnership expects to have the 625 North Michigan
Avenue property under a contract for sale before December 31, 1999, it is
unlikely that both a sale of the property and a subsequent liquidation of the
Partnership can be completed by December 31, 1999. While no assurances can be
given, management currently expects the liquidation of the Partnership to be
completed by March 31, 2000.
On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint
venture in the Partnership had an interest, sold the property known as Gateway
Plaza, located in Overland Park, Kansas, to an unrelated third party, for $13.55
million. The Partnership received net proceeds of approximately $8,950,000 after
deducting closing costs of approximately $214,000, closing proration adjustments
of approximately $344,000 and the repayment of the existing mortgage note of
approximately $4,042,000. The Partnership received 100% of the sale proceeds in
accordance with the joint venture agreement. The Partnership made a special
distribution to the Limited Partners totalling approximately $9,679,000, or $72
per original $1,000 investment, on October 15, 1999. Of the $72.00 total, $66.58
resulted from the sale of Gateway Plaza and $5.42 was from Partnership reserves
which exceeded expected future requirements. The Partnership recognized a gain
of $75,000 during the quarter ended September 30, 1999 in connection with the
sale of the Gateway Plaza property.
As previously reported, preliminary marketing materials were prepared and
initial sale efforts for Gateway Plaza Shopping Center were undertaken in March
1999. A marketing package was then finalized and comprehensive sale efforts
began in early April 1999. By July 7, 1999, 14 offers were 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
then negotiated a purchase and sale agreement which was signed on July 21, 1999.
The prospective buyer completed its due diligence review work on August 23, 1999
and subsequently made a non-refundable deposit of $250,000. The sale transaction
closed on September 28, 1999 after the prospective buyer secured its financing.
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.
The 625 North Michigan Office Building in Chicago, Illinois, was 91%
leased as of September 30, 1999, compared to 92% leased as of June 30, 1999.
During the second quarter of fiscal 2000, two tenants leasing a total of 12,913
square feet renewed their leases. In addition, two new tenants signed leases and
took occupancy on 2,909 square feet of space. This new leasing was offset when
three tenants occupying a total of 7,530 square feet moved from the building.
Over the next year, 6 leases representing a total of approximately 14,350 square
feet will expire. Two of these leases representing 3,000 square feet will not be
renewed because that space is included in the retail redevelopment plan; three
tenants representing 4,350 square feet will close their operations, and the
sixth tenant currently expects to move from the building when its lease for
7,000 square feet expires on August 31, 2000. The property's leasing team
continues to negotiate with several prospective tenants which have expressed an
interest in leasing space at 625 North Michigan Avenue. As previously reported,
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.
At September 30, 1999, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately $15,798,000. This
balance includes the distribution of $9,679,000 made on October 15, 1999 as a
result of the sale of the Gateway Plaza property, as discussed further above.
The remainder of 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 one remaining commercial property. 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
property and proceeds received from the sale or refinancing of such property.
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, it is possible, although not likely, that the Partnership
could 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 September 30, 1999
- -------------------------------------
The Partnership reported a net loss of $858,000 for the three months ended
September 30, 1999 as compared to net income of $5,647,000 for the same period
in the prior year. This unfavorable change in net income (loss) was primarily a
result of the Partnership's share of the gain realized from the sale of The
Gables at Erin Shades Apartments during the prior period. 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 Gables at Erin Shades Apartments joint venture during
the quarter ended September 30, 1998 and realized a gain of $5,848,000 in
connection with the sale of the operating investment property. The Partnership's
share of the gain realized on the sale of The Gables at Erin Shades Apartments
of $5,848,000 during the prior period exceeded the Partnership's share of the
gain realized on the sale of the Gateway Plaza property of $75,000 during the
current three-month period.
In addition, the Partnership's operating loss increased by $254,000 and
the Partnership's share of unconsolidated ventures' losses increased by $478,000
during the current three-month period. The increase in the Partnership's
operating loss was primarily a result of the sale of the consolidated West
Ashley Shoppes, Hacienda Park and Asbury Commons operating investment
properties, whose operating results were included in the prior period operating
loss. In addition, general and administrative expenses increased by $71,000 for
the current three-month period mainly due to higher legal expenses incurred in
connection with the Partnership's liquidation efforts. The Partnership's share
of unconsolidated ventures' losses increased primarily due to a decrease in net
income at the 625 North Michigan and Gateway Plaza joint ventures. Net income
decreased at 625 North Michigan mainly due to increases in repairs and
maintenance expense and real estate taxes. The decrease in net income at Gateway
Plaza was primarily due to a prepayment penalty of $373,000 recognized upon the
payoff of the debt secured by Gateway Plaza at the time of the sale of the
property.
Six Months Ended September 30, 1999
- -----------------------------------
The Partnership reported net income of $1,923,000 for the six months ended
September 30, 1999 as compared to net income of $5,787,000 for the same period
in the prior year. The decrease in net income of $3,864,000 was primarily a
result of the Partnership's share of the gain realized from the sale of The
Gables at Erin Shades Apartments during the prior period. 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 Gables at Erin Shades Apartments joint venture during
the quarter ended September 30, 1998 and realized a gain of $5,848,000 in
connection with the sale of the operating investment property. The Partnership's
share of the gain realized on the sale of The Gables at Erin Shades Apartments
of $5,848,000 during the prior period exceeded the gain realized on the sale of
the consolidated West Ashley Shoppes property of $2,665,000 and the
Partnership's share of the gain realized on the sale of the unconsolidated
Gateway Plaza property of $75,000 during the current six-month period.
In addition, the Partnership's operating loss increased by $236,000 and
the Partnership's share of unconsolidated ventures' income (losses) declined by
$520,000 during the current six-month period. The increase in the Partnership's
operating loss was primarily a result of the sale of the consolidated West
Ashley Shoppes, Hacienda Park and Asbury Commons operating investment
properties, whose operating results were included in the prior period operating
loss. In addition, general and administrative expenses increased by $64,000 for
the current six-month period mainly due to higher legal expenses incurred in
connection with the Partnership's liquidation efforts. The unfavorable change in
the Partnership's share of unconsolidated ventures' income (losses) was
primarily due to a decrease in net income at the 625 North Michigan and Gateway
Plaza joint ventures. Net income decreased at 625 North Michigan mainly due to
increases in repairs and maintenance expense and real estate taxes. The decrease
in net income at Gateway Plaza was primarily due to a prepayment penalty of
$373,000 recognized upon the payoff of the debt secured by Gateway Plaza at the
time of the sale of the property.
<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 September 28, 1999 was filed during the
current quarter to report the sale of the Gateway Plaza 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: November 12, 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 September 30,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-END> Sep-30-1999
<CASH> 15,798
<SECURITIES> 0
<RECEIVABLES> 220
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,020
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,420
<CURRENT-LIABILITIES> 114
<BONDS> 9,052
0
0
<COMMON> 0
<OTHER-SE> 24,254
<TOTAL-LIABILITY-AND-EQUITY> 33,420
<SALES> 0
<TOTAL-REVENUES> 3,429
<CGS> 0
<TOTAL-COSTS> 773
<OTHER-EXPENSES> 318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 415
<INCOME-PRETAX> 1,923
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,923
<EPS-BASIC> 14.16
<EPS-DILUTED> 14.16
</TABLE>
