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 JUNE 30, 1996
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: 0-12087
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2780287
(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 FIVE LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1996 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Cash and cash equivalents $ 1,739 $ 1,658
======= =======
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 24 $ 38
Equity in losses in excess of investments and
advances in joint ventures 2,738 2,059
Partners' deficit (1,023) (439)
------ -------
$ 1,739 $ 1,658
======= =======
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended June 30, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
-------- --------
Balance at September 30, 1994 $ (184) $ 1,134
Net loss (12) (1,214)
------- --------
Balance at June 30, 1995 $ (196) $ (80)
======= ========
Balance at September 30, 1995 $ (198) $ (241)
Net loss (6) (578)
------- --------
Balance at June 30, 1996 $ (204) $ (819)
======= ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1996 and 1995
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest and other income $ 19 $ 24 $ 76 $ 74
Expenses:
General and administrative 55 143 185 248
----- ------- ------- -------
Operating loss (36) (119) (109) (174)
Partnership's share of
ventures' losses (156) (156) (475) (587)
Partnership's share of
loss on early
extinguishment
of debt - (466) - (466)
----- ------- ------- -------
Net loss $ (192) $ (741) $ (584) $ (1,227)
======= ======== ======= ========
Net loss per Limited
Partnership Unit $ (5.44) $(21.01) $(16.55) $(34.77)
======= ======== ======= ========
The above net loss per Limited Partnership Unit is based upon the 34,928
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (584) $ (1,227)
Adjustments to reconcile net loss to
net cash used in operating activities:
Partnership's share of ventures' losses 475 587
Partnership's share of loss
on early extinguishment of debt - 466
Changes in assets and liabilities:
Accounts payable and accrued expenses (15) (5)
----- ------
Total adjustments 460 1,048
----- ------
Net cash used in operating activities (124) (179)
----- ------
Cash flows from investing activities:
Distributions from joint ventures 833 116
Additional investments in joint ventures (628) (224)
----- ------
Net cash provided by (used in) investing
activities 205 (108)
----- ------
Net increase (decrease) in cash and cash equivalents 81 (287)
Cash and cash equivalents, beginning of period 1,658 1,836
----- ------
Cash and cash equivalents, end of period $1,739 $1,549
====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended September 30, 1995.
In the opinion of management, the accompanying 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.
2. Investments in Joint Ventures
The Partnership has investments in four joint ventures which own operating
properties as more fully described in the Partnership's Annual Report. The
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 joint ventures are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended June 30, 1996 and 1995
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Rental revenues and
expense recoveries $ 2,884 $ 2,642 $ 8,479 $8,306
Interest and other income 173 260 496 435
------- ------- ------- ------
3,057 2,902 8,975 8,741
Property operating expenses 1,399 1,241 4,199 3,917
Interest expense 1,225 1,239 3,557 3,742
Depreciation 659 669 2,033 1,973
------- ------- ------- ------
3,283 3,149 9,789 9,632
------- ------- ------- ------
Operating loss (226) (247) (814) (891)
Loss from early
extinguishment of debt - (1,166) - (1,166)
------- ------- ------- ------
Net loss $ (226) $(1,413) $ (814) $(2,057)
======= ====== ======= =======
<PAGE>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net loss:
Partnership's share of
combined net loss $ (156) $ (622) $(475) $(1,053)
Co-venturers' share of
combined net loss (70) (791) (339) (1,004)
------ ------- ------ -------
$ (226) $(1,413) $(814) $(2,057)
====== ======= ===== =======
3. Related Party Transactions
Included in general and administrative expenses for the nine months ended
June 30, 1996 and 1995 is $65,000 and $67,000, 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, 1996 and 1995 is $3,000 and $2,000, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
4. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the Managing General Partner is unable to determine what impact, if any,
the resolution of these matters may have on the Partnership's financial
statements, taken as a whole.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's four remaining investment properties consist of three
multi-family apartment complexes and one retail shopping center. While the
current estimated market values of certain of the remaining properties are below
the amounts paid for the properties at the time of the Partnership's inception
in 1983 and 1984, all of the properties have estimated values above their
respective outstanding mortgage debt obligations. Management's strategy over the
past two years has been to capitalize on the favorable market interest rate
environment by refinancing the mortgage loans secured by the operating
investment properties to improve cash flow and permit the reinvestment of funds
for capital improvement work. Such capital improvements are aimed at preserving
and enhancing the properties' market values while the respective local economies
and market conditions improve until favorable opportunities for the sale of the
properties can be achieved. The status of such refinancing efforts and capital
improvement work is discussed in more detail below.
The average occupancy level at Seven Trails West Apartments was 96% for the
quarter ended June 30, 1996, unchanged from the prior quarter but up from 93%
for the same period in the prior year. During the current quarter, the property
continued to benefit from a combination of a stable multi-family rental market
and the improvements in physical appearance resulting from the capital
improvement program implemented during fiscal 1995 and fiscal 1996. During
fiscal 1995, major enhancements that were completed included replacing numerous
roofs and balconies, painting the exteriors of a number of buildings, and
replacing carpeting and appliances for various units. Roof, balcony and deck
repairs and appliance replacements have continued as needed in fiscal 1996. The
repair and replacement of heating and air conditioning units will continue over
the balance of the fiscal year. Such improvements have contributed to
management's ability to implement monthly rental rate increases at Seven Trails.
On April 17, 1996, the Partnership successfully completed the refinancing
of the existing first mortgage loan secured by Seven Trails West Apartments,
reducing the annual interest rate from 12% to 7.87%. The new loan, in the
initial principal amount of $17,000,000, is for a term of ten years with monthly
debt service payments including the amortization of loan principal on a
thirty-year schedule. The proceeds of the new loan, together with a contribution
of $159,000 from the joint venture, were used to pay off all obligations of the
prior first mortgage loan as well as fund all reserves and escrows required by
the new lender. As part of the new loan agreement, reserves for agreed upon
repairs and future replacements aggregating approximately $209,000 were
established in escrow accounts with the mortgage lender. Such amounts, along
with cash flow from property operations made possible by the reduction in the
venture's monthly debt service requirements, have been and will continue to be
used to fund the capital improvements described above.
Occupancy at the Bell Plaza Shopping Center was 98% at June 30, 1996, up
from 95% as of March 31, 1996. During the quarter, the property's leasing team
executed three new leases for a total of 6,345 square feet. No leases are
scheduled to expire at Bell Plaza through the balance of 1996. During the first
quarter of fiscal 1996, the property's leasing team was able to complete
negotiations with a tenant, World Gym, to take the remaining 17,600 square feet
of the former Wal-Mart space. The new lease for the remainder of the Wal-Mart
space should improve the overall financial performance of the center due to the
fact that, on a combined basis, the new tenant and United Supermarkets, which
has occupied 62,800 square feet of the former Wal-Mart space since the first
quarter of fiscal 1995, will be paying a higher per square foot rent than
Wal-Mart was originally paying for its space.
As discussed further in the Partnership's Annual Report, market interest
rates declined sufficiently during fiscal 1995 to allow the existing first
mortgage loan secured by Carriage Hill, with an outstanding principal balance of
approximately $26.5 million, to be refinanced. The new loan, in the initial
principal amount of approximately $27.9 million, has a fixed interest rate of
7.65% and a term of 35 years. The new loan, which closed on June 1, 1995, has
significantly reduced monthly debt service requirements and provided additional
capital that is being used to convert the gas utilities to individual metering
for each apartment unit. This conversion will transfer the utility payments to
the tenants, thereby reducing the property's future operating expenses. The
conversion to individual gas metering commenced during the first quarter of
fiscal 1996 with a targeted completion date in August 1996. The new Carriage
Hill mortgage loan also released from the collateral a 23-acre parcel of excess
land. This land may eventually be marketed for sale to local developers once
market conditions improve sufficiently. The suburban Baltimore market remains
competitive with competing properties continuing to offer concessions to attract
new tenants. Carriage Hill's occupancy averaged 89% for the third fiscal
quarter, an increase of 4% from the prior quarter.
The average occupancy level at Greenbrier Apartments was 91% for the
quarter ended June 30, 1996, unchanged from the prior quarter. Capital
expenditures during the current quarter included carpeting and appliance
replacements on an as-needed basis and some roof repairs. In addition, the
property's management team continued the balcony and gutter replacement program,
replaced perimeter fences and purchased another computer for the leasing office.
Improvements planned over the balance of the year include landscaping, repairing
concrete retaining walls and updating clubhouse interiors. Greenbrier continues
to produce excess cash flow after the payment of operating expenses, debt
service payments to the lender and capital costs. As previously reported,
management had considered refinancing the venture's current mortgage debt of
$5.4 million, which bears interest at 10% per annum but does not mature until
June 1998. During the current fiscal quarter, as a result of increases in
mortgage interest rate levels, management decided to defer any immediate
refinancing plans.
At June 30, 1996, the Partnership had cash and cash equivalents of
$1,739,000. Such cash and cash equivalents will be utilized for the working
capital requirements of the Partnership and for future refinancing expenses and
capital contributions related to the Partnership's joint ventures. The source of
future liquidity and distributions to the partners is expected to be from cash
generated by the Partnership's income-producing properties and from the proceeds
received from the sale or refinancing of such properties or from the sale of the
Partnership's interests in the joint ventures. These sources of liquidity are
expected to be sufficient to meet the Partnership's needs on both a short-term
and long-term basis.
Results of Operations
Three Months Ended June 30, 1996
The Partnership reported a net loss of $192,000 for the three months ended
June 30, 1996 as compared to a net loss of $741,000 for the same period in the
prior year. The primary reason for this favorable change in net operating
results is that the Carriage Hill joint venture recognized a loss on the early
extinguishment of debt during the prior year of approximately $1,166,000 as a
result of the write-off of unamortized deferred financing costs related to the
venture's prior debt in conjunction with the June 1995 refinancing transaction,
discussed further above. The Partnership's share of this loss was approximately
$466,000. In addition, the Partnership's operating loss decreased by $83,000 for
the three months ended June 30, 1996, when compared to the same period in the
prior year. The decrease in operating loss resulted from a decrease in general
and administrative expenses of $88,000. The decrease in general and
administrative expenses can be attributed mainly to certain incremental expenses
incurred in the prior year relating to the annual independent valuation of the
Partnership's operating properties.
Nine Months Ended June 30, 1996
The Partnership reported a net loss of $584,000 for the nine months ended
June 30, 1996 as compared to a net loss of $1,227,000 for the same period in the
prior year. The primary reason for this favorable change in net operating
results is that the Carriage Hill joint venture recognized a loss on the early
extinguishment of debt during the prior year of approximately $1,166,000 as a
result of the write-off of unamortized deferred financing costs related to the
venture's prior debt in conjunction with the June 1995 refinancing transaction,
discussed further above. The Partnership's share of this loss was approximately
$466,000. In addition, the Partnership's share of ventures' losses decreased by
$112,000 when compared to the same period in the prior year. This decrease can
be mainly attributed to a $234,000 increase in combined revenues from the four
joint ventures. Combined revenues increased largely due to improved rental rates
at the Seven Trails West and Greenbrier Apartments. In addition, combined
interest expense decreased by $184,000 for the current nine-month period mainly
as a result of the lower interest rate on the debt secured by the Carriage Hill
Apartments which was refinanced in June 1995. The improved rental rates at Seven
Trails and Greenbrier and the lower interest expense for the Carriage Hill
mortgage loan were partially offset by increases in combined property operating
expenses and depreciation expense of $253,000 and $60,000, respectively.
Property operating expenses increased primarily due to an increase in utility
costs at Carriage Hill Apartments resulting from more severe weather conditions
during the current year. As noted above, the venture is in the process of
converting the utilities at Carriage Hill Apartments to individual metering.
Once completed, this will significantly reduce the venture's exposure to
fluctuations in utility charges caused by extreme weather conditions.
Depreciation expense increased at the Seven Trails, Greenbrier and Bell Plaza
joint ventures for the nine months ended June 30, 1996 due to capital
improvements, tenant improvements and leasing commissions which have been
incurred over the past year.
The Partnership's operating loss decreased by $65,000 for the nine months
ended June 30, 1996, when compared to the same period in the prior year. The
decrease in operating loss is mainly attributable to a decrease in general and
administrative expenses. General and administrative expenses decreased mainly
due to certain incremental expenses incurred in the prior year relating to the
annual independent valuation of the Partnership's operating properties.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As discussed in the prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "New York Limited Partnership Actions")
were filed in the United States District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 limited
partnership investments, including those offered by the Partnership. The
lawsuits were brought against PaineWebber Incorporated and Paine Webber Group
Inc. (together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated under
the title In re PaineWebber Limited Partnership Litigation, the plaintiffs
amended their complaint to assert claims against a variety of other defendants,
including Fifth Income Properties Fund, Inc. and Properties Associates ("PA"),
which are General Partners of the Partnership and affiliates of PaineWebber. On
May 30, 1995, the court certified class action treatment of the claims asserted
in the litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions 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 plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved by the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships 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.
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 has been scheduled for October 25, 1996.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Quarterly Report on Form 10-Q for the period ended March 31, 1996.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
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 FIVE LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
By: FIFTH INCOME PROPERTIES FUND, INC.
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended June 30,
1996 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-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,739
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,739
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,739
<CURRENT-LIABILITIES> 24
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,023)
<TOTAL-LIABILITY-AND-EQUITY> 1,739
<SALES> 0
<TOTAL-REVENUES> 76
<CGS> 0
<TOTAL-COSTS> 185
<OTHER-EXPENSES> 475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (584)
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<NET-INCOME> (584)
<EPS-PRIMARY> (16.55)
<EPS-DILUTED> (16.55)
</TABLE>
