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 December 31, 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
December 31, 1999 and March 31, 1999 (Unaudited)
(In thousands)
ASSETS
December 31 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 17,171 27,774
Cash and cash equivalents 6,231 6,181
Accounts receivable - 346
Prepaid expenses - 6
Deferred rent receivable - 135
Deferred expenses, net of accumulated amortization - 58
Other assets - 17
-------- ---------
$ 23,402 $ 39,989
======== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 93 $ 170
Net advances from consolidated ventures - 156
Mortgage note payable 9,011 9,132
Partners' capital 14,298 30,531
-------- ---------
$ 23,402 $ 39,989
======== =========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and nine ended December 31, 1999 and 1998 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental income and expense
reimbursements $ - $ 2,102 $ 439 $ 4,725
Interest and other income 114 227 364 513
------ ------- ------- -------
114 2,329 803 5,238
Expenses:
Interest expense 206 1,436 621 2,392
Depreciation and amortization - 693 192 1,744
Property operating expenses - 633 197 1,267
Real estate taxes - 197 62 470
General and administrative 305 194 627 452
------ ------- ------- -------
511 3,153 1,699 6,325
------ ------- ------- -------
Operating loss (397) (824) (896) (1,087)
Gain on sales of operating
investment properties - 10,456 2,665 10,456
Consolidated venture partners'
share of operations - (331) - (331)
Partnership's share of gain on
sale of unconsolidated operating
investment property - - 75 5,848
Partnership's share of
unconsolidated ventures'
income (losses) 120 194 (198) 396
------ ------- ------- -------
Net income (loss) $ (277) $ 9,495 $ 1,646 $15,282
====== ======= ======= =======
Per 1,000 Limited Partnership Units:
Net income (loss) $(2.04) $ 69.93 $ 12.12 $112.55
====== ======= ======= =======
Cash distributions $72.00 $147.21 $133.00 $190.63
====== ======= ======= =======
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 nine months ended December 31, 1999 and 1998 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1998 $ (554) $ 50,304
Cash distributions (9) (25,626)
Net income 152 15,130
-------- ---------
Balance at December 31, 1998 $ (411) $ 39,808
======== =========
Balance at March 31, 1999 $ (436) $ 30,967
Cash distributions - (17,879)
Net income 17 1,629
-------- ---------
Balance at December 31, 1999 $ (419) $ 14,717
======== =========
See accompanying notes.
<PAGE>
<TABLE>
PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 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 $ 1,646 $ 15,282
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gains on sale of operating investment properties (2,665) (10,456)
Consolidated venture partners' share of operations - 331
Partnership's share of gain on sale of unconsolidated operating
investment property (75) (5,848)
Partnership's share of unconsolidated ventures' income (losses) 198 (396)
Depreciation and amortization 192 1,744
Changes in assets and liabilities:
Escrowed cash - 322
Accounts receivable 346 (63)
Prepaid expenses 6 29
Deferred rent receivable - 62
Deferred expenses - (588)
Accounts payable and accrued expenses (77) (79)
Advances from consolidated ventures (156) 39
Tenant security deposits - (111)
--------- --------
Total adjustments (2,231) (15,014)
--------- --------
Net cash (used in) provided by operating activities (585) 268
--------- --------
Cash flows from investing activities:
Net proceeds from sales of operating investment properties 8,155 37,776
Distributions from unconsolidated ventures 10,680 7,238
Additional investments in unconsolidated ventures (200) (991)
Additions to operating investment properties - (1,862)
--------- --------
Net cash provided by investing activities 18,635 42,161
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Cash flows from financing activities:
Distributions to partners (17,879) (25,635)
Repayment of principal on bonds - (146)
Repayment of principal on long term debt (121) (10,198)
--------- --------
Net cash used in financing activities (18,000) (35,979)
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Net increase in cash and cash equivalents 50 6,450
Cash and cash equivalents, beginning of period 6,181 6,202
--------- --------
Cash and cash equivalents, end of period $ 6,231 $ 12,652
========= ========
Cash paid during the period for interest $ 621 $ 2,392
========= ========
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 December 31, 1999 and March 31, 1999 and revenues and
expenses for each of the three- and nine-month periods ended December 31, 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. Initial sale efforts began during the quarter ended December 31,
1999. As discussed further in Note 3, the property is currently under contract
for sale to an affiliate of the Partnership's co-venture partner. A sale
transaction is expected to close in late March or early April 2000. While no
assurances can be given, management currently expects the liquidation of the
Partnership to be completed during the second quarter of calendar year 2000.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the nine months ended
December 31, 1999 and 1998 is $183,000 and $176,000, 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 nine-month
periods ended December 31, 1999 and 1998 is $14,000 and $11,000, 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 December 31, 1999, the Partnership had an investment in one
unconsolidated joint venture partnership (three at March 31, 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. Under the
equity method, the assets, liabilities, revenues and expenses of the
unconsolidated joint ventures do not appear in the Partnership's financial
statements. Instead, the investments are carried at cost adjusted for the
Partnership's share of each venture's earnings, losses and distributions. The
Partnership reports its share of unconsolidated joint venture earnings or losses
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.
On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint
venture in which 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 recorded a gain of $75,000 on the sale of the unconsolidated
operating investment property.
As of December 31, 1999, the Partnership retains a joint venture interest
in one operating property, the 625 North Michigan Office Building. As discussed
in Note 1, the Partnership is currently focusing on potential disposition
strategies for the remaining investment in its portfolio. During the quarter
ended September 30, 1999, the Partnership selected a real estate brokerage firm
to market the 625 North Michigan Avenue property for sale. Materials for the
marketing packages for the 625 North Michigan property were finalized and
initial sale efforts began during the quarter ended December 31, 1999. 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. All of the best and final offers received were substantially in
excess of the property's 1998 year-end estimated value. The highest bidder was
an affiliate of the Partnership's co-venture partner in the 625 North Michigan
joint venture. After completing an evaluation of the offers and the relative
strength of the prospective purchasers, the Partnership chose to negotiate a
purchase and sale agreement with the affiliate of the co-venturer, which was
signed on January 13, 2000. The prospective buyer has made a deposit of $400,000
in connection with the transaction and completed its due diligence as of
February 3, 2000. The prospective buyer has until February 14, 2000 to secure
its financing for the transaction, at which time an additional deposit of
$600,000 is required and the entire deposit becomes non-refundable. While no
assurances can be given, the transaction is expected to close in late March or
early April 2000. The sale of the Partnership's interest in the 625 North
Michigan joint venture would be followed by an orderly liquidation of the
Partnership.
Summarized operations of the unconsolidated joint ventures, for the
periods indicated, are as follows.
Condensed Combined Summary of Operations
For the three and nine months ended September 30, 1999 and 1998 (in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Rental revenues and expense
recoveries $ 1,902 $ 2,298 $ 6,947 $ 7,518
Interest and other income 3 9 45 61
------- ------- ------- -------
1,905 2,307 6,992 7,579
Expenses:
Property operating expenses 606 765 2,134 2,161
Real estate taxes 467 561 1,727 1,551
Interest expense - 91 642 923
Depreciation and amortization 606 672 2,503 2,399
------- ------- ------- -------
1,679 2,089 7,006 7,034
------- ------- ------- -------
Operating income (loss) 226 218 (14) 545
Gain (loss) on sales of
operating investment properties - - (13) 6,433
------- ------- ------- -------
Net income (loss) $ 226 $ 218 $ (27) $ 6,978
======= ======= ======= =======
Net income (loss):
Partnership's share of
combined income $ 133 $ 211 $ 28 $ 6,289
Co-venturers' share of
combined income (loss) 93 7 (55) 689
------- ------- ------- -------
$ 226 $ 218 $ (27) $ 6,978
======= ======= ======= =======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and nine months ended December 31, 1999 and 1998
(in thousands)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of
operations, as shown above $ 133 $ 211 $ 28 $ 6,289
Amortization of excess basis (13) (17) (151) (45)
------- ------- ------ -------
Partnership's share of
unconsolidated ventures'
net income (loss) $ 120 $ 194 $ (123) $ 6,244
======= ======= ====== =======
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 Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of
unconsolidated ventures'
income (losses) $ 120 $ 194 $ (198) $ 396
Partnership's share of gains
on sales of unconsolidated
operating investment
properties - - 75 5,848
------- ------ ------ -------
$ 120 $ 194 $ (123) $ 6,244
======= ====== ====== =======
4. Operating Investment Properties
-------------------------------
The Partnership's balance sheet at March 31, 1999 included one operating
investment property (three at March 31, 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 $61 per original $1,000 investment, on June 15, 1999. The
Partnership 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 Apartments
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.
<PAGE>
5. Mortgage Note Payable
---------------------
Mortgage note payable on the consolidated balance sheets of the Partnership
at December 31, 1999 and March 31, 1999 consists of the following (in
thousands):
December 31 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 in May 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 December 31,
1999 and March 31, 1999. $ 9,011 $ 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 sales of the Gateway Plaza and West Ashley Shoppes
properties on September 28, 1999 and May 14, 1999, respectively, 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. During the prior quarter,
the Partnership selected a real estate brokerage firm to market the 625 North
Michigan Avenue property for sale. Materials for the marketing packages were
finalized and initial sale efforts began during the quarter ended December 31,
1999. As discussed further below, the property is currently under contract for
sale to an affiliate of the Partnership's co-venture partner. A sale transaction
is expected to close in late March or early April 2000. While no assurances can
be given, management currently expects the liquidation of the Partnership to be
completed during the second quarter of calendar year 2000.
On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint
venture in which 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 95%
leased as of December 31, 1999, compared to 91% leased as of September 30, 1999.
During the third quarter of fiscal 2000, one tenant leasing a total of 10,858
square feet signed a new short-term lease and took occupancy. In addition, an
existing tenant expanded its leased space by 6,395 square feet. This new leasing
was partially offset when three tenants occupying a total of 4,354 square feet
moved from the building. Over the next year, 3 leases representing a total of
approximately 10,000 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, and the third 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. Once
this approval was obtained, the Partnership began exploring potential
opportunities to sell this property with the development rights.
As previously reported, during the quarter ended September 30, 1999 the
Partnership selected a real estate brokerage firm to market the 625 North
Michigan Avenue property for sale. Materials for the marketing packages for the
625 North Michigan property were finalized and initial sale efforts began during
the quarter ended December 31, 1999. 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. All of the
best and final offers received were substantially in excess of the property's
1998 year-end estimated value. The highest bidder was an affiliate of the
Partnership's co-venture partner in the 625 North Michigan joint venture. After
completing an evaluation of the offers and the relative strength of the
prospective purchasers, the Partnership chose to negotiate a purchase and sale
agreement with the affiliate of the co-venturer, which was signed on January 13,
2000. The prospective buyer has made a deposit of $400,000 in connection with
the transaction and completed its due diligence as of February 3, 2000. The
prospective buyer has until February 14, 2000 to secure its financing for the
transaction, at which time an additional deposit of $600,000 is required and the
entire deposit becomes non-refundable. While no assurances can be given, the
transaction is expected to close in late March or early April 2000. The sale of
the Partnership's interest in the 625 North Michigan joint venture would be
followed by an orderly liquidation of the Partnership.
At December 31, 1999, the Partnership had available cash and cash
equivalents of approximately $6,231,000. Such cash and cash equivalents, along
with the future cash flow distributions from the remaining operating property,
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.
Results of Operations
Three Months Ended December 31, 1999
- ------------------------------------
The Partnership reported a net loss of $277,000 for the three months ended
December 31, 1999, as compared to net income of $9,495,000 for the same period
in the prior year. This unfavorable change in net income (loss) was primarily a
result of the gains of $10,456,000 realized from the sale of two consolidated
operating investment properties during the prior period. The Partnership sold
the consolidated Hacienda Business Park on November 20, 1998 and realized a gain
of $9,051,000. The Partnership sold the consolidated Asbury Commons Apartments
on December 21, 1998 and realized a gain of $1,405,000. In addition, the
Partnership's share of unconsolidated ventures' income decreased by $74,000
during the current three-month period. The Partnership's share of unconsolidated
ventures' income decreased primarily due to the sale of Gateway Plaza. The prior
period includes net income from Gateway Plaza of $196,000. This decrease in net
income from Gateway Plaza was partially offset by an increase in net income at
625 North Michigan of $120,000 mainly due to an increase in rent escalation
revenues.
The decrease in gains on sale of operating investment properties and the
decrease in the Partnership's share of unconsolidated ventures' income were
partially offset by a decrease in the Partnership's operating loss of $427,000.
The decrease 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. The consolidated expenses decreased by $2,561,000
while rental income decreased by $2,102,000 as a result of the sales.
Nine Months Ended December 31, 1999
- -----------------------------------
The Partnership reported net income of $1,646,000 for the nine months ended
December 31, 1999 as compared to net income of $15,282,000 for the same period
in the prior year. The decrease in net income of $13,636,000 was primarily a
result of the gains realized from the sale of three operating investment
properties during the prior period. The Partnership sold the consolidated
Hacienda Business Park on November 20, 1998 and realized a gain of $9,051,000.
In addition, the Partnership sold the consolidated Asbury Commons Apartments on
December 21, 1998 and realized a gain of $1,405,000. The Partnership also
realized a gain of $5,848,000 in connection with the sale of the unconsolidated
Gables Apartments during the nine months ended December 31, 1998. The gains
realized from the sales of the three operating investment properties 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 nine-month period. In addition, there was an unfavorable
change in the Partnership's share of unconsolidated ventures' income (losses) of
$594,000 during the current nine-month period. The unfavorable change in the
Partnership's share of unconsolidated ventures' income (losses) was primarily
due to declines 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.
The decrease in gains on sale of operating investment properties and the
unfavorable change in the Partnership's share of unconsolidated ventures' income
(losses) were partially offset by a decrease in the Partnership's operating loss
of $191,000. The decrease in the Partnership's operating loss was primarily a
result of the sales 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. The consolidated expenses decreased
by $4,718,000 while rental income decreased by $4,286,000 as a result of the
sales. The decrease in operating loss resulting from the sale of the three
consolidated properties in the prior period was partially offset by an increase
in general and administrative expenses of $175,000. The higher general and
administrative expenses were the result of an increase in certain required
professional services for the current nine-month period.
<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:
NONE
<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: February 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Partnership's unaudited financial statements for the quarter ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-END> Dec-31-1999
<CASH> 6,231
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,231
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,402
<CURRENT-LIABILITIES> 93
<BONDS> 9,011
0
0
<COMMON> 0
<OTHER-SE> 14,298
<TOTAL-LIABILITY-AND-EQUITY> 23,402
<SALES> 0
<TOTAL-REVENUES> 3,543
<CGS> 0
<TOTAL-COSTS> 1,078
<OTHER-EXPENSES> 198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621
<INCOME-PRETAX> 1,646
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,646
<EPS-BASIC> 12.12
<EPS-DILUTED> 12.12
</TABLE>
