UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-12087
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2780287
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No |_|.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
March 31 September 30
-------- ------------
Cash and cash equivalents $ 2,497 $ 2,165
======== ========
LIABILITIES AND PARTNERS' DEFICIT
Losses in excess of investments and
advances in joint ventures $ 3,406 $ 3,305
Accounts payable and accrued expenses 38 47
Partners' deficit (947) (1,187)
-------- --------
$ 2,497 $ 2,165
======== ========
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partner Partners
------- --------
Balance at September 30, 1996 $ (206) $ (1,056)
Net income 1 66
------- ---------
Balance at March 31, 1997 $ (205) $ (990)
======= =========
Balance at September 30, 1997 $ (205) $ (982)
Net income 2 238
------- ---------
Balance at March 31, 1998 $ (203) $ (744)
======= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1998 and 1997 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest and other income $ 85 $ 23 $ 119 $ 47
Expenses:
General and administrative 50 49 117 91
------ ------ ------ -------
Operating income (loss) 35 (26) 2 (44)
Partnership's share of
unconsolidated ventures'
income 183 19 238 111
------ ------ ------ -------
Net income (loss) $ 218 $ (7) $ 240 $ 67
====== ====== ====== =======
Net income (loss) per
Limited Partnership Unit $ 6.18 $(0.19) $ 6.80 $ 1.90
====== ====== ====== =======
The above net income (loss) per Limited Partnership Unit is based upon the
34,928 Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 240 $ 67
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of ventures' income (238) (111)
Changes in assets and liabilities:
Accounts payable and accrued expenses (9) (7)
-------- ---------
Total adjustments (247) (118)
-------- ---------
Net cash used in operating activities (7) (51)
Cash flows from investing activities:
Distributions from joint ventures 348 65
Additional investments in joint ventures (9) (14)
-------- ---------
Net cash provided by investing activities 339 51
-------- ---------
Net increase in cash and cash equivalents 332 -
Cash and cash equivalents, beginning of period 2,165 1,739
-------- ---------
Cash and cash equivalents, end of period $ 2,497 $ 1,739
======== =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
-------
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in the
Partnership's Annual Report for the year ended September 30, 1997. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the results
for the interim period. All of the accounting adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of March 31, 1998 and September 30, 1997 and revenues and
expenses for the three- and six-month periods ended March 31, 1998 and 1997.
Actual results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the six-month periods
ended March 31, 1998 and 1997 is $44,000 and $42,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months
ended March 31, 1998 and 1997 is $3,000 and $2,000, respectively, representing
fees earned by an affiliate, Mitchell Hutchins Institutional Investors, Inc.,
for managing the Partnership's cash assets.
3. Investments in Joint Ventures
-----------------------------
The Partnership has investments in four joint ventures which own operating
properties as more fully described in the Partnership's Annual Report. The joint
venture investments are accounted for using the equity method because the
Partnership does not have a voting control interest in the ventures. Under the
equity method the assets, liabilities, revenues and expenses of the joint
ventures do not appear in the Partnership's financial statements. Instead, the
investments are carried at cost adjusted for the Partnership's share of the
ventures' earnings and losses and distributions.
<PAGE>
Summarized operating results of the joint ventures for the three and six
months ended March 31, 1998 and 1997 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and six months ended March 31, 1998 and 1997
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
----------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $ 3,026 $2,941 $5,878 $5,952
Interest and other income 199 149 339 305
------- ------ ------ ------
3,225 3,090 6,217 6,257
Property operating expenses 1,140 1,352 2,316 2,601
Interest expense 1,181 1,121 2,241 2,241
Depreciation and
amortization 679 669 1,376 1,339
------- ------ ------ ------
3,000 3,142 5,933 6,181
------- ------ ------ ------
Net income (loss) $ 225 $ (52) $ 284 $ 76
======= ====== ====== ======
Net income (loss):
Partnership's share of
combined income (losses) $ 183 $ 19 $ 238 $ 111
Co-venturers' share of
combined income (losses) 42 (71) 46 (35)
------- ------ ------ ------
$ 225 $ (52) $ 284 $ 76
======= ====== ====== ======
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended September 30, 1997 under the heading "Certain Factors Affecting
Future Operating Results", which could cause actual results to differ materially
from historical results or those anticipated. The words "believe", "expect",
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
The Partnership's four remaining investment properties consist of three
multi-family apartment complexes and one retail shopping center. While the
current estimated market values of certain of the remaining properties are below
the amounts paid for the properties at the time of the Partnership's original
investments in 1983 and 1984, all of the properties currently have estimated
values above their respective outstanding mortgage debt obligations. As
previously reported, the Partnership's management is focusing on potential
disposition strategies for the remaining investment properties. As a result, the
Partnership could be positioned for a possible liquidation within the next 2 to
3 years. There are no assurances, however, that the Partnership will be able to
achieve the sale of its remaining assets within this time frame.
The average occupancy level at the Greenbrier Apartments, located in
Indianapolis, Indiana, remained at 91% for the quarter ended March 31, 1998,
down slightly from 92% for the same period one year ago. As discussed further in
the Annual Report, because the first mortgage loan secured by the Greenbrier
Apartments is scheduled to mature on June 29, 1998, the Partnership and its
joint venture partner had begun to review both refinancing and sale
opportunities during the latter part of fiscal 1997. During the first quarter of
fiscal 1998, the Partnership and the co-venturer agreed to initiate a marketing
program for the possible sale of the property. During the second quarter, the
Partnership and the co-venturer engaged a national real estate brokerage firm to
market Greenbrier for sale. As part of the formal marketing campaign, which
began in early March, the property was marketed extensively. Sales packages were
distributed to national, regional, and local prospective purchasers. As a result
of these sales efforts, several offers were received. Management then asked the
prospective purchasers to submit best and final offers. Management subsequently
received best and final offers from eight of the prospective buyers. After
completing an evaluation of the five highest final offers and the relative
strength of the prospective purchasers, an offer has been selected. Management
is currently in the process of negotiating a purchase and sale agreement with
this prospective buyer and hopes to close on a sale transaction by the June 29,
1998 loan maturity date. However, since any sale transaction remains subject to,
among other things, execution of a definitive purchase and sale agreement and
the satisfactory completion of the buyer's due diligence, there can be no
assurances that a sale will be successfully completed. While pursuing the
closing of this potential sale transaction, management will also work with the
existing lender for a potential short-term extension of the maturity date of the
first mortgage loan, if necessary, to coincide with the actual sale closing
date.
On March 19, 1998, the Partnership was notified by one of its co-venture
partners in the Carriage Hill joint venture that it would be exercising the
"buy/sell" provision in the joint venture agreement. Under the terms of this
provision, this co-venturer, which was admitted to the joint venture as part of
a 1988 restructuring transaction, had to propose a price at which it would
either purchase the other partners' interests in the venture or agree to the
sale of its interest in the venture to the other partners. The Partnership and
its original co-venture partner in the Carriage Hill joint venture had 45 days
to decide whether to sell their interests to the exercising partner or acquire
the interest of the exercising partner at the specified gross sale price for the
venture's assets of approximately $33.3 million. At an equivalent gross sale
price of $33.3 million, the net proceeds to the Partnership for the sale of its
interest would be approximately $700,000 after repayment of the outstanding
first mortgage debt of $27.4 million, the exercising partner's preferred
investment return of approximately $5 million and the original co-venturer's
share of the proceeds of $200,000. In order to purchase the exercising partner's
interest, the Partnership and the original co-venturer would need to come up
with cash in the amount of the aforementioned $5 million value of the other
partner's position. After a thorough review and analysis, the Partnership and
the original co-venturer notified the exercising partner on May 1, 1998 of their
decision to buy its interest for approximately $5 million in cash and put up a
$300,000 deposit in connection with this pending transaction in accordance with
the terms of the joint venture agreement. The Partnership and the original
co-venture partner now have an additional 50 days to close this transaction.
Once the Partnership and the original co-venturer complete the acquisition of
the other partner's interest, the parties would expect to explore the potential
for a possible near-term sale of the Carriage Hill property to a third-party.
Management believes that such a sale would result in a gross sale price of
greater than $33.3 million. The occupancy level at the Carriage Hill Apartments,
located in Randallstown, Maryland, remained at 95% for the third consecutive
quarter compared to 93% for the same period in the prior year. As discussed
further in the Annual Report, the fiscal 1995 refinancing of the first mortgage
loan secured by the Carriage Hill Apartments reduced the venture's monthly debt
service requirements and provided additional funds which have been used to make
improvements to the property. These improvements included the conversion of the
gas utilities to individual metering for each apartment unit. In the past,
operating results have been negatively impacted by high utility costs incurred
during the winter season. By transferring the utility payments to the tenants,
the property management company sought to reduce and stabilize property
operating expenses. This conversion was completed in fiscal year 1996 and
greater than 90% of the residents currently pay for their individual gas usage.
Until recently, residents have had the option upon renewal of their leases to
lower their current monthly rental rate and begin paying their own gas bill or
to continue with landlord-paid gas and accept a rental rate increase. However,
in order to have all residents paying for individual gas usage by the end of
fiscal year 1998, any tenant with landlord-paid gas who renews their lease after
October 1, 1997 will now pay their own utility costs.
The average occupancy level for the Seven Trails West Apartments, located
in St. Louis, Missouri, increased to 94% for the quarter ended March 31, 1998,
from 92% the prior quarter. The property's occupancy level is comparable to
other competitive properties in the local market. In order to maintain occupancy
levels, the property's management team has been forced to match the leasing
concessions of its competition by offering $100 off the first month's rent.
Nonetheless, the property's leasing team did implement a 1.5% rental rate
increase on new leases being signed at the property in January 1998 and plans to
increase rental rates an additional 0.9% as of June 1998. As a result of the
gradually improving market conditions, the Seven Trails joint venture has begun
to produce excess net cash flow for the first time in several years. In the
fourth quarter of fiscal 1997, the Partnership received a distribution of
$70,000 from the Seven Trails joint venture, and during the six months ended
March 31, 1998 the Partnership received another $173,000 from the joint venture
in the form of a distribution in the amount of $122,000 and an interest payment
on a loan to the joint venture of $51,000. As previously reported, there are
four new apartment communities with a total of 888 units currently being
developed approximately five miles from the Seven Trails West Apartments. While
these properties are not expected to compete directly with Seven Trails West,
the property's management and leasing team is closely monitoring their leasing
progress. One property with 112 units is expected to begin leasing in June 1998,
and another with 276 units has begun leasing, which is expected to be completed
in September 1998. Construction for the additional 500 units is underway; it is
expected that 300 units will be completed in the spring of 1999 and the other
200 units will be completed in the summer of 1999.
Bell Plaza Shopping Center in Amarillo, Texas, remained 97% leased as of
March 31, 1998, unchanged from last quarter. However, two tenants that closed
their operations in the Center in January 1997, with leases totalling 3,237
square feet, are no longer meeting their contractual rental obligations. The
property's management team is actively pursuing the available legal remedies for
the collection of all unpaid rent, but management believes that the recovery of
any of the delinquent amounts is unlikely due to the poor financial condition of
both tenants. During the current quarter, the property's leasing team signed a
lease with a new tenant for approximately 1,500 square feet, replacing the only
tenant that vacated during the quarter ended March 31, 1998. The property's
leasing team is actively negotiating a potential lease for a portion of the
remaining 5,000 square feet of vacant space at Bell Plaza. Three leases
totalling 9,000 square feet, or 6% of the Center's total leasable area, come up
for renewal during calendar year 1998. As previously reported, the Partnership
had been exploring the potential for a sale of the Bell Plaza Shopping Center
property. However, based on discussions with local and regional brokers
specializing in retail properties, the Partnership and its co-venture partner
have decided not to pursue a near-term sale at this time. In light of current
market conditions, both the Partnership and the co-venturer believe that it
would be in their best interests to continue to work on improving the tenant mix
and cash flow of the property before pursuing sale strategies for Bell Plaza.
At March 31, 1998, the Partnership had cash and cash equivalents of
$2,497,000. 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.
<PAGE>
Results of Operations
Three Months Ended March 31, 1998
- ---------------------------------
The Partnership reported net income of $218,000 for the three-month period
ended March 31, 1998, as compared to a net loss of $7,000 for the same period in
the prior year. This favorable change of $225,000 in net operating results is
primarily due to an increase of $164,000 in the Partnership's share of ventures'
income. The Partnership's share of ventures' income increased mainly due to a
decrease in property operating expenses and an increase in combined rental
revenues. Property operating expenses decreased mainly due to a reduction in
utilities and advertising expenses at the Carriage Hill joint venture. In
addition, management fees decreased at the Greenbrier and Seven Trails joint
ventures due to a restructuring of the related management agreements which
resulted in a reduction in the percentage rate of gross rents used to calculate
the monthly fees. Rental revenues increased primarily due to higher rental rates
achieved at the Seven Trails and Carriage Hill properties.
A favorable change of $61,000 in the Partnership's operating income (loss)
also contributed to the favorable change in net operating results for the
current three-month period. The Partnership's operating income (loss) improved
primarily due to an increase in interest income. Interest income was higher in
the current three-month period due to an increase in the Partnership's average
outstanding cash reserve balances and due to the interest payments received in
the current period on a loan from the Partnership to the Seven Trails joint
venture.
Six Months Ended March 31, 1998
- -------------------------------
The Partnership reported net income of $240,000 for the six-month period
ended March 31, 1998, as compared to net income of $67,000 for the same period
in the prior year. This increase of $173,000 in net income is primarily due to
an increase of $127,000 in the Partnership's share of ventures' income. The
Partnership's share of ventures' income increased mainly due to a decrease in
property operating expenses. Property operating expenses decreased mainly due to
a reduction in utilities and advertising expenses at the Carriage Hill joint
venture. In addition, management fees declined at the Greenbrier and Seven
Trails joint ventures due to a restructuring of the related management
agreements which resulted in a reduction in the percentage rate of gross rents
used to calculate the monthly fees.
A favorable change of $46,000 in the Partnership's operating income (loss)
also contributed to the favorable change in net income for the current six-month
period. The Partnership's operating income (loss) improved primarily due to an
increase in interest income. Interest income was higher in the current six-month
period due to an increase in the Partnership's average outstanding cash reserve
balances and due to interest payments received in the current period on a loan
from the Partnership to the Seven Trails joint venture. The increase in interest
income was partially offset by an increase in general and administrative
expenses which was caused mainly by an increase in certain legal and other
professional fees.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
By: FIFTH INCOME PROPERTIES FUND, INC.
----------------------------------
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: May 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended March 31,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,497
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,497
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,497
<CURRENT-LIABILITIES> 38
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (947)
<TOTAL-LIABILITY-AND-EQUITY> 2,497
<SALES> 0
<TOTAL-REVENUES> 357
<CGS> 0
<TOTAL-COSTS> 117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 240
<INCOME-TAX> 0
<INCOME-CONTINUING> 240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240
<EPS-PRIMARY> 6.80
<EPS-DILUTED> 6.80
</TABLE>
