UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from_______to _______.
Commission File Number : 0-13129
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2829686
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Investments in joint ventures, at equity $ 3,537 $ 4,183
Cash and cash equivalents 1,615 1,918
--------- ----------
$ 5,152 $ 6,101
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 16 $ 16
Accrued expenses and other liabilities 20 50
Partners' capital 5,116 6,035
--------- ----------
$ 5,152 $ 6,101
========= ==========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1996 $(1,347) $ 9,971
Cash distributions (12) (3,161)
Net income 7 653
------- -------
Balance at June 30, 1997 $(1,352) $ 7,463
======= =======
Balance at September 30, 1997 $(1,353) $ 7,388
Cash distributions (17) (1,578)
Net income 7 669
------- -------
Balance at June 30, 1998 $(1,363) $ 6,479
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three and nine months ended June 30, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest income $ 26 $ 27 $ 84 $ 113
Expenses:
Management fees 39 39 116 83
General and administrative 62 72 197 196
------- ------- -------- -------
101 111 313 279
------- ------- -------- -------
Operating loss (75) (84) (229) (166)
Partnership's share of
unconsolidated
ventures' income 227 330 905 826
------- ------- -------- --------
Net income $ 152 $ 246 $ 676 $ 660
======= ======= ======= =======
Net income per Limited
Partnership Unit $ 2.51 $ 4.05 $ 11.15 $ 10.88
======= ======= ======= =======
Cash distributions per Limited
Partnership Unit $ 8.77 $ 8.69 $ 26.31 $ 52.69
======= ======= ======= =======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 60,000 Units of Limited Partnership Interest outstanding for each
period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 676 $ 660
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (905) (826)
Changes in assets and liabilities:
Accounts payable - affiliates - 7
Accrued expenses and other liabilities (30) 6
------- -------
Total adjustments (935) (813)
------- -------
Net cash used in operating activities (259) (153)
Cash flows from investing activities:
Distributions from joint ventures 1,551 1,818
Cash flows from financing activities:
Cash distributions to partners (1,595) (3,173)
------- -------
Net decrease in cash and cash equivalents (303) (1,508)
Cash and cash equivalents, beginning of period 1,918 3,218
------- -------
Cash and cash equivalents, end of period $ 1,615 $ 1,710
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
-------
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in the
Partnership's Annual Report for the year ended September 30, 1997. In the
opinion of management, the accompanying consolidated financial statements, which
have not been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected in
the accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of June 30, 1998 and September 30, 1997 and revenues and
expenses for the three and nine months ended June 30, 1998 and 1997. Actual
results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
The Adviser earned total management fees of $116,000 and $83,000 for the
nine-month periods ended June 30, 1998 and 1997, respectively. Accounts payable
- - affiliates at both June 30, 1998 and September 30, 1997 consists of management
fees of $16,000 payable to the Adviser.
Included in general and administrative expenses for the nine-month periods
ended June 30, 1998 and 1997 is $83,000 and $84,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended June 30, 1998 and 1997 is $4,000 and $8,000, respectively, representing
fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc.,
for managing the Partnership's cash assets.
3. Investments in Joint Ventures
-----------------------------
The Partnership has investments in three joint ventures which own
operating investment properties, as discussed further in the Annual Report. The
joint ventures are accounted for on the equity method because the Partnership
does not have a voting control interest in the ventures. Under the equity method
the ventures are carried at cost adjusted for the Partnership's share of the
ventures' earnings and losses and distributions.
Summarized operations of the three joint ventures for the three and nine
months ended June 30, 1998 and 1997 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended June 30, 1998 and 1997
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $2,376 $2,376 $7,215 $7,081
Interest and other income 47 36 119 88
------ ------ ------ ------
2,423 2,412 7,334 7,169
Property operating expenses 895 802 2,536 2,454
Interest expense 676 691 2,038 2,083
Depreciation and amortization 625 585 1,855 1,795
------ ------ ------ ------
2,196 2,078 6,429 6,332
------ ------ ------ ------
Net income $ 227 $ 334 $ 905 $ 837
====== ====== ====== ======
<PAGE>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Net income:
Partnership's share of
combined income $ 227 $ 334 $ 905 $ 837
Co-venturers' share of
combined income - - - -
------ ------ ------ ------
$ 227 $ 334 $ 905 $ 837
====== ====== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended June 30, 1998 and 1997
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
combined income, as
shown above $ 227 $ 334 $ 905 $ 837
Amortization of excess basis - (4) - (11)
------- ------- ------- -------
Partnership's share of
unconsolidated
ventures' income $ 227 $ 330 $ 905 $ 826
======= ======= ======= =======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended September 30, 1997 under the heading "Certain Factors Affecting
Future Operating Results", which could cause actual results to differ materially
from historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As discussed further in the Annual Report, management is focusing on
potential disposition strategies for the Partnership's three remaining
investment properties. Management believes that the market values of the
Partnership's two multi-family residential properties may be at or near their
peak for the current market cycle. As a result, management believes it would be
appropriate to explore potential opportunities to sell one or both of these
properties in the near term. The investment in the Mall Corners Shopping Center
currently provides the majority of the Partnership's net cash flow and would
likely be held pending the dispositions of the two apartment properties. In
addition, as discussed further below, there are a number of leasing issues to be
addressed at Mall Corners before a sale of the property may 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 1 to 2 years. There are no assurances, however, that
the Partnership will be able to complete the sale of its remaining assets within
this time frame.
As of June 30, 1998, the Mall Corners Shopping Center, located in the
suburban Atlanta, Georgia market, was 92% leased, unchanged from the prior
quarter. During the third quarter, three existing tenants occupying a total of
8,825 square feet renewed their leases. A men's clothing retailer that currently
leases 4,500 square feet signed a five-year lease extension that will increase
their rental rate and allow them to move into an additional 750 square feet of
vacant space that is contiguous to their current store location. The two other
renewals were with a 1,625 square foot art supply tenant that signed a five-year
renewal and a 1,950 square foot shoe retailer that extended their lease for an
additional three years. Also, lease negotiations continue with two tenants that
are considering an expansion of their existing stores into a portion of the
Center's vacant space. If these two potential expansions occur, the Center's
current occupancy would be increased by 9,074 square feet, or 3% of the Center's
leasable area. As previously reported, the construction associated with the
relocation and expansion of one of the property's major tenants increased the
leasable area of the center from approximately 287,000 square feet to
approximately 304,000 square feet during fiscal 1996. The 16,530 square foot
space formerly occupied by this tenant comprises approximately one half of the
space which is currently unleased. The leasing team is presently marketing this
space to retailers which would complement the existing tenant mix. This space is
located in the rear corner of the shopping center and has less visibility from
the main road than is typical for a store this size. As a result, the space has
been difficult to lease. A plan to redesign this storefront to increase
visibility has been developed and is actively being marketed to prospective
tenants who may customize the proposed redesign to meet their specific needs.
As previously reported, during the fourth quarter of fiscal 1997 one of
the anchor tenants at Mall Corners, Levitz Furniture, which occupied 50,000
square feet, filed for Chapter 11 bankruptcy protection. As part of the
company's reorganization plan, the store at Mall Corners was closed on October
13, 1997. It reopened for an inventory liquidation sale, but then closed
permanently during the past quarter. Because Levitz was a sub-tenant of a
national retailer, the Mall Corners joint venture is entitled to continue to
collect rent on the store through the expiration of the current lease term in
January 2001. However, the national retailer that had sublet the store to Levitz
has not paid the monthly rent due for April, May, June and July 1998. Management
believes that the withholding of the rent payments represents an attempt to
force the Mall Corners joint venture into accepting an economically unfavorable
buy-out of the rent due over the remaining lease term. The Mall Corners joint
venture has commenced legal action to enforce the terms of the existing lease.
Additionally, Toys R Us closed its store that abuts the Mall Corners Shopping
Center in 1997 in order to consolidate their operations with Baby Superstore, a
chain of stores that Toys R Us recently acquired. The consolidated store for
this market is now located in a new nearby center. The former store site is
located on a separate parcel of land owned by Toys R Us. While the closing of
this Toys R Us store does not have a direct financial impact on the Mall Corners
joint venture, this vacancy does have a negative impact on the Center's
appearance as well as on the number of shoppers entering the Center. Toys R Us
is actively marketing the vacant space for sale or for lease. The property's
leasing team has been actively exploring leasing opportunities to protect and
enhance the Center's overall position in the market as a result of the Levitz
Furniture and Toys R Us store closings. This includes discussions with major
retailers that may be looking to expand into this suburban Atlanta market and
which would complement the existing tenant mix. If the leasing team's efforts
are successful, there should be more favorable opportunities to renew expiring
shop space leases or sign new leases at higher rental rates.
The occupancy level at the Hurstbourne Apartments, located in Louisville,
Kentucky, averaged 93% for quarter ended June 30, 1998, up from 88% for the
previous quarter. As previously reported, the primary reason for the prior low
occupancy levels was the expiration of the leases on 17 apartments during the
quarter ended September 30, 1997. These units had been leased by a corporation.
The primary reason for the lack of improvement until now in the level of
occupancy was the seasonal decrease in the number of prospective tenants looking
to rent units during the winter months. Last quarter the property's leasing and
management team was reorganized as part of an effort to improve their marketing
strategies for this property. This reorganized team implemented an aggressive
marketing program at the end of last quarter. This program was designed to
increase the number of prospective tenants looking to lease units at the
property and to retain as much of the existing resident base as possible. These
efforts were successful for the quarter ended June 30, 1998 and the team is
optimistic that there will be further improvements and that occupancy levels
will stabilize in the 95% range. As previously reported, the Partnership and its
co-venture partner have been exploring potential opportunities to market
Hurstbourne Apartments for sale during calendar year 1998. Last quarter the
Partnership and its co-venture partner held discussions concerning potential
marketing strategies for selling the Hurstbourne property. During the current
quarter, the Partnership and its co-venture partner solicited marketing
proposals from several real estate brokerage firms. After reviewing their
respective proposals and conducting interviews, the Partnership and its
co-venture partner selected a national brokerage firm that has experience
selling apartment properties in the Louisville area to market the property for
sale. Sales materials were finalized by late May 1998, and an extensive
marketing campaign began in early June 1998.
At Regent's Walk, the occupancy level averaged 92% for the quarter ended
June 30, 1998, compared to 93% for the prior quarter. The Partnership's
management and leasing team attribute the change in the occupancy level to the
implementation of rent increases and to an increase in competition in the local
market. As previously reported, new apartment construction continues in the
southern sector of the Overland Park market area. These newly constructed units,
which are located five or more miles from Regents Walk, are typically smaller
and do not compete directly with Regent's Walk. Nevertheless, they offer the
appeal of contemporary finishes and new systems and appliances as well as garage
parking, fitness centers and elevators in many cases. In order to continue to
remain competitive with the newer apartment communities and as part of a plan to
improve rental rates and increase value, the Partnership is working with its
co-venture partner on a program that is expected to enhance the marketability of
Regent's Walk. The first phase of the program, which was completed last winter,
included the replacement of 60 older furnaces. The second phase, which began
this spring, includes improvements to the landscaping; repair and repaving of
the asphalt parking areas and concrete driveways; and repair and painting of
building exteriors. The painting project is currently underway, and at the end
of the third quarter seven of the property's 19 buildings were completed.
Subsequent phases will include the redesign and refurbishing of the clubhouse,
pool and leasing areas, as well as the updating of building common areas,
additional upgrades to apartment interiors, and additional replacement of
heating and air-conditioning systems. The Partnership's co-venture partner has
contacted the first mortgage lender and requested that the payment for the
concrete and asphalt project be made from capital expenditure reserves, which
total $500,000 and are controlled by the lender. The $500,000 reserve was set
aside from the proceeds of the fiscal 1995 refinancing of the Regent's Walk
property. The funds were intended to be used for the remodeling of kitchens and
bathrooms in the apartment units. Management now believes that less substantial
remodeling of the kitchens and bathrooms is necessary and has requested that the
reserve funds be made available for alternative improvements such as the
driveway and parking area project. The lender has preliminarily indicated a
willingness to consider alternative uses for the reserve funds pending the
receipt of formal reimbursement requests from the joint venture which would be
subject to their approval.
At June 30, 1998, the Partnership had available cash and cash equivalents
of approximately $1,615,000. Such cash and cash equivalents will be utilized for
Partnership requirements such as the payment of operating expenses, the funding
of future operating deficits or capital improvements at the joint ventures, if
necessary, as required by the respective joint venture agreements, and for
distributions to the partners. The source of future liquidity and distributions
to the partners is expected to be from cash generated from the operations of the
Partnership's income-producing investment properties and proceeds from the sale
or refinancing of the remaining investment properties. Such sources of liquidity
are expected to be sufficient to meet the Partnership's needs on both a
short-term and long-term basis.
Results of Operations
Three Months Ended June 30, 1998
- --------------------------------
The Partnership reported net income of $152,000 for the three months ended
June 30, 1998, as compared to net income of $246,000 for the same period in the
prior year. This decrease in net income is the result of a $103,000 decrease in
the Partnership's share of unconsolidated ventures' income, which was partially
offset by a $9,000 decrease in the Partnership's operating loss. The
Partnership's share of ventures' income decreased primarily due to higher
property operating expenses at Regent's Walk during the current period. Property
operating expenses increased mainly due to an increase in repairs and
maintenance expense. The higher repairs and maintenance costs reflect the
general improvement program implemented at the property during the current
fiscal year, as discussed further above. In addition, depreciation expense
increased at the Mall Corners and Hurstbourne properties. Depreciation expense
increased due to significant additions to fixed assets at both properties during
fiscal 1997.
The decrease in the Partnership's operating loss resulted from a $10,000
decrease in general and administrative expenses. General and administrative
expenses declined mainly due to differences in the timing of certain services
compared to the same period in the prior year.
Nine Months Ended June 30, 1998
- -------------------------------
The Partnership reported net income of $676,000 for the nine months ended
June 30, 1998 as compared to net income of $660,000 for the same period in the
prior year. This increase in net income is the result of a $79,000 increase in
the Partnership's share of unconsolidated ventures' income, which was partially
offset by a $63,000 increase in the Partnership's operating loss. The increase
in the Partnership's share of ventures' income was primarily due to an increase
in combined rental revenues and expense recoveries of $165,000 and a decrease in
interest expense of $45,000. Rental revenues and expense recoveries increased
primarily due to an increase in reimbursements and percentage rents at Mall
Corners, and an increase in rental rates at Hurstbourne. Interest expense
decreased due to the scheduled principal payments on all three of the
outstanding mortgage loans. The increase in rental revenues and the decrease in
interest expense were partially offset by increases in property operating
expenses and depreciation expense of $82,000 and $60,000, respectively. Property
operating expenses increased due to higher repairs and maintenance expenses at
both Regent's Walk and Mall Corners. Depreciation expense increased due to
significant additions to fixed assets at Hurstbourne and Mall Corners during
fiscal 1997.
The increase in the Partnership's operating loss resulted from a $29,000
decrease in interest income, a $33,000 increase in management fees and an $1,000
increase in general and administrative expenses. The decrease in interest income
resulted from a reduction in the Partnership's average outstanding cash reserve
balances subsequent to the special distribution made on February 14, 1997 of
certain excess cash reserves, as discussed further in the Annual Report.
Management fees were higher for the nine months ended June 30, 1998 as a result
of an increase in the Partnership's distributable cash, upon which the
management fees are based. General and administrative expenses increased mainly
due to an increase in certain professional fees.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
By: Sixth Income Properties Fund, Inc.
---------------------------------
Managing General Partner
By: /s/ Walter V. Arnold
---------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: August 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,615
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,615
<PP&E> 3,537
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,152
<CURRENT-LIABILITIES> 36
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,116
<TOTAL-LIABILITY-AND-EQUITY> 5,152
<SALES> 0
<TOTAL-REVENUES> 989
<CGS> 0
<TOTAL-COSTS> 313
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 676
<INCOME-TAX> 0
<INCOME-CONTINUING> 676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 676
<EPS-PRIMARY> 11.15
<EPS-DILUTED> 11.15
</TABLE>