UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 30, 2000
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
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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
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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
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
Documents Incorporated by Reference
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Documents Form 10-K Reference
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Prospectus of registrant dated Part IV
September 17, 1984, as supplemented
Current Report on Form 8-K Part IV
of registrant dated December 5, 2000
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
2000 FORM 10-K
TABLE OF CONTENTS
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Part I Page
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Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-4
Item 4 Submission of Matters to a Vote of Security Holders I-4
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 7A Market Risk Disclosures II-5
Item 8 Financial Statements and Supplementary Data II-5
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-5
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-2
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-40
<PAGE>
PART I
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Item 1. Business
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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, 2000 three of the Partnership's
original investments had been sold and another investment had been lost through
foreclosure proceedings. As of September 30, 2000, the Partnership owned,
through a joint venture partnership, an interest in the operating property set
forth in the following table:
Name of Joint Venture Date of
Name and Type of Property Acquisition of Type of
Location Size Interest Ownership (1)
-------------------------------- ---- ---------- -------------
Gwinnett Mall Corners Associates 304,000 8/28/85 Fee ownership of land
Mall Corners Shopping Center gross and improvements
Gwinnett County, Georgia leasable (through joint
sq. ft. venture)
(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 investment and for a description of the
agreement through which the Partnership has acquired this real estate
investment.
Subsequent to year-end, on December 5, 2000, the Partnership completed the
disposition of its only remaining real estate asset, the Mall Corners Shopping
Center. As previously reported, the Partnership had been continuing to explore
its strategic alternatives for the Mall Corners Shopping Center investment and
had continued marketing efforts for the sale of the property. While the
Partnership received interest from several prospective buyers over the last 15
months to purchase the property, and worked diligently through protracted
negotiations with these prospective buyers, none were willing to close on a sale
transaction. Further, based on the current leasing status of the Shopping
Center, which was only 50% occupied as of September 30, 2000, the property's
operations were insufficient to meet its mortgage loan obligation and the loan
had gone into default as of November 1, 2000. Subsequently, the lender initiated
foreclosure proceedings on November 6, 2000. However, shortly before the
anticipated completion of foreclosure proceedings by the lender, negotiations
were reopened among the Partnership, its joint venture partner and the Mall
Corners' mortgage lender. On December 5, 2000 an agreement for the assignment
and transfer of the Partnership's interest in Mall Corners Shopping Center was
reached among the three parties, whereby the joint venture partner cured the
mortgage loan default, and the Partnership assigned and transferred its
ownership interest in Mall Corners to an affiliate of the joint venture partner,
which affiliate then also assumed the property's mortgage loan. In exchange for
transferring its interest in the property, the Partnership received from the
lender a release from liabilities arising from and after the transfer and
received from the affiliate of the joint venture partner indemnification for
past and future liabilities and a payment of $350,000. This payment was intended
to represent a return of the Partnership's June 2000 payment made to the joint
venture partner in return for the full and sole authority over all matters
related to the property as part of the Partnership's strategy to dispose of its
assets and complete a liquidation. With the sale of the Mall Corners property
completed, the Partnership is currently proceeding with an orderly liquidation.
On December 20, 2000, a Liquidating Distribution, which consisted of the
remaining Partnership reserves after the payment of all liquidation-related
expenses, was paid to unitholders of record as of the December 5, 2000
disposition date. The formal liquidation of the Partnership will be completed
prior to the end of calendar year 2000.
During fiscal 1999, two of the Partnership's joint venture investment
properties were sold. 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. On
September 30, 1999, Regent's Walk Associates sold its operating investment
property, the Regent's Walk Apartments, to an affiliate of its unaffiliated
joint venture partner for $17.75 million. The sale generated net proceeds of
approximately $8,068,000, after the assumption of the outstanding first mortgage
loan of approximately $8,624,000, accrued interest of approximately $51,000,
closing proration adjustments of approximately $189,000, and a payment of
approximately $818,000 to the Partnership's non-affiliated co-venture partner
for its share of the net proceeds in accordance with the terms of the joint
venture agreement. In addition, as a result of the Regent's Walk sale, the
Partnership received $117,000 which had been held in escrow at the property plus
$257,000 as a result of operations of the property through the date of sale.
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,
would 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, 2000, the Limited Partners had received cumulative
cash distributions totalling approximately $41,042,000, or $695.00 per original
$1,000 investment for the Partnership's earliest investors. In addition, as
noted above, on December 20, 2000 the Partnership made a Final Distribution of
approximately $3,864,000, or $64.40 per original $1,000 investment, as a result
of the disposition of the Mall Corners Shopping Center. Of the total
distributions paid through September 30, 2000, $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 sale of the Hurstbourne Apartments resulted in a special
distribution of $9,300,000, or $155 per original $1,000 investment, which was
paid on December 15, 1998 to unit holders of record on November 16, 1998.
Approximately $3,641,000 of the total net proceeds from the sale of the
Hurstbourne Apartments were added to the Partnership`s cash reserves for
potential investment in Mall Corners. In addition, the sale of the Regent's Walk
Apartments resulted in a special distribution of $9,180,000, or $153.00 per
original $1,000 investment, on October 15, 1999 to unitholders of record on the
September 30, 1999 sale date. Of the $153,000 total, $140.30 resulted from the
sale of Regent's Walk and $12.70 was from Partnership reserves that exceeded
expected future requirements. The remaining distributions have been made from
the net operating cash flow of the Partnership. A substantial portion of such
distributions was sheltered from current taxable income.
As a result of the fiscal 1992 foreclosure loss of the investment in
Northbridge and the disposition of Mall Corners subsequent to the current fiscal
year-end for an amount which yielded no significant proceeds to the Partnership,
the Partnership did not return the full amount of the original invested capital
to the Limited Partners. Together, the investments in Northbridge and Mall
Corners represented 45% of the Partnership's original investment portfolio.
The Partnership had no operating property investments located outside the
United States. The Partnership was 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
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As of September 30, 2000, the Partnership owned an interest in one
operating property through a joint venture partnership. The joint venture
partnership and the related property is referred to under Item 1 above to which
reference is made for the name, location and description of the property. As
discussed in Item 1, the Partnership's investment in this property was disposed
of subsequent to the fiscal year end, on December 5, 2000.
Occupancy figures for each fiscal quarter during 2000, along with an
average for the year, are presented below.
Percent Leased At
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Fiscal 2000
12/31/99 3/31/00 6/30/00 9/30/00 Average
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Mall Corners Shopping Center 49% 50% 50% 50% 50%
Item 3. Legal Proceedings
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The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
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None.
<PAGE>
PART II
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Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
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At September 30, 2000, there were 3,651 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 2000.
Item 6. Selected Financial Data
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Paine Webber Income Properties Six Limited Partnership
(In thousands, except per Unit data)
Years Ended September 30,
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2000 1999 1998 1997 1996
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Revenues $ 297 $ 445 $ 106 $ 237 $ 259
Operating loss $ (279) $ (2) $ (301) $ (148) $ (92)
Partnership's share of
unconsolidated ventures'
income $ 900 $ 496 $ 1,128 $ 1,263 $ 874
Partnership share of gains on
sales of operating investment
properties - $18,496 - - -
Net income $ 621 $18,990 $ 827 $ 1,115 $ 782
Per Limited Partnership Unit:
Net income $ 10.24 $313.18 $ 13.64 $ 18.40 $ 12.89
Cash distributions from
operations $ 10.14 $ 27.68 $ 35.08 $ 27.46 $ 20.00
Cash distributions from sale,
refinancing or other
disposition transactions $153.00 $155.00 - $ 34.00 -
Total assets $ 3,769 $13,544 $ 4,778 $ 6,101 $ 8,658
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
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Liquidity and Capital Resources
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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 Partnership completed the sales of two of its joint venture operating
properties during fiscal 1999. In addition, 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, 2000,
the Partnership had one remaining joint venture investment in the Mall Corners
Shopping Center, a 304,000 square foot retail center located in suburban
Atlanta, Georgia. Subsequent to year-end, on December 5, 2000, the Partnership
completed the disposition of the Mall Corners Shopping Center. Throughout fiscal
2000, the Partnership had been continuing to explore its strategic alternatives
for the Mall Corners Shopping Center investment and had continued marketing
efforts for the sale of the property. While the Partnership received interest
from several prospective buyers over the last 15 months to purchase the
property, and worked diligently through protracted negotiations with these
prospective buyers, none were willing to close on a sale transaction. Further,
based on the current leasing status of the Shopping Center, which was only 50%
occupied as of September 30, 2000, the property's operations were insufficient
to meet its mortgage loan obligation and the loan had gone into default as of
November 1, 2000. Subsequently, the lender initiated foreclosure proceedings on
November 6, 2000. However, shortly before the anticipated completion of
foreclosure proceedings by the lender, negotiations were reopened among the
Partnership, its joint venture partner and the Mall Corners' mortgage lender. As
a result, and as described further below, a foreclosure action was avoided and a
disposition of the Partnership's Mall Corners investment occurred on December 5,
2000.
While extensive efforts to sell Mall Corners were ongoing throughout
fiscal 2000, the Partnership was notified in August 2000 that the former theater
tenant, which had continued to pay rent under its lease obligation through July
2000, had filed for Chapter 11 bankruptcy protection on August 7, 2000. As a
result of the bankruptcy hearing held on August 30, 2000, the former theater
tenant was released from its lease obligation at Mall Corners Shopping Center
effective August 31, 2000 and did not make a full rent payment in August. The
termination of this lease agreement significantly reduced the property's
operating income. Consequently, for the months of September and October, the
property experienced shortfalls in cash flow, which the Partnership funded in
anticipation of a sale of the property to a third-party. By the Partnership
doing so, the property remained current on its mortgage loan obligation in order
to effect a potential assumption of the mortgage loan by a purchaser of the
property. After several potential sale transactions failed to materialize and
before continuing to fund any additional cash flow shortfalls at the property,
the Partnership carefully evaluated current operations at Mall Corners as well
as alternative disposition strategies. The Center's reduced cash flow, which was
insufficient to meet its mortgage loan obligation, negatively impacted the
marketability of the property and impeded the Partnership's ability to negotiate
an economically viable sale of the property. Further, it was determined that
efforts to re-lease and re-position the Center in the local retail market for a
potential sale opportunity in calendar year 2001 would have required substantial
commitments of both capital and time necessary to effect improvement at the
property, and there were no assurances that such commitments would have proven
successful. In consideration of the property's poor operating performance and
the uncertainty of a sale to a third-party, and in an effort to preserve
remaining cash reserves, the Partnership declined to fund additional shortfalls
required to meet the property's mortgage loan obligation.
Following the Partnership's conclusion that it was in the best interests of
the Limited Partners to preserve the Partnership's remaining cash reserves and
to discontinue funding Mall Corners' cash flow shortfalls, the Partnership
commenced discussions with the Mall Corners' lender in an attempt to facilitate
deeding the property back to the lender. In addition, the Partnership continued
to pursue with the lender the possible sale of the property. However, due to the
loan default occurring in November, the lender initiated foreclosure proceedings
on November 6, 2000, which were expected to be completed in early December. The
Partnership believed that, due to the property's current leasing status, the
likelihood of realizing a value significantly in excess of the outstanding
balance of the first mortgage loan was remote. For that reason, the Partnership
was prepared to let the lender complete a foreclosure of the property. Shortly
before the anticipated completion of foreclosure proceedings by the lender, the
Partnership, its joint venture partner and the lender entered into negotiations
regarding the disposition of the Mall Corners investment. The joint venture
partner had indicated a willingness to invest the time and capital necessary to
attempt a long-term re-leasing of the property and had threatened to interfere
with the Partnership's plans to allow the property to be foreclosed upon by the
lender. On December 5, 2000 an agreement for the assignment and transfer of the
Partnership's interest in Mall Corners Shopping Center was reached among the
three parties, whereby the joint venture partner cured the mortgage loan
default, and the Partnership assigned and transferred its ownership interest in
Mall Corners to an affiliate of the joint venture partner, which affiliate then
also assumed the property's mortgage loan. In exchange for transferring its
interest in the property, the Partnership received from the lender a release
from liabilities arising from and after the transfer and received from the
affiliate of the joint venture partner indemnification for past and future
liabilities and a payment of $350,000. This payment was intended to represent a
return of the Partnership's June 2000 payment made to the joint venture partner
in return for the full and sole authority over all matters related to the
property as part of the Partnership's strategy to dispose of its assets and
complete a liquidation. As a result, the disposition of the Mall Corners
investment was completed on December 5, 2000.
As a result of the disposition of the Partnership's interest in the Mall
Corners Shopping Center, its remaining real estate investment, a Final
Distribution of $3,864,000, or $64.40 per original $1,000 investment, was paid
on December 20, 2000 to unitholders of record as of the December 5, 2000
disposition date. This Final Distribution represents the Partnership's remaining
reserves after paying liquidation-related expenses. A formal liquidation of the
Partnership is being finalized and is expected to be completed by December 29,
2000.
As noted above, as of September 30, 2000 the Mall Corners Shopping Center
was 50% occupied, as compared to an occupancy level of 73% at September 30,
1999. As previously reported, the owner of Upton's, an anchor tenant that leased
16% of the Center's rentable area, announced on July 19, 1999 that all of the
stores in the chain would be closed. At the end of the first quarter of fiscal
2000, Upton's closed its operations and vacated the premises. During the quarter
ended June 30, 2000, the Partnership and its co-venture partner reached a
settlement with Upton's on a termination agreement under which the tenant agreed
to pay the sum of $1,200,000 in return for a release from its remaining lease
obligation, which was to have run through September 2005. The Mall Corners'
mortgage lender required that 100% of this termination payment be held in escrow
for use to fund future leasing expenses. In addition, another tenant, Suit Max,
discontinued its operation at the Center during the quarter ended December 31,
1999 and vacated 16,530 square feet, or 5% of the Center's leasable area. During
the quarter ended June 30, 2000, the Partnership and its co-venture partner
reached a settlement with Suit Max on a termination agreement whereby the tenant
agreed to pay the sum of $215,000 (which included past due rent) in return for a
release from its remaining lease obligation, which was to have run through
February 2004. This termination payment was released to the joint venture in
April 2000. The 50% occupancy level reflected the vacancy for the Upton's and
Suit Max stores described above, which together represented 21% of the center's
leasable area, the former Levitz Furniture store, which represented 16% of the
Center's leasable area, the former movie theatre that occupied 8% of the
leasable area and several shop space stores that represent 5% of the leaseable
area. As also previously reported, the store formerly occupied by Toys R Us that
abuts Mall Corners Shopping Center remained vacant throughout fiscal 2000. While
the closing of the Toys R Us store did not have a direct financial impact on
Mall Corners, its vacancy continued to have a negative impact on the Center's
appearance and the number of shoppers entering the Center.
During the quarter ended December 31, 1999, the Partnership had initiated
the Right of First Offer provision of the Mall Corners joint venture agreement.
In accordance with the agreement, the Partnership gave formal notice to the
co-venture partner that it was being given the opportunity to make a first offer
for the purchase of the property at a specified sales price of $22 million. The
co-venturer had until January 31, 2000 to notify the Partnership of its intent
to purchase the property and to put up a non-refundable deposit in connection
with the transaction. While the co-venturer expressed an interest in completing
a transaction at the specified price, it did not abide by the terms of the joint
venture agreement by making the required deposit on or before January 31, 2000.
As a result, during the second quarter of fiscal 2000 the Partnership negotiated
with a third party prospective purchaser for a potential sale of Mall Corners at
terms no less favorable than those specified in the first offer notice; however,
the parties were unable to formalize a purchase and sale agreement. During the
quarter ended June 30, 2000, the Partnership again notified its joint venture
partner that the opportunity was being given to the joint venture partner to
exercise its Right of First Offer to purchase the property at a specified sales
price of approximately $21 million. While the joint venture partner again
expressed an interest in completing a transaction at the specified price, the
parties instead reached an agreement whereby the joint venture partner agreed to
waive its Right of First Offer in return for a payment from the Partnership of
$350,000. The $350,000 payment was recorded as an additional investment in the
Mall Corners joint venture on the accompanying balance sheet as of September 30,
2000. As discussed further above, the Partnership received the return of this
$350,000 payment subsequent to year-end in connection with the disposition of
the Mall Corners investment.
At September 30, 2000, the Partnership had available cash and cash
equivalents of $3,769,000. Such cash and cash equivalents, along with the return
of the $350,000 payment received in connection with the disposition of Mall
Corners, were used for the working capital requirements of the Partnership and
to pay for final liquidation-related expenses. The remainder was paid out to the
Limited Partners in accordance with the Partnership Agreement, as described in
more detail above.
Results of Operations
2000 Compared to 1999
---------------------
The Partnership reported net income of $621,000 for the year ended
September 30, 2000, as compared to net income of $18,990,000 for the prior year.
This unfavorable change in the Partnership's net operating results was mainly
the result of the Partnership's share of the gains on the sales of the
Hurstbourne and Regent's Walk properties, of $9,906,000 and $8,590,000,
respectively, recognized in fiscal 1999. In the current fiscal year, there was
also an increase of $277,000 in the Partnership's operating loss. The increase
in the Partnership's operating loss resulted from a $207,000 increase in general
and administrative expenses and a decrease of $148,000 in interest and other
income which were partially offset by a $78,000 reduction in management fees.
General and administrative expenses increased mainly due to legal fees incurred
during the current year in connection with the negotiations with the
Partnership's co-venture partner in the Mall Corners joint venture over the
Right of First Offer provision of the joint venture agreement, as discussed
further above. The decrease in interest and other income resulted mainly from
interest received on a loan to Regent's Walk that was repaid from the proceeds
from the sale of the property in fiscal 1999. Management fees were lower in
fiscal 2000 as a result of a decrease in the Partnership's distributable cash,
upon which the management fees are based.
An increase of $404,000 in the Partnership's share of ventures' income for
fiscal 2000 partially offset the impact of the prior year gains on sales and the
increase in the Partnership's operating loss. The favorable change in the
Partnership's share of ventures' income was primarily the result of the two
large lease termination payments received by the Mall Corners joint venture
during fiscal 2000, as discussed further above. These termination payments,
which totaled $1,415,000, were recorded as income when received. The impact of
these termination fee revenues on the Partnership's share of ventures' income in
the current year was partially offset by the effects of the sales of the
Hurstbourne and Regent's Walk investments during fiscal 1999.
1999 Compared to 1998
---------------------
The Partnership reported net income of $18,990,000 for the year ended
September 30, 1999 as compared to net income of $827,000 for the prior year.
This increase in net income was mainly the result of the Partnership's share of
the gains recognized during fiscal 1999 on the sales of the Hurstbourne
Apartments and the Regent's Walk Apartments, as discussed further above. The
Partnership's share of such gains amounted to $18,496,000. In addition, the
Partnership's operating loss decreased by $299,000 during fiscal 1999. The
decrease in the Partnership's operating loss resulted from a $339,000 increase
in interest and other income and a $42,000 decrease in management fees, which
were offset by an $82,000 increase in general and administrative expenses. The
increase in interest and other income resulted mainly from interest received on
a loan to Regent's Walk that was repaid from the proceeds from the sale of the
property in fiscal 1999. The increase in interest and other income also resulted
partly from higher average outstanding cash reserve balances maintained during
fiscal 1999 due to the holdback of a portion of the proceeds from the sale of
the Hurstbourne Apartments on November 16, 1998 for possible future investment
in Mall Corners. Management fees were lower during fiscal 2000 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 during fiscal 1999.
The Partnership's share of gain on sales of the operating investment
properties and the decrease in the Partnership's operating loss were partially
offset by a decrease of $632,000 in the Partnership's share of ventures' income
for fiscal 1999. This decrease in the Partnership's share of ventures' income
was primarily due to the sale of the Hurstbourne property in the first quarter
of fiscal 1999. Since the Hurstbourne property was sold on November 16, 1998,
the Partnership's share of ventures' income for fiscal 1999 only included
operations from the joint venture through the date of the sale. The decrease in
the Partnership's share of income from the Hurstbourne joint venture was
partially offset by increases in operating income at both Regent's Walk and Mall
Corners during fiscal 1999. Operating income increased at Regent's Walk
primarily due to a decrease in repairs and maintenance expense. Operating income
increased at Mall Corners as a result of the receipt of a lease termination
payment of $1.1 million from Levitz Furniture in fiscal 1999.
1998 Compared to 1997
---------------------
The Partnership reported net income of $827,000 for the year ended
September 30, 1998 as compared to net income of $1,115,000 for the prior year.
This decrease in net income was the result of a $135,000 decrease in the
Partnership's share of ventures' income and a $153,000 increase in the
Partnership's operating loss. The decrease in the Partnership's share of
ventures' income was primarily due to a $321,000 increase in combined expenses.
Combined expenses increased mainly due to an increase in property operating
expenses of $365,000. Property operating expenses increased primarily due to a
significant increase in repairs and maintenance expenses at Regent's Walk as a
result of an overall enhancement program implemented during fiscal 1998. The
higher property operating expenses were partially offset by an increase of
$143,000 in combined revenues and a decrease in interest expense of $65,000.
Combined revenues increased mainly due higher rental revenues at Mall Corners
due to certain leasing gains achieved during fiscal 1998 and increases in rental
rates on the new leases signed during fiscal 1998. The decline in interest
expense was the result of the scheduled amortization of the outstanding loan
principal balances.
The unfavorable change in the Partnership's operating loss resulted from a
decrease in interest income of $131,000 and an increase in management fee
expense of $34,000. Interest income decreased due to a decline in the average
amount of the Partnership's cash reserves as a result of a special distribution
made in February 1997. Management fees increased due to the increase during
fiscal 1997 in the Partnership's distributable cash upon which management fees
are based, as discussed further above.
Inflation
---------
The Partnership completed its sixteenth full year of operations as of
September 30, 2000, and the effects of inflation and changes in prices on
revenues and expenses through that date and for the period through the date of
the Partnership's liquidation have not been significant.
Item 7A. Market Risk Disclosures
---------------------------------
As discussed further in the notes to the accompanying financial
statements, the Partnership's financial instruments are limited to cash and cash
equivalents. The cash equivalents were invested exclusively in short-term money
market instruments. The Partnership does not invest in derivative financial
instruments or engage in hedging transactions. In light of these facts and the
Partnership's subsequent liquidation, management does not believe that the
Partnership's financial instruments have any material exposure to market risk
factors.
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 41 8/22/96
Terrence E. Fancher Director 47 10/10/96
Walter V. Arnold Senior Vice President and Chief
Financial Officer 53 10/29/85
Thomas W. Boland Vice President and Controller 38 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.
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, 2000, 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. Distributions remained at that level through
the first quarter of fiscal 1999. Because of the reduction in distributable cash
flow received by the Partnership as a result of the sale of the Hurstbourne
Apartments, the annual distribution rate was reduced to 2.5% for the quarter
ended March 31, 1999. Distributions were suspended again subsequent to the
payment made on February 15, 2000 for the quarter ended December 31, 1999.
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
was entitled to 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. No such disposition fees
were earned by the Adviser through the date of the Partnership's liquidation.
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 for federal income tax purposes 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 was 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 were distributed 100% to the Limited 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 was 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 management fees of $35,000 for the year ended September 30,
2000. Regular quarterly distributions to the Limited Partners, upon which the
management fees are based, were suspended effective for the quarter ended March
31, 2000. Since distributions were no longer being paid, no basic management
fees were earned by the Adviser subsequent to the quarter ended December 31,
1999. Asset management fees, which are earned upon the payment of operating
distributions to the Limited Partners, were not earned subsequent to March 31,
2000. Accounts payable - affiliates at September 30, 1999 consisted of
management fees payable to the Adviser. No incentive management fees were earned
during fiscal 2000.
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, 2000 is $120,000, 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 $8,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended September 30, 2000. 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) A Current Report on Form 8-K dated December 5, 2000 was filed
subsequent to the year ended September 30, 2000 to report the sale
of the Partnership's final asset and is hereby incorporated herein
by reference.
(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: December 29, 2000
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: December 29, 2000
----------------------- -----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: December 29, 2000
----------------------- -----------------
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
-----------------
Page Number in the Report
Exhibit No. Description of Document or Other Reference
----------- --------------------------------------- -------------------------
(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
Restated Certificate and Agreement by reference.
Limited Partnership.
(10) Material contracts previously filed as Filed with the Commission
exhibits to registration statements and pursuant to Section 13 or
amendments thereto of the registrant 15(d) of the Securities
together with all such contracts filed Exchange Act of 1934 and
as exhibits of previously filed Forms incorporated herein by
8-K and Forms 10-K are hereby reference.
incorporated herein by reference.
(13) Annual Reports to Limited Partners No Annual Report for the
year ended September 30,
2000 has been sent to
the Limited Partners. An
Annual Report will be
made available 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.
<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-3
Balance sheets as of September 30, 2000 and 1999 F-4
Statements of income for the years ended September 30, 2000,
1999 and 1998 F-5
Statements of changes in partners' capital (deficit) for the
years ended September 30, 2000, 1999 and 1998 F-6
Statements of cash flows for the years ended September 30, 2000,
1999 and 1998 F-7
Notes to financial statements F-8
Gwinnett Mall Corners Associates:
Report of independent auditors F-17
Balance sheet as of September 30, 2000 F-18
Statement of income for the year ended September 30, 2000 F-19
Statement of changes in venturers' capital (deficit) for the
year ended September 30, 2000 F-20
Statement of cash flows for the year ended September 30, 2000 F-21
Notes to financial statements F-22
Schedule III - Real Estate and Accumulated Depreciation F-27
1999 Combined Joint Ventures of Paine Webber Income Properties
Six Limited Partnership:
Report of independent auditors F-28
Combined balance sheets as of September 30, 1999 and 1998 F-29
Combined statements of income and changes in ventures' capital
for the years ended September 30, 1999, 1998 and 1997 F-30
Combined statements of cash flows for the years ended
September 30, 1999, 1998 and 1997 F-31
Notes to combined financial statements F-32
Schedule III - Real Estate and Accumulated Depreciation F-40
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, 2000 and 1999, and the
related statements of income, changes in partners' capital (deficit), and cash
flows for each of the three years in the period ended September 30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
December 22, 2000
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 2000 and 1999
(In thousands, except per Unit amounts)
ASSETS
------
2000 1999
---- ----
Cash and cash equivalents $ 3,769 $ 12,665
Accounts receivable - affiliates - 879
-------- --------
$ 3,769 $ 13,544
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Losses of joint ventures in excess of investments
and advances $ 126 $ 765
Accounts payable - affiliates - 13
Accrued expenses and other liabilities 69 21
-------- --------
Total liabilities 195 799
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net loss (610) (617)
Cumulative cash distributions (576) (571)
Limited Partners ($1,000 per unit; 60,000 Units
issued):
Capital contributions, net of offering costs 53,959 53,959
Cumulative net loss (8,158) (8,772)
Cumulative cash distributions (41,042) (31,255)
-------- --------
Total partners' capital 3,574 12,745
-------- --------
$ 3,769 $ 13,544
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the years ended September 30, 2000, 1999 and 1998
(In thousands, except per Unit amounts)
2000 1999 1998
---- ---- ----
Revenues:
Interest and other income $ 297 $ 445 $ 106
Expenses:
Management fees 35 113 155
General and administrative 541 334 252
-------- --------- ---------
576 447 407
-------- --------- ---------
Operating loss (279) (2) (301)
Partnership's share of gains on sales
of operating investment properties - 18,496 -
Partnership's share of ventures' income 900 496 1,128
-------- --------- ---------
Net income $ 621 $ 18,990 $ 827
======== ========= =========
Per Limited Partnership Unit:
Net income $ 10.24 $313.18 $ 13.64
======= ======= =======
Cash distributions $163.14 $182.68 $ 35.08
======= ======= =======
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, 2000, 1999 and 1998
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
Balance at September 30, 1997 $ (1,353) $ 7,388 $ 6,035
Cash distributions (22) (2,105) (2,127)
Net income 8 819 827
-------- -------- --------
Balance at September 30, 1998 (1,367) 6,102 4,735
Cash distributions (19) (10,961) (10,980)
Net income 199 18,791 18,990
-------- -------- --------
Balance at September 30, 1999 (1,187) 13,932 12,745
Cash distributions (5) (9,787) (9,792)
Net income 7 614 621
-------- -------- --------
Balance at September 30, 2000 $ (1,185) $ 4,759 $ 3,574
======== ======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 2000, 1999 and 1998
Increase (Decrease) in Cash and Cash Equivalents=
(In thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 621 $ 18,990 $ 827
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Partnership's share of gain on sale
of operating investment properties - (18,496) -
Partnership's share of ventures' income (900) (496) (1,128)
Changes in assets and liabilities:
Accounts receivable - affiliates 879 - -
Accounts payable - affiliates (13) (3) -
Accrued expenses and other liabilities 48 (6) (23)
-------- --------- --------
Total adjustments 14 (19,001) (1,151)
-------- --------- --------
Net cash provided by (used in)
operating activities 635 (11) (324)
-------- --------- --------
Cash flows from investing activities:
Distributions from joint ventures 611 22,410 1,877
Additional investments in joint ventures (350) (98) -
-------- --------- --------
Net cash provided by investing
activities 261 22,312 1,877
-------- --------- --------
Cash flows from financing activities:
Distributions to partners (9,792) (10,980) (2,127)
-------- --------- --------
Net cash used in financing
activities (9,792) (10,980) (2,127)
-------- --------- --------
Net (decrease) increase in cash and
cash equivalents (8,896) 11,321 (574)
Cash and cash equivalents, beginning of year 12,665 1,344 1,918
-------- --------- --------
Cash and cash equivalents, end of year $ 3,769 $ 12,665 $ 1,344
======== ========= ========
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. 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. As discussed further in Note 4, the two multi-family
properties were sold during fiscal 1999. As of September 30, 2000, the one
remaining retail property was the Mall Corners Shopping Center, a 304,000 square
foot retail center located in suburban Atlanta, Georgia.
As discussed further in Note 4, subsequent to year-end, on December 5,
2000, the Partnership completed the disposition of the Mall Corners Shopping
Center. Throughout fiscal 2000, the Partnership had been continuing to explore
its strategic alternatives for the Mall Corners Shopping Center investment and
had continued marketing efforts for the sale of the property. While the
Partnership received interest from several prospective buyers over the last 15
months to purchase the property, and worked diligently through protracted
negotiations with these prospective buyers, none were willing to close on a sale
transaction. Further, based on the current leasing status of the Shopping
Center, which was only 50% occupied as of September 30, 2000, the property's
operations were insufficient to meet its mortgage loan obligation and the loan
had gone into default as of November 1, 2000. Subsequently, the lender initiated
foreclosure proceedings on November 6, 2000. However, shortly before the
anticipated completion of foreclosure proceedings by the lender, negotiations
were reopened among the Partnership, its joint venture partner and the Mall
Corners' mortgage lender. On December 5, 2000 an agreement for the assignment
and transfer of the Partnership's interest in Mall Corners Shopping Center was
reached among the three parties, whereby the joint venture partner cured the
mortgage loan default, and the Partnership assigned and transferred its
ownership interest in Mall Corners to an affiliate of the joint venture partner,
which affiliate then also assumed the property's mortgage loan. In exchange for
transferring its interest in the property, the Partnership received from the
lender a release from liabilities arising from and after the transfer and
received from the affiliate of the joint venture partner indemnification for
past and future liabilities and a payment of $350,000. This payment was intended
to represent a return of the Partnership's June 2000 payment made to the joint
venture partner in return for the full and sole authority over all matters
related to the property as part of the Partnership's strategy to dispose of its
assets and complete a liquidation. With the sale of the Mall Corners property
completed, the Partnership is currently proceeding with an orderly liquidation.
On December 20, 2000, a Liquidating Distribution, which consisted of the
remaining Partnership reserves after the payment of all liquidation-related
expenses, was paid to unitholders of record as of the December 5, 2000
disposition date (see Note 5). The formal liquidation of the Partnership will be
completed prior to the end of calendar year 2000.
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, 2000 and 1999 and revenues and expenses for
each of the three years in the period ended September 30, 2000. 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 owned operating
properties. The Partnership accounted for its investments in joint venture
partnerships using the equity method because the Partnership did 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, 2000 and 1999 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.
The principal differences between the Partnership's accounting on a federal
income tax basis and the accompanying financial statements prepared in
accordance with generally accepted accounting principles (GAAP) relate to the
methods used to determine the depreciation expense on the unconsolidated
operating investment properties and the treatment of the sale of the
Partnership's second mortgage interest in the 150 Broadway investment during
fiscal 1996.
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
was entitled to 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. No such disposition fees
were earned by the Adviser through the date of the Partnership's liquidation.
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 for federal income tax purposes 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 was 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 were distributed 100% to the Limited 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 was 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 management fees of $35,000, $113,000 and $155,000 for the
years ended September 30, 2000, 1999 and 1998, respectively. Regular quarterly
distributions to the Limited Partners, upon which the management fees are based,
were suspended effective for the quarter ended March 31, 2000. Since
distributions were no longer being paid, no basic management fees were earned by
the Adviser subsequent to the quarter ended December 31, 1999. Asset management
fees, which are earned upon the payment of operating distributions to the
Limited Partners, were not earned subsequent to March 31, 2000. Accounts payable
- affiliates at September 30, 1999 consisted of management fees payable to the
Adviser. No incentive management fees have been earned to date.
Included in general and administrative expenses for the years ended
September 30, 2000, 1999 and 1998 is $120,000, $115,000 and $111,000,
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 $8,000, $12,000 and $6,000 (included in general and administrative expenses)
for managing the Partnership's cash assets during fiscal 2000, 1999 and 1998,
respectively.
Accounts receivable - affiliates at September 30, 1999 represented the
Partnership's remaining share of the net sale proceeds and operating cash flow
to be received from Regent's Walk Associates subsequent to the sale of the
Regent's Walk Apartments (see Note 4). Such amount was received during fiscal
2000.
4. Investments in Joint Ventures
-----------------------------
As of September 30, 2000 and 1999, the Partnership had an investment in
one remaining joint venture (three at October 1, 1998), Gwinnett Mall Corners
Associates, which owned an operating investment property, the Mall Corners
Shopping Center. As discussed further below, subsequent to year-end the
Partnership disposed of its investment in this final real estate asset. 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. 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 had sufficient
capital resources to fund its share of potential capital improvement expenses at
the Mall Corners Shopping Center (see below).
On September 30, 1999, Regent's Walk Associates, a joint venture in which
the Partnership had an interest, sold its operating investment property, the
Regent's Walk Apartments, located in Overland Park, Kansas, to an affiliate of
its unaffiliated joint venture partner for $17.75 million. The sale generated
net proceeds of approximately $8,068,000, after the assumption of the
outstanding first mortgage loan of approximately $8,624,000, accrued interest of
approximately $51,000, closing proration adjustments of approximately $189,000,
and a payment of approximately $818,000 to the Partnership's non-affiliated
co-venture partner for its share of the net proceeds in accordance with the
terms of the joint venture agreement. In addition, as a result of the Regent's
Walk sale, the Partnership received $117,000 which had been held in escrow at
the property plus $257,000 as a result of operations of the property through the
date of sale. The Partnership made a special distribution to the Limited
Partners of $9,180,000, or $153 per original $1,000 investment, on October 15,
1999 to Unitholders of record on the September 30, 1999 sale date. Of the
$153.00 total, $140.30 resulted from the sale of Regent's Walk and $12.70 was
from Partnership reserves that exceed expected future requirements.
<PAGE>
Condensed combined financial statements of these joint ventures follow:
Condensed Combined Balance Sheets
September 30, 2000 and 1999
(In thousands)
Assets
2000 1999
---- ----
Current assets $ 1,933 $ 1,303
Operating investment properties, net 17,900 19,360
Other assets 40 731
-------- --------
$ 19,873 $ 21,394
======== ========
Liabilities and Venturers' Capital (Deficit)
Current liabilities $ 1,262 $ 1,389
Other liabilities 92 94
Long-term debt 16,912 17,554
Partnership's share of combined capital (deficit) (903) (817)
Co-venturers' share of combined capital (deficit) 2,510 3,174
-------- --------
$ 19,873 $ 21,394
======== ========
Reconciliation of Partnership's Investment
(in thousands)
2000 1999
---- ----
Partnership's share of capital (deficit),
as shown above $ (903) $ (817)
Excess basis due to payment to co-venturer 350 -
Partnership's share of current
liabilities and long-term debt 427 52
-------- --------
Investments in unconsolidated joint ventures,
at equity $ (126) $ (765)
======== ========
Condensed Combined Summary of Operations For the years
ended September 30, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
---- ---- ----
Rental revenues and
expense recoveries $ 3,314 $ 6,947 $ 9,833
Lease termination fees 1,248 385 -
Interest income 69 66 54
-------- -------- -------
4,631 7,398 9,887
Property operating expenses 857 2,575 3,578
Depreciation and amortization 820 2,033 2,444
Loss on impairment of operating
investment property 745 - -
Interest expense 1,309 2,294 2,737
-------- -------- -------
3,731 6,902 8,759
-------- -------- -------
Operating income 900 496 1,128
Gain on sales of operating
investment properties - 19,530 -
-------- -------- -------
Net income $ 900 $ 20,026 $ 1,128
======== ======== =======
Partnership's share of combined income $ 900 $ 18,992 $ 1,128
Co-venturers' share of combined income - 1,034 -
-------- -------- -------
$ 900 $ 20,026 $ 1,128
======== ======== =======
<PAGE>
Reconciliation of Partnership's Share of Operations
(in thousands)
2000 1999 1998
---- ---- ----
Partnership's share of combined income,
as shown above $ 900 $ 18,992 $ 1,128
Amortization of excess basis - - -
-------- -------- -------
Partnership's share of unconsolidated
ventures' net income $ 900 $ 18,992 $ 1,128
======== ======== =======
The Partnership's share of ventures' net income is presented as follows in
the accompanying statements of operations (in thousands):
2000 1999 1998
---- ---- ----
Partnership's share of ventures' income $ 900 $ 496 $ 1,128
Partnership's share of gain on sales of
operating investment properties - 18,496 -
-------- -------- -------
$ 900 $ 18,992 $ 1,128
======== ======== =======
The Partnership received cash distributions from the joint ventures as set
forth below (in thousands):
2000 1999 1998
---- ---- ----
Regent's Walk Associates $ - $ 7,759 $ 406
Kentucky-Hurstbourne Associates - 13,376 674
Gwinnett Mall Corners Associates 611 1,275 797
-------- -------- -------
$ 611 $ 22,410 $ 1,877
======== ======== =======
A description of the property owned by the remaining joint venture and the
terms of the joint venture agreement are summarized as follows:
Gwinnett Mall Corners Associates
--------------------------------
On August 28, 1985, the Partnership acquired an interest in Gwinnett Mall
Corners Associates, a Georgia general partnership that owned and operated Mall
Corners Shopping Center, a 304,000 gross leasable square foot shopping center,
located in Gwinnett County, Georgia. The Partnership was a general partner in
the joint venture. The Partnership's co-venture partner was 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
had a 10-year term, bore interest at a rate of approximately 7.4% per annum and
required monthly principal and interest payments based on a 20-year amortization
schedule.
Subsequent to year-end, on December 5, 2000, the Partnership completed the
disposition of the Mall Corners Shopping Center. Throughout fiscal 2000, the
Partnership had been continuing to explore its strategic alternatives for the
Mall Corners Shopping Center investment and had continued marketing efforts for
the sale of the property. While the Partnership received interest from several
prospective buyers over the last 15 months to purchase the property, and worked
diligently through protracted negotiations with these prospective buyers, none
were willing to close on a sale transaction. Further, based on the current
leasing status of the Shopping Center, which was only 50% occupied as of
September 30, 2000, the property's operations were insufficient to meet its
mortgage loan obligation and the loan had gone into default as of November 1,
2000. Subsequently, the lender initiated foreclosure proceedings on November 6,
2000. However, shortly before the anticipated completion of foreclosure
proceedings by the lender, negotiations were reopened among the Partnership, its
joint venture partner and the Mall Corners' mortgage lender. As a result, and as
described further below, a foreclosure action was avoided and a disposition of
the Partnership's Mall Corners investment occurred on December 5, 2000.
While extensive efforts to sell Mall Corners were ongoing throughout
fiscal 2000, the Partnership was notified in August 2000 that the former theater
tenant, which had continued to pay rent under its lease obligation through July
2000, had filed for Chapter 11 bankruptcy protection on August 7, 2000. As a
result of the bankruptcy hearing held on August 30, 2000, the former theater
tenant was released from its lease obligation at Mall Corners Shopping Center
effective August 31, 2000 and did not make a full rent payment in August. The
termination of this lease agreement significantly reduced the property's
operating income. Consequently, for the months of September and October, the
property experienced shortfalls in cash flow, which the Partnership funded in
anticipation of a sale of the property to a third-party. By the Partnership
doing so, the property remained current on its mortgage loan obligation in order
to effect a potential assumption of the mortgage loan by a purchaser of the
property. After several potential sale transactions failed to materialize and
before continuing to fund any additional cash flow shortfalls at the property,
the Partnership carefully evaluated current operations at Mall Corners as well
as alternative disposition strategies. The Center's reduced cash flow, which was
insufficient to meet its mortgage loan obligation, negatively impacted the
marketability of the property and impeded the Partnership's ability to negotiate
an economically viable sale of the property. Further, it was determined that
efforts to re-lease and re-position the Center in the local retail market for a
potential sale opportunity in calendar year 2001 would have required substantial
commitments of both capital and time necessary to effect improvement at the
property, and there were no assurances that such commitments would have proven
successful. In consideration of the property's poor operating performance and
the uncertainty of a sale to a third-party, and in an effort to preserve
remaining cash reserves, the Partnership declined to fund additional shortfalls
required to meet the property's mortgage loan obligation.
Following the Partnership's conclusion that it was in the best interests of
the Limited Partners to preserve the Partnership's remaining cash reserves and
to discontinue funding Mall Corners' cash flow shortfalls, the Partnership
commenced discussions with the Mall Corners' lender in an attempt to facilitate
deeding the property back to the lender. In addition, the Partnership continued
to pursue with the lender the possible sale of the property. However, due to the
loan default occurring in November, the lender initiated foreclosure proceedings
on November 6, 2000, which were expected to be completed in early December. The
Partnership believed that, due to the property's current leasing status, the
likelihood of realizing a value significantly in excess of the outstanding
balance of the first mortgage loan was remote. For that reason, the Partnership
was prepared to let the lender complete a foreclosure of the property. Shortly
before the anticipated completion of foreclosure proceedings by the lender, the
Partnership, its joint venture partner and the lender entered into negotiations
regarding the disposition of the Mall Corners investment. The joint venture
partner had indicated a willingness to invest the time and capital necessary to
attempt a long-term re-leasing of the property and had threatened to interfere
with the Partnership's plans to allow the property to be foreclosed upon by the
lender. On December 5, 2000 an agreement for the assignment and transfer of the
Partnership's interest in Mall Corners Shopping Center was reached among the
three parties, whereby the joint venture partner cured the mortgage loan
default, and the Partnership assigned and transferred its ownership interest in
Mall Corners to an affiliate of the joint venture partner, which affiliate then
also assumed the property's mortgage loan. In exchange for transferring its
interest in the property, the Partnership received from the lender a release
from liabilities arising from and after the transfer and received from the
affiliate of the joint venture partner indemnification for past and future
liabilities and a payment of $350,000. This payment was intended to represent a
return of the Partnership's June 2000 payment made to the joint venture partner
in return for the full and sole authority over all matters related to the
property as part of the Partnership's strategy to dispose of its assets and
complete a liquidation. As a result, the disposition of the Mall Corners
investment was completed on December 5, 2000.
The Partnership will recognize a gain for financial reporting purposes on
the disposition of the Mall Corners joint venture interest in fiscal 2001
through the date of the Partnership's liquidation. As previously reported, the
Partnership had been focusing on a disposition of Mall Corners, its remaining
real estate investment, and a liquidation of the Partnership. With the
disposition of the Mall Corners investment completed, the Partnership is
currently proceeding with an orderly liquidation. On December 20, 2000, a Final
Distribution of $3,864,000, or $64.40 per original $1,000 investment, was paid
to unitholders of record as of the December 5, 2000 disposition date. This Final
Distribution represents the Partnership's remaining reserves after paying
liquidation-related expenses (see Note 5). A formal liquidation of the
Partnership is being finalized and is expected to be completed by December 29,
2000.
As noted above, as of September 30, 2000 the Mall Corners Shopping Center
was 50% occupied, as compared to an occupancy level of 73% at September 30,
1999. On July 19, 1999, the owner of Upton's, an anchor tenant that leased 16%
of the Center's rentable area, announced that all of the stores in the chain
would be closed. At the end of the first quarter of fiscal 2000, Upton's closed
its operations and vacated the premises. During the quarter ended June 30, 2000,
the Partnership and its co-venture partner reached a settlement with Upton's on
a termination agreement under which the tenant agreed to pay the sum of
$1,200,000 in return for a release from its remaining lease obligation, which
was to have run through September 2005. The Mall Corners' mortgage lender
required that 100% of this termination payment be held in escrow for use to fund
future leasing expenses. In addition, another tenant, Suit Max, discontinued its
operation at the Center during the quarter ended December 31, 1999 and vacated
16,530 square feet, or 5% of the Center's leasable area. During the quarter
ended June 30, 2000, the Partnership and its co-venture partner reached a
settlement with Suit Max on a termination agreement whereby the tenant agreed to
pay the sum of $215,000 (which included past due rent) in return for a release
from its remaining lease obligation, which was to have run through February
2004. This termination payment was released to the joint venture in April 2000.
The 50% occupancy level reflected the vacancy for the Upton's and Suit Max
stores described above, which together represented 21% of the center's leasable
area, the former Levitz Furniture store, which represented 16% of the Center's
leasable area, the former movie theatre that occupied 8% of the leasable area
and several shop space stores that represent 5% of the leaseable area. As also
previously reported, the store formerly occupied by Toys R Us that abuts Mall
Corners Shopping Center remained vacant throughout fiscal 2000. While the
closing of the Toys R Us store did not have a direct financial impact on Mall
Corners, its vacancy continued to have a negative impact on the Center's
appearance and the number of shoppers entering the Center. During fiscal 2000,
an internally prepared valuation of the Mall Corners property indicated that
certain operating assets, consisting of land and building and improvements, were
impaired 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." In accordance with SFAS No. 121, the Joint Venture
recorded a reduction in the net carrying value of such assets amounting to
$745,000 during the year ended September 30, 2000. Such impairment loss is
included in the Partnership's share of ventures' income on the accompanying
fiscal 2000 income statement.
During the quarter ended December 31, 1999, the Partnership had initiated
the Right of First Offer provision of the Mall Corners joint venture agreement.
In accordance with the agreement, the Partnership gave formal notice to the
co-venture partner that it was being given the opportunity to make a first offer
for the purchase of the property at a specified sales price of $22 million. The
co-venturer had until January 31, 2000 to notify the Partnership of its intent
to purchase the property and to put up a non-refundable deposit in connection
with the transaction. While the co-venturer expressed an interest in completing
a transaction at the specified price, it did not abide by the terms of the joint
venture agreement by making the required deposit on or before January 31, 2000.
As a result, during the second quarter of fiscal 2000 the Partnership negotiated
with a third party prospective purchaser for a potential sale of Mall Corners at
terms no less favorable than those specified in the first offer notice; however,
the parties were unable to formalize a purchase and sale agreement. During the
quarter ended June 30, 2000, the Partnership again notified its joint venture
partner that the opportunity was being given to the joint venture partner to
exercise its Right of First Offer to purchase the property at a specified sales
price of approximately $21 million. While the joint venture partner again
expressed an interest in completing a transaction at the specified price, the
parties instead reached an agreement whereby the joint venture partner agreed to
waive its Right of First Offer in return for a payment from the Partnership of
$350,000. The $350,000 payment was recorded as an additional investment in the
Mall Corners joint venture on the accompanying balance sheet as of September 30,
2000. As discussed further above, the Partnership received the return of this
$350,000 payment subsequent to year-end in connection with the disposition of
the Mall Corners investment.
The joint venture agreement provided that the Partnership would 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,
2000 amounted to $2,553,000, which includes minimum guaranteed distributions in
arrears of $427,000. The minimum guaranteed distributions were recognized as a
liability 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 were not recorded in the venture's financial
statements.
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.
5. Subsequent Event
----------------
On December 20, 2000, the Partnership made a Final Liquidating Distribution
of $3,864,000 to the Limited Partners as a result of the disposition of the Mall
Corners Shopping Center (see Note 4). The difference between the sum of the
payment received in connection with the disposition of Mall Corners, of
$350,000, and the net assets of the Partnership as of September 30, 2000
(excluding the equity method carrying value of the investment in Mall Corners),
of $3,700,000, and the amount of the Liquidating Distribution, of $3,864,000,
totals $186,000. This difference is comprised of additional Partnership
operating and liquidating expenses of $184,000 and contributions to the Mall
Corners joint venture during October, 2000 of $25,000, net of additional
interest income of $23,000. Such Partnership expenses include $3,000 paid to
Mitchell Hutchins for managing the Partnership's cash assets through its
liquidation and $48,000 paid to an affiliate of the Managing General Partner for
providing certain financial, accounting and investor communication services
through the Partnership's liquidation date (see Note 3).
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Gwinnett Mall Corners Associates:
We have audited the accompanying balance sheet of Gwinnett Mall Corners
Associates as of September 30, 2000 and the related statements of income,
changes in venturers' capital and cash flows for the year then ended. Our audit
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Venture's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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 Gwinnett Mall Corners
Associates at September 30, 2000 and the results of its operations and cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States. 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.
As discussed in Note 1 to the financial statements, several of the tenants
leasing significant space in the Venture's property have recently terminated
their leases, and the Venture has not yet replaced these tenants. This raises
substantial doubt about the Venture's ability to continue as a going concern.
Management's plans as to these matters are described in Note 6. The fiscal 2000
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
October 27, 2000, except for
Note 6 as to which the date is
December 5, 2000
<PAGE>
GWINNETT MALL CORNERS ASSOCIATES
BALANCE SHEET
September 30, 2000
(In thousands)
ASSETS
------
2000
----
Current assets:
Cash and cash equivalents $ 54
Prepaid expenses 23
Accounts receivable from tenants and others 41
Cash reserves for lease acquisition costs
and capital expenditures 1,740
Cash reserve for insurance and taxes 75
---------
Total current assets 1,933
Cash reserve for tenant security deposits 40
Operating investment property:
Land 4,005
Buildings, improvements and equipment 13,895
---------
Net operating investment property 17,900
---------
$ 19,873
=========
LIABILITIES AND VENTURERS' CAPITAL
----------------------------------
Current liabilities:
Distributions payable to venturer $ 427
Current portion of long-term debt 642
Accounts payable and accrued expenses 85
Accrued interest 108
---------
Total current liabilities 1,262
Long-term debt 16,912
Tenant security deposits 92
Venturers' capital 1,607
---------
$ 19,873
=========
See accompanying notes.
<PAGE>
GWINNETT MALL CORNERS ASSOCIATES
STATEMENT OF INCOME
For the year ended September 30, 2000
(In thousands)
2000
----
Revenues:
Rental income and expense reimbursements $ 3,314
Lease termination fees 1,248
Interest income 69
--------
4,631
Expenses:
Interest 1,309
Depreciation 787
Loss on impairment of operating
investment property 745
Property taxes 369
Insurance 27
Management fees 86
Maintenance and repairs 219
Utilities 99
General and administrative 53
Amortization 33
Other 4
--------
3,731
--------
Net income $ 900
========
See accompanying notes.
<PAGE>
GWINNETT MALL CORNERS ASSOCIATES
STATEMENT OF CHANGES IN VENTURERS' CAPITAL (DEFICIT)
For the year ended September 30, 2000
(In thousands)
PWIP 6 MC III Total
------- --------- --------
Balance at September 30, 1999 $ (1,192) $ 3,175 $ 1,983
Cash distributions (611) - (611)
Write-off of contribution receivable - (665) (665)
Net income 900 - 900
-------- -------- --------
Balance at September 30, 2000 $ (903) $ 2,510 $ 1,607
======== ======== ========
See accompanying notes.
<PAGE>
GWINNETT MALL CORNERS ASSOCIATES
STATEMENT OF CASH FLOWS
For the year ended September 30, 2000
Increase (Decrease) in Cash
(In thousands)
2000
----
Cash flows from operating activities:
Net income $ 900
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 820
Loss on impairment of operating
investment property 745
Write-off of unamortized tenant improvements 55
Changes in assets and liabilities:
Prepaid expenses (4)
Accounts receivable from tenants and others 17
Cash reserve for insurance and taxes 5
Cash reserve for tenant security deposits (9)
Accounts payable and accrued expenses (18)
Accounts payable - affiliate (82)
Accrued interest (7)
Tenant security deposits (2)
--------
Total adjustments 1,520
--------
Net cash provided by operating activities 2,420
--------
Cash flows from investing activities:
Additions to operating investment properties (72)
Payment of leasing commissions (55)
Cash reserve for lease acquisition costs and
capital expenditures (1,051)
--------
Net cash used in investing activities (1,178)
--------
Cash flows from financing activities:
Distributions to venturers (611)
Principal payments on long-term debt (596)
--------
Net cash used in financing activities (1,207)
--------
Net increase in cash and cash equivalents 35
Cash and cash equivalents, beginning of year 19
--------
Cash and cash equivalents, end of year $ 54
========
Cash paid during the year for interest $ 1,316
========
See accompanying notes.
<PAGE>
GWINNETT MALL CORNERS ASSOCIATES
Notes to Financial Statements
September 30, 2000
1. Organization and Nature of Operations
-------------------------------------
Gwinnett Mall Corners Associates, a Georgia general partnership (the Joint
Venture), was organized on August 28, 1985, by PaineWebber Income Properties Six
Limited Partnership (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.
During fiscal 2000, several of the tenants leasing space at the Joint
Venture's operating investment property terminated their leases. The Joint
Venture is seeking new tenants, however, few leases have been signed. As a
result, the Joint Venture's cash flow for the year ending September 30, 2001 may
be insufficient to allow it to meet all of its financial obligations on a timely
basis. These matters raise substantial doubt about the Partnership's ability to
continue as a going concern. The accompanying financial statements do not
reflect the adjustments, if any, which may be required if the Partnership is
unable to continue as a going concern.
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, 2000 and revenues and expenses for the year
then ended. Actual results could differ from the estimates and assumptions used.
Basis of presentation
---------------------
The records of Gwinnett Mall Corners 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.
Revenue Recognition
-------------------
The Joint Venture leases space at the operating investment property under
long-term operating leases. Rental revenues are recognized on a straight-line
basis as earned pursuant to the terms of the leases.
Operating investment property
-----------------------------
The operating investment property is 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 or internally prepared valuations on the
operating investment property. Such appraisals or valuations make use of a
combination of certain generally accepted valuation techniques, including direct
capitalization, discounted cash flows and comparable sales analysis. During
fiscal 2000, an internally prepared valuation of the operating investment
property indicated that certain operating assets, consisting of land and
building and improvements, were impaired. In accordance with SFAS No. 121, the
Joint Venture recorded a reduction in the net carrying value of such assets
amounting to $745,000 during the year ended September 30, 2000.
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. 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.
Income tax matters
------------------
The Joint Venture is 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 were 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 were amortized on the effective interest
method over the term of the related mortgage loans.
Cash and cash equivalents
-------------------------
For purposes of reporting cash flows, the Joint Venture considers all
highly liquid investments with original maturities of 90 days of less to be cash
equivalents.
Restricted cash
---------------
The reserve for security deposits consists of cash held for tenants'
security deposits pursuant to lease agreements. The reserve for security
deposits was underfunded by approximately $52,000 at September 30, 2000.
Pursuant to the Joint Venture Agreement, an initial amount of $15,000 plus
1% of gross rental revenue thereafter is to be allocated to the reserve for
capital expenditures. No amounts are required to be funded at any time the
capital expenditure reserve balance exceeds $250,000. The balance in the capital
expenditure reserve totaled $29,000 at September 30, 2000. Two escrow accounts
were also established pursuant to the long-term debt described in Note 5 for (i)
real estate taxes and insurance and (ii) tenant improvements. The balance in the
real estate tax and insurance escrow totaled $75,000 as of September 30, 2000.
The balance in the tenant improvement escrow totaled $482,000 as of September
30, 2000. An escrow for future lease acquisition costs was also established in
fiscal 2000. The ending balance of $1,229,000 represents lease termination fee
income and accrued interest and is restricted at the request of the mortgage
lender.
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. The fair value of long-term debt is estimated using discounted cash
flow analyses, based on the current market rate for similar types of borrowing
arrangements (see Note 5).
3. The Joint Venture Agreement and Related Party Transactions
----------------------------------------------------------
The 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
$611,000 in fiscal 2000. Cumulative preferred distributions in arrears at
September 30, 2000 amounted to approximately $2,553,000 including minimum
guaranteed distributions in arrears of $427,000. The minimum guaranteed
distributions are recognized as a liability 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 recorded in the accompanying financial statements.
The receivable from MC III totalled $665,000 at September 30, 1999. During
June 2000, the partners agreed to the terms of a Release whereby a number of
claims and potential claims, as defined, between the partners were released,
including the Joint Venture's full release of the $665,000 owed to it by MC III.
Hence, the receivable from MC III was written off to MC III's capital account
during fiscal 2000.
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, 2000. 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
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
outstanding as of the end of fiscal 2000. Operating/default loans of $89,000
were required in fiscal years prior to 1991 (see Note 5). These loans were
repaid 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 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 a
former 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 fiscal 2000 totalled $86,000. The property manager
provided maintenance and leasing services to the joint venture totalling $87,000
in fiscal 2000.
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 is $1,047,000 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.
4. Leasing Activities
------------------
The Joint Venture derives its income from noncancellable operating leases
which expire on various dates through the year 2010. The operating property was
approximately 50% occupied as of September 30, 2000. The approximate future
minimum lease payments to be received under noncancellable operating leases in
effect as of September 30, 2000 are as follows (in thousands):
Year ending September 30:
-------------------------
2001 $ 2,137
2002 1,942
2003 1,593
2004 1,421
2005 1,026
Thereafter 1,120
--------
$ 9,239
========
<PAGE>
Three of the venture's tenants individually comprise more than 10% of the
venture's fiscal 2000 base rental income. These tenants operate in the clothing
retailing, restaurant and the furniture retailing industries. The same three
tenants individually comprise more than 10% of the venture's total future
minimum rents. Their industry and future minimum rents are as follows (in
thousands):
Clothing retailer $1,313
Restaurant $1,537
Furniture retailer $1,711
5. Long-term Debt
--------------
Long-term debt consists of the following (in thousands):
2000
----
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, 2000. $17,554
=======
Scheduled maturities of long-term debt for the next five fiscal years and
thereafter are as follows (in thousands):
2001 $ 642
2002 691
2003 744
2004 801
2005 862
Thereafter 13,814
--------
$ 17,554
========
6. Subsequent Events
-----------------
As of September 30, 2000, PWIP6 was marketing the operating investment
property for sale although no contract had been signed. On December 5, 2000,
PWIP6 assigned its interest in the Joint Venture to one of the individual
partners of MC III. In exchange for transferring its interest in the property,
PWIP6 received from the lender a release from liabilities arising from and after
the transfer and received from the affiliate of MC III indemnification for past
and future liabilities and a payment of $350,000. This payment was intended to
represent a return of PWIP6's June 2000 payment made to MCIII in return for the
full and sole authority over all matters related to the Joint Venture's
operating investment property as part of PWIP6's strategy to dispose of its
assets and complete a liquidation. At the same time, this affiliate, along with
MC III, agreed to contribute the Joint Venture's operating investment property
to a newly formed entity; Glenwood Lotz Mall Corners Holding Company, LLC
(Glenwood). The parties comprising the ownership of the Glenwood entity intend
to operate the shopping center and attempt to release the currently vacant space
during fiscal 2001.
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation
GWINNETT MALL CORNERS ASSOCIATES
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 2000
(In thousands)
<TABLE>
<CAPTION>
Life on Which
Initial Cost to Costs Gross Amount at Which Carried at Depreciation
Partnership Capitalized Close of period in Latest
Buildings (Removed) Buildings Income
and Subsequent to and Accumulated Date of Date Statement
Description Encumbrances Land Improvements Acquisition Land Improvements Total Depreciation Construction Acquired is Computed
----------- ------------ ---- ------------ ----------- ---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center -
Gwinnett
County, GA $17,554 $7,039 $21,509 $(10,648) $4,005 $13,895 $17,900 - 1985 8/28/85 5 to 30 Yrs.
Notes
-----
(A) The aggregate cost of real estate owned at September 30, 2000 for Federal income tax purposes is approximately $23,607.
(B) See Note 5 of Notes to Financial Statements for a description of the long-term mortgage debt encumbering the
operating investment property.
(C) Reconciliation of real estate owned:
2000
----
Balance at beginning of year $31,383
Additions and improvements 72
Adjustment for impairment loss (13,555)
-------
Balance at end of year $17,900
=======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $12,023
Depreciation expense 787
Adjustment for impairment loss (12,810)
-------
Balance at end of year $ -
=======
</TABLE>
<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, 1999 and 1998, 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, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the combined results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with accounting principles generally accepted
in the United States. 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
December 10, 1999
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES SIX LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1999 and 1998
(In thousands)
ASSETS
------
1999 1998
---- ----
Current assets:
Cash and cash equivalents $ 457 $ 1,206
Prepaid expenses 19 21
Accounts receivable from tenants and others 58 475
Cash reserve for capital expenditures 689 351
Cash reserve for insurance and taxes 80 207
-------- --------
Total current assets 1,303 2,260
Cash reserve for tenant security deposits 31 28
Capital contributions receivable from
Mall Corners III 665 665
Operating investment properties, at cost:
Land 7,039 9,941
Buildings, improvements and equipment 24,344 56,960
-------- --------
31,383 66,901
Less accumulated depreciation (12,023) (25,487)
-------- --------
Net operating investment properties 19,360 41,414
Deferred expenses, net of accumulated
amortization of $2,649 in 1999 and $3,342 in 1998 35 280
-------- --------
$ 21,394 $ 44,647
======== ========
LIABILITIES AND VENTURERS' CAPITAL
----------------------------------
Current liabilities:
Distributions payable to venturers $ 427 $ 558
Notes payable to venturers - 399
Current portion of long-term debt 597 8,805
Accounts payable and accrued expenses 160 551
Accounts payable - affiliate - 25
Accrued interest 115 634
Accrued real estate taxes - 182
Other liabilities 90 225
-------- --------
Total current liabilities 1,389 11,379
Long-term debt 17,554 26,775
Tenant security deposits 94 280
Venturers' capital 2,357 6,213
-------- --------
$ 21,394 $ 44,647
======== ========
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, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
---- ---- ----
Revenues:
Rental income and expense reimbursements $ 6,947 $ 9,833 $ 9,648
Lease termination fees 385 - -
Interest income 66 54 96
-------- -------- --------
7,398 9,887 9,744
Expenses:
Interest 2,294 2,737 2,802
Depreciation 1,703 2,190 2,178
Property taxes 447 620 575
Insurance 68 110 110
Management fees 188 255 353
Maintenance and repairs 685 1,162 717
Utilities 347 582 594
General and administrative 232 218 246
Salaries 285 600 584
Amortization 330 253 245
Other 323 32 34
-------- -------- --------
6,902 8,759 8,438
-------- -------- --------
Operating income 496 1,128 1,306
Gain on sales of operating investment
properties 19,530 - -
-------- -------- --------
Net income 20,026 1,128 1,306
Distributions to venturers (23,882) (1,861) (2,246)
Venturers' capital, beginning of year 6,213 6,946 7,886
-------- -------- --------
Venturers' capital, end of year $ 2,357 $ 6,213 $ 6,946
======== ======== ========
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, 1999, 1998 and 1997
Increase (Decrease) in Cash
(In thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 20,026 $ 1,128 $ 1,306
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,033 2,443 2,423
Amortization of deferred financing
costs - 34 34
Gain on sale of operating investment
properties (19,530) - -
Changes in assets and liabilities:
Prepaid expenses 24 6 90
Accounts receivable - affiliates - 11 6
Accounts receivable from tenants
and others 417 (282) (68)
Cash reserve for capital expenditures (338) 378 332
Cash reserve for insurance and taxes 105 4 (64)
Cash reserve for tenant security
deposits (3) 35 (10)
Accounts payable and accrued expenses (569) 489 (6)
Accounts payable - affiliate - (5) 1
Accrued interest (519) 32 (66)
Accrued real estate taxes (183) 20 (44)
Other liabilities (40) 91 19
Tenant security deposits (186) 2 9
--------- --------- ---------
Total adjustments (18,789) 3,258 2,656
--------- --------- ---------
Net cash provided by operating
activities 1,237 4,386 3,962
--------- --------- ---------
Cash flows from investing activities:
Net proceeds from sales of operating
investment properties 40,384 - -
Additions to operating investment
properties (619) (1,245) (516)
Payment of leasing commissions (84) (155) (55)
--------- --------- ---------
Net cash provided by (used in)
investing activities 39,681 (1,400) (571)
--------- --------- ---------
Cash flows from financing activities:
Distributions to venturers (23,839) (1,878) (2,432)
Payments to venturers for notes payable (399) - (89)
Principal payments on long-term debt (17,429) (727) (675)
--------- --------- ---------
Net cash used in financing
activities (41,667) (2,605) (3,196)
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (749) 381 195
Cash and cash equivalents, beginning
of year 1,206 825 630
--------- --------- ---------
Cash and cash equivalents, end of year $ 457 $ 1,206 $ 825
========= ========= =========
Cash paid during the year for interest $ 2,813 $ 2,671 $ 2,834
========= ========= =========
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, 1999. 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. During the current fiscal year, on November 16, 1998
Kentucky-Hurstbourne Associates sold the Hurstbourne Apartments, and, on
September 30, 1999 Regent's Walk Associates sold the Regent's Walk Apartments.
See Note 3 for a description of these transactions. 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, 1999 and 1998 and revenues
and expenses for each of the three years in the period ended September 30, 1999.
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.
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 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 1999. Cumulative preferred distributions in arrears at
September 30, 1999 amounted to approximately $2,117,000 including minimum
guaranteed distributions in arrears of $427,000. 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, 1999 and
1998. 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, 1999. 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 outstanding as of
the end of fiscal 1999 or 1998. Operating/default loans of $89,000 were required
in fiscal years prior to 1991 (see Note 5). These loans were repaid during
fiscal 1997. Total interest incurred and expensed for these loans amounted to
$1,000 in fiscal year 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 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 a
former 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 1999, 1998 and 1997 were $108,000, $97,000 and
$103,000, respectively. The property manager provided maintenance and leasing
services to the joint venture totalling $82,000, $171,000 and $85,000 in 1999,
1998 and 1997, 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.
Regent's Walk Associates
------------------------
On September 30, 1999, Regent's Walk Associates sold its operating
investment property, the Regent's Walk Apartments, to an affiliate of its
unaffiliated joint venture partner for $17.75 million. The sale generated net
proceeds to PWIP6 of approximately $8,068,000, after the assumption of the
outstanding first mortgage loan of approximately $8,624,000, accrued interest of
approximately $51,000, closing proration adjustments of approximately $189,000,
and a payment of approximately $818,000 to PWIP6's non-affiliated co-venture
partner for its share of the net proceeds in accordance with the terms of the
joint venture agreement. In addition, as a result of the Regent's Walk sale,
PWIP6 received $117,000 which had been held in escrow at the property plus
$257,000 as a result of operations of the property through the date of sale.
PWIP6 had entered into negotiations with its Regent's Walk Apartments co-venture
partner for a sale of the property during the third quarter of fiscal 1999. On
May 19, 1999, PWIP6 negotiated a purchase and sale agreement with an affiliate
of the co-venturer to sell the property for what PWIP6 believed was a very
favorable price of $17,750,000. The prospective buyer subsequently made
non-refundable deposits totalling $1,250,000. The only contingency was for
approval by the lender for an assumption of the first mortgage loan as part of
the sale transaction. The joint venture subsequently received this approval and
the sale closed on September 30, 1999. The sale of the Regent's Walk Apartments
resulted in a gain of $8,268,000 for financial reporting purposes in fiscal
1999.
The Regent's Walk joint venture agreement provided that PWIP6 would
receive from cash flow a cumulative preferred return, payable quarterly, of
$164,000. Commencing June 1, 1988, after PWIP6 had received its cumulative
preferred return, PIK was entitled to a preference return of $7,000 for each
fiscal quarter which was cumulative only for amounts due in any one fiscal year.
Any remaining cash flow was to be used to pay interest on any notes from the
venturers and then was 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.
Income or loss was 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 had borrowed $250,000 from PIK,
if the joint venture required additional funds for purposes other than
distributions, then it was to be provided 90% by PWIP6 and 10% by PIK (see Note
5).
Distribution of sale and/or refinancing proceeds were to 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 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 was to 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
were payable only out of sale or refinancing proceeds as specified in the
agreement. As of September 30, 1998, deferred management fees exceeded the
$100,000 limitation referred to above. As of October 1, 1997, the management fee
was reduced to 2.5%, all of which was payable as earned.
At September 30, 1998, $5,000 was due to the property manager for
management fees. For the years ended September 30, 1999, 1998 and 1997 property
management fees totalled $64,000, $63,000 and $102,000, respectively. During
1999, 1998 and 1997, management fees of $25,000, $25,000 and $25,000,
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
---------------------------------
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 PWIP 6
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 PWIP6's
co-venture partner for its share of the net proceeds in accordance with the
terms of the joint venture agreement. PWIP 6 and its co-venture partner had been
exploring potential opportunities to market the Hurstbourne Apartments for sale
during calendar year 1998. During the second quarter of fiscal 1998, PWIP6 and
its co-venture partner held discussions concerning potential marketing
strategies. During the third quarter of fiscal 1998, PWIP6 and its co-venture
partner solicited marketing proposals from several real estate brokerage firms.
After reviewing their respective proposals and conducting interviews, PWIP6 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. A purchase and sale agreement with
the prospective buyer was signed on October 2, 1998, and the transaction closed
on November 16, 1998, as described above. The sale of the Hurstbourne property
resulted in a gain of $11,262,000 for financial reporting purposes in fiscal
1999.
The taxable income or tax losses of the joint venture was to be allocated
to PWIP6 and the Limited Partnership in proportion to the distribution of net
cash flow, provided that the Limited Partnership was not to be allocated less
than ten percent of the taxable net income or tax losses, and the Limited
Partnership was not to 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 were to be distributed first to the payment of unpaid
principal and accrued interest on any outstanding notes. Any remaining proceeds
were to 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 ($1,354,000); $10,056,000 to PWIP6; $684,000 to
the Limited Partnership; the amount of any unpaid subordinated management fees
to the property manager ($118,000); $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.
The venture had a property management contract with an affiliate (property
manager) of the Limited Partnership until April 1, 1997. The management fee to
the related property manager was 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, 1998, cumulative
subordinated management fees payable to the related property manager were
approximately $118,000. Under terms of the venture agreement and as stated in
Note 3, unpaid subordinated management fees were only to be paid upon
refinancing, sale, exchange or other disposition of the property. For the year
ended September 30, 1997 property management fees paid to the related property
manager totalled $74,000.
PaineWebber Properties Incorporated, the advisor to PWIP6 and an affiliate
of PaineWebber Incorporated, was paid an acquisition fee of $500,000 in fiscal
1985 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
2010. The operating property was approximately 73% leased as of September 30,
1999. The approximate future minimum lease payments to be received under
noncancellable operating leases in effect as of September 30, 1999 are as
follows (in thousands):
Year ending September 30:
-------------------------
2000 $ 3,014
2001 2,898
2002 2,648
2003 2,277
2004 1,946
Thereafter 2,567
--------
$ 15,350
========
Three of the venture's tenants individually comprise more than 10% of the
venture's fiscal 1999 base rental income. These tenants operate in the clothing
retailing, household retailing and the furniture retailing industries. The same
three tenants individually comprise more than 10% of the venture's total future
minimum rents. Their industry and future minimum rents are as follows (in
thousands):
Clothing retailer $1,571
Household retailer $3,227
Furniture retailer $1,900
5. Notes Payable to Venturers
--------------------------
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, 1998). Interest incurred and expensed on notes
payable to venturers for the years ended September 30, 1999, 1998 and 1997
totalled $38,000 in each year.
<PAGE>
6. Long-term Debt
--------------
Long-term debt consists of the following amounts (in thousands):
1999 1998
---- ----
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, 1999 and 1998. $ 18,151 $ 18,705
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, 1998. - 8,144
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, 1998. - 8,731
-------- --------
18,151 35,580
Less current portion (597) (8,805)
-------- --------
$ 17,554 $ 26,775
======== ========
Scheduled maturities of long-term debt for the next five fiscal years and
thereafter are as follows (in thousands):
2000 $ 597
2001 642
2002 691
2003 744
2004 801
Thereafter 14,676
--------
$ 18,151
========
<PAGE>
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, 1999
(In thousands)
<TABLE>
<CAPTION>
Life on Which
Initial Cost to Costs Gross Amount at Which Carried at Depreciation
Partnership Capitalized Close of period in Latest
Buildings (Removed) Buildings Income
and Subsequent to and Accumulated Date of Date Statement
Description Encumbrances Land Improvements Acquisition Land Improvements Total Depreciation Construction Acquired is Computed
----------- ------------ ---- ------------ ----------- ---- ------------ ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center -
Gwinnett
County, GA $18,151 $7,039 $21,509 $2,626 $7,039 $24,344 $31,383 $12,023 1985 8/28/85 5 to 30 Yrs.
Notes
-----
(A) The aggregate cost of real estate owned at September 30, 1999 for Federal income tax purposes is approximately $23,460.
(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:
1999 1998 1997
---- ---- ----
Balance at beginning of year $66,901 $65,656 $65,140
Additions and improvements 619 1,245 516
Disposals (36,137) - -
------- ------- --------
Balance at end of year $31,383 $66,901 $ 65,656
======= ======= ========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $25,487 $23,297 $21,119
Depreciation expense 1,703 2,190 2,178
Disposals (15,167) - -
------- ------- -------
Balance at end of year $12,023 $25,487 $23,297
======= ======= =======
</TABLE>
