UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 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
March 31, 1997 and September 30, 1996 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Investments in joint ventures, at equity $ 4,624 $ 5,440
Cash and cash equivalents 1,805 3,218
--------- ---------
$ 6,429 $ 8,658
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 10 $ 10
Accrued expenses and other liabilities 27 24
Partners' capital 6,392 8,624
---------- ---------
$ 6,429 $ 8,658
========== =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended March 31, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1995 $ (1,342) $ 10,397
Cash distributions (6) (600)
Net income - 19
---------- ---------
Balance at March 31, 1996 $ (1,348) $ 9,816
========= =========
Balance at September 30, 1996 $ (1,347) $ 9,971
Cash distributions (6) (2,640)
Net income 4 410
--------- ---------
Balance at March 31, 1997 $ (1,349) $ 7,741
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1997 and 1996
(Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Interest income $ 39 $ 38 $ 86 $ 75
Expenses:
Management fees 22 22 44 44
General and administrative 79 72 124 147
------ ------ ------ ------
101 94 168 191
------ ------ ------ ------
Operating loss (62) (56) (82) (116)
Partnership's share of ventures'
income (losses) 223 (144) 496 135
------ ------ ------ ------
Net income (loss) $ 161 $ (200) $ 414 $ 19
====== ====== ====== ======
Net income (loss) per
Limited Partnership Unit $ 2.66 $(3.29) $ 6.83 $ 0.31
====== ====== ====== ======
Cash distributions per Limited
Partnership Unit $39.00 $ 5.00 $44.00 $10.00
====== ====== ====== ======
The above net income (loss) and cash distributions per Limited Partnership
Unit are based upon the 60,000 Units of Limited Partnership Interest outstanding
for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 414 $ 19
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (496) (135)
Changes in assets and liabilities:
Accounts payable - third parties - (3)
Accounts payable - affiliates - (6)
Accrued expenses and other liabilities 3 (18)
------ ------
Total adjustments (493) (162)
------ ------
Net cash used in operating activities (79) (143)
Cash flows from investing activities:
Distributions from joint ventures 1,312 1,096
Cash flows from financing activities:
Cash distributions to partners (2,646) (606)
------ ------
Net (decrease) increase in cash and cash equivalents (1,413) 347
Cash and cash equivalents, beginning of period 3,218 2,515
------ ------
Cash and cash equivalents, end of period $1,805 $2,862
====== ======
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 March 31, 1997 and September 30,
1996 and revenues and expenses for the three and six months ended March 31,
1997 and 1996. Actual results could differ from the estimates and
assumptions used.
2. Related Party Transactions
The Adviser earned total management fees of $44,000 for each of the
six-month periods ended March 31, 1997 and 1996. Accounts payable affiliates
at both March 31, 1997 and September 30, 1996 consists of management fees of
$9,000 payable to the Adviser.
Included in general and administrative expenses for the six months ended
March 31, 1997 and 1996 is $56,000 and $59,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months
ended March 31, 1997 and 1996 is $4,000 and $1,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
3. 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.
<PAGE>
Summarized operations of the three joint ventures for the three and six
months ended March 31, 1997 and 1996 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and six months ended March 31, 1997 and 1996 (in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and expense
recoveries $2,356 $ 2,267 $4,705 $4,568
Interest and other income 25 38 52 76
------ -------- ------ ------
2,381 2,305 4,757 4,644
Property operating expenses 836 859 1,653 1,662
Interest expense 696 977 1,391 1,647
Depreciation and amortization 622 609 1,210 1,193
------ -------- ------ ------
2,154 2,445 4,254 4,502
------ -------- ------ ------
Net income (loss) $ 227 $ (140) $ 503 $ 142
====== ======== ====== ======
Net income (loss):
Partnership's share of
combined income (loss) $ 227 $ (140) $ 503 $ 142
Co-venturers' share of
combined income (loss) - - - -
------ -------- ------ ------
$ 227 $ (140) $ 503 $ 142
====== ======== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and six months ended March 31, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -------------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of
combined income
(loss), as shown above $ 227 $ (140) $ 503 $ 142
Amortization of excess basis (4) (4) (7) (7)
------ ------ ------ ------
Partnership's share of
unconsolidated ventures'
income (losses) $ 223 $ (144) $ 496 $ 135
====== ====== ====== ======
4. 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.
<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 has increased the
distribution rate from 2.0% to 3.6% per annum on remaining invested capital,
which amounts to $966 per original $1,000 investment. The distribution rate
increase will be effective for the distribution to be paid on May 15, 1997 for
the quarter ended March 31, 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.
At the present time, real estate values for retail shopping centers in
certain markets are being adversely impacted by the effects of overbuilding and
by consolidations among retailers which have resulted in an oversupply of space
and by the generally flat rate of growth in retail sales. To date, the
operations of the Mall Corners property have remained strong and do not appear
to have been affected by this general trend. As of March 31, 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. 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. The leasing team expects to be
able to secure a new lease for this space in the near term.
The occupancy level at Hurstbourne Apartments averaged 88% during the
quarter ended March 31, 1997 compared to 92% for the prior quarter, while the
occupancy level at Regent's Walk remained unchanged at 97%. The decline in
occupancy at Hurstbourne is attributable to a loss of tenants to the
single-family home market, combined with a seasonal decline in the number of
prospective tenants visiting the property during the winter months. During the
current quarter, Hurstbourne's property management team began offering rental
concessions of one month free rent upon the signing of a 12-month lease on a
limited number of two-bedroom units in order to remain competitive with several
communities in the local market that were offering discounted rents and
concessions. There is currently no new multi-family construction in the
Louisville, Kentucky sub-market in which Hurstbourne is located. At Regent's
Walk, management is aware of nine new apartment communities currently being
leased in the Overland Park market area which comprise a total of 2,150
additional apartment units in the market. In addition, three additional
multi-family properties are currently under construction which will add
approximately 1,000 units to the local market supply. The property's management
team has begun to notice the impact of new apartment construction which it
believes is responsible for fewer prospective tenants visiting the property. As
more of the units are made available, this new competition is likely to limit
rental rate growth at Regent's Walk until these new apartment communities are
substantially leased.
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 March 31, 1997, the Partnership had available cash and cash equivalents
of approximately $1,805,000. Such cash and cash equivalents will be utilized for
Partnership requirements such as the payment of operating expenses, the funding
of future operating deficits or capital improvements at the joint ventures, if
necessary, as required by the respective joint venture agreements, and for
distributions to the partners. The source of future liquidity and distributions
to the partners is expected to be from cash generated from the operations of the
Partnership's income-producing investment properties and proceeds from the sale
or refinancing of the remaining investment properties. Such sources are expected
to be sufficient to meet the Partnership's needs on both a short-term and
long-term basis.
Results of Operations
Three Months Ended March 31, 1997
- ---------------------------------
The Partnership reported net income of $161,000 for the three months ended
March 31, 1997, as compared to a net loss of $200,000 for the same period in the
prior year. This favorable change in net operating results is due to a $367,000
improvement in the Partnership's share of ventures' operations which was
partially offset by a $6,000 increase in the Partnership's operating loss. The
Partnership's share of ventures' operations for the three months ended March 31,
1997 improved primarily due to a $220,000 decrease in interest expense at the
Mall Corners joint venture, along with an $84,000 increase in rental income from
the Mall Corners Shopping Center. The decline in interest expense was due to the
refinancing of the Mall Corners mortgage loan on December 29, 1995 at an
interest rate significantly lower than the previous loan, as discussed further
above. Rental revenues from the Mall Corners Shopping Center increased mainly
due to increases in rental rates on the new leases signed over the past 12- to-
15 months. In addition to the improved operating results of the Mall Corners
joint venture, the net income of the Hurstbourne joint venture increased during
the current three-month period mainly as a result of a decline in interest
expense on the venture's first mortgage loan. The increase in the Partnership's
operating loss is attributable to a $7,000 increase in general and
administrative expenses as a result of an increase in certain required
professional services in the current period.
Six Months Ended March 31, 1997
- -------------------------------
The Partnership reported net income of $414,000 for the six months ended
March 31, 1997 as compared to net income of $19,000 for the same period in the
prior year. This increase in net income is the result of a $361,000 increase in
the Partnership's share of ventures' income and a $34,000 decrease in the
Partnership's operating loss. The increase in the Partnership's share of
ventures' income was primarily due to a $256,000 decrease in combined interest
expense and a $137,000 increase in combined rental income. The decrease in
interest expense is primarily attributable 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 6% increase in revenues at Mall Corners over the same
six-month period in the prior year due to increases in rental rates on the new
leases signed over the past 12- to- 18 months.
The decrease in the Partnership's operating loss is due to an increase in
interest income of $11,000 and a decrease in general and administrative expenses
of $23,000. General and administrative expenses declined primarily due to a
decrease 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. 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 subsequent to the quarter ended March 31, 1997. Based on the
settlement agreements discussed above covering all of the outstanding
unitholder litigation, 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: May 12, 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 March 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,805
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,805
<PP&E> 4,624
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,429
<CURRENT-LIABILITIES> 37
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,392
<TOTAL-LIABILITY-AND-EQUITY> 6,429
<SALES> 0
<TOTAL-REVENUES> 582
<CGS> 0
<TOTAL-COSTS> 168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 414
<INCOME-TAX> 0
<INCOME-CONTINUING> 414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414
<EPS-PRIMARY> 6.83
<EPS-DILUTED> 6.83
</TABLE>
