UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to _______ .
Commission File Number: 0-17881
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Virginia 04-2985890
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
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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
June 30, 1997 and March 31, 1997 (Unaudited)
(In thousands)
ASSETS
June 30 March 31
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Operating investment properties, at cost:
Land $ 4,208 $ 4,208
Building and improvements 14,153 14,153
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18,361 18,361
Less accumulated depreciation (4,018) (3,893)
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14,343 14,468
Investments in unconsolidated ventures, at equity 13,583 13,881
Cash and cash equivalents 4,891 4,615
Accrued interest and other receivables 136 101
Prepaid expenses 5 7
Deferred expenses, net 130 133
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$ 33,088 $ 33,205
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable and deferred interest, including
amounts in default $ 12,265 $ 12,043
Accounts payable and accrued expenses 66 98
Tenant security deposits 17 14
Accrued real estate taxes 18 14
Advances from consolidated ventures 173 195
Other liabilities 2 2
Partners' capital 20,547 20,839
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$ 33,088 $ 33,205
========== =========
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at March 31, 1996 $(218) $22,548
Cash distributions (3) (252)
Net loss (2) (191)
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Balance at June 30, 1996 $(223) $22,105
===== =======
Balance at March 31, 1997 $(234) $21,073
Cash distributions (3) (315)
Net income - 26
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Balance at June 30, 1997 $(237) $20,784
===== =======
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
1997 1996
---- ----
Revenues:
Rental income and expense
reimbursements $ 592 $ 563
Interest income 68 47
----- -----
660 610
Expenses:
Interest expense 321 295
Property operating expenses 108 131
Real estate taxes 40 37
General and administrative 47 84
Depreciation and amortization 127 134
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643 681
----- -----
Operating income (loss) 17 (71)
Partnership's share of unconsolidated
ventures' income (losses) 9 (122)
----- -----
Net income (loss) $ 26 $(193)
===== =====
Net income (loss) per
Limited Partnership Unit $0.52 $(3.78)
===== ======
Cash distributions per
Limited Partnership Unit $6.25 $ 5.00
===== ======
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 three months ended June 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 26 $ (193)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Partnership's share of unconsolidated
ventures' income (losses) (9) 122
Depreciation and amortization 126 134
Amortization of deferred loan costs 2 10
Interest expense on zero coupon loans 232 197
Changes in assets and liabilities:
Accrued interest and other receivables (35) 64
Prepaid expenses 2 (7)
Deferred expenses - (2)
Accounts payable and accrued expenses (32) (12)
Accrued real estate taxes 4 5
Tenant security deposits 3 -
Advances from consolidated ventures (22) 130
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Total adjustments 271 641
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Net cash provided by operating activities 297 448
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Cash flows from investing activities:
Net additions to escrowed cash - (49)
Additions to operating investment properties - (14)
Distributions from unconsolidated joint ventures 307 216
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Net cash provided by investing activities 307 153
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Cash flows from financing activities:
Cash distributions to partners (318) (255)
Payments of principal on notes payable (10) (10)
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Net cash used in financing activities (328) (265)
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Net increase in cash and cash equivalents 276 336
Cash and cash equivalents, beginning of period 4,615 3,439
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Cash and cash equivalents, end of period $ 4,891 $ 3,775
======== =========
Cash paid during the period for interest $ 87 $ 88
======== =========
See accompanying notes.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes, and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended March 31, 1997. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected
in the accompanying interim financial statements are of a normal recurring
nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of June 30, 1997 and March 31, 1997 and
revenues and expenses for each of the three-month periods ended June 30,
1997 and 1996. Actual results could differ from the estimates and
assumptions used.
2. Investments in Unconsolidated Joint Venture Partnerships
The Partnership has investments in two unconsolidated joint venture
partnerships 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.
Summarized operations of the unconsolidated joint ventures, for the periods
indicated, are as follows:
Condensed Combined Summary of Operation
For the three months ended March 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Revenues:
Rental revenues and expense recoveries $ 1,209 $ 1,032
Interest and other income 15 9
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1,224 1,041
Expenses:
Property operating expenses 454 417
Real estate taxes 37 43
Interest expense 278 249
Depreciation and amortization 438 433
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1,207 1,142
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Net income (loss) $ 17 $ (101)
======== =======
Net income (loss):
Partnership's share of
combined income (losses) $ 14 $ (117)
Co-venturers' share of
combined income (losses) 3 16
-------- -------
$ 17 $ (101)
======== =======
Reconciliation of Partnership's Share of Operation
For the three months ended June 30, 1997 and 1996 (in thousands)
1997 1996
---- ----
Partnership's share of operations,
as shown above $ 14 $ (117)
Amortization of excess basis (5) (5)
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Partnership's share of
unconsolidated ventures' income (losses) $ 9 $ (122)
======= ======
3. Operating Investment Properties
The Partnership has investments in two consolidated joint venture
partnerships which own operating investment properties as more fully
described in the Partnership's Annual Report. 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 sheets.
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 Portland Pacific Associates Two 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 assumed
control over the affairs of the joint venture. Portland Pacific Associates
Two owns the Willow Grove Apartments, a 119-unit complex located in
Beaverton, Oregon.
The following is a combined summary of property operating expenses for the
consolidated joint ventures for the three months ended March 31, 1997 and
1996 (in thousands):
1997 1996
---- ----
Common area maintenance $ 30 $ 35
Utilities 21 22
Management fees 22 21
Administrative and other 35 53
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$ 108 $ 131
====== =====
4. Related Party Transactions
Included in general and administrative expenses for the three-month periods
ended June 30, 1997 and 1996 is $24,000 and $25,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner
for providing certain financial, accounting and investor communication
services to the Partnership.
Also included in general and administrative expenses for the three months
ended June 30, 1997 and 1996 is $6,000 and $7,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
5. Notes payable
Notes payable and deferred interest at June 30, 1997 and March 31, 1997
consist of the following (in thousands):
June 30 March 31
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10.5% nonrecourse loan payable by
the Partnership to a finance
company, which is secured by the
Colony Plaza operating investment
property. All interest and
principal was due at maturity, on
December 29, 1996. Interest is
compounded semi-annually. Accrued
interest at June 30, 1997 and March
31, 1997 amounted to $4,690 and
$4,458, respectively. It is not
practicable for management to
estimate the fair value of this
mortgage note payable due to its
current default status (see
discussion below). $ 8,740 $ 8,508
9.59% nonrecourse loan payable by
the consolidated Portland Pacific
Associates Two to a finance
company, which is secured by the
Willow Grove operating investment
property. The note requires monthly
principal and interest payments of
$32 from April 1995 through
maturity in March 2002. The fair
value of the mortgage note
approximated its carrying value at
March 31, 1997 and December 31,
1996. 3,525 3,535
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$12,265 $12,043
======= =======
The borrowing secured by Colony Plaza matured on December 29, 1996, at which
time total principal and accrued interest of $8,290,190 was due and payable.
Although the Partnership did not make its scheduled payment upon maturity,
no formal default notices have been issued to date and management continues
to negotiate with the existing lender regarding a potential extension and
modification of the outstanding first mortgage loan. A refinancing
transaction with a new lender would require a sizable principal paydown by
the Partnership in order to reduce the loan-to-value ratio of the mortgage
note payable. If the refinancing or extension of this loan cannot be
accomplished, the lender could choose to initiate foreclosure proceedings.
Under such circumstances, the Partnership may be unable to hold this
investment and recover the carrying value. The financial statements of the
Partnership have been prepared on a going concern basis which assumes the
realization of assets and the ability to refinance the existing debt. These
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
On November 16, 1995, the zero coupon loan issued in the name of the
Partnership and secured by a mortgage on One Paragon Place 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. The zero coupon
loan had an outstanding balance of approximately $10.4 million at the time
of the refinancing. 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.
<PAGE>
PAINEWEBBER EQUITY PARTNERS THREE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended March 31, 1997 under the heading "Certain Factors Affecting Future
Operating Results", which could cause actual results to differ materially from
historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As discussed further in the Annual Report, the Partnership's zero coupon
loan which is secured by the Colony Plaza Shopping Center matured on December
28, 1996, at which time approximately $8,290,000 became due. Although the
Partnership did not make the scheduled payment upon maturity, no formal default
notices have been issued by the lender to date. Negotiations have been ongoing
with the lender for the past nine months regarding a possible extension and
modification agreement for the existing loan. Such negotiations have been
complicated by the leasing status of the Colony Plaza property. As of June 30,
1997, the Colony Plaza Shopping Center in Augusta, Georgia was 97% leased and
31% occupied. As previously reported, Wal-Mart closed its 82,000 square foot
store at Colony Plaza in the second quarter of fiscal 1997 to open a
"Supercenter" store at a new location in the Augusta market. Although Wal-Mart
remains obligated to pay rent and its share of operating expenses at Colony
Plaza through the term of its lease, which expires in March 2009, the loss of
the center's principal anchor tenant has adversely affected the Partnership's
ability to retain existing tenants and to lease vacant space at the center. In
addition, Food Max, the Center's 47,990 square foot grocery store tenant, closed
its store on December 1, 1996. However, another grocery store chain, Food Lion,
has entered into a sublease agreement with Food Max to open Food Lion stores in
several former Food Max locations, including the store at Colony Plaza.
Initially, Food Lion planned to open its new store at Colony Plaza in the summer
of 1997. Food Lion now reports that it may take longer than expected to secure
municipal approvals and to build their prototype store. As a result, the store
may not be ready to open until January 1998. Because the opening of a Food Lion
grocery store would significantly improve customer traffic levels at the Center,
the leasing team is working closely with Food Lion to achieve the earliest
possible opening date for the new store. The property's management and leasing
team reports that with the announcement that Food Lion will open at Colony
Plaza, a number of shop tenants in the local market have expressed interest in
leasing space in the Center. Additionally, the leasing team reports that two
shop tenants in the Center have expressed an interest in expanding their
existing stores.
The decisions by Wal-Mart and Food Max to close their stores have weakened
the sales volumes of many of the tenants of Colony Plaza, which in some cases
has affected their ability to meet their rent obligations. In certain other
cases, the Wal-Mart store closing will enable tenants to exercise provisions in
their leases that will permit them to terminate leases or convert the rental
rate to a percentage of sales. To date, one 6,000 square foot tenant exercised a
co-tenancy clause in its lease which allowed it to close its store in the second
quarter of fiscal 1997 and pay only its share of common area maintenance, taxes
and insurance because of the Wal-Mart vacancy. During the quarter ended June 30,
1997, this tenant notified the Partnership that it would be exercising its right
to terminate its lease during the quarter ending September 30, 1997 due to the
Wal-Mart vacancy. In addition, during the quarter ended March 31, 1997 two shop
tenants with leases representing 4,600 square feet closed their stores. Five
other tenants, comprising 12,900 square feet, or 6% of the Center's leasable
area, have lease clauses which permit them to terminate their leases if the
anchor space is not re-leased within a specified time frame. Two of these
tenants also have the right to pay a specified percentage of sales revenues as
base rent while the anchor tenant space remains vacant. In addition, several
other tenants have requested rental abatements as a result of the Wal-Mart
vacancy.
As a result of the current leasing status of the Colony Plaza property,
obtaining a new loan to refinance the outstanding debt is not practical, and the
existing lender is concerned that its first mortgage position could be impaired
in the event that the occupancy level at the property cannot be re-stabilized.
Accordingly, the recent negotiations with the lender have focused on a potential
agreement that would give the Partnership a stated period to re-lease all or
some portion of the Wal-Mart space at Colony Plaza. If the Partnership were
successful in re-leasing the space within the required time frame, then the
Partnership would be entitled to execute a long-term extension of the existing
mortgage loan pursuant to certain previously agreed upon terms. If the
Partnership were not able to re-lease the space within the required time frame,
then the lender would be entitled to initiate foreclosure proceedings on the
property. Any such agreement with the lender remains subject to final
negotiation and the execution of definitive modification agreements. During this
negotiation period, penalty interest is accruing on the outstanding principal
balance at 15% per annum in accordance with the original loan agreement. If no
agreement can be reached regarding a modification of the current mortgage loan,
the lender could choose to initiate foreclosure proceedings during fiscal 1998.
The eventual outcome of this situation cannot be determined at the present time.
The One Paragon Place Office Building was 94% leased at June 30, 1997,
compared to 98% at March 31, 1997. Almost 3% of the 4% change resulted from the
addition of 3,702 square feet of previously non-rentable area to the building's
leasable area. This was accomplished by moving the management and leasing office
out of One Paragon Place and also by converting an adjoining janitorial area
into leasable space. The property's leasing team has combined the 3,702 square
feet with a 2,389 square foot space left vacant by the downsizing of an existing
tenant, as described further below, and is offering the combined 6,091 square
feet for rent. Market rental rates for newly constructed Class A office
properties increased by nearly 3% during the quarter ended June 30, 1997. As
market rental rates keep moving higher than the rents paid by the existing
tenants at One Paragon Place, revenues should continue to increase as new leases
or renewals are signed. The leasing team's major accomplishment at One Paragon
Place during the first quarter was the signing of a five-year renewal with one
of the building's largest tenants. As part of the renewal agreement, this tenant
will pay approximately 17% more in annual rental payments than was due during
its initial lease term. The tenant will also downsize by 2,389 square feet to
17,759 square feet, or 12% of the building's leasable area. A three-year renewal
with a 1,662 square foot tenant was signed during the quarter at a rental rate
nearly 13% higher than the rental rate during the initial lease term. The
leasing team also re-leased a 3,171 square foot space vacated during the quarter
to two tenants. One existing tenant relocated from 1,362 square feet into 2,285
square feet, and a new tenant leased 886 square feet under a five-year
agreement. Other leasing included an expansion of an existing tenant into an
adjoining, previously vacant 853 square foot space. During the next fifteen
months, leases comprising 34% of One Paragon Place's leasable area will be up
for renewal. The property's leasing team will continue to negotiate with these
tenants to sign renewal agreements at rental rates higher than the rates
currently being paid.
As previously reported, the market environment for suburban office
properties in Richmond, Virginia is marked by near full occupancy levels and
rising rental rates justifying new construction. As also reported, approximately
800,000 square feet of competing Class A office space in eight buildings is
currently under construction. To date, 70% of such space is pre-leased. An
additional 432,000 square feet of comparable office space in 5 buildings has
been proposed for potential development in this market of 5,500,000 square feet.
Absorption of this potential space is expected to be strong given the 1996
absorption of 316,000 square feet and the nearly 560,000 square feet leased to
date in 1997 of the space under construction. The Partnership has been
monitoring the development activity in the market, while exploring potential
sale opportunities for One Paragon Place and has concluded that it is the
appropriate time to sell the property. During the quarter ending September 30,
1997, regional and national real estate brokers will be interviewed as
candidates to market the property for sale. Management expects to select a
broker and begin actively marketing the property during the quarter ending
December 31, 1997. There are no assurances, however, that a sale transaction
will be completed in the near term.
The DeVargas Mall was 95% leased and 92% occupied as of June 30, 1997.
During the fourth quarter of fiscal 1997, the property's leasing team signed a
lease for a 5,380 square foot space with the U.S. Post Office. The Post Office
is projected to take occupancy of its space in the next quarter. Subsequent to
the end of the quarter, a 27,023 square foot soft goods anchor tenant,
representing 11% of the Center's leasable area, announced that it would close
its store on July 31, 1997. This tenant's lease expired on January 31, 1997, and
it had been leasing on a month-to-month basis. With the closing of this 27,023
square foot tenant and the upcoming opening of the U.S. Post Office facility,
the Center's occupancy is projected to decrease to 84% in the quarter ending
September 30, 1997. As interest in Santa Fe from national anchor tenants
continues to increase, the property's leasing team is cautiously optimistic that
they will secure a replacement tenant. Funding of the required tenant
improvements for the leasing activity at DeVargas has been accomplished by means
of advances under the lines of credit provided by the Partnership's co-venture
partner. As of March 31, 1997, the co-venture partner had two outstanding lines
of credit with the DeVargas joint venture which permitted the venture to borrow
up to an aggregate amount of $5,553,000. The first note, which allowed the
venture to borrow up to $5,000,000, bore interest at the greater of prime plus
1.5% or 10% per annum and was due to mature in June 1997. The second note, which
allowed the venture to borrow up to $553,000, bore interest at prime plus 1% and
was scheduled to mature in November 2002. The outstanding borrowings under both
lines of credit totalled $4,214,000 as of March 31, 1997. In June 1997, the
Partnership and the co-venturer reached an agreement to consolidate the two
lines of credit into one loan and to modify the terms. The new loan, which
allows the venture to borrow up to $5,000,000, bears interest at the greater of
the prime rate or 9% per annum and is due to mature on June 1, 1998.
The average occupancy level for the first quarter of fiscal 1998 at the
Willow Grove Apartments in Beaverton, Oregon was 95%, unchanged from the prior
quarter. The property's leasing team raised rental rates by 4% on both new and
renewal leases effective March 1, 1997, which is the first increase in one year.
In addition, the use of rental concessions at Willow Grove is minimal even
though recently constructed competing properties are currently offering a
variety of rental concessions during their lease-up phases. As previously
reported, while long-term prospects for the Portland apartment market are good,
new apartment construction has softened market conditions in the overall
suburban Portland area. Most of this new construction is located farther out to
the west of Willow Grove, between 5 and 15 miles away. However, there is one
property currently in lease-up in the local market. Phase one of this two-phase
property contains 288 units and was 75% leased as of the end of fiscal 1997.
Phase two, which will include an additional 150 units, is under construction.
While this new property offers more amenities, its effective rental rates are
comparable to those at Willow Grove. Once both phases of this property are
substantially leased, the property's rental rates would be expected to increase
above the rates at Willow Grove. While Willow Grove may be affected by these
competitive pressures in the near term, overall market conditions are expected
to stabilize over the next year due to the region's history of healthy
employment gains and the resurgence in the growth of the high technology
industries. Any formal marketing efforts for the sale of the Willow Grove
property will likely be delayed until this market re-stabilization is achieved.
At June 30, 1997, the Partnership and its consolidated joint ventures had
available cash and cash equivalents of approximately $4,891,000. These funds
will be utilized for the working capital requirements of the Partnership,
distributions to partners, refinancing costs related to the Partnership's
remaining zero coupon loan, if necessary, and to fund capital enhancements and
tenant improvements for the operating investment properties in accordance with
the respective joint venture agreements. The source of future liquidity and
distributions to the partners is expected to be from cash generated by the
Partnership's income-producing properties and from the proceeds received from
the sale or refinancing of such properties. Such sources of liquidity are
expected to be sufficient to meet the Partnership's needs on both a short-term
and long-term basis.
Results of Operations
Three months ended June 30, 1997
- --------------------------------
The Partnership reported net income of $26,000 for the quarter ended June
30, 1997, as compared to a net loss of $193,000 for the same period in the prior
year. This favorable change in the Partnership's net operating results is
attributable to a favorable change in the Partnership's share of unconsolidated
ventures' income (losses) of $131,000 and a favorable change in the
Partnership's operating income (loss) of $88,000. The favorable change in the
Partnership's share of unconsolidated ventures' operations is primarily due to a
$177,000 increase in combined rental revenues and expense recoveries which was
partially offset by increases in the property operating and interest expense
categories. Rental revenues at DeVargas increased by $99,000 over the same
three-month period in the prior year due to the addition of two new tenants
during the second half of fiscal 1997. In addition, rental revenues at One
Paragon Place increased due to new leases signed during the past twelve months
at rates substantially higher than the rates on the expiring leases. Property
operating expenses increased mainly due to additional costs attributable to
DeVargas Mall, including necessary roof repairs and higher parking lot
maintenance costs during the current three-month period. Interest expense
increased due to additional borrowings obtained by the DeVargas joint venture to
fund capital costs associated with leasing space at the property.
The favorable change in the Partnership's operating income (loss) is the
result of an increase in total revenues and a decrease in total expenditures.
Rental income and expense reimbursements from the consolidated joint ventures
increased mainly due to additional expense reimbursements recorded by Colony
Plaza in the current three-month period resulting from a timing difference in
the billing of the reimbursements as compared to the prior year. Interest income
also increased by $21,000 due to an increase in the Partnership's average
outstanding cash reserve balances. Property operating expenses from the
consolidated joint ventures decreased due to a general decline in maintenance
costs and other property-level administrative expenses at both Colony Plaza and
Willow Grove. General and administrative expenses declined by $37,000 mainly due
to a reduction in certain required professional fees during the current
three-month period. Partially offsetting the increase in revenues and the
declines in property operating and general and administrative expenses was an
increase in interest expense resulting from the 15% default rate being applied
to the zero coupon loan secured by Colony Plaza which matured on December 29,
1996, as discussed further above.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No 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: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 4,891
<SECURITIES> 0
<RECEIVABLES> 136
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,032
<PP&E> 31,944
<DEPRECIATION> 4,018
<TOTAL-ASSETS> 33,088
<CURRENT-LIABILITIES> 9,016
<BONDS> 3,525
0
0
<COMMON> 0
<OTHER-SE> 20,547
<TOTAL-LIABILITY-AND-EQUITY> 33,088
<SALES> 0
<TOTAL-REVENUES> 669
<CGS> 0
<TOTAL-COSTS> 322
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321
<INCOME-PRETAX> 26
<INCOME-TAX> 0
<INCOME-CONTINUING> 26
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
