UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from________ to ________.
Commission File Number : 0-15037
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
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(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
June 30, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
June 30 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 (1,325) (1,257)
--------- ----------
2,226 2,294
Investments in unconsolidated ventures, at equity 1,941 1,406
Cash and cash equivalents 1,168 2,856
Escrowed funds 57 72
Accounts receivable, net 80 26
Deferred expenses, net 90 103
Other assets 29 32
--------- ----------
$ 5,591 $ 6,789
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage note payable $ 1,567 $ 1,614
Accounts payable and accrued expenses 46 84
Accounts payable - affiliates 6 7
Accrued interest payable 15 15
Accrued real estate taxes 40 58
Other liabilities 9 9
Partners' capital 3,908 5,002
--------- ----------
$ 5,591 $ 6,789
========= ==========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rental income and expense
recoveries $ 134 $ 122 $ 394 $ 364
Interest and other income 18 63 404 213
------- ------- -------- -------
152 185 798 577
Expenses:
Mortgage interest 45 47 137 142
Property operating expenses 17 20 82 83
Depreciation and amortization 26 36 77 109
Real estate taxes 20 20 61 61
Management fees 14 24 47 42
General and administrative 47 76 159 174
------- ------- -------- -------
169 223 563 611
------- ------- -------- -------
Operating income (loss) (17) (38) 235 (34)
Partnership's share of
unconsolidated ventures'
income (losses) 390 86 1,121 (32)
Partnership's share of gain on
sale of operating investment
property - 1,929 4,474 1,929
------- ------- -------- -------
Income before extraordinary gain 373 1,977 5,830 1,863
Partnership's share of
extraordinary gain from
settlement of debt obligations - 2,580 - 2,580
------- ------- -------- -------
Net income $ 373 $ 4,557 $ 5,830 $ 4,443
======= ======= ======== =======
Per Limited Partnership Unit:
Income before extraordinary
gain $ 9.72 $ 40.77 $ 151.93 $ 37.82
Partnership's share of
extraordinary gain from
settlement of debt
obligations - 58.86 - 58.86
------- ------- -------- -------
Net income $ 9.72 $ 99.63 $ 151.93 $ 96.68
======= ======= ======== =======
Cash distributions $ 5.12 $ 6.00 $ 182.18 $ 52.25
======= ======= ======== =======
The above per Limited Partnership Unit information is 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 nine months ended June 30, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1996 $ (756) $ (621)
Cash distributions (5) (1,984)
Net income 772 3,671
--------- --------
Balance at June 30, 1997 $ 11 $ 1,066
========= ========
Balance at September 30, 1997 $ (653) $ 5,655
Cash distributions (7) (6,917)
Net income 61 5,769
--------- --------
Balance at June 30, 1998 $ (599) $ 4,507
========= ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES SEVEN LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 5,830 $ 4,443
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 77 109
Amortization of deferred financing costs 4 4
Partnership's share of unconsolidated ventures'
income (losses) (1,121) 32
Partnership's share of extraordinary gain on
settlement of debt obligations - (2,580)
Partnership's share of gain on sale of operating
investment property (4,474) (1,929)
Changes in assets and liabilities:
Escrow deposits 15 18
Accounts receivable (54) (6)
Accounts receivable - affiliates - 2
Other assets 3 4
Accounts payable and accrued expenses (38) (37)
Accounts payable - affiliates (1) 7
Accrued real estate taxes (18) -
------- -------
Total adjustments (5,607) (4,376)
------- -------
Net cash provided by operating activities 223 67
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 5,060 1,342
Cash flows from financing activities:
Distributions to partners (6,924) (1,989)
Principal payments on long-term debt (47) (42)
------- -------
Net cash used in financing activities (6,971) (2,031)
------- -------
Net decrease in cash and cash equivalents (1,688) (622)
Cash and cash equivalents, beginning of period 2,856 5,067
------- -------
Cash and cash equivalents, end of period $ 1,168 $ 4,445
======= =======
Cash paid during the period for interest $ 133 $ 138
======= =======
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 June 30, 1998 and September 30, 1997 and revenues and
expenses for the three and nine months ended June 30, 1998 and 1997. Actual
results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
The Adviser earned total management fees of $47,000 and $42,000 for the
nine-month periods ended June 30, 1998 and 1997, respectively. Accounts payable
- - affiliates at June 30, 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 nine months ended
June 30, 1998 and 1997 is $66,000 and $64,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended June 30, 1998 and 1997 is $7,000 and $12,000, respectively, 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 June 30, 1998, the Partnership had investments in two unconsolidated
joint ventures (four at June 30, 1997) which own two operating properties (four
at June 30, 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
nine months ended June 30, 1998 and 1997 are as follows:
Condensed Combined Summary of Operations
For the three and nine months ended June 30, 1998 and 1997
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $ 1,796 $2,745 $5,569 $8,094
Interest and other income 40 96 191 322
------- ------ ------ ------
1,836 2,841 5,760 8,416
Property operating expenses 474 889 1,537 2,822
Interest expense 347 1,010 1,139 2,992
Real estate taxes 402 466 1,223 1,405
Depreciation and amortization 223 392 738 1,234
------- ------ ------ ------
1,446 2,757 4,637 8,453
------- ------ ------ ------
Operating income (loss) 390 84 1,123 (37)
Gain on sale of operating
investment property - 2,018 4,870 2,018
------- ------ ------ ------
Income before extraordinary gain 390 2,102 5,993 1,981
Extraordinary gain from
settlement of debt
obligations - 2,699 - 2,699
------- ------ ------ ------
Net income $ 390 $4,801 $5,993 $4,680
======= ====== ====== ======
Net income:
Partnership's share of
combined income $ 390 $4,597 $5,725 $4,482
Co-venturers' share of
combined income - 204 268 198
------- ------ ------ ------
$ 390 $4,801 $5,993 $4,680
======= ====== ====== ======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended June 30, 1998 and 1997
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of combined
income, as shown above $ 390 $ 4,597 $5,725 $ 4,482
Amortization of excess basis - (2) (130) (5)
------ ------- ------ -------
Partnership's share of
unconsolidated ventures'
net income $ 390 $ 4,595 $5,595 $ 4,477
====== ======= ====== =======
<PAGE>
The Partnership's share of unconsolidated ventures' net income (loss) is
presented as follows in the consolidated statements of operations (in
thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
unconsolidated ventures'
income (losses) $ 390 $ 86 $1,121 $ (32)
Partnership's share of gain on
sale of operating investment
property - 1,929 4,474 1,929
Partnership's share of
extraordinary gain from
settlement of debt obligations - 2,580 - 2,580
-------- ------- ------ --------
Partnership's share of
unconsolidated ventures'
net income $ 390 $ 4,595 $5,595 $ 4,477
======== ======= ====== ========
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 nine-month periods ended June 30, 1998 and 1997 (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Repairs and maintenance $ 4 $ 4 $ 15 $ 18
Utilities 1 1 3 3
Insurance 1 1 4 4
Administrative and other 8 11 49 47
Management fees 3 3 11 11
----- ----- ---- -----
$ 17 $ 20 $ 82 $ 83
===== ===== ==== =====
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 June 30, 1998
and September 30, 1997, mortgage note payable consists of the following (in
thousands):
June 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 June 30, 1998
and September 30, 1997. $ 1,567 $ 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 June 30, 1998
and September 30, 1997 consists of such escrowed insurance premiums and real
estate taxes in the aggregate amounts of $57,000 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 year. 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 property's estimated current market
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 June 30, 1998, unchanged from the previous quarter and up from 94% for the
quarter ended June 30, 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 6% over the past twelve months. The strong local
job market has influenced an unusually high demand for apartments in the
northwest suburbs of Chicago, which is the property's local sub-market. In light
of the current strength of the apartment segment of the real estate market in
general and the current favorable local market conditions, the Partnership
believes it is the appropriate time to sell the Colony Apartments property.
Accordingly, during the second quarter of fiscal 1998 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. During the current
quarter, the Partnership and its co-venture partner selected a national firm to
market the property. Sales materials were finalized and an extensive marketing
campaign began in early June 1998. 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 remained at 92%,
unchanged from the previous quarter. The property's leasing team is pursuing a
replacement tenant for the 3,000 square foot restaurant tenant which 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. In addition, the property's leasing team is working with
two tenants occupying 2,570 square feet, whose leases expire later in calendar
year 1998. 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 third quarter included
the replacement of five tenant doors and the continuation of the project to
convert the property's electric heating system to gas heat. As previously
reported, the Partnership and its co-venture partner have begun exploring
potential opportunities for the sale of the Colony Square property. As part of
that plan, discussions were held with real estate brokerage firms with a
specialty in small retail centers like Colony Square. During the current
quarter, the Partnership and its co-venture partner selected a real estate
brokerage firm to begin marketing this asset for sale. Subsequently, an offer
was received to purchase the Colony Square Shopping Center from a prospective
third-party buyer that met the Partnership's and co-venture partner's sale
criteria. Subsequent to the quarter-end, a purchase and sale agreement was
signed with this prospective buyer and they have undertaken their due diligence
work. The sale remains continent upon, among other things, the satisfactory
completion of the buyer's due diligence. Accordingly, there are no assurances
that this sale transaction will be completed.
The occupancy level at the Concourse Retail Plaza decreased to 34% for the
quarter ended June 30, 1998 from 90% at the beginning of the quarter when three
tenants occupying a total of 17,105 square feet closed operations. Two of these
tenants, a 7,105 square foot steakhouse and a 1,200 square foot mortgage company
continue to pay their rent obligations under the terms of their leases. The
third tenant which operated an 8,800 square foot southwestern restaurant, had
been, until this quarter, paying its rent as modified under a court judgement.
As previously reported, the property's management team pursued legal action
against this southwestern restaurant tenant, which occupied 28% of the leasable
space at The Concourse, because the restaurant owner previously failed to pay
its modified rent. Subsequently, a court judgment for eviction was entered
against this tenant; however, the tenant continued to experience improved sales
during the recent tourist season and paid its rent as modified under the court
judgment during the quarter ended March 31, 1998. The Partnership is now
pursuing a separate judgment for the outstanding balance owed. As also
previously reported, a locally-owned and operated far-eastern restaurant, which
occupies 12% of the leasable area, has experienced a slow-down in sales and is
behind in its rental obligations. The property's management team is pursuing
legal remedies against this tenant.
As previously reported, the Partnership has 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 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 reviewed was the development of a leasing plan that would put an
emphasis on a greater mixture of office and retail uses. This would involve the
likely conversion of one of the larger restaurant out parcel buildings into
professional/service office space. Another option was to market the property for
sale now, with the net proceeds from any such potential sale transaction being
carefully evaluated in comparison to the risks of holding the property and
completing the conversion. The Partnership has decided on the second option and
is marketing the property for sale now. Last quarter, the Partnership initiated
discussions with area real estate firms concerning potential marketing
strategies for selling The Concourse and solicited marketing proposals from
several of these firms. After reviewing their respective proposals and
conducting interviews to determine their expertise and track record in selling
properties similar to The Concourse, the Partnership selected a Florida-based
firm. During the current quarter, a marketing package was finalized and
comprehensive sale efforts began in early May. 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.
At June 30, 1998, the Partnership and its consolidated venture had cash
and cash equivalents of approximately $1,168,000. 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 June 30, 1998
- --------------------------------
The Partnership reported net income of $373,000 for the three months ended
June 30, 1998, as compared to net income of $4,557,000 for the same period in
the prior year. This decrease in net income of $4,184,000 is primarily the
result of the gain of $1,929,000 realized on the sale of the Hunt Club and The
Marina Club Apartments by HMF Associates during the same period in the prior
year and the related extraordinary gain of $2,580,000 from the settlement of
debt obligations in conjunction with the sale of the two properties. These
sale-related gains were partially offset by an increase in the Partnership's
share of unconsolidated ventures' income of $304,000 and a decrease in the
Partnership's operating loss of $21,000. The increase in the Partnership's share
of unconsolidated ventures' income is primarily attributable to the sale of the
properties owned by the HMF joint venture during the third quarter of fiscal
1997. The HMF joint venture had been generating sizable operating losses prior
to the sales of its assets. Net income also increased at the Colony Apartments
joint venture by $59,000 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.
The decrease in the Partnership's operating loss is primarily attributable
to a $54,000 decline in operating expenses. The Partnership's operating expenses
decreased mainly due to declines in general and administrative expenses,
depreciation and amortization expense and management fees 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, which reduced ongoing depreciation charges on the property. Management
fee expense decreased due to a decline in distributions to the Limited Partners,
upon which such fees are based. In addition, there was a small increase in
rental income at the consolidated Concourse Retail Plaza. The reductions in
general and administrative expenses, depreciation charges and management fees
and the increase in rental income were partially offset by a decrease in
interest and other income. Interest and other income declined due to a reduction
in the average amount of cash and cash equivalents due to the temporary
investment of the proceeds from the sale the Hunt Club and The Marina Club
Apartments during the prior period and due to the distribution of excess
reserves to the Limited Partners along with the capital proceeds from the sale
of the HMF properties and The Meadows on the Lake Apartments, as discussed
further above.
Nine Months Ended June 30, 1998
- -------------------------------
The Partnership reported net income of $5,830,000 for the nine months
ended June 30, 1998, as compared to a net income of $4,443,000 for the same
period in the prior year. This increase in net income is mainly attributable to
a $1,153,000 favorable change in the Partnership's share of unconsolidated
ventures' income (losses). The gain of $4,474,000 recognized in the current year
on the sale of the Meadows property was offset by the gains on the sale of the
Hunt Club and The Marina Club properties and the related forgiveness of debt
recognized in the prior year, as discussed further above.
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. In addition, net income increased by
$281,000 at the Colony Apartments joint venture for the current nine-month
period, due to an increase in rental income. In addition, there was a favorable
change in the Partnership's operating income (loss) of $269,000. This favorable
change was mainly the result of 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.
Reductions in general and administrative expenses and depreciation and
amortization charges, along with an increase in rental income from the
consolidated Concourse joint venture, also contributed to the favorable change
in operating income (loss) for the current nine-month period.
<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: August 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,168
<SECURITIES> 0
<RECEIVABLES> 295
<ALLOWANCES> 215
<INVENTORY> 0
<CURRENT-ASSETS> 1,305
<PP&E> 5,492
<DEPRECIATION> 1,325
<TOTAL-ASSETS> 5,591
<CURRENT-LIABILITIES> 107
<BONDS> 1,567
0
0
<COMMON> 0
<OTHER-SE> 3,908
<TOTAL-LIABILITY-AND-EQUITY> 5,591
<SALES> 0
<TOTAL-REVENUES> 6,393
<CGS> 0
<TOTAL-COSTS> 426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> 5,830
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,830
<EPS-PRIMARY> 151.93
<EPS-DILUTED> 151.93
</TABLE>
