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 MARCH 31, 1998
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
March 31, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Operating investment property:
Land $ 1,300 $ 1,300
Buildings, improvements and equipment 12,386 12,350
--------- ---------
13,686 13,650
Accumulated depreciation (5,611) (5,352)
--------- ---------
8,075 8,298
Investment in joint venture, at equity 4 -
Cash and cash equivalents 859 995
Tax escrow deposit 198 121
Repair escrow 69 69
Prepaid and other assets 45 59
Deferred financing costs, net 157 161
--------- ---------
$ 9,407 $ 9,703
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 37 $ 340
Accrued real estate taxes 185 116
Mortgage interest payable 36 36
Tenant security deposits 93 81
Losses from unconsolidated joint venture
in excess of investments and advances - 159
Long-term debt 4,746 4,783
Partners' capital 4,310 4,188
--------- ---------
$ 9,407 $ 9,703
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rental revenues $ 523 $ 444 $1,023 $ 887
Interest and other income 99 99 197 199
------- ------ ------ ------
622 543 1,220 1,086
Expenses:
Property operating expenses 342 430 629 726
Interest expense and related
fees 110 111 220 223
Depreciation expense 130 113 259 225
Real estate taxes 36 34 70 69
General and administrative 36 46 83 78
------- ------ ------ ------
654 734 1,261 1,321
------- ------ ------ ------
Operating loss (32) (191) (41) (235)
Partnership's share of
unconsolidated
venture's income 62 91 163 199
------- ------ ------ ------
Net income (loss) $ 30 $ (100) $ 122 $ (36)
======= ====== ====== ======
Net income (loss) per Limited
Partnership Unit $1.15 $(3.85) $4.70 $(1.39)
===== ====== ===== ======
The above net income (loss) 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 six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1996 $ (141) $ 4,255
Net loss - (36)
------ -------
Balance at March 31, 1997 $ (141) $ 4,219
====== =======
Balance at September 30, 1997 $ (140) $ 4,328
Net income 1 121
------ -------
Balance at March 31, 1998 $ (139) $ 4,449
====== =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FOUR LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 122 $ (36)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Depreciation expense 259 225
Amortization of deferred financing fees 4 4
Partnership's share of unconsolidated venture's income (163) (199)
Changes in assets and liabilities:
Tax and insurance escrow deposits (77) 54
Prepaid and other assets 14 13
Accounts payable and other liabilities (303) 13
Accrued real estate taxes 69 (67)
Mortgage interest payable - (1)
Tenant security deposits 12 14
-------- --------
Total adjustments (185) 56
-------- --------
Net cash (used in) provided by operating activities (63) 20
-------- --------
Cash flows from investing activities:
Additions to buildings, improvements and equipment (36) (11)
Net deposits to repair escrow - (8)
-------- --------
Net cash used in investing activities (36) (19)
-------- --------
Cash flows from financing activities:
Principal repayments on long-term debt (37) (33)
-------- --------
Net decrease in cash and cash equivalents (136) (32)
Cash and cash equivalents, beginning of period 995 654
-------- --------
Cash and cash equivalents, end of period $ 859 $ 622
======== ========
Cash paid during the period for interest $ 216 $ 220
======== ========
</TABLE>
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 March 31, 1998 and September 30, 1997 and revenues and
expenses for the three and six months ended March 31, 1998 and 1997. Actual
results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the six-month periods
ended March 31, 1998 and 1997 is $45,000 and $42,000, 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
six-month periods ended March 31, 1998 and 1997 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 March 31, 1998, 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 venture. 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 and six months ended March 31, 1998 and 1997 are as follows:
Condensed Summary of Operations
For the three and six months ended March 31, 1998 and 1997 (in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $ 627 $ 623 $1,265 $1,261
Interest and other income 32 45 55 81
------- ------- ------ ------
659 668 1,320 1,342
Property operating expenses 195 221 424 435
Interest expense 183 189 349 373
Depreciation and amortization 138 110 274 223
Real estate taxes 44 41 79 79
------- ------- ------ ------
560 561 1,126 1,110
------- ------- ------ ------
Net income $ 99 $ 107 $ 194 $ 232
======= ======= ====== ======
Net income:
Partnership's share of
net income $ 63 $ 92 $ 164 $ 200
Co-venturer's share of
net income 36 15 30 32
------- ------- ------ ------
$ 99 $ 107 $ 194 $ 232
======= ======= ====== ======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and six months ended March 31, 1998 and 1997
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
net income, as shown
above $ 63 $ 92 $ 164 $ 200
Amortization of excess basis (1) (1) (1) (1)
----- ------ ------ ------
Partnership's share of
unconsolidated
venture's income $ 62 $ 91 $ 163 $ 199
===== ====== ====== ======
4. Operating Investment Property
-----------------------------
Operating investment property at March 31, 1998 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
and six months ended March 31, 1998 and 1997 (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Property operating expenses:
Salaries and related costs $ 84 $ 73 $ 158 $ 140
Repairs and maintenance 74 145 162 226
Utilities 115 120 192 224
Management fees 18 21 36 42
Administrative and other 51 71 81 94
------ ------ ------ ------
$ 342 $ 430 $ 629 $ 726
====== ====== ====== ======
5. Long-term Debt
--------------
Long-term debt at March 31, 1998 and September 30, 1997 relates to the
consolidated joint venture, Arlington Towne Oaks Associates, and is summarized
as follows (in thousands):
March 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 March 31, 1998
and September 30, 1997. $ 4,746 $ 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 improvements in the apartment sales segment of the real estate
market, the Partnership has determined that it is an appropriate time to market
the Bristol Pointe Apartments and Charter Oak Apartments for sale. 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 could be positioned for a possible
liquidation during calendar 1998. There are no assurances, however, that the
sales of the remaining assets and the liquidation of the Partnership will be
completed within this time frame.
Occupancy at the Partnership's two remaining multi-family apartment
properties, Bristol Pointe and Charter Oak, averaged 95% and 91%, respectively,
for the second quarter of fiscal 1998, compared to 88% and 89%, respectively,
for the same period in the prior year. The 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. As a result of the leasing team's
efforts, 137 prospective tenants visited the property during the current
quarter, resulting in 74 new leases at an average rental rate 6% higher than the
same period a year ago. The leasing team also renewed an additional 88 leases
with existing tenants. 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, 69% of the units have been substantially upgraded. During
the second quarter, the Partnership initiated discussions with area real estate
brokerage firms in order to define potential marketing strategies for selling
the Bristol Pointe property and solicited marketing proposals from three of
these firms. After reviewing their respective proposals and conducting extensive
interviews, the Partnership has selected a Dallas-based brokerage firm that is a
leading seller of apartment properties. Subsequent to the end of the quarter, a
marketing package was prepared, and comprehensive sales efforts began in early
May. There are no assurances, however, that such efforts will result in the
successful completion of a sale transaction.
At Charter Oak, the current occupancy level of 91% is consistent with the
occupancy level of the competitive properties in the market. 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
rental concessions on selected apartment unit styles comparable to those being
offered by competitive properties. As previously reported, management continues
to use refinancing reserves at Charter Oak to complete a program to upgrade
individual unit interiors. To date, 45% of the property's 284 apartment
interiors have been upgraded with new carpeting, vinyl flooring and appliances
as part of the ongoing capital improvement program. As with Bristol Pointe, the
work to renovate the individual apartment units is being done on a turnover
basis. The improved units generate monthly rental rates of $40-to-$100 per unit
above current market rents for non-upgraded units. During the second quarter,
the Partnership and its co-venture partner initiated discussions with area real
estate brokerage firms in order to define potential marketing strategies for
selling the Charter Oak property and solicited marketing proposals from several
of these firms. After reviewing the respective proposals and conducting
extensive interviews, the Partnership and its co-venture partner selected a
local brokerage firm with a strong background in selling apartment properties in
the St. Louis area. Subsequent to the end of the quarter, a marketing package
was prepared, and comprehensive sales efforts began during early May. As with
Bristol Pointe, there can be no assurances that such efforts will result in the
completion of a sale transaction.
At March 31, 1998, the Partnership and its consolidated joint venture had
available cash and cash equivalents of $859,000. 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 March 31, 1998
- ---------------------------------
The Partnership reported net income of $30,000 for the three months ended
March 31, 1998, as compared to a net loss of $100,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results for
the current three-month period was the result of a decrease in the Partnership's
operating loss of $159,000 which was partially offset by a decrease in the
Partnership's share of unconsolidated venture's income of $29,000. 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 repairs and
maintenance and advertising 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 mainly due to an increase in depreciation expense and a reduction in
interest income at the Charter Oak Apartments. Depreciation expense increased as
a result of the ongoing capital improvement program at the property. Interest
income decreased due to a decline in the average amount of restricted escrow
deposits outstanding as such funds have been spent on the capital improvement
program.
Six Months Ended March 31, 1998
- -------------------------------
The Partnership reported net income of $122,000 for the six months ended
March 31, 1998, as compared to a net loss of $36,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results for
the current six-month period is the result of a decrease in the Partnership's
operating loss of $194,000 which was partially offset by a decrease in the
Partnership's share of unconsolidated venture's income of $36,000. 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 six-month period primarily due to reductions in repairs and maintenance,
advertising and utilities expenses.
The Partnership's share of unconsolidated venture's income, which reflects
the operations of Charter Oak Associates, decreased in the current six-month
period due to an increase in depreciation expense and a reduction in interest
income at the Charter Oak Apartments. Depreciation expense increased as a result
of the ongoing capital improvement program at the property. Interest income
decreased due to a decline in the average amount of restricted escrow deposits
outstanding as such funds have been spent on the capital improvement program.
<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: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended March 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 859
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,171
<PP&E> 13,690
<DEPRECIATION> 5,611
<TOTAL-ASSETS> 9,407
<CURRENT-LIABILITIES> 351
<BONDS> 4,746
0
0
<COMMON> 0
<OTHER-SE> 4,310
<TOTAL-LIABILITY-AND-EQUITY> 9,407
<SALES> 0
<TOTAL-REVENUES> 1,383
<CGS> 0
<TOTAL-COSTS> 1,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220
<INCOME-PRETAX> 122
<INCOME-TAX> 0
<INCOME-CONTINUING> 122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122
<EPS-PRIMARY> 4.70
<EPS-DILUTED> 4.70
</TABLE>
