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 DECEMBER 31, 1995
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
December 31, 1995 and September 30, 1995 (Unaudited)
(In thousands)
ASSETS
December 31 September 30
Cash and cash equivalents $ 1,671 $ 1,658
======= =======
LIABILITIES AND PARTNERS' DEFICIT
Equity in losses in excess of investments and
advances in joint ventures $ 2,266 $ 2,059
Accounts payable and accrued expenses 16 38
Partners' deficit (611) (439)
------ -------
$ 1,671 $ 1,658
======= ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended December 31, 1995 and 1994 (Unaudited)
(In thousands)
General Limited
Partner Partners
Balance at September 30, 1994 $ (184) $ 1,134
Net loss (2) (242)
-------- ---------
Balance at December 31, 1994 $ (186) $ 892
======= =========
Balance at September 30, 1995 $ (198) $ (241)
Net loss (2) (170)
------- ---------
Balance at December 31, 1995 $ (200) $ (411)
======= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three months ended December 31, 1995 and 1994
(Unaudited) (In thousands, except per Unit data)
1995 1994
---- ----
Revenues:
Interest and other income $ 35 $ 25
Expenses:
General and administrative 69 59
----------- ----------
Operating loss (34) (34)
Partnership's share of ventures' losses (138) (210)
--------- ---------
Net loss $ (172) $ (244)
======== ========
Net loss per Limited Partnership Unit $ (4.87) $ (6.92)
======== ========
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 three months ended December 31, 1995 and 1994 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1995 1994
Cash flows from operating activities:
Net loss $ (172) $ (244)
Adjustments to reconcile net loss to
net cash used for operating activities:
Partnership's share of ventures' losses 138 210
Changes in assets and liabilities:
Accounts payable and accrued expenses (22) 15
----------- ----------
Total adjustments 116 225
----------- ----------
Net cash used for operating activities (56) (19)
Cash flows from investing activities:
Distributions from joint ventures 97 51
Additional investments in joint ventures (28) -
----------- ----------
Net cash provided by investing activities 69 51
----------- ----------
Net increase in cash and cash equivalents 13 32
Cash and cash equivalents, beginning of period 1,658 1,836
---------- ----------
Cash and cash equivalents, end of period $ 1,671 $ 1,868
========== ==========
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 months ended December 31, 1995 and 1994
(in thousands)
1995 1994
---- ----
Rental revenues and
expense recoveries $2,755 $2,799
Interest and other income 211 154
------ ------
2,966 2,953
Property operating expenses 1,332 1,332
Interest expense 1,139 1,236
Depreciation and amortization 713 661
------ -------
3,184 3,229
------ -------
Net loss $ (218) $ (276)
====== ======
Net loss:
Partnership's share of
combined net loss $ (138) $ (210)
Co-venturers' share of
combined net loss (80) (66)
------ ------
$ (218) $ (276)
====== ======
3. Related Party Transactions
Included in general and administrative expenses for three months ended
December 31, 1995 and 1994 is $21,000 and $25,000, 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 three months
ended December 31, 1995 and 1994 is $200 and $500, 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. The Managing General
Partner believes that these actions will be resolved without material
adverse effect 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 98% for the
quarter, compared to 97% last 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. 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.
Such improvements have contributed to management's ability to implement rental
rate increases at Seven Trails without a dropoff in occupancy. The apartment
complex is encumbered by a nonrecourse first mortgage loan with a principal
balance of $14,700,000 which matured on February 1, 1996. In addition to the
outstanding principal balance, there is currently deferred interest totalling
approximately $1.9 million due to the Seven Trails mortgage lender. During
fiscal year 1995, a refinancing of the first mortgage loan secured by the Seven
Trails property was initiated. The terms of the refinancing are currently being
finalized with the prospective lender. The loan application is for a $17 million
mortgage loan which should enable the venture to repay, in full, the maturing
obligation. In addition, a review process is currently underway by the
prospective lender, which includes an assessment of reserves required to be
withheld from the loan amount to be set aside for necessary repairs and
improvements. Since the property is over 20 years old, such reserve requirements
could be significant and could result in the Partnership having to contribute
funds from its cash reserves to cover transaction costs. Management is hopeful
that the amounts spent on repairs and improvements during fiscal 1995 will
mitigate the prospective lender's reserve requirements. While there are no
assurances that this refinancing transaction will be completed, management is
cautiously optimistic that a transaction will close in the second quarter of
fiscal 1996.
On June 19, 1995, the Partnership completed the refinancing of the existing
first mortgage loan secured by Bell Plaza, reducing the annual interest rate
from 9.4% to 8.125%. The new loan, in the initial principal amount of
$3,300,000, matures in seven years and requires monthly principal and interest
payments based upon a twenty-five-year amortization schedule. The terms of the
loan allow for a prepayment of the principal balance after the end of one year.
Occupancy at the Bell Plaza Shopping Center was 82% at December 31, 1995, up
from 78% the previous quarter. This change in occupancy reflects the leasing of
the balance of the former Wal-Mart space remaining after the United Supermarkets
lease of approximately 62,800 square feet, which commenced in the first quarter
of fiscal 1995. During the quarter ended December 31, 1995, 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. In future
quarters, 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 will be paying a higher
per square foot rent than Wal-Mart was originally paying for its space. As part
of the terms of the United Supermarkets lease, a vacant free standing building
at Bell Plaza was demolished to allow for the reconfiguration of the parking lot
and the addition of 235 spaces. As a result of the demolition, the property's
leasable area has changed from 151,500 square feet to 144,000 square feet.
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,
significantly reduces monthly debt service requirements and provides additional
capital that will be 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 new
loan also releases 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 86% for the quarter, a decline
of 3% from last quarter. This decrease in occupancy is primarily attributable to
a seasonal decline in leasing activity. The conversion to individual gas
metering commenced this quarter with a targeted completion date of June 1, 1996.
In order to adjust to the market rental rate for units in which the tenants pay
their own gas bills, rental rates for new tenants have been lowered 8%. Current
tenants have the option upon renewal to lower the current rent and begin paying
their own gas bill, or to continue with landlord-paid gas and accept a 3% rent
increase. After the conversion is completed, occupancy is expected to stabilize
again in the low 90% range.
The occupancy level at Greenbrier Apartments was 93% at December 31, 1995,
unchanged from last quarter's average. Capital improvements planned for fiscal
1996 include replacing perimeter fences, selected landscape replacements, roof
repairs and balcony and gutter replacements on an as-needed basis. Greenbrier
continues to produce excess cash flow after the payment of operating expenses,
debt service payments to the lender and capital costs. Although the current
mortgage debt of $5,400,000, which is secured by the property and bears interest
at 10% per annum, does not mature until June 1998, the joint venture has applied
for a new mortgage loan with another lender. Given the current favorable
interest rate environment, a new loan could reduce the monthly debt service
payments of the joint venture.
At December 31, 1995, the Partnership had cash and cash equivalents of
$1,671,000. 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 December 31, 1995
The Partnership reported a net loss of $172,000 for the three months ended
December 31, 1995 as compared to a net loss of $244,000 for the same period in
the prior year. The primary reason for this favorable change in net operating
results was a decrease in the Partnership's share of ventures' losses of
$72,000. This decrease is due largely to a decrease in interest expense for the
Carriage Hill joint venture, resulting from the mortgage interest rate
reduction, achieved by the refinancing during June 1995, as discussed further
above. In addition, rental revenues improved at Seven Trails West Apartments and
Greenbrier Apartments for the comparative periods mainly due to improved rental
rates at both properties. The decline in interest expense at Carriage Hill and
the improved rental revenues at Seven Trails and Greenbrier were partially
offset by decreases in revenue at Carriage Hill and Bell Plaza and increases in
depreciation and amortization expense at all four joint ventures. Revenue
dropped at Carriage Hill for the current three-month period due to a decline in
the property's average occupancy level. Revenues at Bell Plaza in the prior
period reflect the lease termination fee received from Wal-Mart prior to the
commencement of the United Supermarkets lease. Depreciation and amortization
expense increased at all of the joint ventures due to capital improvements,
tenant improvements, leasing commissions and deferred financing costs which have
been incurred over the past year.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
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, which are the 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.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in Paine Webber Income Properties
Five Limited Partnership, PaineWebber, Fifth Income Properties Fund, Inc. and
Properties Associates (1) failed to provide adequate disclosure of the risks
involved; (2) made false and misleading representations about the safety of the
investments and the Partnership's anticipated performance; and (3) marketed the
Partnership to investors for whom such investments were not suitable. The
plaintiffs, who purport to be suing on behalf of all persons who invested in
Paine Webber Income Properties Five Limited Partnership, also allege that
following the sale of the partnership interests, PaineWebber, Fifth Income
Properties Fund, Inc. and Properties Associates misrepresented financial
information about the Partnerships value and performance. The amended complaint
alleges that PaineWebber, Fifth Income Properties Fund, Inc. and Properties
Associates violated the Racketeer Influenced and Corrupt Organizations Act
("RICO") and the federal securities laws. The plaintiffs seek unspecified
damages, including reimbursement for all sums invested by them in the
partnerships, as well as disgorgement of all fees and other income derived by
PaineWebber from the limited partnerships. In addition, the plaintiffs also seek
treble damages under RICO.
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 which the parties expect
to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to investors in Paine Webber Income Properties
Five Limited Partnership. Pursuant to provisions of the Partnership Agreement
and other contractual obligations, under certain circumstances the Partnership
may be required to indemnify Fifth Income Properties Fund, Inc., Properties
Associates and their affiliates for costs and liabilities in connection with
this litigation. Management has had discussions with representatives of
PaineWebber and, based on such discussions, the Partnership does not believe
that PaineWebber intends to invoke the aforementioned indemnifications in
connection with the settlement of this litigation.
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: February 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the year ended September 30, 1995
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> DEC-31-1995
<CASH> 1,671
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,671
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,671
<CURRENT-LIABILITIES> 16
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (611)
<TOTAL-LIABILITY-AND-EQUITY> 1,671
<SALES> 0
<TOTAL-REVENUES> 35
<CGS> 0
<TOTAL-COSTS> 69
<OTHER-EXPENSES> 138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (172)
<EPS-PRIMARY> (4.87)
<EPS-DILUTED> (4.87)
</TABLE>
