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 DECEMBER 31, 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: 0-10980
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2738053
- ------------------------------- -----------------
(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>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
----------- ------------
Operating investment property:
Land $ 1,300 $ 1,300
Buildings, improvements and equipment 12,372 12,350
--------- ---------
13,672 13,650
Accumulated depreciation (5,481) (5,352)
--------- ---------
8,191 8,298
Cash and cash equivalents 803 995
Tax escrow deposit 157 121
Repair escrow 69 69
Prepaid and other assets 52 59
Deferred financing costs, net 159 161
---------- ---------
$ 9,431 $ 9,703
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 46 $ 340
Accrued real estate taxes 150 116
Mortgage interest payable 36 36
Tenant security deposits 96 81
Losses from unconsolidated joint venture
in excess of investments and advances 58 159
Long-term debt 4,765 4,783
Partners' capital 4,280 4,188
---------- ---------
$ 9,431 $ 9,703
========== =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
1997 1996
---- ----
Revenues:
Rental revenues $ 500 $ 443
Interest and other income 98 100
------ -------
598 543
Expenses:
Property operating expenses 287 296
Interest expense and related fees 110 112
Depreciation expense 129 112
Real estate taxes 34 35
General and administrative 47 32
------ -------
607 587
------ -------
Operating loss (9) (44)
Partnership's share of unconsolidated
venture's income 101 108
------ -------
Net income $ 92 $ 64
====== =======
Net income per Limited Partnership Unit $ 3.55 $ 2.46
====== =======
The above net income per Limited Partnership Unit is based upon the 25,698
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended December 31, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1996 $ (141) $ 4,255
Net income 1 63
------ -------
Balance at December 31, 1996 $ (140) $ 4,318
====== =======
Balance at September 30, 1997 $ (140) $ 4,328
Net income 1 91
------ -------
Balance at December 31, 1997 $ (139) $ 4,419
====== =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 92 $ 64
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Depreciation expense 129 112
Amortization of deferred financing fees 2 2
Partnership's share of unconsolidated
venture's income (101) (108)
Changes in assets and liabilities:
Tax and insurance escrow deposits (36) 93
Prepaid and other assets 7 7
Accounts payable and other liabilities (294) (19)
Accrued real estate taxes 34 (100)
Tenant security deposits 15 (3)
------- --------
Total adjustments (244) (16)
------- --------
Net cash (used in) provided by
operating activities (152) 48
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Cash flows from investing activities:
Additions to buildings, improvements and equipment (22) (9)
Net deposits to repair escrow - (4)
------- --------
Net cash used in investing activities (22) (13)
------- --------
Cash flows from financing activities:
Principal repayments on long-term debt (18) (16)
------- --------
Net (decrease) increase in cash and cash
equivalents (192) 19
Cash and cash equivalents, beginning of period 995 654
------- --------
Cash and cash equivalents, end of period $ 803 $ 673
======= ========
Cash paid during the period for interest $ 108 $ 110
======= ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR 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 September 30, 1997. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the results
for the interim period. All of the accounting adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which 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 December 31, 1997 and September 30, 1997 and revenues and
expenses for the three months ended December 31, 1997 and 1996. Actual results
could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the three-month
periods ended December 31, 1997 and 1996 is $22,000 and $21,000, 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 both of the
three-month periods ended December 31, 1997 and 1996 is $1,000, representing
fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc.,
for managing the Partnership's cash assets.
3. Investment in Unconsolidated Joint Venture
------------------------------------------
At December 31, 1997, the Partnership had an investment in one
unconsolidated joint venture, Charter Oak Associates, which owns an operating
investment property as more fully described in the Partnership's Annual Report.
The unconsolidated joint venture is accounted for on the equity method in the
Partnership's financial statements because the Partnership does not have a
voting control interest in the ventures. Under the equity method, the assets,
liabilities, revenues and expenses of the joint venture do not appear in the
Partnership's financial statements. Instead, the investment is carried at cost
adjusted for the Partnership's share of the venture's earnings, losses and
distributions.
Summarized operating results of the unconsolidated joint venture for the
three months ended December 31, 1997 and 1996 are as follows:
Condensed Combined Summary of Operations
For the three months ended December 31, 1997 and 1996 (in thousands)
1997 1996
---- ----
Rental revenues and expense recoveries $ 638 $ 638
Interest and other income 23 36
------- -------
661 674
Property operating expenses 229 214
Interest expense 166 184
Depreciation and amortization 136 113
Real estate taxes 35 38
------- -------
566 549
------- -------
Net income $ 95 $ 125
======= =======
Net income:
Partnership's share of combined
income $ 101 $ 108
Co-venturers' share of combined
income (loss) (6) 17
------ -------
$ 95 $ 125
====== =======
4. Operating Investment Property
-----------------------------
Operating investment property at December 31, 1997 and September 30, 1997
represents the land, buildings and equipment of Arlington Towne Oaks Associates,
a joint venture in which the Partnership has a controlling interest. As
discussed further in the Annual Report, during fiscal 1991 the Partnership's
co-venture partner in Arlington Towne Oaks Associates withdrew from the venture
and assigned its interest to the Managing General Partner of the Partnership in
return for a release from any further obligations. As a result, the Partnership
assumed control over the affairs of the joint venture. Accordingly, the
accompanying financial statements present the financial position and results of
operations of the joint venture on a consolidated basis. The joint venture owns
and operates a 320-unit apartment complex known as the Bristol Pointe Apartments
(formerly the Towne Oaks Apartments) in Arlington, Texas.
The Partnership is utilizing a local, unaffiliated property management
company to operate the property under the direction of the Managing General
Partner. The following is a summary of property operating expenses for the three
months ended December 31, 1997 and 1996 (in thousands):
1997 1996
---- ----
Property operating expenses:
Salaries and related costs $ 74 $ 67
Repairs and maintenance 88 81
Utilities 77 104
Management fees 18 21
Administrative and other 30 23
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$ 287 $ 296
======= =======
5. Long-term Debt
--------------
Long-term debt at December 31, 1997 and September 30, 1997 relates to the
consolidated joint venture, Arlington Towne Oaks Associates, and is summarized
as follows (in thousands):
December 31 September 30
----------- ------------
9.08% mortgage note due March 1,
2019, payable in monthly
installments of $42, including
interest, collateralized by the
Bristol Pointe operating investment
property. The fair value of this
note payable approximated its
carrying value as of December 31,
1997 and September 30, 1997. $ 4,765 $ 4,783
========= =========
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR 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 September 30, 1997 under the heading "Certain Factors Affecting
Future Operating Results", which could cause actual results to differ materially
from historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As discussed further in the Annual Report, management is focusing on
potential disposition strategies for the Partnership's two remaining investment
properties: the Bristol Pointe Apartments in Arlington, Texas, and the Charter
Oak Apartments in St. Louis County, Missouri. Over the past 2 years, development
activity for multi-family properties in many markets, including the greater
Dallas area in which the Bristol Pointe Apartments is located, has increased
significantly. The general increase in development activity may be an indication
that market values for multi-family properties are nearing their peak for the
current market cycle. To date, the overall St. Louis market and Charter Oak's
sub-market have not experienced a significant increase in the supply of
apartment units, but management continues to monitor this situation closely. As
a result of the current market conditions, management intends to explore the
market for potential sales opportunities for the Bristol Pointe and Charter Oak
properties in the near term as the renovation programs, discussed further below,
at both properties approach completion. The sale of the remaining assets would
be followed by a liquidation of the Partnership. Depending on the availability
of favorable sales opportunities for the two remaining properties, the
Partnership is expected to be positioned for a possible liquidation within the
next 1 to 2 years. There are no assurances, however, that the Partnership will
be able to achieve the sale of its remaining assets within this time frame.
Occupancy at the Partnership's two remaining multi-family apartment
properties, Bristol Pointe and Charter Oak, averaged 96% and 88%, respectively,
for the first quarter of fiscal 1998, compared to 87% and 94%, respectively, for
the same period in the prior year. The 9% increase in occupancy at Bristol
Pointe is attributable to an aggressive marketing program involving the use of
rental concessions implemented by the property management team. The program was
designed to increase the number of prospective tenants looking to lease units at
the property and to retain as much of the existing resident base as possible.
Although the local apartment rental market in the greater Dallas, Texas area has
softened recently, improvements made to the unit interiors at Bristol Pointe
over the past two years and other recent improvements made to the property in
conjunction with the new marketing program have increased prospective tenant
traffic at Bristol Pointe dramatically in recent quarters. The increase in
traffic has brought the property's occupancy up to a level that is consistent
with the competition in the local market. During the first quarter of fiscal
1998, 174 prospective tenants visited the property, resulting in 64 new leases,
and the leasing team renewed an additional 68 leases. In addition, rental rates
at the Bristol Pointe property have increased by approximately 9% from the same
period a year ago and are expected to increase further in 1998. Cash flow from
Bristol Pointe continues to be applied to the program begun in fiscal 1995 to
upgrade the apartment interiors on a turnover basis. The interior upgrades range
from repainting and carpet replacement, where needed, to the complete retrofit
of the fixtures, cabinets, heating and air conditioning equipment and the
replacement of all appliances in each unit. To date, 68% of the units have been
substantially upgraded.
At Charter Oak, the current occupancy level of 88% is consistent with the
occupancy level of the competitive properties in the market. Although the
occupancy at the property has remained flat over the past several quarters, net
operating income has increased 10.5% over the previous quarter and 19% over the
same period in the previous year due to increasing rental rates and reductions
in operating expenses. In order to increase occupancy, the property's management
and leasing team has implemented a marketing program and a tenant retention
program which includes improving the signage at the property, increasing the
property's exposure in the local apartment guides and increasing resident
referral bonuses for one-year leases. In order to remain competitive in the
market, the property is also offering concessions comparable to those being
offered by competitive properties. The concessions currently offered are in the
form of one month free rent for new leases and a carpet cleaning or touch-up
painting for lease renewals. As previously reported, management continues to use
refinancing reserves at Charter Oak to complete a program to upgrade individual
unit interiors. To date, 125 apartments have been upgraded with new carpeting,
vinyl flooring and appliances. As with Bristol Pointe, the work to renovate the
individual apartment units is being done on a turnover basis. To date 44% of the
units have been upgraded.
At December 31, 1997, the Partnership and its consolidated joint venture
had available cash and cash equivalents of $803,000. Such cash and cash
equivalents will be utilized for the Partnership's working capital requirements
and, if necessary, to fund property operating deficits and capital improvements
of the two remaining joint ventures in accordance with the respective joint
venture agreements. The source of future liquidity and distributions to the
partners is expected to be through cash generated from operations of the
Partnership's investment properties and proceeds from the sale or refinancing of
such properties. Such sources of liquidity are expected to be sufficient to meet
the Partnership's needs through its expected liquidation date.
Results of Operations
Three Months Ended December 31, 1997
- ------------------------------------
The Partnership reported net income of $92,000 for the three months ended
December 31, 1997, as compared to net income of $64,000 for the same period in
the prior year. This increase in the Partnership's net income for the current
three-month period is the result of a decrease in the Partnership's operating
loss of $35,000 which was partially offset by a decline in the Partnership's
share of unconsolidated venture's income of $7,000. The decrease in the
Partnership's operating loss is primarily attributable to an increase in rental
revenues at the consolidated Bristol Pointe Apartments which resulted from the
improved occupancy and rental rates discussed further above. In addition,
property operating expenses at Bristol Pointe decreased for the current
three-month period primarily due to reductions in utilities and management fee
expenses.
The Partnership's share of unconsolidated venture's income, which reflects
the operations of Charter Oak Associates, decreased in the current three-month
period due to an increase in property operating expenses and depreciation
charges at the Charter Oak Apartments. The increase in depreciation expense is
attributable to the ongoing capital improvement program at the property.
Property operating expenses increased mainly due to increases in salaries,
insurance, and maintenance expenses.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the registrant during the quarter for
which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
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 INCOME PROPERTIES FOUR
LIMITED PARTNERSHIP
By: FOURTH INCOME PROPERTIES FUND, INC.
Managing General Partner
By:/s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: February 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended December 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 803
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,081
<PP&E> 13,672
<DEPRECIATION> 5,481
<TOTAL-ASSETS> 9,431
<CURRENT-LIABILITIES> 328
<BONDS> 4,765
0
0
<COMMON> 0
<OTHER-SE> 4,280
<TOTAL-LIABILITY-AND-EQUITY> 9,431
<SALES> 0
<TOTAL-REVENUES> 699
<CGS> 0
<TOTAL-COSTS> 497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 92
<INCOME-TAX> 0
<INCOME-CONTINUING> 92
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92
<EPS-PRIMARY> 3.55
<EPS-DILUTED> 3.55
</TABLE>
