-----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, TUUSIe8f/sP6nKqrIALR+DImkhv825CuKRGQt88O8qYGfQ9A3TuLLNblzKUUqu83 aww5IMI9O/0SRyp4S5U2Tg== 0000793973-00-000001.txt : 20000215 0000793973-00-000001.hdr.sgml : 20000215 ACCESSION NUMBER: 0000793973-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINEWEBBER EQUITY PARTNERS TWO LTD PARTNERSHIP CENTRAL INDEX KEY: 0000793973 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042918819 STATE OF INCORPORATION: VA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15705 FILM NUMBER: 539667 BUSINESS ADDRESS: STREET 1: 265 FRANKLIN ST 15TH FL CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174398118 10-Q 1 THIS IS A 10-Q FOR EP2 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 QUARTER ENDED December 31, 1999 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: 0-15705 PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP ----------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 04-2918819 -------- ---------- (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 |_|. PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS December 31, 1999 and March 31, 1999 (Unaudited) (In thousands) ASSETS December 31 March 31 ----------- -------- Operating investment properties: Land $ - $ 2,342 Building and improvements - 5,437 -------- --------- - 7,779 Less accumulated depreciation - (2,307) -------- --------- - 5,472 Investments in unconsolidated joint ventures, at equity 17,171 27,774 Cash and cash equivalents 6,231 6,181 Accounts receivable - 346 Prepaid expenses - 6 Deferred rent receivable - 135 Deferred expenses, net of accumulated amortization - 58 Other assets - 17 -------- --------- $ 23,402 $ 39,989 ======== ========= LIABILITIES AND PARTNERS' CAPITAL Accounts payable and accrued expenses $ 93 $ 170 Net advances from consolidated ventures - 156 Mortgage note payable 9,011 9,132 Partners' capital 14,298 30,531 -------- --------- $ 23,402 $ 39,989 ======== ========= See accompanying notes. PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS For the three months and nine ended December 31, 1999 and 1998 (Unaudited) (In thousands, except per Unit data) Three Months Ended Nine Months Ended December 31, December 31, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- Revenues: Rental income and expense reimbursements $ - $ 2,102 $ 439 $ 4,725 Interest and other income 114 227 364 513 ------ ------- ------- ------- 114 2,329 803 5,238 Expenses: Interest expense 206 1,436 621 2,392 Depreciation and amortization - 693 192 1,744 Property operating expenses - 633 197 1,267 Real estate taxes - 197 62 470 General and administrative 305 194 627 452 ------ ------- ------- ------- 511 3,153 1,699 6,325 ------ ------- ------- ------- Operating loss (397) (824) (896) (1,087) Gain on sales of operating investment properties - 10,456 2,665 10,456 Consolidated venture partners' share of operations - (331) - (331) Partnership's share of gain on sale of unconsolidated operating investment property - - 75 5,848 Partnership's share of unconsolidated ventures' income (losses) 120 194 (198) 396 ------ ------- ------- ------- Net income (loss) $ (277) $ 9,495 $ 1,646 $15,282 ====== ======= ======= ======= Per 1,000 Limited Partnership Units: Net income (loss) $(2.04) $ 69.93 $ 12.12 $112.55 ====== ======= ======= ======= Cash distributions $72.00 $147.21 $133.00 $190.63 ====== ======= ======= ======= The above per 1,000 Limited Partnership Units information is based upon the 134,425,741 Limited Partnership Units outstanding during each period. See accompanying notes. PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) For the nine months ended December 31, 1999 and 1998 (Unaudited) (In thousands) General Limited Partners Partners -------- -------- Balance at March 31, 1998 $ (554) $ 50,304 Cash distributions (9) (25,626) Net income 152 15,130 -------- --------- Balance at December 31, 1998 $ (411) $ 39,808 ======== ========= Balance at March 31, 1999 $ (436) $ 30,967 Cash distributions - (17,879) Net income 17 1,629 -------- --------- Balance at December 31, 1999 $ (419) $ 14,717 ======== ========= See accompanying notes. PAINEWEBBER EQUITY PARTNERS TWO LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended December 31, 1999 and 1998 (Unaudited) Increase (Decrease) in Cash and Cash Equivalents (In thousands)
1999 1998 ---- ---- Cash flows from operating activities: Net income $ 1,646 $ 15,282 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Gains on sale of operating investment properties (2,665) (10,456) Consolidated venture partners' share of operations - 331 Partnership's share of gain on sale of unconsolidated operating investment property (75) (5,848) Partnership's share of unconsolidated ventures' income (losses) 198 (396) Depreciation and amortization 192 1,744 Changes in assets and liabilities: Escrowed cash - 322 Accounts receivable 346 (63) Prepaid expenses 6 29 Deferred rent receivable - 62 Deferred expenses - (588) Accounts payable and accrued expenses (77) (79) Advances from consolidated ventures (156) 39 Tenant security deposits - (111) --------- -------- Total adjustments (2,231) (15,014) --------- -------- Net cash (used in) provided by operating activities (585) 268 --------- -------- Cash flows from investing activities: Net proceeds from sales of operating investment properties 8,155 37,776 Distributions from unconsolidated ventures 10,680 7,238 Additional investments in unconsolidated ventures (200) (991) Additions to operating investment properties - (1,862) --------- -------- Net cash provided by investing activities 18,635 42,161 --------- -------- Cash flows from financing activities: Distributions to partners (17,879) (25,635) Repayment of principal on bonds - (146) Repayment of principal on long term debt (121) (10,198) --------- -------- Net cash used in financing activities (18,000) (35,979) --------- -------- Net increase in cash and cash equivalents 50 6,450 Cash and cash equivalents, beginning of period 6,181 6,202 --------- -------- Cash and cash equivalents, end of period $ 6,231 $ 12,652 ========= ======== Cash paid during the period for interest $ 621 $ 2,392 ========= ======== See accompanying notes.
PAINEWEBBER EQUITY PARTNERS TWO 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, 1999. 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 December 31, 1999 and March 31, 1999 and revenues and expenses for each of the three- and nine-month periods ended December 31, 1999 and 1998. Actual results could differ from the estimates and assumptions used. The Partnership originally invested approximately $132,200,000 (net of acquisition fees) in ten operating properties through joint venture investments. Through March 31, 1999, seven of these investments had been sold, including three during fiscal 1999. In addition, on May 14, 1999 the Partnership sold the West Ashley Shoppes property (see Note 4). On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint venture in which the Partnership had an interest, sold the Gateway Plaza property (see Note 3). After these sale transactions, the Partnership retains a joint venture interest in one operating property, the 625 North Michigan Office Building. The Partnership is currently focusing on potential disposition strategies for the remaining investment in its portfolio. Initial sale efforts began during the quarter ended December 31, 1999. As discussed further in Note 3, the property is currently under contract for sale to an affiliate of the Partnership's co-venture partner. A sale transaction is expected to close in late March or early April 2000. While no assurances can be given, management currently expects the liquidation of the Partnership to be completed during the second quarter of calendar year 2000. 2. Related Party Transactions -------------------------- Included in general and administrative expenses for the nine months ended December 31, 1999 and 1998 is $183,000 and $176,000, respectively, representing reimbursements to an affiliate of the Managing General Partner for providing certain financial, accounting and investor communication services to the Partnership. Also included in general and administrative expenses for the nine-month periods ended December 31, 1999 and 1998 is $14,000 and $11,000, respectively, representing fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc., for managing the Partnership's cash assets. 3. Investments in Unconsolidated Joint Ventures -------------------------------------------- As of December 31, 1999, the Partnership had an investment in one unconsolidated joint venture partnership (three at March 31, 1998) which owns an operating investment property as described further in the Partnership's Annual Report. The unconsolidated joint venture partnerships are accounted for on the equity method in the Partnership's financial statements because the Partnership does not have a voting control interest in these joint ventures. Under the equity method, the assets, liabilities, revenues and expenses of the unconsolidated 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. On July 2, 1998, Richmond Gables Associates, a joint venture in which the Partnership held an interest, sold The Gables at Erin Shades Apartments to an unrelated third party for $11,500,000. After deducting closing costs and property adjustments of $320,000, The Gables joint venture received net sale proceeds of $11,180,000. These net sale proceeds were split between the Partnership and its co-venture partner in accordance with the terms of The Gables joint venture agreement. The Partnership received $10,602,000 and the non-affiliated co-venture partner received $578,000 as their share of the sale proceeds. From its share of the proceeds, the Partnership prepaid its refinanced original zero coupon loan secured by the property and the related prepayment fee, the sum of which was $5,449,000. The Partnership distributed the $5,153,000 of net proceeds from the sale of The Gables, along with an amount of cash reserves that exceeded expected future requirements, in the form of a special distribution totalling approximately $5,243,000, or $39 per original $1,000 investment, on July 20, 1998. On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint venture in which the Partnership had an interest, sold the property known as Gateway Plaza, located in Overland Park, Kansas, to an unrelated third party, for $13.55 million. The Partnership received net proceeds of approximately $8,950,000 after deducting closing costs of approximately $214,000, closing proration adjustments of approximately $344,000 and the repayment of the existing mortgage note of approximately $4,042,000. The Partnership received 100% of the sale proceeds in accordance with the joint venture agreement. The Partnership made a special distribution to the Limited Partners totalling approximately $9,679,000, or $72 per original $1,000 investment, on October 15, 1999. Of the $72.00 total, $66.58 resulted from the sale of Gateway Plaza and $5.42 was from Partnership reserves which exceeded expected future requirements. The Partnership recorded a gain of $75,000 on the sale of the unconsolidated operating investment property. As of December 31, 1999, the Partnership retains a joint venture interest in one operating property, the 625 North Michigan Office Building. As discussed in Note 1, the Partnership is currently focusing on potential disposition strategies for the remaining investment in its portfolio. During the quarter ended September 30, 1999, the Partnership selected a real estate brokerage firm to market the 625 North Michigan Avenue property for sale. Materials for the marketing packages for the 625 North Michigan property were finalized and initial sale efforts began during the quarter ended December 31, 1999. To reduce the prospective buyer's due diligence work and the time required to complete it, updated operating reports, as well as environmental information on the property, were provided to the top prospective buyers, who were asked to submit best and final offers. All of the best and final offers received were substantially in excess of the property's 1998 year-end estimated value. The highest bidder was an affiliate of the Partnership's co-venture partner in the 625 North Michigan joint venture. After completing an evaluation of the offers and the relative strength of the prospective purchasers, the Partnership chose to negotiate a purchase and sale agreement with the affiliate of the co-venturer, which was signed on January 13, 2000. The prospective buyer has made a deposit of $400,000 in connection with the transaction and completed its due diligence as of February 3, 2000. The prospective buyer has until February 14, 2000 to secure its financing for the transaction, at which time an additional deposit of $600,000 is required and the entire deposit becomes non-refundable. While no assurances can be given, the transaction is expected to close in late March or early April 2000. The sale of the Partnership's interest in the 625 North Michigan joint venture would be followed by an orderly liquidation of the Partnership. Summarized operations of the unconsolidated joint ventures, for the periods indicated, are as follows. Condensed Combined Summary of Operations For the three and nine months ended September 30, 1999 and 1998 (in thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Revenues: Rental revenues and expense recoveries $ 1,902 $ 2,298 $ 6,947 $ 7,518 Interest and other income 3 9 45 61 ------- ------- ------- ------- 1,905 2,307 6,992 7,579 Expenses: Property operating expenses 606 765 2,134 2,161 Real estate taxes 467 561 1,727 1,551 Interest expense - 91 642 923 Depreciation and amortization 606 672 2,503 2,399 ------- ------- ------- ------- 1,679 2,089 7,006 7,034 ------- ------- ------- ------- Operating income (loss) 226 218 (14) 545 Gain (loss) on sales of operating investment properties - - (13) 6,433 ------- ------- ------- ------- Net income (loss) $ 226 $ 218 $ (27) $ 6,978 ======= ======= ======= ======= Net income (loss): Partnership's share of combined income $ 133 $ 211 $ 28 $ 6,289 Co-venturers' share of combined income (loss) 93 7 (55) 689 ------- ------- ------- ------- $ 226 $ 218 $ (27) $ 6,978 ======= ======= ======= ======= Reconciliation of Partnership's Share of Operations For the three and nine months ended December 31, 1999 and 1998 (in thousands) Three Months Ended Nine Months Ended December 31, December 31, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Partnership's share of operations, as shown above $ 133 $ 211 $ 28 $ 6,289 Amortization of excess basis (13) (17) (151) (45) ------- ------- ------ ------- Partnership's share of unconsolidated ventures' net income (loss) $ 120 $ 194 $ (123) $ 6,244 ======= ======= ====== ======= The Partnership's share of the net income (loss) of the unconsolidated joint ventures is presented as follows in the accompanying statements of operations (in thousands): Three Months Ended Nine Months Ended December 31, December 31, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Partnership's share of unconsolidated ventures' income (losses) $ 120 $ 194 $ (198) $ 396 Partnership's share of gains on sales of unconsolidated operating investment properties - - 75 5,848 ------- ------ ------ ------- $ 120 $ 194 $ (123) $ 6,244 ======= ====== ====== ======= 4. Operating Investment Properties ------------------------------- The Partnership's balance sheet at March 31, 1999 included one operating investment property (three at March 31, 1998) owned by a joint venture in which the Partnership had a controlling interest: West Ashley Shoppes Associates. On May 14, 1999, West Ashley Shoppes Associates sold the property known as West Ashley Shoppes, located in Charleston, South Carolina, to an unrelated third party for $8.1 million. In addition, on May 12, 1999, West Ashley Shoppes Associates had sold an adjacent outparcel of land to another unrelated third party for $280,000. The May 14 transaction involved the remaining real estate owned by the joint venture. The Partnership received total net proceeds from the two sale transactions of approximately $8,070,000 after deducting closing costs of approximately $225,000 and net closing proration adjustments of approximately $85,000. The Partnership distributed the net proceeds of the West Ashley Shoppes sale transactions to the Limited Partners in the form of a special distribution in the amount of $61 per original $1,000 investment, on June 15, 1999. The Partnership recorded a gain of $2,665,000 on the sale of the operating investment property. On November 20, 1998, Hacienda Park Associates, a joint venture in which the Partnership had a controlling interest, sold the Hacienda Business Park property to an unrelated third party for $25 million. The property consisted of four separate office/R&D buildings comprising approximately 185,000 square feet, located in Pleasanton, California. The Partnership received net proceeds of approximately $20,861,000 after deducting closing costs of approximately $278,000, net closing proration adjustments of approximately $89,000, the repayment of the existing first mortgage note of approximately $3,769,000 and accrued interest of approximately $3,000. On December 21, 1998, Atlanta Asbury Partnership, a joint venture in which the Partnership had a controlling interest, sold the Asbury Commons Apartments to an unrelated third party for $13.345 million. The Asbury Commons Apartments is a 204-unit residential apartment complex located in Atlanta, Georgia. The Partnership received net proceeds of approximately $5,613,000 after deducting closing costs of approximately $291,000, closing proration adjustments of approximately $90,000, the repayment of the existing mortgage note of approximately $6,598,000, accrued interest of approximately $10,000 and a prepayment penalty of approximately $743,000. 5. Mortgage Note Payable --------------------- Mortgage note payable on the consolidated balance sheets of the Partnership at December 31, 1999 and March 31, 1999 consists of the following (in thousands): December 31 March 31 ----------- -------- 9.125% mortgage note payable by the Partnership to an insurance company secured by the 625 North Michigan Avenue operating investment property. The terms of the note were modified effective May 31, 1994. The loan requires monthly principal and interest payments of $83 through maturity in May 2000. In addition, the loan requires monthly deposits to a capital improvement escrow. The fair value of the mortgage note approximated its carrying value at December 31, 1999 and March 31, 1999. $ 9,011 $ 9,132 ======= ======= PAINEWEBBER EQUITY PARTNERS TWO 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, 1999 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 - ------------------------------- Subsequent to the sales of the Gateway Plaza and West Ashley Shoppes properties on September 28, 1999 and May 14, 1999, respectively, as discussed further below, the Partnership's only remaining real estate investment is a joint venture interest in the 625 North Michigan Office Building. As previously reported, management is currently focusing on potential disposition strategies for the remaining investment in the Partnership's portfolio. With regard to the remaining commercial office property, the Partnership is working with the property's leasing and management team to develop and implement programs that will protect and enhance value and maximize cash flow at the property while at the same time exploring potential sale opportunities. During the prior quarter, the Partnership selected a real estate brokerage firm to market the 625 North Michigan Avenue property for sale. Materials for the marketing packages were finalized and initial sale efforts began during the quarter ended December 31, 1999. As discussed further below, the property is currently under contract for sale to an affiliate of the Partnership's co-venture partner. A sale transaction is expected to close in late March or early April 2000. While no assurances can be given, management currently expects the liquidation of the Partnership to be completed during the second quarter of calendar year 2000. On September 28, 1999, Daniel/Metcalf Associates Partnership, a joint venture in which the Partnership had an interest, sold the property known as Gateway Plaza, located in Overland Park, Kansas, to an unrelated third party, for $13.55 million. The Partnership received net proceeds of approximately $8,950,000 after deducting closing costs of approximately $214,000, closing proration adjustments of approximately $344,000 and the repayment of the existing mortgage note of approximately $4,042,000. The Partnership received 100% of the sale proceeds in accordance with the joint venture agreement. The Partnership made a special distribution to the Limited Partners totalling approximately $9,679,000, or $72 per original $1,000 investment, on October 15, 1999. Of the $72.00 total, $66.58 resulted from the sale of Gateway Plaza and $5.42 was from Partnership reserves which exceeded expected future requirements. The Partnership recognized a gain of $75,000 during the quarter ended September 30, 1999 in connection with the sale of the Gateway Plaza property. As previously reported, preliminary marketing materials were prepared and initial sale efforts for Gateway Plaza Shopping Center were undertaken in March 1999. A marketing package was then finalized and comprehensive sale efforts began in early April 1999. By July 7, 1999, 14 offers were received. To reduce the prospective buyer's due diligence work and the time required to complete it, updated operating reports, as well as environmental information on the property, were provided to the top prospective buyers, who were asked to submit best and final offers. After completing an evaluation of these offers and the relative strength of the prospective purchasers, the Partnership selected an offer and then negotiated a purchase and sale agreement which was signed on July 21, 1999. The prospective buyer completed its due diligence review work on August 23, 1999 and subsequently made a non-refundable deposit of $250,000. The sale transaction closed on September 28, 1999 after the prospective buyer secured its financing. On May 14, 1999, West Ashley Shoppes Associates, a joint venture in which the Partnership had an interest, sold the property known as West Ashley Shoppes, located in Charleston, South Carolina, to an unrelated third party for $8.1 million. In addition, on May 12, 1999, West Ashley Shoppes Associates had sold an adjacent outparcel of land to another unrelated third party for $280,000. The May 14 transaction involved the remaining real estate owned by the joint venture. The Partnership received total net proceeds from the two sale transactions of approximately $8,070,000 after deducting closing costs of approximately $225,000 and net closing proration adjustments of approximately $85,000. In addition, the Partnership received final net cash flow from the property of approximately $168,000 after the payment of final operating expenses and the liquidation of the joint venture. As previously reported, with a strong occupancy level and a stable base of tenants, the Partnership believed it was the opportune time to sell West Ashley Shoppes. As part of a plan to market the property for sale, the Partnership selected a national real estate firm that is a leading seller of this property type. Preliminary sales materials were prepared and initial marketing efforts were undertaken. A marketing package was then finalized and comprehensive sale efforts began in November 1998. As a result of these efforts, ten offers were received. After completing an evaluation of those offers and the relative strength of the prospective purchasers, the Partnership selected an offer. A purchase and sale agreement was negotiated with an unrelated third-party prospective buyer and a non-refundable deposit of $150,000 was made on January 29, 1999. This prospective buyer completed its due diligence review work and the transaction closed on May 14, 1999, as described above. As a result of the sale of West Ashley Shoppes, the Partnership made a Special Distribution of approximately $8,200,000, or $61 per original $1,000 investment, on June 15, 1999 to unitholders of record on May 14, 1999. The Partnership recognized a gain of $2,665,000 during the quarter ended June 30, 1999 in connection with the sale of the West Ashley Shoppes property. The 625 North Michigan Office Building in Chicago, Illinois, was 95% leased as of December 31, 1999, compared to 91% leased as of September 30, 1999. During the third quarter of fiscal 2000, one tenant leasing a total of 10,858 square feet signed a new short-term lease and took occupancy. In addition, an existing tenant expanded its leased space by 6,395 square feet. This new leasing was partially offset when three tenants occupying a total of 4,354 square feet moved from the building. Over the next year, 3 leases representing a total of approximately 10,000 square feet will expire. Two of these leases representing 3,000 square feet will not be renewed because that space is included in the retail redevelopment plan, and the third tenant currently expects to move from the building when its lease for 7,000 square feet expires on August 31, 2000. The property's leasing team continues to negotiate with several prospective tenants which have expressed an interest in leasing space at 625 North Michigan Avenue. As previously reported, the Partnership has been actively working with the co-venture partner on potential redevelopment and leasing opportunities with specialty and fashion retailers looking to locate stores near the building. These retailers pay significantly higher rental rates than office rental rates. Formal approval received from the City Council during fiscal 1999 to enclose the arcade sections of the first floor will greatly improve the chances of adding a major retail component to the building's North Michigan Avenue frontage. Once this approval was obtained, the Partnership began exploring potential opportunities to sell this property with the development rights. As previously reported, during the quarter ended September 30, 1999 the Partnership selected a real estate brokerage firm to market the 625 North Michigan Avenue property for sale. Materials for the marketing packages for the 625 North Michigan property were finalized and initial sale efforts began during the quarter ended December 31, 1999. To reduce the prospective buyer's due diligence work and the time required to complete it, updated operating reports, as well as environmental information on the property, were provided to the top prospective buyers, who were asked to submit best and final offers. All of the best and final offers received were substantially in excess of the property's 1998 year-end estimated value. The highest bidder was an affiliate of the Partnership's co-venture partner in the 625 North Michigan joint venture. After completing an evaluation of the offers and the relative strength of the prospective purchasers, the Partnership chose to negotiate a purchase and sale agreement with the affiliate of the co-venturer, which was signed on January 13, 2000. The prospective buyer has made a deposit of $400,000 in connection with the transaction and completed its due diligence as of February 3, 2000. The prospective buyer has until February 14, 2000 to secure its financing for the transaction, at which time an additional deposit of $600,000 is required and the entire deposit becomes non-refundable. While no assurances can be given, the transaction is expected to close in late March or early April 2000. The sale of the Partnership's interest in the 625 North Michigan joint venture would be followed by an orderly liquidation of the Partnership. At December 31, 1999, the Partnership had available cash and cash equivalents of approximately $6,231,000. Such cash and cash equivalents, along with the future cash flow distributions from the remaining operating property, will be utilized for the working capital requirements of the Partnership and, as necessary, for the capital needs of the Partnership's one remaining commercial property. The source of future liquidity and distributions to the partners is expected to be through cash generated from operations of the Partnership's income-producing investment property and proceeds received from the sale or refinancing of such property. 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 December 31, 1999 - ------------------------------------ The Partnership reported a net loss of $277,000 for the three months ended December 31, 1999, as compared to net income of $9,495,000 for the same period in the prior year. This unfavorable change in net income (loss) was primarily a result of the gains of $10,456,000 realized from the sale of two consolidated operating investment properties during the prior period. The Partnership sold the consolidated Hacienda Business Park on November 20, 1998 and realized a gain of $9,051,000. The Partnership sold the consolidated Asbury Commons Apartments on December 21, 1998 and realized a gain of $1,405,000. In addition, the Partnership's share of unconsolidated ventures' income decreased by $74,000 during the current three-month period. The Partnership's share of unconsolidated ventures' income decreased primarily due to the sale of Gateway Plaza. The prior period includes net income from Gateway Plaza of $196,000. This decrease in net income from Gateway Plaza was partially offset by an increase in net income at 625 North Michigan of $120,000 mainly due to an increase in rent escalation revenues. The decrease in gains on sale of operating investment properties and the decrease in the Partnership's share of unconsolidated ventures' income were partially offset by a decrease in the Partnership's operating loss of $427,000. The decrease in the Partnership's operating loss was primarily a result of the sale of the consolidated West Ashley Shoppes, Hacienda Park and Asbury Commons operating investment properties, whose operating results were included in the prior period operating loss. The consolidated expenses decreased by $2,561,000 while rental income decreased by $2,102,000 as a result of the sales. Nine Months Ended December 31, 1999 - ----------------------------------- The Partnership reported net income of $1,646,000 for the nine months ended December 31, 1999 as compared to net income of $15,282,000 for the same period in the prior year. The decrease in net income of $13,636,000 was primarily a result of the gains realized from the sale of three operating investment properties during the prior period. The Partnership sold the consolidated Hacienda Business Park on November 20, 1998 and realized a gain of $9,051,000. In addition, the Partnership sold the consolidated Asbury Commons Apartments on December 21, 1998 and realized a gain of $1,405,000. The Partnership also realized a gain of $5,848,000 in connection with the sale of the unconsolidated Gables Apartments during the nine months ended December 31, 1998. The gains realized from the sales of the three operating investment properties during the prior period exceeded the gain realized on the sale of the consolidated West Ashley Shoppes property of $2,665,000 and the Partnership's share of the gain realized on the sale of the unconsolidated Gateway Plaza property of $75,000 during the current nine-month period. In addition, there was an unfavorable change in the Partnership's share of unconsolidated ventures' income (losses) of $594,000 during the current nine-month period. The unfavorable change in the Partnership's share of unconsolidated ventures' income (losses) was primarily due to declines in net income at the 625 North Michigan and Gateway Plaza joint ventures. Net income decreased at 625 North Michigan mainly due to increases in repairs and maintenance expense and real estate taxes. The decrease in net income at Gateway Plaza was primarily due to a prepayment penalty of $373,000 recognized upon the payoff of the debt secured by Gateway Plaza at the time of the sale of the property. The decrease in gains on sale of operating investment properties and the unfavorable change in the Partnership's share of unconsolidated ventures' income (losses) were partially offset by a decrease in the Partnership's operating loss of $191,000. The decrease in the Partnership's operating loss was primarily a result of the sales of the consolidated West Ashley Shoppes, Hacienda Park and Asbury Commons operating investment properties, whose operating results were included in the prior period operating loss. The consolidated expenses decreased by $4,718,000 while rental income decreased by $4,286,000 as a result of the sales. The decrease in operating loss resulting from the sale of the three consolidated properties in the prior period was partially offset by an increase in general and administrative expenses of $175,000. The higher general and administrative expenses were the result of an increase in certain required professional services for the current nine-month period. 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: NONE PAINEWEBBER EQUITY PARTNERS TWO 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 TWO LIMITED PARTNERSHIP By: Second Equity Partners, Inc. ---------------------------- Managing General Partner By: /s/ Walter V. Arnold --------------------- Walter V. Arnold Senior Vice President and Chief Financial Officer Dated: February 11, 2000 EX-27 2 ARTICLE 5 FDS FOR THE NINE MONTHS ENDED 12/31/99
5 This schedule contains summary financial information extracted from the Partnership's unaudited financial statements for the quarter ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS Mar-31-2000 Dec-31-1999 6,231 0 0 0 0 6,231 0 0 23,402 93 9,011 0 0 0 14,298 23,402 0 3,543 0 1,078 198 0 621 1,646 0 1,646 0 0 0 1,646 12.12 12.12
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