UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to _______ .
Commission File Number: 0-13129
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2829686
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1998 and September 30, 1998 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
----------- ------------
Investments in joint ventures, at equity $ 363 $ 3,434
Cash and cash equivalents 4,833 1,344
---------- ---------
$ 5,196 $ 4,778
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 14 $ 16
Accrued expenses and other liabilities 65 27
---------- ---------
Total liabilities 79 43
Partners' capital 5,117 4,735
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$ 5,196 $ 4,778
========== =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended December 31, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1997 $(1,353) $ 7,388
Cash distributions (6) (526)
Net income 2 183
-------- -------
Balance at December 31, 1997 $(1,357) $ 7,045
======= =======
Balance at September 30, 1998 $(1,367) $ 6,102
Cash distributions (6) (9,826)
Net income 102 10,112
------- -------
Balance at December 31, 1998 $(1,271) $ 6,388
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three months ended December 31, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
1998 1997
---- ----
Revenues:
Interest income $ 85 $ 29
Other income 3 -
------- -------
88 29
Expenses:
Management fees 36 39
General and administrative 101 54
------- -------
137 93
------- -------
Operating loss (49) (64)
Partnership's share of gain on sale
of operating investment property 10,319 -
Partnership's share of
ventures' income (losses) (56) 249
------- -------
Net income $10,214 $ 185
======= =======
Net income per Limited
Partnership Unit $168.53 $ 3.05
======= =======
Cash distributions per Limited
Partnership Unit $163.77 $ 8.77
======= =======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 60,000 Units of Limited Partnership Interest outstanding for each
period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the three months ended December 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 10,214 $ 185
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of gain on sale
of operating investment property (10,319) -
Partnership's share of ventures' income
(losses) 56 (249)
Changes in assets and liabilities:
Accounts payable - affiliates (3) -
Accrued expenses and other liabilities 39 (32)
-------- --------
Total adjustments (10,227) (281)
-------- --------
Net cash used in operating activities (13) (96)
Cash flows from investing activities:
Distributions from joint ventures 13,334 816
Cash contributions to joint ventures - (7)
-------- --------
Net cash provided by investing activities 13,334 809
Cash flows from financing activities:
Cash distributions to partners (9,832) (532)
-------- --------
Net increase in cash and cash equivalents 3,489 181
Cash and cash equivalents, beginning of period 1,344 1,918
-------- --------
Cash and cash equivalents, end of period $ 4,833 $ 2,099
======== ========
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, 1998. In the
opinion of management, the accompanying consolidated financial statements, which
have not been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected in
the accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of December 31, 1998 and September 30, 1998 and revenues and
expenses for the three months ended December 31, 1998 and 1997. Actual results
could differ from the estimates and assumptions used.
The Partnership is currently focusing on potential disposition strategies
for the two remaining investments in its portfolio. Although no assurances can
be given, it is currently contemplated that sales of the Partnership's Regent's
Walk and Mall Corners investments, which would be followed by an orderly
liquidation of the Partnership, could be completed by the end of calendar year
1999.
2. Related Party Transactions
--------------------------
The Adviser earned total management fees of $36,000 and $39,000 for the
three-month periods ended December 31, 1998 and 1997, respectively. Accounts
payable - affiliates at December 31, 1998 and September 30, 1998 consist of
management fees of $14,000 and $16,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the three-month
periods ended December 31, 1998 and 1997 is $29,000 and $28,000, 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 both of the
three-month periods ended December 31, 1998 and 1997 is $1,000, representing
fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc.,
for managing the Partnership's cash assets.
3. Investments in Joint Ventures
-----------------------------
As of December 31, 1998, the Partnership has investments in two remaining
joint ventures which own operating investment properties (three at September 30,
1998) as more fully described in the Partnership's Annual Report. During the
first quarter of fiscal 1999, on November 16, 1998, Kentucky-Hurstbourne
Associates sold its operating investment property, the Hurstbourne Apartments to
an unrelated party for $22.9 million. The sale generated net proceeds of
approximately $12,941,000 to the Partnership after the repayment of the
outstanding first mortgage loan of approximately $8,124,000, accrued interest of
approximately $30,000, a prepayment penalty of $187,000, closing proration
adjustments of approximately $380,000, closing costs of approximately $266,000
and a payment of approximately $972,000 to the Partnership's co-venture partner
for its share of the net proceeds in accordance with the terms of the joint
venture agreement. The joint ventures are accounted for on the equity method
because the Partnership does not have a voting control interest in the ventures.
Under the equity method the ventures are carried at cost adjusted for the
Partnership's share of the ventures' earnings and losses and distributions.
<PAGE>
Summarized operations of the joint ventures for the three months ended
December 31, 1998 and 1997 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three months ended December 31, 1998 and 1997
(in thousands)
1998 1997
---- ----
Rental revenues and expense recoveries $ 2,028 $2,508
Interest and other income 13 10
Gain on sale of operating investment
property 11,245 -
-------- ------
13,286 2,518
Property operating expenses 688 961
Interest expense 779 684
Depreciation and amortization 630 624
-------- ------
2,097 2,269
-------- ------
Net income $ 11,189 $ 249
======== ======
Net income:
Partnership's share of combined
income $ 10,263 $ 249
Co-venturers' share of combined
income 926 -
-------- ------
$ 11,189 $ 249
======== ======
The Partnership's share of the combined income of the joint ventures is
presented as follows on the accompanying statements of income (in thousands):
1998 1997
---- ----
Partnership's share of ventures'
income (losses) $ (56) $ 249
Partnership's share of gain on sale
of operating investment property 10,319 -
-------- ------
$ 10,263 $ 249
======== ======
<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, 1998 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
- -------------------------------
During the first quarter of fiscal 1999, on November 16, 1998,
Kentucky-Hurstbourne Associates, a joint venture in which the Partnership has an
interest, sold its operating investment property, the Hurstbourne Apartments,
located in Louisville, Kentucky, to an unrelated party for $22.9 million. The
sale generated net proceeds of approximately $12,941,000 to the Partnership
after the repayment of the outstanding first mortgage loan of approximately
$8,124,000, accrued interest of approximately $30,000, a prepayment penalty of
$187,000, closing proration adjustments of approximately $380,000, closing costs
of approximately $266,000 and a payment of approximately $972,000 to the
Partnership's co-venture partner for its share of the net proceeds in accordance
with the terms of the joint venture agreement. As a result of the sale of the
Hurstbourne property, the Partnership made a special distribution of $9,300,000,
or $155 per original $1,000 Unit, to the Limited Partners on December 15, 1998.
Approximately $3,641,000 of the Hurstbourne net sale proceeds were retained and
added to the Partnership's cash reserves to ensure that the Partnership has
sufficient capital resources to fund its share of potential capital improvement
expenses at the Mall Corners Shopping Center and the Regent's Walk Apartments.
The sale of the Hurstbourne property resulted in a gain of $11,245,000 for
financial reporting purposes in the first quarter of fiscal 1999. The
Partnership's share of such gain was $10,319,000.
As previously reported, the Partnership and its co-venture partner had
been exploring potential opportunities to market the Hurstbourne Apartments for
sale during calendar year 1998. The Partnership and its co-venture partner
subsequently selected a national brokerage firm with experience selling
apartment properties in the Louisville area to market the property for sale.
Sales materials were finalized and an extensive marketing campaign began in
early June 1998. Hurstbourne Apartments was widely marketed to over 325
prospective purchasers. Of these prospects, approximately 75 requested and
received the complete marketing package. Thirty-two offers were subsequently
received from these prospective buyers to acquire the property. As a result of
the high level of interest and wide range of offers, twenty of the prospective
buyers were then invited to participate in two additional rounds of revised
offers. Ultimately seven of these prospective purchasers elected to increase
their offers in the final round. After interviewing each prospective buyer and
conducting review of their financial capabilities and previous acquisitions, the
Partnership and its co-venture partner selected an offer. A purchase and sale
contract with the prospective purchaser was signed on October 2, 1998. In
accordance with the provisions of the purchase and sale agreement, the
prospective buyer completed its due diligence work on November 9, 1998 and made
a non-refundable deposit of $425,000. The transaction closed as described above
on November 16, 1998. Because of the reduction in distributable cash flow to be
received by the Partnership as a result of the sale of the Hurstbourne
Apartments, the Partnership's annual distribution rate will decrease from 3.63%
to 2.50%. The rate will be adjusted beginning with the payment to be made on May
14, 1999, for the quarter ending March 31, 1999.
The Partnership continues to focus on potential disposition strategies for
the two remaining investments in its portfolio. As part of the efforts to
prepare the two remaining properties for sale, the Partnership continues to work
with each property's leasing and management team to develop and implement
programs that will protect and enhance value and maximize cash flow at each
property. Although no assurances can be given, it is currently contemplated that
sales of the Partnership's Regents Walk and Mall Corners investments, which
would be followed by an orderly liquidation of the Partnership, could be
completed by the end of calendar year 1999.
As of December 31, 1998, the Mall Corners Shopping Center, located in the
suburban Atlanta, Georgia market, was 97% leased and 81% occupied. During the
quarter, a 1,380 square foot new lease was signed with a professional school for
a three-year term, and two tenants, occupying a total of 2,200 square feet,
renewed their leases. The property's leasing team continues to actively pursue
leasing opportunities to protect and enhance the Center's overall marketplace as
a result of the Levitz Furniture and Toys R Us store closings described below.
As noted above, a portion of the sale proceeds from the sale of the Hurstbourne
Apartments has been reserved to complete remodeling work and potential expansion
with one of the Center's existing anchor tenants. The proposed expansion would
add to the Center's leasable area and would be expected to increase the value of
the property. As previously reported, the property's leasing team had been
aggressively marketing the 16,530 square foot space that was formerly owned by
Michaels Arts and Crafts. 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 had been difficult to lease. A plan to
redesign this storefront to increase visibility was developed and actively
marketed to prospective tenants who could customize the proposed redesign to
meet their specific needs. As a result of these leasing efforts, a new five-year
lease was signed with a men's suit retailer for the entire 16,530 square feet.
This new tenant finished remodeling the space and opened for business on
December 17, 1998. The addition of this new tenant complements the existing
tenant mix and is expected to increase the marketability of the Center's
remaining vacancies.
As previously reported, 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
temporarily reopened for an inventory liquidation sale, after which it was
closed permanently. Because Levitz is a sub-tenant of a national retailer, the
Mall Corners joint venture expects to collect rent on the store through the
expiration of the current lease term in 2001. However, the national retailer
that had sublet the store to Levitz has not paid the monthly rent due since
April 1998. As previously reported, this appears to be 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. During the
fourth quarter, the national retailer filed a motion for summary judgement in an
attempt to deny the joint venture's claims for rental payments and potentially
delay the court action. The joint venture's counsel has answered this motion and
anticipates that the summary judgement will not be granted. In the meantime,
settlement discussions between the national retailer and the Mall Corners joint
venture have been undertaken. It is currently anticipated that a mutually
acceptable settlement on a buy-out of the rent receivable will be achieved by
the end of February 1999.
As previously reported, Toys R Us closed its store that abuts the Mall
Corners Shopping Center in September 1997. The store was closed in order to
consolidate operations with Baby Superstore, a chain of stores acquired by Toys
R Us. 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 continues to actively market the vacant space for sale or for lease.
At Regent's Walk, the occupancy level for the quarter ended December 31,
1998 was 91%, compared to 94% in the prior quarter. The property's leasing and
management team attributes the lower occupancy levels to the implementation of
rent increases, new competition and less traffic during the holiday season and
winter months. The Johnson County sector of the Kansas City apartment market,
which includes Overland Park, currently has over 20,000 apartment units, and
occupancy levels of approximately 95% have been maintained consistently since
1993. 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 Regent's 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. The property's leasing team is continuing
with the rent increase program that is designed to maximize rental revenues and
value. Increases of approximately 4% are being implemented as leases are renewed
or as new leases are signed. As noted in previous reports, in order 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 the
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
last spring, includes improvements to landscaping, repair and repaving of
driveways and parking areas, and repair and repainting of building exteriors.
The project to paint the property's 19 buildings was completed during the fourth
quarter of fiscal 1998. The final phase, which is currently underway, involves
the refurbishing of the clubhouse, leasing areas, and model apartment.
At December 31, 1998, the Partnership had available cash and cash
equivalents of approximately $4,833,000. 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.
As noted above, the Partnership expects to be liquidated prior to the end
of calendar year 1999. Notwithstanding this, the Partnership believes that it
has made all necessary modifications to its existing systems to make them year
2000 compliant and does not expect that additional costs associated with year
2000 compliance, if any, will be material to the Partnership's results of
operations or financial position.
Results of Operations
Three Months Ended December 31, 1998
- ------------------------------------
The Partnership reported net income of $10,214,000 for the three months
ended December 31, 1998, as compared to net income of $185,000 for the same
period in the prior year. This increase in net income is mainly the result of
the Partnership's share of the gain recognized in the first quarter of fiscal
1999 on the sale of the Hurstbourne Apartments, as described above. In addition,
a $15,000 decrease in the Partnership's operating loss also contributed to the
increase in net income for the current three-month period. The decrease in the
Partnership's operating loss resulted from a $59,000 increase in interest and
other income, combined with a $3,000 decrease in management fees, which were
partially offset by a $47,000 increase in general and administrative expenses.
The increase in interest and other income resulted from higher average
outstanding cash reserve balances in the current period subsequent to the
receipt of the proceeds from the sale of the Hurstbourne Apartments on November
16, 1998. As discussed further above, approximately $3.6 million of the
Hurstbourne proceeds were retained and added to the Partnership's cash reserves
to be used for potential future capital needs. Management fees were lower in the
current period as a result of a decrease 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 required professional
fees for the current three-month period.
An unfavorable change of $305,000 in the Partnership's share of ventures'
income (losses) partially offset the favorable changes in net income for the
current three-month period. The unfavorable change in the Partnership's share of
ventures' income (losses) was primarily due to the sale of the Hurstbourne
property. Since the property was sold as of November 16, 1998, the Partnership's
share of ventures' income (losses) does not include a full three months of
operations from Hurstbourne in the current period. Also, property operating
expenses declined at the Mall Corners property in the current period. Property
operating expenses decreased at Mall Corners mainly due additional costs
incurred at the property in the prior period to repair, reseal and restripe the
parking lot. This favorable change was partially offset by a decrease in rental
revenues at Mall Corners for the current three-month period. Rental revenues at
Mall Corners for the first quarter of fiscal 1999 decreased primarily due to
decreases in reimbursements and base rents resulting from a decline in average
occupancy levels.
<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:
A Current Report on Form 8-K, dated November 16, 1998, reporting the sale
of the Hurstbourne Apartments was filed by the registrant during the first
quarter of fiscal 1999 and is hereby incorporated herein by reference.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES SIX
LIMITED PARTNERSHIP
By: Sixth Income Properties Fund, Inc.
----------------------------------
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: February 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended December 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-END> Dec-31-1998
<CASH> 4,833
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,833
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,196
<CURRENT-LIABILITIES> 79
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,117
<TOTAL-LIABILITY-AND-EQUITY> 5,196
<SALES> 0
<TOTAL-REVENUES> 10,407
<CGS> 0
<TOTAL-COSTS> 137
<OTHER-EXPENSES> 56
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,214
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,214
<EPS-PRIMARY> 168.53
<EPS-DILUTED> 168.53
</TABLE>
