UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 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 PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 04-2829686
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(State of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
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 |_|.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
Documents Incorporated by Reference
Documents Form 10-K Reference
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Prospectus of registrant dated Part IV
September 17, 1984, as supplemented
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
1997 FORM 10-K
TABLE OF CONTENTS
Part I Page
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Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-5
Part II
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Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-7
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-7
Part III
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Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-2
Item 12 Security Ownership of Certain Beneficial Owners and
Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
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Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-30
<PAGE>
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Partnership's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are discussed in Item 7 in the section entitled
"Certain Factors Affecting Future Operating Results" beginning on page II-5 of
this Form 10-K.
PART I
Item 1. Business
Paine Webber Income Properties Six Limited Partnership (the "Partnership")
is a limited partnership formed in April 1984 under the Uniform Limited
Partnership Act of the State of Delaware for the purpose of investing in a
diversified portfolio of existing income-producing operating properties such as
apartments, shopping centers, office buildings, and other similar
income-producing properties. The Partnership sold $60,000,000 in Limited
Partnership units (the "Units"), representing 60,000 units at $1,000 per Unit,
from September 17, 1984 to September 16, 1985 pursuant to a Registration
Statement filed on Form S-11 under the Securities Act of 1933 (Registration No.
2-91080). Limited Partners will not be required to make any additional
contributions.
The Partnership originally invested the net proceeds of the public
offering, through joint venture partnerships, in five operating properties. As
discussed further below, through September 30, 1997 one of the Partnership's
original investments had been sold and another investment had been lost through
foreclosure proceedings. As of September 30, 1997, the Partnership owned,
through joint venture partnerships, interests in the operating properties set
forth in the following table:
<TABLE>
<CAPTION>
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
- -------------------------------- ---- ---------- ----------------
<S> <C> <C> <C>
Regent's Walk Associates 255 5/15/85 Fee ownership of land and
Regent's Walk Apartments units improvements (through
Overland Park, Kansas joint venture)
Kentucky-Hurstbourne Associates 409 7/25/85 Fee ownership of land and
Hurstbourne Apartments units improvements (through
Louisville, Kentucky joint venture)
Gwinnett Mall Corners Associates 304,000 8/28/85 Fee ownership of land and
Mall Corners Shopping Center gross improvements (through
Gwinnett County, Georgia leasable joint venture)
sq. ft.
</TABLE>
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
The Partnership previously owned an interest in Bailey N. Y. Associates, a
joint venture which owned the 150 Broadway Office Building; a 238,000 square
foot office and retail building located in New York City. The Partnership sold
its interest in the Bailey N. Y. Associates joint venture on September 22, 1989
for cash totalling $4,000,000 and a second mortgage note receivable in the
amount of $14,000,000. Due to a deterioration in the commercial real estate
market in New York City, which adversely impacted property operations, the owner
of the 150 Broadway Office Building defaulted on its mortgage loan obligations
during fiscal 1990 and filed for bankruptcy protection in July 1991. During
fiscal 1993, the Partnership reached a settlement agreement involving both the
first mortgage lender and the owner. Under this agreement, which was approved by
the bankruptcy court and declared effective on June 15, 1993, the Partnership
agreed to restructure its second mortgage position. During fiscal 1995, 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. The Partnership received $200,000 of the agreed upon
sale proceeds during the second quarter of fiscal 1995. 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. 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. With the release of the escrowed
funds, the Partnership's interest in and any obligations related to the 150
Broadway Office Building were terminated.
During fiscal 1992, the Partnership forfeited its interest in the
Northbridge Office Centre as a result of certain defaults under the terms of the
property's mortgage indebtedness. The mortgage lender took title to the
Northbridge property through foreclosure proceedings on April 20, 1992, after a
protracted period of negotiations failed to produce a mutually acceptable
restructuring agreement. Furthermore, the Partnership's efforts to recapitalize,
sell or refinance the property were unsuccessful. The inability of the
Northbridge joint venture to generate sufficient funds to meet its debt service
obligations resulted mainly from a significant oversupply of competing office
space in the West Palm Beach, Florida market. Management did not foresee any
near term improvement in such conditions and ultimately determined that it was
in the Partnership's best interests not to contest the lender's foreclosure
action.
The Partnership's original investment objectives were to:
(i) provide the Limited Partners with cash distributions which, to some
extent, will not constitute taxable income;
(ii) preserve and protect Limited Partners' capital;
(iii) achieve long-term appreciation in the value of its properties; and
(iv) provide a build up of equity through the reduction of mortgage loans
on its properties.
Through September 30, 1997, the Limited Partners had received cumulative
cash distributions from operations totalling approximately $18,189,000, or $313
per original $1,000 investment for the Partnership's earliest investors. Of this
amount, $2,040,000, or $34 per original $1,000 investment, represents a return
of capital paid on February 14, 1997 from the excess proceeds from the
refinancing of Mall Corners, the release of the escrowed funds from the sale of
the Partnership's interest in the 150 Broadway Office Building and Partnership
cash reserves which exceeded expected future requirements. The remaining
distributions have been paid from operating cash flow. A substantial portion of
these cash distributions paid to date has been sheltered from current taxable
income. The Partnership reinstated the payment of regular quarterly cash
distributions effective for the quarter ended June 30, 1994 at an annualized
rate of 2% on original invested capital. Distributions had been discontinued in
1990 primarily due to the cash deficits associated with the Partnership's two
commercial properties, Northbridge Office Centre and the 150 Broadway Office
Building, which investments have since been disposed of, as discussed further
above. Distributions were increased to an annualized rate of 3.6% and 3.63% on
remaining invested capital for the quarters ended March 31, 1997 and June 30,
1997, respectively. As of September 30, 1997, the Partnership retains an
interest in three of its five original investment properties. However, the loss
of the investment in Northbridge, which represented 25% of the Partnership's
original investment portfolio, in all likelihood, will result in the
Partnership's inability to return the full amount of the original invested
capital to the Limited Partners. The amount of the original capital that will be
returned will depend upon the proceeds received from the final liquidation of
the remaining investments. The amount of such proceeds will ultimately depend
upon the value of the underlying investment properties at the time of their
final disposition, which cannot presently be determined. At the present time,
real estate values for retail shopping centers in certain markets are being
adversely impacted by the effects of overbuilding and consolidations among
retailers which have resulted in an oversupply of space. It remains to be seen
what effect, if any, these competitive conditions will have on future operations
of the Partnership's Mall Corners Shopping Center which is located in the
suburban Atlanta, Georgia market.
All of the remaining properties in which the Partnership has an interest
are located in real estate markets in which they face significant competition
for the revenues they generate. The apartment complexes compete with numerous
projects of similar type generally on the basis of price, location and
amenities. As in all markets, the apartment projects also compete with the local
single family home market for prospective tenants. The continued availability of
low interest rates on home mortgage loans has increased the level of this
competition in all parts of the country over the past several years. However,
the impact of the competition from the single-family home market has been offset
by the lack of significant new construction activity in the multi-family
apartment market over most of this period. Over the past year, development
activity for multi-family properties in many markets has escalated
significantly. See Item 7 for a further discussion of the competitive conditions
impacting the Partnership`s Regent's Walk and Hurstbourne apartment properties.
The shopping center competes for long-term commercial tenants with numerous
projects of similar type generally on the basis of location, rental rates and
tenant improvement allowances.
The Partnership has no operating property investments located outside the
United States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly owned subsidiary of PaineWebber Group, Inc. ("PaineWebber").
The General Partners of the Partnership (the "General Partners") are Sixth
Income Properties Fund, Inc. and Properties Associates 1985, L.P. Sixth Income
Properties Fund, Inc. (the "Managing General Partner"), a wholly-owned
subsidiary of PaineWebber, is the managing general partner of the Partnership.
The associate general partner of the Partnership is Properties Associates 1985,
L.P. (the "Associate General Partner"), a Virginia limited partnership, certain
limited partners of which are also officers of the Adviser and the Managing
General Partner. Subject to the Managing General Partner's overall authority,
the business of the Partnership is managed by the Adviser.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
Item 2. Properties
As of September 30, 1997, the Partnership owned interests in three
operating properties through joint venture partnerships. The joint venture
partnerships and the related properties are referred to under Item 1 above to
which reference is made for the name, location and description of each property.
Occupancy figures for each fiscal quarter during 1997, along with an
average for the year, are presented below for each property:
Percent Leased At
-------------------------------------------------
Fiscal
1997
12/31/96 3/31/97 6/30/97 9/30/97 Average
-------- ------- ------- ------- -------
Regent's Walk Apartments 97% 97% 97% 97% 97%
Hurstbourne Apartments 92% 88% 94% 90% 91%
Mall Corners Shopping Center 90% 90% 90% 90% 90%
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including Sixth Income Properties Fund, Inc. and Properties
Associates 1985, L.P. ("PA1985"), which are the General Partners of the
Partnership and affiliates of PaineWebber. On May 30, 1995, the court certified
class action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in Paine Webber Income Properties
Six Limited Partnership, PaineWebber, Sixth Income Properties Fund, Inc. and
PA1985 (1) failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purported to be suing on behalf of all persons who invested in Paine Webber
Income Properties Six Limited Partnership, also alleged that following the sale
of the partnership interests, PaineWebber, Sixth Income Properties Fund, Inc.
and PA1985 misrepresented financial information about the Partnerships value and
performance. The amended complaint alleged that PaineWebber, Sixth Income
Properties Fund, Inc. and PA1985 violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. 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 had been delayed pending the
resolution of an appeal of the settlement agreement by two of the plaintiff
class members. In July 1997, the United States Court of Appeals for the Second
Circuit upheld the settlement over the objections of the two class members. As
part of the settlement agreement, PaineWebber 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 February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleged, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint sought
compensatory damages of $15 million plus punitive damages against PaineWebber.
In June 1996, approximately 50 plaintiffs filed an action entitled Bandrowski v.
PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber
Incorporated and various affiliated entities concerning the plaintiffs'
purchases of various limited partnership interests, including those offered by
the Partnership. The complaint was very similar to the Abbate action described
above and sought compensatory damages of $3.4 million plus punitive damages
against PaineWebber. In September 1996, the court dismissed many of the
plaintiffs' claims in both the Abbate and Bandrowski actions as barred by
applicable securities arbitration regulations. Mediation with respect to the
Abbate and Bandrowski actions was held in December 1996. As a result of such
mediation, a settlement between PaineWebber and the plaintiffs was reached which
provided for the complete resolution of both actions. Final releases and
dismissals with regard to these actions were received during fiscal 1997.
Based on the settlement agreements discussed above covering all of the
outstanding unitholder litigation, management believes that the resolution of
these matters will not have a material impact on the Partnership's financial
statements, taken as a whole.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At September 30, 1997, there were 3,848 record holders of Units in the
Partnership. There is no public market for the resale of Units, and it is not
anticipated that a public market for Units will develop. Upon request, the
Managing General Partner will endeavor to assist a Unitholder desiring to
transfer his Units and may utilize the services of PWI in this regard. The price
to be paid for the Units will be subject to negotiation by the Unitholder. The
Managing General Partner will not redeem or repurchase Units.
Reference is made to Item 6 below for a discussion of the amount of cash
distributions made to the Limited Partners during fiscal 1997.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Paine Webber Income Properties Six Limited Partnership
(In thousands, except per Unit data)
Years Ended September 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 237 $ 259 $ 361 $ 106 $ 47
Operating loss $ (148) $ (92) $ (60) $ (1,302) $ (2,412)
Partnership's share of
unconsolidated
ventures' income $ 1,263 $ 874 $ 32 $ 522 $ 581
Net income (loss) $ 1,115 $ 782 $ 262 $ (780) $ (1,831)
Per Limited Partnership Unit:
Net income (loss) $ 18.40 $ 12.89 $ 4.33 $ (12.86) $ (30.20)
Cash distributions from
operations $ 27.46 $ 20.00 $ 20.00 $ 5.00 -
Cash distributions from sale,
refinancing or other
disposition transactions $ 34.00 - - - -
Total assets $ 6,101 $ 8,658 $ 9,100 $ 10,036 $ 11,160
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the
60,000 Limited Partnership Units outstanding during each year.
<PAGE>
Item 7. 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 below 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
- -------------------------------
The Partnership offered Units of Limited Partnership interests to the
public from September 17, 1984 to September 16, 1985 pursuant to a Registration
Statement filed under the Securities Act of 1933. Gross proceeds of $60,000,000
were received by the Partnership, and after deducting selling expenses and
offering costs, approximately $51,889,000 was originally invested in five
operating investment properties through joint ventures. As previously reported,
the sale of the Partnership's remaining interest in the 150 Broadway Office
Building was finalized during fiscal 1996, and the Partnership's interest in the
Northbridge Office Centre was lost through foreclosure proceedings in fiscal
1992. As of September 30, 1997, the Partnership had joint venture investments in
three remaining operating properties, which consist of one retail shopping
center and two multi-family apartment complexes. At the present time the
Partnership does not have any commitments for additional investments but may be
called upon to fund its portion of operating deficits or capital improvements of
the joint ventures in accordance with the respective joint venture agreements.
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 was adjusted upward slightly to 3.63% per annum effective with
the distribution paid on August 15, 1997 for the quarter ended June 30, 1997.
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.
The Mall Corners Shopping Center, located in the suburban Atlanta, Georgia
market, averaged 90% leased during fiscal 1997, compared to 93% for fiscal 1996.
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. During the fourth quarter of fiscal 1997, one of the Center's
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.
The occupancy level at the Hurstbourne Apartments, located in Louisville,
Kentucky, averaged 91% for fiscal 1997 compared to 94% for fiscal 1996. The
primary reason for this decrease in 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 will be evaluated during fiscal 1998. 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.
At Regent's Walk, the occupancy level averaged 97% for fiscal 1997
compared to 98% for fiscal 1996. 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. Modest rental rate increases are being
implemented at Regent's Walk 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 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 September 30, 1997, the Partnership had available cash and cash
equivalents of approximately $1,918,000. 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, as discussed further above. 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
1997 Compared to 1996
- ---------------------
The Partnership reported net income of $1,115,000 for the year ended
September 30, 1997 as compared to net income of $782,000 for the prior year.
This increase in net income is the result of a $389,000 increase in the
Partnership's share of ventures' income, which was partially offset by a $56,000
increase in the Partnership's operating loss. The increase in the Partnership's
share of ventures' income was primarily due to a $289,000 increase in combined
revenues and a $143,000 decrease in combined expenses. Combined revenues
increased mainly due higher rental revenues at Mall Corners due to increases in
rental rates on the new leases signed over the past 12 months. Rental revenues
at both the Hurstbourne and Regent's Walk properties were up only slightly
compared to fiscal 1996. The decrease in combined expenses is primarily
attributable to a decrease in the interest, real estate tax and property
operating expense categories, which were partially offset by an increase in
depreciation and amortization expense. Interest expense decreased mainly due to
the lower interest rate obtained on the Mall Corners mortgage note, which was
refinanced at the end of the first quarter of fiscal 1996. Real estate tax
expense decreased due to a decline in real estate tax assessments at all three
properties during fiscal 1997. Property operating expenses decreased mainly due
to a reduction in repair and maintenance and general administrative expenses at
the Hurstbourne joint venture and a decrease in general and administrative
expenses at Mall Corners. The reductions in property operating expenses at
Hurstbourne and Mall Corners during fiscal 1997 were partially offset by an
increase in repairs and maintenance related costs at Regent's Walk.
The unfavorable change in the Partnership's operating loss resulted from
the combined effect of a decline in total revenues and an increase in management
fee expense. Total revenues declined primarily due to the income recognition
that occurred in the prior year for the $100,000 received for the Partnership's
interest in the 150 Broadway Office Building. This was offset, in part, by an
increase of $78,000 in interest income during fiscal 1997. Management fees
increased due to the increase in the Partnership's distributable cash upon which
management fees are based, as discussed further above.
1996 Compared to 1995
- ---------------------
The Partnership reported net income of $782,000 for the year ended
September 30, 1996, as compared to net income of $262,000 for the prior year.
This favorable change in net income was primarily the result of an increase of
$552,000 in the Partnership's share of ventures' income. The increase in the
Partnership's share of ventures' income was partially offset by a decrease in
the income from the sale of the Partnership's second mortgage interest in the
150 Broadway Office Building. In fiscal 1995, the Partnership recorded income of
$200,000 to reflect cash proceeds related to the sale of the Partnership's
interest in the 150 Broadway Office Building which had been fully reserved for
in fiscal 1994. During fiscal 1996, the Partnership received, and recorded as
income, an additional $100,000 from the sale of the 150 Broadway interest.
The increase in the Partnership's share of ventures' income was mainly due
to increases in rental revenues and a decrease in combined interest expense
which were partially offset by increases in property operating expenses. Rental
revenues from the Regent's Walk and Hurstbourne Apartments increased by 6% and
7%, respectively, during fiscal 1996 due to the improvement in average occupancy
and rental rates at both of the multi-family properties. Combined rental
revenues improved by $292,000 over fiscal 1995. Interest expense decreased by
$527,000 as a result of the refinancings of the mortgage loans secured by the
Regent's Walk and Mall Corners properties, which were completed in fiscal 1995
and fiscal 1996, respectively. The increase of $203,000 in combined property
operating expenses was largely due to increased repairs and maintenance expenses
at the two apartment properties during fiscal 1996.
A decrease in the Partnership's general and administrative expenses also
contributed to the favorable change in net income for fiscal 1996. General and
administrative expenses decreased by $70,000 mainly due to additional
professional fees incurred in fiscal 1995 related to the valuation of the
Partnership's portfolio of operating investment properties and additional legal
fees associated with the sale of the Partnership's second mortgage interest in
the 150 Broadway Office Building.
1995 Compared to 1994
- ---------------------
For the year ended September 30, 1995, the Partnership reported net income
of $262,000 as compared to a net loss of $780,000 in fiscal 1994. This change in
the Partnership's net operating results was mainly the result of certain
transactions involving the Partnership's interest in the 150 Broadway Office
Building. In December 1993, the Partnership funded a $200,000 escrow reserve
account required under the terms of the 150 Broadway bankruptcy settlement
agreement. The Partnership's accounting policy for its investment in 150
Broadway resulted in any advances being recorded as an expense in the period
paid. In addition, during fiscal 1994 the Partnership recognized an $800,000
provision for possible investment loss related to the 150 Broadway investment to
fully reserve the carrying value of the Partnership's remaining investment. In
fiscal 1995, during the quarter ended December 31, 1994, the Partnership
recorded income of $200,000 to reflect the cash proceeds received related to the
sale of the Partnership's interest in 150 Broadway. The favorable changes in the
Partnership's net operating results related to the 150 Broadway investment were
partially offset by a decrease in the Partnership's share of ventures' income of
$200,000 in fiscal 1995. This unfavorable change in the Partnership's share of
ventures' operations was mainly a result of a decrease in rental income of
$330,000 at the Mall Corners Shopping Center due to the decrease in occupancy
resulting from the vacancy created by the termination of a 20,000 square feet
medical office tenant in fiscal 1995. Revenues also declined slightly at the
Hurstbourne Apartments during fiscal 1995 mainly due to a decrease in corporate
apartment rental activity. An increase in combined depreciation and amortization
expense of $88,000 also contributed to the decline in the Partnership's share of
ventures' income during fiscal 1995. Deprecation charges increased at the Mall
Corners and Hurstbourne joint ventures as a result of certain capitalized costs
incurred during fiscal 1995 and 1994. A decrease in property operating expenses
at the Regent's Walk Apartments and Hurstbourne Apartments, totalling $281,000,
partially offset the decrease in rental revenues and increase in depreciation
expense during fiscal 1995. The decline in property operating expenses was
primarily attributable to lower repairs and maintenance expenses for fiscal 1995
at both of the apartment properties. Repairs and maintenance expenses in fiscal
1994 reflected the costs of an exterior painting project at Regent's Walk and
common area upgrading and landscape repair projects at the Hurstbourne
Apartments.
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
The following factors could cause actual results to differ materially from
historical results or those anticipated:
Real Estate Investment Risks. Real property investments are subject to
varying degrees of risk. Revenues and property values may be adversely affected
by the general economic climate, the local economic climate and local real
estate conditions, including (i) the perceptions of prospective tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide adequate management and maintenance of the property; (iii) the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise; and (iv) increased operating costs. Real estate values may also be
adversely affected by such factors as applicable laws, including tax laws,
interest rate levels and the availability of financing.
Effect of Uninsured Loss. The Partnership carries comprehensive liability,
fire, flood, extended coverage and rental loss insurance with respect to its
properties with insured limits and policy specifications that management
believes are customary for similar properties. There are, however, certain types
of losses (generally of a catastrophic nature such as wars, floods or
earthquakes) which may be either uninsurable, or, in management's judgment, not
economically insurable. Should an uninsured loss occur, the Partnership could
lose both its invested capital in and anticipated profits from the affected
property.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances on, under, in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances.
The Partnership is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the
Partnership, nor is the Partnership aware of any environmental condition with
respect to any of its properties that it believes will involve any such material
expenditure. However, there can be no assurance that any non-compliance,
liability, claim or expenditure will not arise in the future.
Competition. The financial performance of the Partnership's remaining real
estate investments will be significantly impacted by the competition from
comparable properties in their local market areas. The occupancy levels and
rental rates achievable at the properties are largely a function of supply and
demand in the markets. In many markets across the country, development of new
multi-family properties has increased significantly in the past 12 months.
Existing apartment properties in such markets could be expected to experience
increased vacancy levels, declines in effective rental rates and, in some cases,
declines in estimated market values as a result of the increased competition.
The retail segment of the real estate market is currently suffering from an
oversupply of space in many markets resulting from overbuilding in recent years
and the trend of consolidations and bankruptcies among retailers prompted by the
generally flat rate of growth in overall retail sales. There are no assurances
that these competitive pressures will not adversely affect the operations and/or
market values of the Partnership's investment properties in the future.
Impact of Joint Venture Structure. The ownership of the remaining
investments through joint venture partnerships could adversely impact the timing
of the Partnership's planned dispositions of its remaining assets and the amount
of proceeds received from such dispositions. It is possible that the
Partnership's co-venture partners could have economic or business interests
which are inconsistent with those of the Partnership. Given the rights which
both parties have under the terms of the joint venture agreements, any conflict
between the partners could result in delays in completing a sale of the related
operating property and could lead to an impairment in the marketability of the
property to third parties for purposes of achieving the highest possible sale
price.
Availability of a Pool of Qualified Buyers. The availability of a pool of
qualified and interested buyers for the Partnership's remaining assets is
critical to the Partnership's ability to realize the estimated fair market
values of such properties at the time of their final dispositions. Demand by
buyers of multi-family apartment and retail properties is affected by many
factors, including the size, quality, age, condition and location of the subject
property, the quality and stability of the tenant roster, the terms of any
long-term leases, potential environmental liability concerns, the existing debt
structure, the liquidity in the debt and equity markets for asset acquisitions,
the general level of market interest rates and the general and local economic
climates.
Inflation
- ---------
The Partnership completed its thirteenth full year of operations in 1997
and the effects of inflation and changes in prices on the Partnership's
operating results to date have not been significant.
Inflation in future periods may result in an increase in revenues, as well
as operating expenses, at the Partnership's operating investment properties.
Most of the existing leases with tenants at the Partnership's retail shopping
center contain rental escalation and/or expense reimbursement clauses based on
increases in tenant sales or property operating expenses. Tenants at the
Partnership's apartment properties have short-term leases, generally of
six-to-twelve months in duration. Rental rates at these properties can be
adjusted to keep pace with inflation, as market conditions allow, as the leases
are renewed or turned over. Such increases in rental income would be expected to
at least partially offset the corresponding increases in Partnership and
property operating expenses caused by future inflation.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Sixth Income Properties
Fund, Inc. a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates 1985, L.P., a Virginia limited partnership, certain limited partners
of which are also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operation, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
---- ------ --- ---------
Bruce J. Rubin President and Director 38 8/22/96
Terrence E. Fancher Director 44 10/10/96
Walter V. Arnold Senior Vice President and
Chief Financial Officer 50 10/29/85
David F. Brooks First Vice President and Assistant
Treasurer 55 4/25/84 *
Timothy J. Medlock Vice President and Treasurer 36 6/1/88
Thomas W. Boland Vice President and Controller 35 12/1/91
* The date of incorporation of the Managing General Partner.
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors
and executive officers of the Managing General Partner of the Partnership. All
of the foregoing directors and executive officers have been elected to serve
until the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser.
The business experience of each of the directors and principal executive
officers of the Managing General Partner is as follows:
Bruce J. Rubin is President and Director of the Managing General
Partner. Mr. Rubin was named President and Chief Executive Officer of PWPI
in August 1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking
in November 1995 as a Senior Vice President. Prior to joining PaineWebber,
Mr. Rubin was employed by Kidder, Peabody and served as President for KP
Realty Advisers, Inc. Prior to his association with Kidder, Mr. Rubin was a
Senior Vice President and Director of Direct Investments at Smith Barney
Shearson. Prior thereto, Mr. Rubin was a First Vice President and a real
estate workout specialist at Shearson Lehman Brothers. Prior to joining
Shearson Lehman Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at Willkie Farr & Gallagher. Mr. Rubin is a graduate of Stanford
University and Stanford Law School.
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as
a result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is
responsible for the origination and execution of all of PaineWebber's REIT
transactions, advisory assignments for real estate clients and certain of the
firm's real estate debt and principal activities. He joined Kidder, Peabody
in 1985 and, beginning in 1989, was one of the senior executives responsible
for building Kidder, Peabody's real estate department. Mr. Fancher
previously worked for a major law firm in New York City. He has a J.D. from
Harvard Law School, an M.B.A. from Harvard Graduate School of Business
Administration and an A.B. from Harvard College.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer
of the Managing General Partner and a Senior Vice President and Chief
Financial Officer of the Adviser which he joined in October 1985. Mr. Arnold
joined PWI in 1983 with the acquisition of Rotan Mosle, Inc. where he had
been First Vice President and Controller since 1978, and where he continued
until joining the Adviser. Mr. Arnold is a Certified Public Accountant
licensed in the state of Texas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an Assistant Treasurer
of the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and
also, from March 1974 to February 1980, the Assistant Treasurer of Capital for
Real Estate, which provided real estate investment, asset management and
consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and Vice President and Treasurer of the Adviser which he joined
in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President and Controller of the Managing
General Partner and a Vice President and Controller of the Adviser which he
joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in the
state of Massachusetts. He holds a B.S. in Accounting from Merrimack College
and an M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended September 30, 1997, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no direct remuneration from the Partnership. The Partnership is required
to pay certain fees to the Adviser, and the General Partners are entitled to
receive a share of Partnership cash distributions and a share of profits and
losses. These items are described under Item 13.
Regular quarterly distributions to the Partnership's Unitholders were
suspended from fiscal 1991 through the first half of fiscal 1994. Distributions
were reinstated at an annual rate of 2% on original invested capital effective
for the third quarter of fiscal 1994. During fiscal 1997, the distribution rate
was increased to 3.6% on remaining invested capital effective for the second
quarter of fiscal 1997 and to 3.63% on remaining invested capital effective for
the third quarter of fiscal 1997. However, the Partnership's Units of Limited
Partnership Interest are not actively traded on any organized exchange, and no
efficient secondary market exists. Accordingly, no accurate price information is
available for these Units. Therefore, a presentation of historical Unitholder
total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, Sixth Income Properties Fund, Inc., is owned by
PaineWebber. Properties Associates 1985, L.P., the Associate General Partner, is
a Virginia limited partnership, certain limited partners of which are also
officers of the Adviser and the Managing General Partner. No limited partner is
known by the Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.
(b) The directors and officers of the Managing General Partner do not
directly own any Units of limited partnership interest of the Partnership. No
director or officer of the Managing General Partner, nor any limited partner of
the Associate General Partner, possesses a right to acquire beneficial ownership
of Units of limited partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation
of which may, at a subsequent date, result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are Sixth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group, Inc. ("PaineWebber") and Properties Associates 1985, L.P. (the "Associate
General Partner"), a Virginia limited partnership, certain limited partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated (the "Adviser"). Subject to the Managing General
Partner's overall authority, the business of the Partnership is managed by the
Adviser pursuant to an advisory contract. The Adviser is a wholly-owned
subsidiary of PaineWebber Incorporated ("PWI"). The General Partners, the
Adviser and PWI receive fees and compensation, determined on an agreed-upon
basis, in consideration of various services performed in connection with the
sale of the Units, the management of the Partnership and the acquisition,
management, financing and disposition of Partnership investments.
In connection with the acquisition of properties, the Adviser received
acquisition fees in an amount equal to 5% of the gross proceeds from the sale of
the Partnership Units. In connection with the sale of each property, the Adviser
may receive a disposition fee, payable upon liquidation of the Partnership, in
an amount equal to the lesser of 1% of the aggregate sales price of the property
or 50% of the standard brokerage commissions, subordinated to the payment of
certain amounts to the Limited Partners.
All taxable income or tax loss (other than from a Capital Transaction) of
the Partnership will be allocated 98.94802625% to the Limited Partners and
1.05197375% to the General Partners. Taxable income or loss arising from a sale
or refinancing of investment properties will be allocated to the Limited
Partners and the General Partners in proportion to the amounts of sale or
refinancing proceeds to which they are entitled; provided, that the General
Partners shall be allocated at least 1% of taxable income arising from a sale or
refinancing. If there are no sale or refinancing proceeds, taxable income or tax
loss from a sale or refinancing will be allocated 98.94802625% to the Limited
Partners and 1.05197375% to the General Partners. Notwithstanding this, the
Partnership Agreement provides that the allocation of taxable income and tax
losses arising from the sale of a property which leads to the dissolution of the
Partnership shall be adjusted to the extent feasible so that neither the General
or Limited Partners recognize any gain or loss as a result of having either a
positive or negative balance remaining in their capital accounts upon the
dissolution of the Partnership. If the General Partner has a negative capital
account balance subsequent to the sale of a property which leads to the
dissolution of the Partnership, the General Partner may be obligated to restore
a portion of such negative capital account balance as determined in accordance
with the provisions of the Partnership Agreement. Allocations of the
Partnership's operations between the General Partners and the Limited Partners
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 95% to the Limited Partners, 1.01% to the
General Partners and 3.99% to the Adviser, as an asset management fee. All sale
or refinancing proceeds shall be distributed in varying proportions to the
Limited and General Partners, as specified in the Partnership Agreement.
Under the advisory contract, the Adviser has specific management
responsibilities: to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser will be paid a basic management fee (3% of adjusted cash
flow, as defined in the Partnership Agreement) and an incentive management fee
(2% of adjusted cash flow subordinated to a noncumulative annual return to the
Limited Partners equal to 6% based upon their adjusted capital contributions),
in addition to the asset management fee described above, for services rendered.
The Adviser earned total basic and asset management fees of $121,000 for the
year ended September 30, 1997. No incentive management fees were earned during
fiscal 1997.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended September 30, 1997 is $111,000, representing reimbursements to
this affiliate for providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $9,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended September 30, 1997. Fees charged
by Mitchell Hutchins are based on a percentage of invested cash reserves which
varies based on the total amount of invested cash which Mitchell Hutchins
manages on behalf of PWPI.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying Index to Exhibits at
page IV-3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the last quarter
of fiscal 1997.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
<PAGE>
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/ Bruce J. Rubin
------------------
Bruce J. Rubin
President and Chief Executive Officer
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
--------------------
Thomas W. Boland
Vice President and Controller
Dated: January 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership in
the capacity and on the dates indicated.
By:/s/ Bruce J. Rubin Date: January 13, 1998
------------------------ -----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: January 13, 1998
------------------------ ----------------
Terrence E. Fancher
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document or Other Reference
- ----------- ------------------------ --------------------------
<S> <C> <C>
(3) and (4) Prospectus of the Registrant Filed with the Commission
dated September 17, 1984, supplemented, pursuant to Rule 424(c)
with particular reference to the and incorporated herein by
Restated Certificate and Agreement reference.
Limited Partnership.
(10) Material contracts previously filed as Filed with the Commission
exhibits to registration statements and pursuant to Section 13 or 15(d)
amendments thereto of the registrant of the Securities Exchange Act
together with all such contracts filed of 1934 and incorporated
as exhibits of previously filed Forms herein by reference.
8-K and Forms 10-K are hereby
incorporated herein by reference.
(13) Annual Reports to Limited Partners No Annual Report for the year
ended September 30, 1997 has
been sent to the Limited Partners.
An Annual Report will be sent to
the Limited Partners subsequent to
this filing.
(21) List of Subsidiaries Included in Item 1 of Part I of
this Report Page I-1, to which
reference is hereby made.
(27) Financial Data Schedule Filed as last page of EDGAR
submission following the Financial
Statements and Financial
Statement Schedule required by
Item 14.
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
---------
Paine Webber Income Properties Six Limited Partnership:
Report of independent auditors F-2
Balance sheets as of September 30, 1997 and 1996 F-3
Statements of income for the years ended September 30, 1997,
1996 and 1995 F-4
Statements of changes in partners' capital (deficit)
for the years ended September 30, 1997, 1996 and 1995 F-5
Statements of cash flows for the years ended September 30,
1997, 1996 and 1995 F-6
Notes to financial statements F-7
Combined Joint Ventures of Paine Webber Income Properties Six Limited
Partnership:
Report of independent auditors F-17
Combined balance sheets as of September 30, 1997 and 1996 F-18
Combined statements of income and changes in ventures' capital
for the years ended September 30, 1997, 1996 and 1995 F-19
Combined statements of cash flows for the years ended
September 30, 1997, 1996 and 1995 F-20
Notes to combined financial statements F-21
Schedule III - Real Estate and Accumulated Depreciation F-30
Other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Six Limited Partnership:
We have audited the accompanying balance sheets of Paine Webber Income
Properties Six Limited Partnership as of September 30, 1997 and 1996, and the
related statements of operations, changes in partners' capital (deficit), and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paine Webber Income
Properties Six Limited Partnership at September 30, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
December 18, 1997
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1997 and 1996
(In thousands, except per Unit amounts)
ASSETS
1997 1996
---- ----
Investments in joint ventures, at equity $ 4,183 $ 5,440
Cash and cash equivalents 1,918 3,218
--------- ---------
$ 6,101 $ 8,658
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 16 $ 10
Accrued expenses and other liabilities 50 24
--------- ---------
Total liabilities 66 34
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net loss (824) (835)
Cumulative cash distributions (530) (513)
Limited Partners ($1,000 per unit;
60,000 Units issued):
Capital contributions, net of offering costs 53,959 53,959
Cumulative net loss (28,382) (29,486)
Cumulative cash distributions (18,189) (14,502)
--------- ---------
Total partners' capital 6,035 8,624
--------- ---------
$ 6,101 $ 8,658
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the years ended September 30, 1997, 1996 and 1995
(In thousands, except per Unit amounts)
1997 1996 1995
---- ---- ----
Revenues:
Interest income $ 237 $ 159 $ 161
Income from sale of second
mortgage interest - 100 200
-------- --------- --------
237 259 361
Expenses:
Management fees 121 88 88
General and administrative 264 263 333
-------- --------- --------
385 351 421
-------- --------- --------
Operating loss (148) (92) (60)
Partnership's share of ventures' income 1,263 874 322
-------- --------- --------
Net income $ 1,115 $ 782 $ 262
======== ========= ========
Per Limited Partnership Unit:
Net income $ 18.40 $ 12.89 $ 4.33
======== == ====== ========
Cash distributions $ 61.46 $ 20.00 $ 20.00
========= ========= =======
The above per Limited Partnership Unit information is based upon the 60,000
Limited Partnership Units outstanding during each year.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended September 30, 1997, 1996 and 1995
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
Balance at September 30, 1994 $(1,332) $11,338 $10,006
Cash distributions (13) (1,200) (1,213)
Net income 3 259 262
-------- ------- -------
Balance at September 30, 1995 (1,342) 10,397 9,055
Cash distributions (13) (1,200) (1,213)
Net income 8 774 782
-------- ------- -------
Balance at September 30, 1996 (1,347) 9,971 8,624
Cash distributions (17) (3,687) (3,704)
Net income 11 1,104 1,115
-------- ------- -------
Balance at September 30, 1997 $(1,353) $ 7,388 $ 6,035
======== ======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 1,115 $ 782 $ 262
Adjustments to reconcile net income to net
cash used in operating activities:
Partnership's share of ventures' income (1,263) (874) (322)
Income from sale of second mortgage
interest - (100) (200)
Changes in assets and liabilities:
Accounts payable - affiliates 6 (5) 6
Accrued expenses and other liabilities 26 (6) 9
------- ------- -------
Total adjustments (1,231) (985) (507)
------- ------- -------
Net cash used in operating activities (116) (203) (245)
------- ------- -------
Cash flows from investing activities:
Distributions from joint ventures 2,520 2,019 1,406
Cash contributions to joint ventures - - (200)
Proceeds from sale of investment in
150 Broadway Office Building - 100 200
------- ------- -------
Net cash provided by investing
activities 2,520 2,119 1,406
------- ------- -------
Cash flows from financing activities:
Distributions to partners (3,704) (1,213) (1,213)
------- ------- -------
Net cash used in financing
activities (3,704) (1,213) (1,213)
------- ------- -------
Net (decrease) increase in cash and
cash equivalents (1,300) 703 (52)
Cash and cash equivalents,
beginning of year 3,218 2,515 2,567
------- ------- -------
Cash and cash equivalents, end of year $ 1,918 $ 3,218 $ 2,515
======= ======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Financial Statements
1. Organization and Nature of Operations
-------------------------------------
Paine Webber Income Properties Six Limited Partnership (the "Partnership")
is a limited partnership organized pursuant to the laws of the State of Delaware
in April 1984 for the purpose of investing in a diversified portfolio of
income-producing properties. The Partnership authorized the issuance of units
(the "Units") of partnership interests (at $1,000 per Unit) of which 60,000 were
subscribed and issued between September 17, 1984 and September 16, 1985.
The Partnership originally invested the net proceeds of the public
offering, through joint venture partnerships, in five operating properties,
comprised of two multi-family apartment complexes, two commercial office
buildings and one retail shopping center. As discussed further in Note 5, the
sale of the Partnership's remaining interest in the 150 Broadway Office Building
was finalized during fiscal 1996. In addition, during fiscal 1992 the
Partnership forfeited its interest in the other office building, Northbridge
Office Centre, as a result of certain defaults under the terms of the property's
mortgage indebtedness. The mortgage lender took title to the Northbridge
property through foreclosure proceedings on April 20, 1992, after a protracted
period of negotiations failed to produce a mutually acceptable restructuring
agreement. Furthermore, the Partnership's efforts to recapitalize, sell or
refinance the Northbridge property were unsuccessful. The Partnership's three
remaining investments are described in Note 4.
2. Use of Estimates and Summary of Significant Accounting Policies
----------------------------------------------------------------
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 September 30, 1997 and 1996 and revenues and expenses for
each of the three years in the period ended September 30, 1997. Actual results
could differ from the estimates and assumptions used.
The accompanying financial statements include the Partnership's
investments in certain joint venture partnerships which own operating
properties. The Partnership accounts for its investments in joint venture
partnerships using the equity method because the Partnership does not have a
voting control interest in the ventures. Under the equity method the venture is
carried at cost adjusted for the Partnership's share of the venture's earnings
or losses and distributions.
For purposes of reporting cash flows, cash and cash equivalents include
all highly liquid investments with original maturities of 90 days or less.
The cash and cash equivalents appearing on the accompanying balance sheets
represent financial instruments for purposes of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments." The carrying amount of cash and cash equivalents approximates
their fair value as of September 30, 1997 and 1996 due to the short-term
maturities of these instruments.
No provision for income taxes has been made in the accompanying financial
statements as the liability for such taxes is that of the partners rather than
the Partnership. Upon sale or disposition of the Partnership's investments, the
taxable gain or the taxable loss incurred will be allocated among the partners.
In cases where the disposition of the investment involves the lender foreclosing
on the investment, taxable income could occur without distribution of cash. This
income would represent passive income to the partners which could be offset by
each partners' existing passive losses, including any passive loss carryovers
from prior years.
3. The Partnership Agreement and Related Party Transactions
--------------------------------------------------------
The General Partners of the Partnership are Sixth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group, Inc. ("PaineWebber") and Properties Associates 1985, L.P. (the "Associate
General Partner"), a Virginia limited partnership, certain limited partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated (the "Adviser"). Subject to the Managing General
Partner's overall authority, the business of the Partnership is managed by the
Adviser pursuant to an advisory contract. The Adviser is a wholly-owned
subsidiary of PaineWebber Incorporated ("PWI"). The General Partners, the
Adviser and PWI receive fees and compensation, determined on an agreed-upon
basis, in consideration of various services performed in connection with the
sale of the Units, the management of the Partnership and the acquisition,
management, financing and disposition of Partnership investments.
In connection with the acquisition of properties, the Adviser received
acquisition fees in an amount equal to 5% of the gross proceeds from the sale of
the Partnership Units. In connection with the sale of each property, the Adviser
may receive a disposition fee, payable upon liquidation of the Partnership, in
an amount equal to the lesser of 1% of the aggregate sales price of the property
or 50% of the standard brokerage commissions, subordinated to the payment of
certain amounts to the Limited Partners.
All taxable income or tax loss (other than from a Capital Transaction) of
the Partnership will be allocated 98.94802625% to the Limited Partners and
1.05197375% to the General Partners. Taxable income or loss arising from a sale
or refinancing of investment properties will be allocated to the Limited
Partners and the General Partners in proportion to the amounts of sale or
refinancing proceeds to which they are entitled; provided, that the General
Partners shall be allocated at least 1% of taxable income arising from a sale or
refinancing. If there are no sale or refinancing proceeds, taxable income or tax
loss from a sale or refinancing will be allocated 98.94802625% to the Limited
Partners and 1.05197375% to the General Partners. Notwithstanding this, the
Partnership Agreement provides that the allocation of taxable income and tax
losses arising from the sale of a property which leads to the dissolution of the
Partnership shall be adjusted to the extent feasible so that neither the General
or Limited Partners recognize any gain or loss as a result of having either a
positive or negative balance remaining in their capital accounts upon the
dissolution of the Partnership. If the General Partner has a negative capital
account balance subsequent to the sale of a property which leads to the
dissolution of the Partnership, the General Partner may be obligated to restore
a portion of such negative capital account balance as determined in accordance
with the provisions of the Partnership Agreement. Allocations of the
Partnership's operations between the General Partners and the Limited Partners
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 95% to the Limited Partners, 1.01% to the
General Partners and 3.99% to the Adviser, as an asset management fee. All sale
or refinancing proceeds shall be distributed in varying proportions to the
Limited and General Partners, as specified in the Partnership Agreement.
Under the advisory contract, the Adviser has specific management
responsibilities: to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser will be paid a basic management fee (3% of adjusted cash
flow, as defined in the Partnership Agreement) and an incentive management fee
(2% of adjusted cash flow subordinated to a noncumulative annual return to the
Limited Partners equal to 6% based upon their adjusted capital contributions),
in addition to the asset management fee described above, for services rendered.
The Adviser earned total basic and asset management fees of $121,000, $88,000
and $88,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
No incentive management fees have been earned to date. Accounts payable -
affiliates at September 30, 1997 and 1996 consists of management fees payable to
the Adviser.
Included in general and administrative expenses for the years ended
September 30, 1997, 1996 and 1995 is $111,000, $107,000 and $120,000,
respectively, representing reimbursements to an affiliate of the Managing
General Partner for providing certain financial, accounting and investor
communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $9,000, $5,000 and $9,000 (included in general and administrative expenses)
for managing the Partnership's cash assets during fiscal 1997, 1996 and 1995,
respectively.
<PAGE>
4. Investments in Joint Ventures
-----------------------------
The Partnership has investments in three joint ventures at September 30,
1997 and 1996. The joint ventures are accounted for on the equity method in the
Partnership's financial statements.
Condensed combined financial statements of these joint ventures follow:
Condensed Combined Balance Sheets
September 30, 1997 and 1996
(In thousands)
Assets
1997 1996
---- ----
Current assets $ 1,996 $ 2,097
Operating investment properties, net 42,359 44,021
Other assets 1,140 1,354
-------- --------
$ 45,495 $ 47,472
======== ========
Liabilities and Venturers' Capital
Current liabilities $ 2,691 $ 3,010
Other liabilities 278 269
Long-term debt 35,580 36,307
Partnership's share of combined capital 3,474 4,414
Co-venturers' share of combined capital 3,472 3,472
-------- --------
$ 45,495 $ 47,472
======== ========
Reconciliation of Partnership's Investment
(in thousands)
1997 1996
---- ----
Partnership's share of capital, as shown above $ 3,474 $ 4,414
Partnership's share of current
liabilities and long-term debt 709 983
Excess basis due to investment
in ventures (1) - 43
-------- --------
Investments in unconsolidated joint ventures,
at equity $ 4,183 $ 5,440
======== ========
(1)At September 30, 1996, the Partnership's investment exceeded its share
of the joint venture capital accounts and liabilities by $43,000. This
amount related to certain expenses associated with acquiring the
investments which was expensed during fiscal 1997.
<PAGE>
Condensed Combined Summary of Operations
For the years ended September 30, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
Rental revenues and
expense recoveries $ 9,648 $ 9,414 $ 9,122
Interest income 96 41 26
------- ------- -------
9,744 9,455 9,148
Property operating expenses 3,213 3,358 3,156
Depreciation and amortization 2,423 2,288 2,208
Interest expense 2,802 2,935 3,462
------- ------- -------
8,438 8,581 8,826
------- ------- -------
Net income $ 1,306 $ 874 $ 322
======= ======= =======
Partnership's share of combined income $ 1,306 $ 874 $ 322
Co-venturers' share of combined income - - -
------- ------- -------
$ 1,306 $ 874 $ 322
======= ======= =======
Reconciliation of Partnership's Share of Operations
(in thousands)
1997 1996 1995
---- ---- ----
Partnership's share of combined
income, as shown above $ 1,306 $ 874 $ 322
Amortization of excess basis (43) - -
------- ------- -------
Partnership's share of unconsolidated
ventures' income $ 1,263 $ 874 $ 322
======= ======= =======
Investments in joint ventures, at equity, represents the Partnership's net
investment in the joint venture partnerships. These joint ventures are subject
to partnership agreements which determine the distribution of available funds,
the disposition of the venture's assets and the rights of the partners,
regardless of the Partnership's percentage ownership interest in the venture.
Substantially all of the Partnership's investments in these joint ventures are
restricted as to distributions.
Investments in joint ventures, at equity, on the balance sheets is
comprised of the following joint venture investments (in thousands):
1997 1996
---- ----
Regent's Walk Associates $ 815 $ 1,289
Kentucky-Hurstbourne Associates 3,757 3,718
Gwinnett Mall Corners Associates (389) 433
-------- --------
$ 4,183 $ 5,440
======== ========
The Partnership received cash distributions from the joint ventures as set
forth below (in thousands):
1997 1996 1995
---- ---- ----
Regent's Walk Associates $ 635 $ 500 $ 276
Kentucky-Hurstbourne Associates 518 503 660
Gwinnett Mall Corners Associates 1,367 1,016 470
-------- -------- --------
$ 2,520 $ 2,019 $ 1,406
======== ======== ========
Descriptions of the properties owned by the joint ventures and the terms
of the joint venture agreements are summarized as follows:
<PAGE>
a. Regent's Walk Associates
------------------------
On May 15, 1985, the Partnership acquired an interest in Regent's Walk
Associates, a Kansas general partnership that owns and operates Regent's Walk
Apartments, a 255-unit apartment complex in Overland Park, Johnson County,
Kansas. The Partnership is a general partner in the joint venture. The
Partnership's co-venture partner is an affiliate of J. A. Peterson Enterprises,
Inc. The initial aggregate cash investment by the Partnership for its interest
was approximately $6,768,000 (including an acquisition fee of $390,000 paid to
the Adviser). The apartments are encumbered by a nonrecourse first mortgage loan
with an initial principal balance of $9,000,000 secured by the operating
investment property. The note requires monthly payments, including interest at
7.32%, with the unpaid principal balance of $8,500,163 due October 1, 2000.
The joint venture agreement provides that the Partnership will receive
from cash flow a cumulative preferred return, payable quarterly, of $164,000.
Commencing June 1, 1988, after the Partnership has received its cumulative
preferred return, the co-venturer is entitled to a preference return of $7,000
for each fiscal quarter which is cumulative only for amounts due in any one
fiscal year. Any remaining cash flow is to be used to pay interest on any notes
from the joint venture to the partners and then is to be distributed to the
partners, with the Partnership receiving 90% of the first $200,000, 80% of the
next $200,000 and 70% of any remainder. During the year ended September 30,
1997, the Partnership's preferred return aggregated $656,000, while net cash
available for distribution amounted to $681,000. The total unpaid cumulative
preferred return payable to the Partnership amounted to $2,801,000 as of
September 30, 1997. The cumulative unpaid preference return is payable only in
the event that sufficient future cash flow or sale or refinancing proceeds are
available. Accordingly, the unpaid preferred return has not been accrued in the
venture's financial statements.
Taxable income or tax loss is to be allocated to the partners based on
their proportionate share of cash distributions. Allocations of the venture's
operations between the Partnership and the co-venturer for financial accounting
purposes have been made in conformity with the allocations of taxable income or
tax loss.
If additional cash is needed by the joint venture for any reason including
payment of the Partnership's preference return, prior to June 1, 1992, the
co-venturer was required to make loans to the joint venture up to a total of
$250,000. After the joint venture has borrowed $250,000 from the co-venturer, if
the joint venture requires additional funds for purposes other than
distributions, then it will be provided 90% by the Partnership and 10% by the
co-venturer. As of September 30, 1997, the joint venture had loans payable to
the co-venturer and the Partnership aggregating $264,882 and $133,943,
respectively.
Sale and/or refinancing proceeds will be distributed as follows, after
making a provision for liabilities and obligations: (1) repayment to the
co-venturer of up to $250,000 of operating loans plus accrued interest thereon,
(2) payment of accrued interest and repayment of principal of operating notes
(pro-rata), (3) to the Partnership, payment of any preferred return arrearage,
(4) to the Partnership, an amount equal to the Partnership's gross investment
plus $560,000, (5) to the co-venturer, the amount of $500,000, (6) to payment of
a brokers fee to the partners if a sale is made to a third party, (7) to the
payment of up to $100,000 of subordinated management fees, (8) the next
$8,000,000 to the Partnership and the co-venturer in the proportions of 90% and
10%, respectively, (9) the next $4,000,000 to the Partnership and the
co-venturer in the proportions of 80% and 20%, respectively, and (10) any
remaining balance 70% to the Partnership and 30% to the co-venturer.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the Partnership upon
the occurrence of certain events. The management fee was 4% of the gross rents
collected from the property until June 1, 1990 when the fee increased to 5% of
the gross rents. Subsequent to June 1, 1988, that portion of the fees
representing 1% of gross rents shall be payable only to the extent of cash flow
remaining after the Partnership has received its preferred return. Any payments
not made pursuant to the above are payable only out of sale or refinancing
proceeds and are limited to a maximum of $100,000, as specified in the
agreement. Total subordinated management fees as of September 30, 1997 exceed
this $100,000 limitation.
<PAGE>
b. Kentucky-Hurstbourne Associates
-------------------------------
On July 25, 1985, the Partnership acquired an interest in
Kentucky-Hurstbourne Associates, a Delaware general partnership that owns and
operates Hurstbourne Apartments, a 409-unit apartment complex located in
Louisville, Kentucky. The Partnership is a general partner in the joint venture.
The Partnership's co-venture partner is an affiliate of the Paragon Group. The
initial aggregate cash investment by the Partnership for its interest was
approximately $8,716,000 (including an acquisition fee of $500,000 paid to the
Adviser). The apartments are encumbered by a nonrecourse first mortgage loan
with a balance of $8,256,000 as of September 30, 1997. This mortgage loan is
scheduled to mature in September 1999.
The joint venture agreement, as amended on May 21, 1986, provides that
cash flow shall first be distributed to the Partnership in the amount of $67,000
per month (the Partnership's preference return). The preference return was
cumulative on a year to year basis through July 31, 1989, and is noncumulative
thereafter. The next $40,000 will be distributed to the co-venturer on a
noncumulative annual basis, payable quarterly. Any cash flow not previously
distributed at the end of each fiscal year will be applied in the following
order: first, to the payment of all unpaid accrued interest on all outstanding
operating notes; the next $225,000 of annual cash flow will be distributed 90%
to the Partnership and 10% to the co-venturer; the next $260,000 of annual cash
flow will be distributed 80% to the Partnership and 20% to the co-venturer, and
any remaining balance will be distributed 70% to the Partnership and 30% to the
co-venturer. At September 30, 1997, the cumulative preference return payable to
the Partnership for years prior to July 31, 1989 was approximately $1,354,000.
Under the terms of the joint venture agreement, unpaid preference returns will
only be paid upon refinancing, sale, exchange or other disposition of the
property. Accordingly, the unpaid preferred return has not been accrued in the
venture's financial statements.
Taxable income or tax loss of the joint venture will be allocated to the
Partnership and co-venturer in proportion to the distribution of net cash flow
subject to the following: first, the co-venturer shall not be allocated less
than 10% of the net income or net loss; second, the co-venturer shall not be
allocated net profits in excess of net cash flow distributed to it during the
fiscal year. Internal Revenue Service regulations require partnership
allocations of income and loss to the respective partners to have "substantial
economic effect". This requirement resulted in the venture's income and losses
for the years ended September 30, 1997, 1996 and 1995 being allocated in a
manner different from that provided in the venture agreement such that none of
the losses were allocated to the co-venturer. Allocations of the venture's
operations between the Partnership and the co-venturer for financial accounting
purposes have been made in conformity with the actual allocation of taxable
income or tax loss.
Any proceeds arising from a refinancing, sale, exchange or other
disposition of property will be distributed first to the payment of unpaid
principal and accrued interest on the outstanding first mortgage loan. Any
remaining proceeds will be distributed in the following order: repayment of
unpaid operating loans and accrued interest thereon to the Partnership and the
co-venturer; the amount of any undistributed preference payments to the
Partnership (for the period through July 31, 1989); $10,056,000 to the
Partnership; $684,000 to the co-venturer; the amount of any unpaid subordinated
management fees to the property manager; $9,000,000 distributed 90% to the
Partnership and 10% to the co-venturer; $4,500,000 distributed 80% to the
Partnership and 20% to the co-venturer with any remaining balance distributed
70% to the Partnership and 30% to the co-venturer.
If additional cash is required by the joint venture, it may be provided by
the Partnership and the co-venturer as loans to the joint venture. Such loans
would be provided 90% by the Partnership and 10% by the co-venturer. Through
September 30, 1997, no such loans were outstanding.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the Partnership upon
the occurrence of certain events. The management fee is 5% of gross receipts
collected from the property. Two percent of such fees were subordinated to the
Partnership's and co-venturer's returns during the first three years of the
joint venture's operations. Under the terms of the joint venture agreement,
unpaid subordinated management fees total $118,000 and will only be paid upon
refinancing, sale, exchange or other disposition of the property.
c. Gwinnett Mall Corners Associates
--------------------------------
On August 28, 1985, the Partnership acquired an interest in Gwinnett Mall
Corners Associates, a Georgia general partnership that owns and operates Mall
Corners Shopping Center, a 304,000 gross leasable square foot shopping center,
located in Gwinnett County, Georgia. The Partnership is a general partner in the
joint venture. The Partnership's co-venture partner is a partnership comprised
of several individual investors.
The initial aggregate cash investment by the Partnership for its interest
was approximately $10,707,000 (including an acquisition fee of $579,000 paid to
the Adviser). The shopping center was encumbered by a construction mortgage loan
with a balance of $22,669,000 at the time of closing. The construction mortgage
loan was refinanced on November 4, 1985 with permanent financing of $17,700,000,
with the remainder paid out of escrows established at the time of closing. On
December 29, 1995, the venture obtained a new first mortgage loan with an
initial principal balance of $20,000,000 and repaid the balance of the 11.5%
nonrecourse permanent mortgage loan, which matured in December 1995. Excess loan
proceeds were used to pay transaction costs and 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 were
completed in 1996. The new loan has a 10-year term, bears interest at a rate of
approximately 7.4% per annum and requires monthly principal and interest
payments based on a 20-year amortization schedule.
The joint venture agreement provides that the Partnership will receive
from cash flow, as defined, an annual cumulative preferred return, payable
monthly, of $1,047,000. In the event cash flow, as defined, was insufficient to
pay the Partnership's preference return described above through November 1,
1990, the co-venturer was required to fund to the joint venture a monthly amount
equal to the difference between $68,000 (the guaranteed preferred return) and
cash flow, as defined. During 1990, the venture partners reached an agreement as
to the cumulative deficiencies to be funded by the co-venturer, which totalled
$665,000. Cumulative total preference distributions in arrears at September 30,
1997 amounted to $1,997,000 which includes minimum guaranteed distributions in
arrears of $308,000. The minimum guaranteed distributions are accrued in the
venture's financial statements. However, the remaining unpaid preference return
is payable only from future cash flow or sale or refinancing proceeds.
Accordingly, such amounts are not accrued in the venture's financial statements.
The co-venturer is entitled to receive quarterly non-cumulative,
subordinated returns of $38,000. Due to insufficient cash flow, the co-venturer
received no distributions for any of the three years in the period ended
September 30, 1997. Any remaining cash flow, as defined, after payments of the
co-venturer's preference return, shall be distributed first to the Initial
Property Manager (an affiliate of the co-venturer) in an amount equal to the
then unpaid subordinated management fees from prior fiscal years, then next to
pay accrued interest on any loans made by the Partnership and the co-venturer to
the joint venture. The next $500,000 is to be distributed 80% to the Partnership
and 20% to the co-venturer. The next $500,000 of cash flow in any year in excess
of such returns will be distributed 70% to the Partnership and 30% to the
co-venturer and the remaining balance is to be distributed 60% to the
Partnership and 40% to the co-venturer.
Taxable income or tax loss will be allocated to the Partnership and the
co-venturer in any year in the same proportions as the amount of cash
distributed to each of them and if no net cash flow has been distributed, 100%
to the Partnership. Allocations of the venture's operations between the
Partnership and the co-venturer for financial accounting purposes have been made
in conformity with the allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with
operations of the Joint Venture, it will be provided 70% by the Partnership and
30% by the co-venturer (operating loans). The rate of interest on such loans
shall equal the lesser of the rate announced by the First National Bank of
Boston as its prime or the maximum rate of interest permitted by applicable law.
In the event a partner shall default in its obligation to make an operating
loan, the other partner may make all or part of the loan required to be made by
the defaulting partner (default loan). Each default loan shall provide for the
accrual of interest at the rate equal to the lesser of twice the operating loan
rate or the maximum rate of interest permitted by applicable law. Through
September 30, 1996, the Partnership and the co-venturer had made operating loans
totalling $63,000 and $1,000, respectively and the Partnership had made default
loans aggregating $26,000. The entire balance of the operating and default loans
were repaid by the joint venture during fiscal 1997.
Distribution of sale and/or refinancing proceeds are to be as follows,
after making a provision for liabilities and obligations and to the extent not
previously returned to each partner: (1) payment of accrued interest and
operating notes payable to partners; (2) to the Partnership, the aggregate
amount of the Partnership's Preference Return that shall not have been
distributed, (3) to the Partnership, an amount equal to the Partnership's gross
investment, (4) the next $2,000,000 to the co-venturer, (5) to the Initial
Property Manager for any unpaid subordinated management fee that shall have
accrued, (6) the next $4,000,000 allocated to the Partnership and to the
co-venturer in the proportions 80% and 20%, respectively, (7) the next
$3,000,000 allocated to the Partnership and the co-venturer in the proportions
70% and 30%, respectively, and (8) any remaining balance shall be allocated to
the Partnership and the co-venturer 70% and 30%, respectively, until the
Partnership receives an amount equal to all net losses allocated to the
Partnership for years through calendar 1989 in which the maximum Federal income
tax rate for individuals was less than 50% times a percentage equal to 50% minus
the weighted average maximum Federal income tax rate for individuals in effect
during such years plus a simple rate of return added to each year's amount equal
to 8% per annum. Thereafter, any remaining balance shall be distributed to the
Partnership and the co-venturer 60% and 40%, respectively.
<PAGE>
The joint venture entered into a property management contract with an
affiliate of the co-venturer, cancellable at the Partnership's option upon the
occurrence of certain events. The management fee is equal to 3% of the gross
receipts, as defined, of which 1.5% was subordinated to the payment of the
Partnership's minimum guaranteed distributions through November 1990.
5. Investment in 150 Broadway Office Building
------------------------------------------
The Partnership sold its 49% interest in the Bailey N.Y. Associates joint
venture on September 22, 1989. The sales price for the Partnership's interest
was $18,000,000 which was received in the form of $4,000,000 in cash and a
$14,000,000 second mortgage note receivable. The Partnership also received a
$1,000,000 promissory note in satisfaction of preferred returns accrued but not
paid during the term of the joint venture partnership. The notes, which bore
interest at 7% per annum, were originally payable in quarterly installments of
principal and interest of $280,000, beginning in October of 1989, for the
$14,000,000 note and in quarterly installments of interest only, beginning in
April of 1991, for the $1 million note. The notes were due to mature in October
of 1995.
In the third quarter of fiscal 1991, due to a deterioration in the
commercial real estate market in New York City which adversely affected property
operations, the borrower failed to make certain payments due under the terms of
the Partnership's second mortgage note and the $1 million promissory note
received as part of the 1989 sale agreement, as well as payments due on first
and third mortgages with unaffiliated third parties. On July 22, 1991, in a
defensive reaction to the commencement of foreclosure proceedings by the first
mortgagee, the borrower filed for protection under Chapter 11 of the U. S.
Bankruptcy Code. During fiscal 1993, the Partnership agreed to a settlement
agreement involving both the first mortgage lender and the owner. Under the
terms of the plan, which was approved by the bankruptcy court and declared
effective on June 15, 1993, the Partnership received a new second mortgage loan
in the principal amount of $6 million, with base interest at 4.75% per annum, in
satisfaction of its prior second mortgage and promissory note in the combined
face amount of approximately $15 million which had a net carrying value of
$2,000,000. The terms of the plan required the Partnership to fund, by way of a
separate note, an initial amount of $800,000 to pay past due real estate taxes
and to establish an escrow reserve of $200,000 prior to December 31, 1993 for
future cash flow shortfalls of the property. This escrow reserve was funded in
the first quarter of fiscal 1994. Under the terms of the agreement, if the first
mortgagee made withdrawals from the escrow to cover any monthly debt service
shortfalls, the Partnership was required to replenish the escrow on a quarterly
basis or it would have forfeited its second mortgage position.
Subsequent to the final execution of the settlement plan, due to the
uncertainty which existed with regard to the future collection of amounts owed
under the terms of the Partnership's restructured $6 million second mortgage
loan, management determined that it would be appropriate to account for the
investment in the 150 Broadway Office Building on the cost method. Accordingly,
the Partnership recorded a provision for possible uncollectible amounts of
$2,000,000 in fiscal 1993 to write off the remaining carrying value of the
original notes receivable received from the sale of the Partnership's joint
venture interest. The cost basis of the Partnership's investment in the 150
Broadway Office Building was established at $800,000 as of September 30, 1993,
which represented the amount of the additional investment required to affect the
bankruptcy court settlement plan in fiscal 1993. Under the cost method, any
amounts received as interest on the note or advances were recorded as income
when received. Any advances required to maintain the Partnership's investment
interest in the 150 Broadway Office Building were recorded as an expense in the
period paid.
The value of the 150 Broadway Office Building was estimated to be well
below the balance of the $26 million first mortgage loan which was senior to the
Partnership's claims. Given the likelihood that large capital advances would be
required to keep the first mortgage loan current and avoid foreclosure,
management concluded during fiscal 1994 that it would not be prudent to fund any
further advances related to this investment. In light of these circumstances and
the resulting uncertainty that the Partnership would realize any amounts from
its investment interest in 150 Broadway, the Partnership recorded provisions for
possible investment loss totalling $800,000 during fiscal 1994 to fully reserve
the remaining carrying value of the investment as of September 30, 1994.
Management's discussions with the borrower concerning the operations of the 150
Broadway property during fiscal 1994 resulted in an offer to purchase the
Partnership's second mortgage loan position. During the quarter ended December
31, 1994, the Partnership agreed to assign its second mortgage interest to an
affiliate of the borrower in return for a payment of $400,000. Subsequently, the
borrower was unable to perform under the terms of this agreement and the
Partnership agreed to reduce the required cash compensation to $300,000. During
the quarter ended March 31, 1995, the Partnership received $200,000 of the
agreed upon sale proceeds. The remaining $100,000 was funded into 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. During fiscal 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 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.
6. Subsequent Event
----------------
On November 14, 1997, the Partnership distributed $526,000 to the Limited
Partners, $6,000 to the General Partners and $22,000 to the Adviser as an asset
management fee for the quarter ended September 30, 1997.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Six Limited Partnership:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of Paine Webber Income Properties Six Limited Partnership as of
September 30, 1997 and 1996, and the related combined statements of income and
changes in venturers' capital, and cash flows for each of the three years in the
period ended September 30, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of the
Combined Joint Ventures of Paine Webber Income Properties Six Limited
Partnership at September 30, 1997 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
November 20, 1997
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1997 and 1996
(In thousands)
ASSETS
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 825 $ 630
Prepaid expenses 27 117
Accounts receivable - affiliates 11 17
Accounts receivable from tenants and others 193 125
Cash reserve for capital expenditures 729 1,061
Cash reserve for insurance and taxes 211 147
-------- ---------
Total current assets 1,996 2,097
Cash reserve for tenant security deposits 63 53
Capital contributions receivable from
Mall Corners III 665 665
Operating investment properties, at cost:
Land 9,941 9,938
Buildings, improvements and equipment 55,715 55,202
-------- ---------
65,656 65,140
Less accumulated depreciation (23,297) (21,119)
-------- ---------
Net operating investment properties 42,359 44,021
Deferred expenses, net of accumulated
amortization of $3,055 in 1997 and $2,776 in 1996 412 636
-------- ---------
$ 45,495 $ 47,472
======== =========
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Distributions payable to venturers $ 575 $ 761
Notes payable to venturers 399 488
Current portion of long-term debt 727 675
Accounts payable and accrued expenses 62 68
Accounts payable - affiliate 30 29
Accrued interest 702 768
Accrued real estate taxes 62 106
Other liabilities 134 115
-------- ---------
Total current liabilities 2,691 3,010
Long-term debt 35,580 36,307
Tenant security deposits 278 269
Venturers' capital 6,946 7,886
-------- ---------
$ 45,495 $ 47,472
======== =========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINEWEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED STATEMENTS OF INCOME AND CHANGES IN VENTURERS' CAPITAL
For the years ended September 30, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
Revenues:
Rental income and expense
reimbursements $ 9,648 $ 9,414 $ 9,122
Interest income 96 41 26
-------- --------- ---------
9,744 9,455 9,148
Expenses:
Interest 2,802 2,935 3,462
Depreciation 2,178 2,049 1,986
Property taxes 575 639 653
Insurance 110 118 137
Management fees 353 351 333
Maintenance and repairs 717 727 650
Utilities 594 554 519
General and administrative 246 335 270
Salaries 584 606 560
Amortization 245 240 222
Other 34 28 34
-------- --------- ---------
8,438 8,581 8,826
-------- --------- ---------
Net income 1,306 874 322
Distributions to venturers (2,246) (2,081) (1,296)
Venturers' capital, beginning of year 7,886 9,093 10,067
-------- --------- ---------
Venturers' capital, end of year $ 6,946 $ 7,886 $ 9,093
======== ========= ========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1997, 1996 and 1995
Increase (Decrease) in Cash
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 1,306 $ 874 $ 322
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,423 2,288 2,208
Amortization of deferred financing costs 34 34 -
Changes in assets and liabilities:
Prepaid expenses 90 (66) 2
Accounts receivable - affiliates 6 4 (6)
Accounts receivable from tenants
and others (68) (51) 9
Cash reserve for capital expenditures 332 (549) 122
Cash reserve for insurance and taxes (64) 138 (23)
Cash reserve for tenant security deposits (10) (13) (20)
Accounts payable and accrued expenses (6) (69) 25
Accounts payable - affiliate 1 3 (2)
Accrued interest (66) 57 (12)
Accrued real estate taxes (44) (65) 7
Other liabilities 19 13 9
Tenant security deposits 9 1 (8)
------- ------- --------
Total adjustments 2,656 1,725 2,311
------- ------- --------
Net cash provided by
operating activities 3,962 2,599 2,633
------- ------- --------
Cash flows from investing activities:
Additions to operating investment
properties (516) (2,218) (1,029)
Payment of leasing commissions (55) (171) (67)
Funding of renovation escrow account - - (500)
------- ------- --------
Net cash used in investing
activities (571) (2,389) (1,596)
------- ------- --------
Cash flows from financing activities:
Distributions to venturers (2,432) (1,819) (1,406)
Proceeds from issuance of long-term debt - 20,000 9,000
Debt acquisition costs - (499) (372)
Advances from venturers - - 200
Payments to venturers for notes payable (89) - -
Principal payments on long-term debt (675) (17,742) (8,592)
------- ------- --------
Net cash used in financing
activities (3,196) (60) (1,170)
------- ------- --------
Net increase (decrease) in cash and
cash equivalents 195 150 (133)
Cash and cash equivalents,
beginning of year 630 480 613
------- ------- --------
Cash and cash equivalents, end of year $ 825 $ 630 $ 480
======= ======= ========
Cash paid during the year for interest $ 2,834 $ 2,844 $ 3,515
======= ======= ========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Combined Financial Statements
1. Organization and Nature of Operations
-------------------------------------
The accompanying financial statements of the Combined Joint Ventures of
Paine Webber Income Properties Six Limited Partnership (PWIP6) include the
accounts of PWIP6's three unconsolidated joint venture investees as of September
30, 1997. Gwinnett Mall Corners Associates, a Georgia general partnership, was
organized on August 28, 1985, by PWIP6 and Mall Corners III, Ltd., a Georgia
limited partnership (MC III), to acquire and operate a 304,000 square foot
shopping center located in Gwinnett County, Georgia. Regent's Walk Associates
was organized on April 25, 1985 in accordance with a joint venture agreement
between PWIP6 and Peterson Interests of Kansas, Inc. (PIK). The joint venture
was organized to purchase and operate a 255-unit apartment complex known as
Regent's Walk Apartments in Overland Park, Kansas. The apartment complex was
purchased on May 15, 1985. Kentucky-Hurstbourne Associates was organized on July
25, 1985 in accordance with a joint venture agreement between PWIP6 and
Hurstbourne Apartments Company, Ltd. (Limited Partnership). The joint venture
was organized to purchase and operate a 409-unit apartment complex known as
Hurstbourne, Kentucky. The financial statements of the Combined Joint Ventures
are presented in combined form due to the nature of the relationship between the
co-venturers and PWIP6, which owns a majority financial interest but does not
have voting control in each joint venture.
2. Use of Estimates and Summary of Significant Accounting Policies
---------------------------------------------------------------
The accompanying combined 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 September 30, 1997 and 1996 and revenues
and expenses for each of the three years in the period ended September 30, 1997.
Actual results could differ from the estimates and assumptions used.
Basis of presentation
---------------------
The records of two of the combined joint ventures, Gwinnett Mall Corners
Associates and Kentucky-Hurstbourne Associates, are maintained on an income tax
basis of accounting and adjusted to generally accepted accounting principles and
reflect the necessary adjustments, principally to depreciation and amortization.
The records of Regent's Walk Associates are maintained in accordance with
generally accepted accounting principles.
Revenue Recognition
-------------------
The Combined Joint Ventures lease space at the operating investment
properties under short-term and long-term operating leases. Rental revenues are
recognized on a straight-line basis as earned pursuant to the terms of the
leases.
Operating investment properties
-------------------------------
The operating investment properties are carried at cost, reduced by
accumulated depreciation, or an amount less than cost if indicators of
impairment are present in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which was adopted in fiscal 1997. SFAS
No. 121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Management generally assesses indicators of impairment by a
review of independent appraisal reports on each operating investment property.
Such appraisals make use of a combination of certain generally accepted
valuation techniques, including direct capitalization, discounted cash flows and
comparable sales analysis.
Depreciation expense is computed on the straight-line basis over the
estimated useful life of the buildings, equipment and tenant improvements,
generally 5 to 30 years. Payments made to PWIP6 under a master lease agreement
to guarantee a preference return were recorded as reductions of the basis of the
Mall Corners operating investment property. Professional fees, including
acquisition fees paid to a related party (Note 3), and other costs have been
capitalized and are included in the cost of the operating investment properties.
<PAGE>
Income tax matters
------------------
The Combined Joint Ventures are not subject to U.S. federal or state
income taxes. The partners report their proportionate share of the joint
venture's taxable income or tax loss in their respective tax returns; therefore,
no provision for income taxes is included in the accompanying financial
statements.
Deferred expenses
-----------------
Lease commissions are being amortized over the shorter of ten years or the
remaining term of the related lease on a straight-line basis. Permanent loan
fees and related debt acquisition costs are being amortized on a straight-line
basis, which approximates the effective interest method, over the term of the
related mortgage loans. Organization costs represent legal fees associated with
the formation of the joint venture and were amortized over five years on a
straight-line basis.
Cash and cash equivalents
-------------------------
For purposes of reporting cash flows, the Combined Joint Ventures consider
all highly liquid investments with original maturities of 90 days of less to be
cash equivalents.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents and reserved cash
approximate their fair values due to the short-term maturities of these
instruments. It is not practicable for management to estimate the fair value of
the receivable from Mall Corners III or notes payable to venturers without
incurring excessive costs because the obligations were provided in non-arm's
length transactions without regard to fixed maturities, collateral issues or
other traditional conditions and covenants. The fair value of long-term debt is
estimated, where applicable, using discounted cash flow analyses, based on the
current market rate for similar types of borrowing arrangements (see Note 6).
3. Partnership Agreements and Related Party Transactions
-----------------------------------------------------
Gwinnett Mall Corners Associates
--------------------------------
The Mall Corners joint venture agreement provides that PWIP6 will receive
from cash flow, as defined, a annual cumulative preferred return, payable
monthly, of $1,047,000. In the event cash flow, as defined, was insufficient to
pay the PWIP6 preference return described above through November 1, 1990, MC III
was required to fund the joint venture a monthly amount equal to the difference
between $68,000 (the guaranteed preferred return) and cash flow, as defined.
PWIP6 and MC III were in disagreement as to the amount of deficiencies to be
funded by MC III through September 30, 1989. During 1990, the partners reached
an agreement as to the cumulative deficiencies to be funded by MC III. This
agreement resulted in a decrease to the receivable from MC III and a decrease in
MC III's capital of $245,000. The joint venture made distributions to PWIP6 of
$1,047,000 in fiscal 1997. Cumulative preferred distributions in arrears at
September 30, 1997 amounted to approximately $1,997,000 including minimum
guaranteed distributions in arrears of $308,000. The minimum guaranteed
distributions are accrued in the accompanying financial statements. However, the
remainder of the cumulative preferred distributions are payable only from future
cash flow or sale or refinancing proceeds. Accordingly, such amounts are not
accrued in the accompanying financial statements.
The receivable from MC III totaled $665,000 at September 30, 1997 and
1996. The receivable is guaranteed by the partners of MC III, however, the
venture is subject to credit loss to the extent the guarantors are unable to
fulfill their obligation. The venture does not anticipate nonperformance by MC
III due to their interest in the venture and the underlying value of the
venture's assets.
MC III is entitled to receive quarterly non-cumulative, subordinated
returns of $38,000 each quarterly period, subject to available cash flow. Due to
insufficient cash flow, MC III received no distributions for any of the three
years in the period ended September 30, 1997. Any remaining cash flow, as
defined, after payment of MC III's preferred return, is to be distributed to the
Initial Property Manager (an affiliate of MC III) in an amount equal to the then
unpaid subordinated management fees from prior fiscal years, then next to pay
accrued interest on any loans made by PWIP6 and MC III to the joint venture. The
next $500,000, if any, is to be distributed 80% to PWIP6 and 20% to MC III, the
second $500,000, if any, is to be distributed 70% to PWIP6 and 30% to MC III and
the remaining balance, if any, is to be distributed 60% to PWIP6 and 40% to MC
III.
Taxable income or tax loss is allocated to PWIP6 and MC III based on the
proportionate percentage of net cash flow distributed; if no net cash flow has
been distributed, 100% to PWIP6. Allocations of the joint venture's operations
between PWIP6 and MC III for financial reporting purposes have been made in
conformity with the allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with
operations of the joint venture, it is to be provided 70% by PWIP6 and 30% by MC
III in the form of operating loans. The rate of interest shall equal the lesser
of the rate announced by the First National Bank of Boston as its prime rate or
the maximum rate of interest permitted by applicable law. In the event a partner
shall default in its obligation to make an operating loan, the other partner may
make all or part of the loan required to be made by the defaulting partner
(default loan). Each default loan shall provide for the accrual of interest at
the rate equal to the lesser of twice the operating loan rate or the maximum
rate of interest permitted by applicable law. PWIP6 made a temporary advance of
$200,000 to the venture during fiscal 1995 to fund a good faith deposit required
in connection with the refinancing transaction described in Note 6. Such funds
were returned to PWIP6 in fiscal 1996 subsequent to the closing of the
refinancing transaction. There were no operating/default loans required in
fiscal 1997 or 1996. Operating/default loans of $89,000 were required in fiscal
years prior to 1990 (see Note 5). These loans were repaid during fiscal 1997.
Total interest incurred and expensed for these loans amounted to $1,000 in
fiscal 1997 and $12,000 in each of fiscal 1996 and 1995. The total accrued
interest payable on the loans at September 1997 and 1996 was $0 and $99,000,
respectively.
Distribution of sale and/or refinancing proceeds are to be as follows,
after making a provision for liabilities and obligations and to the extent not
previously returned to each partner: (1) payment of accrued interest and
operating notes payable to partners (2) to PWIP6, the aggregate amount of the
PWIP6 Preference Return that shall not have been distributed, (3) to PWIP6, an
amount equal to PWIP6's gross investment, (4) the next $2,000,000 to MC III, (5)
to the Initial Property Manager, as defined below, for any unpaid subordinated
management fees that shall have accrued, (6) the next $4,000,000 allocated to
PWIP6 and MC III in the proportions 80% and 20%, respectively, (7) the next
$3,000,000 allocated to PWIP6 and MC III in the proportions of 70% and 30%,
respectively, and (8) any remaining balance shall be allocated to PWIP6 and MC
III 70% and 30%, respectively, until PWIP6 receives an amount equal to all net
losses allocated to PWIP6 for the years through calendar 1989 in which the
maximum Federal income tax rate for individuals was less than 50% times a
percentage equal to 50% minus the weighted average maximum federal income tax
rate for individuals in effect during such years plus a simple rate of return
added to each year's amount equal to 8% per annum. Thereafter, any remaining
balance shall be distributed to PWIP6 and MC III in the ratios of 60% and 40%,
respectively.
The joint venture has entered into a property management contract with an
affiliate of MC III (the Initial Property Manager), cancellable at PWIP6's
option upon the occurrence of certain events. The management fee is equal to 3%
of gross rents, as defined, of which 1.5% was subordinated to the receipt by
PWIP6 of its guaranteed preferred return through November 1990. Management fees
incurred in 1997, 1996 and 1995 were $103,000, $97,000 and $94,000,
respectively. The property manager has provided maintenance and leasing services
to the joint venture totalling $85,000, $199,000 and $105,000 in 1997, 1996 and
1995, respectively.
PaineWebber Properties Incorporated, the adviser to PWIP6 and an affiliate
of Paine Webber Incorporated, received an acquisition fee of $579,000 in
connection with PWIP6's original investment in the joint venture and the
acquisition of the property.
Included in buildings and deferred expenses are $1,047,000 and $115,000,
respectively of costs paid to the Initial Property Manager prior to the
formation of the joint venture. These costs have been recorded as part of the
basis of the assets contributed to the joint venture by MC III as its capital
contribution. Pursuant to the joint venture agreement, MC III was required to
fund initial tenant improvements and lease commissions through capital
contributions.
In accordance with the joint venture agreement, certain amounts of cash
have been appropriated and are restricted as to use. Pursuant to the joint
venture agreement, an initial amount of $15,000 plus 1% of gross rental revenue
thereafter, are to be allocated to the reserve for capital expenditures. The
reserve was underfunded by approximately $58,000 and $115,000 at September 30,
1997 and 1996, respectively (see Note 5). No amounts are required to be
allocated at any time the reserve balance exceeds $250,000. The venture's
reserve for insurance and real estate taxes was underfunded by approximately
$41,000 and $49,000 at September 30, 1997 and 1996, respectively.
Regent's Walk Associates
------------------------
The Regent's Walk joint venture agreement provides that PWIP6 will receive
from cash flow a cumulative preferred return, payable quarterly, of $164,000.
Commencing June 1, 1988, after PWIP6 has received its cumulative preferred
return, PIK is entitled to a preference return of $7,000 for each fiscal quarter
which is cumulative only for amounts due in any one fiscal year. Any remaining
cash flow is to be used to pay interest on any notes from the venturers and then
is to be distributed to the partners, with PWIP6 receiving 90% of the first
$200,000, 80% of the next $200,000 and 70% of any remainder.
During the year ended September 30, 1997, PWIP6's preferred return
amounted to $656,000, while net cash available for distribution amounted to
$681,000. The total unpaid cumulative preferred return payable to PWIP6 amounted
to $2,801,000 as of September 30, 1997. Such amount is payable only in the event
that sufficient future cash flow or sale or refinancing proceeds are available.
Accordingly, the unpaid preferred return has not been accrued in the
accompanying financial statements.
Income or loss is to be allocated to the partners based on their
proportionate share of cash distributions.
Under the terms of the venture agreement, PIK was required to make loans
to the joint venture up to a total of $250,000 for additional cash needed by the
joint venture for any reason including payment of the PWIP6 preference return,
prior to June 1, 1992. After the joint venture has borrowed $250,000 from PIK,
if the joint venture requires additional funds for purposes other than
distributions, then it will be provided 90% by PWIP6 and 10% by PIK (see Note
5).
Distribution of sale and/or refinancing proceeds will be distributed as
follows, after making a provision for liabilities and obligations: (1) repayment
to PIK of up to $250,000 of operating loans plus accrued interest thereon, (2)
payment of accrued interest and repayment of principal of operating notes
(pro-rata), (3) payment to PWIP6 of any preferred return arrearage, (4) to
PWIP6, an amount equal to PWIP6's gross investment plus $560,000, (5) to PIK,
the amount of $500,000, (6) to payment of a brokers fee to the partners if a
sale is made to a third party, (7) to the payment of up to $100,000 of
subordinated management fees, (8) the next $8,000,000 to PWIP6 and PIK in the
proportions of 90% and 10%, respectively, (9) the next $4,000,000 to PWIP6 and
PIK in the proportions of 80% and 20%, respectively, and (10) any remaining
balance 70% to PWIP6 and 30% to PIK.
The venture agreement provides for a capital reserve account to be used
solely for specified enhancement programs, capital expenditures, or at the
discretion of PWIP6 up to $150,000 of capital or operating expenses of the joint
venture. Such account was established in the initial amount of $845,000 and was
funded from partner capital contributions. An additional $124,000 was added by
capital contributions from PWIP6 during the year ended September 30, 1986;
$49,000 was added by partners' loans in 1987, and $100,000 was added by
partners' loans in 1988. Beginning in January 1991, for each month of operations
an amount equal to 3% of the total amount of estimated operating expenses in the
budget as approved by the partners, is to be added to the reserve. During the
period October 1, 1991 through September 30, 1997, capital expenditures exceeded
required deposits to the reserve and therefore no additions to the reserve have
been made during this most recent three-year period. The balance in the reserve
account at both September 30, 1997 and 1996 was $11,000 and was invested in a
savings account.
The joint venture entered into a property management contract with an
affiliate ("property manager") of PIK. The management fee was 4% of gross rents,
as defined until June 1, 1990 when the fee increased to 5% of gross rents.
Subsequent to June 1, 1988, that portion of the fees representing 1% of gross
rents shall be payable only to the extent of cash flow remaining after PWIP6 has
received its preferred return. Any payments not made pursuant to the above are
payable only out of sale or refinancing proceeds as specified in the agreement.
As of September 30, 1997, deferred management fees exceed the $100,000
limitation referred to above.
At September 30, 1997 and 1996, $9,000 and $8,000, respectively, was due
to the property manager for management fees. For the years ended September 30,
1997, 1996 and 1995 property management fees totalled $102,000, $103,000 and
$97,000, respectively. During 1997, 1996 and 1995, management fees of $25,000,
$25,000 and $24,000, respectively, were subordinated as described above.
PaineWebber Properties Incorporated, the advisor to PWIP6 and an affiliate
of PaineWebber Incorporated, was paid an acquisition fee of $390,000 in
connection with PWIP6's investment in the joint venture.
Kentucky - Hurstbourne Associates
---------------------------------
The Hurstbourne joint venture agreement as amended on May 21, 1986
provides that cash flow shall first be distributed to PWIP6 in the amount of
$67,000 per month (PWIP6 preference return). The preference return is cumulative
on a year to year basis through July 31, 1989 and is cumulative on a
month-to-month basis, not annually, thereafter. The next $40,000 each year will
be distributed to the Limited Partnership on a noncumulative annual basis,
payable quarterly (Limited Partnership preference return).
At the end of each fiscal year, any cash flow not previously distributed
will be applied in the following order: first, to the payment of all unpaid
accrued interest on all outstanding operating notes; the next $225,000 of annual
cash flow will be distributed 90% to PWIP6 and 10% to the Limited Partnership;
the next $260,000 of annual cash flow will be distributed 80% to PWIP6 and 20%
to the Limited Partnership, and any remaining balance will be distributed 70% to
PWIP6 and 30% to the Limited Partnership.
After the end of each month, during a year in which PWIP6 has not received
their cumulative preference return, the venture shall distribute to the PWIP6
the lesser of (a) the excess, if any, of the cumulative PWIP6 preference return
over the aggregate amount of net cash flow previously distributed to PWIP6
during the year or (b) any net cash flow distributed to the Limited Partnership
during the year.
The cumulative preference return of PWIP6 in arrears at September 30, 1997
for unpaid preference returns through July 31, 1989 is approximately $1,354,000.
Under the terms of the venture agreement, any unpaid returns will only be paid
upon refinancing, sale, exchange or other disposition of the property. Unpaid
preference returns are, therefore, not reflected in the financial position of
the joint venture.
The taxable income or tax losses of the joint venture will be allocated to
PWIP6 and the Limited Partnership in proportion to the distribution of net cash
flow, provided that the Limited Partnership shall not be allocated less than ten
percent of the taxable net income or tax losses, and the Limited Partnership
shall not be allocated net profits in excess of net cash flow distributed to it
during the fiscal year.
Any proceeds arising from a refinancing, sale, exchange or other
disposition of property will be distributed first to the payment of unpaid
principal and accrued interest on any outstanding notes. Any remaining proceeds
will be distributed in the following order: repayment of unpaid principal and
accrued interest on all outstanding operating notes to PWIP6 and the Limited
Partnership; the amount of any undistributed preference payments to PWIP6 (for
the period through July 31, 1989); $10,056,000 to PWIP6; $684,000 to the Limited
Partnership; the amount of any unpaid subordinated management fees to the
property manager; $9,000,000 distributed 90% to PWIP6 and 10% to the Limited
Partnership; $4,500,000 distributed 80% to PWIP6 and 20% to the Limited
Partnership; with any remaining balance distributed 70% to PWIP6 and 30% to the
Limited Partnership.
If additional cash is required in connection with the joint venture, it
may be provided by PWIP6 and the Limited Partnership as loans (evidenced by
operating notes) to the venture. Such loans would be provided 90% by PWIP6 and
10% by the Limited Partnership. No such loans were outstanding as of September
30, 1997.
The venture has a property management contract with an affiliate (property
manager) of the Limited Partnership. The management fee to the property manager
is 5% of gross rents. Through July 30, 1988, 40% of the manager's fee was
subordinated to receipt by PWIP6 and the Limited Partnership of their preference
returns. At September 30, 1997 and 1996, cumulative subordinated management fees
were approximately $118,000. Under terms of the venture agreement and as stated
in Note 3, unpaid subordinated management fees will only be paid upon
refinancing, sale, exchange or other disposition of the property.
Amounts receivable from property manager of $11,000 and $17,000 at
September 30, 1997 and 1996, respectively, represents the balances in certain
intercompany accounts maintained between the property managers and the joint
ventures. For the years ended September 30, 1997, 1996 and 1995 property
management fees totaled $148,000, $152,000 and $142,000, respectively.
PaineWebber Properties Incorporated, the advisor to PWIP6 and an affiliate
of PaineWebber Incorporated, was paid an acquisition fee of $500,000 in
connection with PWIP6's investment in the joint venture.
4. Leasing Activities
-----------------
The Gwinnett Mall Corners joint venture derives its income from
noncancellable operating leases which expire on various dates through the year
2004. The operating property was approximately 90% leased as of September 30,
1997. The approximate future minimum lease payments to be received under
noncancellable operating leases in effect as of September 30, 1997 are as
follows (in thousands):
Year ending September 30:
1998 $ 3,219
1999 2,930
2000 2,652
2001 1,967
2002 1,637
Thereafter 4,196
---------
$ 16,601
=========
Two of the venture's tenants individually comprise more than 10% of the
venture's fiscal 1997 base rental income. These tenants operate in the clothing
and household retailing and the furniture retailing industries. In addition,
three of the venture's tenants individually comprise more than 10% of the
Partnership's total future minimum rents. Their industry and future minimum
rents are as follows (in thousands):
Clothing and household retaile $4,040
Craft supply retailer $1,882
Cinema $1,791
<PAGE>
5. Notes Payable to Venturers
--------------------------
Notes payable to the venturers of Gwinnett Mall Corners Associates
represented operating/default loans received from PWIP6 and MC III for operating
purposes and consisted of the following at September 30, 1996 (in thousands):
Total Operating Default
----- --------- -------
Due to PWIP6 $ 88 $ 62 $ 26
Due to MC III 1 1 -
---- ---- ----
$ 89 $ 63 $ 26
==== ==== ====
These notes payable were paid off during the year ended September 30,
1997.
Regarding Regent's Walk Associates, during the years ended September 30,
1988 and 1987, PIK loaned the venture $25,000 and $225,000, respectively, under
the terms of the venture agreement. Also, during those same years, the venture
partners advanced $100,000 and $49,000, respectively, for additional renovation
costs with PWIP6 providing 90% and PIK providing 10%.
Notes payable to venturers generally bear interest at the rate of prime
plus 1% (9.50% at September 30, 1997). Interest incurred and expensed on notes
payable to venturers for the years ended September 30, 1997, 1996 and 1995
totalled $38,000, $49,000 and $50,000, respectively.
6. Long-term Debt
--------------
Long-term debt consists of the following amounts (in thousands):
1997 1996
---- ----
Gwinnett Mall Corners Associates'
nonrecourse mortgage note secured by a
Deed to Secure Debt and Security
Agreement on the joint venture's
property. The note has a term of 10
years, bears interest at a rate of 7.4%
per annum and requires monthly principal
and interest payments based on a 20 year
amortization schedule. The loan matures
on December 1, 2005. The fair value of
this note payable approximated its
carrying value as of September 30, 1997
and 1996. $ 19,221 $ 19,700
Kentucky - Hurstbourne Associates'
nonrecourse promissory note secured by
the venture's operating property; bore
interest at 12.625% through September
30, 1992. In 1992, the Partnership
exercised an option to extend the
maturity date of the loan to September
30, 1999 with a 7.695% interest rate.
Principal and interest payments of $62
are due monthly, with a balloon payment
of $8,022 due at maturity. The fair
value of this note payable approximated
its carrying value as of September 30,
1997 and 1996. 8,256 8,361
Regent's Walk Associates'
nonrecourse first mortgage note secured
by the venture's operating investment
property. The first mortgage loan bears
interest at an annual rate of 7.32% and
requires principal and interest payments
of $62 on a monthly basis through
maturity on October 1, 2000, at which
time a balloon payment of $8,500 will be
due. The fair value of this note payable
approximated its carrying value as of
September 30, 1997 and 1996. 8,830 8,921
-------- --------
36,307 36,982
Less current portion (727) (675)
-------- --------
$ 35,580 $ 36,307
======== ========
<PAGE>
On December 29, 1995, Gwinnett Mall Corners Associates obtained a new
first mortgage loan with an initial principal balance of $20,000,000 and repaid
its maturing first mortgage loan obligation, which had an outstanding balance of
approximately $17,246,000 at the time of closing. Excess loan proceeds were used
to pay transaction costs and 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 were completed in
1996.
Scheduled maturities of long-term debt for the next five years and
thereafter are as follows (in thousands):
1998 $ 727
1999 8,805
2000 711
2001 9,153
2002 691
Thereafter 16,220
--------
$ 36,307
========
<PAGE>
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1997
(In thousands)
<CAPTION>
Initial Cost to Gross Amount at Which Carried at Life on Which
Partnership Costs Close of period Depreciation
Buildings Capitalized Buildings, in Latest
Improvements (Removed) Improvements Income
& Personal Subsequent to & Personal Accumulated Date of Date Statement
Description Encumbrances Land Property Acquisition Land Property Total Depreciation Construction Acquired is Computed
- ---------- ------------ ---- -------- ----------- ---- -------- ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping
Center
Gwinnett
County, GA $19,221 $ 7,039 $21,509 $2,348 $7,039 $23,857 $30,896 $10,143 1985 8/28/85 5 to 30 Yrs.
Apartment
Complex -
Louisville, KY 8,256 1,654 14,996 1,793 1,810 16,633 18,443 6,604 1973 7/25/85 5 to 30 Yrs.
Apartment
Complex -
Overland
Park, KS 8,830 1,092 13,922 1,303 1,092 15,225 16,317 6,550 1970 5/15/85 5 to 30 Yrs.
------- ------- ------- ------- ------ ------- ------- -------
$36,307 $ 9,785 $50,427 $5,444 $9,941 $55,715 $65,656 $23,297
======= ======= ======= ====== ====== ======= ======= =======
Notes:
(A) The aggregate cost of real estate owned at September 30, 1997 for Federal income tax purposes is approximately $57,708,000.
(B) See Note 5 of Notes to Combined Financial Statements for a description of the long-term mortgage debt encumbering the operating
investment properties.
(C) Reconciliation of real estate owned:
1997 1996 1995
---- ---- ----
Balance at beginning of year $65,140 $63,114 $62,101
Additions and improvements 516 2,218 1,029
Disposals - (192) (16)
------- ------- -------
Balance at end of year $65,656 $65,140 $63,114
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $21,119 $19,262 $17,292
Depreciation expense 2,178 2,049 1,986
Disposals - (192) (16)
------- ------- -------
Balance at end of year $23,297 $21,119 $19,262
======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended September 30, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,918
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,918
<PP&E> 4,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,101
<CURRENT-LIABILITIES> 66
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,035
<TOTAL-LIABILITY-AND-EQUITY> 6,101
<SALES> 0
<TOTAL-REVENUES> 1,500
<CGS> 0
<TOTAL-COSTS> 385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,115
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115
<EPS-PRIMARY> 18.40
<EPS-DILUTED> 18.40
</TABLE>
