-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, q5xX+zcr/7HhcsiB5cfnuJJ1AfafcJr/Cn3kyzmTqZUggpEzUljAxVEB02U9HZ4y qlYn9pGJvjB6rRrJoq6Rjw== 0000700913-95-000005.txt : 199507170000700913-95-000005.hdr.sgml : 19950717 ACCESSION NUMBER: 0000700913-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950714 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO LP CENTRAL INDEX KEY: 0000700913 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042752249 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17146 FILM NUMBER: 95554035 BUSINESS ADDRESS: STREET 1: 265 FRANKLIN ST 15TH FLOOR CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174398118 10-Q 1 THIS IS A 10-Q 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 QUARTERLY PERIOD ENDED MAY 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: 0-17146 PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP (Exact name of registrant as specified in its charter) Delaware 04-2752249 (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 1 of 14 PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP BALANCE SHEETS May 31, 1995 and August 31, 1994 (Unaudited) ASSETS May 31 August 31 Real estate investments: Land $ 1,750,000 $ 1,750,000 Mortgage loans, net 10,177,157 10,177,157 Investment in joint venture, at equity 3,239,054 3,252,647 Investment property held for sale, net 8,300,000 8,300,000 23,466,211 23,479,804 Cash and cash equivalents 1,300,569 1,041,817 Tax and insurance escrow 337,443 187,787 Interest and other receivables 158,606 286,364 Prepaid expenses 550 14,545 $25,263,379 $25,010,317 LIABILITIES AND PARTNERS' CAPITAL Accrued real estate taxes $ 114,625 $ 170,000 Accounts payable and accrued expenses 82,764 246,352 Accounts payable - affiliates 11,597 10,633 Tenant security deposits 56,347 48,198 Note payable 1,198,664 604,166 Partners' capital 23,799,382 23,930,968 $25,263,379 $25,010,317 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) For the nine months ended May 31, 1995 and 1994 (Unaudited) General Limited Partners Partners Balance at August 31, 1993 $(21,334) $30,695,003 Cash distributions (5,491) (6,160,971) Net income 10,916 1,080,674 BALANCE AT MAY 31, 1994 $(15,909) $25,614,706 Balance at August 31, 1994 $(32,587) $23,963,555 Cash distributions (5,337) (528,394) Net income 4,020 398,125 BALANCE AT MAY 31, 1995 $(33,904) $23,833,286 See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP STATEMENTS OF INCOME For the three and nine months ended May 31, 1995 and 1994 (Unaudited) Three Months Ended Nine Months Ended May 31, May 31, 1995 1994 1995 1994 REVENUES: Interest from mortgage loans$ 373,330 $ 387,037 $1,104,565 $1,246,798 Land rent 51,156 62,156 153,469 230,469 Recovery of bad debt 14,365 292,114 - 292,114 Other income 17,089 20,025 43,548 23,650 455,940 761,332 1,301,582 1,793,031 EXPENSES: Management fees 11,597 9,744 33,405 31,708 General and administrative 103,146 101,520 311,546 318,566 Provision for possible uncollectible amounts - 94,995 182,526 271,184 114,743 206,259 527,477 621,458 Operating income 341,197 555,073 774,105 1,171,573 Partnership's share of venture's income 29,053 40,177 99,740 121,501 Loss from operations of investment property held for sale (28,789) (346,425) (471,700) (201,485) NET INCOME $ 341,461 $ 248,825 $ 402,145 $1,091,589 Net income per Limited Partnership Unit $ 9.32 $ 6.80 $10.98 $ 29.82 Cash distributions per Limited Partnership Unit $ 5.07 $160.00 $14.58 $170.00 The above net income and cash distributions per Limited Partnership Unit are based upon the 36,241 Units of Limited Partnership Interest outstanding during each period. See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP STATEMENTS OF CASH FLOWS For the nine months ended May 31, 1995 and 1994 Increase (Decrease) in Cash and Cash Equivalents (Unaudited) 1995 1994 Cash flows from operating activities: Net income $ 402,145 $1,091,589 Adjustments to reconcile net income to net cash provided by operating activities: Partnership's share of venture's income (99,740) (121,501) Changes in assets and liabilities: Tax and insurance escrow (149,656) 199,944 Interest and other receivables 127,758 75,712 Prepaid expenses 13,995 13,999 Accrued real estate taxes (55,375) (126,307) Accounts payable and accrued expenses 964 (57,566) Accounts payable - affiliates (163,588) (45,191) Tenant security deposits 8,149 14,909 Total adjustments (317,493) (46,001) Net cash provided by operating activities 84,652 1,045,588 Cash flows from investing activities: Proceeds received from repayment of mortgage loan and sale of land - 5,607,843 Distributions from joint venture 113,333 198,333 Advances to joint venture - (7,755) Net cash provided by investing activities 113,333 5,798,421 Cash flows from financing activities: Additional borrowings under note payable 594,498 - Distributions to partners (533,731) (6,166,462) Net cash provided by (used for) financing activities 60,767 (6,166,462) Net increase in cash and cash equivalents 258,752 677,547 Cash and cash equivalents, beginning of period 1,041,817 217,617 Cash and cash equivalents, end of period $1,300,569 $ 895,164 Cash paid during the period for interest $ 72,413 $ - See accompanying notes. 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 August 31, 1994. 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 The Adviser earned basic management fees of $33,405 and $31,708 for the nine-month periods ended May 31, 1995 and 1994, respectively. Accounts payable - affiliates at May 31, 1995 and August 31, 1994 consists of management fees of $11,597 and $10,633, respectively, payable to the Adviser. Included in general and administrative expenses for nine months ended May 31, 1995 and 1994 is $131,780 and $122,310, 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 May 31, 1995 and 1994 is $2,155 and $492, respectively, representing fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing the Partnership's cash assets. 3.Mortgage Loan and Land Investments The outstanding first mortgage loans and the cost of the related land to the Partnership at May 31, 1995 and August 31, 1994 are as follows: Property Amount of Mortgage Loan Cost of Land 5/31/95 8/31/94 5/31/95 8/31/94 Harbour Bay Plaza $ 2,850,000 $ 2,850,000 $ 750,000$ 750,000 Sewall's Point, FL Eden West Apartments 3,500,000 3,500,000 400,000 400,000 Omaha, NE The Timbers Apartments 6,517,618 6,335,092 600,000 600,000 Raleigh, NC (2,242,618) (2,060,092) 4,275,000 4,275,000 Subtotal 10,625,000 10,625,000 1,750,000 1,750,000 Less: General loan reserve (447,843) (447,843) - - $ 10,177,157 $10,177,157 $ 1,750,000$ 1,750,000 The loans are secured by first mortgages on the properties, the owner's leasehold interest in the land and an assignment of all leases, where applicable. Interest is payable monthly at rates between 11.5% and 11.75% per annum and the principal is due at maturity. Among the provisions of the lease agreements, the Partnership is entitled to additional rent based upon the gross revenues in excess of a base amount, as defined. For the nine- month periods ended May 31, 1995 and 1994, no additional rents were received. As discussed in the Annual Report, the lessees have the option to purchase the land for specified periods of time at a price based on fair market value, as defined, but not less than the original cost to the Partnership. As of May 31, 1995, all of the options to purchase the land were exercisable. The objectives of the Partnership with respect to its mortgage loan and land investments are to provide current income from fixed mortgage interest payments and base land rents, then to provide increases to this current income through participation in the annual revenues generated by the properties as they increase above the specified base amounts. In addition, the Partnership's investments are structured to share in the appreciation in value of the underlying real estate. Accordingly, upon either sale, refinancing, maturity of the mortgage loan or exercise of the option to repurchase the land, the terms of the leases call for the Partnership to receive a 37% to 52% share of the appreciation above a specified base amount. Under the terms of the Timbers modification executed in fiscal 1989, the amount payable to the Partnership is equal to the cash flow of the property available after the payment of operating expenses, not to exceed 11.75% of the note balance, but in no event less than 7.75% of the note balance. The amount deferred each year will accrue interest at the original rate of 11.75% beginning at the end of that year and the total deferred amount plus accrued interest will be payable upon maturity of the note in September of 1998. The Partnership has established an allowance for possible uncollectible amounts for the cumulative amount of deferred interest owed under the Timbers modification ($2,242,618 at May 31, 1995 and $2,060,092 at August 31, 1994) due to the uncertainty as to the collection of the deferred interest from this investment. During the quarter ended May 31, 1995, the Partnership received a payment of $120,522 from the Timbers' borrower as a partial payment of deferred interest owed. During fiscal 1995, the Partnership has received formal notice from the Harbour Bay Plaza and Eden West borrowers of their intentions to prepay the Partnership's mortgage loans and repurchase the underlying land. The Harbour Bay Plaza prepayment transaction would result in the Partnership receiving an amount of approximately $200,000 in excess of its outstanding mortgage loan and land investments as its share of the property's appreciation. This transaction is expected to close in the fourth quarter of fiscal 1995. The amount to be received as the Partnership's share of the appreciation on the Eden West property, if any, cannot be determined with certainty at this time. The terms of the Eden West mortgage loan call for the Partnership to receive a prepayment penalty which would be equal to 3.75% of the outstanding principal balance. If completed, the net proceeds from these prepayment transactions would be distributed to the Limited Partners. Both prepayment transactions remain contingent on, among other things, the borrowers obtaining sufficient financing to repay their obligations to the Partnership. Accordingly, there can be no assurances that such transactions will be consummated. 4. Investment in Joint Venture As discussed in the Annual Report, on June 12, 1990, the borrower of the mortgage loan secured by the Marshall's at East Lake Shopping Center, Oxford/Concord Associates, filed a Chapter 11 petition with the United States Bankruptcy Court for the Northern District of Georgia. On November 14, 1990, the Bankruptcy Court ordered that both the Partnership and the borrower submit plans for the restructuring of the mortgage loan and ground lease agreements. During fiscal 1991, the Partnership and the borrower reached a settlement agreement which involved the formation of a joint venture to own and operate the property on a go-forward basis. The formation of the joint venture was approved by the Bankruptcy Court and became effective in December of 1991. The Partnership contributed its rights and interests under its mortgage loan to the joint venture and the loan was extinguished. In addition, the Partnership contributed the land underlying the operating property to the joint venture and the related ground lease was terminated. Oxford/Concord Associates contributed all of its rights, title and interest in and to the improvements, subject to the Partnership's loan, to the joint venture. Since the Partnership received an equity interest in full satisfaction of its outstanding mortgage loan receivable, the transaction was accounted for as a troubled debt restructuring in accordance with Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings". Accordingly, the Partnership would have recognized a loss to the extent that the face amount of the mortgage loan and the carrying value of the land exceeded the fair value of the equity interest acquired. However, management estimated that the fair value of the equity interest acquired was approximately equal to the face amount of the loan and the investment in land. Therefore, no loss was recorded at the time of the restructuring. The carrying value of the mortgage loan receivable and land comprising the Partnership's investment in Marshall's at East Lake, which totalled $3,500,000, was reclassified to investment in joint venture, effective December 11, 1991. Subsequent to the restructuring, the Partnership has accounted for its equity investment as if it had acquired the interest for cash, in accordance with SFAS No. 15. Based upon the provisions of the joint venture agreement, the Partnership's investment in the Marshall's joint venture is accounted for on the equity method in the Partnership's financial statements. Under the equity method, the investment is carried at cost, adjusted for the Partnership's share of earnings, losses and distributions. Summarized operating results of the venture for the three- and nine-month periods ended May 31, 1995 and 1994 are as follows: Three Months Ended Nine Months Ended May 31, May 31, 1995 1994 1995 1994 REVENUES: Rental revenues and expense reimbursements $ 109,000 $ 115,000 $ 325,000 $ 356,000 EXPENSES: Property operating expenses 36,000 32,000 101,000 111,000 Real estate taxes 11,000 11,000 25,000 29,000 Depreciation and amortization 33,000 31,000 99,000 94,000 80,000 74,000 225,000 234,000 NET INCOME $ 29,000 $ 41,000 $ 100,000 $ 122,000 Net income: Partnership's share of net income $ 29,000$ 41,000 $ 100,000 $ 122,000 Co-venturer's share of net income - - - - $ 29,000$ 41,000 $ 100,000 $ 122,000 The joint venture agreement provides that all taxable income for any fiscal year, will, in general, be allocated to the Partnership until it has received income allocations equal to a nine percent return upon its invested capital, as defined. Thereafter, taxable income will be allocated 80% to the Partnership and 20% to Oxford/Concord Associates. In general, all tax losses will be allocated to the Partnership. The joint venture agreement also provides that cash flow, as defined, be distributed monthly to the Partnership until it has received distributions equal to a nine percent return upon its deemed invested capital of $4,250,000. Thereafter, cash flow will be distributed 80% to the Partnership and 20% to Oxford/Concord Associates. Proceeds from any capital transaction, as defined, shall be distributed first to the Partnership until it has received aggregate distributions equal to a nine percent return upon its deemed invested capital; second, to the Partnership until it has received an amount equal to its aggregate capital contributions, as defined; and the balance, if any, will be distributed 80% to the Partnership and 20% to Oxford/Concord Associates. 5. Investment Property Held for Sale Mercantile Tower Office Building As discussed in the Annual Report, the Partnership assumed ownership of the Mercantile Tower Office Building, in Kansas City, Missouri, through a deed-in-lieu of foreclosure action on April 12, 1993 as a result of certain uncured defaults on the Partnership's mortgage loan receivable. The Partnership complies with the guidelines set forth in the Statement of Position entitled "Accounting for Foreclosed Assets", issued by the American Institute of Certified Public Accountants, to account for its investment properties acquired through foreclosures. Under the Statement of Position, a foreclosed asset is recorded at the lower of cost or estimated fair value, reduced by the estimated costs to sell the asset. Cost is defined as the fair value of the asset at the date of the foreclosure. Adjustments to the carrying value of the assets subsequent to foreclosure are recorded through the use of a valuation allowance. The combined balance of the land and the mortgage loan investment at the time title was transferred was $10,500,000. The estimated fair value of the operating property at the date of foreclosure, net of selling expenses, was $9,500,000. Accordingly, a write- down of $1,000,000 was recorded as a loss on foreclosure in fiscal 1993. An additional write-down of $1,200,000 was recorded as a provision for possible investment loss in fiscal 1994 to reflect a further decline in management's estimate of the fair value of the investment property. The net carrying value of the Mercantile Tower investment property as of May 31, 1995 and August 31, 1994, of $8,300,000, is classified as an investment property held for sale on the Partnership's balance sheet. The Partnership records income or loss from the investment property held for sale in the amount of the difference between the property's gross revenues and the sum of property operating expenses (including leasing costs and improvement expenses) and interest on the line of credit borrowings described in Note 6. Summarized operating results for Mercantile Tower for the three- and nine-month periods ended May 31, 1995 and 1994 are as follows: Three Months Ended Nine Months Ended May 31, May 31, 1995 1994 1995 1994 Rental revenues and expense recoveries $ 397,000 $ 260,000 $1,252,000$1,244,000 Interest and other income 3,000 2,000 8,000 9,000 400,000 262,000 1,260,000 1,253,000 Property operating expenses 398,000 608,000 1,660,000 1,454,000 Interest expense 31,000 - 72,000 - 429,000 608,000 1,732,000 1,454,000 Loss from operations of investment property held for sale $ (29,000) $ (346,000) $ (472,000)$(201,000) Property operating expenses for the three and nine months ended May 31, 1995 include capital improvements and leasing costs totalling approximately $103,000 and $730,000, respectively. 6. Note payable Note payable as of May 31, 1995 and August 31, 1994 consists of the following secured indebtedness: May 31, 1995 August 31, 1994 Line of credit borrowings secured by the Mercantile Tower property (see Note 5). Draws under the line, up to a maximum of $2,000,000, can be made through March 15, 1996, only to fund approved leasing and capital improvement costs related to the Mercantile Tower property. The outstanding borrowings bear interest at the prime rate plus 1% per annum. Interest-only payments were due on a monthly basis through February 1995. Thereafter, monthly principal and interest payments were due through maturity on February 10, 2001. $1,198,664 $604,166 7.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. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES As previously reported, the Partnership assumed ownership of the Mercantile Tower Office Building on April 12, 1993. The Managing General Partner has engaged the services of a local property management company to carry out the day-to-day operations of the building under the direction of the Adviser. The occupancy level at Mercantile has increased to 67% at May 31, 1995, up from 63% at the end of the previous quarter. During the third quarter, leasing agents were successful in signing a new lease as well as two lease renewals at this property. The property is in need of significant funds to pay for leasing costs, certain deferred maintenance and capital improvements. Subsequent to the date that the Partnership assumed control of the building's operations, the management company has used cash flow from operations to complete a capital improvement program which included various structural, cosmetic and aesthetic improvements and enhancements to the building's common areas that were necessary as an initial step to effectively market and lease the vacant space. In addition to the capital improvements completed to date, the Mercantile Tower property will require significant funds in order to pay for tenant improvements and leasing commissions required to lease the currently vacant space and stabilize operations. The Partnership expects to provide these funds from the cash flow of the property, certain secured borrowings and, to the extent necessary, from the Partnership's cash reserves. During fiscal 1994, the Partnership closed on a $2 million line of credit which will be used to pay for the majority of the required tenant improvement and capital enhancement costs anticipated over the next 9 months. This nonrecourse, fully amortizable line of credit is payable with interest at 1% over prime, and has a 7-year term with interest-only payments in the first year. The line of credit borrowings are collateralized by a first lien against the Mercantile Tower property, which includes an adjoining parking facility. The draw period has a 2-year term which ends in March 1996, and draw downs under the line of credit can only be made in connection with costs associated with signed leases and contracts for capital improvements. As of May 31, 1995, the Partnership had drawn approximately $1,251,000 under the line of credit. If leasing activity progresses as expected, management anticipates drawing the entire $2 million balance of the line of credit before March 1996. Monthly payments due under the borrowing agreement began to include scheduled principal amortization effective in March 1995. As of May 31, 1995, the Partnership had made principal paydowns of approximately $52,000 on the line of credit. Until a stabilized occupancy level is achieved and the line of credit borrowings are repaid, the Partnership's investment in Mercantile Tower is not expected to generate any significant excess cash flow. Occupancy at the Marshall's at East Lake Shopping Center as of May 31, 1995 was 89%, up from its level of 85% one year ago but decreased from its level of 92% as of the previous quarter due to one tenant vacating as a result of financial difficulties. However, during the third quarter, two new leases and one expansion of an existing lease were executed. In addition, subsequent to the quarter-end, a new lease was signed with a national financial services company. The effect of this recent leasing activity will increase the center's occupancy level to 97%. The Partnership received cash flow distributions from the Marshall's joint venture of approximately $113,000 for the nine months ended May 31, 1995. Annual distributions of $150,000 to $200,000 are expected from this investment based on the property's current leasing status. As previously reported, Marshall's, the center's anchor tenant, opened another store in 1994 at a new competitive center four miles from the Marshall's at East Lake Shopping Center. Marshall's sales at East Lake have been very strong and their management has confirmed that they plan to keep the East Lake store open. However, there can be no assurances that such plans are not subject to change. The initial term of the Marshall's lease at East Lake runs to January 31, 2003. Notwithstanding their obligation under the lease agreement, the loss of the center's only anchor tenant could have serious adverse effects on management's ability to retain its other tenants and to lease vacant space. Management continues to monitor this situation closely. Occupancy at Eden West Apartments, The Timbers Apartments and Harbour Bay Plaza remained strong at 99%, 97% and 90%, respectively, for the quarter ended May 31, 1995. Eden West and Timbers have also shown substantial increases in rental rates when compared to the prior year. The mortgage loans secured by these three properties bear interest at rates between 11.5% and 11.75% per annum. With general real estate market conditions improving along with the state of the overall economy, and with credit in the capital markets for real estate transactions more accessible than in prior years, it is possible that the current loans secured by these properties could be refinanced at lower rates. However, the Partnership's mortgage loans contain certain restrictions with regard to prepayments. The Timbers loan contains a prohibition against prepayment until September 1, 1997. The Eden West loan prohibited prepayment through June 1, 1994 and includes a prepayment premium for any prepayment between June 1994 and May 1998 at rates between 5% and 1.25% of the mortgage loan balance. The Harbour Bay Plaza loan, which has a scheduled maturity date of December 1, 1995, became fully prepayable without penalty effective January 1994. In addition to repaying the outstanding mortgage loans, the borrowers would be required to exercise their options to purchase the underlying land at the time of any prepayment transaction, including in such purchase price the Partnership's share, if any, of the property's appreciation called for under the terms of the ground lease. As a practical matter, this requirement could make it difficult for the borrowers to finance a prepayment transaction. During fiscal 1995, the Partnership has received formal notice from the Harbour Bay Plaza and Eden West borrowers of their intentions to prepay the Partnership's mortgage loans and repurchase the underlying land. The Harbour Bay Plaza prepayment transaction would result in the Partnership receiving, pursuant to the ground lease, approximately $200,000 in excess of the outstanding mortgage loan and land investments, which total $3,600,000. This transaction is expected to close in the fourth quarter of fiscal 1995. The amount to be received as the Partnership's share of the appreciation on the Eden West property, if any, cannot be determined with certainty at this time. The terms of the Eden West mortgage loan require a prepayment penalty which would be equal to 3.75% of the outstanding principal balance of $3.5 million. If completed, the net proceeds from these prepayment transactions would be distributed to the Limited Partners. Both prepayment transactions remain contingent on, among other things, the borrowers obtaining sufficient financing to repay their obligations to the Partnership. Accordingly, there can be no assurances that such transactions will be consummated. At May 31, 1995, the Partnership had available cash and cash equivalents of approximately $1,301,000. Such cash and cash equivalents will be used for the Partnership's working capital requirements and for distributions to the partners. The Partnership began implementing small increases in the quarterly distribution rate to the Limited Partners commencing with the payment made in October 1994 for the quarter ended August 31, 1994. The distribution rate was increased to 2.5% per annum on remaining invested capital during the third quarter of fiscal 1995. The distribution rate is expected to stabilize at 2.5% thereafter for the foreseeable future. The source of future liquidity and distributions to the partners is expected to be through cash generated from the operations of the Partnership's real estate and mortgage loan investments, repayment of the Partnership's mortgage loans receivable and the proceeds from the sales or refinancings of the underlying land, the operating investment property and the joint venture investment property. RESULTS OF OPERATIONS Three Months Ended May 31, 1995 The Partnership's net income increased by approximately $93,000 for the three months ended May 31, 1995 compared to the same period in the prior year, primarily due to a decrease in the net loss from the Mercantile Tower property. Revenues from Mercantile Tower were higher by approximately $137,000 for the three months ended May 31, 1995, as a result of the occupancy gains achieved over the past year. In addition, property expenses at Mercantile Tower decreased by approximately $210,000 for the current three-month period due to the timing of certain capital improvement projects. The decrease in the loss from investment property held for sale was offset by a decrease in operating income of approximately $214,000 mainly due to a decrease in the recovery of bad debt from the prior year. The recovery of bad debt totalling $14,000 for the three month period May 31, 1995 related to Timbers and the prior year amount totalling $292,000 related to the Howard Johnson's investment. Nine Months Ended May 31, 1995 The Partnership's net income decreased by approximately $689,000 for the nine months ended May 31, 1995, in comparison to the same period in the prior year, primarily due to a decrease in mortgage interest and land rent revenues and a substantial increase in property operating expenses at the Mercantile Tower property which is reflected in the loss from operations of investment property held for sale. The net operating results of the Mercantile Tower Office Building for the current nine-month period include certain costs, totalling approximately $730,000, as compared to $490,000 in the previous year, related to the improvements and leasing costs incurred subsequent to obtaining the credit line discussed further above. As a result of the Partnership's accounting policy with regard to its investment properties acquired through foreclosure, all costs associated with holding the asset are expensed as incurred. In addition, interest expense incurred on the line of credit borrowings totalled $72,000 for the nine months ended May 31, 1995. Revenues from Mercantile Tower were slightly higher for the nine months ended May 31, 1995, as compared to the same period in the prior year, as a result of the occupancy gains achieved over the past year. Mortgage interest and land rent revenues declined by approximately $219,000 for the nine months ended May 31, 1995 due to the sale of the Howard Johnson's Motor Lodge effective April 1, 1994, which resulted in the repayment of the Partnership's mortgage loan receivable and the termination of the Partnership's ground lease. The Partnership's share of venture's income decreased by approximately $22,000 in the nine-month period ended May 31, 1995 due to lower rental revenues at the Marshall's at East Lake Shopping Center as a result of a decline in effective rental rates over the past two fiscal years as well as a decrease in cost recoveries. PART II OTHER INFORMATION Item 1. Legal Proceedings As discussed in the Partnership's quarterly report on Form 10-Q for the period ended February 28, 1995, 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 various limited partnership investments, including those offered by the Partnership. On May 30, 1995, the court certified class action treatment of the claims asserted in the litigation. Refer to the description of the claims in the prior quarterly report for further information. The General Partners continue to believe that the action will be resolved without material adverse effect on the Partnership's financial statements, taken as a whole. 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. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND TWO, LP By: SECOND QUALIFIED PROPERTIES, INC. Managing General Partner By: /s/ Walter V. Arnold Walter V. Arnold Senior Vice President and Chief Financial Officer Dated: July 14, 1995 EX-27 2
5 This schedule contains summary financial information extracted from the Partnership's interim financial statements for the 9 months ended May 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS AUG-31-1995 MAY-31-1995 1,300,569 0 10,335,763 0 0 1,797,168 13,289,054 0 25,263,379 265,333 1,198,664 0 0 0 23,799,382 25,263,379 0 1,401,322 0 527,477 471,700 0 0 402,145 0 402,145 0 0 0 402,145 10.98 10.98
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