UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 30, 1995
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 of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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 ____
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
Documents Incorporated by Reference
Documents Form 10-K
Reference
Prospectus of registrant dated Part IV
September 17, 1984, as supplemented
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
1995 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure II-6
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners and
Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-29
<PAGE>
PART I
Item 1. Business
Paine Webber Income Properties Six Limited Partnership (the "Partnership")
is a limited partnership formed in April 1984 under the Uniform Limited
Partnership Act of the State of Delaware for the purpose of investing in a
diversified portfolio of existing income-producing operating properties such as
apartments, shopping centers, office buildings, and other similar
income-producing properties. The Partnership sold $60,000,000 in Limited
Partnership units (the "Units"), representing 60,000 units at $1,000 per Unit,
from September 17, 1984 to September 16, 1985 pursuant to a Registration
Statement filed on Form S-11 under the Securities Act of 1933 (Registration No.
2-91080). Limited Partners will not be required to make any additional
contributions.
As of September 30, 1995, the Partnership owned, through joint venture
partnerships, interests in the operating properties set forth in the following
table:
Name of Joint Venture Date of
Name and Type of Property Acquisition of Type of
Location Size Interest Ownership (1)
Regent's Walk Associates 255 5/15/85 Fee ownership of land and
Regent's Walk Apartments units improvements (through
Overland Park, Kansas joint venture)
Kentucky-Hurstbourne 409 7/25/85 Fee ownership of land and
Associates units improvements (through
Hurstbourne Apartments joint venture)
Louisville, Kentucky
Gwinnett Mall Corners 286,000 8/28/85 Fee ownership of land and
Associates gross improvements (through
Mall Corners Shopping Center leasable joint venture)
Guinnett County, Georgia sq. ft.
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
As further discussed in Notes 4 and 6 to the financial statements
accompanying this Annual Report, the Partnership originally owned joint venture
interests in five operating investment properties. The Partnership previously
owned an interest in Bailey N. Y. Associates, a joint venture which owns the 150
Broadway Office Building; a 238,000 square foot office and retail building
located in New York City. The Partnership sold its interest in the Bailey N. Y.
Associates joint venture on September 22, 1989 for cash and notes receivable.
Due to a deterioration in the commercial real estate market in New York City,
which adversely impacted property operations, the maker of the notes receivable
held by the Partnership defaulted on its obligations during fiscal 1990 and
filed for bankruptcy protection in July 1991. During fiscal 1993, the
Partnership reached a settlement agreement involving both the first mortgage
lender and the owner. Under this agreement, which was approved by the bankruptcy
court and declared effective on June 15, 1993, the Partnership agreed to
restructure its second mortgage position. As discussed further in Item 7, during
the current fiscal year 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. The Partnership received $200,000 of
the agreed upon sale proceeds during the second quarter of fiscal 1995. The
remaining $100,000 was funded into escrow on May 31, 1995 upon the final
execution of the sale and assignment agreement. The $100,000 is to be released
from escrow subsequent to the resolution of certain matters between the borrower
and the first mortgage holder. During fiscal 1992, the Partnership forfeited its
interest in the Northbridge Office Centre as a result of certain uncured
defaults under the terms of the property's mortgage indebtedness. The mortgage
lender took title to the Northbridge property through foreclosure proceedings on
April 20, 1992, after a protracted period of negotiations failed to produce a
mutually acceptable restructuring agreement. Furthermore, the Partnership's
efforts to recapitalize, sell or refinance the property were unsuccessful. The
inability of the Northbridge joint venture to generate sufficient funds to meet
its debt service obligations resulted mainly from a significant oversupply of
competing office space in the West Palm Beach, Florida market. Management did
not foresee any near term improvement in such conditions and ultimately
determined that it was in the Partnership's best interests not to contest the
lender's foreclosure action.
The Partnership's original investment objectives were to:
(i) provide the Limited Partners with cash distributions which, to some
extent, will not constitute taxable income;
(ii) preserve and protect Limited Partners' capital;
(iii) achieve long-term appreciation in the value of its
properties; and
(iv) provide a build up of equity through the reduction of
mortgage loans on its properties.
Through September 30, 1995, the Limited Partners had received cumulative
cash distributions from operations totalling approximately $13,302,000, or $232
per original $1,000 investment for the Partnership's earliest investors. A
substantial portion of the cash distributions paid to date has been sheltered
from current taxable income. The Partnership reinstated the payment of regular
quarterly cash distributions effective for the quarter ended June 30, 1994 at an
annualized rate of 2% on original invested capital. Distributions had been
discontinued in 1990 primarily due to the cash deficits associated with the
Partnership's two commercial properties, Northbridge Office Centre and the 150
Broadway Office Building, which investments have since been disposed of, as
discussed further above. As of September 30, 1995, the Partnership retains an
interest in three of its five original investment properties. The loss of the
investment in Northbridge, which represented 25% of the Partnership's original
investment portfolio, in all likelihood, will result in the Partnership's
inability to return the full amount of the original invested capital to the
Limited Partners. The amount of the original capital that will be returned will
depend upon the proceeds received from the final liquidation of the remaining
investments. The amount of such proceeds will ultimately depend upon the value
of the underlying investment properties at the time of their final disposition,
which cannot presently be determined. At the present time, real estate values
for retail shopping centers in certain markets have begun to be affected by the
effects of overbuilding and consolidations among retailers which have resulted
in an oversupply of space. Currently, occupancy at the Partnership's retail
shopping center, located in the suburban Atlanta, Georgia market, remains high,
and operations do not appear to have been affected by this general trend.
All of the properties securing the Partnership's investments are located
in real estate markets in which they face significant competition for the
revenues they generate. The apartment complexes compete with numerous projects
of similar type generally on the basis of price, location and amenities. As in
all markets, the apartment project also competes with the local single family
home market for prospective tenants. The continued availability of low interest
rates on home mortgage loans has increased the level of this competition over
the past few years. However, the impact of the competition from the
single-family home market has been offset by the lack of significant new
construction activity in the multi-family apartment market over this period. The
shopping center also competes for long-term commercial tenants with numerous
projects of similar type generally on the basis of rental rates, location and
tenant improvement allowances.
The Partnership has no operating property investments located outside the
United States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly owned subsidiary of PaineWebber Group Inc. ("PaineWebber").
The General Partners of the Partnership (the "General Partners") are Sixth
Income Properties Fund, Inc. and Properties Associates 1985, L.P. Sixth Income
Properties Fund, Inc. (the "Managing General Partner"), a wholly-owned
subsidiary of PaineWebber, is the managing general partner of the Partnership.
The associate general partner of the Partnership is Properties Associates 1985,
L.P. (the "Associate General Partner"), a Virginia limited partnership, certain
limited partners of which are also officers of the Adviser and the Managing
General Partner. Subject to the Managing General Partner's overall authority,
the business of the Partnership is managed by the Adviser.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
Item 2. Properties
The Partnership has acquired interests in operating properties through
joint venture partnerships. The joint venture partnerships and the related
properties are referred to under Item 1 above to which reference is made for the
name, location and description of each property.
Occupancy figures for each fiscal quarter during 1995, along with an
average for the year, are presented below for each property:
Percent Occupied At
Fiscal
1995
12/31/94 3/31/95 6/30/95 9/30/95 Average
Regent's Walk Apartments 97% 95% 97% 98% 97%
Hurstborne Apartments 94% 93% 92% 94% 93%
Mall Corners Shopping Center 94% 93% 93% 93% 93%
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber 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.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Income Properties
Six Limited Partnership, PaineWebber, Sixth Income Properties Fund, Inc. and
PA1985 (1) failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in Paine Webber Income
Properties Six Limited Partnership, also allege that following the sale of the
partnership interests, PaineWebber, Sixth Income Properties Fund, Inc. and
PA1985 misrepresented financial information about the Partnership's value and
performance. The amended complaint alleges that PaineWebber, Sixth Income
Properties Fund, Inc. and PA1985 violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs seek
unspecified damages, including reimbursement for all sums invested by them in
the partnerships, as well as disgorgement of all fees and other income derived
by PaineWebber from the limited partnerships. In addition, the plaintiffs also
seek treble damages under RICO. The defendants' time to move against or answer
the complaint has not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify Sixth Income Properties Fund, Inc., PA1985 and their affiliates for
costs and liabilities in connection with this litigation. The General Partners
intend to vigorously contest the allegations of the action, and believe that the
action will be resolved without material adverse effect on the Partnership's
financial statements, taken as a whole.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At September 30, 1995, there were 4,132 record holders of Units in the
Partnership. There is no public market for the resale of Units, and it is not
anticipated that a public market for Units will develop. The Managing General
Partner will not redeem or repurchase Units.
Reference is made to Item 6 below for a discussion of the amount of cash
distributions made to the Limited Partners during fiscal 1995.
Item 6. Selected Financial Data
Paine Webber Income Properties Six Limited Partnership
(In thousands, except per Unit data)
Years Ended September 30,
1995 1994 1993 1992 (1) 1991
Revenues $ 361 $ 106 $ 47 $ 2,849 $ 6,211
Operating loss $ (60) $(1,302) $(2,412) $ (2,494) $(11,450)
Loss on transfer
of assets at foreclosure - - - $(17,248) -
Minority interest in
(income) loss of
consolidated venture - - - $ (423) $ 224
Gain on sale of venture
interest - - - $ 23 $ 50
Partnership's share of
unconsolidated
ventures' income
(losses) $ 322 $ 522 $ 581 $ (4) $ (593)
Income (loss) before
extraordinary gain $ 262 $ (780) $(1,831) $(20,145) $(11,769)
Extraordinary gain
from settlement
of debt obligation - - - $ 29,842 -
Net income (loss) $ 262 $ (780) $(1,831) $ 9,696 $(11,769)
Per Limited Partnership Unit:
Income (loss) before
extraordinary gain $ 4.33 $(12.86) $(30.20) $ (332.22) $(194.09)
Extraordinary gain - - - $ 492.13 -
Net income (loss) $ 4.33 $ (12.86) $ (30.20)$ 159.91 $(194.09)
Cash distributions
per Limited
Partnership Unit $ 20.00 $ 5.00 - - -
Total assets $ 9,100 $10,036 $ 11,160 $ 13,044 $ 59,657
Notes payable - - - - $ 1,412
(1) On April 20, 1992 the mortgage lender took title to the Northbridge Office
Centre through foreclosure proceedings. As a result the Partnership's fiscal
1992 net operating results reflect an extraordinary gain from the settlement
of the debt obligation and a loss on transfer of assets at foreclosure.
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the
60,000 Limited Partnership Units outstanding during each year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership offered Units of Limited Partnership interests to the
public from September 17, 1984 to September 16, 1985 pursuant to a Registration
Statement filed under the Securities Act of 1933. Gross proceeds of $60,000,000
were received by the Partnership, and after deducting selling expenses and
offering costs, approximately $51,889,000 was originally invested in five
operating investment properties through joint ventures. As of September 30,
1995, the Partnership had joint venture investments in three remaining operating
properties, which consist of one retail shopping center and two multi-family
apartment complexes. At the present time the Partnership does not have any
commitments for additional investments but may be called upon to fund its
portion of operating deficits or capital improvements of the joint ventures in
accordance with the respective joint venture agreements.
The Partnership's portfolio of joint venture investment properties
continued to perform strongly in fiscal 1995, 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
throughout the year. The performance of Regent's Walk reflects the continued
gradual improvement in the multi-family residential market during fiscal 1995.
This performance was achieved despite the competition from the single family
home market prompted by the availability of low home mortgage interest rates.
The absence of significant new construction of multi-family apartments over the
last several years has allowed the oversupply which existed in many markets as a
result of the overbuilding of the late 1980s to be absorbed. The results of this
absorption have been higher stabilized occupancy levels and increasing rental
rates, which have had a positive impact on cash flow levels and, consequently,
property values. The occupancy level at the Hurstbourne Apartments averaged 93%
during fiscal 1995 as compared to an average of 94% achieved in fiscal 1994.
Recent marketing efforts have resulted in an increase in the number of potential
tenants visiting the property. In addition, the property's management team has
undertaken a capital improvement program designed to make the apartment units
more attractive to these potential tenants. At the present time, real estate
values for retail shopping centers in certain markets have begun to be affected
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.
During fiscal 1995, the Partnership refinanced the 9% first mortgage note
secured by the Regent's Walk Apartments, which had a principal balance of
$8,390,000 and was scheduled to mature on May 1, 1995. The new long-term debt
consists of 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. Monthly payments of
interest and principal, based on a 30-year amortization schedule, are due
through maturity on October 1, 2000. The principal balance of the loan will
total approximately $8.5 million at maturity. Because the debt service on the
prior loan called for interest-only payments, the venture's monthly debt service
will not change significantly as a result of the refinancing transaction despite
the decrease in the interest rate. 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 accordance with the
escrow agreement, the balance of the escrow account is invested in bank
certificates of deposit.
During fiscal 1994, a medical office tenant occupying 20,000 square feet,
or approximately 7% of the net leasable space at Mall Corners, informed
management of the joint venture of its intention to vacate its space upon the
expiration of its lease in October 1994 in order to relocate to its own
building. During the quarter ended December 31, 1994, this space was
repositioned for retail use and a lease for 12,000 square feet was executed with
a patio furniture and related accessories retailer. Management has been actively
marketing the remaining 8,000 square feet of this space to several retail
tenants in addition to actively marketing the other 13,000 square feet of vacant
shop space at the center. As a result of the vacancy created by the termination
of the medical office tenant lease, the average occupancy level was lower at
Mall Corners in fiscal 1995 than it had been for the past few years. The
occupancy level at Mall Corners averaged 93% during fiscal 1995, as compared to
an average level of 99% maintained for fiscal 1994. During fiscal 1995, one of
the property's major tenants, which currently occupies 16,530 square feet of
space under a lease that was scheduled to expire in early calendar year 1996,
agreed to extend its lease for 10 years and expand its space to 25,000 square
feet. Accommodating the expansion plans of this mini-anchor tenant will require
the relocation of several small tenants within the center and the construction
of an additional 10,000 square feet of space. Construction is underway to
accommodate the relocation of three of the four tenants that will be displaced
to accommodate the new anchor store, and the fourth tenant is moving out of the
shopping center. The mortgage loan secured by the Mall Corners shopping center
was scheduled to mature in December 1995. Subsequent to year-end, on December
29, 1995, the venture obtained a new first mortgage loan with a principal
balance of $20,000,000 and repaid the maturing obligation, which had an
outstanding balance of approximately $17,246,000 at the time of closing and bore
interest at 11.5%. Excess loan proceeds of approximately $2.2 million were used
to pay transaction costs and 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 which are
expected to be completed in 1996. In addition, excess proceeds of approximately
$550,000 were available to be paid to the Partnership, in accordance with the
terms of the joint venture agreement, to be applied toward certain operating
loans and cumulative preference amounts owed. 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, 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. The borrower was willing to put additional funds at risk, in part to
defer a substantial income tax liability which would result from a foreclosure.
Given the likelihood that large capital advances would be required by the
Partnership over the next several years 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. During the
quarter ended December 31, 1994, the Partnership had 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 escrow on May 31, 1995 upon the final execution of the
sale and assignment agreement. The $100,000 is to be released from escrow
subsequent to the resolution of certain matters between the borrower and the
first mortgage holder. The $200,000 received to date is non-refundable in the
event that the sale is not consummated. The final approval of this sale and
assignment transaction by the first mortgage holder and the release of the
escrowed cash would terminate the Partnership's interest in, and any obligations
related to, the 150 Broadway Office Building. As discussed in the 1994 Annual
Report, the expectation at the time that the 150 Broadway bankruptcy plan was
negotiated and approved was that the borrower would be able to lease the first
two or three floors in the building to one or more prominent retailers at rental
rates sufficient to stabilize the property's cash flow position at or near the
breakeven level after debt service. Leases at this level would also have
increased the property's current market value and increased the likelihood that
the Partnership would benefit from the eventual improvement in the office
leasing segment. Unfortunately, the borrower was not successful in executing
this strategy. After marketing the retail space for over 2 years, during fiscal
1995 the borrower signed leases for the first three floors of the building.
However, the rental terms were significantly below the original expectations,
and the property is still projected to incur significant deficits for the next
several years. The estimated market value of the building, which was 83% leased
at September 30, 1995, is substantially below the balance of the $26 million
first mortgage loan which was senior to the Partnership's claims.
At September 30, 1995, the Partnership had available cash and cash
equivalents of approximately $2,515,000. 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. As discussed further above, the
Partnership no longer has any obligation to fund deficits in connection with the
investment in the 150 Broadway Office Building. In light of this fact, and with
the Partnership's other operating property investments performing well and
producing excess cash flow distributions which are more than sufficient to cover
the Partnership's ongoing operating expenses, the Managing General Partner
reinstated a program of regular quarterly distributions to Partners during
fiscal 1994. The first of such distribution payments was made in August 1994 for
the quarter ended June 30, 1994. Payments to the Limited Partners are being made
based on an annual return of 2% on original invested capital.
Results of Operations
1995 Compared to 1994
For the year ended September 30, 1995 the Partnership reported net income
of $262,000 as compared to a net loss of $780,000 in fiscal 1994. This change in
the Partnership's net operating results was mainly the result of certain
transactions involving the Partnership's interest in the 150 Broadway Office
Building. In December 1993, the Partnership funded a $200,000 escrow reserve
account required under the terms of the 150 Broadway bankruptcy settlement
agreement, as discussed further above. The Partnership's accounting policy for
its investment in 150 Broadway resulted in any advances being recorded as an
expense in the period paid. In addition, during fiscal 1994 the Partnership
recognized an $800,000 provision for possible investment loss related to the 150
Broadway investment to fully reserve the carrying value of the Partnership's
remaining investment. In fiscal 1995, during the quarter ended December 31,
1994, the Partnership recorded income of $200,000 to reflect the cash proceeds
received related to the sale of the Partnership's interest in 150 Broadway.
Additional income of $100,000 would be recorded upon satisfaction of the escrow
requirements referred to above and the release of the escrowed cash to the
Partnership. The favorable changes in the Partnership's net operating results
related to the 150 Broadway investment were partially offset by a decrease in
the Partnership's share of ventures' income of $200,000 in the current fiscal
year. This unfavorable change in the Partnership's share of ventures' operations
was mainly a result of a decrease in rental income of $330,000 at the Mall
Corners shopping center, due to the decrease in occupancy discussed further
above. Revenues also declined slightly at the Hurstborne Apartments during
fiscal 1995 mainly due to a decrease in corporate apartment rental activity. An
increase in combined depreciation and amortization expense of $88,000 also
contributed to the decline in the Partnership's share of ventures' income during
fiscal 1995. Deprecation charges have increased at the Mall Corners and
Hurstborne joint ventures as a result of certain capitalized costs incurred over
the past two years. A decrease in property operating expenses at the Regent's
Walk Apartments and Hurstborne Apartments, totalling $281,000, partially offset
the decrease in rental revenues and increase in depreciation expense during
fiscal 1995. The decline in property operating expenses is primarily
attributable to lower repairs and maintenance expenses for fiscal 1995 at both
of the apartment properties. Repairs and maintenance expenses in fiscal 1994
reflected the costs of an exterior painting project at Regent's Walk and common
area upgrading and landscape repair projects at the Hurstbourne Apartments.
1994 Compared to 1993
For the year ended September 30, 1994, the Partnership reported a net loss
of $780,000 as compared to net loss of $1,831,000 in fiscal 1993. This decrease
in net loss was the result of the recognition of a provision for possible
investment loss related to the 150 Broadway property of $2,000,000 in fiscal
1993. In fiscal 1994, the Partnership recognized an $800,000 provision for
possible investment loss and an additional $200,000 charge against earnings
related to the 150 Broadway investment. The provision for possible investment
loss in fiscal 1994 was recorded to fully reserve the carrying value of the
Partnership's remaining investment in the 150 Broadway property based on the
circumstances discussed further above. The $200,000 charge to earnings in fiscal
1994 represents the funds contributed by the Partnership in December 1993 to
establish the required escrow reserve account referred to above. In addition, an
increase in interest income earned on cash reserves of $59,000 and a decline in
Partnership general and administrative expenses of $83,000 contributed to the
decrease in net loss in fiscal 1994.
The favorable changes in net loss were partially offset by a decrease in
the Partnership's share of ventures' income of $59,000 in fiscal 1994. The
decrease in the Partnership's share of ventures' income was mainly a result of
an increase in repairs and maintenance expenses at the two apartment complexes.
At the Regent's Walk Apartments, expenses were higher in fiscal 1994 due to an
exterior painting project, and at the Hurstbourne Apartments, remodeling of the
common areas of the property and increased landscaping expenses resulting from a
harsh winter contributed to the increased expenses. These unfavorable changes
were partially offset by an increase in rental income of $363,000 from the three
joint ventures, due to a combination of higher occupancy and increased rental
rates at the properties.
1993 Compared to 1992
The Partnership had a net loss of $1,831,000 for the year ended September
30, 1993, as compared to net income of $9,696,000 for fiscal 1992. This change
in net operating results can be primarily attributed to the foreclosure of the
Northbridge Office Centre during fiscal 1992. The net income in fiscal 1992
resulted from an extraordinary gain from settlement of debt obligation of
$29,842,000 recorded in connection with the Northbridge foreclosure. The
extraordinary gain was partially offset by a loss on transfer of assets at
foreclosure of $17,248,000. The transfer of the Northbridge Office Center's
title to the lender through foreclosure proceedings was accounted for as a
troubled debt restructuring in accordance with Statement of Financial Accounting
Standards No. 15. "Accounting by Debtors and Creditors for Troubled Debt
Restructurings". The extraordinary gain arose due to the fact that the balance
of the mortgage loan and related accrued interest exceeded the estimated fair
value of the property ($20,000,000) and certain other assets transferred to the
lender at the date of the foreclosure. The loss on transfer of assets resulted
from the fact that the net carrying value of the property exceeded its estimated
fair value at the time of foreclosure.
The change in net operating results caused by the net foreclosure gain
described above was partially offset by a decrease in the Partnership's
operating loss and improvement in the Partnership's share of unconsolidated
ventures' operations in fiscal 1993. Operating loss decreased by $82,000,
despite the recording of a $2 million provision for possible uncollectible
amounts, primarily due to the foreclosure of the Northbridge Office Centre,
which had been generating substantial operating losses. The provision for
possible uncollectible amounts in 1993 was recorded to reflect a change in the
basis of accounting for the investment in 150 Broadway as a result of the final
outcome of the borrower's bankruptcy proceedings. In addition, interest and
other income decreased by $335,000 in fiscal 1993, mainly due to the defaults
under the terms of the 150 Broadway second mortgage note receivable. Interest
income on the second mortgage note was recognized subsequent to the borrower's
bankruptcy filing as adequate protection payments were received by the
Partnership per the direction of the bankruptcy court. Such payments were
suspended in the third quarter of fiscal 1992 per the order of the bankruptcy
court.
The Partnership's share of the operating results of the unconsolidated
joint ventures improved by $585,000 in fiscal 1993. Increased rental income from
all three operating properties contributed to this favorable change. Also
contributing to the favorable change was lower interest expense on the mortgage
loan secured by the Hurstbourne Apartments due to an interest rate modification
which was effective in October 1992. In addition, depreciation expense decreased
at the Mall Corners Shopping Center due to certain tenant improvements having
become fully depreciated, and amortization expense decreased at the Hurstbourne
Apartments as a result of certain deferred costs having been fully amortized.
These positive changes were partially offset by a decrease in interest and other
income primarily due to the recognition by Regent's Walk of excess insurance
proceeds related to damages incurred from a hail storm in fiscal 1992.
Inflation
The Partnership completed its eleventh full year of operations in 1995 and
the effects of inflation and changes in prices on the Partnership's operating
results to date have not been significant.
Inflation in future periods may result in an increase in revenues, as well
as operating expenses, at the Partnership's operating investment properties.
Some of the existing leases with tenants at the Partnership's retail shopping
center contain rental escalation and/or expense reimbursement clauses based on
increases in tenant sales or property operating expenses. Tenants at the
Partnership's apartment properties have short-term leases, generally of
six-to-twelve months in duration. Rental rates at these properties can be
adjusted to keep pace with inflation, as market conditions allow, as the leases
are renewed or turned over. Such increases in rental income would be expected to
at least partially offset the corresponding increases in Partnership and
property operating expenses.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Sixth Income Properties
Fund, Inc. a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates 1985, L.P., a Virginia limited partnership, certain limited partners
of which are also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operation, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
Lawrence A. Cohen President and Chief Executive
Officer 42 5/1/91
Albert Pratt Director 84 4/25/84 *
J. Richard Sipes Director 48 6/9/94
Walter V. Arnold Senior Vice President and Chief
Financial Officer 48 10/29/85
James A. Snyder Senior Vice President 50 7/6/92
John B. Watts III Senior Vice President 42 6/6/88
David F. Brooks First Vice President and
Assistant Treasurer 53 4/25/84 *
Timothy J. Medlock Vice President and Treasurer 34 6/1/88
Thomas W. Boland Vice President 33 12/1/91
* The date of incorporation of the Managing General Partner.
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors
and executive officers of the Managing General Partner of the Partnership. All
of the foregoing directors and executive officers have been elected to serve
until the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser.
The business experience of each of the directors and principal executive
officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing
General Partner and President and Chief Executive Officer of the Adviser which
he joined in January 1989. He is also a member of the Board of Directors and the
Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First Vice
President of VMS Realty Partners where he was responsible for origination and
structuring of real estate investment programs and for managing national
broker-dealer relationships. He is a member of the New York Bar and is a
Certified Public Accountant.
Albert Pratt is Director of the Managing General Partner, a Consultant of
PWI and a general partner of the Associate General Partner. Mr. Pratt joined PWI
as Counsel in 1946 and since that time has held a number of positions including
Director of both the Investment Banking Division and the International Division,
Senior Vice President and Vice Chairman of PWI and Chairman of PaineWebber
International, Inc.
<PAGE>
J. Richard Sipes is a Director of the Managing General Partner and a
Director of the Adviser. Mr. Sipes is an Executive Vice President at
PaineWebber. He joined the firm in 1978 and has served in various capacities
within the Retail Sales and Marketing Division. Before assuming his current
position as Director of Retail Underwriting and Trading in 1990, he was a
Branch Manager, Regional Manager, Branch System and Marketing Manager for a
PaineWebber subsidiary, Manager of Branch Administration and Director of
Retail Products and Trading. Mr. Sipes holds a B.S. in Psychology from
Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer
of the Managing General Partner and a Senior Vice President and Chief
Financial Officer of the Adviser which he joined in October 1985. Mr. Arnold
joined PWI in 1983 with the acquisition of Rotan Mosle, Inc. where he had
been First Vice President and Controller since 1978, and where he continued
until joining the Adviser. Mr. Arnold is a Certified Public Accountant
licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President and Member of the Investment Committee of the
Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously
as an officer of PWPI from July 1980 to August 1987. From January 1991 to July
1992, Mr. Snyder was with the Resolution Trust Corporation, where he served as
the Vice President of Asset Sales prior to re-joining PWPI. From February 1989
to October 1990, he was President of Kan Am Investors, Inc., a real estate
investment company. During the period August 1987 to February 1989, Mr. Snyder
was Executive Vice President and Chief Financial Officer of Southeast Regional
Management Inc., a real estate development company.
John B. Watts III is a Senior Vice President of the Managing General
Partner and a Senior Vice President of the Adviser which he joined in June 1988.
Mr. Watts has had over 16 years of experience in acquisitions, dispositions and
finance of real estate. He received degrees of Bachelor of Architecture,
Bachelor of Arts and Master of Business Administration from the University of
Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an Assistant Treasurer
of the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and
also, from March 1974 to February 1980, the Assistant Treasurer of Capital for
Real Estate, which provided real estate investment, asset management and
consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and Vice President and Treasurer of the Adviser which he joined
in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner
and a Vice President and Manager of Financial Reporting of the Adviser which
he joined in 1988. From 1984 to 1987 Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in the
state of Massachusetts. He holds a B.S. in Accounting from Merrimack College
and an M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended September 30, 1995, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
received no remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser, and the
General Partners are entitled to receive a share of Partnership cash
distributions and a share of profits and losses. These items are described under
Item 13.
The Partnership paid cash distributions to the Unitholders on a quarterly
basis at a rate of 2% per annum on original invested capital in fiscal 1990.
Regular quarterly distributions were suspended in fiscal 1991 and reinstated at
the prior annual rate of 2% effective for the third quarter of fiscal 1994.
However, the Partnership's Units of Limited Partnership Interest are not
actively traded on any organized exchange, and no efficient secondary market
exists. Accordingly, no accurate price information is available for these Units.
Therefore, a presentation of historical Unitholder total returns would not be
meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, Sixth Income Properties Fund, Inc., is owned by
PaineWebber. Properties Associates 1985, L.P., the Associate General Partner, is
a Virginia limited partnership, certain limited partners of which are also
officers of the Adviser and the Managing General Partner. No limited partner is
known by the Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.
(b) The directors and officers of the Managing General Partner do not
directly own any Units of limited partnership interest of the Partnership. No
director or officer of the Managing General Partner, nor any limited partner of
the Associate General Partner, possesses a right to acquire beneficial ownership
of Units of limited partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation
of which may, at a subsequent date, result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are Sixth Income Properties
Fund, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber") and Properties Associates 1985, L.P. (the
"Associate General Partner"), a Virginia limited partnership, certain limited
partners of which are also officers of the Managing General Partner and
PaineWebber Properties Incorporated (the "Adviser"). Subject to the Managing
General Partner's overall authority, the business of the Partnership is managed
by the Adviser pursuant to an advisory contract. The Adviser is a wholly-owned
subsidiary of PaineWebber Incorporated ("PWI"). The General Partners, the
Adviser and PWI receive fees and compensation, determined on an agreed-upon
basis, in consideration of various services performed in connection with the
sale of the Units, the management of the Partnership and the acquisition,
management, financing and disposition of Partnership investments.
In connection with the acquisition of properties, the Adviser
received acquisition fees in an amount equal to 5% of the gross proceeds from
the sale of the Partnership Units. In connection with the sale of each property,
the Adviser may receive a disposition fee, payable upon liquidation of the
Partnership, in an amount equal to the lesser of 1% of the aggregate sales price
of the property or 50% of the standard brokerage commissions, subordinated to
the payment of certain amounts to the Limited Partners.
All taxable income or tax loss (other than from a Capital
Transaction) of the Partnership will be allocated 98.94802625% to the Limited
Partners and 1.05197375% to the General Partners. Taxable income or loss arising
from a sale or refinancing of investment properties will be allocated to the
Limited Partners and the General Partners in proportion to the amounts of sale
or refinancing proceeds to which they are entitled; provided, that the General
Partners shall be allocated at least 1% of taxable income arising from a sale or
refinancing. If there are no sale or refinancing proceeds, taxable income or tax
loss from a sale or refinancing will be allocated 98.94802625% to the Limited
Partners and 1.05197375% to the General Partners. Notwithstanding this, the
Partnership Agreement provides that the allocation of taxable income and tax
losses arising from the sale of a property which leads to the dissolution of the
Partnership shall be adjusted to the extent feasible so that neither the General
or Limited Partners recognize any gain or loss as a result of having either a
positive or negative balance remaining in their capital accounts upon the
dissolution of the Partnership. If the General Partner has a negative capital
account balance subsequent to the sale of a property which leads to the
dissolution of the Partnership, the General Partner may be obligated to restore
a portion of such negative capital account balance as determined in accordance
with the provisions of the Partnership Agreement. Allocations of the
Partnership's operations between the General Partners and the Limited Partners
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 95% to the Limited Partners, 1.01% to the
General Partners and 3.99% to the Adviser, as an asset management fee. All sale
or refinancing proceeds shall be distributed in varying proportions to the
Limited and General Partners, as specified in the Partnership Agreement.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser will be paid a basic management fee (3% of adjusted cash
flow, as defined in the Partnership Agreement) and an incentive management fee
(2% of adjusted cash flow subordinated to a noncumulative annual return to the
Limited Partners equal to 6% based upon their adjusted capital contributions),
in addition to the asset management fee described above, for services rendered.
In conjunction with the reinstatement of distribution payments effective for the
third quarter of fiscal 1994, the Adviser earned total basic and asset
management fees of $88,000 for the year ended September 30, 1995. No incentive
management fees were earned during fiscal 1995.
An affiliate of the Managing General Partner performs certain
accounting, tax preparation, securities law compliance and investor
communications and relations services for the Partnership. The total costs
incurred by this affiliate in providing such services are allocated among
several entities, including the Partnership. Included in general and
administrative expenses for the year ended September 30, 1995 is $120,000
representing reimbursements to this affiliate for providing such services to the
Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $9,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended September 30, 1995. Fees charged
by Mitchell Hutchins are based on a percentage of invested cash reserves which
varies based on the total amount of invested cash which Mitchell Hutchins
manages on behalf of PWPI.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying Index to Exhibits at
page IV-3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the
last quarter of fiscal 1995.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
<PAGE>
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/ Lawrence A. Cohen
Lawrence A. Cohen
President and Chief Executive Officer
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
Thomas W. Boland
Vice President
Dated: January 4, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership in
the capacity and on the dates indicated.
By:/s/ Albert Pratt Date:January 4, 1996
Albert Pratt
Director
By: /s/ J. Richard Sipes Date: January 4, 1996
J. Richard Sipes
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Page Number in the
Exhibit No. Description of Document Report or Other
Reference
- ---------------- ----------------------------------- ---------------------
(3) and (4) Prospectus of the Registrant Filed with the
dated September 17, 1984, as Commission pursuant
supplemented, with particular to Rule 424(c) and
reference to the Restated incorporated herein
Certificate and Agreement of by reference.
Limited Partnership.
(10) Material contracts previously Filed with the
filed as exhibits to registration Commission pursuant
statements and amendments thereto to Section 13 or
of the registrant together with 15(d) of the
all such contracts filed as Securities Exchange
exhibits of previously filed Act of 1934 and
Forms 8-K and Forms 10-K are incorporated herein
hereby incorporated herein by by reference.
reference.
(13) Annual Report to Limited Partners No Annual Report
for the year ended
September 30, 1995
has been sent to
the Limited
Partners. An
Annual Report will
be sent to the
Limited Partners
subsequent to this
filing.
(22) List of subsidiaries Included in Item 1
of Part I of this
Report Page I-1, to
which reference is
hereby made.
(27) Financial data schedule Filed as the last
page of EDGAR
submission
following the
Financial
Statements and
Financial Statement
Schedule required
by Item 14.
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
Paine Webber Income Properties Six Limited Partnership:
Report of independent auditors F-2
Balance sheets as of September 30, 1995 and 1994 F-3
Statements of operations for the years ended
September 30, 1995, 1994 and 1993 F-4
Statements of changes in partners' capital (deficit)
for the years ended September 30, 1995, 1994 and 1993 F-5
Statements of cash flows for the years ended September
30, 1995, 1994 and 1993 F-6
Notes to financial statements F-7
Combined Joint Ventures of Paine Webber Income Properties Six Limited
Partnership:
Report of independent auditors F-17
Combined balance sheets as of September 30, 1995 and 1994 F-18
Combined statements of operations and changes in venturers'
capital for the years ended September 30, 1995, 1994 and 1993 F-19
Combined statements of cash flows for the years ended
September 30, 1995, 1994 and 1993 F-20
Notes to combined financial statements F-21
Schedule III - Real Estate and Accumulated Depreciation F-29
Other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Six Limited Partnership:
We have audited the accompanying balance sheets of PaineWebber Income
Properties Six Limited Partnership as of September 30, 1995 and 1994, and the
related statements of operations, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paine Webber Income
Properties Six Limited Partnership at September 30, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1995 in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
December 29, 1995
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1995 and 1994
(In thousands, except per Unit data)
ASSETS
1995 1994
Investments in joint ventures, at equity $ 6,585 $ 7,469
Cash and cash equivalents 2,515 2,567
$ 9,100 $ 10,036
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 15 $ 9
Accrued expenses and other liabilities 30 21
Total liabilities 45 30
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net loss (843) (846)
Cumulative cash distributions (500) (487)
Limited Partners ($1,000 per unit;
60,000 Units issued):
Capital contributions, net of offering costs 53,959 53,959
Cumulative net loss (30,260) (30,519)
Cumulative cash distributions (13,302) (12,102)
Total partners' capital 9,055 10,006
$ 9,100 $ 10,036
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the years ended September 30, 1995, 1994 and 1993
(In thousands, except per Unit data)
1995 1994 1993
Revenues:
Interest income $ 161 $ 106 $ 47
Income from sale of second
mortgage interest 200 - -
361 106 47
Expenses:
Provision for possible
investment loss - 800 2,000
Cost of holding investment in
150 Broadway Office Building - 200 -
Management fees 88 32 -
General and administrative 333 376 459
421 1,408 2,459
Operating loss (60) (1,302) (2,412)
Partnership's share of
ventures' income 322 522 581
Net income (loss) $ 262 $ (780) $(1,831)
Per Limited Partnership Unit:
Net income (loss) $ 4.33 $(12.86) $ (30.20)
Cash distributions $ 20.00 $ 5.00$ -
The above per Limited Partnership Unit information is based upon the 60,000
Limited Partnership Units outstanding during each year.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
General Limited
Partners Partners Total
Balance at September 30, 1992 $(1,302) $14,222 $12,920
Net loss (19) (1,812) (1,831)
Balance at September 30, 1993 (1,321) 12,410 11,089
Cash distributions (3) (300) (303)
Net loss (8) (772) (780)
Balance at September 30, 1994 (1,332) 11,338 10,006
Cash distributions (13) (1,200) (1,213)
Net income 3 259 262
Balance at September 30, 1995 $(1,342) $10,397 $ 9,055
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, 1994 and 1993
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 262 $ (780) $ (1,831)
Adjustments to reconcile net income
(loss) to net cash used for
operating activities:
Partnership's share of ventures' income (322) (522) (581)
Income from sale of second mortgage
interest (200) - -
Provision for possible investment loss - 800 2,000
Changes in assets and liabilities:
Other assets - 2 -
Accounts payable - affiliates 6 (30) 9
Accrued expenses and other liabilities 9 (11) (61)
Total adjustments (507) 239 1,367
Net cash used for operating activities (245) (541) (464)
Cash flows from investing activities:
Distributions from joint ventures 1,406 1,948 1,820
Cash contributions to joint ventures (200) (28) -
Additional investment in 150 Broadway
Office Building - - (800)
Proceeds from sale of investment in
150 Broadway Office Building 200 - -
Net cash provided by investing
activities 1,406 1,920 1,020
Cash flows from financing activities:
Distributions to partners (1,213) (303) -
Net cash used in financing activities (1,213) (303) -
Net increase (decrease) in cash and
cash equivalents (52) 1,076 556
Cash and cash equivalents, beginning of year 2,567 1,491 935
Cash and cash equivalents, end of year $ 2,515 $ 2,567 $ 1,491
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Financial Statements
1. Organization
Paine Webber Income Properties Six Limited Partnership (the "Partnership")
is a limited partnership organized pursuant to the laws of the State of
Delaware in April 1984 for the purpose of investing in a diversified
portfolio of income-producing properties. The Partnership authorized the
issuance of units (the "Units") of partnership interests (at $1,000 per
Unit) of which 60,000 were subscribed and issued between September 17, 1984
and September 16, 1985.
2. Summary of Significant Accounting Policies
The accompanying financial statements include the Partnership's
investments in certain joint venture partnerships which own operating
properties. The Partnership accounts for its investments in joint venture
partnerships using the equity method because the Partnership does not have a
voting control interest in the ventures. Under the equity method the venture
is carried at cost adjusted for the Partnership's share of the venture's
earnings or losses and distributions. See Note 4 for a description of these
joint venture partnerships.
The Partnership has reviewed FAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," which is
effective for financial statements for years beginning after December 15,
1995, and believes this new pronouncement will not have a material effect on
the Partnership's financial statements.
Certain prior year balances have been reclassified to conform to the
current year presentation.
For purposes of reporting cash flows, cash and cash equivalents include
all highly liquid investments with original maturities of 90 days or less.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership. Upon sale or
disposition of the Partnership's investments, the taxable gain or the
taxable loss incurred will be allocated among the partners. In cases where
the disposition of the investment involves the lender foreclosing on the
investment, taxable income could occur without distribution of cash. This
income would represent passive income to the partners which could be offset
by each partners' existing passive losses, including any passive loss
carryovers from prior years.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are Sixth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc. ("PaineWebber") and Properties Associates 1985, L.P.
(the "Associate General Partner"), a Virginia limited partnership, certain
limited partners of which are also officers of the Managing General Partner
and PaineWebber Properties Incorporated (the "Adviser"). Subject to the
Managing General Partner's overall authority, the business of the
Partnership is managed by the Adviser pursuant to an advisory contract. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI").
The General Partners, the Adviser and PWI receive fees and compensation,
determined on an agreed-upon basis, in consideration of various services
performed in connection with the sale of the Units, the management of the
Partnership and the acquisition, management, financing and disposition of
Partnership investments.
In connection with the acquisition of properties, the Adviser received
acquisition fees in an amount equal to 5% of the gross proceeds from the
sale of the Partnership Units. In connection with the sale of each property,
the Adviser may receive a disposition fee, payable upon liquidation of the
Partnership, in an amount equal to the lesser of 1% of the aggregate sales
price of the property or 50% of the standard brokerage commissions,
subordinated to the payment of certain amounts to the Limited Partners.
All taxable income or tax loss (other than from a Capital Transaction) of
the Partnership will be allocated 98.94802625% to the Limited Partners and
1.05197375% to the General Partners. Taxable income or loss arising from a
sale or refinancing of investment properties will be allocated to the
Limited Partners and the General Partners in proportion to the amounts of
sale or refinancing proceeds to which they are entitled; provided, that the
General Partners shall be allocated at least 1% of taxable income arising
from a sale or refinancing. If there are no sale or refinancing proceeds,
taxable income or tax loss from a sale or refinancing will be allocated
98.94802625% to the Limited Partners and 1.05197375% to the General
Partners. Notwithstanding this, the Partnership Agreement provides that the
allocation of taxable income and tax losses arising from the sale of a
property which leads to the dissolution of the Partnership shall be adjusted
to the extent feasible so that neither the General or Limited Partners
recognize any gain or loss as a result of having either a positive or
negative balance remaining in their capital accounts upon the dissolution of
the Partnership. If the General Partner has a negative capital account
balance subsequent to the sale of a property which leads to the dissolution
of the Partnership, the General Partner may be obligated to restore a
portion of such negative capital account balance as determined in accordance
with the provisions of the Partnership Agreement. Allocations of the
Partnership's operations between the General Partners and the Limited
Partners for financial accounting purposes have been made in conformity with
the allocations of taxable income or tax loss.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 95% to the Limited Partners, 1.01% to
the General Partners and 3.99% to the Adviser, as an asset management fee.
All sale or refinancing proceeds shall be distributed in varying proportions
to the Limited and General Partners, as specified in the Partnership
Agreement.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership,
and to report periodically the performance of the Partnership to the
Managing General Partner. The Adviser will be paid a basic management fee
(3% of adjusted cash flow, as defined in the Partnership Agreement) and an
incentive management fee (2% of adjusted cash flow subordinated to a
noncumulative annual return to the Limited Partners equal to 6% based upon
their adjusted capital contributions), in addition to the asset management
fee described above, for services rendered. In conjunction with the
reinstatement of distribution payments effective for the third quarter of
fiscal 1994, the Adviser earned total basic and asset management fees of
$88,000 and $32,000 for the years ended September 30, 1995 and 1994,
respectively. No basic or asset management fees were earned in fiscal 1993.
No incentive management fees have been earned to date. Accounts payable -
affiliates at both September 30, 1995 and 1994 includes $9,000 of management
fees payable to the Adviser.
Included in general and administrative expenses for the years ended
September 30, 1995, 1994 and 1993 is $120,000, $121,000 and $137,000,
respectively, representing reimbursements to an affiliate of the Managing
General Partner for providing certain financial, accounting and investor
communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management,
Inc., an independently operated subsidiary of PaineWebber. Mitchell Hutchins
earned fees of $9,000, $5,000 and $2,000 (included in general and
administrative expenses) for managing the Partnership's cash assets during
fiscal 1995, 1994 and 1993, respectively. Included in accounts payable -
affiliates at September 30, 1995 is $6,000 of cash management fees owed to
Mitchell Hutchins.
<PAGE>
4. Investments in Joint Ventures
The Partnership has investments in three joint ventures at September 30,
1995 and 1994. The joint ventures are accounted for on the equity method in
the Partnership's financial statements.
Condensed combined financial statements of these joint ventures follow:
Condensed Combined Balance Sheets
September 30, 1995 and 1994
(In thousands)
Assets
1995 1994
Current assets $ 1,423 $ 1,160
Operating investment properties, net 43,852 44,809
Other assets 1,145 908
$ 46,420 $46,877
Liabilities and Venturers' Capital
Current liabilities $ 2,830 $10,809
Other liabilities 269 277
Long-term debt and long-term debt
subject to refinancing 34,228 25,724
Partnership's share of combined capital 5,621 6,596
Co-venturers' share of combined capital 3,472 3,471
$ 46,420 $46,877
Reconciliation of Partnership's Investment
(in thousands)
1995 1994
Partnership's share of capital, as shown above $ 5,621 $ 6,596
Partnership's share of current
liabilities and long-term debt 921 830
Excess basis due to investment
in ventures (1) 43 43
Investments in unconsolidated joint ventures,
at equity $ 6,585 $ 7,469
(1) At September 30, 1995 and 1994, the Partnership's investment exceeds its
share of the joint venture capital accounts and liabilities by $43,000. This
amount relates to certain expenses associated with acquiring the
investments.
<PAGE>
Condensed Combined Summary of Operations
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
Rental revenues and
expense recoveries $ 9,122 $ 9,482 $ 9,088
Interest income 26 26 28
9,148 9,508 9,116
Property operating expenses 3,156 3,404 2,986
Depreciation and amortization 2,208 2,120 2,072
Interest expense 3,462 3,462 3,477
8,826 8,986 8,535
Net income $ 322 $ 522 $ 581
Partnership's share of
combined income $ 322 $ 522 $ 581
Co-venturers' share of
combined income - - -
$ 322 $ 522 $ 581
Investments in joint ventures, at equity represents the Partnership's net
investment in the joint venture partnerships. These joint ventures are
subject to partnership agreements which determine the distribution of
available funds, the disposition of the venture's assets and the rights of
the partners, regardless of the Partnership's percentage ownership interest
in the venture. Substantially all of the Partnership's investments in these
joint ventures are restricted as to distributions.
Investments in joint ventures, at equity on the balance sheet is comprised
of the following joint venture investments (in thousands):
1995 1994
Regent's Walk Associates $ 1,583 $1,859
Kentucky-Hurstbourne Associates 3,745 3,931
Gwinnett Mall Corners Associates 1,257 1,679
$ 6,585 $ 7,469
The Partnership received cash distributions from the joint ventures as set
forth below (in thousands):
1995 1994 1993
Regent's Walk Associates $ 276 $ 496 $ 328
Kentucky-Hurstbourne Associates 660 507 628
Gwinnett Mall Corners Associates 470 945 864
$ 1,406 $ 1,948 $ 1,820
Descriptions of the properties owned by the joint ventures and the terms
of the joint venture agreements are summarized as follows:
a. Regent's Walk Associates
On May 15, 1985 the Partnership acquired an interest in Regent's Walk
Associates, a Kansas general partnership that owns and operates Regent's
Walk Apartments, a 255-unit apartment complex in Overland Park, Johnson
County, Kansas. The Partnership is a general partner in the joint venture.
The Partnership's co-venture partner is an affiliate of J. A.
Peterson Enterprises, Inc.
The initial aggregate cash investment by the Partnership for its interest
was approximately $6,768,000 (including an acquisition fee of $390,000 paid
to the Adviser). The apartments were encumbered by a nonrecourse first
mortgage loan with a balance of $8,390,000 as of September 30, 1994. During
the year ended September 30, 1995, the Company refinanced the $8,390,000,
9.0% first mortgage note that was scheduled to mature on May 1, 1995. The
new long-term debt consists of a first mortgage note with a principal amount
of $9,000,000 secured by the operating investment property. The note is
payable monthly, including interest at 7.32%, with the unpaid principal
balance of $8,500,163 due October 1, 2000. 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 joint venture agreement provides that the Partnership will receive
from cash flow a cumulative preferred return, payable quarterly, of
$164,000. Commencing June 1, 1988, after the Partnership has received its
cumulative preferred return, the co-venturer is entitled to a preference
return of $7,000 for each fiscal quarter which is cumulative only for
amounts due in any one fiscal year. Any remaining cash flow is to be used to
pay interest on any notes from the joint venture to the partners and then is
to be distributed to the partners, with the Partnership receiving 90% of the
first $200,000, 80% of the next $200,000 and 70% of any remainder. During
the years ended September 30, 1995 and 1994, the Partnership's preferred
return aggregated $656,000 in each year, while net cash available for
distribution amounted to $320,000 and $469,000, respectively, leaving an
unpaid cumulative preferred return of $2,720,000 at September 30, 1995
($2,384,000 at September 30, 1994). The cumulative unpaid preference return
is payable only in the event that sufficient future cash flow or sale or
refinancing proceeds are available.
Taxable income or tax loss is to be allocated to the partners based on
their proportionate share of cash distributions. Allocations of the
venture's operations between the Partnership and the co-venturer for
financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
If additional cash is needed by the joint venture for any reason including
payment of the Partnership's preference return, prior to June 1, 1992, the
co-venturer was required to make loans to the joint venture up to a total of
$250,000. After the joint venture has borrowed $250,000 from the
co-venturer, if the joint venture requires additional funds for purposes
other than distributions, then it will be provided 90% by the Partnership
and 10% by the co-venturer.
Sale and/or refinancing proceeds will be distributed as follows, after
making a provision for liabilities and obligations: (1) repayment to the
co-venturer of up to $250,000 of operating loans plus accrued interest
thereon, (2) payment of accrued interest and repayment of principal of
operating notes (pro-rata), (3) to the Partnership payment of any preferred
return arrearage, (4) to the Partnership an amount equal to the
Partnership's gross investment plus $560,000, (5) to the co-venturer the
amount of $500,000, (6) to payment of a brokers fee to the partners if a
sale is made to a third party, (7) to the payment of up to $100,000
subordinated management fees, (8) the next $8,000,000 to the Partnership and
the co-venturer in the proportions of 90% and 10%, respectively, (9) the
next $4,000,000 to the Partnership and the co-venturer in the proportions of
80% and 20%, respectively, and (10) any remaining balance 70% to the
Partnership and 30% to the co-venturer.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the Partnership
upon the occurrence of certain events. The management fee was 4% of the
gross rents collected from the property until June 1, 1990 when the fee
increased to 5% of the gross rents. Subsequent to June 1, 1988, that portion
of the fees representing 1% of gross rents shall be payable only to the
extent of cash flow remaining after the Partnership has received its
preferred return. Any payments not made pursuant to the above are payable
only out of sale or refinancing proceeds the amount of which will not exceed
$100,000 as specified in the agreement. Total subordinated management fees
as of September 30, 1995 exceed this $100,000 limitation.
b. Kentucky-Hurstbourne Associates
On July 25, 1985 the Partnership acquired an interest in
Kentucky-Hurstbourne Associates, a newly formed Delaware general
partnership, that owns and operates Hurstbourne Apartments, a 409-unit
apartment complex located in Louisville, Kentucky. The Partnership is a
general partner in the joint venture. The Partnership's co-venture partner
is an affiliate of the Paragon Group.
The initial aggregate cash investment by the Partnership for its interest
was approximately $8,716,000 (including an acquisition fee of $500,000 paid
to the Adviser). The apartments are encumbered by a nonrecourse first
mortgage loan with a balance of $8,457,000 as of September 30, 1995 This
mortgage loan is scheduled to mature in September 1999.
The joint venture agreement as amended on May 21, 1986 provides that cash
flow shall first be distributed to the Partnership in the amount of $67,000
per month (the Partnership's preference return). The preference return was
cumulative on a year to year basis through July 31, 1989, and is
noncumulative thereafter. The next $40,000 will be distributed to the
co-venturer on a noncumulative annual basis, payable quarterly. Any cash
flow not previously distributed at the end of each fiscal year will be
applied in the following order: first, to the payment of all unpaid accrued
interest on all outstanding operating notes; the next $225,000 of annual
cash flow will be distributed 90% to the Partnership and 10% to the
co-venturer; the next $260,000 of annual cash flow will be distributed 80%
to the Partnership and 20% to the co-venturer, and any remaining balance
will be distributed 70% to the Partnership and 30% to the co-venturer.
At September 30, 1995 and 1994, the cumulative preference return payable
to the Partnership for years prior to July 31, 1989 was approximately
$1,354,000. Under the terms of the joint venture agreement, unpaid
preference returns will only be paid upon refinancing, sale, exchange or
other disposition of the property. During the years ended September 30, 1995
and 1994, the Partnership was entitled to 100% of the net cash available for
distribution, which amounted to $507,000 and $575,000, respectively.
Taxable income or tax loss of the joint venture will be allocated to the
Partnership and co-venturer in proportion to the distribution of net cash
flow subject to the following: first, the co-venturer shall not be allocated
less than 10% of the net income or net loss; second, the co-venturer shall
not be allocated net profits in excess of net cash flow distributed to it
during the fiscal year. Internal Revenue Service regulations require
partnership allocations of income and loss to the respective partners to
have "substantial economic effect". This requirement resulted in the
venture's income and losses for the years ended September 30, 1995, 1994 and
1993 being allocated in a manner different from that provided in the venture
agreement such that none of the losses were allocated to the co-venturer.
Allocations of the venture's operations between the Partnership and the
co-venturer for financial accounting purposes have been made in conformity
with the actual allocation of taxable income or tax loss.
Any proceeds arising from a refinancing, sale, exchange or other
disposition of property will be distributed first to the payment of unpaid
principal and accrued interest on the outstanding first mortgage loan. Any
remaining proceeds will be distributed in the following order: repayment of
unpaid operating loans and accrued interest thereon to the Partnership and
the co-venturer; the amount of any undistributed preference payments to the
Partnership (for the period through July 31, 1989); $10,056,000 to the
Partnership; $684,000 to the co-venturer; the amount of any unpaid
subordinated management fees to the property manager; $9,000,000 distributed
90% to the Partnership and 10% to the co-venturer; $4,500,000 distributed
80% to the Partnership and 20% to the co-venturer with any remaining balance
distributed 70% to the Partnership and 30% to the co-venturer.
If additional cash is required by the joint venture, it may be provided by
the Partnership and the co-venturer as loans to the joint venture. Such
loans would be provided 90% by the Partnership and 10% by the co-venturer.
Through September 30, 1995, no such loans are outstanding.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the Partnership
upon the occurrence of certain events. The management fee is 5% of gross
receipts collected from the property. Two percent of such fees were
subordinated to the Partnership's and co-venturer's returns during the first
three years of the joint venture's operations. Under the terms of the joint
venture agreement, unpaid subordinated management fees total $118,000 and
will only be paid upon refinancing, sale, exchange or other disposition of
the property.
c. Gwinnett Mall Corners Associates
On August 28, 1985 the Partnership acquired an interest in Gwinnett Mall
Corners Associates, a Georgia general partnership that owns and operates
Mall Corners Shopping Center, a 286,000 gross leasable square foot shopping
center, located in Gwinnett County, Georgia. The Partnership is a general
partner in the joint venture. The Partnership's co-venture partner is a
partnership comprised of several individual investors.
The initial aggregate cash investment by the Partnership for its interest
was approximately $10,707,000 (including an acquisition fee of $579,000 paid
to the Adviser). The shopping center was encumbered by a construction
mortgage loan with a balance of $22,669,000 at the time of closing. The
construction mortgage loan was refinanced on November 4, 1985 with permanent
financing of $17,700,000, with the remainder paid out of escrows established
at the time of closing. The balance of the 11.5% nonrecourse permanent
mortgage loan, which was scheduled to mature in December 1995, was
$17,266,000 as of September 30, 1995. Subsequent to year-end, on December
29, 1995, the venture obtained a new first mortgage loan with a principal
balance of $20,000,000 and repaid the maturing obligation. Excess loan
proceeds of approximately $2.2 million were used to pay transaction costs
and 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 which are expected to be completed in 1996.
In addition, excess proceeds of approximately $550,000 were available to be
paid to the Partnership, in accordance with the terms of the joint venture
agreement, to be applied toward the operating loan and cumulative preference
amounts discussed further below. The new 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.
The joint venture agreement provides that the Partnership will receive
from cash flow, as defined, an annual cumulative preferred return, payable
monthly, of $1,047,000. In the event cash flow, as defined, was insufficient
to pay the Partnership's preference return described above through November
1, 1990, the co-venturer was required to fund to the joint venture a monthly
amount equal to the difference between $68,000 (the guaranteed preferred
return) and cash flow, as defined. During 1990 the venture partners reached
an agreement as to the cumulative deficiencies to be funded by the
co-venturer, which totalled $665,000. Cumulative total preference
distributions in arrears at September 30, 1995 amounted to $1,997,000 which
includes minimum guaranteed distributions in arrears of $308,000.
The co-venturer is entitled to receive quarterly non-cumulative,
subordinated returns of $38,000. Due to insufficient cash flow, the
co-venturer received no distributions for any of the three years in the
period ended September 30, 1995. Any remaining cash flow, as defined, after
payments of the co-venturer's preference return, shall be distributed first
to the Initial Property Manager (an affiliate of the co-venturer) in an
amount equal to the then unpaid subordinated management fees from prior
fiscal years, then next to pay accrued interest on any loans made by the
Partnership and the co-venturer to the joint venture. The next $500,000 is
to be distributed 80% to the Partnership and 20% to the co-venturer. The
next $500,000 of cash flow in any year in excess of such returns will be
distributed 70% to the Partnership and 30% to the co-venturer and the
remaining balance is to be distributed 60% to the Partnership and 40% to the
co-venturer.
Taxable income or tax loss will be allocated to the Partnership and the
co-venturer in any year in the same proportions as the amount of cash
distributed to each of them and if no net cash flow has been distributed,
100% to the Partnership. Allocations of the venture's operations between the
Partnership and the co-venturer for financial accounting purposes have been
made in conformity with the allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with
operations of the Joint Venture, it will be provided 70% by the Partnership
and 30% by the co-venturer (operating loans). The rate of interest on such
loans shall equal the lesser of the rate announced by the First National
Bank of Boston as its prime or the maximum rate of interest permitted by
applicable law. In the event a partner shall default in its obligation to
make an operating loan, the other partner may make all or part of the loan
required to be made by the defaulting partner (default loan). Each default
loan shall provide for the accrual of interest at the rate equal to the
lesser of twice the operating loan rate or the maximum rate of interest
permitted by applicable law. Through September 30, 1995, the Partnership and
the co-venturer have made operating loans totalling $63,000 and $1,000,
respectively. In addition the Partnership has made default loans aggregating
$26,000 through September 30, 1995.
Distribution of sale and/or refinancing proceeds are to be as follows,
after making a provision for liabilities and obligations and to the extent
not previously returned to each partner: (1) payment of accrued interest and
operating notes payable to partners; (2) to the Partnership the aggregate
amount of the Partnership's Preference Return that shall not have been
distributed, (3) to the Partnership an amount equal to the Partnership's
gross investment, (4) the next $2,000,000 to the co-venturer, (5) to the
Initial Property Manager for any unpaid subordinated management fee that
shall have accrued, (6) the next $4,000,000 allocated to the Partnership and
to the co-venturer in the proportions 80% and 20%, respectively, (7) the
next $3,000,000 allocated to the Partnership and the co-venturer in the
proportions 70% and 30%, respectively, and (8) any remaining balance shall
be allocated to the Partnership and the co-venturer 70% and 30%,
respectively, until the Partnership receives an amount equal to all net
losses allocated to the Partnership for years through calendar 1989 in which
the maximum Federal income tax rate for individuals was less than 50% times
a percentage equal to 50% minus the weighted average maximum Federal income
tax rate for individuals in effect during such years plus a simple rate of
return added to each year's amount equal to 8% per annum. Thereafter, any
remaining balance shall be distributed to the Partnership and the
co-venturer 60% and 40%, respectively.
The joint venture entered into a property management contract with an
affiliate of the co-venturer, cancellable at the Partnership's option upon
the occurrence of certain events. The management fee is equal to 3% of the
gross receipts, as defined, of which 1.5% was subordinated to the payment of
the Partnership's minimum guaranteed distributions through November 1990.
5. Investment in 150 Broadway Office Building
The Partnership sold its 49% interest in the Bailey N.Y. Associates joint
venture on September 22, 1989. The sales price for the Partnership's
interest was $18,000,000 which was received in the form of $4,000,000 in
cash and a $14,000,000 second mortgage note receivable. The Partnership also
received a $1,000,000 promissory note in satisfaction of preferred returns
accrued but not paid during the term of the joint venture partnership. The
notes, which bore interest at 7% per annum, were originally payable in
quarterly installments of principal and interest of $280,000, beginning in
October of 1989, for the $14,000,000 note and in quarterly installments of
interest only, beginning in April of 1991, for the $1 million note. The
notes were due to mature in October of 1995.
Due to a deterioration in the commercial real estate market in New York
City which adversely affected property operations, the borrower failed to
make certain payments due under the terms of the Partnership's second
mortgage note and the $1 million promissory note received as part of the
1989 sale agreement, as well as payments due on first and third mortgages
with unaffiliated third parties. On July 22, 1991, in a defensive reaction
to the commencement of foreclosure proceedings by the first mortgagee, the
borrower filed for protection under Chapter 11 of the U. S. Bankruptcy Code.
During fiscal 1993, the Partnership agreed to a settlement agreement
involving both the first mortgage lender and the owner. 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. This escrow reserve was funded in the first
quarter of fiscal 1994. Under the terms of the agreement, if the first
mortgagee made withdrawals from the escrow to cover any monthly debt service
shortfalls, the Partnership was required to replenish the escrow on a
quarterly basis or it would have forfeited its second mortgage position.
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. Under the cost method, any amounts received as interest on the note or
advances were recorded as income when received. Any advances required to
maintain the Partnership's investment interest in the 150 Broadway Office
Building were recorded as an expense in the period paid.
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 provisions for
possible investment loss totalling $800,000 during fiscal 1994 ($400,000 in the
third quarter and $400,000 in the fourth quarter) 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 escrow on May 31, 1995 upon the
final execution of the sale and assignment agreement. The $100,000 is to be
released from escrow subsequent to the resolution of certain matters between the
borrower and the first mortgage holder. The $200,000 received to date is
non-refundable in the event that the sale is not consummated. The Partnership
recorded income of $200,000 in fiscal 1995 to reflect the non-refundable cash
proceeds received to date. Additional income of $100,000 would be recorded upon
the satisfaction of the escrow requirements and the release of the escrowed cash
to the Partnership.
6. Subsequent Event
On November 15, 1995, the Partnership distributed $300,000 to the Limited
Partners, $3,000 to the General Partners and $13,000 to the Adviser as an asset
management fee for the quarter ended September 30, 1995.
7. Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Six Limited Partnership:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of Paine Webber Income Properties Six Limited Partnership as of
September 30, 1995 and 1994, and the related combined statements of operations
and changes in venturers' capital and cash flows for each of the three years in
the period ended September 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Combined Joint Ventures of Paine Webber Income Properties Six Limited
Partnership at September 30, 1995 and 1994 and the combined results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
November 16, 1995,
except for Note 5,
as to which the date
is December 29, 1995
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1995 and 1994
(In thousands)
ASSETS
1995 1994
Current assets:
Cash and cash equivalents $ 480 $ 613
Prepaid expenses 39 41
Accounts receivable - affiliates 21 15
Accounts receivable from tenants and others 74 83
Cash reserve for capital expenditures 512 134
Cash reserve for insurance and taxes 297 274
Total current assets 1,423 1,160
Cash reserve for tenant security deposits 40 20
Capital contributions receivable from
Mall Corners III 665 665
Operating investment property, at cost:
Land 9,845 9,786
Buildings, improvements and equipment 53,269 52,315
63,114 62,101
Less accumulated depreciation (19,262) (17,292)
Net operating investment property 43,852 44,809
Deferred expenses, net of accumulated
amortization of $3,119 in 1995 and $2,881 in 1994 440 223
$46,420 $46,877
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Distributions payable to venturers $ 499 $ 609
Notes payable to venturers 488 488
Advance from venturer 200 -
Current portion of long-term debt 495 8,591
Accounts payable and accrued expenses 138 113
Accounts payable - affiliate 26 28
Accrued interest 711 723
Accrued real estate taxes 171 164
Other liabilities 102 93
Total current liabilities 2,830 10,809
Long-term debt and long-term debt subject to refinancing 34,228 25,724
Tenant security deposits 269 277
Venturers' capital 9,093 10,067
$46,420 $46,877
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINEWEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL
For the years ended September 30, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
Revenues:
Rental income and expense
reimbursements $ 9,122 $ 9,482 $ 9,088
Interest income 26 26 28
9,148 9,508 9,116
Expenses:
Interest 3,462 3,462 3,477
Depreciation and amortization 2,208 2,120 2,072
Property taxes 653 620 590
Insurance 137 137 145
Management fees 333 345 331
Maintenance and repairs 650 958 686
Utilities 519 564 525
General and administrative 270 245 194
Salaries 560 505 480
Other 34 30 35
8,826 8,986 8,535
Net income 322 522 581
Distributions to venturers (1,296) (1,989) (1,688)
Venturers' capital, beginning of year 10,067 11,534 12,641
Venturers' capital, end of year $ 9,093 $10,067 $11,534
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1995, 1994 and 1993
Increase (Decrease) in Cash
(In thousands)
1995 1994 1993
Cash flows from operating activities:
Net income $ 322 $ 522 $ 581
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,208 2,119 2,072
Changes in assets and liabilities:
Prepaid expenses 2 56 (35)
Accounts receivable - affiliates (6) (15) -
Accounts receivable from tenants
and others 9 71 25
Cash reserve for capital expenditures 122 (92) (8)
Cash reserve for insurance and taxes (23) (44) (56)
Cash reserve for tenant security deposits (20) (12) 16
Accounts payable and accrued expenses 25 14 (85)
Accounts payable - affiliates (2) (9) 8
Accrued interest (12) 46 (25)
Accrued real estate taxes 7 (158) 53
Other liabilities 9 38 3
Tenant security deposits (8) 5 4
Total adjustments 2,311 2,019 1,972
Net cash provided by operating
activities 2,633 2,541 2,553
Cash flows from investing activities:
Additions to operating investment
properties (1,029) (746) (872)
Payment of lease commissions (67) (55) (63)
Proceeds from insurance settlement - 379 390
Funding of renovation escrow account (500) - -
Net cash used in investing
activities (1,596) (422) (545)
Cash flows from financing activities:
Distributions to venturers (1,406) (1,948) (1,621)
Long-term debt incurred 9,000 - -
Debt acquisition costs (372) - -
Advances from venturers 200 - -
Principal payments on long-term debt (8,592) (182) (159)
Net cash used in financing
activities (1,170) (2,130) (1,780)
Net increase (decrease) in cash
and cash equivalents (133) (11) 228
Cash and cash equivalents,
beginning of year 613 624 396
Cash and cash equivalents, end of year $ 480 $ 613 $ 624
Cash paid during the year for interest $ 3,515 $ 3,421 $ 3,474
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Combined Financial Statements
1. Summary of significant accounting policies
Organization
The accompanying financial statements of the Combined Joint Ventures of
Paine Webber Income Six Limited Partnership (PWIP6) include the accounts of
PWIP6's three unconsolidated joint venture investees as of September 30,
1995. Gwinnett Mall Corners Associates, a Georgia general partnership, was
organized on August 28, 1985, by PWIP6 and Mall Corners III, Ltd., a Georgia
limited partnership (MC III), to acquire and operate a 286,000 square foot
shopping center located in Gwinnett County, Georgia. Regent's Walk
Associates was organized on April 25, 1985 in accordance with a joint
venture agreement between PWIP6 and Peterson Interests of Kansas, Inc.
(PIK). The joint venture was organized to purchase and operate a 255-unit
apartment complex known as Regent's Walk Apartments in Overland Park,
Kansas. The apartment complex was purchased on May 15, 1985.
Kentucky-Hurstbourne Associates was organized on July 25, 1985 in accordance
with a joint venture agreement between PWIP6 and Hurstbourne Apartments
Company, Ltd. (Limited Partnership). The joint venture was organized to
purchase and operate a 409-unit apartment complex known as Hurstbourne,
Kentucky. The financial statements of the Combined Joint Ventures are
presented in combined form due to the nature of the relationship between the
co-venturers and PWIP6, which owns a majority financial interest in each
joint venture.
Basis of presentation
The records of two of the combined joint ventures, Gwinnett Mall Corners
Associates and Kentucky-Hurstbourne Associates, are maintained on an income
tax basis of accounting and adjusted to generally accepted accounting
principles and reflect the necessary adjustments, principally to
depreciation and amortization. The records of Regent's Walk Associates are
maintained in accordance with generally accepted accounting principles.
Operating investment properties
The operating investment properties are carried at the lower of cost,
reduced by accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the venture's investment through expected
future cash flows on an undiscounted basis, which may exceed the property's
market value. The net realizable value of a property held for sale
approximates its current market value. All of the operating properties owned
by the Combined Joint Ventures were held for long-term investment purposes
as of September 30, 1995 and 1994.
The Combined Joint Ventures have reviewed FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of," which is effective for financial statements for years beginning after
December 15, 1995, and believe this new pronouncement will not have a
material effect on the Combined Joint Ventures' financial statements.
Depreciation expense is computed on the straight-line basis over the
estimated useful life of the buildings, equipment and tenant improvements,
generally 5 to 30 years. Payments made to PWIP6 under a master lease
agreement to guarantee a preference return were recorded as reductions of
the basis of the Mall Corners operating investment property. Professional
fees, including acquisition fees paid to a related party (Note 2), and other
costs have been capitalized and are included in the cost of the operating
investment properties.
<PAGE>
Revenue Recognition
The Combined Joint Ventures lease space at the operating investment
properties under short-term and long-term operating leases. Rental revenues
are recognized on an accrual basis as earned pursuant to the terms of the
leases.
Income tax matters
The Combined Joint Ventures are not subject to U.S. federal or state
income taxes. The partners report their proportionate share of the joint
venture's taxable income or tax loss in their respective tax returns;
therefore, no provision for income taxes is included in the accompanying
financial statements.
Deferred expenses
Lease commissions are being amortized over the shorter of ten years or the
remaining term of the related lease on a straight-line basis. Permanent loan
fees and related debt acquisition costs are being amortized on the
straight-line method over the term of the related mortgage loans.
Organization costs represent legal fees associated with the formation of the
joint venture and were amortized over five years on a straight-line basis.
Cash and cash equivalents
For purposes of reporting cash flows, the Combined Joint Ventures consider
all highly liquid investments with original maturities of 90 days of less to
be cash equivalents.
2. Partnership agreements and related party transactions
Gwinnett Mall Corners Associates
The Mall Corners joint venture agreement provides that PWIP6 will receive
from cash flow, as defined, a annual cumulative preferred return, payable
monthly, of $1,047,000. In the event cash flow, as defined, was insufficient
to pay the PWIP6 preference return described above through November 1, 1990,
MC III was required to fund the joint venture a monthly amount equal to the
difference between $68,000 (the guaranteed preferred return) and cash flow,
as defined. PWIP6 and MC III were in disagreement as to the amount of
deficiencies to be funded by MC III through September 30, 1989. During 1990,
the partners reached an agreement as to the cumulative deficiencies to be
funded by MC III. This agreement resulted in a decrease to the receivable
from MC III and a decrease in MC III's capital of $245,000. The joint
venture made distributions to PWIP6 of $470,000 in 1995, $945,000 in 1994
and $864,000 in 1993 towards settlement of the cumulative preferred return.
Cumulative preferred distributions in arrears at September 30, 1995 and 1994
amounted to approximately $1,997,000 and $1,420,000 including minimum
guaranteed distributions in arrears of $308,000 at both dates (see Note 5).
The receivable from MC III totaled $665,000 at September 30, 1995 and
1994. The receivable is guaranteed by the partners of MC III, however, the
venture is subject to credit loss to the extent the guarantors are unable to
fulfill their obligation. The venture does not anticipate nonperformance by
MC III due to their interest in the venture and the underlying value of the
venture's assets.
MC III is entitled to receive quarterly non-cumulative, subordinated
returns of $38,000 each quarterly period, subject to available cash flow.
Due to insufficient cash flow, MC III received no distributions for any of
the three years in the period ended September 30, 1995. Any remaining cash
flow, as defined, after payment of MC III's preferred return, is to be
distributed to the Initial Property Manager (an affiliate of MC III) in an
amount equal to the then unpaid subordinated management fees from prior
fiscal years, then next to pay accrued interest on any loans made by PWIP6
and MC III to the joint venture. The next $500,000, if any, is to be
distributed 80% to PWIP6 and 20% to MC III, the second $500,000, if any, is
to be distributed 70% to PWIP6 and 30% to MC III and the remaining balance,
if any, is to be distributed 60% to PWIP6 and 40% to MC III.
Taxable income or tax loss is allocated to PWIP6 and MC III based on the
proportionate percentage of net cash flow distributed; if no net cash flow
has been distributed, 100% to PWIP6. Allocations of the joint venture's
operations between PWIP6 and MC III for financial reporting purposes have
been made in conformity with the allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with
operations of the joint venture, it is to be provided 70% by PWIP6 and 30%
by MC III in the form of operating loans. The rate of interest shall equal
the lesser of the rate announced by the First National Bank of Boston as its
prime rate or the maximum rate of interest permitted by applicable law. In
the event a partner shall default in its obligation to make an operating
loan, the other partner, may make all or part of the loan required to be
made by the defaulting partner (default loan). Each default loan shall
provide for the accrual of interest at the rate equal to the lesser of twice
the operating loan rate or the maximum rate of interest permitted by
applicable law. PWIP6 made a temporary advance of $200,000 to the venture
during fiscal 1995 to fund a good faith deposit required in connection with
the refinancing transaction described in Note 5. Such funds will be returned
to PWIP6 subsequent to the closing of the refinancing transaction. There
were no operating/default loans required in fiscal 1995 or 1994.
Operating/default loans of $89,000 were required in fiscal years prior to
1990. Total interest incurred and expensed for these loans amounted to
$12,000 in each of the last three fiscal years. The total accrued interest
payable on the loans at September 1995 and 1994 was $88,000 and $76,000,
respectively.
Distribution of sale and/or refinancing proceeds are to be as follows,
after making a provision for liabilities and obligations and to the extent
not previously returned to each partner: (1) payment of accrued interest and
operating notes payable to partners (2) to PWIP6 of the aggregate amount of
the PWIP6 Preference Return that shall not have been distributed, (3) to
PWIP6 of an amount equal to PWIP6's gross investment, (4) the next
$2,000,000 to MC III, (5) to the Initial Property Manager, as defined below,
for any unpaid subordinated management fees that shall have accrued, (6) the
next $4,000,000 allocated to PWIP6 and MC III in the proportions 80% and
20%, respectively, (7) the next $3,000,000 allocated to PWIP6 and MC III in
the proportions of 70% and 30%, respectively, and (8) any remaining balance
shall be allocated to PWIP6 and MC III 70% and 30%, respectively, until
PWIP6 receives an amount equal to all net losses allocated to PWIP6 for the
years through calendar 1989 in which the maximum Federal income tax rate for
individuals was less than 50% times a percentage equal to 50% minus the
weighted average maximum federal income tax rate for individuals in effect
during such years plus a simple rate of return added to each year's amount
equal to 8% per annum. Thereafter, any remaining balance shall be
distributed to PWIP6 and MC III in the ratios of 60% and 40%, respectively.
The joint venture has entered into a property management contract with an
affiliate of MC III (the Initial Property Manager), cancellable at PWIP6's
option upon the occurrence of certain events. The management fee is equal to
3% of gross rents, as defined, of which 1.5% was subordinated to the receipt
by PWIP6 of its guaranteed preferred return through November 1990.
Management fees incurred in 1995, 1994 and 1993 were $94,000, $106,000 and
$102,000, respectively. The property manager has provided maintenance and
leasing services to the joint venture totalling $105,000, $76,000 and
$69,000 in 1995, 1994 and 1993, respectively.
PaineWebber Properties Incorporated, the adviser to PWIP6 and an affiliate
of Paine Webber Incorporated, received an acquisition fee of $580,000 in
connection with PWIP6's original investment in the joint venture and the
acquisition of the property.
Included in buildings and deferred expenses are $1,047,000 and $115,000,
respectively of costs paid to the Initial Property Manager prior to the
formation of the joint venture. These costs have been recorded as part of
the basis of the assets contributed to the joint venture by MC III as its
capital contribution. Pursuant to the joint venture agreement, MC III was
required to fund initial tenant improvements and lease commissions through
capital contributions.
In accordance with the joint venture agreement, certain amounts of cash
have been appropriated and are restricted as to use. Pursuant to the joint
venture agreement, an initial amount of $15,000 plus 1% of gross rental
revenue thereafter, are to be allocated to the reserve for capital
expenditures. The reserve was underfunded by approximately $86,000 and
$87,000 at September 30, 1995 and 1994, respectively (see Note 5). No
amounts are required to be allocated at any time the reserve balance exceeds
$250,000. The reserve for real estate taxes consists of cash appropriated
for the payment of future insurance and real estate taxes and was
underfunded by approximately $53,000 and $83,000 at September 30, 1995 and
1994, respectively (see Note 5).
Regent's Walk Associates
The Regent's Walk joint venture agreement provides that PWIP6 will receive
from cash flow a cumulative preferred return, payable quarterly, of
$164,000. Commencing June 1, 1988, after PWIP6 has received its cumulative
preferred return, PIK is entitled to a preference return of $7,000 for each
fiscal quarter which is cumulative only for amounts due in any one fiscal
year. Any remaining cash flow is to be used to pay interest on any notes
from the venturers and then is to be distributed to the partners, with PWIP6
receiving 90% of the first $200,000, 80% of the next $200,000 and 70% of any
remainder.
During the years ended September 30, 1995 and 1994, PWIP6's preferred
return amounted to $656,000, while net cash available for distribution
amounted to $320,000 and $469,000, leaving an unpaid cumulative preferred
return of $2,720,000 at September 30, 1995. Such amount is payable only in
the event that sufficient future cash flow or sale or refinancing proceeds
are available. Accordingly, the unpaid preferred return has not been accrued
in the accompanying financial statements.
Income or loss is to be allocated to the partners based on their
proportionate share of cash distributions.
Under the terms of the venture agreement, PIK was required to make loans
to the joint venture up to a total of $250,000 for additional cash needed by
the joint venture for any reason including payment of the PWIP6 preference
return, prior to June 1, 1992. After the joint venture has borrowed $250,000
from PIK, if the joint venture requires additional funds for purposes other
than distributions, then it will be provided 90% by PWIP6 and 10% by PIK.
Distribution of sale and/or refinancing proceeds will be distributed as
follows, after making a provision for liabilities and obligations: (1)
repayment to PIK of up to $250,000 of operating loans plus accrued interest
thereon, (2) payment of accrued interest and repayment of principal of
operating notes (pro-rata), (3) payment to PWIP6 of any preferred return
arrearage, (4) to PWIP6 an amount equal to PWIP6's gross investment plus
$560,000, (5) to PIK the amount of $500,000, (6) to payment of a brokers fee
to the partners if a sale is made to a third party, (7) to the payment of up
to $100,000 subordinated management fees, (8) the next $8,000,000 to PWIP6
and PIK in the proportions of 90% and 10%, respectively, (9) the next
$4,000,000 to PWIP6 and PIK in the proportions of 80% and 20%, respectively,
and (10) any remaining balance 70% to PWIP6 and 30% to PIK.
The venture agreement provides for a capital reserve account to be used
solely for specified enhancement programs, capital expenditures, or at the
discretion of PWIP6 up to $150,000 of capital or operating expenses of the
joint venture. Such account was established in the initial amount of
$845,000 and was funded from partner capital contributions. An additional
$124,000 was added by capital contributions from PWIP6 during the year ended
September 30, 1986; $49,000 was added by partners' loans in 1987, and
$100,000 was added by partners' loans in 1988. Beginning in January 1991,
for each month of operations an amount equal to 3% of the total amount of
estimated operating expenses in the budget as approved by the partners, is
to be added to the reserve. During the period October 1, 1991 through
September 30, 1995, capital expenditures exceeded required deposits to the
reserve and therefore no additions to the reserve have been made during this
most recent three-year period. At September 30, 1995 and 1994, the balance
in the reserve account was $11,000 and was invested in a savings account.
The joint venture entered into a property management contract with an
affiliate ("property manager") of PIK. The management fee was 4% of gross
rents, as defined until June 1, 1990 when the fee increased to 5% of gross
rents. Subsequent to June 1, 1988, that portion of the fees representing 1%
of gross rents shall be payable only to the extent of cash flow remaining
after PWIP6 has received its preferred return. Any payments not made
pursuant to the above are payable only out of sale or refinancing proceeds
as specified in the agreement. As of September 30, 1995, deferred management
fees exceed the $100,000 limitation referred to above.
At September 30, 1995 and 1994, $8,000 was due to the property manager for
management fees. For the years ended September 30, 1995, 1994 and 1993
property management fees totalled $97,000, $98,000 and $93,000,
respectively. During 1995, 1994 and 1993, management fees of $24,000 were
subordinated as described above.
Kentucky Hurstbourne Associates
The Hurstbourne joint venture agreement as amended on May 21, 1986
provides that cash flow shall first be distributed to PWIP6 in the amount of
$67,000 per month (PWIP6 preference return). The preference return is
cumulative on a year to year basis through July 31, 1989 and is cumulative
on a month-to-month basis, not annually, thereafter. The next $40,000 each
year will be distributed to the Limited Partnership on a noncumulative
annual basis, payable quarterly (Limited Partnership preference return).
At the end of each fiscal year, any cash flow not previously distributed
will be applied in the following order: first, to the payment of all unpaid
accrued interest on all outstanding operating notes; the next $225,000 of
annual cash flow will be distributed 90% to PWIP6 and 10% to the Limited
Partnership; the next $260,000 of annual cash flow will be distributed 80%
to PWIP6 and 20% to the Limited Partnership, and any remaining balance will
be distributed 70% to PWIP6 and 30% to the Limited Partnership.
After the end of each month, during a year in which PWIP6 has not received
their cumulative preference return, the Limited Partnership shall distribute
to the PWIP6 the lesser of (a) the excess, if any, of the cumulative PWIP6
preference return over the aggregate amount of net cash flow previously
distributed to PWIP6 during the year or (b) any net cash flow distributed to
the Limited Partnership during the year.
The cumulative preference return of PWIP6 in arrears at September 30, 1995
for unpaid preference returns through July 31, 1989 is approximately
$1,354,000. Under the terms of the venture agreement, any unpaid returns
will only be paid upon refinancing, sale, exchange or other disposition of
the property. Unpaid preference returns are, therefore, not reflected in the
financial position of the joint venture.
The taxable income or tax losses of the joint venture will be allocated to
PWIP6 and the Limited Partnership in proportion to the distribution of net
cash flow, provided that the Limited Partnership shall not be allocated less
than ten percent of the taxable net income or tax losses, and the Limited
Partnership shall not be allocated net profits in excess of net cash flow
distributed to it during the fiscal year.
Any proceeds arising from a refinancing, sale, exchange or other
disposition of property will be distributed first to the payment of unpaid
principal and accrued interest on any outstanding notes. Any remaining
proceeds will be distributed in the following order: repayment of unpaid
principal and accrued interest on all outstanding operating notes to PWIP6
and the Limited Partnership; the amount of any undistributed preference
payments to PWIP6 (for the period through July 31, 1989); $10,056,000 to
PWIP6; $684,000 to the Limited Partnership; the amount of any unpaid
subordinated management fees to the property manager; $9,000,000 distributed
90% to PWIP6 and 10% to the Limited Partnership; $4,500,000 distributed 80%
to PWIP6 and 20% to the Limited Partnership; with any remaining balance
distributed 70% to PWIP6 and 30% to the Limited Partnership.
If additional cash is required in connection with the joint venture, it
may be provided by PWIP6 and the Limited Partnership as loans (evidenced by
operating notes) to the venture. Such loans would be provided 90% by PWIP6
and 10% by the Limited Partnership.
The venture has a property management contract with an affiliate (property
manager) of the Limited Partnership. The management fee to the property
manager is 5% of gross rents. Through July 30, 1988, 40% of the manager's
fee was subordinated to receipt by PWIP6 and the Limited Partnership of
their preference returns. At September 30, 1995 and 1994, cumulative
subordinated management fees were approximately $118,000. Under terms of the
venture agreement and as stated in Note 3, unpaid subordinated management
fees will only be paid upon refinancing, sale, exchange or other disposition
of the property.
An amount receivable from the property manager of $21,000 at September 30,
1995 and $15,000 at September 30, 1994 represent the balances in an
intercompany account maintained between the property manager and the joint
venture and are included in accounts payable -affiliates on the accompanying
balance sheets. For the years ended September 30, 1995, 1994 and 1993
property management fees totaled $142,000, $141,000 and $136,000,
respectively.
PaineWebber Properties Incorporated, the advisor to PWIP6 and an affiliate
of PaineWebber Incorporated, was paid an acquisition fee of $500,000 in
connection with PWIP6's investment in the joint venture.
3. Leasing activities
The Gwinnett Mall Corners joint venture derives its income from
noncancellable operating leases which expire on various dates through the
year 2004. The operating property was approximately 93% leased as of
September 30, 1995. The approximate future minimum lease payments to be
received under noncancellable operating leases in effect as of September 30,
1995 are as follows (in thousands):
Year ending September 30:
1996 $ 3,199
1997 3,103
1998 2,746
1999 2,504
2000 2,171
Thereafter 7,738
$21,461
<PAGE>
4. Notes payable to venturers
Notes payable to the venturers of Gwinnett Mall Corners Associates
represent operating/default loans received from PWIP6 and MC III for
operating purposes and consist of the following at September 30, 1995 and
1994 (in thousands):
Total Operating Default
Due to PWIP6 $ 88 $ 62 $ 26
Due to MC III 1 1 -
$ 89 $ 63 $ 26
Regarding Regent's Walk Associates, during the years ended September 30,
1988 and 1987, PIK loaned the venture $25,000 and $225,000, respectively,
under the terms of the venture agreement. Also, during those same years, the
venture partners advanced $100,000 and $49,000, respectively, for additional
renovation costs with PWIP6 providing 90% and PIK providing 10%.
Notes payable to venturers generally bear interest at the rate of prime
plus 1% (9.75% at September 30, 1995). Interest incurred and expensed on
notes payable to venturers for the years ended September 30, 1995, 1994 and
1993 totaled $39,000, $42,000 and $40,000, respectively.
5. Long-term debt
Long-term debt consists of the following amounts (in thousands):
1995 1994
Gwinnett Mall Corners Associates'
nonrecourse mortgage note secured by a
Deed to Secure Debt and Security Agreement
on the joint venture's property; bore
interest at 11.5% per annum payable
in monthly installments of interest
only totalling $170 through December
31, 1991. Thereafter, the note was
payable in monthly installments of $175
including principal and interest at 11.5%
through December 1, 1995. At that time,
the entire unpaid principal balance was
due. See discussion of subsequent refinancing
below. $17,266 $17,378
Kentucky - Hurstbourne Associates'
nonrecourse promissory note secured by
the venture's operating investment
property; bore interest at 12.625%
through September 30, 1992. In 1992,
the Partnership exercised an option to
extend the maturity date of the loan
to September 30, 1999 with a 7.695%
interest rate. Principal and interest
payments of $62 are due monthly, with
a balloon payment of $8,022 due on the
new maturity date. 8,457 8,547
<PAGE>
(continued) 1995 1994
Regent's Walk Associates' nonrecourse
first mortgage note secured by the
venture's operating investment property.
In 1992, the note's maturity date
was extended for a period of three years.
On September 1, 1995 the Company
refinanced the $8,390 9.0% first mortgage
note that was scheduled to mature
on May 1, 1995. The new first mortgage
loan bears interest at an annual
rate of 7.32% and requires principal
and interest payments of $62 on a
monthly basis through maturity on
October 1, 2000, at which time a balloon
payment of $8,500 will be due (see
discussion below). 9,000 8,390
34,723 34,315
Less current portion 495 8,591
$34,228 $25,724
The loan secured by the shopping center owned by Gwinnett Mall Corners
Associates was scheduled to mature in December 1995. Subsequent to
year-end, on December 29, 1995, the venture obtained a new first mortgage
loan with a principal balance of $20,000,000 and repaid the maturing
obligation, which had an outstanding balance of approximately $17,246,000
at the time of closing. Excess loan proceeds of approximately $2.2 million
were used to pay transaction costs and 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 which are
expected to be completed in 1996. In addition, excess proceeds of
approximately $550,000 were available to be paid to PWIP6, in accordance
with the terms of the joint venture agreement, to be applied toward the
operating loans and cumulative preference amounts discussed in Note 2. The
new 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.
Subsequent to the refinancing transaction described above for the Mall
Corners long-term mortgage indebtedness, scheduled maturities of long-term
debt for the next five years and thereafter are as follows (in thousands):
1996 $ 495
1997 675
1998 727
1999 8,805
2000 711
Thereafter 26,064
$37,477
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1995
(In thousands)
<CAPTION>
Initial Cost to Gross Amount at Which Carried at Life on Which
Partnership Costs Close of period Depreciation
Buildings Capitalized Buildings, in Latest
Improvements (Removed) Improvements Income
& Personal Subsequent to & Personal Accumulated Date of Date Statement
Description Encumbrances Land Property Acquisition Land Property Total Depreciation Construction Acquired is Computed
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center -
Gwinnett
County, GA $17,266 $ 7,039 $21,508 $ 948 $7,039 $22,457 $29,496 $8,489 1985 8/28/85 5 to 30 Yrs.
Apartment Complex -
Louisville,
KY 8,457 1,654 14,996 820 1,714 15,815 17,529 5,342 1985 7/25/85 5 to 30 Yrs.
Apartment Complex -
Overland
Park, KS 9,000 1,092 13,923 1,075 1,092 14,997 16,089 5,431 1985 5/15/85 5 to 30 Yrs.
$34,723 $ 9,785 $50,427 $2,843 $9,845 $53,269 $63,114 $19,262
Notes
(A) The aggregate cost of real estate owned at September 30, 1995 for Federal income tax purposes is approximately $54,603,000.
(B) See Note 5 of Notes to Combined Financial Statements.
(C) Reconciliation of real estate owned:
1995 1994 1993
Balance at beginning of year $62,101 $61,355 $60,483
Additions and improvements 1,029 746 872
Disposals and writedowns (16) - -
Balance at end of year $63,114 $62,101 $61,355
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $17,292 $15,404 $13,561
Depreciation expense 1,986 1,888 1,843
Disposals (16) - -
Balance at end of year $19,262 $17,292 $15,404
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended September
30, 1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,515
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,515
<PP&E> 6,585
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,100
<CURRENT-LIABILITIES> 45
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 9,055
<TOTAL-LIABILITY-AND-EQUITY> 9,100
<SALES> 0
<TOTAL-REVENUES> 683
<CGS> 0
<TOTAL-COSTS> 421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 262
<INCOME-TAX> 0
<INCOME-CONTINUING> 262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> 4.33
<EPS-DILUTED> 4.33
</TABLE>
