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
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SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
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 : 0-17881
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Virginia 04-2985890
(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 THREE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and March 31, 1995 (Unaudited)
(In thousands)
ASSETS
December 31 March 31
Operating investment properties, at cost:
Land $ 4,195 $ 3,720
Buildings and improvements 14,180 9,446
-------- --------
18,375 13,166
Less accumulated depreciation (3,278) (1,811)
-------- --------
15,097 11,355
Investments in unconsolidated joint
ventures, at equity 15,544 24,930
Cash and cash equivalents 3,143 3,824
Accounts receivables, net 73 64
Accounts receivable - affiliates 7 7
Prepaid expenses 23 7
Deferred expenses, net 281 146
-------- --------
$ 34,168 $ 40,333
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Notes payable and accrued interest $11,068 $16,707
Accounts payable and accrued expenses 116 38
Tenant security deposits 13 9
Advances from consolidated ventures 279 158
Total partners' capital 22,692 23,421
-------- --------
$34,168 $40,333
======= =======
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended December 31, 1995 and 1994 (Unaudited)
(In thousands)
General Limited
Partner Partners
Balance at March 31, 1994 $(181) $26,213
Cash distributions (15) (1,514)
Net loss (6) (558)
------ -------
Balance at December 31, 1994 $(202) $24,141
===== =======
Balance at March 31, 1995 $(208) $23,629
Cash distributions (7) (757)
Net income - 35
----- -------
Balance at December 31, 1995 $(215) $22,907
===== =======
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 1995 and 1994 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Rental income and expense
reimbursements $ 549 $ 330 $1,636 $ 988
Interest income 58 28 189 64
----- ----- ------ ------
607 358 1,825 1,052
Expenses:
Interest expense 365 475 1,376 1,394
Property operating expenses 113 41 340 97
Real estate taxes 41 18 117 52
General and administrative 88 110 255 268
Depreciation and amortization 104 107 386 326
------- ------- ------ ------
711 751 2,474 2,137
------- ------- ------- -------
Operating loss (104) (393) (649) (1,085)
Partnership's share of
unconsolidated
ventures' income (losses) (10) 183 684 521
------- ------ --------- -------
Net income (loss) $(114) $ (210) $ 35 $ (564)
===== ====== ========= ======
Net income (loss) per
Limited Partnership Unit $(2.23) $(4.12) $ 0.69 $(11.06)
====== ====== ====== =======
Cash distributions per
Limited Partnership Unit $ 7.50 $ 5.00 $15.00 $ 30.00
====== ======= ====== =======
The above per Limited Partnership Unit information is based upon the 50,468
Limited Partnership Units outstanding during each period.
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 1995 and 1994 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994
---- ----
Cash flows from operating activities:
Net income (loss) $ 35 $ (564)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Interest expense on zero coupon loans 1,159 1,394
Partnership's share of unconsolidated
ventures' income (684) (521)
Depreciation and amortization 386 326
Amortization of deferred financing costs 23 -
Changes in assets and liabilities:
Accounts receivable (9) 10
Prepaid expenses (16) (4)
Deferred expenses - (6)
Accounts payable and accrued expenses 78 100
Tenant security deposits 4 4
Advances from consolidated ventures 121 (177)
------- ------
Total adjustments 1,062 1,126
------- ------
Net cash provided by operating activities 1,097 562
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 9,818 1,817
Additional investments in unconsolidated
joint ventures (279) (151)
Additions to operating investment properties (20) (4)
------- -----
Net cash provided by investing activities 9,519 1,662
Cash flows from financing activities:
Cash distributions to partners (764) (1,529)
Payments of principal and interest on
notes payable (10,398) -
Payment of deferred financing costs (135) (75)
Net cash used for financing activities (11,297) (1,604)
-------- --------
Net increase (decrease) in cash and cash equivalents (681) 620
Cash and cash equivalents, beginning of period 3,824 1,501
-------- --------
Cash and cash equivalents, end of period $ 3,143 $ 2,121
======== ========
Cash paid during the period for interest $ 179 $ -
======== ========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization
The accompanying financial statements, footnotes, and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended March 31, 1995.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected in
the accompanying interim financial statements are of a normal recurring
nature.
2. Related Party Transactions
Included in general and administrative expenses for the nine-month periods
ended December 31, 1995 and 1994 is $21,000 and $17,000, 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 months
ended December 31, 1995 and 1994 is $7,000 and $3,000, respectively,
representing fees earned by Mitchell Hutchins Institutional Investors, Inc.
for managing the Partnership's cash assets.
3. Investments in Unconsolidated Joint Venture Partnerships
As of December 31, 1995, the Partnership has investments in two unconsolidated
joint venture partnerships (three at March 31, 1995) which own operating
properties as more fully described in the Partnership's Annual Report. The
unconsolidated joint ventures are accounted for by using the equity method
because the Partnership does not have a voting control interest in these
ventures. Under the equity method, the assets, liabilities, revenues and
expenses of the 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.
In January 1995, the Partnership acquired 99% of the co-venturer's interest in
the Willow Grove joint venture in return for a cash payment of approximately
$233,000. The remaining 1% interest of the co-venturer was assigned to Third
Equity partners, Inc., the Managing General Partner of the Partnership. As a
result of this transaction, the Partnership has acquired control over the
operations of the joint venture. Accordingly, this joint venture has been
presented on a consolidated basis in the Partnership's financial statements as
of and for the nine months ended December 31, 1995 (see Note 4). Prior to
April 1, 1995, the venture had been accounted for on the equity method, as
discussed above.
<PAGE>
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, 1995 and 1994
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Rental revenues and
expense recoveries $ 1,058 $ 1,309 $ 3,799 $ 3,826
Interest and other income 1 1 7 4
------- ------- ------- -------
1,059 1,310 3,806 3,830
Expenses:
Property operating expenses 466 485 1,276 1,423
Real estate taxes 46 70 147 211
Interest expense 74 59 219 144
Depreciation and amortization 454 486 1,379 1,452
------ -------- -------- --------
1,040 1,100 3,021 3,230
------ -------- -------- --------
Net income $ 19 $ 210 $ 785 $ 600
====== ======== ======== ========
Net income
Partnership's share of
combined income (losses) $ (5) $ 188 $ 699 $ 536
Co-venturers' share of
combined income (losses) 24 22 86 64
------ -------- -------- --------
$ 19 $ 210 $ 785 $ 600
====== ======== ======== ========
Reconciliation of Partnership's Share of Operations
For the three and nine months ended September 30, 1995 and 1994(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Partnership's share of operations,
as shown above $ (5) $ 188 $ 699 $ 536
Amortization of excess basis (5) (5) (15) (15)
----- ----- ----- -----
Partnership's share of
unconsolidated ventures'
income (losses) $ (10) $ 183 $ 684 $ 521
===== ===== ===== =====
4. Operating Investment Properties
At December 31, 1995, the Partnership has investments in two consolidated
joint venture partnerships (one at March 31, 1995) which own operating
investment properties. The consolidated ventures have December 31 year-ends
for both tax and financial reporting purposes. Accordingly, the
Partnership's policy is to report the financial position, results of
operations and cash flows of these ventures on a three-month lag. All
material transactions between the Partnership and these joint ventures have
been eliminated upon consolidation, except for lag-period cash transfers.
Such lag period cash transfers are accounted for as advances from
consolidated ventures on the accompanying balance sheet.
As discussed in the Partnership's Annual Report, the Partnership owns a
controlling interest in the Colony Plaza General Partnership, which was
formed to acquire and operate the Colony Plaza Shopping Center located in
Augusta, Georgia. The shopping center, which consists of approximately
217,000 square feet of leasable retail space, was acquired by the joint
venture on January 18, 1990.
On January 27, 1995, the Partnership purchased 99% of its co-venture
partner's interest in the Willow Grove joint venture for $233,000. The
remaining 1% interest of the co-venturer was assigned to Third Equity
Partners, Inc., the Managing General Partner of the Partnership, in return
for a release from any further obligations or duties called for under the
terms of the joint venture agreement. As a result, the Partnership has
assumed control over the affairs of the joint venture. Due to the
Partnership's policy of reporting the operations of the joint ventures on a
three-month lag, the assets, liabilities, results of operations and cash
flows of the joint venture are presented on a consolidated basis in the
financial statements of the Partnership beginning in fiscal 1996.
The following is a combined summary of property operating expenses for the
consolidated joint ventures for the three and nine months ended September 30,
1995 and 1994 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Common area maintenance $ 27 $ 10 $ 88 $ 30
Utilities 22 4 59 10
Management fees 20 10 62 30
Administrative and other 44 17 131 27
------- ------ ----- -------
$ 113 $ 41 $ 340 $ 97
======= ====== ===== ======
5. Notes payable
Notes payable and accrued interest on the books of the Partnership at
December 31, 1995 and March 31, 1995 consist of the following (in thousands):
December 31 March 31
10.72% nonrecourse loan payable to an
insurance company, which was secured by
the One Paragon Place operating investment
property. All interest and principal
was due at maturity, on November 23,
1995. Interest was compounded
semi-annually. Accrued interest at March
31, 1995 amounted to $4,774.
See discussion of refinancing below. $ - $ 9,774
10.5% nonrecourse loan payable to a
finance company, which is secured by the
Colony Plaza operating investment property.
All interest and principal is due at
maturity, on December 29, 1996. Interest
is compounded semi-annually. Accrued
interest at December 31, 1995 and March
31, 1995 amounted to $3,434
and $2,883, respectively. 7,484 6,933
9.59% nonrecourse mortgage note payable
to a financial institution secured by
the Willow Grove operating investment
property. The note, issued to the Willow
Grove joint venture, requires monthly
principal and interest payments of $32
from April 1995 through
maturity in March 2002. 3,584 -
--------- --------
$11,068 $16,707
======= =======
On November 16, 1995, the One Paragon Place loan was refinanced with
proceeds of a seven-year $8,750,000 loan from a new lender issued in the name of
the unconsolidated Richmond Paragon Partnership. Additional funds required to
complete the refinancing transaction were contributed from the Partnership's
cash reserves. The new note is secured by a first mortgage on the One Paragon
Place Office Building and is recorded on the books of the unconsolidated joint
venture. The new loan bears interest at 8% per annum and requires monthly
principal and interest payments of $68,000 through maturity, on December 10,
2002. The Partnership has indemnified the Richmond Paragon Partnership and the
related co-venture partner against all liabilities, claims and expenses
associated with this borrowing. The net proceeds for this loan were recorded as
a distribution to the Partnership from the unconsolidated joint venture.
6. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse effect
on the Partnership's financial statements, taken as a whole.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As discussed further in the Partnership's Annual Report, management's focus
during fiscal 1996 was to complete the refinancing of the Partnership's zero
coupon loans, which were originally incurred to finance the Partnership's public
offering costs. These plans are aimed at preventing the further accumulation of
accrued interest by replacing the outstanding obligations with conventional
financing which would require the payment of interest and principal on a current
basis. During the fourth quarter of fiscal 1995, the Partnership closed on the
first of the three required refinancing transactions involving the zero coupon
loans. In March 1995, the zero coupon loan secured by the Willow Grove
Apartments, which had an outstanding balance of $2,473,000, was repaid in full
from the proceeds of a new $3,600,000 loan to the Willow Grove joint venture.
The new mortgage loan is secured by the Willow Grove Apartments, bears interest
at a rate of 9.59% and requires monthly principal and interest payments of
approximately $32,000 through maturity, in March 2002. Excess refinancing
proceeds of approximately $1,050,000 were distributed to the Partnership and
were added to the balance of cash reserves. In order to facilitate this
refinancing transaction, in January 1995 the Partnership paid the Willow Grove
co-venturer $233,000 to buy out its joint venture interest. The Willow Grove
joint venture agreement restricted the Partnership's ability to refinance the
property's zero coupon loan with debt in excess of $2.5 million without the
co-venture partner's consent, which it had been unwilling to grant. The
Partnership desired to employ the additional borrowing capacity of the Willow
Grove asset in order to secure the funds necessary to complete the One Paragon
Place refinancing discussed further below. In addition to affording the
Partnership the flexibility to proceed with its refinancing plans, the buyout of
the co-venturer's interest gives the Partnership control over the venture's
operations and eventual disposition decisions with respect to the operating
investment property. The former co-venture partner has been retained in a
property management capacity under a contract which is cancellable for any
reason upon 30 days' written notice from the Partnership. The average occupancy
of the Willow Grove Apartments for the quarter ended December 31, 1995 was 97%
which mirrors the average occupancy levels for competing properties in the area.
During the current quarter, on November 16, 1995 the Partnership finalized a
new loan agreement to refinance the zero coupon loan secured by the One Paragon
Place Office Building which had a principal balance of $10.4 million at the time
of closing. The new loan secured by the One Paragon Place Office Building was
issued in the name of the joint venture which owns the property, has an initial
principal balance of $8,750,000, an interest rate of 8% and requires monthly
principal and interest payments of $68,000. The loan is scheduled to mature on
December 10, 2002. The refinancing transaction required a paydown of
approximately $1.6 million on the outstanding debt balance in order to satisfy
lender loan-to-value ratio requirements. The Partnership had sufficient funds to
make such a principal paydown as a result of the Willow Grove refinancing
transaction described above. One Paragon Place was 98% occupied at December 31,
1995. The suburban Richmond, Virginia office market continues to strengthen with
high occupancy levels and improving rental rates as a result of job and
population growth and the absence of significant new construction. Recently, the
level of new construction activity has increased somewhat with a number of
build-to-suit and speculative buildings in the process of being completed.
Nonetheless, the market is projected to remain strong in the near term, and One
Paragon Place is expected to compete favorable against both existing and new
properties in its submarket. During the quarter ended June 30, 1995, one of the
major tenants of the One Paragon Place Office Building negotiated a buyout of
its lease obligation with respect to over one-half of its prior space of
approximately 53,000 square feet. Under the terms of the buyout agreement, the
tenant agreed to pay a current market rental rate on its remaining 22,000 square
feet through the remainder of its lease term, which runs through July 1998. In
addition, the tenant agreed to continue to pay rent through May 1995 on the
31,000 square feet of vacated space and paid a lump sum of $500,000 to the joint
venture on July 20, 1995, which should be sufficient to cover the expected costs
of re-leasing the space. During the current quarter, management re-leased 12,500
square feet, representing the balance of the 31,000 square feet vacated during
the first quarter, to one national credit tenant. The 12,500 square foot lease
signed in the current quarter and the two leases signed last quarter to re-lease
the 31,000 square feet, on a combined basis, generate substantially higher
effective rents than the prior tenant was required to pay.
At December 31, 1995, the zero coupon loan secured by the Colony Plaza
Shopping Center had an outstanding balance of $7,484,000. The loan is scheduled
to mature in December of 1996, at which time approximately $8,290,000 would be
due. Management has engaged in discussions with various lenders to refinance the
Colony Plaza note payable. At the same time, management had been working with
Wal-Mart on the logistics of a possible expansion of its store at Colony Plaza.
During fiscal 1995, management learned that the cost of completing construction
for the expansion was more than Wal-Mart had originally budgeted. Concerns over
these estimated construction costs resulted in delays in the decision to proceed
with the original expansion concept, which involved an increase in the size of
the Wal-Mart store from its current 82,000 square feet to 120,000 square feet.
Over the past several years, Wal-Mart has significantly changed its prototype
store concept, requiring larger stores with additional expansion space to
accommodate increasing per store sales volume. More recently, Wal-Mart has begun
building "supercenters", which contain up to 200,000 square feet and include a
grocery store component in addition to a Wal-Mart discount store. This practice
reflects a broader trend among many retailers to maximize selling areas and
reduce costs by constructing supercenters or by emphasizing larger properties
and closing smaller, more marginal stores. During the quarter ended June 30,
1995, management was informed that Wal-Mart intends to construct one of its
supercenter stores at another identified site in the Augusta market and to
vacate Colony Plaza upon the completion of construction. The construction of a
new supercenter is not likely to be completed until sometime in calendar 1997.
Although Wal-Mart will remain obligated to pay rent and its share of operating
expenses through the term of its lease, which expires in March 2009, the loss of
the center's principal anchor tenant would likely adversely affect the
Partnership's ability to retain existing tenants and to lease vacant space at
the center unless a strong replacement anchor tenant is obtained. The property's
leasing team has begun to contact potential replacement tenants to initiate
discussions regarding the Wal-Mart space at Colony Plaza. Management is also
actively working with the existing tenants to attempt to ensure that these
tenants will sign renewals when their current leases expire. While the status of
the pending Wal-Mart relocation at Colony Plaza will make completing a
refinancing transaction more difficult, management continues to pursue its
refinancing plans. The Partnership may also pursue discussions with the existing
lender regarding possible modification and extension options.
The DeVargas Mall experienced a positive trend in occupancy beginning in the
second half of fiscal 1995 and was 89% leased as of December 31, 1995 after
dropping to a low of 84% as of September 1994. During fiscal 1996, a 10,000
square foot lease with a national credit drugstore tenant was executed.
Currently, there are two significant lease proposals pending with regard to
space which is currently available and space that will become available over the
next year, for 27,000 square feet and 20,000 square feet, respectively. These
leases, if successfully executed, would accomplish management's leasing
objectives and bring the Mall to full occupancy. Over the past 2 years,
management has been successful in altering the tenant roster at the Mall to
obtain a more complementary mix of retailers. Funding of the required tenant
improvements for any significant new leases would likely be accomplished by
means of additional advances under the lines of credit provided by the
Partnership's co-venture partner. To date, the co-venturer has provided
financing in the amount of approximately $3 million to fund prior expansion and
leasing costs. The venture pays interest on such advances at the rate of prime
plus 1% per annum.
At December 31, 1995, the Partnership and its consolidated joint ventures
had available cash and cash equivalents of approximately $3,143,000. These funds
will be utilized for the working capital requirements of the Partnership,
distributions to partners, refinancing expenses related to the Partnership's
remaining zero coupon loan and to fund capital enhancements and tenant
improvements for the operating investment properties, if necessary, in
accordance with the respective joint venture agreements.
Results of Operations
Three Months Ended December 31, 1995
The Partnership reported a net loss of $114,000 for the three months ended
December 31, 1995, as compared to a net loss of $210,000 for the same period in
the prior year. The improvement in net operating results for the third quarter
of fiscal 1996 resulted from a decrease in the Partnership's operating loss of
$289,000 which was offset by an unfavorable change in the Partnership's share of
unconsolidated ventures' income (losses) of $193,000. Beginning in fiscal 1996,
the results of operations of the Willow Grove joint venture have been presented
on a consolidated basis as a result of the Partnership buying out the co-venture
partner's interest in the joint venture, as described above. Therefore, the
operating loss for the three months ended December 31, 1995 is not directly
comparable to the three months ended December 31, 1994. The increase in rental
revenues of $249,000 is primarily due to the addition of Willow Grove revenues
totalling $220,000. Similarly, the increases in property operating expenses,
real estate taxes and depreciation expense are a direct result of the
consolidation of the Willow Grove joint venture. An increase in interest income
of $30,000, a decrease in interest expense of $110,000 and a decline in
Partnership general and administrative expenses of $22,000 also contributed to
the decline in operating loss for the current three-month period.
The Partnership's share of unconsolidated venture's income (losses)
declined, in part, due to the fact that the Willow Grove joint venture is
presented on a consolidated basis in the current period. The decrease in the
Partnership's share of income from the joint ventures was also partly a result
of a decrease of $70,000 in rental income at the One Paragon Place joint venture
due to the temporary decline in occupancy discussed further above. Now that the
vacated spaces at One Paragon Place has been re-leased, revenues from this
venture should improve in future quarters.
Nine Months Ended December 31, 1995
The Partnership reported net income of $35,000 for the nine months ended
December 31, 1995 as compared to a net loss of $564,000 for the same period in
the prior year. The improvement in net operating results for the first three
quarters of fiscal 1996 resulted from a decrease in the Partnership's operating
loss of $436,000 and an increase in the Partnership's share of unconsolidated
ventures' income of $163,000. As discussed above, due to the consolidation of
the Willow Grove joint venture, the operating loss for the nine months ended
December 31, 1995 is not directly comparable to the prior period. The increase
in rental revenues of $773,000 is primarily due to the addition of Willow Grove
revenues totalling $645,000. Similarly, the increases in property operating
expenses, real estate taxes and depreciation expense are a direct result of the
consolidation of the Willow Grove joint venture. An increase in interest income
of $122,000 and a decrease in interest expense of $234,000 also contributed to
the decline in operating loss for the current nine-month period.
The Partnership's share of unconsolidated ventures' income increased in
spite of the fact that the Willow Grove joint venture is presented on a
consolidated basis in the current period. The increase in the Partnership's
share of income from the joint ventures was a direct result of the receipt of
$500,000 by the One Paragon Place joint venture for the lease termination
discussed further above, during the second quarter of fiscal 1996. The DeVargas
joint venture also had an increase in rental revenues of approximately $181,000
for the nine months ended December 31, 1995. Rental revenues at DeVargas
increased due to increases in minimum rent, percentage rents and common area
maintenance and utility reimbursements resulting from the improvement in average
occupancy for the current nine-month period.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of 70 limited partnership investments, including those offered by
the Partnership. The lawsuits were brought against PaineWebber Incorporated and
Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including Third Equity Partners, Inc. and Properties
Associates 1988, L.P. ("PA1988"), which are General Partners of the Partnership
and affiliates of PaineWebber. On May 30, 1995, the court certified class action
treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in PaineWebber Equity Partners
Three Limited Partnership, PaineWebber, Third Equity Partners, Inc. and PA1988
(1) failed to provide adequate disclosure of the risks involved; (2) made false
and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in PaineWebber Equity
Partners Three Limited Partnership, also allege that following the sale of the
partnership interests, PaineWebber, Third Equity Partners, Inc. and PA1988
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, Third Equity
Partners, Inc. and PA1988 violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs seek
unspecified damages, including reimbursement for all sums invested by them in
the partnerships, as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships. In addition, the plaintiffs also
seek treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in PaineWebber Equity Partners
Three Limited Partnership. Pursuant to provisions of the Partnership Agreement
and other contractual obligations, under certain circumstances the Partnership
may be required to indemnify Third Equity Partners, Inc., PA1988 and their
affiliates for costs and liabilities in connection with this litigation.
Management has had discussions with representatives of PaineWebber and, based on
such discussions, the Partnership does not believe that PaineWebber intends to
invoke the aforementioned indemnifications in connection with the settlement of
this litigation.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE 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 THREE
LIMITED PARTNERSHIP
By: Third Equity Partners, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: February 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended December 31,
1995 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-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 3,143
<SECURITIES> 0
<RECEIVABLES> 81
<ALLOWANCES> (1)
<INVENTORY> 0
<CURRENT-ASSETS> 3,246
<PP&E> 33,919
<DEPRECIATION> 3,278
<TOTAL-ASSETS> 34,168
<CURRENT-LIABILITIES> 408
<BONDS> 11,068
<COMMON> 0
0
0
<OTHER-SE> 22,692
<TOTAL-LIABILITY-AND-EQUITY> 34,168
<SALES> 0
<TOTAL-REVENUES> 2,509
<CGS> 0
<TOTAL-COSTS> 1,098
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,376
<INCOME-PRETAX> 35
<INCOME-TAX> 0
<INCOME-CONTINUING> 35
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
