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, 1998
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, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Investments in joint ventures, at equity $ 3,575 $ 4,183
Cash and cash equivalents 1,956 1,918
---------- ----------
$ 5,531 $ 6,101
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 16 $ 16
Accrued expenses and other liabilities 19 50
Partners' capital 5,496 6,035
---------- ----------
$ 5,531 $ 6,101
========== ==========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
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
======= =======
Balance at September 30, 1997 $(1,353) $ 7,388
Cash distributions (11) (1,052)
Net income 5 519
------- -------
Balance at March 31, 1998 $(1,359) $ 6,855
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three and six months ended March 31, 1998 and 1997
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest income $ 29 $ 39 $ 58 $ 86
Expenses:
Management fees 38 22 77 44
General and administrative 81 79 135 124
------- ------- ------ -------
119 101 212 168
------- ------- ------ -------
Operating loss (90) (62) (154) (82)
Partnership's share of
unconsolidated
ventures' income 429 223 678 496
------- ------- ------ -------
Net income $ 339 $ 161 $ 524 $ 414
======= ======= ====== =======
Net income per Limited
Partnership Unit $ 5.59 $ 2.66 $ 8.64 $ 6.83
====== ======= ====== =======
Cash distributions per Limited
Partnership Unit $ 8.77 $ 39.00 $17.54 $ 44.00
====== ======= ====== =======
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 six months ended March 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 524 $ 414
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (678) (496)
Changes in assets and liabilities:
Accrued expenses and other liabilities (31) 3
--------- ---------
Total adjustments (709) (493)
--------- ---------
Net cash used in operating activities (185) (79)
Cash flows from investing activities:
Distributions from joint ventures 1,286 1,312
Cash flows from financing activities:
Cash distributions to partners (1,063) (2,646)
--------- ---------
Net increase (decrease) in cash and cash equivalents 38 (1,413)
Cash and cash equivalents, beginning of period 1,918 3,218
--------- ---------
Cash and cash equivalents, end of period $ 1,956 $ 1,805
======== =========
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 March 31, 1998 and September 30, 1997 and revenues and
expenses for the three and six months ended March 31, 1998 and 1997. Actual
results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
The Adviser earned total management fees of $77,000 and $44,000 for the
six-month periods ended March 31, 1998 and 1997, respectively. Accounts payable
- - affiliates at both March 31, 1998 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 six-month
periods ended March 31, 1998 and 1997 is $56,000, 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 six months
ended March 31, 1998 and 1997 is $3,000 and $4,000, 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.
Summarized operations of the three joint ventures for the three and six
months ended March 31, 1998 and 1997 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and six months ended March 31, 1998 and 1997
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $2,331 $2,356 $4,839 $4,705
Interest and other income 62 25 72 52
------ ------ ------ ------
2,393 2,381 4,911 4,757
Property operating expenses 680 836 1,641 1,653
Interest expense 678 696 1,362 1,391
Depreciation and amortization 606 622 1,230 1,210
------ ------ ------ ------
1,964 2,154 4,233 4,254
------ ------ ------ ------
Net income $ 429 $ 227 $ 678 $ 503
====== ====== ====== ======
Net income:
Partnership's share of
combined income $ 429 $ 227 $ 678 $ 503
Co-venturers' share of
combined income - - - -
------ ------ ------ ------
$ 429 $ 227 $ 678 $ 503
====== ====== ====== ======
<PAGE>
Reconciliation of Partnership's Share of Operations
For the three and six months ended March 31, 1998 and 1997
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
combined income, as
shown above $ 429 $ 227 $ 678 $ 503
Amortization of excess basis - (4) - (7)
------- ------- ------- -------
Partnership's share of
unconsolidated ventures'
income $ 429 $ 223 $ 678 $ 496
======= ======= ======= =======
<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 March 31, 1998, the Mall Corners Shopping Center, located in the
suburban Atlanta, Georgia market, was 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 approximately one half 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. During the second quarter of fiscal 1998, two new leases were
signed for a total of 4,830 square feet. One of the new leases is a ten-year
commitment from a new restaurant tenant which is expected to move into the
Center by mid-May following completion of improvements to the vacant space. The
other new tenant is a tile and carpeting store that has signed a five-year lease
and is also expected to take occupancy in May following completion of their
build-out. In addition, three current tenants signed lease renewals during the
quarter for their spaces that total approximately 3,170 square feet. Each of
these tenants extended their leases for an additional five years at escalating
rental rates.
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 reopened for an inventory liquidation sale, but then closed permanently
during the past quarter. Because Levitz was a sub-tenant of a national retailer,
the Mall Corners joint venture is entitled to continue to collect rent on the
store through the expiration of the current lease term in January 2001.
Additionally, Toys R Us closed its store that abuts the Mall Corners Shopping
Center in 1997 in order to consolidate their 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. The former store site is
located on a separate parcel of land owned by Toys R Us. While the closing of
this Toys R Us store 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. The property's
leasing team has been actively exploring leasing opportunities to protect and
enhance the Center's overall position in the market as a result of the Levitz
Furniture and Toys R Us store closings. This includes discussions with major
retailers that may be looking to expand into this suburban Atlanta market and
which would complement the existing tenant mix. If the leasing team's efforts
are successful, there should be more favorable opportunities to renew expiring
shop space leases or sign new leases at higher rental rates.
The occupancy level at the Hurstbourne Apartments, located in Louisville,
Kentucky, averaged 88% for quarter ended March 31, 1998, unchanged from the
previous quarter. The property's leasing team was recently reorganized to
improve the marketing efforts. However, the local sub-market remains soft and
the leasing staff is currently offering reduced rental rates on some of the
apartments that have remained vacant for a prolonged period. In order to enhance
Hurstbourne's competitive position in its market, the property's leasing team
has also been 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. In
addition to the routine replacement of carpets and appliances, property
improvements completed during the second quarter included replacement of two
water heaters and upgrades to the property's leasing area aimed at bolstering
the marketing efforts. There is currently no new multi-family construction in
the Louisville, Kentucky sub-market 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. As part of the Partnership's overall disposition
plan, management has begun to explore potential opportunities to market the
Hurstbourne Apartments for sale. Interviews are currently ongoing with local and
regional brokerage firms to formulate a strategy for disposition and determine
how to maximize the selling price for this asset. Formal marketing efforts are
expected to commence during the second half of calendar 1998.
At Regent's Walk, the occupancy level averaged 93% for the quarter ended
March 31, 1998, compared to 95% for the prior quarter. The Partnership's
management and leasing team attribute the change in the occupancy level to a
lack of prospective tenants looking to rent apartments in the winter months. 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. As previously
reported, 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. Currently, rental rate concessions are not
being offered at Regent's Walk, and modest rental rate increases are being
implemented as new leases are signed and as leases are renewed. In addition,
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 the
co-venture partner to develop a program to further enhance the marketability of
the property. This program will ultimately include improvements to the
landscaping, signage, parking and driveway areas, clubhouse, common areas,
building exteriors and apartment interiors. The first phase of the program,
which has been completed, focused on deferred maintenance items including the
replacement of a number of older furnaces. During the spring and summer,
landscaping will be upgraded and the concrete driveways and asphalt parking
areas will be resurfaced. 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. The lender has preliminarily indicated a willingness to consider
alternative uses for the reserve funds pending the receipt of formal
reimbursement requests from the joint venture which would be subject to their
approval.
At March 31, 1998, the Partnership had available cash and cash equivalents
of approximately $1,956,000. 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.
Results of Operations
Three Months Ended March 31, 1998
- ---------------------------------
The Partnership reported net income of $339,000 for the three months ended
March 31, 1998, as compared to net income of $161,000 for the same period in the
prior year. This increase in net income is the result of a $206,000 improvement
in the Partnership's share of unconsolidated ventures' income which was
partially offset by a $28,000 increase in the Partnership's operating loss. The
Partnership's share of ventures' income increased primarily due to lower
property operating expenses at the Mall Corners, Hurstbourne and Regent's Walk
properties in the current period. Property operating expenses decreased mainly
due to reductions in repairs and maintenance expenses at Mall Corners and
Regent's Walk, decreases in management fee expenses at Regent's Walk and
Hurstbourne and a decrease in utilities expense at Hurstbourne. These favorable
changes in joint venture operating results were partially offset by small
declines in rental revenues at Mall Corners and Regent's Walk.
The increase in the Partnership's operating loss resulted from a $10,000
decrease in interest income, a $16,000 increase in management fees and a $2,000
increase in general and administrative expenses. The decrease 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 increased during 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.
Six Months Ended March 31, 1998
- -------------------------------
The Partnership reported net income of $524,000 for the six months ended
March 31, 1998 as compared to net income of $414,000 for the same period in the
prior year. This increase in net income is the result of a $182,000 increase in
the Partnership's share of unconsolidated ventures' income which was partially
offset by a $72,000 increase in the Partnership's operating loss. The increase
in the Partnership's share of ventures' income was primarily due to an increase
in combined rental revenues and expense recoveries of $134,000 and a decrease in
interest expense of $29,000. Rental revenues and expense recoveries increased
primarily due to an increase in reimbursements and percentage rents at Mall
Corners. Interest expense decreased due to the scheduled principal payments on
all three of the outstanding mortgage loans.
The increase in the Partnership's operating loss resulted from a $28,000
decrease in interest income, a $33,000 increase in management fees and an
$11,000 increase in general and administrative expenses. The decrease 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.
<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: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended March 31,
1998 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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,956
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,956
<PP&E> 3,575
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,531
<CURRENT-LIABILITIES> 35
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,496
<TOTAL-LIABILITY-AND-EQUITY> 5,531
<SALES> 0
<TOTAL-REVENUES> 736
<CGS> 0
<TOTAL-COSTS> 212
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 524
<INCOME-TAX> 0
<INCOME-CONTINUING> 524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524
<EPS-PRIMARY> 8.64
<EPS-DILUTED> 8.64
</TABLE>
