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, 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 1 of 11
<PAGE>
-4-
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, 1996 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
Investments in joint ventures, at equity $ 5,624 $ 6,585
Cash and cash equivalents 2,862 2,515
Accounts receivable 3 -
---------------------------
$ 8,489 $ 9,100
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 9 $ 15
Accrued expenses and other liabilities 12 30
Partners' capital 8,468 9,055
----------- ----------
$ 8,489 $ 9,100
========== =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) For the six
months ended March 31, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at September 30, 1994 $ (1,333) $ 11,339
Cash distributions (6) (600)
Net income 3 274
------------------------
Balance at March 31, 1995 $ (1,336) $ 11,013
========= =========
Balance at September 30, 1995 $ (1,342) $ 10,397
Cash distributions (6) (600)
Net income - 19
------------------------
Balance at March 31, 1996 $ (1,348) $ 9,816
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1996 and 1995
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest income $ 38 $ 44 $ 75 $ 79
Income from sale of
second mortgage interest - - - 200
---------- --------- ---------- ------
38 44 75 279
Expenses:
Management fees 22 22 44 44
General and administrative 72 62 147 132
--------- -------- ---------- --------
94 84 191 176
--------- -------- ---------- --------
Operating income (loss) (56) (40) (116) 103
Partnership's share of ventures'
income (losses) (144) 190 135 173
------- ------- --------- --------
Net income (loss) $ (200) $ 150 $ 19 $ 276
====== ======= ========= =======
Net income (loss) per
Limited Partnership Unit $(3.29) $2.47 $0.31 $ 4.56
====== ===== ===== ======
Cash distributions per Limited
Partnership Unit $ 5.00 $5.00 $10.00 $10.00
====== ===== ====== ======
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 six months ended
March 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
Cash flows from operating activities: ------ ------
Net income $ 19 $ 276
Adjustments to reconcile net income to
net cash used for operating activities:
Partnership's share of ventures' losses (135) (172)
Income from sale of second mortgage interest - (200)
Changes in assets and liabilities:
Accounts receivable - third parties (3) -
Accounts payable - affiliates (6) -
Accrued expenses and other liabilities (18) (2)
--------- ---------
Total adjustments (162) (374)
--------- ---------
Net cash used for operating activities (143) (98)
--------- ---------
Cash flows from investing activities:
Distributions from joint ventures 1,096 903
Proceeds from sale of investment in
150 Broadway Office Building - 200
Net cash provided by investing activities 1,096 1,103
Cash flows from financing activities:
Cash distributions to partners (606) (606)
------------ ----------
Net increase in cash and cash equivalents 347 399
Cash and cash equivalents, beginning of period 2,515 2,567
----------- ---------
Cash and cash equivalents, end of period $2,862 $2,966
====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
-10-
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 six
months ended March 31, 1996 and 1995 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS For the three and
six months ended March 31, 1996 and 1995 (in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-----------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Rental revenues and expense
recoveries $ 2,267 $2,179 $4,568 $4,424
Interest and other income 38 69 76 75
---------- --------- --------- ---------
2,305 2,248 4,644 4,499
Property operating expenses 859 659 1,662 1,528
Interest expense 977 861 1,647 1,728
Depreciation and amortization 609 538 1,193 1,070
--------- -------- ------- -------
2,445 2,058 4,502 4,326
-------- ------- ------- --------
Net income (loss) $ (140) $ 190 $ 142 $ 173
======== ======== ======= ========
Net income (loss):
Partnership's share of
combined income (loss) $ (140) $ 190 $ 142 $ 173
Co-venturers' share of
combined income (loss) - - - -
------------------------ ----------------------
$ (140) $ 190 $ 142 $ 173
======== ======== ====== ========
<PAGE>
Reconciliation of Partnership's Share of Operations For the three
and six months ended March 31, 1996 and 1995 (in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-----------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Partnership's share of combined
income (loss),
as shown above $ (140) $ 190 $ 142 $ 173
Amortization of excess basis (4) - (7) -
-------- -------- -------- ------
Partnership's share of
unconsolidated ventures'
income (losses) $ (144) $ 190 $ 135 $ 173
======== ========= ========= ======
3. Related Party Transactions
Included in general and administrative expenses for the six months ended
March 31, 1996 and 1995 is $59,000 and $61,000, 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 six months
ended March 31, 1996 and 1995 is $1,000 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 $44,000 for the six months
ended March 31, 1996 and 1995. Accounts payable - affiliates at both March
31, 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. Subsequent
to the end of the second quarter of fiscal 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. The final
$100,000 payment will be reflected as income in the third quarter of fiscal
1996.
5. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the Managing General Partner is unable to estimate the impact, if any, of
these matters 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
The Partnership's portfolio of joint venture investment properties
continued to perform strongly in the first two quarters of fiscal 1996, as
evidenced by the occupancy levels which remained in the mid-to-high 90% range
for all three operating properties. High occupancy levels have been maintained
at the Regent's Walk apartment complex while simultaneously implementing gradual
rent increases. 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. The occupancy level at the Hurstbourne
Apartments averaged 93% during the quarter ended March 31, 1996, unchanged from
the prior quarter. Selected capital improvements are being completed to enhance
the property's curb appeal. Improvements completed during the second quarter
include the replacement of light fixtures, intercoms and ceiling fans in units
that were re-leased during the quarter and appliance and carpeting replacement
on an as-needed basis. In addition, some of the property improvements and
repairs planned for next quarter include exterior trim painting, landscaping
work, pool resurfacing, and asphalt and sidewalk repairs.
At the present time, real estate values for retail shopping centers in
certain markets have begun to be adversely affected by 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 second quarter compared to 93% as of December
31, 1995. The leasing team executed four new leases during the current quarter
and one tenant expanded, increasing the center's total leased area by
approximately 4,000 square feet. Construction of the expansion space for the
Michaels store has been delayed due to an unusual amount of rain, coupled with
labor shortages caused by the high volume of construction related to the 1996
Summer Olympics to be held in Atlanta. Completion of the new Michaels space is
now scheduled for summer 1996.
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 the aforementioned 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.
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. Subsequent to the end of the
second quarter, 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. The final $100,000 payment will be reflected as income in the
third quarter of fiscal 1996.
At March 31, 1996, the Partnership had available cash and cash equivalents
of approximately $2,862,000. 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 March 31, 1996
The Partnership reported a net loss of $200,000 for the three months ended
March 31, 1996, as compared to net income of $150,000 for the same period in the
prior year. The unfavorable change in net operating results is primarily the
result of a decrease of $334,000 in the Partnership's share of ventures'
operations for the three months ended March 31, 1996. The Partnership recognized
a net loss of $144,000 from its share of the ventures' operations for the
quarter ended March 31, 1996, compared to net income of $190,000 for the same
period in the prior year. The decrease in joint venture net operating results
was largely due to increases in property operating expenses, particularly at the
two apartment properties. Property operating expenses increased primarily due to
increases in utilities and repair costs attributable to an unusually cold
winter. Increases in average occupancy and rental rates at Regent's Walk and
increases in rental rates at Hurstbourne contributed to an increase in combined
rental revenues which partially offset the increase in property operating
expenses.
Six Months Ended March 31, 1996
The Partnership reported net income of $19,000 for the six months ended
March 31, 1996, as compared to net income of $276,000 for the same period in the
prior year. This unfavorable change in net income is primarily attributable to
the recognition of a recovery of a provision for possible investment loss of
$200,000 recorded during the six months ended March 31, 1995, coupled with a
decrease in the Partnership's share of venture's income of $38,000. As discussed
further in the Partnership's Annual Report, during the quarter ended December
31, 1994, the Partnership recorded income of $200,000 to reflect cash proceeds
related to the sale of the Partnership's interest in 150 Broadway which had been
fully reserved for in prior periods. The decrease in joint venture net operating
results was mainly due to increases in property operating expenses and
depreciation expense at two of the investment properties. These higher expenses
were partially offset by increased combined rental revenues resulting from the
improvement in average occupancy and rental rates at Regent's Walk and the
increase in rental rates at Hurstbourne. Interest expense also decreased for the
six months ended March 31, 1996 as a result of the refinancing of the mortgage
loans secured by the Regent's Walk and Mall Corners properties.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, Sixth Income Properties Fund, Inc. and PA1985, the
General Partners of the Partnership, were named as defendants in a class action
lawsuit against PaineWebber Incorporated ("PaineWebber") and a number of its
affiliates relating to PaineWebber's sale of 70 direct investment offerings,
including the offering of interests in the Partnership. In January 1996,
PaineWebber signed a memorandum of understanding with the plaintiffs in the
class action 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
a plan of allocation which the parties expect to submit to the court for its
consideration and approval within the next several months. Until a definitive
settlement and plan of allocation is approved by the court, there can be no
assurance what, if any, payment or non-monetary benefits will be made available
to unitholders in Paine Webber Income Properties Six Limited Partnership. 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 this litigation.
At the present time, the General Partners cannot estimate the impact, if any, of
this matter on the Partnership's financial statements, taken as a whole.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages. The eventual outcome
of this litigation and the potential impact, if any, on the Partnership's
unitholders cannot be determined at the present time.
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: May 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended March 31, 1996
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-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 2862
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<RECEIVABLES> 3
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2865
<PP&E> 5624
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<TOTAL-ASSETS> 8489
<CURRENT-LIABILITIES> 21
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0
0
<COMMON> 0
<OTHER-SE> 8468
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</TABLE>
