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 February 28, 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 : 0-17145
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
(Exact name of registrant as specified in its charter)
Delaware 13-3069311
(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, LP
BALANCE SHEETS
February 28, 1997 and August 31, 1996 (Unaudited)
(In thousands)
ASSETS
February 28 August 31
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Investment property held for sale $ 3,964 $ 3,964
Cash and cash equivalents 438 376
Escrowed cash 79 140
Accounts receivable 24 20
Prepaid insurance 2 7
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$ 4,507 $ 4,507
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 62 $ 48
Accounts payable - affiliates 3 3
Accrued real estate taxes 20 72
Tenant security deposits 18 18
Partners' capital 4,404 4,366
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$ 4,507 $ 4,507
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STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended February 28, 1997 and February 29, 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at August 31, 1995 $ (26) $ 4,286
Net income 1 108
Cash distributions (1) (101)
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Balance at February 29, 1996 $ (26) $ 4,293
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Balance at August 31, 1996 $ (25) $ 4,391
Net income 1 139
Cash distributions (1) (101)
----- -------
Balance at February 28, 1997 $ (25) $ 4,429
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See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF INCOME
For the three and six months ended February 28, 1997 and February 29, 1996
(Unaudited)
(In thousands, except per Unit amounts)
Three Months Ended Six Months Ended
February 28/29, February 28/29,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Interest earned on
short-term investments $ 5 $ 3 $ 10 $ 5
Expenses:
Management fees 3 3 6 6
General and administrative 49 70 91 119
----- ------ ----- ------
52 73 97 125
----- ------ ----- ------
Operating loss (47) (70) (87) (120)
Income from operations of investment
property held for sale, net 122 99 227 229
----- ------ ----- ------
Net income $ 75 $ 29 $ 140 $ 109
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Net income per Limited
Partnership Unit $3.94 $1.49 $7.37 $5.75
===== ===== ===== =====
Cash distributions per Limited
Partnership Unit $2.69 $2.69 $5.38 $5.38
===== ===== ===== =====
The above per Limited Partnership Unit information is based upon the 18,781
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1997 and February 29, 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 140 $ 109
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in assets and liabilities:
Escrowed cash 61 (37)
Accounts receivable (4) 176
Prepaid insurance and other assets 5 (14)
Accounts payable and accrued expenses 14 (24)
Accrued real estate taxes (52) (51)
Tenant security deposits and other liabilities - (2)
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Total adjustments 24 48
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Net cash provided by operating activities 164 157
Cash flows from financing activities:
Distributions to partners (102) (102)
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Net increase in cash and cash equivalents 62 55
Cash and cash equivalents, beginning of period 376 223
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Cash and cash equivalents, end of period $ 438 $ 278
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See accompanying notes.
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, 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, 1996. 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 require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of February 28, 1997 and August 31,
1996 and revenues and expenses for the three and six months ended February
28, 1997 and February 29, 1996. Actual results could differ from the
estimates and assumptions used.
2. Related Party Transactions
The Adviser earned management fees of $6,000 for both of the six-month
periods ended February 28, 1997 and February 29, 1996.
Included in general and administrative expenses for the six-month periods
ended February 28, 1997 and February 29, 1996 is $46,000 and $49,000,
representing reimbursements to an affiliate of the General Partner for
providing certain financial, accounting and investor communication services
to the Partnership.
3. Investment Property Held for Sale and Potential Partnership Liquidation
As discussed further in the Partnership's fiscal 1996 Annual Report, on
June 19, 1995 the Partnership foreclosed under the terms of the mortgage
loan secured by the Harwood Village Shopping Center. The property consists
of 86,300 net rentable square feet and is located in Bedford, Texas
(suburban Dallas). The Adviser has employed a local management company to
operate the property on the Partnership's behalf since assuming ownership.
Prior to the foreclosure transaction, the Partnership's investments in
Harwood Village had consisted of a 9.5% mortgage loan in the amount of
$3,418,000 and land with a cost basis of $500,000 which was subject to a
ground lease. Annual rent due under the terms of the ground lease totalled
$47,500.
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 foreclosure. 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. At
the date of the foreclosure, management believed that the fair value of the
Harwood Village Shopping Center was approximately equal to the aggregate
carrying value of the Partnership's land and mortgage loan investments, of
$3,918,000. Accordingly, such carrying values were reclassified to
investment property held for sale as of the date of foreclosure. During
fiscal 1996, the Partnership purchased an additional out-parcel of land
adjacent to the Harwood Village property for $46,000, which is included in
the balance of investment property held for sale on the accompanying
balance sheets. Declines in the estimated fair value of the asset
subsequent to foreclosure are recorded through the use of a valuation
allowance. Subsequent increases in the estimated fair value of the asset
result in a reduction in the valuation allowance, but not below zero. All
costs incurred to hold the asset are charged to expense and no depreciation
expense is recorded.
During the quarter ended May 31, 1996, the Partnership signed a letter of
intent to sell the Harwood Village Shopping Center to an unrelated third
party for $4,925,000. The sale remained subject to, among other things, the
negotiation of a definitive sales agreement, the satisfactory completion of
the buyer's due diligence and the buyer's ability to obtain financing.
During the fourth quarter of fiscal 1996, due to the buyer's inability to
obtain the required financing, the sale transaction was not able to be
completed. Subsequently, management reviewed offers from other potential
buyers and executed a sales contract with a new buyer in August 1996 at a
sales price of $4,700,000. This sale transaction was also subject to the
satisfactory completion of due diligence, which was to be completed by
September 30, 1996. At the end of the due diligence period, the prospective
buyer requested an extension of the due diligence period. Management was
willing to grant such an extension only if the prospective buyer was
willing to make its deposit non-refundable and subject to forfeiture in the
event that the sale did not close subsequent to the extension period for
any reason other than financing. The prospective buyer did not agree to the
terms of the extension, and the sales contract was terminated. During the
first quarter of fiscal 1997, management again evaluated other offers and
solicited new offers through further marketing efforts. As a result of
these efforts, management identified a new third-party prospective buyer
and on January 2, 1997 signed a contract to sell the property for
$4,300,000. Due to potential environmental concerns, the sales contract was
amended on February 13, 1997 allowing the buyer additional time to complete
due diligence and to secure financing. A Phase II environmental survey
completed as part of the buyer's due diligence identified two contaminated
locations which must be cleaned up near an existing dry cleaning tenant.
This involves the removal of sections of the slab inside the dry cleaner's
space and an area of the parking lot. It also involves the removal and
proper disposal of contaminated soil as well as replacement of the slab in
the dry cleaner's space and repairs to the parking lot. The total cost of
this project is expected to be approximately $50,000. The Partnership has
filed the necessary documents with the State of Texas and plans to begin
cleanup as soon as the State approves the plan. Subsequent to the end of
the quarter, the State approved the plan on April 7, 1997. After the work
is finished, the State has 45 days to confirm the cleanup has been
completed in accordance with the approved plan. The prospective buyer has
indicated a willingness to close the sale after the cleanup is complete.
Management hopes to complete a sale of the property during calendar year
1997. However, due to the outstanding contingencies, there can be no
assurances that a sale transaction will be completed. If a sale does occur,
it would be followed by a liquidation of the Partnership.
The Partnership records income from the investment property held for sale
in the amount of the difference between the property's gross revenues and
property operating expenses (including leasing costs and improvement
expenses), taxes and insurance. Summarized operating results for the
Harwood Village Shopping Center for the three- and six-month periods ended
February 28, 1997 and February 29, 1996 are as follows (in thousands):
Three Months Ended Six Months Ended
February 28/29, February 28/29,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and
expense recoveries $ 182 $ 221 $ 352 $ 399
Property operating expenses 16 86 45 99
Property taxes and insurance 37 28 66 57
Management fees 7 8 14 14
------ ------ ------ -----
60 122 125 170
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Income from investment
property held for
sale, net $ 122 $ 99 $ 227 $ 229
======= ====== ===== =====
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As discussed further in the Annual Report, management began active
marketing efforts for the Harwood Village Shopping Center in February 1996.
During the quarter ended May 31, 1996, the Partnership signed a letter of intent
to sell the Harwood Village Shopping Center to an unrelated third party for
$4,925,000. The sale remained subject to, among other things, the negotiation of
a definitive sales contract, the satisfactory completion of the buyer's due
diligence and the buyer's ability to obtain financing. During the fourth quarter
of fiscal 1996, due to the buyer's inability to obtain the required financing,
the sale transaction was not able to be completed. Subsequently, management
reviewed offers from other potential buyers and executed a sales contract with a
new buyer in August 1996 at a sales price of $4,700,000. This sale transaction
was also subject to the satisfactory completion of due diligence, which was to
be completed by September 30, 1996. Prior to September 30, 1996, the prospective
buyer requested an extension of the due diligence period. Management was willing
to grant such an extension only if the prospective buyer was willing to make a
non-refundable deposit which would be subject to forfeiture in the event that
the sale did not close subsequent to the extension period for any reason other
than financing. The prospective buyer did not agree to the terms of the
extension, and the sales contract was terminated.
During the first quarter of fiscal 1997, management again evaluated other
offers and solicited new offers through further marketing efforts. As a result
of these efforts, management identified a new third-party prospective buyer and
on January 2, 1997 signed a contract to sell the property for $4,300,000. Due to
potential environmental concerns, the sales contract was amended on February 13,
1997 allowing the buyer additional time to complete due diligence and to secure
financing. A Phase II environmental survey completed as part of the buyer's due
diligence identified two contaminated locations which must be cleaned up near an
existing dry cleaning tenant. This involves the removal of sections of the slab
inside the dry cleaner's space and an area of the parking lot. It also involves
the removal and proper disposal of contaminated soil as well as replacement of
the slab in the dry cleaner's space and repairs to the parking lot. The total
cost of this project is expected to be approximately $50,000. The Partnership
has filed the necessary documents with the State of Texas and plans to begin
cleanup as soon as the State approves the plan. Subsequent to the end of the
quarter, the State approved the plan on April 7, 1997. After the work is
finished, the State has 45 days to confirm the cleanup has been completed in
accordance with the approved plan. The prospective buyer has indicated a
willingness to close the sale after the cleanup is complete.
The reductions in the three contracted sales prices which have been
negotiated over the past twelve months is symptomatic of a general trend in
values for retail shopping centers in many markets due to certain consolidations
and bankruptcies among retailers which have led to an oversupply of space and
the generally flat rate of growth in overall retail sales. Nonetheless,
management continues to believe that a current sale of the property would be in
the best interests of the Limited Partners. Management hopes to complete a sale
of the Harwood Village property during calendar year 1997. However, due to the
outstanding contingencies, there are no assurances that this sale transaction
will be completed. A sale of the property would be followed by a liquidation of
the Partnership. Assuming that the current sale contract is consummated, it is
currently anticipated that the potential liquidating distribution would be
approximately $214 per original $1,000 investment.
The Harwood Village North Shopping Center remained 98% leased at February
28, 1997, unchanged from the quarter ended November 30, 1996. During the quarter
ended February 28, 1997, the property's leasing team was able to renew the only
lease scheduled to come up for renewal during fiscal 1997. The lease covers
4,000 square feet and was renewed for a three-year term ending March 31, 2000.
As of February 28, 1997, the Partnership had cash and cash equivalents of
$438,000. Such cash and cash equivalents will be used for the working capital
requirements of the Partnership and distributions to the partners. The source of
future liquidity and distributions to the partners is expected to be through
cash flow generated from the operations of the Harwood Village property and from
the eventual sale of the operating investment property, as discussed further
above. Upon the sale of the Harwood Village North Shopping Center, the
Partnership will be liquidated and a final distribution, including any remaining
cash reserves after payment of all liquidation-related expenses, will be made to
the Limited Partners.
Results of Operations
Three Months Ended February 28, 1997
- ------------------------------------
The Partnership reported net income of $75,000 for the three months ended
February 28, 1997, compared to net income of $29,000 for the same period in the
prior year. This increase of $46,000 in the Partnership's net income is the
result of an increase in the Partnership's income from operations of the
investment property held for sale of $23,000 and a decrease in the Partnership's
operating loss of $23,000. The increase in income from the operations of
investment property held for sale resulted from a decrease in property operating
expenses. Property operating expenses decreased primarily due to additional
repair and maintenance related expenditures incurred during the three months
ended February 29, 1996.
The decrease in the Partnership's operating loss for the current
three-month period resulted mainly from a $21,000 decrease in general and
administrative expenses and a $2,000 increase in interest income. General and
administrative expenses declined primarily due to a reduction in certain
required professional services. Interest income increased due to a higher
average invested cash reserve balance during the current period.
Six Months Ended February 28, 1997
- ----------------------------------
The Partnership reported net income of $140,000 for the six-month period
ended February 28, 1997 as compared to net income of $109,000 for the same
period in the prior year. This increase in the Partnership's net income is
mainly the result of a $33,000 decrease in the Partnership's operating loss. The
decrease in the Partnership's operating loss is primarily due to a decrease in
general and administrative expenses due to a decline in certain required
professional services during the six months ended February 28, 1997. Income from
operations of investment property held for sale declined by $2,000 for the
current six-month period due to a reduction in rental income and expense
reimbursements which was offset by a reduction in property operating expenses.
PART II
Other Information
Item 1. Legal Proceedings
As previously reported, 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. The lawsuits were
brought against PaineWebber Incorporated and Paine Webber Group Inc. (together
"PaineWebber"), among others, by allegedly dissatisfied partnership investors.
In March 1995, after the actions were consolidated under the title In re
PaineWebber Limited Partnership Litigation, the plaintiffs amended their
complaint to assert claims against a variety of other defendants, including
First Qualified Properties, Inc. and Properties Associates ("PA"), which are the
General Partners of the Partnership and affiliates of PaineWebber. On May 30,
1995, the court certified class action treatment of the claims asserted in the
litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in PaineWebber Qualified Plan
Property Fund LP, PaineWebber, First Qualified Properties, Inc. and PA (1)
failed to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purported to be suing on behalf of all persons who invested in PaineWebber
Qualified Plan Property Fund LP, also alleged that following the sale of the
partnership interests, PaineWebber, First Qualified Properties, Inc. and PA
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleged that PaineWebber, First Qualified
Properties, Inc. and PA violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and the General Partners, and the
allocation of the $125 million settlement fund among investors in the various
partnerships at issue in the case. As part of the settlement, PaineWebber also
agreed to provide class members with certain financial guarantees relating to
some of the partnerships. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the settlement was held in December 1996, and in
March 1997 the court issued a final approval of the settlement.
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 the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
the amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. Accordingly, the General Partners believe that
this matter will not have a material impact 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: NONE
PAINE WEBBER QUALIFIED PLAN PROPERTY FUND, LP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, LP
By: FIRST QUALIFIED PROPERTIES, INC.
General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: April 14, 1997