UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
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 PARTNERSHP
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2829686
-------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_| .
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1997 and September 30, 1996 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Investments in joint ventures, at equity $ 4,448 $ 5,440
Cash and cash equivalents 1,710 3,218
--------- ---------
$ 6,158 $ 8,658
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 17 $ 10
Accrued expenses and other liabilities 30 24
Partners' capital 6,111 8,624
--------- ---------
$ 6,158 $ 8,658
========= =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1995 $ (1,342) $ 10,397
Cash distributions (10) (900)
Net income 3 286
-------- --------
Balance at June 30, 1996 $ (1,349) $ 9,783
======== ========
Balance at September 30, 1996 $ (1,347) $ 9,971
Cash distributions (12) (3,161)
Net income 7 653
-------- --------
Balance at June 30, 1997 $ (1,352) $ 7,463
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three and nine months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Interest income $ 27 $ 41 $ 113 $ 116
Income from sale of
second mortgage interest - 100 - 100
------ ------ ------ ------
27 141 113 216
Expenses:
Management fees 39 22 83 66
General and administrative 72 68 196 215
------ ------ ------ ------
111 90 279 281
------ ------ ------ ------
Operating income (loss) (84) 51 (166) (65)
Partnership's share of ventures'
income 330 219 826 354
------ ------ ------ ------
Net income $ 246 $ 270 $ 660 $ 289
====== ====== ====== ======
Net income per
Limited Partnership Unit $ 4.05 $ 4.45 $ 10.88 $ 4.76
======= ====== ======= ======
Cash distributions per Limited
Partnership Unit $ 8.69 $ 5.00 $52.69 $15.00
======= ====== ====== ======
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 nine months ended June 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 660 $ 289
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (826) (354)
Income from sale of second mortgage interest - (100)
Changes in assets and liabilities:
Accounts payable - affiliates 7 (6)
Accrued expenses and other liabilities 6 (14)
------ ------
Total adjustments (813) (474)
------ ------
Net cash used in operating activities (153) (185)
Cash flows from investing activities:
Distributions from joint ventures 1,818 1,540
Proceeds from sale of investment in 150 Broadway
Office Building - 100
------ ------
Net cash provided by investing activities 1,818 1,640
Cash flows from financing activities:
Cash distributions to partners (3,173) (910)
------ ------
Net (decrease) increase in cash and cash equivalents (1,508) 545
Cash and cash equivalents, beginning of period 3,218 2,515
------ ------
Cash and cash equivalents, end of period $1,710 $3,060
====== ======
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, 1996. 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.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of June 30, 1997 and September 30, 1996
and revenues and expenses for the three and nine months ended June 30, 1997
and 1996. Actual results could differ from the estimates and assumptions
used.
2. Investments in 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 ventures' earnings and losses and distributions.
Summarized operations of the three joint ventures for the three and nine
months ended June 30, 1997 and 1996 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended June 30, 1997 and 1996 (in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and expense
recoveries $2,376 $ 2,305 $7,081 $6,873
Interest and other income 36 38 88 114
------ ------ ------ ------
2,412 2,343 7,169 6,987
Property operating expenses 802 817 2,454 2,479
Interest expense 691 650 2,083 2,297
Depreciation and amortization 585 653 1,795 1,846
------ ------ ------ ------
2,078 2,120 6,332 6,622
------ ------ ------ ------
Net income $ 334 $ 223 $ 837 $ 365
====== ======== ====== ======
Net income:
Partnership's share of
combined income $ 334 $ 223 $ 837 $ 365
Co-venturers' share of
combined income - - - -
------ ------ ------ ------
$ 334 $ 223 $ 837 $ 365
====== ======== ====== ======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and nine months ended June 30, 1997 and 1996 (in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of
combined income, as
shown above $ 334 $ 223 $ 837 $ 365
Amortization of excess basis (4) (4) (11) (11)
------ ------ ------ ------
Partnership's share of
ventures' income $ 330 $ 219 $ 826 $ 354
====== ====== ====== ======
3. Investment in 150 Broadway Office Building
As discussed further in the Annual Report, during the quarter ended
December 31, 1994 the Partnership agreed to assign its second mortgage
interest in the 150 Broadway Office Building to an affiliate of the borrower
in return for a payment of $400,000. Subsequently, the borrower was unable to
perform under the terms of this agreement and the Partnership agreed to
reduce the required cash compensation to $300,000. During the quarter ended
March 31, 1995, the Partnership received $200,000 of the agreed upon sale
proceeds. The remaining $100,000 was funded into an escrow account on May 31,
1995, to be released upon the resolution of certain matters between the
borrower and the first mortgage holder, but in no event later than June 10,
1996. The Partnership recorded income of $200,000 in fiscal 1995 to reflect
the non-refundable cash proceeds received. In April 1996, the borrower and
the first mortgage lender resolved their remaining issues and released the
$100,000 plus accrued interest to the Partnership. The $100,000 was
recognized as income in the third quarter of fiscal 1996. With the release of
the escrowed funds, the Partnership's interest in and any obligations related
to the 150 Broadway Office Building were terminated.
4. Related Party Transactions
The Adviser earned total management fees of $83,000 and $66,000 for the
nine-month periods ended June 30, 1997 and 1996, respectively. Accounts
payable - affiliates at June 30, 1997 and September 30, 1996 consists of
management fees of $17,000 and $10,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the nine months ended
June 30, 1997 and 1996 is $84,000 and $87,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended June 30, 1997 and 1996 is $8,000 and $5,000, respectively, representing
fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc.,
for managing the Partnership's cash assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
On February 14, 1997, the Partnership made a special distribution to the
limited partners of $2,040,000, or $34 per original $1,000 Unit. Of this amount,
approximately $1,320,000 represented Partnership reserves that had been
previously set aside to cover the costs of the planned refinancing of the Mall
Corners Shopping Center and to pay for its proposed expansion. These costs and a
reserve for other leasing improvements at Mall Corners were eventually funded
out of additional loan proceeds from the Mall Corners refinancing in December
1995. Of the remainder, $300,000 represented the amount received from the sale
of the Partnership's interest in the 150 Broadway Office Building note and
$420,000 represented a distribution of excess refinancing proceeds from the Mall
Corners joint venture. In addition, the Partnership increased its distribution
rate from 2.0% to 3.6% per annum on remaining invested capital of $966 per
original $1,000 investment for the quarter ended March 31, 1997. The
distribution rate will be adjusted upward slightly to 3.63% per annum for the
distribution to be paid on August 15, 1997 for the quarter ended June 30, 1997.
As previously reported, during the first quarter of fiscal 1996 the Mall
Corners joint venture obtained a new 7.36% first mortgage loan with an initial
principal balance of $20,000,000 and repaid a maturing first mortgage loan which
had a principal balance of $17,246,000 at the time of the refinancing. The prior
first mortgage loan bore interest at 11.5% per annum. Excess loan proceeds were
used to establish certain required escrow deposits, including an amount of $1.7
million designated to pay for certain planned improvements and an expansion of
the shopping center which added approximately 17,000 square feet to the
property's gross leasable area and was completed during 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, the
Partnership agreed to allow the joint venture to retain a portion of such
proceeds to pay for the leasing costs incurred in connection with certain leases
executed during the first quarter of fiscal 1996.
As of June 30, 1997, the Mall Corners Shopping Center, located in the
suburban Atlanta, Georgia market, was 90% occupied, unchanged from the previous
quarter. As noted above, the construction associated with the relocation and
expansion of one of the property's major tenants increased the leasable area of
the center from approximately 287,000 square feet to approximately 304,000
square feet during fiscal 1996. The space formerly occupied by this tenant
comprises a significant portion of the space which is currently vacant. The
leasing team is presently marketing this space to retailers which would
complement the existing tenant mix. A total of nine leases, comprising 22,000
square feet of space, were scheduled to expire during fiscal 1997. As of the end
of the second quarter, all of these leases had been renewed. In addition, two
new tenants, occupying 1,380 square feet and 800 square feet, opened for
business during the second quarter while one tenant prematurely vacated its
1,300 square foot space. Two tenants with leases comprising a total of 7,743
square feet, or approximately 3% of the Center's leasable area, are currently in
bankruptcy proceedings. One of these tenants is expected to remain at Mall
Corners, while the other is liquidating its inventory and will discontinue
operations during the fourth quarter. The leasing team is currently negotiating
lease renewals with three existing tenants occupying a total of 6,380 square
feet of space whose leases expire prior to December 31, 1997 in addition to
negotiating several potential new leases on currently vacant space.
The occupancy level at the Hurstbourne Apartments averaged 94% during the
quarter ended June 30, 1997 compared to 88% for the prior quarter. The increase
in occupancy at Hurstbourne is mainly attributable to a seasonal increase in the
number of prospective tenants visiting the property during the spring and summer
months. While the property's management team continues to offer selective rental
concessions on certain unit types in order to maximize occupancy, the total cost
of rental concessions has declined. The average rental rate on new leases being
signed has increased by approximately 4% from the same period in the prior year,
and small rental rate increases are planned for September and October. There is
currently no new multi-family construction in the Louisville, Kentucky submarket
in which Hurstbourne is located. However, a competitive apartment property in
the local market is undergoing a significant improvement program. The office,
clubhouse, and all of the units are being renovated, and the exteriors of the
buildings have been repainted. When this program is completed, the competitor is
expected to raise its rental rates, which are currently below those at
Hurstbourne. It is anticipated that this will have a positive impact on
Hurstbourne's leasing efforts, and it underscores the need to continue to make
improvements at Hurstbourne. Improvements completed during the quarter included
the replacement of appliances, hot water heaters, carpeting, and light fixtures
as needed to lease apartment units. In addition, the property's management team
completed the replacement of two mansard roofs and repaired and repainted the
property's entry signage.
At Regent's Walk, the occupancy level averaged 97% for the quarter ended
June 30, 1997, unchanged from the prior quarter. Modest rental rate increases
are being implemented as new leases are signed and as current leases are
renewed. Rental rate concessions are not currently being offered. However,
improvements to individual units continue to be made as incentives for residents
to renew their leases. Such improvements typically consist of some combination
of a new range, new vinyl kitchen flooring, wallpaper and blinds, at an average
per unit cost of approximately $500. The repair and replacement of the concrete
driveways and asphalt parking areas at Regent's Walk, which was originally
planned for the third quarter, has been temporarily delayed. The Partnership's
co-venture partner has contacted the first mortgage lender and requested that
the payment for the concrete and asphalt project be made from capital
expenditure reserves, which are controlled by the lender. Management is aware of
approximately twelve new multi-family residential communities with a total of
over 3,000 apartment units in the overall Overland Park, Kansas market which are
currently being leased or will soon be available. Other new apartment properties
have been proposed and are at various stages in the permitting process. While
these new properties do represent an alternative to the more mature neighborhood
in which Regent's Walk Apartments is located, they do not compete directly
because these new properties are located five or more miles away and the
apartments are typically smaller than the units at Regent's Walk. Nevertheless,
the Regent's Walk property management team reports that until the new apartment
communities are substantially leased, this new competition is likely to limit
rental rate growth throughout the overall market area.
Management believes that the market values of the Partnership's two
multi-family residential properties may be at or near their peak for the current
market cycle. As a result, management believes it would be appropriate to
explore potential opportunities to sell one or both of these properties in the
near term. The investment in the Mall Corners Shopping Center currently provides
the majority of the Partnership's net cash flow and would likely be held pending
the dispositions of the two apartment properties. Depending on the availability
of favorable sales opportunities for the two multi-family properties, the
Partnership could be positioned for a possible liquidation within the next 2-
to- 3 years. There are no assurances, however, that the Partnership will be able
to complete the sale of its remaining assets within this time frame.
At June 30, 1997, the Partnership had available cash and cash equivalents
of approximately $1,710,000. Such cash and cash equivalents will be utilized for
Partnership requirements such as the payment of operating expenses, the funding
of future operating deficits or capital improvements at the joint ventures, if
necessary, as required by the respective joint venture agreements, and for
distributions to the partners. The source of future liquidity and distributions
to the partners is expected to be from cash generated from the operations of the
Partnership's income-producing investment properties and proceeds from the sale
or refinancing of the remaining investment properties. Such sources are expected
to be sufficient to meet the Partnership's needs on both a short-term and
long-term basis.
Results of Operations
Three Months Ended June 30, 1997
- --------------------------------
The Partnership reported net income of $246,000 for the three months ended
June 30, 1997, as compared to net income of $270,000 for the same period in the
prior year. This decrease in net income is due to a $135,000 unfavorable change
in the Partnership's operating income (loss) which was partially offset by a
$111,000 improvement in the Partnership's share of ventures' income. The
Partnership's share of ventures' income for the three months ended June 30, 1997
improved due to a $69,000 increase in combined revenues and a $42,000 decrease
in combined expenses. Combined revenues increased mainly due to increases in
rental income at Hurstbourne and Mall Corners. Rental revenues at Hurstbourne
increased mainly due to improvements in rental rates over the past 12-to-15
months. Rental revenues at Mall Corners increased mainly due to improvements in
rental rates on the new leases signed over the past 12-to-15 months. Combined
expenses decreased mainly due to a reduction in depreciation and amortization
expense which resulted from a change in the estimated useful life of certain
building improvements at Mall Corners during the fourth quarter of fiscal 1996.
The unfavorable change in the Partnership's operating income (loss) is
primarily due to a decrease in revenues resulting from the income recognition
that occurred during the three months ended June 30, 1996 for the $100,000
received for the Partnership's interest in the 150 Broadway Office Building.
Also contributing to the unfavorable change in the Partnership's operating
income (loss) was a decrease in interest income and an increase in management
fees. Interest income decreased due to a reduction in the average outstanding
balance of the Partnership's cash reserves after the $2,040,000 Special
Distribution made to the Limited Partners on February 14, 1997, as discussed
further above. Management fees increased due to the increase in the
Partnership's distribution rate upon which management fees are based.
Nine Months Ended June 30, 1997
- -------------------------------
The Partnership reported net income of $660,000 for the nine months ended
June 30, 1997 as compared to net income of $289,000 for the same period in the
prior year. This increase in net income is the result of a $472,000 increase in
the Partnership's share of ventures' income which was partially offset by a
$101,000 increase in the Partnership's operating loss. The increase in the
Partnership's share of ventures' income was primarily due to a $214,000 decrease
in combined interest expense and a $208,000 increase in combined rental income.
Interest expense decreased due to the lower interest rate obtained on the Mall
Corners mortgage note which was refinanced on December 29, 1995, as discussed
further above. The increase in rental revenues is primarily attributable to a 5%
increase in revenues at Mall Corners over the same nine-month period in the
prior year due to increases in rental rates on the new leases signed over the
past 12- to- 21 months.
The unfavorable change in the Partnership's operating loss is primarily
due to a decrease in revenues resulting from the income recognition that
occurred in the prior nine-month period for the $100,000 received for the
Partnership's interest in the 150 Broadway Office Building. The increase in
management fees resulting from the increase in the Partnership's distribution
rate was offset by a decline in general and administrative expenses for the
current nine-month period. General and administrative expenses declined due to a
reduction in certain required professional services when compared to the same
period in the prior year.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, the Partnership's General Partners were named as
defendants in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
various limited partnership investments and REIT stocks, including those offered
by the Partnership. In January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and a plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds has not occurred to date
pending the resolution of an appeal of the settlement agreement by two of the
plaintiff class members. As part of the settlement agreement, PaineWebber has
agreed not to seek indemnification from the related partnerships and real estate
investment trusts at issue in the litigation (including the Partnership) for any
amounts that it is required to pay under the settlement. In addition, in
December 1996 PaineWebber agreed to settle the Abbate and Bandrowski actions
discussed further in the Annual Report. Final releases and dismissals with
regard to these actions were received during the quarter ended June 30, 1997.
Based on the settlement agreements discussed above covering all of the
outstanding shareholder litigation, and notwithstanding the appeal of the class
action settlement referred to above, management does not expect that the
resolution of these matters will have a material impact on the Partnership's
financial statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
By: Sixth Income Properties Fund, Inc.
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,710
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,710
<PP&E> 4,448
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,158
<CURRENT-LIABILITIES> 47
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,111
<TOTAL-LIABILITY-AND-EQUITY> 6,158
<SALES> 0
<TOTAL-REVENUES> 939
<CGS> 0
<TOTAL-COSTS> 279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 660
<INCOME-TAX> 0
<INCOME-CONTINUING> 660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 660
<EPS-PRIMARY> 10.88
<EPS-DILUTED> 10.88
</TABLE>
