UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number : 0-15037
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2870345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and September 30, 1996 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Operating investment property:
Land $ 698 $ 698
Buildings and improvements 4,294 4,294
Equipment and fixtures 107 107
--------- ---------
5,099 5,099
Less accumulated depreciation (1,717) (1,651)
--------- ---------
3,382 3,448
Cash and cash equivalents 4,072 5,067
Escrowed funds 35 74
Accounts receivable 95 107
Accounts receivable - affiliates 3 2
Deferred expenses, net 112 122
Other assets 30 32
--------- ---------
$ 7,729 $ 8,852
========= =========
LIABILITIES AND PARTNERS' DEFICIT
Equity in losses from unconsolidated
joint ventures in excess of investments
and advances $ 9,243 $ 8,413
Mortgage note payable 1,643 1,671
Accounts payable and accrued expenses 49 61
Accrued interest payable 15 15
Accrued real estate taxes 20 59
Other liabilities 9 10
Partners' deficit (3,250) (1,377)
--------- ---------
$ 7,729 $ 8,852
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Rental income and expense
recoveries $ 123 $ 119 $ 242 $ 262
Interest and other income 70 58 150 114
------ ------ ------ ------
193 177 392 376
Expenses:
Mortgage interest 47 50 95 100
Property operating expenses 25 49 63 78
Depreciation and amortization 37 39 73 77
Real estate taxes 19 18 41 37
General and administrative 77 66 116 178
------ ------ ------ ------
205 222 388 470
------ ------ ------ ------
Operating income (loss) (12) (45) 4 (94)
Partnership's share of
unconsolidated ventures'
losses (8) (71) (118) (125)
------ ------ ------ ------
Net loss $ (20) $ (116) $ (114) $ (219)
====== ====== ====== ======
Net loss per Limited
Partnership Unit $(0.52) $(3.02) $(2.99) $(5.71)
====== ====== ====== ======
Cash distributions per
Limited Partnership Unit $ 46.25 $ - $ 46.25 $ -
======= ====== ====== ======
The above net loss and cash distributions per Limited Partnership Unit are
based upon the 37,969 Limited Partnership Units outstanding during each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the six months ended March 31, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1995 $ (752) $ (221)
Net loss (2) (217)
--------- ---------
Balance at March 31, 1996 $ (754) $ (438)
========= =========
Balance at September 30, 1996 $ (756) $ (621)
Cash distributions (3) (1,756)
Net loss (1) (113)
--------- ---------
Balance at March 31, 1997 $ (760) $ (2,490)
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net loss $ (114) $ (219)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 73 77
Amortization of deferred financing costs 3 5
Partnership's share of unconsolidated ventures' losses 118 125
Changes in assets and liabilities:
Escrow deposits 39 35
Accounts receivable 9 (18)
Accounts receivable - affiliate 2 (1)
Other assets 2 3
Accounts payable and accrued expenses (12) (10)
Accrued real estate taxes (39) (40)
Other liabilities (1) -
------ ------
Total adjustments 194 176
------ ------
Net cash provided by (used in) operating
activities 80 (43)
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 712 1,226
Cash flows from financing activities:
Principal payments on long-term debt (28) (25)
Distributions to partners (1,759) -
------ ------
Net cash used in financing activities (1,787) (25)
------ ------
Net (decrease) increase in cash and cash equivalents (995) 1,158
Cash and cash equivalents, beginning of period 5,067 3,252
------ ------
Cash and cash equivalents, end of period $4,072 $4,410
====== ======
Cash paid during the period for interest $ 92 $ 95
====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES
SEVEN LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended September 30, 1996. In the
opinion of management, the accompanying consolidated financial statements,
which have not been audited, reflect all adjustments necessary to present
fairly the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of March 31, 1997 and September 30, 1996
and revenues and expenses for the three and six months ended March 31, 1997
and 1996. Actual results could differ from the estimates and assumptions
used.
2. Related Party Transactions
Accounts receivable - affiliates at March 31, 1997 and September 30, 1996
consist of investor service fees due from the Daniel Meadows Partnership of
$3,000 and $2,000, respectively.
Included in general and administrative expenses for both the six months
ended March 31, 1997 and 1996 is $43,000, representing reimbursements to an
affiliate of the Managing General Partner for providing certain financial,
accounting and investor communication services to the Partnership.
Also included in general and administrative expenses for both the six
months ended March 31, 1997 and 1996 is $6,000, representing fees earned by
an affiliate, Mitchell Hutchins Institutional Investors, Inc., for managing
the Partnership's cash assets.
3. Investments in Unconsolidated Joint Venture Partnerships
The Partnership has investments in four unconsolidated joint ventures
which own six operating properties, as more fully described in the
Partnership's Annual Report. The unconsolidated joint venture investments are
accounted for using the equity method because the Partnership does not have a
voting control interest in the ventures. Under the equity method, the assets,
liabilities, revenues and expenses of the joint ventures do not appear in the
Partnership's financial statements. Instead, the investments are carried at
cost adjusted for the Partnership's share of the ventures' earnings and
losses and distributions.
<PAGE>
Summarized operations of the four unconsolidated joint ventures for the
three months and six months ended March 31, 1997 and 1996 are as follows:
Condensed Combined Summary of Operations
For the three months ended March 31, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and expense
recoveries $2,705 $2,581 $5,349 $ 5,203
Interest and other income 126 84 226 187
------ ------ ------ -------
2,831 2,665 5,575 5,390
Property operating expenses 982 887 1,933 1,772
Interest expense 983 967 1,982 1,936
Real estate taxes 463 462 939 946
Depreciation and amortization 412 397 842 815
------ ------ ------ -------
2,840 2,713 5,696 5,469
------ ------ ------ -------
Net loss $ (9) $ (48) $ (121) $ (79)
====== ====== ====== =======
Net loss:
Partnership's share of
combined income (losses) $ (7) $ (70) $ (115) $ (122)
Co-venturers' share of
combined income (losses) (2) 22 (6) 43
------ ------- ------- ------
$ (9) $ (48) $ (121) $ (79)
====== ====== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and six months ended March 31, 1997 and 1996
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
----------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of combined
losses, as shown above $ (7) $ (70) $ (115) $ (122)
Amortization of excess basis (1) (1) (3) (3)
------ ------ ------ ------
Partnership's share of
unconsolidated ventures'
losses $ (8) $ (71) $ (118) $ (125)
====== ====== ====== ======
As discussed further in the Annual Report, HMF Associates is a joint
venture in which the Partnership has an interest and which owns three
multi-family apartment properties in the Seattle, Washington area: the
Enchanted Woods Apartments, the Hunt Club Apartments and the Marina Club
Apartments. The maturity date of the loan secured by the Enchanted Woods
Apartments is June 1, 1997, while the maturity date of the loans secured by
the Hunt Club and Marina Club properties is July 1, 1997, at which time all
unpaid principal, interest and advances are due. At the present time, the
venture's net operating income level is not sufficient to fully cover the
interest accruing on the outstanding debt obligations. As a result, the total
obligation due to the mortgage lender will continue to increase through the
scheduled maturity dates. Furthermore, the current aggregate estimated fair
value of the operating investment properties is substantially lower than the
outstanding obligations to the first mortgage holder which total
approximately $23.5 million as of March 31, 1997. Management has had numerous
discussions with the mortgage holder for the properties owned by HMF
Associates regarding a possible loan modification aimed at preventing the
further accumulation of deferred interest and reducing the overall debt
obligations. Such a plan would have required a sizable equity infusion by the
venture. During fiscal 1996, management of the Partnership evaluated whether
an additional investment in the venture would be economically prudent in
light of the future appreciation potential of the properties and concluded
that it would be unwise to commit the additional equity investment required
to effect the proposed debt restructuring. During fiscal 1997, the
Partnership and its co-venture partner have continued to have discussions
with the lender, and subsequent to March 31, 1997, the lender agreed to an
additional loan modification which provides the venture with an opportunity
to complete a sale transaction prior to the loan maturity dates. Any sale of
the properties is expected to be for an amount significantly below the
outstanding debt balance. However, under the terms of the agreement with the
lender, the Partnership and the co-venture partner can qualify to receive a
nominal payment from the sales proceeds at a specified level if a sale is
completed by June 30, 1997 and certain other conditions are met. During the
quarter ended March 31, 1997, the Partnership received an offer to purchase
the Hunt Club, Marina Club and Enchanted Woods properties from an unrelated
third party for an amount less than the total debt obligation. If the
transaction were to close and the conditions referred to above were met, the
Partnership could end up receiving a nominal amount from the proceeds of the
sale transaction. Subsequent to the end of the quarter, the Partnership
negotiated and finalized a purchase and sale agreement with this prospective
buyer, and the buyer commenced its 30-day due diligence period on April 25,
1997. However, the sale remains contingent upon the buyer's due diligence and
the receipt of a financing commitment. Accordingly, there are no assurances
that the transaction will be consummated. The Partnership has a large
negative carrying value for its investment in HMF Associates as of March 31,
1997 because prior year equity method losses and distributions have exceeded
the Partnership's investments in the venture. Consequently, the Partnership
would recognize a gain upon the sale or foreclosure of the operating
investment properties.
4. Operating Investment Property
The Partnership has a controlling interest in one joint venture, West Palm
Beach Concourse Associates, which owns the Concourse Retail Plaza. The Retail
Plaza consists of 30,473 net rentable square feet located in West Palm Beach
Florida. Subsequent to a settlement and assignment agreement executed in
fiscal 1990, the Partnership's co-venture partner is Seventh Income
Properties Fund, Inc., the Managing General Partner of the Partnership. The
amended and restated terms of the joint venture agreement are more fully
described in the Partnership's Annual Report. The Partnership employs the
services of a local unaffiliated property management company to administer
the day-to-day operations of the investment property.
The following is a summary of property operating expenses for the three
and six-month periods ended March 31, 1997 and 1996 (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Repairs and maintenance $ 7 $ 2 $ 14 $ 6
Utilities 1 1 2 2
Insurance 1 2 3 3
Administrative and other 12 17 36 36
Bad debt - 24 - 24
Management fees 4 3 8 7
------ ------ ------ -----
$ 25 $ 49 $ 63 $ 78
====== ====== ====== =====
<PAGE>
5. Mortgage Note Payable
Mortgage note payable on the consolidated balance sheets relates to the
Partnership's consolidated joint venture, West Palm Beach Concourse
Associates, and is secured by the venture's operating investment property. At
March 31, 1997 and September 30, 1996, mortgage note payable
consists of the following (in thousands):
March 31 September 30
-------- ------------
11.12% first mortgage, payable in
installments of $20 per month,
including interest, through January
1, 2005. All outstanding principal
and accrued interest is due on
January 10, 2005. The fair value of
this note payable approximated its
carrying value as of March 31,
1997. $ 1,643 $ 1,671
======= =======
In accordance with the Concourse mortgage loan agreements, certain
insurance premiums and real estate taxes are required to be held in escrow. The
balance of escrow deposits on the accompanying balance sheets at March 31, 1997
and September 30, 1996 consists of such escrowed insurance premiums and real
estate taxes in the aggregate amounts of $35,000 and $74,000, respectively.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As discussed in the Special Report mailed to the Unitholders in December
1996, due to improvements in the Partnership's cash flow and the expectation
that it will continue in the future, the Partnership reinstated the payment of
regular quarterly distributions at the annual rate of 2.5% on remaining invested
capital effective with the payment made on February 14, 1997 for the quarter
ended December 31, 1996. The payment of quarterly distributions was discontinued
in early 1990 primarily due to the lack of cash flow from several of the
Partnership's investments. The plan to reinstate quarterly distributions is
attributable to the improvement in property operations and the lower debt
service costs at the Colony Apartments and The Meadows on the Lake Apartments,
which represent a combined 48% of the Partnership's original investment
portfolio. The Partnership also made a special distribution of $40 per original
$1,000 investment on February 14, 1997 to Unitholders of record on December 31,
1996. This amount represented a distribution of Partnership reserves which
exceeded expected future requirements.
The Partnership retains an interest in all five of its original joint
ventures, although the office portion of the investment in the mixed-use
Concourse property was lost through foreclosure proceedings by the first
mortgage lender on December 17, 1992. The loss of the Concourse Office Towers to
foreclosure in fiscal 1993 and the loss of all or a significant portion of the
Partnership's equity interest in the three properties owned by HMF Associates,
as discussed further below, means that the Partnership will be unable to return
the full amount of the original invested capital to the Limited Partners. The
two office towers represented 28% of the Partnership's original investment
portfolio. The three apartment complexes owned by HMF Associates comprise
another 13% of the original investment portfolio. Of the four remaining assets,
the two multi-family properties both have significant equity above the
outstanding debt obligations based on current estimated property values, while
the two retail properties would not be expected to yield substantial net
proceeds after the mortgage debt if sold under current market conditions.
As previously reported, under the terms of the HMF Associates loan
modification executed in fiscal 1992, all accrued and unpaid interest
outstanding as of June 30, 1992 was converted to principal. Subject to lender
approval, the Partnership was entitled to obtain additional advances up to
$9,100,000 to fund certain operating expenses of the joint venture and to cure
the construction defects in the operating investment properties. The loans and
any additional advances bear interest at a rate of 9% per annum. As of March 31,
1997, additional lender advances totalling approximately $4.8 million have been
made, and the total debt obligation of the joint venture totalled $23.5 million.
Monthly payments are made in an amount equal to the "net operating income", as
defined, for the prior month. Unpaid interest is added to the principal balance
of the indebtedness on a monthly basis. The maturity date of the loan secured by
the Enchanted Woods Apartments is June 1, 1997, while the maturity date of the
loans secured by the Hunt Club and Marina Club properties is July 1, 1997, at
which time all unpaid principal, interest and advances are due. Despite the
successful remediation of the properties' construction defects and the
subsequent lease-up of the apartment units, the venture's net operating income
level is not sufficient to fully cover the interest accruing on the outstanding
debt obligations. As a result, the total obligation due to the mortgage lender
will continue to increase through the scheduled maturity dates. Furthermore, the
current aggregate estimated fair value of the operating investment properties is
substantially lower than the outstanding obligations to the first mortgage
holder which total approximately $23.5 million as of March 31, 1997. Management
has had numerous discussions with the mortgage holder for the properties owned
by HMF Associates regarding a possible loan modification aimed at preventing the
further accumulation of deferred interest and reducing the overall debt
obligations. Such a plan would have required a sizable equity infusion by the
venture. During fiscal 1996, management of the Partnership evaluated whether an
additional investment in the venture would be economically prudent in light of
the future appreciation potential of the properties and concluded that it would
be unwise to commit the additional equity investment required to effect the
proposed debt restructuring. During fiscal 1997, the Partnership and its
co-venture partner have continued to have discussions with the lender, and
subsequent to March 31, 1997, the lender agreed to an additional loan
modification which provides the venture with an opportunity to complete a sale
transaction prior to the loan maturity dates. Any sale of the properties is
expected to be for an amount significantly below the outstanding debt balance.
However, under the terms of the agreement with the lender, the Partnership and
the co-venture partner can qualify to receive a nominal payment from the sales
proceeds at a specified level if a sale is completed by June 30, 1997 and
certain other conditions are met. During the quarter ended March 31, 1997, the
Partnership received an offer to purchase the Hunt Club, Marina Club and
Enchanted Woods properties from an unrelated third party for an amount less than
the total debt obligation. If the transaction were to close and the conditions
referred to above were met, the Partnership could end up receiving a nominal
amount from the proceeds of the sale transaction. Subsequent to the end of the
quarter, the Partnership negotiated and finalized a purchase and sale agreement
with this prospective buyer, and the buyer commenced its 30-day due diligence
period on April 25, 1997. However, the sale remains contingent upon the buyer's
due diligence and the receipt of a financing commitment. Accordingly, there are
no assurances that the transaction will be consummated. In any event, it is
likely that ownership titles to the three properties owned by the HMF joint
venture will be transferred either by a sale or by a foreclosure action in
fiscal 1997. The Partnership has a large negative carrying value for its
investment in HMF Associates as of March 31, 1997 because prior year equity
method losses and distributions have exceeded the Partnership's investments in
the venture. Consequently, the Partnership would recognize a gain for both book
and tax purposes upon either a sale or foreclosure of the operating investment
properties.
Through the first six months of fiscal 1997, the Partnership received cash
flow distributions of $275,000 from the Colony Apartments joint venture and
$437,000 from the Meadows joint venture. During the third quarter of fiscal
1996, the Meadows joint venture completed the final phase of the repair work on
the construction defects at the property using the proceeds from the insurance
settlement originally escrowed with the lender plus excess cash flow from
property operations. With the repair work at The Meadows on the Lake Apartments
completed, the venture has begun generating regular distributions of excess cash
flow to the Partnership. Future distributions from the Colony Apartments and
Meadows joint ventures are expected to be sufficient to fund the Partnership's
operating costs, allow for the payment of quarterly distributions to the
Unitholders and provide adequate liquidity to fund the capital needs which may
exist at the other joint venture investment properties. During the quarter ended
March 31, 1997, the Partnership and its co-venture partners received interest
from some prospective purchasers regarding a possible sale of The Meadows on the
Lake Apartments. Management is currently reviewing the potential for selling the
property. In addition, the Partnership is focusing on potential disposition
strategies for the remaining investments in its portfolio. Although no
assurances can be given, it is currently contemplated that sales of the
Partnership's remaining assets could be completed within the next 2-to-3 years.
Leasing levels at the Concourse Retail Plaza and the Colony Square Shopping
Center were 90% and 100%, respectively, as of March 31, 1997. At the present
time, real estate values for retail shopping centers in certain markets are
being adversely impacted by the effects of overbuilding and consolidations among
retailers which have resulted in an oversupply of space and by the generally
flat rate of growth in retail sales. It remains unclear at this time what
impact, if any, this general trend will have on the operations and/or market
values of the Partnership's retail properties in the near term. Management
continues to closely monitor the operating performance of the three restaurant
tenants at the Concourse Retail Plaza. Two of these tenants, which occupy
approximately 40% of the property's leasable space, reported declining sales
during fiscal 1996 and fell behind on their rental payments. Management
negotiated agreements with both tenants to cure the rental delinquencies which,
in one of the cases, involved the forgiveness of a portion of the delinquency
and a reduction in the future monthly rent payment in return for an increase in
the term of the lease obligation. One of these tenants is currently meeting the
modified terms of its rental obligations. However, the other tenant, which
occupies 28% of the center, has continued to report operational difficulties and
has fallen behind on its new rental payment arrangement. The property's
management team is pursuing legal action against this restaurant tenant, and a
court judgment is expected during the summer months. At Colony Square, a new
one-year lease was executed during the second quarter of fiscal 1997 for the
remaining 1,200 square feet of vacant space at the Center. In addition, a 10,688
square foot restaurant tenant renewed its lease for an additional five years.
Despite the positive leasing developments, the Colony Square joint venture still
does not produce any significant excess net cash flow after its debt service
payments.
At March 31, 1997 the Partnership and its consolidated venture had cash and
cash equivalents of approximately $4,072,000. Such cash and cash equivalents
will be utilized as needed for Partnership requirements such as the payment of
operating expenses, the funding of operating deficits or capital improvements of
the joint ventures in accordance with the terms of the respective joint venture
agreements, to the extent economically justified, and for distributions to
partners. The source of future liquidity and distributions to the partners is
expected to be from available net cash flow generated by the operations of the
Partnership's investment properties and from net proceeds from the sale or
refinancing of such properties. Such sources of liquidity are expected to be
sufficient to meet the Partnership's needs on both a short-term and a long-term
basis.
Results of Operations
Three Months Ended March 31, 1997
- ---------------------------------
The Partnership reported a net loss of $20,000 for the three months ended
March 31, 1997, as compared to a net loss of $116,000 for the same period in the
prior year. This $96,000 decrease in the Partnership's net loss for the second
quarter was caused by a decrease in the Partnership's share of unconsolidated
ventures' losses and a decrease in the Partnership's operating loss. The
Partnership's share of unconsolidated ventures' losses decreased by $63,000 in
the second quarter of fiscal 1997, when compared to the same period in the prior
year, primarily due to increases in rental revenues from the Colony Apartments,
Colony Square and HMF Associates joint ventures. Rental revenues from Colony
Square and the apartment complexes owned by the HMF joint venture increased
mainly due to increases in occupancy when compared to the same three-month
period in the prior year while the increase at Colony Apartments is mostly
attributable to the increases in rental rates experienced over the past 15
months. These increases in rental revenues were partially offset by an increase
in combined property operating expenses of the unconsolidated joint ventures,
most notably repairs and maintenance costs at HMF Associates and The Meadows and
utilities expenses at Colony Apartments.
The Partnership's operating loss decreased by $33,000 for the three months
ended March 31, 1997, when compared to the same period in the prior year, mainly
due to an increase in total revenues and a decrease in property operating
expenses. Property operating expenses for the consolidated Concourse Retail
Plaza decreased by $24,000, primarily due to the inclusion of $24,000 of bad
debt expense during the three-month period ended March 31, 1996.
Six Months Ended March 31, 1997
- -------------------------------
The Partnership reported a net loss of $114,000 for the six months ended
March 31, 1997, as compared to net loss of $219,000 for the same period in the
prior year. This $105,000 decrease in the Partnership's net loss is attributable
to a favorable change in the Partnership's operating income (loss) of $98,000
and a $7,000 decrease in the Partnership's share of unconsolidated ventures'
losses. The favorable change in operating income (loss) is primarily
attributable to a decrease in the Partnership's general and administrative
expenses of $62,000 and a decline in property operating expense of $15,000, as
well as an increase in revenues of $16,000. General and administrative expenses
decreased mainly due to a reduction in certain required professional services
during the current six-month period. Property operating expenses for the
consolidated Concourse Retail Plaza decreased by $24,000, primarily due to the
inclusion of $24,000 of bad debt expense during the six-month period ended March
31, 1996. Revenues increased due to an increase in interest income resulting
from higher average invested cash reserve balances during the current six-month
period which was partially offset by a decrease in rental income from the
consolidated Concourse Retail Plaza. The Partnership's share of unconsolidated
ventures' losses decreased by $7,000, remaining materially consistent for the
six months ended March 31, 1997 when compared to the same period in the prior
year. Increases in rental revenues at the Colony Apartments, Colony Square and
HMF Associates joint ventures were almost entirely offset by an increase in
combined property operating expenses, most notably repairs and maintenance costs
at HMF Associates and The Meadows and utilities expenses at Colony Apartments.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, the Partnership's General Partners were named as
defendants in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
various limited partnership investments and REIT stocks, including those offered
by the Partnership. In January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and a plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. As
part of the settlement agreement, PaineWebber has agreed not to seek
indemnification from the related partnerships and real estate investment trusts
at issue in the litigation (including the Partnership) for any amounts that it
is required to pay under the settlement. In addition, in December 1996
PaineWebber agreed to settle the Bandrowski action discussed further in the
Annual Report. Final releases and dismissals with regard to this action were
received subsequent to the quarter ended March 31, 1997. Based on the settlement
agreements discussed above covering all of the outstanding unitholder
litigation, management does not expect that the resolution of these matters will
have a material impact on the Partnership's financial statements, taken as a
whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES SEVEN
LIMITED PARTNERSHIP
By: SEVENTH INCOME PROPERTIES FUND, INC.
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended March 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,072
<SECURITIES> 0
<RECEIVABLES> 98
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,205
<PP&E> 5,099
<DEPRECIATION> 1,717
<TOTAL-ASSETS> 7,729
<CURRENT-LIABILITIES> 93
<BONDS> 1,643
0
0
<COMMON> 0
<OTHER-SE> (3,250)
<TOTAL-LIABILITY-AND-EQUITY> 7,729
<SALES> 0
<TOTAL-REVENUES> 392
<CGS> 0
<TOTAL-COSTS> 293
<OTHER-EXPENSES> 118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> (114)
<INCOME-TAX> 0
<INCOME-CONTINUING> (114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114)
<EPS-PRIMARY> (2.99)
<EPS-DILUTED> (2.99)
</TABLE>
