UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from_______ to ______.
Commission File Number : 0-15037
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2870345
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Operating investment property:
Land $ 486 $ 486
Buildings and improvements 2,990 2,990
Equipment and fixtures 75 75
--------- ---------
3,551 3,551
Less accumulated depreciation (1,302) (1,257)
--------- ---------
2,249 2,294
Investments in unconsolidated ventures,
at equity 1,584 1,406
Cash and cash equivalents 1,402 2,856
Escrowed funds 34 72
Accounts receivable, net 48 26
Deferred expenses, net 94 103
Other assets 29 32
--------- ---------
$ 5,440 $ 6,789
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage note payable $ 1,583 $ 1,614
Accounts payable and accrued expenses 75 84
Accounts payable - affiliates 6 7
Accrued interest payable 15 15
Accrued real estate taxes 20 58
Other liabilities 9 9
Partners' capital 3,732 5,002
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$ 5,440 $ 6,789
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rental income and expense
recoveries $ 135 $ 123 $ 260 $ 242
Interest and other income 324 70 386 150
------ ------- ------- -------
459 193 646 392
Expenses:
Mortgage interest 46 47 92 95
Property operating expenses 29 25 65 63
Depreciation and amortization 30 37 51 73
Real estate taxes 20 19 41 41
Management fees 16 17 33 17
General and administrative 37 60 111 99
------ ------- ------- -------
178 205 393 388
------ ------- ------- -------
Operating income (loss) 281 (12) 253 4
Partnership's share of
unconsolidated ventures'
income (losses) 480 (8) 731 (118)
Partnership's share of gain
on sale of operating
investment property - - 4,474 -
------ ------- ------- -------
Net income (loss) $ 761 $ (20) $ 5,458 $ (114)
====== ======= ======= =======
Net income (loss) per Limited
Partnership Unit $19.83 $ (0.52) $142.22 $ (2.99)
====== ======= ======= =======
Cash distributions per Limited
Partnership Unit $171.03 $ 46.25 $177.06 $ 46.25
======= ======= ======= =======
The above net income (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' CAPITAL (DEFICIT)
For the six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1996 $ (756) $ (621)
Cash distributions (3) (1,756)
Net loss (1) (113)
-------- ---------
Balance at March 31, 1997 $ (760) $ (2,490)
======== =========
Balance at September 30, 1997 $ (653) $ 5,655
Cash distributions (5) (6,723)
Net income 58 5,400
-------- ---------
Balance at March 31, 1998 $ (600) $ 4,332
======== =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ 5,458 $ (114)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 51 73
Amortization of deferred financing costs 3 3
Partnership's share of unconsolidated ventures'
income (losses) (731) 118
Partnership's share of gain on sale of
operating investment property (4,474) -
Changes in assets and liabilities:
Escrow deposits 38 39
Accounts receivable (22) 9
Accounts receivable - affiliates - 2
Other assets 3 2
Accounts payable and accrued expenses (9) (12)
Accounts payable - affiliates (1) -
Accrued real estate taxes (38) (39)
Other liabilities - (1)
-------- -------
Total adjustments (5,180) 194
-------- -------
Net cash provided by operating activities 278 80
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 5,027 712
Cash flows from financing activities:
Distributions to partners (6,728) (1,759)
Principal payments on long-term debt (31) (28)
-------- -------
Net cash used in financing activities (6,759) (1,787)
-------- -------
Net decrease in cash and cash equivalents (1,454) (995)
Cash and cash equivalents, beginning of period 2,856 5,067
-------- -------
Cash and cash equivalents, end of period $ 1,402 $ 4,072
======== =======
Cash paid during the period for interest $ 89 $ 92
======== =======
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, 1997. In the
opinion of management, the accompanying consolidated financial statements, which
have not been audited, reflect all adjustments necessary to present fairly the
results for the interim period. All of the accounting adjustments reflected in
the accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of March 31, 1998 and September 30, 1997 and revenues and
expenses for the three and six months ended March 31, 1998 and 1997. Actual
results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
The Adviser earned total management fees of $33,000 and $17,000 for the
six-month periods ended March 31, 1998 and 1997, respectively. Accounts payable
- - affiliates at March 31, 1998 and September 30, 1997 consist of management fees
of $6,000 and $7,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the six months ended
March 31, 1998 and 1997 is $44,000 and $43,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for both of the
six-month periods ended March 31, 1998 and 1997 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
--------------------------------------------------------
As of March 31, 1998, the Partnership had investments in two
unconsolidated joint ventures (four at March 31, 1997) which own two operating
properties (six at March 31, 1997), as more fully described in the Partnership's
Annual Report. The remaining unconsolidated ventures are the owners of the
Colony Apartments and the Colony Square Shopping Center, both located in Mount
Prospect, Illinois. On June 27, 1997, HMF Associates, a joint venture in which
the Partnership had an interest, sold the properties known as The Hunt Club
Apartments and The Marina Club Apartments to an unrelated third party for
approximately $5.3 million and $3.1 million, respectively. The Partnership
received net proceeds of approximately $288,000 in connection with the sale of
these two assets in accordance with a discounted mortgage loan payoff agreement
reached with the lender in April 1997. The third property owned by HMF
Associates, the Enchanted Woods Apartments, located in Federal Way, Washington,
had been under contract for sale to the same buyer that purchased The Hunt Club
and Marina Club properties, however, the buyer subsequently withdrew the offer
to purchase Enchanted Woods. The Partnership made a special capital distribution
of $1,898,450, or $50 per original $1,000 investment, on August 15, 1997 to
unitholders of record as of June 27, 1997. Of this amount, $7.60 per original
$1,000 investment represented net sale proceeds from the disposition of The Hunt
Club Apartments and The Marina Club Apartments, $41.48 per original $1,000
investment represented proceeds from the settlements of litigation covering
construction-related defects at the Hunt Club, Marina Club and Enchanted Woods
properties as discussed further in the Annual Report, and $0.92 per original
$1,000 investment represented Partnership reserves that exceeded expected future
requirements. On September 9, 1997, HMF Associates sold The Enchanted Woods
Apartments to an unrelated third party for approximately $9.2 million. The
Partnership received net proceeds of approximately $261,000 in connection with
the sale in accordance with the discounted mortgage loan payoff agreement
referred to above.
On December 18, 1997, Daniel Meadows Partnership, a joint venture in which
the Partnership had an interest, sold its operating investment property, The
Meadows on the Lake Apartments, located in Birmingham, Alabama, to an unrelated
third party for $9.525 million. The sale generated net proceeds of approximately
$4.4 million, after repayment of the outstanding first mortgage loan of
approximately $4.7 million and closing costs of approximately $400,000. The
Partnership received 100% of the net proceeds in accordance with the terms of
the joint venture agreement. The Partnership made a special distribution to the
Limited Partners totalling approximately $6,265,000, or $165 per original $1,000
investment, on February 13, 1998. Of this amount, $116.39 per original $1,000
investment represented the net proceeds from the sale of The Meadows on the Lake
Apartments, $13.52 per original $1,000 investment represented net proceeds from
the disposition of the Enchanted Woods Apartments, and $35.09 per original
$1,000 investment represented Partnership reserves that exceeded expected future
requirements.
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.
Summarized operations of the unconsolidated joint ventures for the three and six
months ended March 31, 1998 and 1997 are as follows:
Condensed Combined Summary of Operations
For the three and six months ended March 31, 1998 and 1997
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $ 1,774 $2,705 $3,773 $5,349
Interest and other income 56 126 151 226
------- ------ ------ ------
1,830 2,831 3,924 5,575
Property operating expenses 403 982 1,063 1,933
Interest expense 353 983 792 1,982
Real estate taxes 397 463 821 939
Depreciation and amortization 197 412 515 842
------- ------ ------ ------
1,350 2,840 3,191 5,696
------- ------ ------ ------
Operating income (loss) 480 (9) 733 (121)
Gain on sale of operating
investment property - - 4,869 -
------- ------ ------ ------
Net income (loss) $ 480 $ (9) $5,602 $ (121)
======= ====== ====== ======
Net income (loss):
Partnership's share of
combined income (losses) $ 480 $ (7) $5,334 $ (115)
Co-venturers' share of
combined income (losses) - (2) 268 (6)
------- ------ ------ ------
$ 480 $ (9) $5,602 $ (121)
======= ====== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and six months ended March 31, 1998 and 1997
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of combined
income (losses), as
shown above $ 480 $ (7) $5,334 $ (115)
Amortization of excess basis - (1) (129) (3)
------- ----- ------ -------
Partnership's share of
unconsolidated ventures'
net income (loss) $ 480 $ (8) $5,205 $ (118)
======= ===== ====== ======
<PAGE>
The Partnership's share of the unconsolidated ventures' net income (loss)
is presented as follows in the consolidated statements of operations (in
thousands):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
unconsolidated ventures'
income (losses) $ 480 $ (8) $ 731 $ (118)
Partnership's share of gain on
sale of operating investment
property - - 4,474 -
------- ----- ------- ------
Partnership's share of
unconsolidated ventures' net
income (loss) $ 480 $ (8) $ 5,205 $ (118)
======= ===== ======= ======
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, 1998 and 1997 (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Repairs and maintenance $ 7 $ 7 $ 11 $ 14
Utilities 1 1 2 2
Insurance 1 1 3 3
Administrative and other 16 12 41 36
Management fees 4 4 8 8
------- ------ ------ ------
$ 29 $ 25 $ 65 $ 63
======= ====== ====== ======
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, 1998
and September 30, 1997, mortgage note payable consists of the following (in
thousands):
March 30 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, 1998
and September 30, 1997. $ 1,583 $ 1,614
======= ========
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, 1998
and September 30, 1997 consists of such escrowed insurance premiums and real
estate taxes in the aggregate amounts of $34,000 and $72,000, respectively.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended September 30, 1997 under the heading "Certain Factors Affecting
Future Operating Results", which could cause actual results to differ materially
from historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As discussed further in the Annual Report, on September 9, 1997 HMF
Associates sold its remaining asset, The Enchanted Woods Apartments, to an
unrelated third party for approximately $9.2 million. The Partnership received
net proceeds of approximately $261,000 in connection with the sale in accordance
with a discounted mortgage loan payoff agreement reached with the lender in
April 1997. In addition, as previously reported, on December 18, 1997 The
Meadows on the Lake Apartments was sold to an unrelated third party for $9.525
million. The sale generated net proceeds of approximately $4.4 million, after
repayment of the outstanding first mortgage loan of approximately $4.7 million
and closing costs of approximately $400,000. The Partnership received 100% of
the net proceeds in accordance with the terms of the joint venture agreement. In
early fiscal 1997 the Partnership and its co-venture partner had received
unsolicited offers from prospective purchasers to acquire The Meadows on the
Lake Apartments, located in Birmingham, Alabama. After carefully reviewing the
offers, the Partnership determined that the property should sell at a higher
price and directed the co-venture partner to market the property for sale.
During the fourth quarter of fiscal 1997, several offers were received. One of
these offers was from a qualified buyer and met the Partnership's sale criteria.
This offer was accepted by the Partnership and its co-venture partner; however,
a sale agreement could not be finalized with this prospective buyer.
Negotiations were then undertaken with one of the other potential buyers,
resulting in a purchase and sale agreement which was signed on November 12, 1997
and the final sale transaction which closed on December 18, 1997. On February
13, 1998, the Partnership made a special distribution to the Limited Partners
totalling approximately $6,265,000, or $165 per original $1,000 investment. Of
this amount, $116.39 per original $1,000 investment represented the net proceeds
from the sale of The Meadows on the Lake Apartments, $13.52 per original $1,000
investment represented net proceeds from the disposition of the Enchanted Woods
Apartments, and $35.09 per original $1,000 investment represented Partnership
reserves that exceeded expected future requirements.
The Partnership is focusing on potential disposition strategies for the
remaining investments in its portfolio, which consist of two retail properties
and one multi-family apartment complex. The sale of the Partnership's remaining
assets would be followed by a liquidation of the Partnership. It is currently
contemplated that sales of the Partnership's assets could be completed within
the next one to two years. There are no assurances, however, that the sales of
the remaining assets and the liquidation of the Partnership will be completed
within this time frame. Of the three assets remaining after the sale of the
Meadows on the Lake Apartments, the Colony Apartments property has significant
equity above the outstanding debt obligation based on the estimated current
property value, while the two retail properties would not be expected to yield
substantial net proceeds after the mortgage debt if sold under current market
conditions.
The occupancy level at the Colony Apartments averaged 97% for the quarter
ended March 31, 1998, unchanged from the previous quarter and up 3% from the
quarter ended March 31, 1997. In addition to the high occupancy level, rental
rates continue to increase at the property, with the average monthly rental rate
per apartment unit increasing 5% over the past twelve months. The strong local
job market has influenced an unusually high demand for apartments in the
northwest suburbs, which is the property's local sub-market. Such conditions may
present the Partnership with favorable opportunities to sell its interest in the
Colony Apartments in the near term. Subsequent to the end of the second quarter,
the Partnership and its joint venture partner agreed to solicit proposals to
market the Colony Apartments property from three national full-service real
estate firms specializing in the sale of large apartment complexes. It is
expected that these proposals will be received during the third fiscal quarter
and that, after extensive due diligence on each firm, one company will be
selected to market the property for sale. The potential to sell this asset,
which represents the Partnership's sole source of liquidity, on favorable terms
may prompt the accelerated dispositions of the two remaining retail properties.
At the Colony Square Shopping Center, the occupancy level declined from
100% to 92% when a 3,000 square foot restaurant tenant vacated its space in
March 1998. The property management team had allowed this tenant to remain after
its lease expired in November, on a month-to-month basis, while the owner of the
business tried to sell the restaurant. Such efforts ultimately proved
unsuccessful. The property's management and leasing team is currently pursuing a
replacement tenant for the space. During the second quarter, the property's
leasing team signed renewal leases with a 1,200 square foot hairstylist tenant
for five years and a 1,200 square foot travel agency for three years. Asking
rental rates and actual contract rates for retail space in the local sub-market
are up slightly from one year ago, which may provide an opportunity to renew
upcoming leases at slightly higher rental rates. Capital improvements to the
shopping center completed during the second quarter included the replacement of
a rear security door and the continuation of the conversion of electric heat to
gas heat. With a high occupancy level and a stable base of locally owned and
operated tenants, the Partnership believes it would be appropriate to explore a
possible sale of the Colony Square property. Accordingly, management has
initiated discussions with a prominent local retail real estate consulting firm
for the purpose of determining various options for the property.
The occupancy level at the Concourse Retail Plaza remained at 90% for the
quarter ended March 31, 1998. 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. The Partnership had pursued legal action for eviction against one of
these tenants, a locally owned southwestern restaurant which occupies 28% of the
Plaza, because of a failure to pay the modified rent. Subsequently, a court
judgement for eviction was entered against this restaurant tenant. This tenant
is now experiencing improved sales and is paying its rent as modified under the
court judgement. However, the Partnership is pursuing additional legal action to
obtain a summary judgement on the total rental arrearage owed. The Partnership
will continue to collect this tenant's rent while also looking for a replacement
tenant in the event of a default. The other tenant, a locally owned and operated
far eastern restaurant which occupies 12% of the leasable area, is experiencing
a slow-down in sales and has fallen behind in its rental obligations. The
property management team had negotiated a temporary rental assistance program to
allow the restaurant to remain in business through the tourist season, but this
tenant has failed to pay the full modified rent. The property's management team
is now pursuing legal action against this tenant. The property's leasing team is
also working with a 1,200 square foot mortgage company, whose lease expired in
September 1997 and has been on a month-to-month lease, to sign a 3-year lease
renewal. Two other tenants, a 3,200 square foot health care provider and a 1,200
square foot print shop, have leases coming up for renewal over the next 12
months. The leasing team expects these tenants to renew their leases.
As previously reported, the Partnership reviewed its options for the
Concourse Retail Plaza and determined that it may be the appropriate time to
market the property for sale. For the past four years, 80% of the Plaza's 30,473
square feet has been leased to four restaurant operators which, for the most
part, have performed poorly. One of these restaurant tenants is currently paying
rent on space that was vacated in 1996 under a lease that can be terminated in
July 1999. One of the options under review is the development of a leasing plan
that would put an emphasis on a greater mixture of office and retail uses. This
could involve the conversion of one of the larger restaurant out parcel
buildings into professional/service office space. Another option would be to
market the property for sale after attempting to stabilize the current tenant
base. However, the prospects for stabilizing the tenant roster are uncertain at
the present time in light of the bleak economic conditions which currently exist
in the local sub-market. Management is aware of several restaurant tenants in
the local market whose businesses have failed in recent months, and, despite
diligent efforts, the Partnership has been unable to identify and secure viable
tenants to replace any of the three financially troubled restaurant tenants
referred to above. Another factor impacting a possible near term sale of the
Concourse Retail Plaza is the property's first mortgage loan. The mortgage loan,
which is assumable, contains a prohibition on prepayment through January 10,
2000. As a result, any sale transaction completed prior to such date would have
to involve an assumption of this mortgage loan which carries an interest rate of
11.12% per annum. In connection with its plan to explore potential sale
opportunities, management reviewed the qualifications of several local real
estate marketing firms to determine their expertise and track record in selling
properties similar to the Concourse. During the second quarter, the Partnership
contracted with a local real estate firm specializing in retail properties to
market the Concourse Retail Plaza for sale. Sales flyers and brochures have been
prepared, and the real estate firm commenced its formal marketing program
subsequent to the quarter-end.
At March 31, 1998, the Partnership and its consolidated venture had cash
and cash equivalents of approximately $1,402,000. 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 remaining 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, 1998
- ---------------------------------
The Partnership reported net income of $761,000 for the three months ended
March 31, 1998, as compared to a net loss of $20,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results is
attributable to a $488,000 favorable change in the Partnership's share of
unconsolidated ventures' income (losses) and a $283,000 favorable change in the
Partnership's operating income (loss). The favorable change in the Partnership's
share of unconsolidated ventures' income (losses) is primarily attributable to
the sale of the properties owned by the HMF joint venture during the third and
fourth quarters of fiscal 1997. The HMF joint venture had been generating
sizable operating losses prior to the sales of its assets. Increases in net
income at the Colony Apartments and Colony Square joint ventures also
contributed to the improvement in the Partnership's share of unconsolidated
ventures' income (losses) for the current three-month period. Net income at
Colony Apartments increased mainly due to an increase in rental revenues
resulting from increases in occupancy and rental rates combined with a decline
in property operating expenses. Net income at Colony Square increased mainly due
to a decline in property operating expenses.
The favorable change in the Partnership's operating income (loss) is
attributable to a $266,000 increase in the Partnership's operating revenues and
a $27,000 decline in operating expenses. The Partnership's operating revenues
increased mainly due to an increase in other income related to the receipt of a
residual cash distribution from the HMF joint venture in the current period in
connection with the final liquidation of the joint venture. The Partnership's
operating expenses decreased mainly due to declines in general and
administrative expenses and depreciation and amortization expense. General and
administrative expenses decreased as a result of a timing difference in the
performance of certain required professional services. Depreciation and
amortization expense decreased due to a $1 million impairment loss recognized on
the Concourse property in fiscal 1997, as discussed further in the Annual
Report.
Six Months Ended March 31, 1998
- -------------------------------
The Partnership reported net income of $5,458,000 for the six months ended
March 31, 1998, as compared to a net loss of $114,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results is
mainly attributable to a $4,474,000 gain recognized in the current six-month
period on the sale of the Meadows property, as discussed further above. Also
contributing to the favorable change in the Partnership's net operating results
was an $849,000 improvement in the Partnership's share of unconsolidated
ventures' income (losses) and a $249,000 increase in the Partnership's operating
income for the current six-month period.
The Partnership recognized income of $731,000 from its share of the
operating results of its unconsolidated joint ventures for the six months ended
March 31, 1998, as compared to a net loss of $118,000 for the same period in the
prior year. The favorable change in the Partnership's share of unconsolidated
ventures' income (losses) is primarily attributable to the sale of the
properties owned by the HMF joint venture during the third and fourth quarters
of fiscal 1997. The HMF joint venture had been generating sizable operating
losses prior to the sales of its assets. Increases in net income at the Colony
Apartments and Colony Square joint ventures, which were mainly the result of
higher revenues, also contributed to the improvement in the Partnership's share
of unconsolidated ventures' income (losses) for the current six-month period.
The Partnership's operating income increased primarily due to an increase in
other income related to the receipt of a residual cash distribution from the HMF
joint venture in the current period in connection with the final liquidation of
the joint venture.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) No reports on Form 8-K have been filed 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, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended March 31,
1998 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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,402
<SECURITIES> 0
<RECEIVABLES> 263
<ALLOWANCES> 215
<INVENTORY> 0
<CURRENT-ASSETS> 1,484
<PP&E> 5,135
<DEPRECIATION> 1,302
<TOTAL-ASSETS> 5,440
<CURRENT-LIABILITIES> 125
<BONDS> 1,583
0
0
<COMMON> 0
<OTHER-SE> 3,732
<TOTAL-LIABILITY-AND-EQUITY> 5,440
<SALES> 0
<TOTAL-REVENUES> 5,851
<CGS> 0
<TOTAL-COSTS> 301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 5,458
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,458
<EPS-PRIMARY> 142.22
<EPS-DILUTED> 142.22
</TABLE>
