UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 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
December 31, 1997 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
----------- ------------
Investments in joint ventures, at equity $ 3,623 $ 4,183
Cash and cash equivalents 2,099 1,918
---------- ----------
$ 5,722 $ 6,101
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 16 $ 16
Accrued expenses and other liabilities 18 50
Partners' capital 5,688 6,035
---------- ----------
$ 5,722 $ 6,101
========== ==========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended December 31, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1996 $(1,347) $9,971
Cash distributions (3) (300)
Net income 3 250
------- ------
Balance at December 31, 1996 $(1,347) $9,921
======= ======
Balance at September 30, 1997 $(1,353) $7,388
Cash distributions (6) (526)
Net income 2 183
------- ------
Balance at December 31, 1997 $(1,357) $7,045
======== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three months ended December 31, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
1997 1996
---- ----
Revenues:
Interest income $ 29 $ 47
Expenses:
Management fees 39 22
General and administrative 54 45
------- ------
93 67
------- ------
Operating loss (64) (20)
Partnership's share of ventures' income 249 273
------ ------
Net income $ 185 $ 253
====== ======
Net income per
Limited Partnership Unit $ 3.05 $ 4.17
====== ======
Cash distributions per Limited
Partnership Unit $ 8.77 $ 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, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 185 $ 253
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (249) (273)
Changes in assets and liabilities:
Accrued expenses and other liabilities (32) -
------- -------
Total adjustments (281) (273)
------- -------
Net cash used in operating activities (96) (20)
Cash flows from investing activities:
Distributions from joint ventures 816 715
Cash contributions to joint ventures (7) -
------ -------
Net cash provided by investing activities 809 715
Cash flows from financing activities:
Cash distributions to partners (532) (303)
------ -------
Net increase in cash and cash equivalents 181 392
Cash and cash equivalents, beginning of period 1,918 3,218
------ -------
Cash and cash equivalents, end of period $2,099 $ 3,610
====== =======
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, 1997. 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 December 31, 1997 and September 30, 1997 and revenues and
expenses for the three months ended December 31, 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 months
ended December 31, 1997 and 1996 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three months ended December 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Rental revenues and expense
recoveries $ 2,508 $ 2,366
Interest and other income 10 10
-------- --------
2,518 2,376
Property operating expenses 961 816
Interest expense 684 695
Depreciation and amortization 624 588
-------- --------
2,269 2,099
-------- --------
Net income $ 249 $ 277
======== ========
Net income:
Partnership's share of
combined income $ 249 $ 277
Co-venturers' share of
combined income - -
------- --------
$ 249 $ 277
======= ========
Reconciliation of Partnership's Share of Operations
For the three months ended December 31, 1997 and 1996
(in thousands)
1997 1996
---- ----
Partnership's share of combined
income, as shown above $ 249 $ 277
Amortization of excess basis - (4)
------- --------
Partnership's share of ventures'
income $ 249 $ 273
======= ========
<PAGE>
3. Related Party Transactions
--------------------------
The Adviser earned total management fees of $39,000 and $22,000 for the
three-month periods ended December 31, 1997 and 1996, respectively. Accounts
payable - affiliates at both December 31, 1997 and September 30, 1997 consists
of management fees of $16,000 payable to the Adviser.
Included in general and administrative expenses for both of the
three-month periods ended December 31, 1997 and 1996 is $28,000, 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, 1997 and 1996 is $1,000 and $4,000, 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
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended September 30, 1997 under the heading "Certain Factors Affecting
Future Operating Results", which could cause actual results to differ materially
from historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As discussed further in the Annual Report, management is focusing on
potential disposition strategies for the Partnership's three remaining
investment properties. 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. In
addition, as discussed further below, there are a number of leasing issues to be
addressed at Mall Corners before a sale of the property would be practical.
Depending on the availability of favorable sales opportunities for the two
multi-family properties and management's success in addressing the leasing
issues at Mall Corners, 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.
As of December 31, 1997, the Mall Corners Shopping Center, located in the
suburban Atlanta, Georgia market, averaged 90% leased, unchanged from the prior
quarter. As previously reported, 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 16,530 square foot space formerly occupied
by this tenant comprises a significant portion of the space which is currently
unleased. The leasing team is presently marketing this space to retailers which
would complement the existing tenant mix. This space is located in the rear
corner of the shopping center and has less visibility from the main road than is
typical for a store this size. As a result, the space has been difficult to
lease. A proposal to redesign this storefront to increase visibility is under
consideration. The property's leasing team is also actively marketing the other
large vacant space at the Center which comprises 10,218 square feet. The 10,218
and 16,530 square foot spaces represent 90% of the total space currently
available for lease at the Center. As part of an effort to generate customer
traffic for the Center's other tenants during the holiday season, both of these
large vacant stores were leased on a temporary basis for the first quarter of
fiscal 1998. As previously reported, during the fourth quarter of fiscal 1997,
one of the Center's anchor tenants, Levitz Furniture, which occupied 50,000
square feet, filed for Chapter 11 bankruptcy protection. As part of the
company's reorganization plan, the store at Mall Corners was closed on October
13, 1997. It then reopened for an inventory liquidation sale, after which it
will close permanently. Because Levitz is a sub-tenant of a national retailer,
the Mall Corners joint venture will continue to collect rent on the store
through the expiration of the current lease term in 2001. Additionally, Toys R
Us closed its store that abuts the Mall Corners Shopping Center during the
fourth quarter. This store is located on a separate parcel of land owned by Toys
R Us. The store was closed in order to consolidate operations with Baby
Superstore, a chain of stores that Toys R Us recently acquired. The consolidated
store for this market is now located in a new nearby center. While the closing
of Toys R Us does not have a direct financial impact on the Mall Corners joint
venture, this vacancy does have a negative impact on the Center's appearance as
well as on the number of shoppers entering the Center. Toys R Us is actively
marketing the vacant space for sale or for lease. In calendar years 1998 and
1999, small shop space leases representing approximately 16,000 and 20,000
square feet, respectively, come up for renewal. Management's success in renewing
these tenants or re-leasing this space will be affected by what can be done with
the Toys R Us property and the Levitz space to enhance shopper traffic at Mall
Corners. The property's leasing team is seeking to work with Toys R Us and the
guarantor of the rent for the former Levitz Furniture space in securing
replacement tenants that will complement the existing tenant base at Mall
Corners. Projects completed during the first quarter of fiscal 1998 to enhance
the appearance of the Mall Corners property included an upgrade of the
landscaping at the Center's entrances, the painting of the rear of the Center,
the repairing, resealing and restriping of the parking lot, and the
steam-cleaning of the sidewalks.
The occupancy level at the Hurstbourne Apartments, located in Louisville,
Kentucky, averaged 88% for quarter ended December 31, 1997 compared to 90% for
the prior quarter. The primary reason for this decrease in average occupancy was
the expiration of the leases on 17 apartments which had been leased by a
corporation. The property's management team continues to offer selective rental
concessions on certain unit types in an effort to increase overall occupancy. In
order to enhance Hurstbourne's competitive position in its market, the
property's leasing team has begun testing the market by offering prospective
residents the option of an updated kitchen in their unit in return for a higher
rental rate. This updated package would include new appliances, sink,
countertop, cabinetry and flooring. The results of this test marketing are
currently being evaluated. There is currently no new multi-family construction
in the Louisville, Kentucky submarket in which Hurstbourne is located, however
new projects are being proposed. In addition, 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.
At Regent's Walk, the occupancy level averaged 95% for the quarter ended
December 31, 1997 compared to 97% for the prior quarter. The Johnson County
sector of the Kansas City apartment market, which includes Overland Park,
currently has over 20,000 apartment units, and occupancy levels of approximately
95% have been maintained consistently since 1993. New apartment construction
continues in the Southern sector of the Overland Park market area. These newly
constructed units, which are located five or more miles from Regents Walk, are
typically smaller and do not compete directly with Regent's Walk. Nevertheless,
they offer the appeal of contemporary finishes and new systems and appliances as
well as garage parking, fitness centers and elevators in many cases. As a
result, 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. Nonetheless, the
property's management team has initiated a rental rate increase program for
renewing the leases of current residents who are paying below-market rates. For
such tenants, rental rate increases upon renewal will be approximately 5%.
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. Management is currently working with our co-venture
partner to develop a program to further enhance the marketability of the
property. The first phase of the program will include the replacement of a
number of older furnaces and air-conditioning systems. During the spring and
summer, landscaping will be upgraded, and parking areas and driveways will be
resurfaced. The repair and replacement of the concrete driveways and asphalt
parking areas at Regent's Walk, which was originally planned for the third
quarter of fiscal 1997, 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 total $500,000 and are controlled by the lender. The
$500,000 reserve was set aside from the proceeds of the fiscal 1995 refinancing
of the Regent's Walk property. The funds were intended to be used for the
remodeling of kitchens and bathrooms in the apartment units. Management now
believes that less substantial remodeling of the kitchens and bathrooms is
necessary and has requested that the reserve funds be made available for
alternative improvements such as the driveway and parking area project and/or
the repair or replacement of furnace units at the property. The lender has
preliminarily indicated a willingness to consider alternative uses for the
reserve funds pending the receipt of a formal proposal from the joint venture
which would be subject to their approval. Management of the joint venture
intends to prepare and submit such a proposal to the lender during the second
quarter of fiscal 1998.
At December 31, 1997, the Partnership had available cash and cash
equivalents of approximately $2,100,000. 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 of liquidity are expected to be sufficient to meet the
Partnership's needs on both a short-term and long-term basis.
<PAGE>
Results of Operations
Three Months Ended December 31, 1997
- ------------------------------------
The Partnership reported net income of $185,000 for the three months ended
December 31, 1997, as compared to net income of $253,000 for the same period in
the prior year. This decrease in net income is the result of a $44,000 increase
in the Partnership's operating loss and a $24,000 decrease in the Partnership's
share of ventures' income. The increase in the Partnership's operating loss
resulted from an $18,000 decline in interest income combined with a $17,000
increase in management fees and a $9,000 increase in general and administrative
expenses. The decline in interest income resulted from a reduction in the
Partnership's average outstanding cash reserve balances subsequent to the
special distribution made on February 14, 1997 of certain excess cash reserves,
as discussed further in the Annual Report. Management fees were higher in the
current period as a result of an increase in the Partnership's distributable
cash, upon which the management fees are based. General and administrative
expenses increased mainly due to an increase in certain out-of-pocket expenses
incurred by the Adviser in connection with the management of the Partnership's
real estate assets during the current three-month period.
The Partnership's share of ventures' income decreased by $24,000 primarily
due to higher property operating expenses and depreciation and amortization
expense at the Mall Corners and Hurstbourne properties in the current period.
Property operating expenses increased mainly due additional costs incurred at
the Mall Corners property during the current period to repair, reseal and
restripe the parking lot. Depreciation and amortization increased due to
additional capital expenditures incurred at Hurstbourne and Mall Corners over
the past two years. These unfavorable changes in joint venture operating results
were partially offset by an increase in rental revenues at all three properties.
Rental revenues at Mall Corners for the first quarter of fiscal 1998 increased
by 12% over the same period in the prior year primarily due to increases in
reimbursements and percentage rent. Rental revenues at Hurstbourne and Regent's
Walk were up 2% and 1%, respectively, despite small declines in occupancy at
both properties, due to increases in rental rates over the past year.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
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 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended December 31,
1997 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,099
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,099
<PP&E> 3,623
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,722
<CURRENT-LIABILITIES> 34
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,688
<TOTAL-LIABILITY-AND-EQUITY> 5,722
<SALES> 0
<TOTAL-REVENUES> 278
<CGS> 0
<TOTAL-COSTS> 93
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 185
<INCOME-TAX> 0
<INCOME-CONTINUING> 185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> 3.05
<EPS-DILUTED> 3.05
</TABLE>
