UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
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SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 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 of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
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
---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
- --------- -------------------
Prospectus of registrant dated Part IV
May 26, 1983, as supplemented
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
1996 FORM 10-K
TABLE OF CONTENTS
Part I Page
- ------ ----
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-5
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure II-5
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-29
<PAGE>
PART I
Item 1. Business
Paine Webber Income Properties Five Limited Partnership (the
"Partnership") is a limited partnership formed in January 1983 under the Uniform
Limited Partnership Act of the State of Delaware for the purpose of investing in
a diversified portfolio of existing income-producing operating properties such
as apartments, shopping centers, office buildings, and other similar
income-producing properties. The Partnership sold $34,928,000 in Limited
Partnership Units (the "Units"), representing 34,928 units at $1,000 per Unit
from May 26, 1983 to May 25, 1984 pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933 (Registration No. 2-81537). Limited
Partners will not be required to make any additional contributions.
The Partnership originally invested the net proceeds of the public
offering, through joint venture partnerships, in five operating properties,
which consisted of four multi-family apartment complexes and one retail shopping
center. As discussed further below, through September 30, 1996 one of the
Partnership's original investments had been sold. As of September 30, 1996, the
Partnership owned interests in operating investment properties through joint
venture partnerships as set forth in the following table:
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
- --------------------------- ---- ----------- -------------
Randallstown Carriage Hill 806 8/30/83 Fee ownership of land and
Associates and units improvements (through
Signature Partners, L.L.C. joint venture)
Carriage Hill Village Apartments
Randallstown, Maryland
Amarillo Bell Associates 144,000 9/30/83 Fee ownership of land and
Bell Plaza Shopping Center gross improvements (though
Amarillo, Texas leasable joint venture)
sq. ft.
Greenbrier Associates 324 6/29/84 Fee ownership of land and
Greenbrier Apartments units improvements (through
Indianapolis, Indiana joint venture)
Seven Trails West Associates 532 9/13/84 Fee ownership of land and
Seven Trails West Apartments units improvements (through
Ballwin, Missouri joint venture)
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
The Partnership previously owned an interest in Cambridge Associates, a
joint venture which owned the Cambridge Apartments, a 378-unit apartment complex
located in Omaha, Nebraska. On June 30, 1994, Cambridge Associates sold its
operating investment property to an affiliate of the Partnership's co-venture
partner for a gross purchase price of $9.7 million. After repayment of the
outstanding mortgage debt and payment of transaction closing costs, net proceeds
of approximately $4.7 million were available for distribution to the venture
partners. In accordance with the joint venture agreement, the Partnership was
entitled to and received approximately $3.7 million of such proceeds. A portion
of the Cambridge sales proceeds was added to the Partnership's cash reserves in
anticipation of future capital requirements at certain of the remaining joint
ventures. The remainder of the proceeds, totalling approximately $2.2 million,
was distributed to the Limited Partners in September 1994. See Note 4 to the
Financial Statements accompanying this Annual Report for a further discussion of
this transaction.
<PAGE>
The Partnership's investment objectives are to:
(i) provide the Limited Partners with cash distributions which, to some
extent, will not constitute taxable income;
(ii) preserve and protect the Limited Partners' capital;
(iii) obtain long-term appreciation in the value of its properties; and
(iv) provide a build-up of equity through the reduction of mortgage loans
on its properties.
The Partnership suspended the payment of regular quarterly distributions
of excess net cash flow in fiscal 1988. Through September 30, 1996, the Limited
Partners had received cumulative cash distributions totalling approximately
$18,047,000, or approximately $542 per original $1,000 investment for the
Partnership's earliest investors, of which approximately $7,720,000, or $284 per
original $1,000 investment, represents net proceeds from a refinancing of the
Carriage Hill Apartments in 1987 and approximately $2,200,000, or $63 per
original $1,000 investment, represents the distributed portion of the net
proceeds from the sale of the Cambridge Apartments in 1994. The remaining
distributions have been made from the net operating cash flow of the
Partnership. A substantial portion of such distributions has been sheltered from
current taxable income. As of September 30, 1996, the Partnership retains its
ownership interest in four of its five original investment properties. The
Partnership's success in meeting its capital appreciation objective will depend
upon the proceeds received from the final liquidation of the remaining
investments. The amount of such proceeds will ultimately depend upon the value
of the underlying investment properties at the time of their final disposition,
which cannot presently be determined. At the present time, real estate values
for retail shopping centers in certain markets are being adversely impacted by
the effects of overbuilding and consolidations among retailers which have
resulted in an oversupply of space. It remains unclear at this time what impact,
if any, this general trend will have on the operations and market value of the
Partnership's retail shopping center investment.
All of the properties securing the Partnership's investments are located
in real estate markets in which they face significant competition for the
revenues they generate. The apartment complexes compete with numerous projects
of similar type generally on the basis of price, location and amenities.
Apartment properties in all markets also compete with the local single family
home market for prospective tenants. The continued availability of low interest
rates on home mortgage loans has increased the level of this competition over
the past several years. However, the impact of the competition from the
single-family home market has been offset by the lack of significant new
construction activity in the multi-family apartment market over most of this
period. In the past 12 months, development activity for multi-family properties
in many markets has escalated significantly. The shopping center competes for
long-term commercial tenants with numerous projects of similar type generally on
the basis of location, rental rates, tenant mix and tenant improvement
allowances.
The Partnership has no operating property investments located outside the
United States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly owned subsidiary of PaineWebber Group, Inc. ("PaineWebber").
The general partners of the Partnership (the "General Partners") are Fifth
Income Properties Fund, Inc. and Properties Associates. Fifth Income Properties
Fund, Inc., a wholly-owned subsidiary of PaineWebber, is the Managing General
Partner of the Partnership. The Associate General Partner of the Partnership is
Properties Associates, a Massachusetts general partnership, certain general
partners of which are officers of the Adviser and the Managing General Partner.
Subject to the General Partner's overall authority, the business of the
Partnership is managed by the Adviser. The terms of transactions between the
Partnership and affiliates of the Managing General Partner of the Partnership
are set forth in Items 11 and 13 below to which reference is hereby made for a
description of such terms and transactions.
<PAGE>
Item 2. Properties
As of September 30, 1996, the Partnership owned interests in four
operating properties through joint venture partnerships. The joint venture
partnerships and the related properties are referred to under Item 1 above to
which reference is made for the name, location and description of each property.
Occupancy figures for each fiscal quarter during 1996, along with an
average for the year, are presented below for each property:
Percent Occupied At
-------------------------------------------------
Fiscal
1996
12/31/95 3/31/96 6/30/96 9/30/96 Average
-------- ------- ------- ------- -------
Carriage Hill Village
Apartments 86% 85% 89% 94% 89%
Bell Plaza Shopping Center 82% 95% 98% 98% 93%
Greenbrier Apartments 93% 91% 91% 93% 92%
Seven Trails West Apartments 98% 96% 96% 95% 96%
Item 3. 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 various 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 alleged
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 purported to be suing on behalf of all persons who invested in
Paine Webber Income Properties Five Limited Partnership, also alleged 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
alleged 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 sought 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
sought 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. 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 was held in December 1996, and a ruling by the court as a
result of this final hearing is currently pending.
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
described above. However, PaineWebber has agreed not to seek indemnification for
any amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. At the present time, the General Partners
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.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At September 30, 1996 there were 2,366 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. The Managing General Partner will
not redeem or repurchase Units.
No distributions were made to the Limited Partners during fiscal 1996.
Item 6. Selected Financial Data
Paine Webber Income Properties Five Limited Partnership For the years
ended September 30, 1996, 1995, 1994, 1993 and 1992
(In thousands except per Unit data)
Years Ended September 30,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 90 $ 106 $ 87 $ 21 $ 16
Operating loss $ (132) $ (207) $ (262) $ (183) $ (177)
Partnership's share of
ventures' losses $ (691) $(1,182) $ (995) $ (860) $(1,160)
Partnership's share of gain on
sale of operating investment
property - - $ 3,174 - -
Net income (loss) $ (823) $(1,389) $ 1,917 $(1,043) $(1,337)
Net income (loss) per Limited
Partnership Unit $ (23.33) $(39.37) $ 54.36 $(29.57) $(37.90)
Cash distributions from sale,
refinancing or other disposition
transactions per Limited
Partnership Unit - - $ 63.00 - -
Total assets $ 1,739 $ 1,658 $ 1,836 $ 1,280 $ 2,319
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing elsewhere in this Annual
Report.
The above per Limited Partnership Unit information is based upon the
34,928 Limited Partnership Units outstanding during each year.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership offered limited partnership interests to the public from
May 1983 to May 1984 pursuant to a Registration Statement filed under the
Securities Act of 1933. Gross proceeds of $34,928,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
approximately $30,920,000 was invested in joint venture interests in five
operating investment properties. The Partnership's interest in the Cambridge
Apartments property was sold in June 1994 in a transaction which yielded net
proceeds of $3.7 million to the Partnership. Of such proceeds, $2.2 million was
distributed to the Limited Partners in September 1994 and $1.5 million was
retained by the Partnership to bolster its cash reserve balances. The
Partnership does not have any commitments for additional capital expenditures or
investments but may be called upon to advance funds to its existing investments
in accordance with the respective joint venture agreements.
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
investment in 1983 and 1984, all of the properties 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 while the respective
local economies and market conditions improve 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 will focus on potential disposition strategies for the remaining
investment properties beginning in 1997. Depending on the availability of
favorable sales opportunities, 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.
The average occupancy level at the Seven Trails West Apartments was 96% for
fiscal 1996, compared to 95% for fiscal 1995. During fiscal 1996, 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 programs implemented during fiscal 1995 and 1996. During fiscal
1996, major enhancements that were completed included replacing numerous roofs,
gutters, decks and balconies, as well as upgrading apartment unit interiors on a
turnover basis. 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 the 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
payments of principal and interest totalling $130,000. 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 to fund
all reserves and escrows required by the new lender. Because the prior mortgage
loan was not repaid by February 1, 1996, the joint venture forfeited a $147,000
fee which had been paid to the prior lender in connection with a fiscal 1994
extension agreement and was to be refundable under certain conditions. 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. During fiscal 1996, the Partnership had
temporarily advanced $600,000 to the Seven Trails joint venture to be used for a
good faith deposit with the new lender and for the prepayment of certain loan
closing costs. Such amounts were returned to the Partnership during the third
quarter of fiscal 1996.
The Bell Plaza Shopping Center was 98% leased at September 30, 1996, up
from 78% at September 30, 1995. 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 has improved 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, are paying a
higher per square foot rent than Wal-Mart was originally paying for its space.
As part of the negotiation for the United Supermarkets lease, a free-standing
building formerly occupied by a restaurant was demolished, and the parking lot
at Bell Plaza was reconfigured. This resulted in the addition of 235 parking
spaces to the Center. As a result of the demolition, the Center's leasable area
changed from 151,500 square feet to 144,000 square feet. At the present time,
real estate values for retail shopping centers in certain markets are being
adversely impacted by the effects of overbuilding and consolidations among
retailers which have resulted in an oversupply of space. It remains unclear at
this time what impact, if any, this general trend will have on the operations
and market value of Bell Plaza in the near term. While operating results at Bell
Plaza remain strong at the present time, several area employers in the Amarillo,
Texas market have recently announced downsizing plans. Management will continue
to closely monitor local market conditions in fiscal 1997.
As previously reported, 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 has now been completed, and currently over
65% of residents already pay for their own gas. In order to adjust rental rates
to market, rental rates for units in which the tenants pay their own gas bills
were lowered by approximately 8%. Current residents have the option upon renewal
to lower their current rent and commence paying their own gas bill or to
continue with landlord-paid gas and accept a 3% rental rate increase. Occupancy
at the property, which had declined to the mid-80% range in early fiscal 1996,
had rebounded to 94% for the quarter ended September 30, 1996. Now, with the gas
utility conversion program complete and the average occupancy level stabilized,
the property management company anticipates implementing further rental rate
increases in fiscal 1997.
The occupancy level at the Greenbrier Apartments averaged 92% for fiscal
1996, compared to 91% for fiscal 1995. Capital expenditures during fiscal 1996
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, repaired concrete
retaining walls and purchased another computer for the leasing office.
Improvements planned for fiscal 1997 include landscape replacements 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. The current mortgage debt of $5.4 million bears interest at 10% per annum
and is not scheduled to mature until June 1998. Because of the potential for a
sale of the property prior to the June 1998 maturity date, as well as increases
in mortgage interest rate levels which occurred during fiscal 1996, management
has decided to defer any immediate refinancing plans.
At September 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 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
1996 Compared to 1995
- ---------------------
The Partnership reported a net loss of $823,000 for fiscal 1996 as compared
to a net loss of $1,389,000 for fiscal 1995. The primary reason for this
favorable change in net operating results is that the Carriage Hill joint
venture recognized an extraordinary loss on the early extinguishment of debt
during the prior year of approximately $1,177,000 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 referred to above. The
Partnership's share of this loss was approximately $471,000. Excluding this
non-recurring charge in the prior year, the Partnership's share of ventures'
losses decreased by $20,000 when compared to the prior year. This decrease can
be mainly attributed to a $503,000 increase in combined revenues from the four
joint ventures. Combined revenues increased largely due to improved occupancy
and rental rates at the Seven Trails West and Greenbrier Apartments. Revenues
were also higher at the Bell Plaza Shopping Center in fiscal 1996 due to the
leasing improvements discussed further above. In addition, combined interest
expense decreased by $261,000 as a result of the lower interest rates on the
debts secured by the Carriage Hill Apartments and the Bell Plaza Shopping
Center, which were refinanced in fiscal 1995, and on the debt secured by the
Seven Trails Apartments, which was refinanced in fiscal 1996. The increase in
rental revenues and decrease in interest expense were partially offset by
increases in combined property operating expenses and depreciation and
amortization of $634,000 and $122,000, respectively. Property operating expenses
increased primarily due to higher utility costs at the Carriage Hill Apartments
resulting from more severe weather conditions during the current year. As noted
above, the venture has recently completed the process of converting the
utilities at Carriage Hill Apartments to individual metering. This conversion
will significantly reduce the venture's future exposure to fluctuations in
utility charges caused by extreme weather conditions. Depreciation and
amortization expense increased at all of the joint ventures, except for Carriage
Hill, during fiscal 1996 due to capital improvements, tenant improvements and
leasing commissions which were incurred over the past year.
The Partnership's operating loss decreased by $75,000, for fiscal 1996,
when compared to the prior year. The decrease in operating loss is mainly
attributable to a decrease in general and administrative expense of $91,000.
General and administrative expense decreased mainly due to certain incremental
expenses incurred in the prior year relating to an independent valuation of the
Partnership's operating properties.
1995 Compared to 1994
- ---------------------
The Partnership reported a net loss of $1,389,000 for fiscal 1995 as
compared to net income of $1,917,000 for the prior year. The primary reason for
this unfavorable change in net operating results was that the Partnership
recognized a $3.2 million gain in fiscal 1994 on the sale of the Cambridge
Apartments, which occurred in June 1994. In addition, the Carriage Hill joint
venture recognized a loss of $1,177,000 during fiscal 1995 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 $471,000, which was included in
the Partnership's share of ventures' losses for fiscal 1995. The Partnership's
share of ventures' losses, prior to the effect of the Carriage Hill refinancing
loss, decreased by $284,000 in fiscal 1995 mainly due to improved operating
results at the Greenbrier, Seven Trails and Carriage Hill joint ventures. Rental
revenues were higher at all three apartment properties in fiscal 1995, despite
lower average occupancy levels, due to increases in rental rates made possible
by the generally improving market conditions for multi-family apartment
properties across the country during fiscal 1995. At Greenbrier, rental revenues
improved by $58,000, or 4%, in fiscal 1995, when compared to the prior year,
while average occupancy declined from 94% to 91%. In addition, repairs and
maintenance expenses decreased by $96,000 at Greenbrier due to certain
non-recurring repair work performed in fiscal 1994 as a result of winter storm
damage. Rental revenues increased by $194,000, or 6%, at the Seven Trails
property despite a slight drop in average occupancy from 96% for fiscal 1994 to
95% for fiscal 1995. Such increased revenues at Seven Trails were partially
offset by the increase in the venture's interest expense which resulted from the
fiscal 1994 modification agreement described above. At Carriage Hill, revenues
were up only slightly in what have been less favorable local market conditions.
The improvement in the Carriage Hill joint venture's net operating results were
more attributable to a decrease in expenses, primarily depreciation and
utilities expenses, which declined by $61,000 and $63,000, respectively. The
improved operating results at the three apartment properties were partially
offset by a decline in revenues at the Bell Plaza Shopping Center which resulted
from the anchor tenant re-leasing situation described further above. The
resulting drop in average occupancy at Bell Plaza, from 87% for fiscal 1994 to
78% for fiscal 1995, contributed to the decrease of $64,000 in the venture's
rental revenues.
The unfavorable changes in net operating results were also partially offset
by a decrease in the Partnership's operating loss of approximately $55,000
during fiscal 1995 due to an increase in interest income and a decrease in
general and administrative expenses. Interest income increased by $19,000 due to
an increase in the interest rates earned on the Partnership's cash reserves, as
well as the significant increase in the average outstanding balance of such
reserves which resulted from the retention of $1.5 million of the Cambridge sale
proceeds from the June 1994 sale transaction. General and administrative
expenses decreased by $36,000 mainly due to higher professional fees incurred in
fiscal 1994.
<PAGE>
1994 Compared to 1993
- ---------------------
The Partnership reported net income of $1,917,000 for fiscal 1994 as
compared to a net loss of $1,043,000 in the prior year. The Partnership's net
income for fiscal 1994 was a result of the Partnership's share of the gain
realized from the sale of the Cambridge Apartments. The total gain recognized by
the Cambridge joint venture totalled $3,336,000, and the Partnership's share of
such gain amounted to $3,174,000 per the terms of the joint venture agreement.
The Partnership's share of ventures' losses, prior to the gain on the Cambridge
sale, increased by $135,000 when compared to the fiscal 1993 results. This
unfavorable change in the Partnership's share of ventures' losses from
operations was mainly a result of an increase in the operating loss at the
Cambridge Apartments, primarily due to the payment, in accordance with the
agreement, of previously unaccrued subordinated management fees in the amount of
$100,000 upon the sale of the operating investment property. An increase in
interest expense at the Seven Trails joint venture during fiscal 1994, as a
result of a modification and extension agreement on the venture's mortgage loan,
also contributed to the increase in the combined joint ventures' operating loss.
The Partnership's operating loss increased by $79,000 during fiscal 1994 due to
an increase in Partnership general and administrative expenses. These expenses
increased mainly as a result of additional expenditures incurred related to an
independent valuation of the Partnership's operating properties which was
commissioned during fiscal 1994 in conjunction with management's ongoing
refinancing efforts and portfolio management responsibilities.
Inflation
- ---------
The Partnership completed its thirteenth full year of operations in fiscal
1996 and the effects of inflation and changes in prices on revenues and expenses
to date have not been significant.
Inflation in future periods may increase revenues, as well as operating
expenses, at the Partnership's operating investment properties. Some of the
existing leases with tenants at the Partnership's retail shopping center contain
rental escalation and/or expense reimbursement clauses based on increases in
tenant sales or property operating expenses which would tend to rise with
inflation. Tenants at the Partnership's apartment projects have short-term
leases, generally of 6-to-12 months in duration. Rental rates at these
properties can be adjusted to keep pace with inflation, as market conditions
allow, as the leases are renewed or turned over. Such increases in rental income
would be expected to at least partially offset the corresponding increases in
Partnership and property operating expenses caused by future inflation.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is Fifth Income Properties
Fund, Inc. a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates, a Massachusetts general partnership, certain general partners of
which are also officers of the Adviser and the Managing General Partner. The
Managing General Partner has overall authority and responsibility for the
Partnership's operation, however, the day-to-day business of the Partnership is
managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
---- ------ --- ---------
Bruce J. Rubin President and Director 37 8/22/96
Terrence E. Fancher Director 43 10/10/96
Walter V. Arnold Senior Vice President and Chief
Financial Officer 49 10/29/85
James A. Snyder Senior Vice President 51 7/6/92
David F. Brooks First Vice President and
Assistant Treasurer 54 11/19/82 *
Timothy J. Medlock Vice President and Treasurer 35 6/1/88
Thomas W. Boland Vice President 34 12/1/91
* The date of incorporation of the Managing General Partner.
(c) There are no other significant employees in addition to the directors
and principal executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors
and executive officers of the Managing General Partner of the Partnership. All
of the foregoing directors and executive officers have been elected to serve
until the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser.
The business experience of each of the directors and principal executive
officers of the Managing General Partner is as follows:
Bruce J. Rubin is President and Director of the Managing General
Partner. Mr. Rubin was named President and Chief Executive Officer of PWPI
in August 1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking
in November 1995 as a Senior Vice President. Prior to joining PaineWebber,
Mr. Rubin was employed by Kidder, Peabody and served as President for KP
Realty Advisers, Inc. Prior to his association with Kidder, Mr. Rubin was a
Senior Vice President and Director of Direct Investments at Smith Barney
Shearson. Prior thereto, Mr. Rubin was a First Vice President and a real
estate workout specialist at Shearson Lehman Brothers. Prior to joining
Shearson Lehman Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at Willkie Farr & Gallagher. Mr. Rubin is a graduate of Stanford
University and Stanford Law School.
<PAGE>
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as
a result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is
responsible for the origination and execution of all of PaineWebber's REIT
transactions, advisory assignments for real estate clients and certain of the
firm's real estate debt and principal activities. He joined Kidder, Peabody
in 1985 and, beginning in 1989, was one of the senior executives responsible
for building Kidder, Peabody's real estate department. Mr. Fancher
previously worked for a major law firm in New York City. He has a J.D. from
Harvard Law School, an M.B.A. from Harvard Graduate School of Business
Administration and an A.B. from Harvard College.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. Mr. Arnold is a Certified Public Accountant licensed in the state of
Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser. Mr. Snyder re-joined the Adviser in
July 1992 having served previously as an officer of PWPI from July 1980 to
August 1987. From January 1991 to July 1992, Mr. Snyder was with the Resolution
Trust Corporation where he served as the Vice President of Asset Sales prior to
re-joining PWPI. From February 1989 to October 1990, he was President of Kan Am
Investors, Inc., a real estate investment company. During the period August 1987
to February 1989, Mr. Snyder was Executive Vice President and Chief Financial
Officer of Southeast Regional Management Inc., a real estate development
company.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an Assistant Treasurer
of the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and
also, from March 1974 to February 1980, the Assistant Treasurer of Capital for
Real Estate, which provided real estate investment, asset management and
consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and Vice President and Treasurer of the Adviser which he joined
in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner
and a Vice President and Manager of Financial Reporting of the Adviser which
he joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in the
state of Massachusetts. He holds a B.S. in Accounting from Merrimack College
and an M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended September 30, 1996, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership. The
Partnership is required to pay certain fees to the Adviser, and the General
Partners are entitled to receive a share of Partnership cash distributions and a
share of profits and losses. These items are described under Item 13.
The Partnership has not paid regular cash distributions to the Unitholders
over the past five years. Regular quarterly distributions of excess cash flow
were suspended in 1988. Furthermore, the Partnership's Units of Limited
Partnership Interest are not actively traded on any organized exchange, and no
efficient secondary market exists. Accordingly no accurate price information is
available for these Units. Therefore, a presentation of historical Unitholder
total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, Fifth Income Properties Fund, Inc., is owned by
PaineWebber. Properties Associates, the Associate General Partner, is a
Massachusetts general partnership, the general partners of which are also
officers of the Adviser and the Managing General Partner. No limited partner is
known by the Partnership to own beneficially more than 5% of the outstanding
interests of the Partnership.
(b) The directors and officers of the Managing General Partner do not
directly own any Units of limited partnership interest of the Partnership. No
director or officer of the Managing General Partner, nor any general partner of
the Associate General Partner, possesses a right to acquire beneficial ownership
of Units of limited partnership interest of the Partnership. As of September 30,
1996, PaineWebber and its affiliates owned 112 Units of limited partnership
interests of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation
of which may, at a subsequent date, result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are Fifth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group, Inc. ("PaineWebber") and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by PaineWebber Properties
Incorporated (the "Adviser") pursuant to an advisory contract. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"). The General
Partners, the Adviser and PWI receive fees and compensation, determined on an
agreed-upon basis, in consideration of various services performed in connection
with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds shall be distributed
generally 85% to the Limited Partners and 15% to the General Partners, after the
prior receipt by the Limited Partners of their adjusted capital contributions
and a cumulative, noncompounded return on their average adjusted capital
contributions ranging from 10% to 6% depending on when a Limited Partner was
admitted to the Partnership. All sale and refinancing proceeds received by the
Partnership to date have been distributed to the Limited Partners in accordance
with the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income and tax
loss of the Partnership will be allocated 99% to the Limited Partners and 1% to
the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited Partners
and to the General Partners in proportion to the amounts of sale or refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or refinancing. If
there are no sale or refinancing proceeds, taxable income and tax losses from a
sale or refinancing will be allocated 99% to the Limited Partners and 1% to the
General Partners. Notwithstanding this, the Partnership Agreement provides that
the allocation of taxable income and tax losses arising from the sale of a
property which leads to the dissolution of the Partnership shall be adjusted to
the extent feasible so that neither the General or Limited Partners recognize
any gain or loss as a result of having either a positive or negative balance
remaining in their capital accounts upon the dissolution of the Partnership. If
the General Partner has a negative capital account balance subsequent to the
sale of a property which leads to the dissolution of the Partnership, the
General Partner may be obligated to restore a portion of such negative capital
account balance as determined in accordance with the provisions of the
Partnership Agreement. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities: to administer day-to-day operations of the Partnership and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser is paid a basic management fee (4% of adjusted cash flow)
and an incentive management fee (5% of adjusted cash flow subordinated to a
noncumulative annual return to the Limited Partners equal to 6% based upon their
adjusted capital contribution) for services rendered.
No management fees were earned during fiscal 1996.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended September 30, 1996 is $81,000, representing reimbursements to
this affiliate for providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins"), an affiliate of the Managing General
Partner, for the managing of cash assets. Mitchell Hutchins is a subsidiary of
Mitchell Hutchins Asset Management, Inc., an independently operated subsidiary
of PaineWebber. Mitchell Hutchins earned $4,000 for managing the Partnership's
cash assets in fiscal 1996, which amount is included in general and
administrative expenses on the accompanying statement of operations. Fees
charged by Mitchell Hutchins are based on a percentage of invested cash reserves
which varies based on the total amount of invested cash which Mitchell Hutchins
manages on behalf of PWPI.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedule:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedule at
page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page IV-3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the last quarter of
fiscal 1996.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedule at page F-1.
<PAGE>
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 FIVE
LIMITED PARTNERSHIP
By: Fifth Income Properties Fund, Inc.
---------------------------------
Managing General Partner
By: /s/ Bruce J. Rubin
-------------------
Bruce J. Rubin
President and Chief Executive Officer
By: /s/ Walter V. Arnold
---------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
---------------------
Thomas W. Boland
Vice President
Dated: January 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership in
the capacity and on the dates indicated.
By:/s/ Bruce J. Rubin Date: January 10, 1997
------------------------ ----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: January 10, 1997
------------------------ ----------------
Terrence E. Fancher
Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Page Number in the Report
Exhibit No. Description of Document or Other Reference
- ----------- ------------------------ ------------------
(3) and (4) Prospectus of the Registrant Filed with the Commission
dated May 26, 1983, supplemented, pursuant to Rule 424(c)
with particular reference to the and incorporated herein
Restated Certificate and Agreement by reference.
Limited Partnership.
(10) Material contracts previously filed as Filed with the Commission
exhibits to registration statements and pursuant to Section 13 or
amendments thereto of the registrant 15(d) of the Securities
together with all such contracts filed Exchange Act of 1934 and
as exhibits of previously filed Forms incorporated herein by
8-K and Forms 10-K are hereby reference.
incorporated herein by reference.
(13) Annual Reports to Limited Partners No Annual Report for the
year ended September 30,
1996 has been sent to
the Limited Partners.
An Annual Report will
be sent to the Limited
Partners subsequent to
this filing.
(27) Financial Data Schedule Filed as last page of
EDGAR submission following
the Financial Statements
and Financial Statement
Schedule as required by
Item 14.
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Reference
---------
Paine Webber Income Properties Five Limited Partnership:
Report of independent auditors F-2
Balance sheets as of September 30, 1996 and 1995 F-3
Statements of operations for the years ended September 30,
1996, 1995 and 1994 F-4
Statements of changes in partners' capital (deficit)
for the years ended September 30, 1996, 1995 and 1994 F-5
Statements of cash flows for the years ended September 30,
1996, 1995 and 1994 F-6
Notes to financial statements F-7
Combined Joint Ventures of Paine Webber Income Properties Five Limited
Partnership:
Report of independent auditors F-18
Combined balance sheets as of September 30, 1996 and 1995 F-19
Combined statements of operations and changes in venturers'
deficit for the years ended September 30, 1996, 1995
and 1994 F-20
Combined statements of cash flows for the years ended
September 30, 1996, 1995 and 1994 F-21
Notes to combined financial statements F-22
Schedule III - Real estate and accumulated depreciation F-29
Other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Five Limited Partnership:
We have audited the accompanying balance sheets of Paine Webber Income
Properties Five Limited Partnership as of September 30, 1996 and 1995, and the
related statements of operations, changes in partners' capital (deficit), and
cash flows for each of the three years in the period ended September 30, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paine Webber Income
Properties Five Limited Partnership at September 30, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1996, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
January 8, 1997
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1996 and 1995
(In thousands, except per Unit amounts)
ASSETS
1996 1995
---- ----
Cash and cash equivalents $ 1,739 $ 1,658
======== ========
LIABILITIES AND PARTNERS' DEFICIT
Equity in losses in excess of investments and
advances in joint ventures $ 2,971 $ 2,059
Accounts payable and accrued expenses 30 38
-------- --------
Total liabilities 3,001 2,097
Partners' deficit:
General Partners:
Capital contributions 1 1
Cumulative net loss (147) (139)
Cumulative cash distributions (60) (60)
Limited Partners ($1,000 per Unit; 34,928 Units issued):
Capital contributions, net of offering costs 31,554 31,554
Cumulative net loss (14,563) (13,748)
Cumulative cash distributions (18,047) (18,047)
-------- ---------
Total partners' deficit (1,262) (439)
-------- ---------
$ 1,739 $ 1,658
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the years ended September 30, 1996, 1995 and 1994
(In thousands, except per Unit amounts)
1996 1995 1994
---- ---- ----
Revenues:
Interest income $ 90 $ 106 $ 87
Expenses:
General and administrative 222 313 349
------ ----- --------
Operating loss (132) (207) (262)
Partnership's share of ventures' losses (691) (1,182) (995)
Partnership's share of gain on sale of
operating investment property - - 3,174
------ ------ --------
Net income (loss) $ (823) $(1,389) $ 1,917
====== ======= ========
Net income (loss) per Limited
Partnership Unit $(23.33) $(39.37) $ 54.36
======= ======= ========
Cash distributions per Limited
Partnership Unit $ - $ - $ 63.00
======= ======= ========
The above net income (loss) and cash distributions per Limited Partnership
Unit are based upon the 34,928 Limited Partnership Units outstanding during each
year.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT
For the years ended September 30, 1996, 1995 and 1994
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
Balance at September 30, 1993 $(203) $ 1,436 $ 1,233
Net income 19 1,898 1,917
Cash distributions - (2,200) (2,200)
----- ------- -------
Balance at September 30, 1994 (184) 1,134 950
Net loss (14) (1,375) (1,389)
----- ------- -------
Balance at September 30, 1995 (198) (241) (439)
Net loss (8) (815) (823)
------ ------- -------
Balance at September 30, 1996 $(206) $(1,056) $(1,262)
===== ======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (823) $(1,389) $ 1,917
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of ventures' losses 691 1,182 995
Partnership's share of gain on sale of
operating investment property - - (3,174)
Changes in assets and liabilities:
Accounts payable - affiliates - - (24)
Accounts payable and accrued expenses (8) 13 -
------- ------- --------
Total adjustments 683 1,195 (2,203)
------ ------- --------
Net cash used in operating
activities (140) (194) (286)
Cash flows from investing activities:
Distributions from joint ventures 249 275 4,191
Additional investments in and advances
to joint ventures (628) (259) (586)
Repayment of advances to joint ventures 600 - -
------ ------- -------
Net cash provided by
investing activities 221 16 3,605
Cash flows from financing activities:
Distributions to partners - - (2,200)
------ ------- -------
Net cash used in
financing activities - - (2,200)
------ -------- -------
Net increase (decrease) in cash
and cash equivalents 81 (178) 1,119
Cash and cash equivalents,
beginning of year 1,658 1,836 717
------- -------- --------
Cash and cash equivalents, end of year $1,739 $ 1,658 $ 1,836
====== ======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
Notes to Financial Statements
1. Organization and Nature of Operations
-------------------------------------
Paine Webber Income Properties Five Limited Partnership (the
"Partnership") is a limited partnership organized pursuant to the laws of
the State of Delaware in January 1983 for the purpose of investing in a
diversified portfolio of income-producing properties. The Partnership
authorized the issuance of units (the "Units") of limited partnership
interest (at $1,000 per Unit) of which 34,928 were subscribed and issued
between May 26, 1983 and May 25, 1984.
The Partnership originally invested the net proceeds of the public
offering, through joint venture partnerships, in five operating investment
properties, comprised of four multi-family apartment complexes and one
retail shopping center. To date, one of the Partnership's original
investments has been sold. See Note 4 for a further discussion of the
Partnership's remaining real estate investments.
2. Use of Estimates and Summary of Significant Accounting Policies
---------------------------------------------------------------
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 September 30, 1996 and 1995 and
revenues and expenses for each of the three years in the period ended
September 30, 1996. Actual results could differ from the estimates and
assumptions used.
The accompanying financial statements include the Partnership's
investments in certain joint venture partnerships which own operating
properties. The Partnership accounts for its investments in joint venture
partnerships using the equity method because the Partnership does not have a
voting control interest in the ventures. Under the equity method the
ventures are carried at cost adjusted for the Partnership's share of the
ventures' earnings and losses and distributions. The Partnership's policy is
to identify any permanent impairment to the carrying value of its joint
venture investments on a specific identification basis. At September 30,
1996 and 1995, the carrying value of one of the Partnership's joint ventures
is adjusted for an allowance for possible investment loss. See Note 4 for a
discussion of this allowance account and a description of the joint venture
partnerships.
The Partnership has reviewed FAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," which is
effective for financial statements for years beginning after December 15,
1995, and believes this new pronouncement will not have a material effect on
the Partnership's financial statements.
For purposes of reporting cash flows, cash and cash equivalents include
all highly liquid investments which have original maturities of 90 days or
less.
The cash and cash equivalents, accounts payable and accrued expenses
appearing on the accompanying balance sheets represent financial instruments
for purposes of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments." The carrying amount
of these assets and liabilities approximates their fair value as of
September 30, 1996 due to the short-term maturities of these instruments.
No provision for income taxes has been made as the liability for such
taxes is that of the partners rather than the Partnership.
3. The Partnership Agreement and Related Party Transactions
--------------------------------------------------------
The General Partners of the Partnership are Fifth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group, Inc. ("PaineWebber") and Properties Associates (the
"Associate General Partner"), a Massachusetts general partnership, certain
general partners of which are also officers of the Managing General Partner
and PaineWebber Properties Incorporated. Subject to the Managing General
Partner's overall authority, the business of the Partnership is managed by
PaineWebber Properties Incorporated (the "Adviser") pursuant to an advisory
contract. The Adviser is a wholly-owned subsidiary of PaineWebber
Incorporated ("PWI"). The General Partners, the Adviser and PWI receive fees
and compensation, determined on an agreed-upon basis, in consideration of
various services performed in connection with the sale of the Units, the
management of the Partnership and the acquisition, management, financing and
disposition of Partnership investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to
the General Partners. All sale or refinancing proceeds shall be distributed
generally 85% to the Limited Partners and 15% to the General Partners, after
the prior receipt by the Limited Partners of their adjusted capital
contributions and a cumulative, noncompounded return on their average
adjusted capital contributions ranging from 10% to 6% depending on when a
Limited Partner was admitted to the Partnership. All sale and refinancing
proceeds received by the Partnership to date have been distributed to the
Limited Partners in accordance with the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income and tax
loss of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited
Partners and to the General Partners in proportion to the amounts of sale or
refinancing proceeds to which they are entitled; provided that the General
Partners shall be allocated at least 1% of taxable income arising from a
sale or refinancing. If there are no sale or refinancing proceeds, taxable
income and tax losses from a sale or refinancing will be allocated 99% to
the Limited Partners and 1% to the General Partners. Notwithstanding this,
the Partnership Agreement provides that the allocation of taxable income and
tax losses arising from the sale of a property which leads to the
dissolution of the Partnership shall be adjusted to the extent feasible so
that neither the General or Limited Partners recognize any gain or loss as a
result of having either a positive or negative balance remaining in their
capital accounts upon the dissolution of the Partnership. If the General
Partner has a negative capital account balance subsequent to the sale of a
property which leads to the dissolution of the Partnership, the General
Partner may be obligated to restore a portion of such negative capital
account balance as determined in accordance with the provisions of the
Partnership Agreement. Allocations of the Partnership's operations between
the General Partners and the Limited Partners for financial accounting
purposes have been made in conformity with the allocations of taxable income
or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities: to administer day-to-day operations of the Partnership and
to report periodically the performance of the Partnership to the Managing
General Partner. The Adviser earns a basic management fee (4% of adjusted
cash flow) and an incentive management fee (5% of adjusted cash flow
subordinated to a noncumulative annual return to the Limited Partners equal
to 6% based upon their adjusted capital contribution) for services rendered.
No management fees were earned during the three-year period ended September
30, 1996.
Included in general and administrative expenses for the years ended
September 30, 1996, 1995 and 1994 is $81,000, $87,000 and $96,000,
respectively, representing reimbursements to an affiliate of the Managing
General Partner for providing certain financial, accounting and investor
communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins"), an affiliate of the Managing General
Partner, for the managing of cash assets. Mitchell Hutchins is a subsidiary
of Mitchell Hutchins Asset Management, Inc., an independently operated
subsidiary of PaineWebber. Mitchell Hutchins earned $4,000, $5,000 and
$2,000 for managing the Partnership's cash assets in fiscal 1996, 1995 and
1994, respectively, which amounts are included in general and administrative
expenses on the accompanying statements of operations.
4. Investments in Joint Venture Partnerships
-----------------------------------------
As of September 30, 1996 and 1995, the Partnership has investments in four
joint ventures. On June 30, 1994, Cambridge Associates, a joint venture in
which the Partnership had an interest, sold its operating investment
property, the Cambridge Apartments, a 378-unit apartment complex located in
Omaha, Nebraska, to an affiliate of the Partnership's co-venture partner.
The property was sold for $9,700,000. After repayment of the outstanding $5
million first mortgage loan and closing costs, the sale generated
approximately $4.7 million to be split between the Partnership and the
co-venturer in accordance with the venture agreement. The Partnership's
share of such proceeds amounted to approximately $3.7 million in cash. The
sale resulted in a gain of $3,336,000 which was recognized by the venture in
fiscal 1994. The Partnership's share of such gain totalled $3,174,000.
The joint ventures are accounted for on the equity method in the
Partnership's financial statements. Condensed combined financial statements
of these joint ventures (including Cambridge Associates through the date of
the sale transaction described above) are as follows:
<PAGE>
Condensed Combined Balance Sheet
------------------------------
September 30, 1996 and 1995
(in thousands)
Assets
------
1996 1995
---- ----
Current assets $ 2,210 $ 2,369
Operating investment properties, net 44,853 45,566
Other assets, net 1,885 1,982
-------- --------
$ 48,948 $ 49,917
======== ========
Liabilities and Venturers' Deficit
----------------------------------
Current liabilities $ 2,529 $ 18,333
Other liabilities 878 980
Long-term mortgage debt,
less current portion 52,791 36,325
Partnership's share of combined deficit (3,583) (2,607)
Co-venturers' share of combined deficit (3,667) (3,114)
-------- --------
$ 48,948 $ 49,917
======== ========
Reconciliation of Partnership's Investments
-------------------------------------------
(in thousands)
1996 1995
---- ----
Partnership's share of deficit, as shown above $ (3,583) $ (2,607)
Partnership's share of current liabilities
and long-term debt 912 848
Less: Allowance for possible investment loss (1) (300) (300)
-------- ---------
Investments in joint ventures, at equity, net $ (2,971) $ (2,059)
======== ========
(1)The carrying value of the Partnership's investments in joint ventures at
September 30, 1996 and 1995 is net of an allowance for possible investment
loss of $300,000, which relates to the Amarillo Bell Associates joint
venture. See discussion below for further details.
Condensed Combined Summary of Operations
----------------------------------------
For the years ended September 30, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
---- ---- ----
Revenues:
Rental income and expense recoveries $11,646 $11,173 $12,458
Interest and other income 473 443 386
------- ------- -------
12,119 11,616 12,844
Expenses:
Property operating expenses 5,602 4,968 6,199
Depreciation and amortization 2,647 2,525 2,688
Interest expense 4,955 5,216 5,421
Loss on write-off of deferred
financing costs - 1,177 -
------- -------- -------
13,204 13,886 14,308
------- -------- -------
Operating loss (1,085) (2,270) (1,464)
Gain on sale of operating
investment property - - 3,336
-------- -------- --------
Net income (loss) $ (1,085) $ (2,270) $ 1,872
======== ======== ========
<PAGE>
Net income (loss):
Partnership's share of combined
income (loss) $ (691) $ (1,182) $ 2,179
Co-venturers' share of combined loss (394) (1,088) (307)
--------- --------- --------
$ (1,085) $ (2,270) $ 1,872
======== ======== ========
The Partnership's share of the combined income (loss) of the joint ventures
is presented as follows on the accompanying statements of operations (in
thousands):
1996 1995 1994
---- ---- ----
Partnership's share of ventures' losses $ (691) $ (1,182) $ (995)
Partnership's share of gain on sale of
operating investment property - - 3,174
-------- -------- -------
$ (691) $ (1,182) $ 2,179
======== ======== ========
Investments in joint ventures, at equity, is the Partnership's net
investment in the joint venture partnerships. These joint ventures are
subject to partnership agreements which determine the distribution of
available funds, the disposition of the venture's assets and the rights of
the partners, regardless of the Partnership's percentage ownership interest
in the venture. Substantially all of the Partnership's investments in these
joint ventures are restricted as to distributions.
Investments in joint ventures, at equity, on the accompanying balance sheets
at September 30, 1996 and 1995 is comprised of the following (in thousands):
1996 1995
---- ----
Randallstown Carriage Hill Associates $ (6,084) $ (5,796)
Signature Partners, L.L.C. 239 238
Amarillo Bell Associates 1,623 1,556
Greenbrier Associates 822 855
Seven Trails West Associates 429 1,088
--------- ---------
$ (2,971) $ (2,059)
========= =========
The Partnership received cash distributions from the ventures as set forth
below (in thousands):
1996 1995 1994
---- ---- ----
Amarillo Bell Associates $ - $ 50 $ 59
Greenbrier Associates 198 132 111
Randallstown Carriage Hill Associates 51 93 -
Cambridge Associates - - 4,021
------- ------- -------
$ 249 $ 275 $ 4,191
======= ======= =======
A description of the ventures' properties and the terms of the joint venture
agreements are summarized as follows:
a) Randallstown Carriage Hill Associates
-------------------------------------
On August 30, 1983, the Partnership acquired an interest in Randallstown
Carriage Hill Associates, a Maryland general partnership organized to
purchase and operate Carriage Hill Village Apartments, an 806-unit apartment
complex in Randallstown, Maryland. The Partnership ("PWIP5") is a general
partner in the joint venture. JBG Associates ("JBG") was the original
co-venturer of the joint venture. The joint venture obtained necessary new
capital by admitting Signature Development Corporation ("Signature") as a
new partner in fiscal 1988. The amended partnership agreement provided for
the admission of Signature as a 50% partner in the joint venture with JBG
and PWIP5 (collectively "JBG/PW"). JBG and PWIP5's ownership percentages
were adjusted, pro rata, to 10% and 40%, respectively. In return for its 50%
interest, Signature committed to contribute up to $3,000,000 to the joint
venture over the first three years, primarily to fund capital improvements,
working capital needs and meet debt payments.
The aggregate cash investment made by the Partnership for its interest was
approximately $11,524,000 (including an acquisition fee of $1,150,000 paid
to the Adviser). The apartment complex was acquired subject to four
mortgages; two institutional nonrecourse first mortgages with balances
totalling approximately $6,136,000 at the time of closing, and two second
mortgage notes from the seller of the property with balances totalling
$6,000,000 at the time of closing. On December 30, 1986, the Partnership
refinanced the aforementioned debt by obtaining a $28,000,000 non-recourse
mortgage loan. The Partnership received a distribution of approximately
$9,926,000 in fiscal 1987, reflecting its share of the excess refinancing
proceeds. In fiscal 1995, the venture's mortgage debt was refinanced again.
The new mortgage 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 venture recognized a loss of $1,177,000 in fiscal 1995 in connection
with the refinancing transaction to write off the unamortized balance of
the deferred financing costs related to the prior mortgage loan. The new
loan also released from the collateral a 23-acre parcel of excess land. The
venture distributed this land parcel, which had a carrying value of
$563,000, to a new entity, Signature Partners, L.L.C., in conjunction with
the refinancing transaction. Signature Partners, L.L.C. is owned by
Signature, JBG and the Partnership with the same ownership interest
percentages as in the Carriage Hill joint venture agreement. The land owned
by Signature Partners, L.L.C. could eventually be marketed to local
developers once market conditions improve. Proceeds of any such sale, if
completed, would be distributed to the owners in accordance with the same
priorities called for under the terms of the Carriage Hill joint venture
agreement described below.
The amended joint venture agreement provides that available net cash flow,
as defined, is to be distributed in the following order of priority: 1) To
the partners for any deficiency loans, as defined, simple but cumulative
interest at 15% per annum; 2) To Signature and JBG/PW, until both have
received an amount of $151,324 plus simple but cumulative interest at 10%
thereon from January 15, 1995 through the date of distribution; 3) To
Signature, simple but cumulative interest at 10% per annum on the aggregate
unreturned balance of the Initial Capital Commitment of $2,549,120 and any
Additional Capital, as defined; 4) To JBG/PW, simple but cumulative interest
at 10% per annum on the unreturned balance of JBG/PW's deemed capital
contribution of $1,500,000; and (5) any net cash flow remaining, to the
partners pro rata in proportion to their respective partnership interests.
Any cash flow distributed by the joint venture to JBG/PW is to be
distributed between them in the following order of priority: 1) To the
holders of operating notes, interest on all operating notes other than the
Initial Operating Loan, as defined; 2) To PWIP5 and JBG, $300,000
distributed 90% to PWIP5 and 10% to JBG; and 3) any remainder, 80% to PWIP5
and 20% to JBG.
Per the terms of the amended joint venture agreement, any net proceeds
arising from the refinancing, sale, exchange or other disposition of the
Property or any part thereof, will be distributed in the following order of
priority: 1) To the lenders of deficiency loans, simple but cumulative
interest at 15% per annum on, and then to the payment of the principal of,
any deficiency loans; 2) To Signature and JBG/PW, until both have received
an amount of $151,324 plus simple but cumulative interest at 10% thereon
from January 15, 1995 through the date of distribution; 3) to Signature and
JBG/PW, an amount equal to their respective Closing Adjustment Accounts, as
defined, plus the Deferred Distribution of $137,500 owed to JBG/PW, together
with simple but cumulative interest at 10% per annum thereon; 4) to
Signature, simple but cumulative interest at 10% per annum on, and then to
the payment of principal of, the aggregate unreturned balance of the Initial
Capital Commitment of $2,549,120 and any Additional Capital, as defined; 5)
to JBG/PW, simple but cumulative interest at 10% per annum on, and then to
the payment of principal of, the unreturned aggregate balance of JBG/PW's
deemed capital contribution of $1,500,000, plus $351,000; and 5) the balance
pro rata to the partners in proportion to their respective percentages of
partnership interests. Any capital proceeds distributed by the joint venture
to JBG/PW are to be distributed between them in the following order of
priority: 1) To the holders of operating notes, all unpaid accrued interest
on, and then to the payment of principal of, all outstanding operating notes
other than the Initial Operating Loan; 2) To JBG, any subordinated
management fees and management fees then unpaid and accrued from prior
fiscal years, 3) To PWIP5, payment of the Initial Operating Note together
with accrued interest thereon; 4) To JBG, $200,000 for services rendered in
connection with the refinancing of the original mortgage; 5) To PWIP5 and
JBG, the next $5,000,000 distributed 90% to PWIP5 and 10% to JBG; and 6) To
PWIP5 and JBG, any remaining balance distributed 80% to PWIP5 and 20% to
JBG.
All tax losses shall be allocated to the partners in proportion to their
percentages of partnership interest; provided, however, that no partner
shall be allocated any loss which would reduce its capital account below
zero unless all Partners have negative capital accounts. Taxable income
shall be allocated in accordance with the cash flow distributions set forth
above. Any income allocated by the joint venture to JBG/PW is to be
allocated between them to the extent of cash flow distributed to them for
such taxable year, with the remainder allocated 80% to PWIP5 and 20% to JBG.
Tax losses allocated by the joint venture to JBG/PW shall be allocated
between them in the ratio of their positive capital account balances,
subsequent to any distributions, with any remaining losses allocated 80% to
PWIP5 and 20% to JBG. Allocations of the joint venture's net losses for
financial accounting purposes have been made in accordance with the
allocations of tax losses.
A management agreement ("Management Agreement"), dated as of July 8, 1988,
between the joint venture and Signature Management Services, Inc., an
affiliate of Signature, sets forth conditions of the property management for
the Carriage Hill Apartments. The Management Agreement provides for a
monthly management fee of 5% of the prior month's gross revenues, as
defined. During fiscal 1996, the management agreement was amended to provide
for the payment of 3% of the previous month's collected revenues and a
deferral of 2%. The deferred management fees will be paid to Signature upon
final distribution of the cumulative preferred return discussed above.
b) Amarillo Bell Associates
------------------------
On September 30, 1983, the Partnership acquired a 50% interest in Amarillo
Bell Associates, an existing Texas general partnership which owns a 144,000
square foot shopping center in Amarillo, Texas. The Partnership is a general
partner in the joint venture. The Partnership's co-venturer is an affiliate
of The Boyer Company. The aggregate investment by the Partnership for its
interest was approximately $2,222,000 (including an acquisition fee of
$230,000 paid to the Adviser).
On June 19, 1995, the Partnership completed the refinancing of the existing
first mortgage loan secured by Bell Plaza, reducing the interest rate from
9.4% to 8.125%. The new loan, in the initial principal amount of $3,300,000,
has a seven-year term 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.
At September 30, 1996, the balance of the mortgage loan, which matures on
July 1, 2002, was approximately $3,250,000.
Subsequent to the end of fiscal 1990, the Partnership had entered into
negotiations with its co-venture partner to execute a purchase and sale
agreement for the sale of the Partnership's interest in the joint venture.
The proposed agreement would have given the co-venturer an option to
purchase the Partnership's interest for $1,500,000. Because the option price
was below the equity method carrying value of the Partnership's investment
in Amarillo Bell Associates at September 30, 1990, the Partnership
recognized a provision for possible investment loss of $300,000 in fiscal
1990 which reflected an estimate of the loss that would have been incurred
if the option had been executed and exercised. The co-venturer was unable to
obtain financing to complete this transaction and the option was never
executed. The $300,000 allowance for possible investment loss remains on the
Partnership's balance sheet at September 30, 1996 due to management's belief
that it represents a permanent impairment to the carrying value of the
investment in the Bell Plaza joint venture.
The joint venture agreement provides that the Partnership will receive from
cash flow an annual non-cumulative preferred return, payable monthly, of 50%
of the distributable cash flow with a minimum of $164,000 from October 1,
1988 annually through September 30, 1990. For the period after September 30,
1990, the Partnership will receive an annual distribution paid on a monthly
basis equal to 50% of distributable cash flow. The co-venturer will receive
an annual non-cumulative base return payable quarterly equal to the
available cash flow after the Partnership's return as set forth above.
Taxable income before depreciation will be allocated to the Partnership and
the co-venturer first in the same amount as cash is distributed, and any
balance will be allocated 50% to the Partnership and 50% to the co-venturer.
If no cash flow is available, then 100% is to be allocated to the
Partnership. Depreciation will be allocated to the partners as it is
attributable to their respective basis in the depreciable assets.
Allocations of income and loss for financial accounting purposes have been
made in accordance with the allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with the joint
venture, it is to be provided in equal proportions by the Partnership and
the co-venturer.
Per the terms of the joint venture agreement, distributions from a sale of
the operating investment property and/or refinancing proceeds will be as
follows, after the payment of mortgage debts and to the extent not
previously returned to each partner: 1) to the Partnership, an amount equal
to the Partnership's gross investment, 2) to the co-venturer, $2,140,000, 3)
payment of all unpaid accrued interest on all outstanding operating notes
and then to the repayment of the principal of all outstanding operating
notes, 4) payment of any accrued subordinated management fees, 5) any
remaining balance thereof shall be distributed 50% to the Partnership and
50% to the co-venturer.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer cancellable at the option of the Partnership
upon the occurrence of certain events. The management fee is equal to 4% of
gross rents.
c) Greenbrier Associates
----------------------
On June 29, 1984, the Partnership acquired an interest in Greenbrier
Associates, an Indiana general partnership that owns and operates Greenbrier
Apartments, a 324-unit apartment complex located in Indianapolis, Indiana.
The Partnership is a general partner in the joint venture. The Partnership's
co-venturer is an affiliate of the Paragon Group.
The aggregate cash investment made by the Partnership for its interest was
approximately $4,109,000 (including an acquisition fee of $432,000 paid to
the Adviser). The apartment complex is encumbered by a first mortgage loan
with a balance of $5,400,000 at September 30, 1996.
The joint venture agreement provides that the Partnership will receive from
available cash flow an annual cumulative preferred base return, payable
monthly, of $378,000. The Partnership's preference return is noncumulative
on a year-to-year basis beginning July 1, 1987. The cumulative preference
return of the Partnership in arrears at September 30, 1996 and 1995 for
unpaid preference returns through June 30, 1987 is approximately $312,000.
Since such amount is payable only from available future sale or refinancing
proceeds, as set forth below, it is not accrued in the joint venture's
financial statements. After the Partnership has received its preferred
return, the co-venturer is then entitled to receive an annual noncumulative,
subordinated base return, payable quarterly, of $21,000. Any remaining cash
flow not previously distributed at the end of each year will be used to pay
any accrued interest on all outstanding operating notes. The next $100,000
of cash flow in any year will be distributed 90% to the Partnership and 10%
to the co-venturer. Thereafter, any excess cash flow will be distributed 80%
to the Partnership and 20% to the co-venturer.
Taxable income or tax loss from operations will be allocated in the same
proportions as cash distributions, but in no event less than 5% to the
co-venturer. Additionally, the co-venturer shall not be allocated net
profits in excess of net cash flow distributed to it during the fiscal year.
Allocations of the venture's operations between the Partnership and the
co-venturer for financial accounting purposes have been made in conformity
with the actual allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with the joint
venture, it will be provided by the Partnership and the co-venturer as loans
to the joint venture. Such loans would be provided 85% by the Partnership
and 15% by the co-venturer.
Any proceeds arising from a refinancing, sale, exchange or other
distribution of property will be distributed in the following order of
priority: (1) to the payment of unpaid principal and accrued interest on all
outstanding operating notes, then to the repayment of unpaid operating loans
and accrued interest to the Partnership and the co-venturer, (2) to the
Partnership, the aggregate amount of the Partnership's cumulative preference
return not previously distributed, (3) the next $4,044,000 to the
Partnership, (4) the next $200,000 to the co-venturer, (5) to the property
manager, an amount equal to the sum of any unpaid subordinated management
fees, (6) the next $3,500,000 to the Partnership and the co-venturer
allocated 90% and 10%, respectively, (7) the next $3,000,000 to the
Partnership and the co-venturer allocated 80% and 20%, respectively, and (8)
any remaining balance to the Partnership and the co-venturer in the
proportions of 70% and 30%, respectively.
The joint venture entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the Partnership
upon the occurrence of certain events. The management fee is 5% of the gross
receipts collected from the property.
d) Seven Trails West Associates
----------------------------
On September 13, 1984, the Partnership acquired an interest in Seven Trails
West Associates, a Missouri general partnership that owns and operates Seven
Trails West Apartments, a 532-unit apartment complex in Ballwin, Missouri.
The Partnership is a general partner in the joint venture.
The aggregate cash investment by the Partnership for its interest was
approximately $10,011,000 (including an acquisition fee of $1,050,000 paid
to the Adviser). On April 17, 1996, the Partnership successfully completed
the refinancing of the existing first mortgage loan secured by the 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 payments of principal and interest
totalling $130,000. 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 to fund all
reserves and escrows required by the new lender. Because the prior mortgage
loan was not repaid by February 1, 1996, the joint venture forfeited a
$147,000 fee which had been paid to the prior lender in connection with a
fiscal 1994 extension agreement and was to be refundable under certain
conditions.
The joint venture agreement provides that the Partnership will receive from
available cash flow an annual cumulative preferred base return, payable
monthly, of $875,000. The Partnership's preference return was cumulative on
a year to year basis through September 30, 1987 and is cumulative monthly
but not annually thereafter. The cumulative preference return of the
Partnership in arrears at September 30, 1996 for unpaid preference returns
through September 30, 1987 is approximately $1,691,000. As such amount is
payable only from future available sale or refinancing proceeds, as set
forth below, it is not accrued in the joint venture's financial statements.
After the Partnership has received its preferred return, the co-venturer is
then entitled to receive an annual noncumulative, subordinated base return,
payable quarterly, of $50,000. Any cash flow not previously distributed at
the end of each fiscal year will be applied as follows: $250,000 of cash
flow in any year will be distributed 90% to the Partnership and 10% to the
co-venturer; the next $300,000 of annual cash flow will be distributed 80%
to the Partnership and 20% to the co-venturer; thereafter, any excess cash
flow will be distributed 70% to the Partnership and 30% to the co-venturer.
Taxable income or tax loss from operations will be allocated in the same
proportions as cash distributions, but in no event less than 10% to the
co-venturer. Additionally, the co-venturer shall not be allocated net
profits in excess of net cash flow distributed to it during the fiscal year.
Allocations of the venture's operations between the Partnership and the
co-venturer for financial accounting purposes have been made in conformity
with the allocations of taxable income or tax loss.
If additional cash is required for any reason in connection with the joint
venture, the joint venture agreement calls for such funds to be provided by
the Partnership and the co-venturer as loans to the joint venture. Such
loans would be provided 90% by the Partnership and 10% by the co-venturer.
Through September 30, 1996, operating notes have been provided by the
Partnership and co-venturer in the amounts of $836,000 and $11,000,
respectively. The notes bear interest at the prime interest rate of a local
bank. The Partnership advanced 100% of the funds required to close a loan
modification and extension agreement in fiscal 1994. The portion of such
operating notes representing the co-venture partner's 10% share of the
required funds bears interest at twice the rate of the regular operating
notes.
Any proceeds arising from a refinancing, sale or exchange or other
disposition of property will be distributed first to the payment of unpaid
principal and accrued interest on any outstanding notes. Any remaining
proceeds will be distributed in the following order: repayment of unpaid
principal and accrued interest on all outstanding operating notes to the
Partnership and the co-venturer; and any remaining balance distributed 90%
to the Partnership and 10% to the co-venturer.
The joint venture has entered into a property management contract with an
affiliate of the co-venturer, cancellable at the option of the Partnership
upon the occurrence of certain events. The management fee is equal to 4% of
the gross receipts collected from the property.
5. 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 various 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 alleged
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 purported to be
suing on behalf of all persons who invested in Paine Webber Income
Properties Five Limited Partnership, also alleged 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 alleged 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 sought 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 sought
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. 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 was held in December 1996, and a ruling by the court as a result
of this final hearing is currently pending.
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 described above. However, PaineWebber has agreed not to seek
indemnification for any amounts it is required to pay in connection with the
settlement of the New York Limited Partnership Actions. At the present time,
the General Partners 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.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of
Paine Webber Income Properties Five Limited Partnership:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of Paine Webber Income Properties Five Limited Partnership as of
September 30, 1996 and 1995, and the related combined statements of operations
and changes in venturers' deficit, and cash flows for each of the three years in
the period ended September 30, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Combined Joint Ventures of Paine Webber Income Properties Five Limited
Partnership at September 30, 1996 and 1995, and the combined results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/S/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
December 6, 1996
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1996 and 1995
(In thousands)
Assets
1996 1995
---- ----
Current assets:
Cash and cash equivalents $ 469 $ 545
Escrow deposits 1,085 1,030
Accounts receivable 83 130
Prepaid expenses 573 664
-------- ---------
Total current assets 2,210 2,369
Operating investment properties:
Land 5,250 5,250
Buildings, improvements and equipment 70,147 68,244
--------- --------
75,397 73,494
Less accumulated depreciation (30,544) (27,928)
--------- ---------
Net operating investment properties 44,853 45,566
Reserve for capital expenditures 364 689
Deferred expenses, net of accumulated amortization
of $234 ($212 in 1995) 1,373 1,138
Other assets, net 148 155
--------- ---------
$ 48,948 $ 49,917
========= =========
Liabilities and Venturers' Deficit
Current liabilities:
Current portion of long-term debt $ 461 $ 14,911
Current portion of deferred interest - 1,657
Accounts payable 205 117
Accounts payable - affiliates 120 30
Accrued real estate taxes 511 548
Accrued interest 648 585
Tenant security deposits 350 364
Distributions payable to venturers 132 -
Other current liabilities 102 121
---------- ---------
Total current liabilities 2,529 18,333
Notes payable to venturers 847 966
Other liabilities 31 14
Long-term debt 52,791 36,325
Venturers' deficit (7,250) (5,721)
--------- ---------
$ 48,948 $ 49,917
========= =========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' DEFICIT
For the years ended September 30, 1996, 1995 and 1994
(In thousands)
1996 1995 1994
---- ---- ----
Revenues:
Rental income and expense recoveries $11,646 $11,173 $12,458
Interest and other income 473 443 386
------- ------- -------
12,119 11,616 12,844
Expenses:
Interest expense 4,955 5,216 5,421
Depreciation expense 2,616 2,501 2,669
Real estate taxes 958 994 1,136
Repairs and maintenance 920 839 1,288
Salaries and related expenses 1,454 1,376 1,505
Utilities 958 725 874
General and administrative 577 320 384
Management fees 573 532 670
Insurance 137 155 324
Bad debt expense 25 27 18
Amortization expense 31 24 19
Loss on write-off of deferred
financing costs - 1,177 -
------- ------- -------
13,204 13,886 14,308
------- ------- -------
Operating loss (1,085) (2,270) (1,464)
Gain on sale of operating
investment property - - 3,336
------- -------- --------
Net income (loss) (1,085) (2,270) 1,872
Contributions from venturers - 916 50
Distributions to venturers (444) (695) (4,950)
Venturers' deficit, beginning of year (5,721) (3,672) (644)
------- -------- -------
Venturers' deficit, end of year $(7,250) $ (5,721) $(3,672)
======= ======== =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended September 30, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (1,085) $ (2,270) $ 1,872
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,647 2,525 2,688
Amortization of deferred financing costs 70 99 70
Loss on write-off of deferred financing
costs - 1,177 -
Gain on sale of operating investment
property - - (3,336)
Changes in assets and liabilities:
Escrow deposits (55) 183 (368)
Accounts receivable 47 (63) 21
Prepaid expenses 91 (83) (48)
Deferred expenses (86) (126) (144)
Accounts payable 88 (134) (80)
Accounts payable - affiliates 90 (14) (45)
Accrued real estate taxes (37) (1) 27
Accrued interest 63 60 7
Tenant security deposits (14) (34) (97)
Other current liabilities (19) (4) (37)
Deferred interest (1,657) 11 (88)
Other liabilities 17 1 2
------ -------- -------
Total adjustments 1,245 3,597 (1,428)
------ -------- -------
Net cash provided by operating
activities 160 1,327 444
------ -------- -------
Cash flows from investment activities:
Additions to operating investment
properties (1,903) (1,323) (776)
Decrease (increase) in reserve for
capital expenditures 325 (467) 243
Proceeds from sale of assets - - 9,686
------ -------- -------
Net cash (used in) provided by
investing activities (1,578) (1,790) 9,153
------ -------- -------
Cash flows from financing activities:
Proceeds from long-term debt 17,000 31,184 -
Payment of deferred financing costs (243) (945) -
Contributions by venturers - 916 50
Distributions to venturers (312) (930) (5,115)
Repayment of long-term debt (14,984) (30,002) (5,277)
Proceeds from loans from venturers - 119 586
Repayment of notes to partners (119) - (85)
------ -------- -------
Net cash provided by (used in)
financing activities 1,342 342 (9,841)
------ -------- -------
Net decrease in cash and cash equivalents (76) (121) (244)
Cash and cash equivalents, beginning of year 545 666 910
------- -------- -------
Cash and cash equivalents, end of year $ 469 $ 545 $ 666
======= ======== =======
Cash paid during the year for interest $ 6,479 $ 4,909 $ 5,432
====== ======= =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES of
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
Notes to Combined Financial Statements
1. Organization and Nature of Operations
-------------------------------------
The accompanying financial statements of the Combined Joint Ventures of
Paine Webber Income Properties Five Limited Partnership (Combined Joint
Ventures) include the accounts of Randallstown Carriage Hill Associates, a
Maryland general partnership; Signature Partners, L.L.C., a Maryland limited
liability company; Amarillo Bell Associates, a Texas general partnership;
Greenbrier Associates, an Indiana general partnership; Cambridge Associates,
a Nebraska general partnership and Seven Trails West Associates a Missouri
general partnership. As further described in Note 2, Cambridge Associates
sold its operating investment property and commenced a liquidation of its
operations during fiscal 1994. The financial statements of the Combined
Joint Ventures are presented in combined form due to the nature of the
relationship between the co-venturers and Paine Webber Income Properties
Five Limited Partnership (PWIP5), which owns a majority financial interest
but does not have voting control in each joint venture.
The dates of PWIP5's acquisition of interests in the joint ventures are as
follows:
Date of Acquisition
Joint Venture of Interest
------------- -----------
Randallstown Carriage Hill Associates 8/30/83
Signature Partners L.L.C. 6/1/95
Amarillo Bell Associates 9/30/83
Greenbrier Associates 6/29/84
Cambridge Associates 7/31/84
Seven Trails West Associates 9/13/84
2. Use of Estimates and Summary of Significant Accounting Policies
---------------------------------------------------------------
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 September 30, 1996 and 1995 and
revenues and expenses for each of the three years in the period ended
September 30, 1996. Actual results could differ from the estimates and
assumptions used.
Basis of presentation
---------------------
Generally, the records of the combined joint ventures are maintained on
the income tax basis of accounting and adjusted to generally accepted
accounting principles for financial reporting purposes, principally for
depreciation.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Operating investment properties
-------------------------------
The operating investment properties are carried at the lower of cost,
reduced by accumulated depreciation, or net realizable value. The net
realizable value of a property held for long-term investment purposes is
measured by the recoverability of the venture's investment through expected
future cash flows on an undiscounted basis, which may exceed the property's
market value. The net realizable value of a property held for sale
approximates its current market value. All of the operating properties owned
by the Combined Joint Ventures were held for long-term investment purposes
as of September 30, 1996 and 1995.
The Combined Joint Ventures have reviewed FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of," which is effective for financial statements for years beginning after
December 15, 1995, and believe this new pronouncement will not have a
material effect on the financial statements of the Combined Joint Ventures.
Depreciation expense is computed on a straight-line basis over the
estimated useful lives of the buildings, improvements and equipment,
generally, five to forty years. Professional fees and other costs incurred
in connection with the acquisition of the properties have been capitalized
and are included in the cost of the land and buildings.
Deferred expenses
-----------------
Deferred expenses consist of leasing commissions and loan fees which are
being amortized, using the straight-line method, over the terms of the
related leases and loans, respectively. Amortization of deferred loan fees
is included in interest expense on the accompanying statements of
operations.
Revenue Recognition
-------------------
The Combined Joint Ventures lease space at the operating investment
properties under short-term and long-term operating leases. Rental revenues
are recognized on a straight-line basis as earned pursuant to the terms of
the leases.
Income tax matters
------------------
The Combined Joint Ventures are comprised of entities which are not
taxable and accordingly, the results of their operations are included on the
tax returns of the various partners. Accordingly no income tax provision is
reflected in the accompanying combined financial statements.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, the Partnerships consider all
short-term investments with original maturity dates of 90 days or less to be
cash equivalents.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents, escrow deposits, accounts
receivable, accounts payable and accrued liabilities approximate their fair
values as of September 30, 1996 due to the short-term maturities of these
instruments. It is not practicable for management to estimate the fair value
of the notes payable to venturers because the obligations were provided in
non-arm's length transactions without regard to fixed maturities, collateral
issues or other traditional conditions and covenants. Information regarding
the fair value of long-term debt is provided in Note 5. The fair value of
long-term debt is estimated using discounted cash flow analyses, based on
the current market rates for similar types of borrowing arrangements.
<PAGE>
Escrow deposits
---------------
Escrow deposits at September 30, 1996 and 1995 consist of tenant security
deposits, amounts escrowed for the payment of insurance premiums, real
estate taxes and repair and replacement funds.
Reserve for Capital Expenditures
--------------------------------
In connection with the mortgage loan of the Carriage Hill joint venture,
an escrow reserve account was established for replacements stipulating that
a portion of each month's mortgage payment is to be deposited in the reserve
for replacement account. When repairs are made, the joint venture pays the
vendor and then the lender reimburses the joint venture and reduces the
escrow account by the amount of the expenditure. These funds can only be
used for making necessary repairs as stipulated in the mortgage agreement.
3. Joint Ventures
- -- --------------
See Note 4 to the financial statements of PWIP5 in this Annual Report for a
more detailed description of the joint venture partnerships. Descriptions of
the ventures' properties are summarized below:
a. Randallstown Carriage Hill Associates
-------------------------------------
The joint venture owns and operates Carriage Hill Village
Apartments, an 806-unit apartment complex located in Randallstown,
Maryland.
b. Signature Partners, L.L.C.
--------------------------
This limited liability company owns a 23-acre parcel of land
located in Randallstown, Maryland. See Note 5.
c. Amarillo Bell Associates
--------------------------
The joint venture owns and operates Bell Plaza Shopping Center, a
144,000 gross leasable square foot shopping center located in Amarillo,
Texas.
d. Greenbrier Associates
---------------------
The joint venture owns and operates Greenbrier Apartments, a
324-unit apartment complex located in Indianapolis, Indiana.
e. Seven Trails West Associates
-----------------------------
The joint venture owns and operates Seven Trails West Apartments, a
532-unit apartment complex located in Ballwin, Missouri.
f. Cambridge Associates
--------------------
The joint venture owned and operated Cambridge Apartments, a
378-unit apartment complex located in Omaha, Nebraska. On June 30, 1994,
Cambridge Associates sold its operating investment property, the
Cambridge Apartments, to an affiliate of PWIP5's co-venture partner. The
property was sold for $9,700,000. After repayment of the outstanding $5
million first mortgage loan and closing costs, the sale generated
approximately $4.7 million to be split between PWIP5 and the co-venturer
in accordance with the venture agreement. PWIP5's share of such proceeds
amounted to approximately $3.7 million in cash. The venture recognized a
gain of $3,336,000 in fiscal 1994 in connection with the sale
transaction.
The following description of the joint venture agreements provides certain
general information.
Allocations of net income and loss
----------------------------------
The agreements generally provide that taxable income and losses (other
than those resulting from sales or other dispositions of the projects) will
be allocated between PWIP5 and the co-venturers in the same proportions as
cash flow distributed from operations, except for certain items which are
specifically allocated to the partners, as set forth in the joint venture
agreements. Gains or losses resulting from sales or other dispositions of
the projects shall be allocated as specified in the joint venture
agreements. Allocations of income and loss for financial accounting purposes
have been made in accordance with the actual joint venture agreement.
Distributions
-------------
The joint venture agreements generally provide that distributions will be
paid on an annual basis first to PWIP5, in specified amounts ranging from
$283,500 to $875,000 as a preferred return. After payment of PWIP5's
preference return, the agreements generally provide for certain preferred
payments, up to specified amounts, to be paid to the co-venturers. Any
remaining distributable cash will be paid in proportions ranging from 90% to
50% to PWIP5 and 10% to 50% to the co-venturers, as set forth in the joint
venture agreements. Allocations of the distributable cash of the Carriage
Hill joint venture differ significantly from these general terms. See Note 4
to the financial statements of PWIP5 included in this Annual Report for a
further discussion.
Distributions of net proceeds upon the sale or refinancing of the projects
shall be made in accordance with formulas provided in the joint venture
agreements.
4. Related Party Transactions
--------------------------
The Combined Joint Ventures entered into property management agreements
with affiliates of the co-venturers, cancelable at the joint ventures'
option upon the occurrence of certain events. The management fees are equal
to between 4% and 5% of gross receipts, as defined in the agreements.
Management fees totalling $573,000, $532,000 and $670,000 were earned by
affiliates of the co-venturers for fiscal 1996, 1995 and 1994, respectively.
During fiscal 1996, the management agreement of the Carriage Hill joint
venture was amended to provide for the payment of 3% of the previous month's
collected revenues and a deferral of 2% to be paid out of available sale or
refinancing proceeds. Deferred management fees payable as of September 30,
1996 amounted to $86,000.
Accounts payable - affiliates at September 30, 1996 and 1995 are
principally management fees and reimbursements payable to property managers.
Notes payable to venturers at September 30, 1996 represents operating notes
provided by PWIP5 and its co-venturer to Seven Trails West Associates. Notes
payable to venturers at September 30, 1995 represents operating notes
provided by PWIP5 and its co-venturer to Seven Trails West Associates and
Randallstown Carriage Hill Associates in the amounts of $848,000 and
$118,000, respectively. Such loans generally bear interest at the prime rate
and are payable only out of the respective venture's available net cash flow
or sale or refinancing proceeds.
<PAGE>
5. Long-term Debt
-------------
Long-term debt at September 30, 1996 and 1995 consists of the following
(in thousands):
1996 1995
---- ----
7.65% mortgage note to a financial
institution, due in 2030. Payments
are made in monthly installments of
$191, including principal and
interest. The mortgage note is
secured by the property owned by
Randallstown Carriage Hill
Associates and is subject to
certain escrow deposit
requirements. The mortgage note is
co-insured by the Secretary of
Housing and Urban Development (HUD)
in accordance with the provisions
of the National Housing Act and the
laws of the State of Maryland. The
fair value of this note payable
approximated its carrying value as
of September 30, 1996. $ 27,675 $ 27,843
8.125% nonrecourse mortgage note
secured by land and building owned
by Amarillo Bell Associates,
guaranteed by the co-venturer.
Payable in monthly installments of
$26, including interest, with a
final payment of approximately
$2,943 due July 1, 2002. The fair
value of this note payable
approximated its carrying value as
of September 30, 1996. 3,250 3,293
Wrap-around mortgage note of $5,400
secured by the Greenbrier
Associates property which bears
interest at 10% payable monthly.
The entire principal of $5,400 and
any unpaid accrued interest is due
June 29, 1998. See discussion below
regarding extension. The fair value
of this note payable approximated
its carrying value as of September
30, 1996. 5,400 5,400
7.87% nonrecourse mortgage note
secured by the Seven Trails West
Associates operating investment
property bearing interest at 7.87%
per annum. The mortgage is payable
in monthly installments, including
principal and interest, of $130
through May 1, 2006, at which time
the final principal installment of
$13,724 plus any unpaid accrued
interest is due. The fair value of
this note payable approximated
$16,099 as of September 30, 1996. 16,927 -
<PAGE>
1996 1995
---- ----
Wrap-around deed of trust of
$14,700,000 secured by the Seven
Trails West Associates operating
investment property, bearing
interest of 12% (11% payable
monthly, 1% accrued and deferred).
The entire principal balance and
deferred interest is due February
1, 1996. See discussion below
regarding 1994 modification
agreement and 1996 refinancing. - 14,700
------- --------
53,252 51,236
Less current portion (461) (14,911)
-------- --------
$ 52,791 $ 36,325
======== ========
Maturities of long-term debt, which is all non-recourse to the joint
ventures and PWIP5, for each of the next five years and thereafter are as
follows (in thousands):
1997 $ 461
1998 5,897
1999 539
2000 582
2001 629
Thereafter 45,144
-------
$53,252
=======
During fiscal 1995, an existing first mortgage loan secured by Carriage
Hill, with an outstanding principal balance of approximately $26.5 million, was
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 venture
recognized a loss of $1,177,000 in fiscal 1995 in connection with the
refinancing transaction to write off the unamortized balance of the deferred
financing costs related to the prior mortgage loan. As part of this refinancing
transaction, the Carriage Hill joint venture was able to secure the release from
collateral of a 23-acre parcel of excess land. Title to this land, which had a
carrying value of $563,000, was transferred from the joint venture to a newly
formed limited liability company, Signature Partners, L.L.C. ("Signature
Partners"). Signature Partners is owned by the venture partners with the same
ownership interest percentages as in the Carriage Hill joint venture agreement.
This land could eventually be marketed to local developers once market
conditions improve. Proceeds of any such sale, if completed, would be
distributed to the owners in accordance with the same priorities called for
under the terms of the Carriage Hill joint venture agreement.
In fiscal 1993, Greenbrier Associates exercised an option to extend the
maturity date of its mortgage loan to June 29, 1998, at which time the entire
principal and any unpaid accrued interest is due. In connection with the
extension of the maturity date, deferred interest expense of $263,000 was to be
paid partially with the extension, with two remaining installments of $88,000 to
be paid on June 30, 1994 and 1995. As of September 30, 1995, all deferred
interest had been paid.
On April 17, 1996, the Seven Trails joint venture successfully completed
the refinancing of the existing first mortgage loan secured by the 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. 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 to fund all reserves and escrows required by the new
lender. Because the prior mortgage loan was not repaid by February 1, 1996, the
joint venture forfeited a $147,000 fee which had been paid to the prior lender
in connection with a fiscal 1994 extension agreement and was to be refundable
under certain conditions. 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.
<PAGE>
6. Leases
------
Minimum annual future lease revenues under noncancellable operating leases
at the Bell Plaza Shopping Center (owned by Amarillo Bell Associates) as of
September 30, 1996 are as follows (in thousands):
1997 $ 790
1998 764
1999 649
2000 482
2001 437
Thereafter 3,824
---------
$ 6,946
=========
Revenues from two majors tenant of the Bell Plaza Shopping Center
comprised approximately 38% and 13% of the total rental revenues of Amarillo
Bell Associates for the year ended September 30, 1996. The duration of these
leases extend between the years 1999 and 2014 and the tenants are subject to a
base rent and a percentage rent which fluctuates with sales volume.
<PAGE>
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES OF PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1996
(In thousands)
<CAPTION>
Life on which
Initial Cost of Costs Gross Amount at Which Carried at Depreciation
Partnership Capitalized Close of period in Latest
Buildings (Removed) Buildings Income
and Subsequent to and Accumulated Date of Date Statement
Description Encumbrances Land Improvements Acquisition(1) Land Improvements Total Depreciation Construction Acquired is Computed
- ----------- ------------ ---- ------------ -------------- ---- ------------ ----- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED JOINT VENTURES:
Apartment Complex$27,675 $1,000 $23,633 $4,604 $1,000 $28,237 $29,237 $ 13,890 1970-73 8/30/83 5-30 yrs.
Randallstown, MD
Land - 563 - 38 601 - 601 - - 6/1/95 -
Randallstown, MD
Shopping Center 3,250 1,519 6,310 1,124 1,519 7,434 8,953 2,784 1979-82 9/30/83 5-40 yrs.
Amarillo, TX
Apartment Complex 5,400 420 8,990 649 420 9,639 10,059 3,884 1964-68 6/29/84 5-30 yrs.
Indianapolis, IN
Apartment Complex
Ballwin, MO 16,927 1,710 22,131 2,252 1,710 24,837 26,547 9,986 1968-74 9/13/84 5-30 yrs.
------ ----- ------ ----- ------ ------- ------- --------
Total $53,252 $5,212 $61,064 $8,667 $ 5,250 $70,147 $75,397 $ 30,544
======= ====== ====== ====== ======= ======= ======= ========
Notes
(A) The aggregate cost of real estate owned at September 30, 1996 for Federal income tax purposes is
approximately $71,979,000.
(B) See Note 5 to Combined Financial Statements for a description of the terms of the debt encumbering the
properties.
(C) Reconciliation of real estate owned:
1996 1995 1994
---- ---- ----
Balance at beginning of period $73,494 $72,171 $80,879
Acquisitions and improvements 1,903 1,323 776
Dispositions - - (9,484)
------- ------- -------
Balance at end of period $75,397 $73,494 $72,171
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $27,928 $25,427 $25,891
Depreciation expense 2,616 2,501 2,669
Dispositions - - (3,133)
------- ------- -------
Balance at end of period $30,544 $27,928 $25,427
======= ======= =======
</TABLE>
<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,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-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> 30
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,262)
<TOTAL-LIABILITY-AND-EQUITY> 1,739
<SALES> 0
<TOTAL-REVENUES> 90
<CGS> 0
<TOTAL-COSTS> 222
<OTHER-EXPENSES> 691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (823)
<INCOME-TAX> 0
<INCOME-CONTINUING> (823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (823)
<EPS-PRIMARY> (23.33)
<EPS-DILUTED> (23.33)
</TABLE>
