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 JUNE 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-13129
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2829686
(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 SIX LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1996 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ----------
Investments in joint ventures, at equity $ 5,399 $ 6,585
Cash and cash equivalents 3,060 2,515
--------- ---------
$ 8,459 $ 9,100
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 9 $ 15
Accrued expenses and other liabilities 16 30
Partners' capital 8,434 9,055
---------- ----------
$ 8,459 $ 9,100
========= =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1994 $ (1,333) $ 11,339
Cash distributions (10) (900)
Net income 2 192
--------- ---------
Balance at June 30, 1995 $ (1,341) $ 10,631
========= =========
Balance at September 30, 1995 $ (1,342) $ 10,397
Cash distributions (10) (900)
Net income 3 286
---------- ---------
Balance at June 30, 1996 $ (1,349) $ 9,783
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1996 and 1995
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest income $ 41 $ 43 $ 116 $ 122
Income from sale of second
mortgage interest 100 - 100 200
-------- --------- --------- -------
141 43 216 322
Expenses:
Management fees 22 22 66 66
General and administrative 68 124 215 255
---------- --------- -------- --------
90 146 281 321
---------- --------- -------- --------
Operating income (loss) 51 (103) (65) 1
Partnership's share of ventures'
income 219 20 354 193
--------- --------- -------- --------
Net income (loss) $ 270 $ (83) $ 289 $ 194
======= ======== ======= =======
Net income (loss) per
Limited Partnership Unit $4.45 $(1.37) $4.76 $ 3.19
===== ====== ===== ======
Cash distributions per Limited
Partnership Unit $5.00 $ 5.00 $15.00 $15.00
===== ====== ====== ======
The above net income (loss) and cash distributions per Limited Partnership
Unit are based upon the 60,000 Units of Limited Partnership Interest outstanding
for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
Cash flows from operating activities:
Net income $ 289 $ 194
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (354) (193)
Income from sale of second mortgage interest (100) (200)
Changes in assets and liabilities:
Accounts payable - affiliates (6) -
Accrued expenses and other liabilities (14) (3)
------ ------
Total adjustments (474) (396)
------ ------
Net cash used in operating activities (185) (202)
------ ------
Cash flows from investing activities:
Distributions from joint ventures 1,540 1,062
Proceeds from sale of investment in
150 Broadway Office Building 100 200
------ ------
Net cash provided by investing activities 1,640 1,262
------ ------
Cash flows from financing activities:
Cash distributions to partners (910) (910)
------ ------
Net increase in cash and cash equivalents 545 150
Cash and cash equivalents, beginning of period 2,515 2,567
------ ------
Cash and cash equivalents, end of period $3,060 $2,717
====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
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 September 30, 1995.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, reflect all adjustments necessary to
present fairly the results for the interim period. All of the accounting
adjustments reflected in the accompanying interim financial statements are of
a normal recurring nature.
2. Investments in Unconsolidated Joint Ventures
The Partnership has investments in three joint ventures which own operating
investment properties, as discussed further in the Annual Report. The joint
ventures are accounted for on the equity method because the Partnership does
not have a voting control interest in the ventures. Under the equity method
the ventures are carried at cost adjusted for the Partnership's share of the
venture's earnings and losses and distributions.
Summarized operations of the three joint ventures for the three and nine
months ended June 30, 1996 and 1995 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS For the three and
nine months ended June 30, 1996 and 1995 (in thousands)
Three Months Ended ine Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Rental revenues and expense
recoveries $2,305 $2,186 $6,873 $6,610
Interest and other income 38 29 114 104
------ ------- ------ ------
2,343 2,215 6,987 6,714
Property operating expenses 817 786 2,479 2,315
Interest expense 650 863 2,297 2,590
Depreciation and amortization 653 546 1,846 1,616
------ ------- ------ ------
2,120 2,195 6,622 6,521
------ ------- ------ ------
Net income $ 223 $ 20 $ 365 $ 193
======= ======= ======= =======
Net income:
Partnership's share of
combined income $ 223 $ 20 $ 365 $ 193
Co-venturers' share of
combined income - - - -
------ ------- ------ ------
$ 223 $ 20 $ 365 $ 193
======= ======== ======= ========
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and nine months ended June 30, 1996 and 1995 (in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
Partnership's share of combined
income, as shown above $ 223 $ 20 $ 365 $ 193
Amortization of excess basis (4) - (11) -
------ ----- -------- ------
Partnership's share of
unconsolidated ventures'
income $ 219 $ 20 $ 354 $ 193
====== ====== ======== ======
3. Related Party Transactions
Included in general and administrative expenses for the nine months ended
June 30, 1996 and 1995 is $87,000 and $92,000, 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 months
ended June 30, 1996 and 1995 is $5,000 and $4,000, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
The Adviser earned asset management fees of $66,000 for each of the
nine-month periods ended June 30, 1996 and 1995. Accounts payable affiliates
at both June 30, 1996 and September 30, 1995 includes management fees of
$9,000 payable to the Adviser.
4. Investment in 150 Broadway Office Building
As discussed further in the Annual Report, in fiscal 1993 the
Partnership's notes receivable secured by the 150 Broadway Office Building
were restructured as part of the borrower's plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the plan, which
was approved by the bankruptcy court and declared effective on June 15, 1993,
the Partnership received a new second mortgage loan in the principal amount
of $6 million, with base interest at 4.75% per annum, in satisfaction of its
prior second mortgage and promissory note in the combined face amount of
approximately $15 million. The terms of the plan required the Partnership to
fund, by way of a separate note, an initial amount of $800,000 to pay past
due real estate taxes and to establish an escrow reserve of $200,000 prior to
December 31, 1993 for future cash flow shortfalls of the property. Subsequent
to the final execution of the settlement plan, due to the uncertainty which
existed with regard to the future collection of amounts owed under the terms
of the Partnership's restructured $6 million second mortgage loan, management
determined that it would be appropriate to account for the investment in the
150 Broadway Office Building on the cost method. Accordingly, the Partnership
recorded a provision for possible uncollectible amounts of $2,000,000 in
fiscal 1993 to write off the remaining carrying value of the original notes
receivable received from the sale of the Partnership's joint venture
interest. The cost basis of the Partnership's investment in the 150 Broadway
Office Building was established at $800,000 as of September 30, 1993, which
represented the amount of the additional investment required to affect the
bankruptcy court settlement plan in fiscal 1993.
As of September 30, 1994, the value of the 150 Broadway Office Building
was estimated to be well below the balance of the $26 million first mortgage
loan which was senior to the Partnership's claims. Given the likelihood that
large capital advances would be required to keep the first mortgage loan
current and avoid foreclosure, management concluded during fiscal 1994 that
it would not be prudent to fund any further advances related to this
investment. In light of these circumstances and the resulting uncertainty
that the Partnership would realize any amounts from its investment interest
in 150 Broadway, the Partnership recorded a provision for possible
investment loss totalling $800,000 during fiscal 1994 to fully reserve the
remaining carrying value of the investment as of September 30, 1994.
Management's discussions with the borrower concerning the operations of the
150 Broadway property during fiscal 1994 resulted in an offer to purchase
the Partnership's second mortgage loan position. During the quarter ended
December 31, 1994, the Partnership agreed to assign its second mortgage
interest to an affiliate of the borrower in return for a payment of
$400,000. Subsequently, the borrower was unable to perform under the terms
of this agreement and the Partnership agreed to reduce the required cash
compensation to $300,000. During the quarter ended March 31, 1995, the
Partnership received $200,000 of the agreed upon sale proceeds. The
remaining $100,000 was funded into an escrow account on May 31, 1995, to be
released upon the resolution of certain matters between the borrower and the
first mortgage holder, but in no event later than June 10, 1996. In April
1996, the borrower and the first mortgage lender resolved their remaining
issues and released the $100,000 plus accrued interest to the Partnership.
With the release of the escrowed funds, the Partnership's interest in and
any obligations related to the 150 Broadway Office Building have been
terminated.
5. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the Managing General Partner is unable to estimate what impact, if any, the
resolution of these matters may have on the Partnership's financial
statements, taken as a whole.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As previously reported, during fiscal 1995 the Partnership refinanced the
mortgage note secured by the Regent's Walk Apartments with a first mortgage note
with an initial principal amount of $9,000,000 which bears interest at a fixed
rate of 7.32% per annum. In connection with the refinancing of the mortgage
loan, $500,000 of the loan proceeds were deposited in an escrow account to
provide funds for the remodeling of kitchens and bathrooms in the apartment
units. It is anticipated that these improvements will be completed over the next
few years as new leases for the apartments are signed. In addition to the unit
upgrades, other property enhancements are being funded out of net cash flow to
improve the appearance of the property, which averaged 99% occupancy for the
quarter ended June 30, 1996.
The occupancy level at the Hurstbourne Apartments averaged 94% during the
quarter ended June 30, 1996, up 1% over the prior quarter. Selected capital
improvements are being completed to enhance the property's curb appeal.
Improvements completed during the third quarter include the resurfacing of
certain parking areas, painting exterior trim, updating guest suites and
re-shingling of roofs on an as-needed basis. In addition, some of the property
improvements and repairs planned for next quarter include deck repairs,
continuing roof and intercom replacements and re-carpeting on an as-needed
basis.
During the first quarter of fiscal 1996, the Mall Corners joint venture
obtained a new first mortgage loan with an initial principal balance of
$20,000,000 and repaid a maturing first mortgage loan which had a principal
balance of $17,246,000. Excess loan proceeds were used to establish certain
required escrow deposits, including an amount of $1.7 million designated to pay
for certain planned improvements and an expansion of the shopping center. In
addition, excess refinancing proceeds of $550,000 were available to be
distributed to the Partnership in accordance with the joint venture agreement.
However, the Partnership agreed to allow the joint venture to retain
approximately $325,000 of such proceeds to pay for the expected leasing costs to
be incurred in connection with certain leases executed during the first quarter
of fiscal 1996. The new first mortgage loan has a 10-year term, bears interest
at a rate of approximately 7.4% per annum and requires monthly principal and
interest payments based on a 20-year amortization schedule. Despite the increase
in the loan principal balance, the annual debt service payments of the joint
venture will decrease slightly as a result of this refinancing due to the
significant reduction in the interest rate. At the present time, real estate
values for retail shopping centers in certain markets are being adversely
impacted by the effects of overbuilding and consolidations among retailers which
have resulted in an oversupply of space. Currently, occupancy at the Mall
Corners Shopping Center, located in the suburban Atlanta, Georgia market,
remains high, and operations do not appear to have been affected by this general
trend. The occupancy at Mall Corners Shopping Center was 94% at the end of the
third quarter, unchanged from the previous quarter. During the third quarter,
construction was completed on the Michaels and Tuesday Morning stores which
total 32,254 square feet, and the stores were delivered to the tenants for
fixturing.
As previously reported, during the quarter ended December 31, 1994 the
Partnership agreed to assign its second mortgage interest in the 150 Broadway
Office Building to an affiliate of the borrower in return for a payment of
$400,000. Subsequently, the borrower was unable to perform under the terms of
this agreement and the Partnership agreed to reduce the required cash
compensation to $300,000. During the quarter ended March 31, 1995, the
Partnership received $200,000 of the agreed upon sale proceeds. The remaining
$100,000 was funded into an escrow account on May 31, 1995, to be released upon
the resolution of certain matters between the borrower and the first mortgage
holder but in no event later than June 10, 1996. In April 1996, the borrower and
the first mortgage lender resolved their remaining issues and released the
$100,000 plus accrued interest to the Partnership. With the release of the
escrowed funds, the Partnership's interest in and any obligations related to the
150 Broadway Office Building have been terminated.
At June 30, 1996, the Partnership had available cash and cash equivalents
of approximately $3,060,000. Such cash and cash equivalents will be utilized for
Partnership requirements such as the payment of operating expenses, the funding
of future operating deficits or capital improvements at the joint ventures, if
necessary, as required by the respective joint venture agreements, and for
distributions to the partners. The source of future liquidity and distributions
to the partners is expected to be from cash generated from the operations of the
Partnership's income-producing investment properties and proceeds from the sale
or refinancing of the remaining investment properties. Such sources 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 June 30, 1996
The Partnership reported net income of $270,000 for the three months ended
June 30, 1996, as compared to a net loss of $83,000 for the same period in the
prior year. The favorable change in net operating results for the third quarter
of fiscal 1996 is primarily the result of a $199,000 increase in the
Partnership's share of ventures' income, in addition to the income recognition
in the current three-month period for the $100,000 received for the
Partnership's interest in the 150 Broadway Office Building, as discussed further
above. The increase in the Partnership's share of ventures' income was largely
due to increases in rental income at all three of the joint ventures, combined
with a decrease in combined interest expense. Increases in average occupancy and
rental rates at Regent's Walk and Hurstbourne and increases in occupancy at Mall
Corners contributed to an increase of $119,000 in combined rental revenues. The
decrease of $213,000 in combined interest expense is the result of the
refinancings of the mortgage loans secured by the Regent's Walk and Mall Corners
properties as discussed further above. An increase in depreciation expense at
Mall Corners associated with the recent expansion and tenant improvements
partially offset the favorable changes to the Partnership's share of ventures'
income.
Nine Months Ended June 30, 1996
The Partnership reported net income of $289,000 for the nine months ended
June 30, 1996, as compared to net income of $194,000 for the same period in the
prior year. This favorable change in net income is primarily the result of an
increase of $161,000 in the Partnership's share of ventures' income. The
increase in the Partnership's share of ventures' income was partially offset by
a decrease in income from sale of second mortgage interest for the current
nine-month period. During the nine-month period ended June 30, 1995, the
Partnership recorded income of $200,000 to reflect cash proceeds related to the
sale of the Partnership's interest in the 150 Broadway Office Building which had
been fully reserved for in fiscal 1994. As discussed further above, during the
current nine-month period, the Partnership received the remaining $100,000 from
the sale of the Partnership's interest in 150 Broadway which was in escrow until
certain issues could be resolved.
The increase in the Partnership's share of ventures' income for the nine
months ended June 30, 1996 was mainly due to increases in rental revenues and a
decrease in combined interest expense which were partially offset by increases
in the property operating and depreciation expense categories. Rental revenues
increased at each of the joint ventures due to the improvement in average
occupancy at all three investment properties and increased rental rates at
Regent's Walk and Hurstbourne. Interest expense decreased as a result of the
refinancings of the mortgage loans secured by the Regent's Walk and Mall Corners
properties. The increase in combined property operating expenses was primarily
due to increased repairs and maintenance expenses at the two apartment
properties and higher real estate taxes at the Mall Corners Shopping Center.
Depreciation expense increased mainly due to the recent expansion and tenant
improvements at Mall Corners.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "new York Limited Partnership Actions")
were filed in the United State District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 limited
partnership investments, including those offered by the Partnership. The
lawsuits were brought against PaineWebber Incorporated and PaineWebber 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 Sixth Income Properties Fund, Inc. and Properties Associates 1985,
L.P. ("PA1985"), 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.
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 have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and 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
proposed settlement has been scheduled for October 25, 1996.
In June 1996, approximately 50 plaintiffs filed an action entitled
Bandrowski v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests, including those
offered by the Partnership. The complaint is substantially similar to the
complaint in the Abbate action described in prior reports, and seeks
compensatory damages of $3.4 million plus punitive damages.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Quarterly Report on Form 10-Q for the period ended March 31, 1996.
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
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX 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.
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
By: Sixth Income Properties Fund, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 3060
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3060
<PP&E> 5399
<DEPRECIATION> 0
<TOTAL-ASSETS> 8459
<CURRENT-LIABILITIES> 25
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8434
<TOTAL-LIABILITY-AND-EQUITY> 8459
<SALES> 0
<TOTAL-REVENUES> 570
<CGS> 0
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 289
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</TABLE>
