-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P6gjmGY/MNTilJ0oVqI/B9niIhABpjumsWCuvzxMoaW2h4ozK+nqvgza5jd1fnrn tQJOuXBNgwR9ct3+zqvP5A== 0000724136-96-000002.txt : 19960412 0000724136-96-000002.hdr.sgml : 19960412 ACCESSION NUMBER: 0000724136-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960411 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE LP CENTRAL INDEX KEY: 0000724136 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042798638 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17147 FILM NUMBER: 96546278 BUSINESS ADDRESS: STREET 1: 265 FRANKLIN ST 15TH FLR 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 February 29, 1996 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: 0-17147 PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP (Exact name of registrant as specified in its charter) Delaware 04-2798638 (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 ____ PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP BALANCE SHEETS February 29, 1996 and August 31, 1995 (Unaudited) (In thousands) ASSETS February 29 August 31 Real estate investments: Investment property held for sale $ 4,720 $ 4,720 Land 1,150 1,150 Mortgage loans receivable 9,185 9,185 --------- -------- 15,055 15,055 Cash and cash equivalents 878 790 Interest receivable 85 85 Tax and tenant security deposit escrows 55 73 Prepaid expenses 7 14 Deferred expenses, net 11 13 ---------- --------- $ 16,091 $ 16,030 ========= ======== LIABILITIES AND PARTNERS' CAPITAL Accounts payable - affiliates $ 18 $ 18 Accounts payable and accrued expenses 67 110 Tenant security deposits 14 14 Partners' capital 15,992 15,888 ---------- --------- $ 16,091 $ 16,030 ========= ======== STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the six months ended February 29, 1996 and February 28, 1995 (Unaudited) (In thousands) General Limited Partners Partners Balance at August 31, 1994 $ 8 $17,226 Net income 7 725 Cash distributions (6) (633) ------ ------- Balance at February 28, 1995 $ 9 $17,318 ======= ======= Balance at August 31, 1995 $ 10 $15,878 Net income 7 687 Cash distributions (6) (584) ------ ------- Balance at February 29, 1996 $ 11 $15,981 ====== ======= See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP STATEMENTS OF INCOME For the three and six months ended February 29, 1996 and February 28, 1995 (Unaudited) (In thousands, except per Unit data) Three Months Ended Six Months Ended February 29/28, February 29/28, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Interest from mortgage loans $ 256 $ 255 $ 511 $ 511 Land rent 48 54 81 89 Interest earned on short- term investments 11 27 21 50 Other income - 7 - 13 ----- ----- ----- ------ 315 343 613 663 Expenses: Management fees 21 22 42 45 General and administrative 104 111 172 180 Amortization of deferred expenses 1 1 2 2 ----- ----- ----- ------ 126 134 216 227 ----- ----- ----- ------ Operating income 189 209 397 436 Income from operations of investment property held for sale, net 147 144 297 296 ----- ----- ----- ------ Net income $ 336 $ 353 $ 694 $ 732 ======= ====== ======== ====== Net income per Limited Partnership Unit $9.26 $9.77 $19.17 $20.25 ===== ===== ====== ====== Cash distributions per Limited Partnership Unit $8.16 $ 8.84 $16.32 $17.68 ===== ======= ====== ====== The above net income and cash distributions per Limited Partnership Unit are based upon the 35,794 Units of Limited Partnership Interest outstanding during each period. See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP STATEMENTS OF CASH FLOWS For the six months ended February 29, 1996 and February 28, 1995 (Unaudited) Increase (Decrease) in Cash and Cash Equivalents (In thousands) 1996 1995 ---- ---- Cash flows from operating activities: Net income $ 694 $ 732 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred expenses 2 2 Changes in assets and liabilities: Tax and tenant security deposit escrows 18 22 Prepaid expenses 7 12 Accounts payable and accrued expenses (43) (31) Tenant security deposits - (1) ------- ------- Total adjustments (16) 4 ------- ------- Net cash provided by operating activities 678 736 Cash flows from financing activities: Distributions to partners (590) (639) ------- ------- Net increase in cash and cash equivalents 88 97 Cash and cash equivalents, beginning of period 790 1,854 ------- ------- Cash and cash equivalents, end of period $ 878 $ 1,951 ========= ======= See accompanying notes. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP Notes to 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 August 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. Mortgage Loan and Land Investments The outstanding first mortgage loans and the cost of the related land to the Partnership at February 29, 1996 and August 31, 1995 are as follows (in thousands): Amount of Property Mortgage Loan Cost of Land Appletree Apartments $ 4,850 $ 650 Omaha, NE Woodcroft Shopping Center Durham, NC Phase I 3,100 360 Phase II 1,235 140 -------- ------ $ 9,185 $1,150 ======= ====== The interest rates on the mortgage loans range from 11% to 11.25% per annum. The land leases have terms of 40 years. Among the provisions of the lease agreements, the Partnership is entitled to additional rent based upon the gross revenues from the operating properties in excess of a base amount, as defined. For the six months ended February 29, 1996, additional rent of $17,000 was earned from the Woodcroft Shopping Center investment. For the six months ended February 28, 1995, additional rent of $25,000 was earned from the Woodcroft Shopping Center investment. The lessees have the option to purchase the land for specified periods of time, as discussed in the Annual Report, at a price based on fair market value, as defined, but in no event less than the original cost to the Partnership. As of February 29, 1996, all of the options to purchase the land underlying the above properties were exercisable. 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 or exercise of the option to purchase the land, the Partnership will receive a 33% to 50% share of the appreciation above a specified base amount. During fiscal 1995, the Partnership received formal notice from the Appletree borrower of its intent to prepay the Partnership's mortgage loan and repurchase the underlying land. The amount to be received by the Partnership as its share of the appreciation of the Appletree property has not been agreed upon to date. The terms of the Appletree mortgage loan would require a prepayment penalty which would be equal to 3.75% of the outstanding principal balance if the transaction were to close prior to May 1996. Subsequent to April 1996, the prepayment penalty declines to 2.5%. If completed, the proceeds of this prepayment transaction would be distributed to the Limited Partners. However, the prepayment transaction remains contingent on, among other things, a resolution of the value issue and the borrower obtaining sufficient financing to repay its obligations to the Partnership. Accordingly, there are no assurances that this transaction will be consummated. 3. Investment Properties As discussed in the Annual Report, the Partnership foreclosed under the terms of the mortgage loan secured by Westside Creek Apartments on March 23, 1989 due to nonpayment of the required debt service. The Adviser has employed a local property management company to conduct the day-to-day operations of the property under the direction of the Managing General Partner. The property consists of 142 units and is located in Little Rock, Arkansas. The net carrying value of the Partnership's investment in the Westside Creek Apartments, of $4,720,000, is classified as investment property held for sale on the accompanying balance sheets as of February 29, 1996 and August 31, 1995. The Partnership recognizes income from the operations of investment property held for sale in the amount of the excess of the property's gross revenues over the sum of property operating expenses (including capital improvement costs), taxes and insurance. Summarized operating results of the Westside Creek investment property for the three and six months ended February 29, 1996 and February 28, 1995 are as follows (in thousands): Three Months Ended Six Months Ended February 29/28, February 29/28, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Rental income $ 246 $ 233 $ 492 $ 471 Other income 7 9 15 17 ----- ----- ----- ----- 253 242 507 488 Expenses: Property operating expenses 85 77 168 151 Property taxes and insurance 21 21 42 41 ----- ----- ----- ----- 106 98 210 192 ----- ----- ----- ----- Income from operations, net $ 147 $ 144 $ 297 $ 296 ===== ====== ===== ====== As discussed further in the Annual Report, an affiliate of the Partnership, which held the mortgage and land lease on the Cordova Creek Apartments, foreclosed on the property in fiscal 1990 due to nonpayment of the required interest payments. The Partnership had held a 3.5% interest in the mortgage loan and land investments through an agreement with this affiliate. Subsequent to foreclosure, the Partnership recorded its investment at the net combined carrying value of its previous interest in the land and mortgage loan of $250,000. The Partnership's investment, which consisted of a 3.5% equity ownership in the operations and eventual sales proceeds of the Cordova Creek property, was accounted for on the cost method. The affiliate which held title to the operating property sold the Cordova Creek Apartments to an unaffiliated third party on April 12, 1995. The Partnership's share of the net sales proceeds was approximately $311,000, resulting in a $61,000 gain over the Partnership's cost basis of $250,000, which was recognized in the third quarter of fiscal 1995. A special distribution of $42 per original $1,000 investment, or $1,503,000, was made to Limited Partners on June 15, 1995, which represented approximately $9 from Cordova Creek net sale proceeds and $33 as a distribution from cash reserves which were deemed to be in excess of the Partnership's expected future requirements. 4. Related Party Transactions The Adviser earned basic management fees of $42,000 and $45,000 for the six-month periods ended February 29, 1996 and February 28, 1995, respectively. Accounts payable - affiliates at both February 29, 1996 and August 31, 1995 consists of management fees of $18,000 payable to the Adviser. Included in general and administrative expenses for the six months ended February 29, 1996 and February 28, 1995 is $78,000 and $89,000, 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 each of the six months ended February 29, 1996 and February 28, 1995 is $3,000, representing fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing the Partnership's cash assets. 5. Contingencies The Partnership is involved in certain legal actions. At the present time, the Managing General Partner is unable to estimate the impact, if any, of these matters on the Partnership's financial statements, taken as a whole. PAINE WEBBER QUALIFIED PLAN PROPERTY FUND THREE, LP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Operations of the properties securing the Partnership's two remaining mortgage loan investments remained strong during the first half of fiscal 1996 and continue to fully support the debt service and land rent payments owed to the Partnership. Leasing levels at the Appletree Apartments and Woodcroft Shopping Center were 97% and 100%, respectively, as of February 29, 1996. The mortgage loans secured by the Appletree Apartments and Woodcroft Shopping Center bear interest at annual rates of 11.00% and 11.25%, respectively. As previously reported, since current market interest rates for first mortgage loans are considerably lower than these rates, and with the continued availability of credit in the capital markets for real estate transactions, the likelihood of the Partnership's mortgage loan investments being prepaid has been high since the time that the terms of such mortgage loans allowed for prepayment. The Appletree loan became prepayable in April 1994. However, the Appletree loan includes a prepayment premium for any prepayment between May 1994 and April 1998 at rates between 5% and 1.25% of the mortgage loan balance. The Woodcroft loan became prepayable without penalty in December 1994. As discussed further below, the borrowers on both of the outstanding loan investments have approached the Partnership regarding potential prepayment transactions. While there are no assurances that these borrowers will be able to finance such transactions in the near term, if these transactions are completed the Partnership could be positioned for a possible liquidation pending the disposition of the wholly-owned Westside Creek Apartments. During the first quarter of fiscal 1996, the Partnership received notice from the owner of the Woodcroft Shopping Center of its intent to repay the Partnership's first mortgage loan and purchase the underlying land in conjunction with a sale of the operating property to a third party. The proposed terms of the transaction would have resulted in the full repayment of the Partnership's mortgage loan of $4,335,000 and the receipt of $1,220,000 as payment in full for obligations owing under the ground lease, representing the repayment of the $500,000 land investment and $720,000 as the Partnership's share of the appreciation in value of the underlying property. During the current quarter, however, the prospective buyer was unable to secure the necessary financing to close the sale. As a result, the offer to purchase the Partnership's land and repay the outstanding mortgage loan was withdrawn. It is uncertain at this time whether the borrower will make another offer to prepay the mortgage loan and purchase the underlying land during fiscal 1996. As discussed in the Annual Report, during the last quarter of fiscal 1995, the Partnership received notice from the Appletree borrower of its intent to prepay the Partnership's mortgage loan and repurchase the underlying land. The amount to be received by the Partnership under the terms of the ground lease as its share of the appreciation of the Appletree property has not been agreed upon to date. The terms of the ground lease provide for the possible resolution of disputes between the parties over value issues through an arbitration process. If an agreement cannot be reached, the borrower could require the Partnership to submit to arbitration during fiscal 1996. In addition to the amount to be determined as the Partnership's share of the property's appreciation under the ground lease, the terms of the Appletree mortgage loan require a prepayment penalty which would be equal to 3.75% of the outstanding principal balance of $4,850,000 if the transaction were to close prior to May 1996. Subsequent to April 1996, the prepayment penalty declines to 2.5%. If completed, the proceeds of this transaction would be distributed to the Limited Partners. However, the transaction remains contingent on, among other things, a resolution of the value issue and the borrower obtaining sufficient financing to repay its obligations to the Partnership. Accordingly, there are no assurances that this transaction will be consummated. At February 29, 1996, the Partnership had available cash and cash equivalents of approximately $878,000. Such cash and cash equivalents will be used for working capital requirements and for distributions to the partners. The source of future liquidity and distributions to the partners is expected to be through cash generated from the Partnership's real estate investments, repayment of the mortgage loans receivable and the proceeds from the sales or refinancings of the underlying land and the investment property. Such sources of liquidity are expected to be adequate to meet the Partnership's needs on both a short-term and long-term basis. However, to the extent that the potential loan prepayment and land sale transactions discussed above are completed and the net proceeds are returned to the Limited Partners, the Partnership's quarterly distribution rate on remaining invested capital may have to be adjusted downward to reflect the reduction in cash flows which would result from such transactions. Results of Operations Three Months Ended February 29, 1996 The Partnership's net income decreased by $17,000 for the three month period ended February 29, 1996 when compared to the same period in the prior year. The decrease in net income resulted from a decrease in the Partnership's operating income of $20,000. Operating income decreased due to decreases in interest earned on short-term investments and other income. Interest earned on short-term investments decreased by $16,000 due to a decrease in the Partnership's average outstanding cash reserve balances as a result of the distribution to the Limited Partners of Partnership cash reserves that exceeded future portfolio requirements during the fourth quarter of fiscal 1995. This distribution was included with the distribution of the proceeds from the sale of the Cordova Creek Apartments. Other income of $7,000 in the prior year represented cash flow distributions from the Partnership's interest in the Cordova Creek Apartments. No such amounts were received in the current quarter as a result of the sale of the Cordova Creek Apartments in April 1995. In addition, additional land rent revenue from the Woodcroft Shopping Center decreased by $6,000 when compared to the same period in the prior year. The decrease in the Partnership's operating income was partially offset by an increase in the net income from the operations of the Westside Creek Apartments of $3,000 mainly due to an increase in rental income. Six Months Ended February 29, 1996 The Partnership's net income decreased by $38,000 for the six month period ended February 29, 1996 when compared to the same period in the prior year. The decrease in net income resulted from a decrease in the Partnership's operating income of $39,000. Operating income decreased due to decreases in interest earned on short-term investments and other income. Interest earned on short-term investments decreased by $29,000 due to a decrease in the Partnership's average outstanding cash reserve balances as a result of the distribution to the Limited Partners of Partnership cash reserves that exceeded future portfolio requirements during the fourth quarter of fiscal 1995. This distribution was included with the distribution of the proceeds from the sale of the Cordova Creek Apartments. Other income of $13,000 in the prior year represented cash flow distributions from the Partnership's interest in the Cordova Creek Apartments. No such amounts were received in the current six-month period as a result of the sale of the Cordova Creek Apartments in April 1995. In addition, additional land rent revenue from the Woodcroft Shopping Center decreased by $8,000 when compared to the same period in the prior year. The decrease in the Partnership's operating income for the current six-month period was partially offset by an increase in the net income from the operations of the Westside Creek Apartments of $1,000 mainly due to an increase in rental income. PART II Other Information Item 1. Legal Proceedings As previously disclosed, Third Qualified Properties, Inc. and Properties Associates, the General Partners of the Partnership, were named as defendants in a class action lawsuit against PaineWebber Incorporated ("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of 70 direct investment offerings, including the offering of interests in the Partnership. In January 1996, PaineWebber signed a memorandum of understanding with the plaintiffs in the class action 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 a 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 unitholders in PaineWebber Qualified Plan Property Fund Three, LP. Under certain limited circumstances, pursuant to the Partnership Agreement and other contractual obligations, PaineWebber affiliates could be entitled to indemnification for expenses and liabilities in connection with this litigation. At the present time, the General Partners cannot estimate the impact, if any, of this matter on the Partnership's financial statements, taken as a whole. In February 1996, approximately 150 plaintiffs filed an action entitled Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber Incorporated and various affiliated entities concerning the plaintiffs' purchases of various limited partnership interests, including those offered by the Partnership. The complaint alleges, among other things, that PaineWebber and its related entities committed fraud and misrepresentation and breached fiduciary duties allegedly owed to the plaintiffs by selling or promoting limited partnership investments that were unsuitable for the plaintiffs and by overstating the benefits, understating the risks and failing to state material facts concerning the investments. The complaint seeks compensatory damages of $15 million plus punitive damages. The eventual outcome of this litigation and the potential impact, if any, on the Partnership's unitholders cannot be determined at the present time. 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 THREE, 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 THREE, LP By: THIRD QUALIFIED PROPERTIES, INC. Managing General Partner By: /s/ Walter V. Arnold Walter V. Arnold Senior Vice President and Chief Financial Officer Dated: April 13, 1996 EX-27 2 ARTICLE 5
5 This schedule contains summary financial information extracted from the Partnership's interim financial statements for the quarter ended February 29, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS AUG-31-1996 FEB-29-1996 878 0 9270 0 0 1025 5870 0 16091 99 0 0 0 0 15992 16091 0 910 0 216 0 0 0 694 0 694 0 0 0 694 19.17 19.17
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