UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1995 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
Investments in joint ventures, at equity $ 6,565 $ 6,585
Cash and cash equivalents 2,424 2,515
---------- ----------
$ 8,989 $ 9,100
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 10 $ 15
Accrued expenses and other liabilities 8 30
Partners' capital 8,971 9,055
---------- ----------
$ 8,989 $ 9,100
========= =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended December 31, 1995 and 1994 (Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at September 30, 1994 $ (1,333) $ 11,338
Cash distributions (3) (300)
Net income 1 126
--------- ---------
Balance at December 31, 1994 $ (1,335) $ 11,164
========= =========
Balance at September 30, 1995 $ (1,342) $ 10,397
Cash distributions (3) (300)
Net income 2 217
--------- ---------
Balance at December 31, 1995 $ (1,343) $ 10,314
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three months ended December 31, 1995 and 1994(Unaudited)
(In thousands, except per Unit data)
1995 1994
---- ----
Revenues:
Interest income $ 37 $ 35
Income from sale of
second mortgage interest - 200
--------- ------
37 235
Expenses:
Management fees 22 22
General and administrative 75 69
-------- -------
97 91
-------- -------
Operating income (loss) (60) 144
Partnership's share of
ventures' income (losses) 279 (17)
--------- -------
Net income $ 219 $ 127
======== ======
Net income per
Limited Partnership Unit $ 3.61 $ 2.09
====== ======
Cash distributions per Limited
Partnership Unit $5.00 $5.00
===== =====
The above net income and cash distributions per Limited Partnership Unit are
based upon the 60,000 Units of Limited Partnership Interest outstanding for each
period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1995 and 1994 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994
Cash flows from operating activities:
Net income $ 219 $ 127
Adjustments to reconcile net income to
net cash used for operating activities:
Partnership's share of ventures' income (losses) (279) 17
Income from sale of second mortgage interest - (200)
Changes in assets and liabilities:
Accounts payable - affiliates (5) -
Accrued expenses and other liabilities (22) 13
----------- -----------
Total adjustments (306) (170)
---------- ----------
Net cash used for operating activities (87) (43)
----------- -----------
Cash flows from investing activities:
Distributions from joint ventures 319 519
Cash contributions to joint ventures (20) -
------------ -------------
Net cash provided by investing activities 299 519
----------- ----------
Cash flows from financing activities:
Cash distributions to partners (303) (303)
----------- ----------
Net increase (decrease) in cash and cash equivalents (91) 173
Cash and cash equivalents, beginning of period 2,515 2,567
----------- ---------
Cash and cash equivalents, end of period $2,424 $2,740
====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended September 30, 1995.
In the opinion of management, the accompanying consolidated financial
statements, which have not been audited, reflect all adjustments necessary to
present fairly the results for the interim period. All of the accounting
adjustments reflected in the accompanying interim financial statements are of
a normal recurring nature.
2. Investments in Unconsolidated Joint Ventures
The Partnership has investments in three joint ventures which own
operating investment properties, as discussed further in the Annual Report.
The joint ventures are accounted for on the equity method because the
Partnership does not have a voting control interest in the ventures. Under
the equity method the ventures are carried at cost adjusted for the
Partnership's share of the venture's earnings and losses and distributions.
Summarized operations of the three joint ventures for the three months
ended December 31, 1995 and 1994 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS For the three months
ended December 31, 1995 and 1994 (in thousands)
1995 1994
---- ----
Rental revenues and expense
recoveries $ 2,330 $ 2,245
Interest and other income 9 6
-------- --------
2,339 2,251
Property operating expenses 802 869
Interest expense 670 867
Depreciation and amortization 584 532
-------- --------
2,056 2,268
-------- --------
Net income (loss) $ 283 $ (17)
======== =======
Net income:
Partnership's share of
combined income (losses) $ 283 $ (17)
Co-venturers' share of
combined income (losses) - -
-------- --------
$ 283 $ (17)
======== =======
Reconciliation of Partnership's Share of Operations
For the three months ended December 31, 1995 and 1994 (in thousands)
Partnership's share of combined
income (loss), as shown above $ 283 $ (17)
Amortization of excess basis (4) -
-------- --------
Partnership's share of
unconsolidated ventures'
income (losses) $ 279 $ (17)
======== =======
<PAGE>
3. Related Party Transactions
Included in general and administrative expenses for the three months ended
December 31, 1995 and 1994 is $29,000 and $31,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the three months
ended December 31, 1995 and 1994 is $200 and $500, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
The Adviser earned asset management fees of $22,000 for the three months
ended December 31, 1995 and 1994. Accounts payable - affiliates at both
December 31, 1995 and September 30, 1995 includes management fees of $9,000
payable to the Adviser.
4. Investment in 150 Broadway Office Building
As discussed further in the Annual Report, in fiscal 1993 the
Partnership's notes receivable secured by the 150 Broadway Office Building
were restructured as part of the borrower's plan of reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the plan, which
was approved by the bankruptcy court and declared effective on June 15, 1993,
the Partnership received a new second mortgage loan in the principal amount
of $6 million, with base interest at 4.75% per annum, in satisfaction of its
prior second mortgage and promissory note in the combined face amount of
approximately $15 million. The terms of the plan required the Partnership to
fund, by way of a separate note, an initial amount of $800,000 to pay past
due real estate taxes and to establish an escrow reserve of $200,000 prior to
December 31, 1993 for future cash flow shortfalls of the property. Subsequent
to the final execution of the settlement plan, due to the uncertainty which
existed with regard to the future collection of amounts owed under the terms
of the Partnership's restructured $6 million second mortgage loan, management
determined that it would be appropriate to account for the investment in the
150 Broadway Office Building on the cost method. Accordingly, the Partnership
recorded a provision for possible uncollectible amounts of $2,000,000 in
fiscal 1993 to write off the remaining carrying value of the original notes
receivable received from the sale of the Partnership's joint venture
interest. The cost basis of the Partnership's investment in the 150 Broadway
Office Building was established at $800,000 as of September 30, 1993, which
represented the amount of the additional investment required to affect the
bankruptcy court settlement plan in fiscal 1993.
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 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, both in
no event later than June 10, 1996. 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 the first quarter of 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. Upon
the release of the escrowed funds, the Partnership's interest in and any
obligations related to the 150 Broadway Office Building will be terminated.
5. 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>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's portfolio of joint venture investment properties
continued to perform strongly in the first quarter of fiscal 1996, as evidenced
by the occupancy levels which remained in the mid-to-high 90% range for all
three operating properties. High occupancy levels have been maintained at the
Regent's Walk apartment complex while simultaneously implementing gradual rent
increases. During fiscal 1995, the Partnership refinanced the mortgage note
secured by the Regent's Walk Apartments with a first mortgage note with an
initial principal amount of $9,000,000 which bears interest at a fixed rate of
7.32% per annum. In connection with the refinancing of the mortgage loan,
$500,000 of the loan proceeds were deposited in an escrow account to provide
funds for the remodeling of kitchens and bathrooms in the apartment units. It is
anticipated that these improvements will be completed over the next few years as
new leases for the apartments are signed. The occupancy level at the Hurstbourne
Apartments averaged 93% during the quarter ended December 31, 1995 as compared
to an average of 94% achieved during the same period in the prior year. The
property management team is currently offering a concession package to new
residents in order to compete with the other properties in the market. In
addition, selected capital improvements are being completed to enhance the
property's curb appeal. During the quarter, the property management team
replaced intercoms, appliances, flooring and light fixtures upon unit turnover.
In addition, management repainted the overhangs and doors, completed asphalt and
sidewalk repairs and continued with a roof replacement program.
At the present time, real estate values for retail shopping centers in
certain markets have begun to be adversely affected by overbuilding and
consolidations among retailers which have resulted in an oversupply of space.
Currently, occupancy at the Mall Corners Shopping Center, located in the
suburban Atlanta, Georgia market, remains high, and operations do not appear to
have been affected by this general trend. The occupancy at Mall Corners Shopping
Center was 93% at the end of the quarter. The leasing team executed two new
leases during this quarter, one to a retailer for approximately 7,500 square
feet and another to a small shop to occupy 950 square feet. These new tenants
will take occupancy in the spring of 1996. Management is currently negotiating
the relocation of two existing tenants in order to accommodate their expansion
needs. Six existing leases at Mall Corners, encompassing approximately 30,000
square feet, were scheduled to expire during fiscal 1996. Of these six tenants,
three, totalling approximately 28,000 square feet, have been renewed and the
remaining three are in various stages of negotiation. As previously reported,
construction of the new Michaels store will commence by the end of February 1996
and will add approximately 10,000 square feet to the leasable area of Mall
Corners. Improvements have been completed to accommodate the relocation of three
of the four tenants which were displaced to accommodate the new Michaels store.
During the first quarter of fiscal 1996, the Mall Corners joint venture
obtained a new first mortgage loan with a principal balance of $20,000,000 and
repaid a maturing first mortgage loan which had a principal balance of
$17,246,000. Excess loan proceeds were used to establish certain required escrow
deposits, including an amount of $1.7 million designated to pay for certain
planned improvements and the aforementioned expansion of the shopping center
which are expected to be completed by the end of 1996. In addition, excess
refinancing proceeds of $550,000 were available to be distributed to the
Partnership in accordance with the joint venture agreement. However, during the
first quarter of fiscal 1996, the Partnership agreed to allow the joint venture
to retain approximately $325,000 of such proceeds to pay for the expected
leasing costs to be incurred in connection with certain leases executed during
the quarter. The new first mortgage loan has a 10-year term, bears interest at a
rate of approximately 7.4% per annum and requires monthly principal and interest
payments based on a 20-year amortization schedule. Despite the increase in the
loan principal balance, the annual debt service payments of the joint venture
will decrease slightly as a result of this refinancing due to the significant
reduction in the interest rate.
At December 31, 1995, the Partnership had available cash and cash
equivalents of approximately $2,424,000. Such cash and cash equivalents will be
utilized for Partnership requirements such as the payment of operating expenses,
the funding of future operating deficits or capital improvements at the joint
ventures, if necessary, as required by the respective joint venture agreements,
and for distributions to the partners. The source of future liquidity and
distributions to the partners is expected to be from cash generated from the
operations of the Partnership's income-producing investment properties and
proceeds from the sale or refinancing of the remaining investment properties.
Such sources are expected to be sufficient to meet the Partnership's needs on
both a short-term and long-term basis.
Results of Operations
Three Months Ended December 31, 1995
The Partnership reported net income of $219,000 for the three months ended
December 31, 1995, as compared to net income of $126,000 for the same period in
the prior year. The favorable change in net income is primarily a result of an
improvement in the Partnership's share of ventures' operations for the three
months ended December 31, 1995. The Partnership recognized income of $279,000
from its share of the ventures' operations for the first quarter fiscal 1996,
compared to a net loss of $17,000 for the same period in the prior year. The
improvement in joint venture net operating results was due to increases in
rental revenues, particularly at the two apartment properties, along with a
decrease in property operating expenses. Average occupancy and rental rates
increased at Regent's Walk, while at Hurstbourne the increase in revenues was
solely the result of an increase in rental rates. At all three properties there
was a decrease in property operating expenses, primarily due to a decline in
repair and maintenance expenses. Interest expense also decreased as a result of
the refinancing of the mortgage loans at Regent's Walk and Mall Corners. These
favorable changes were partially offset by a decrease of $200,000 in income
recorded by the Partnership during the quarter ended December 31, 1995. As
discussed further in the Partnership's Annual Report, during the quarter ended
December 31, 1994 the Partnership recorded income of $200,000 to reflect cash
proceeds related to the sale of the Partnership's interest in 150 Broadway.
<PAGE>
PART II
Other Information
Item 1. 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 70 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.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in Paine Webber Income Properties
Six Limited Partnership. 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.
Management has had discussions with representatives of PaineWebber and, based on
such discussions, the Partnership does not believe that PaineWebber intends to
invoke the aforementioned indemnifications in connection with the settlement of
this litigation.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
By: Sixth Income Properties Fund, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: February 13, 1996
<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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-30-1995
<CASH> 2,424
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,424
<PP&E> 6,565
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,989
<CURRENT-LIABILITIES> 18
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 8,971
<TOTAL-LIABILITY-AND-EQUITY> 8,989
<SALES> 0
<TOTAL-REVENUES> 316
<CGS> 0
<TOTAL-COSTS> 97
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 219
<INCOME-TAX> 0
<INCOME-CONTINUING> 219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 219
<EPS-PRIMARY> 3.61
<EPS-DILUTED> 3.61
</TABLE>
