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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______to _____.
Commission File Number: 0-12087
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2780287
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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
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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, 1997 and September 30, 1996 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Cash and cash equivalents $ 1,687 $ 1,739
======== =======
LIABILITIES AND PARTNERS' DEFICIT
Equity in losses in excess of investments and
advances in joint ventures $ 2,795 $ 2,971
Accounts payable and accrued expenses 41 30
Partners' deficit (1,149) (1,262)
-------- -------
$ 1,687 $ 1,739
======== =======
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the nine months ended June 30, 1997 and 1996 (Unaudited)
(In thousands)
General Limited
Partner Partners
------- --------
Balance at September 30, 1995 $ (198) $ (241)
Net loss (6) (578)
------- ---------
Balance at June 30, 1996 $ (204) $ (819)
======= =========
Balance at September 30, 1996 $ (206) $ (1,056)
Net income 1 112
------- ----------
Balance at June 30, 1997 $ (205) $ (944)
======= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and nine months ended June 30, 1997 and 1996 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Interest and other income $ 24 $ 19 $ 71 $ 76
Expenses:
General and administrative 94 55 185 185
------ ------ ------ -------
Operating loss (70) (36) (114) (109)
Partnership's share of
ventures' income (losses) 116 (156) 227 (475)
------ ----- ------ -------
Net income (loss) $ 46 $(192) $ 113 $ (584)
====== ===== ====== =======
Net income (loss) per Limited
Partnership Unit $ 1.31 $(5.44) $ 3.21 $(16.55)
====== ====== ====== =======
The above net income (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, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 113 $ (584)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Partnership's share of ventures' income (losses) (227) 475
Changes in assets and liabilities:
Accounts payable and accrued expenses 11 (15)
-------- --------
Total adjustments (216) 460
-------- --------
Net cash used in operating activities (103) (124)
Cash flows from investing activities:
Distributions from joint ventures 65 833
Additional investments in joint ventures (14) (628)
-------- --------
Net cash provided by investing activities 51 205
-------- --------
Net (decrease) increase in cash and cash equivalents (52) 81
Cash and cash equivalents, beginning of period 1,739 1,658
-------- --------
Cash and cash equivalents, end of period $ 1,687 $ 1,739
======== ========
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, 1996. 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.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which requires 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, 1997 and September 30, 1996
and revenues and expenses for the three- and nine-month periods ended June
30, 1997 and 1996. Actual results could differ from the estimates and
assumptions used.
2. Related Party Transactions
Included in general and administrative expenses for the nine-month periods
ended June 30, 1997 and 1996 is $64,000 and $65,000, 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, 1997 and 1996 is $5,000 and $3,000, respectively,
representing fees earned by an affiliate, Mitchell Hutchins Institutional
Investors, Inc., for managing the Partnership's cash assets.
3. 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.
<PAGE>
Summarized operating results of the joint ventures for the three and nine
months ended June 30, 1997 and 1996 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended June 30, 1997 and 1996
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues and
expense recoveries $2,948 $2,884 $8,900 $8,479
Interest and other income 143 173 448 496
------ ------ ------ ------
3,091 3,057 9,348 8,975
Property operating expenses 1,176 1,367 3,757 4,105
Interest expense 1,121 1,263 3,362 3,736
Depreciation and amortization 670 653 2,029 1,948
------ ------ ------ ------
2,967 3,283 9,148 9,789
------ ------ ------ ------
Net income (loss) $ 124 $ (226) $ 200 $ (814)
====== ====== ====== ======
Net income (loss):
Partnership's share of
combined net income
(losses) $ 116 $ (156) $ 227 $ (475)
Co-venturers' share of
combined net income
(losses) 8 (70) (27) (339)
------ ------ ------ ------
$ 124 $ (226) $ 200 $ (814)
====== ====== ====== ======
<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 original
investments in 1983 and 1984, all of the properties currently have estimated
values above their respective outstanding mortgage debt obligations.
Management's strategy over the past several 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
until favorable opportunities for the sale of the properties can be achieved.
With the last of the required financing transactions completed during fiscal
1996, the Partnership's management is focusing on potential disposition
strategies for the remaining investment properties. As a result, the Partnership
could be positioned for a possible liquidation within the next 2-to-3 years.
There are no assurances, however, that the Partnership will be able to achieve
the sale of its remaining assets within this time frame.
Bell Plaza Shopping Center in Amarillo, Texas, was 99% leased as of June
30, 1997, unchanged from the prior quarter. However, two tenants that closed
their operations in the Center in January 1997, with leases totalling 3,237
square feet, are no longer meeting their contractual rental obligations. As a
result, the property's management team is actively pursuing collection of all
unpaid rent and has been in discussions with several prospective tenants to
lease the vacant space. The property's leasing team is also working on renewals
of two leases, totalling 4,793 square feet, that expire in the next 12 months.
As previously reported, the Partnership had been exploring the potential for a
sale of the Bell Plaza Shopping Center property. However, based on discussions
with local and regional brokers specializing in retail properties, the
Partnership and its co-venture partner have decided not to pursue a near-term
sale at this time. In light of current market conditions, both the Partnership
and the co-venturer believe that it would be in their best interests to continue
to work on improving the tenant mix and cash flow at Bell Plaza before
positioning the property for a sale.
The average occupancy level for the Seven Trails West Apartments, located
in St. Louis, Missouri, was 94% for the quarter ended June 30, 1997, unchanged
from the prior quarter and down slightly from the 96% average for the same
period one year ago. The St. Louis apartment market remains strong, with no new
apartment units currently being developed in the sub-market in which Seven
Trails is located. The Partnership's management expects Seven Trails to benefit
from the combination of a stable multi-family market and the property's strong
position in the marketplace. In order to maintain the property's competitive
condition, excess cash flow is being reinvested in property improvements.
Carpets, vinyl, refrigerators, stoves and dishwashers are being replaced in
units on an as needed basis. Property improvements scheduled to be completed in
fiscal 1997 will include balcony replacements and roof repairs, painting of
building exteriors and hallways, pool repairs and replacement of an exterior
retaining wall.
The occupancy level at the Carriage Hill Apartments, in Randallstown,
Maryland, averaged 92% for the quarter ended June 30, 1997, compared to 93% for
the prior quarter and 89% for the same period in the prior year. As discussed
further in the Annual Report, the fiscal 1995 refinancing of the first mortgage
loan secured by the Carriage Hill Apartments reduced the venture's monthly debt
service requirements and provided additional funds which have been used to make
improvements to the property. These improvements included the conversion of the
gas utilities to individual metering for each apartment unit. In the past,
operating results have been negatively impacted by high utility costs incurred
during the winter season. By transferring the utility payments to the tenants,
the property management company sought to reduce and stabilize property
operating expenses. This conversion was completed in fiscal year 1996 and 72% of
the residents currently pay for their individual gas usage. Until recently,
residents have had the option upon renewal of their leases to lower their
current monthly rental rate and begin paying their own gas bill or to continue
with landlord-paid gas and accept a rental rate increase. However, in order to
have all residents paying for individual gas usage by the end of fiscal year
1998, any tenant with landlord-paid gas who renews their lease after October 1,
1997 will now pay their own utility costs.
Average occupancy at the Greenbrier Apartments, in Indianapolis, Indiana,
was 88% during the quarter ended June 30, 1997, compared to 92% for the prior
quarter and 91% for the same period in the prior year. The property's leasing
and management team attributes the current softness in this market primarily to
tenants moving to purchase homes. The property's management team has been forced
to match the leasing concessions of its competition by offering one month's free
rent to new tenants. Rental rate increases will not be implemented until
occupancy levels improve.
At June 30, 1997, the Partnership had cash and cash equivalents of
$1,687,000. Such cash and cash equivalents will be utilized for the working
capital requirements of the Partnership and for future capital contributions, as
necessary, 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, 1997
- --------------------------------
The Partnership reported net income of $46,000 for the three-month period
ended June 30, 1997, as compared to a net loss of $192,000 for the same period
in the prior year. The primary reason for this favorable change in net operating
results is that the Partnership's share of ventures' operations improved by
$272,000 for the current three-month period. The favorable change in the
Partnership's share of ventures' operations is mainly attributable to decreases
in combined property operating expenses and interest expense of $191,000 and
$142,000, respectively, and an increase in combined rental revenues and expense
recoveries of $64,000. Property operating expenses decreased mainly due to a
reduction in utilities expense at the Carriage Hill property primarily as a
result of the utilities conversion discussed further above and a decrease in
repairs and maintenance at the Seven Trails Apartments. The decrease in interest
expense is mainly due to the April 1996 refinancing of the debt secured by the
Seven Trails Apartments, which significantly lowered the venture's debt service
costs. Rental revenues and expense recoveries increased mainly due to increases
in effective rental rates at the Seven Trails Apartments and an increase in
average occupancy at the Carriage Hill Apartments when compared to the same
period in the prior year.
A $34,000 increase in the Partnership's operating loss partially offset
the favorable change in the Partnership's share of ventures' operations for the
three months ended June 30, 1997. The Partnership's operating loss increased
mainly due to a $39,000 increase in general and administrative expenses. General
and administrative expenses increased mainly due to changes in the timing of
certain recurring professional services.
Nine Months Ended June 30, 1997
- -------------------------------
The Partnership reported net income of $113,000 for the nine-month period
ended June 30, 1997, as compared to a net loss of $584,000 for the same period
in the prior year. The primary reason for this favorable change in net operating
results is that the Partnership's share of ventures' operations improved by
$702,000 for the current nine-month period. The favorable change in the
Partnership's share of ventures' operations is mainly attributable to an
increase in combined rental revenues and expense recoveries of $421,000 and
decreases in interest expense and property operating expenses of $374,000 and
$348,000, respectively. Rental revenues and expense recoveries increased mainly
due to significant increases in average occupancy levels at the Carriage Hill
and Bell Plaza properties when compared to the same period in the prior year.
Increases in effective rental rates at the Seven Trails and Carriage Hill
properties also contributed to the increase in rental revenues for the current
nine-month period. The decrease in interest expense is mainly due to the April
1996 refinancing of the debt secured by the Seven Trails Apartments, which
significantly lowered the venture's debt service costs. Property operating
expenses decreased mainly due to a reduction in utilities expense at the
Carriage Hill property primarily as a result of the utilities conversion
discussed further above.
A slight increase in the Partnership's operating loss of $5,000 partially
offset the favorable change in the Partnership's share of ventures' operations
for the nine months ended June 30, 1997. The Partnership's operating loss
increased mainly due to a $10,000 decrease in other income during the current
nine-month period. Other income decreased due to a non-recurring refund of a
prior period expense received during the nine months ended June 30, 1996. A
$5,000 increase in interest income partially offset the decrease in other
income. Interest income increased due to a small increase in the Partnership's
average outstanding cash balances during the current nine-month period.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, the Partnership's General Partners were named as
defendants in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
various limited partnership investments and REIT stocks, including those offered
by the Partnership. In January 1996, PaineWebber signed a memorandum of
understanding with the plaintiffs in the class action outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and a plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds has not occurred to date
pending the resolution of an appeal of the settlement agreement by two of the
plaintiff class members. As part of the settlement agreement, PaineWebber has
agreed not to seek indemnification from the related partnerships and real estate
investment trusts at issue in the litigation (including the Partnership) for any
amounts that it is required to pay under the settlement. Based on the settlement
agreement discussed above covering all of the outstanding shareholder
litigation, and notwithstanding the appeal of the class action settlement
referred to above, management does not expect that the resolution of this matter
will have a material impact on the Partnership's financial statements, taken as
a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES 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 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30, 1997
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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,687
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,687
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,687
<CURRENT-LIABILITIES> 41
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,149)
<TOTAL-LIABILITY-AND-EQUITY> 1,687
<SALES> 0
<TOTAL-REVENUES> 298
<CGS> 0
<TOTAL-COSTS> 185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 113
<INCOME-TAX> 0
<INCOME-CONTINUING> 113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113
<EPS-PRIMARY> 3.21
<EPS-DILUTED> 3.21
</TABLE>
