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
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: SEPTEMBER 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _______.
Commission File Number: 0-12087
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 04-2780287
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(State of organization) (I.R.S.Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (617) 439-8118
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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(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
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Prospectus of registrant dated Part IV
May 26, 1983, as supplemented
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
1997 FORM 10-K
TABLE OF CONTENTS
Part I Page
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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-7
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure II-7
Part III
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Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-2
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
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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-28
<PAGE>
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Partnership's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are discussed in Item 7 in the section entitled
"Certain Factors Affecting Future Operating Results" beginning on page II-5 of
this Form 10-K.
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, 1997 one of the
Partnership's original investments had been sold. As of September 30, 1997, the
Partnership owned interests in operating investment properties through joint
venture partnerships as set forth in the following table:
<TABLE>
<CAPTION>
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
- ------------------------------------- ---- ------------- -------------------------
<S> <C> <C> <C>
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)
</TABLE>
(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.
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.
Through September 30, 1997, 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. The Partnership
suspended the payment of regular quarterly distributions of excess net cash flow
in fiscal 1988. As of September 30, 1997, 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 remaining properties in which the Partnership has an interest
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 in most markets over the past several years. 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.
Item 2. Properties
As of September 30, 1997, 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 1997, along with an
average for the year, are presented below for each property:
Percent Occupied At
--------------------------------------------------
Fiscal
1997
12/31/96 3/31/97 6/30/97 9/30/97 Average
-------- ------- ------- ------- -------
Carriage Hill Village
Apartments 95% 93% 92% 95% 94%
Bell Plaza Shopping Center 99% 99% 99% 99% 99%
Greenbrier Apartments 94% 92% 88% 87% 90%
Seven Trails West Apartments 93% 94% 94% 92% 93%
<PAGE>
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 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 provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds had been delayed pending the
resolution of an appeal of the settlement agreement by two of the plaintiff
class members. In July 1997, the United States Court of Appeals for the Second
Circuit upheld the settlement over the objections of the two class members. As
part of the settlement agreement, PaineWebber agreed not to seek indemnification
from the related partnerships and real estate investment trusts at issue in the
litigation (including the Partnership) for any amounts that it is required to
pay under the settlement.
Based on the settlement agreement discussed above covering all of the
outstanding unitholder litigation, the resolution of this matter will not have a
material impact on the Partnership's financial statements, taken as a whole.
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, 1997 there were 2,244 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. Upon request, the Managing General
Partner will endeavor to assist a Unitholder desiring to transfer his Units and
may utilize the services of PWI in this regard. The price to be paid for the
Units will be subject to negotiation by the Unitholder. The Managing General
Partner will not redeem or repurchase Units.
No distributions were made to the Limited Partners during fiscal 1997.
Item 6. Selected Financial Data
Paine Webber Income Properties Five Limited Partnership
For the years ended September 30, 1997, 1996, 1995, 1994 and 1993
(In thousands except per Unit data)
Years Ended September 30,
---------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Revenues $ 98 $ 90 $ 106 $ 87 $ 21
Operating loss $ (138) $ (132) $ (207) $ (262) $ (183)
Partnership's share of
ventures' income (losses) $ 213 $ (691) $(1,182) $ (995) $ (860)
Partnership's share of gain on
sale of operating investment
property - - - $ 3,174 -
Net income (loss) $ 75 $ (823) $(1,389) $ 1,917 $ (1,043)
Net income (loss) per Limited
Partnership Unit $ 2.13 $(23.33) $(39.37) $ 54.36 $ (29.57)
Cash distributions from sale,
refinancing or other
disposition transactions
per Limited
Partnership Unit - - - $ 63.00 -
Total assets $ 2,165 $ 1,739 $ 1,658 $ 1,836 $ 1,280
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
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 below 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 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 is now
focusing on potential disposition strategies for the remaining investment
properties. 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.
Bell Plaza Shopping Center in Amarillo, Texas, was 99% leased as of
September 30, 1997, unchanged from the prior quarter and up from 98% as of
September 30, 1996. However, two tenants that closed their operations in the
Center in January 1997, with leases totalling 3,237 square feet, are no longer
meeting their contractual rental obligations. As a result, the property's
management team is actively pursuing the available legal remedies to collect the
unpaid rent. During the first quarter of fiscal 1997, the property's leasing
team signed a new three-year lease for 1,720 square feet with a cellular phone
retailer. Also, two lease extensions were successfully negotiated with existing
tenants during the third quarter, one with a discount golf retailer which
occupies 4,400 square feet and the other with a discount shoe store which
occupies 3,200 square feet. In addition, during the fourth quarter the
property's leasing team signed a lease for approximately 1,500 square feet to
replace one of the stores that closed its operations in January. Only two leases
totalling approximately 5,000 square feet, or approximately 4% of the Center's
total leasable area, come up for renewal during fiscal year 1998. As previously
reported, the Partnership had been exploring the potential for a sale of the
Bell Plaza Shopping Center. 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.
The occupancy level for the Seven Trails West Apartments, located in St.
Louis, Missouri, averaged 93% for fiscal 1997, compared to 96% for the prior
year. During the year, the property's management team decided to match the
leasing concessions given by other apartment properties due to softness in the
local market by offering one-half month's free rent to new tenants. In order to
improve Seven Trails' competitive position in the local market, the property's
cash flow, after the payment of debt service, was reinvested in improvements
throughout most of fiscal 1997. In addition to the replacement of carpeting,
vinyl flooring and appliances in units as needed, exterior repairs were made to
several balconies and roofs. As a result of these ongoing improvements, higher
than expected rental rate increases were implemented at the property. Further
rental rate increases are planned for early fiscal year 1998. As a result of
these rental rate increases, the Seven Trails joint venture has begun to produce
excess net cash flow. In the fourth quarter of fiscal 1997, the Partnership
received a distribution of $70,000 from the Seven Trails joint venture, and
subsequent to year-end the Partnership received another distribution of
approximately $173,000.
The occupancy level at the Carriage Hill Apartments, an 806-unit complex
in Randallstown, Maryland, averaged 94% for the year ended September 30, 1997,
compared to 89% for the prior year. The increase in the property's average
occupancy level is largely attributable to the stabilization of the tenant
move-outs which resulted from the implementation of a program to transfer the
utility costs to the tenants during fiscal 1996. 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 was completed in fiscal year 1996 and 88% 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 property's leasing team continues to offer
prospective residents the option of renting an updated apartment unit. So far,
26 units have been updated and leased at higher rental rates. These 26 apartment
units are priced at an additional monthly rent of $75 per apartment, which is an
average increase in excess of 10% over the original rent.
Average occupancy at the Greenbrier Apartments, in Indianapolis, Indiana,
was 90% for fiscal 1997, compared to 92% for the prior year. The property's
management team has been forced to match the leasing concessions of its
competition by offering one month's free rent to new tenants. The property's
leasing and management team attributes the current softness in this market
primarily to tenants moving to purchase homes. Rental rate increases will not be
implemented until occupancy levels improve. Because the first mortgage loan
secured by Greenbrier Apartments is scheduled to mature on June 29, 1998, the
Partnership and its joint venture partner have begun to review both refinancing
and sale opportunities. It is highly likely the property will be marketed for
sale during fiscal 1998 and if satisfactory offers to purchase the property are
received, Greenbrier would be sold. Should the Partnership's joint venture be
unable to obtain a satisfactory sale price, the current first mortgage loan
would be refinanced. While, given current market conditions, management is
optimistic regarding the prospects for refinancing the venture's $5.4 million
first mortgage loan, there are no assurances that either a sale or refinancing
will be completed.
At September 30, 1997, the Partnership had cash and cash equivalents of
$2,165,000. Such cash and cash equivalents will be utilized for the working
capital requirements of the Partnership and for future capital contributions, if
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
1997 Compared to 1996
- ---------------------
The Partnership reported net income of $75,000 for the year ended
September 30, 1997, as compared to a net loss of $823,000 for the same period in
the prior year. This favorable change of $898,000 in net operating results is
primarily due to a favorable change of $904,000 in the Partnership's share of
ventures' income (losses). The favorable change in the Partnership's share of
ventures' operations is mainly attributable to an increase in combined rental
revenues and expense recoveries of $416,000 and decreases in interest expense
and property operating expenses of $452,000 and $547,000, respectively. Rental
revenues and expense recoveries increased mainly due to significant increases in
average occupancy levels at the Carriage Hill and Bell Plaza properties when
compared to the same period in the prior year. As noted above, the average
occupancy level at the Carriage Hill Apartments improved from 89% for fiscal
1996 to 94% for fiscal 1997. The average leasing level at the Bell Plaza
Shopping Center increased to 99% for fiscal 1997 from a level of 93% for the
prior fiscal year. Increases in effective rental rates at the Seven Trails and
Carriage Hill properties also contributed to the increase in rental revenues.
The decrease in interest expense is mainly due to the April 1996 refinancing of
the debt secured by the Seven Trails Apartments, which significantly lowered the
venture's debt service costs. Property operating expenses decreased partly due
to a reduction in utilities expense at the Carriage Hill property which was
mainly a result of the utilities conversion discussed further above. In
addition, repairs and maintenance costs declined significantly at the Seven
Trails and Greenbrier properties in fiscal 1997.
A slight increase in the Partnership's operating loss of $6,000 partially
offset the favorable change in the Partnership's share of ventures' operations
for fiscal 1997. The Partnership's operating loss increased due to an increase
in general and administrative expenses. General and administrative expenses
increased mainly due to an increase in certain required professional fees. An
$8,000 increase in interest income partially offset the increase in general and
administrative expenses. Interest income increased due to an increase in the
Partnership's average outstanding cash balances during fiscal 1997.
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 was that the Carriage Hill joint
venture recognized an extraordinary loss on the early extinguishment of debt
during fiscal 1995 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 a June 1995 refinancing transaction. The Partnership's share of
this loss was approximately $471,000. Excluding this non-recurring charge during
fiscal 1995, the Partnership's share of ventures' losses decreased by $20,000
when compared to the prior year. This decrease was mainly attributable 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 certain leasing improvements.
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
fiscal 1996. As noted above, during fiscal 1996 the venture completed the
process of converting the utilities at Carriage Hill Apartments to individual
metering. This conversion was undertaken in order to 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
during the year.
The Partnership's operating loss decreased by $75,000 for fiscal 1996,
when compared to the prior year. The decrease in operating loss was 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.
<PAGE>
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 a June 1995 refinancing transaction. 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 a fiscal 1994
modification agreement. 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 an anchor tenant vacancy. 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.
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
The following factors could cause actual results to differ materially from
historical results or those anticipated:
Real Estate Investment Risks. Real property investments are subject to
varying degrees of risk. Revenues and property values may be adversely affected
by the general economic climate, the local economic climate and local real
estate conditions, including (i) the perceptions of prospective tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide adequate management and maintenance of the property; (iii) the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise; and (iv) increased operating costs. Real estate values may also be
adversely affected by such factors as applicable laws, including tax laws,
interest rate levels and the availability of financing.
Effect of Uninsured Loss. The Partnership carries comprehensive liability,
fire, flood, extended coverage and rental loss insurance with respect to its
properties with insured limits and policy specifications that management
believes are customary for similar properties. There are, however, certain types
of losses (generally of a catastrophic nature such as wars, floods or
earthquakes) which may be either uninsurable, or, in management's judgment, not
economically insurable. Should an uninsured loss occur, the Partnership could
lose both its invested capital in and anticipated profits from the affected
property.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances on, under, in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances.
The Partnership is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the
Partnership, nor is the Partnership aware of any environmental condition with
respect to any of its properties that it believes will involve any such material
expenditure. However, there can be no assurance that any non-compliance,
liability, claim or expenditure will not arise in the future.
Competition. The financial performance of the Partnership's remaining real
estate investments will be significantly impacted by the competition from
comparable properties in their local market areas. The occupancy levels and
rental rates achievable at the properties are largely a function of supply and
demand in the markets. In many markets across the country, development of new
multi-family properties has increased significantly in the past 12 months.
Existing apartment properties in such markets could be expected to experience
increased vacancy levels, declines in effective rental rates and, in some cases,
declines in estimated market values as a result of the increased competition.
The retail segment of the real estate market is currently suffering from an
oversupply of space in many markets resulting from overbuilding in recent years
and the trend of consolidations and bankruptcies among retailers prompted by the
generally flat rate of growth in overall retail sales. There are no assurances
that these competitive pressures will not adversely affect the operations and/or
market values of the Partnership's investment properties in the future.
Impact of Joint Venture Structure. The ownership of the remaining
investments through joint venture partnerships could adversely impact the timing
of the Partnership's planned dispositions of its remaining assets and the amount
of proceeds received from such dispositions. It is possible that the
Partnership's co-venture partners could have economic or business interests
which are inconsistent with those of the Partnership. Given the rights which
both parties have under the terms of the joint venture agreements, any conflict
between the partners could result in delays in completing a sale of the related
operating property and could lead to an impairment in the marketability of the
property to third parties for purposes of achieving the highest possible sale
price.
Availability of a Pool of Qualified Buyers. The availability of a pool of
qualified and interested buyers for the Partnership's remaining assets is
critical to the Partnership's ability to realize the estimated fair market
values of such properties at the time of their final dispositions. Demand by
buyers of multi-family apartment and retail properties is affected by many
factors, including the size, quality, age, condition and location of the subject
property, the quality and stability of the tenant roster, the terms of any
long-term leases, potential environmental liability concerns, the existing debt
structure, the liquidity in the debt and equity markets for asset acquisitions,
the general level of market interest rates and the general and local economic
climates.
Inflation
- ---------
The Partnership completed its fourteenth full year of operations in fiscal
1997 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. Most 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 38 8/22/96
Terrence E. Fancher Director 44 10/10/96
Walter V. Arnold Senior Vice President and Chief
Financial Officer 50 10/29/85
David F. Brooks First Vice President and Assistant
Treasurer 55 11/19/82 *
Timothy J. Medlock Vice President and Treasurer 36 6/1/88
Thomas W. Boland Vice President and Controller 35 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.
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.
<PAGE>
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.
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 and Controller of the Managing General
Partner and a Vice President and Controller 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, 1997, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
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.
(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.
<PAGE>
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 1997.
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, 1997 is $85,000, 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 $6,000 for managing the Partnership's
cash assets in fiscal 1997, 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 1997.
(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 and Controller
Dated: January 13, 1998
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 13, 1998
------------------------ ----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: January 13, 1998
------------------------ ----------------
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
<TABLE>
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document or Other Reference
- ----------- ----------------------- ------------------
<S> <C> <C>
(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 by
Restated Certificate and Agreement reference.
Limited Partnership.
(10) Material contracts previously filed as Filed with the Commission
exhibits to registration statements and pursuant to Section 13 or 15(d)
amendments thereto of the registrant of the Securities Exchange Act
together with all such contracts filed of 1934 and incorporated
as exhibits of previously filed Forms herein by reference.
8-K and Forms 10-K are hereby
incorporated herein by reference.
(13) Annual Reports to Limited Partners No Annual Report for the year
ended September 30, 1997 has
been sent to the Limited Partners.
An Annual Report will be sent
to the Limited Partners subsequent
to this filing.
(21) List of Subsidiaries Included in Item 1 of Part I of this
Report Page I-1, to which reference
is hereby made.
(27) Financial Data Schedule Filed as last page of EDGAR
submission following the Financial
Statements and Financial
Statement Schedule as required by
Item 14.
</TABLE>
<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:
Reports of independent auditors F-2
Balance sheets as of September 30, 1997 and 1996 F-4
Statements of operations for the years ended September 30,
1997, 1996 and 1995 F-5
Statements of changes in partners' capital (deficit)
for the years ended September 30, 1997, 1996 and 1995 F-6
Statements of cash flows for the years ended September 30,
1997, 1996 and 1995 F-7
Notes to financial statements F-8
Combined Joint Ventures of Paine Webber Income Properties Five Limited
Partnership:
Reports of independent auditors F-17
Combined balance sheets as of September 30, 1997 and 1996 F-19
Combined statements of operations and changes in venturers'
deficit for the years ended September 30, 1997, 1996
and 1995 F-20
Combined statements of cash flows for the years ended
September 30, 1997, 1996 and 1995 F-21
Notes to combined financial statements F-22
Schedule III - Real estate and accumulated depreciation F-28
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, 1997 and 1996, 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, 1997.
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 did not audit the financial statements of
Randallstown Carriage Hill Associates (an unconsolidated venture) as of
September 30, 1997 and for the year then ended. The Partnership's equity
investment in Randallstown Carriage Hill Associates totalled $(6,207,000) as of
September 30, 1997, and the Partnership's share of the net loss of Randallstown
Carriage Hill Associates totalled $(123,000) for the year ended September 30,
1997. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Randallstown Carriage Hill Associates, is based solely on the report of the
other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
December 18, 1997
<PAGE>
Reznick Fedder & Silverman
Certified Public Accountants
217 East Redwood Street, Suite 1900
Baltimore, MD 21202
INDEPENDENT AUDITORS' REPORT
The Partners
Randallstown Carriage Hill Associates:
We have audited the accompanying balance sheet of Randallstown Carriage
Hill Associates as of September 30, 1997 and the related statements of
operations, changes in partners' equity and cash flows for the year then ended.
These financial statements are the responsibility of partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit 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 audit provides 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 Randallstown Carriage Hill
Associates as of September 30, 1997 and the results of its operations, the
changes in partners' equity and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/Reznick Fedder & Silverman
-----------------------------
Reznick Fedder & Silverman
Baltimore, Maryland
November 5, 1997
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1997 and 1996
(In thousands, except per Unit amounts)
ASSETS
1997 1996
---- ----
Cash and cash equivalents $ 2,165 $ 1,739
======== ========
LIABILITIES AND PARTNERS' DEFICIT
Losses in excess of investments and
advances in joint ventures $ 3,305 $ 2,971
Accounts payable and accrued expenses 47 30
-------- --------
Total liabilities 3,352 3,001
Partners' deficit:
General Partners:
Capital contributions 1 1
Cumulative net loss (146) (147)
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 (14,489) (14,563)
Cumulative cash distributions (18,047) (18,047)
-------- --------
Total partners' deficit (1,187) (1,262)
-------- --------
$ 2,165 $ 1,739
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the years ended September 30, 1997, 1996 and 1995
(In thousands, except per Unit amounts)
1997 1996 1995
---- ---- ----
Revenues:
Interest income $ 98 $ 90 $ 106
Expenses:
General and administrative 236 222 313
-------- ------ -------
Operating loss (138) (132) (207)
Partnership's share of ventures'
income (losses) 213 (691) (1,182)
-------- ------ -------
Net income (loss) $ 75 $ (823) $(1,389)
======== ====== =======
Net income (loss) per Limited
Partnership Unit $ 2.13 $(23.33) $(39.37)
======== ======= =======
The above net income (loss) per Limited Partnership Unit is 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, 1997, 1996 and 1995
(In thousands)
General Limited
Partners Partners Total
------- -------- --------
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)
Net income 1 74 75
------ ------- --------
Balance at September 30, 1997 $ (205) $ (982) $ (1,187)
====== ======= ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 75 $ (823) $ 1,389)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of ventures' income
(losses) (213) 691 1,182
Changes in assets and liabilities:
Accounts payable and accrued expenses 17 (8) 13
------- ------- -------
Total adjustments (196) 683 1,195
------- ------- -------
Net cash used in operating
activities (121) (140) (194)
------- ------- -------
Cash flows from investing activities:
Distributions from joint ventures 533 249 275
Additional investments in and advances
to joint ventures (14) (628) (259)
Repayment of advances to joint ventures 28 600 -
------- ------- -------
Net cash provided by
investing activities 547 221 16
------- ------- -------
Net increase (decrease) in cash
and cash equivalents 426 81 (178)
Cash and cash equivalents, beginning of year 1,739 1,658 1,836
------- ------- -------
Cash and cash equivalents, end of year $ 2,165 $ 1,739 $ 1,658
======= ======= =======
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, 1997 and 1996 and revenues and expenses for
each of the three years in the period ended September 30, 1997. 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, 1997 and 1996, 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.
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 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 cash and cash equivalents approximates
their fair value as of September 30, 1997 and 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. The negative capital account balances of the Limited
Partners as of September 30, 1997 are expected to be recovered through future
gain allocations resulting from disposition transactions for the remaining real
estate investments. 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, 1997.
Included in general and administrative expenses for the years ended
September 30, 1997, 1996 and 1995 is $85,000, $81,000 and $87,000, 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 $6,000, $4,000 and $5,000 for managing
the Partnership's cash assets in fiscal 1997, 1996 and 1995, respectively, which
amounts are included in general and administrative expenses on the accompanying
statements of operations.
<PAGE>
4. Investments in Joint Venture Partnerships
-----------------------------------------
As of September 30, 1997 and 1996, the Partnership had investments in four
joint ventures. The joint ventures are accounted for on the equity method in the
Partnership's financial statements. Condensed combined financial statements of
these joint ventures are as follows:
Condensed Combined Balance Sheet
September 30, 1997 and 1996
(in thousands)
Assets
1997 1996
---- ----
Current assets $ 2,642 $ 2,210
Operating investment properties, net 42,890 44,853
Other assets, net 2,200 1,885
-------- --------
$ 47,732 $ 48,948
======== ========
Liabilities and Venturers' Deficit
Current liabilities $ 7,779 $ 2,529
Other liabilities 878 878
Long-term mortgage debt,
less current portion 46,893 52,791
Partnership's share of combined deficit (3,798) (3,583)
Co-venturers' share of combined deficit (4,020) (3,667)
-------- --------
$ 47,732 $ 48,948
======== ========
Reconciliation of Partnership's Investments
(in thousands)
1997 1996
---- ----
Partnership's share of deficit, as shown above $ (3,798) $ (3,583)
Partnership's share of current liabilities
and long-term debt 793 912
Less: Allowance for possible investment loss (1) (300) (300)
-------- --------
Investments in joint ventures, at equity, net $ (3,305) $ (2,971)
======== ========
(1)The carrying value of the Partnership's investments in joint ventures at
September 30, 1997 and 1996 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.
<PAGE>
Condensed Combined Summary of Operations
For the years ended September 30, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
---- ---- ----
Revenues:
Rental income and expense recoveries $12,062 $11,646 $11,173
Interest and other income 443 473 443
------- ------- -------
12,505 12,119 11,616
Expenses:
Property operating expenses 5,055 5,602 4,968
Depreciation and amortization 2,805 2,647 2,525
Interest expense 4,503 4,955 5,216
Loss on write-off of deferred
financing costs - - 1,177
------- ------- -------
12,363 13,204 13,886
------- ------- -------
Net income (loss) $ 142 $(1,085) $(2,270)
======= ======= =======
Net income (loss):
Partnership's share of
combined income (loss) $ 213 $ (691) $(1,182)
Co-venturers' share of
combined income (loss) (71) (394) (1,088)
------- ------- -------
$ 142 $(1,085) $(2,270)
======= ======= =======
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, 1997 and 1996 is comprised of the following (in
thousands):
1997 1996
---- ----
Randallstown Carriage Hill Associates $ (6,207) $ (6,084)
Signature Partners, L.L.C. 246 239
Amarillo Bell Associates 1,578 1,623
Greenbrier Associates 723 822
Seven Trails West Associates 355 429
-------- --------
$ (3,305) $ (2,971)
======== ========
The Partnership received cash distributions from the ventures as set forth
below (in thousands):
1997 1996 1995
---- ---- ----
Amarillo Bell Associates $ 198 $ - $ 50
Greenbrier Associates 265 198 132
Randallstown Carriage Hill Associates - 51 93
Seven Trails West Associates 70 - -
------- ------ ------
$ 533 $ 249 $ 275
======= ====== ======
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 6) 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.
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, 1997, the balance of the mortgage
loan, which matures on July 1, 2002, was approximately $3,204,000.
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, 1997 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, 1997. In 1993, the joint
venture exercised an option to extend the maturity date of the loan to
June 29, 1998, at which time the entire principal and any unpaid accrued
interest are due. Management may attempt to refinance the debt with
similar terms, or the venture may elect to sell the property prior to the
June 1998 maturity date. There are no assurances, however, that a
refinancing or sale will be completed. Management cannot predict the
outcome of these uncertainties. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
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, 1997 and 1996 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.
<PAGE>
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: to
the payment of all unpaid accrued interest on all outstanding operating
notes; $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, 1997, 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 and the accrued interest on such notes is payable as the
first priority from net cash flow, as defined.
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 5%
of the gross receipts collected from the property.
<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, 1997 and 1996, 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, 1997. 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 did not audit the financial statements of
Randallstown Carriage Hill Associates as of September 30, 1997 and for the year
then ended, which statements reflect 35% of the combined total assets and 44% of
the combined revenues of the Combined Joint Ventures of PaineWebber Income
Properties Five Limited Partnership as of September 30, 1997 and for the year
then ended. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for Randallstown Carriage Hill Associates as of September 30, 1997 and for the
year then ended, is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1997
and 1996, and the combined results of their operations and their cash flows for
each of the three years in the period ended September 30, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, based on
our audits and the report of other auditors, 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
November 20, 1997
<PAGE>
Reznick Fedder & Silverman
Certified Public Accountants
217 East Redwood Street, Suite 1900
Baltimore, MD 21202
INDEPENDENT AUDITORS' REPORT
The Partners
Randallstown Carriage Hill Associates:
We have audited the accompanying balance sheet of Randallstown Carriage
Hill Associates as of September 30, 1997 and the related statements of
operations, changes in partners' equity and cash flows for the year then ended.
These financial statements are the responsibility of partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit 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 audit provides 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 Randallstown Carriage Hill
Associates as of September 30, 1997 and the results of its operations, the
changes in partners' equity and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/Reznick Fedder & Silverman
-----------------------------
Reznick Fedder & Silverman
Baltimore, Maryland
November 5, 1997
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1997 and 1996
(In thousands)
Assets
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 833 $ 469
Escrow deposits 1,103 1,085
Accounts receivable 129 83
Prepaid expenses 577 573
-------- --------
Total current assets 2,642 2,210
Operating investment properties:
Land 5,250 5,250
Buildings, improvements and equipment 70,929 70,147
-------- --------
76,179 75,397
Less accumulated depreciation (33,289) (30,544)
-------- --------
Net operating investment properties 42,890 44,853
Reserve for capital expenditures 764 364
Deferred expenses, net of accumulated amortization
of $334 ($234 in 1996) 1,295 1,373
Other assets, net 141 148
-------- --------
$ 47,732 $ 48,948
======== ========
Liabilities and Venturers' Deficit
Current liabilities:
Current portion of long-term debt $ 5,898 $ 461
Accounts payable 104 205
Accounts payable - affiliates 51 120
Accrued real estate taxes 526 511
Accrued interest 643 648
Tenant security deposits 395 350
Distributions payable to venturers 61 132
Other current liabilities 101 102
-------- --------
Total current liabilities 7,779 2,529
Notes payable to venturers 847 847
Other liabilities 31 31
Long-term debt 46,893 52,791
Venturers' deficit (7,818) (7,250)
-------- --------
$ 47,732 $ 48,948
======== ========
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, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
Revenues:
Rental income and expense recoveries $12,062 $11,646 $11,173
Interest and other income 443 473 443
------- ------- -------
12,505 12,119 11,616
Expenses:
Interest expense 4,503 4,955 5,216
Depreciation expense 2,745 2,616 2,501
Real estate taxes 1,025 958 994
Repairs and maintenance 816 920 839
Salaries and related expenses 1,333 1,454 1,376
Utilities 770 958 725
General and administrative 449 577 320
Management fees 591 573 532
Insurance 131 137 155
Bad debt expense - 25 27
Amortization expense 60 31 24
Loss on write-off of deferred
financing costs - - 1,177
------- ------- -------
12,363 13,204 13,886
------- ------- -------
Net income (loss) 142 (1,085) (2,270)
Contributions from venturers - - 916
Distributions to venturers (710) (444) (695)
Venturers' deficit, beginning of year (7,250) (5,721) (3,672)
------- ------- -------
Venturers' deficit, end of year $(7,818) $(7,250) $(5,721)
======= ======= =======
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, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 142 $ (1,085) $ (2,270)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,805 2,647 2,525
Amortization of deferred financing costs 47 70 99
Loss on write-off of deferred financing
costs - - 1,177
Changes in assets and liabilities:
Escrow deposits (18) (55) 183
Accounts receivable (46) 47 (63)
Prepaid expenses (4) 91 (83)
Deferred expenses (22) (86) (126)
Accounts payable (101) 88 (134)
Accounts payable - affiliates (69) 90 (14)
Accrued real estate taxes 15 (37) (1)
Accrued interest (5) 63 60
Tenant security deposits 45 (14) (34)
Other current liabilities (1) (19) (4)
Deferred interest - (1,657) 11
Other liabilities - 17 1
------- -------- -------
Total adjustments 2,646 1,245 3,597
------- -------- -------
Net cash provided by operating
activities 2,788 160 1,327
------- -------- -------
Cash flows from investment activities:
Additions to operating investment
properties (782) (1,903) (1,323)
Decrease (increase) in reserve for capital
expenditures (400) 325 (467)
------- -------- -------
Net cash used in investing
activities (1,182) (1,578) (1,790)
------- -------- -------
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
Distributions to venturers (781) (312) (930)
Repayment of long-term debt (461) (14,984) (30,002)
Proceeds from loans from venturers - - 119
Repayment of notes to partners - (119) -
------- -------- -------
Net cash (used in) provided by
financing activities (1,242) 1,342 342
------- -------- -------
Net increase (decrease) in cash and
cash equivalents 364 (76) (121)
Cash and cash equivalents, beginning of year 469 545 666
------- -------- -------
Cash and cash equivalents, end of year $ 833 $ 469 $ 545
======= ========= ========
Cash paid during the year for interest $ 4,461 $ 6,479 $ 4,909
======= ========= ========
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; and Seven Trails West
Associates a Missouri general partnership. 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
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, 1997 and 1996 and revenues and expenses for
each of the three years in the period ended September 30, 1997. 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 cost, reduced by
accumulated depreciation, or an amount less than cost if indicators of
impairment are present in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which was adopted in fiscal 1997. SFAS
No. 121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Partnership generally assesses indicators of impairment by
a review of independent appraisal reports on each operating investment property.
Such appraisals make use of a combination of certain generally accepted
valuation techniques, including direct capitalization, discounted cash flows and
comparable sales analysis.
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 and escrow deposits
approximate their fair values as of September 30, 1997 and 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.
Escrow deposits
---------------
Escrow deposits at September 30, 1997 and 1996 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.
<PAGE>
d. Greenbrier Associates
---------------------
The joint venture owns and operates Greenbrier Apartments, a
324-unit apartment complex located in Indianapolis, Indiana. The debt
secured by the Greenbrier Apartments is scheduled to mature in fiscal 1998
(see Note 5).
e. Seven Trails West Associates
----------------------------
The joint venture owns and operates Seven Trails West Apartments, a
532-unit apartment complex located in Ballwin, Missouri.
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 $591,000, $573,000 and $532,000 were earned by affiliates of the
co-venturers for fiscal 1997, 1996 and 1995, respectively.
Accounts payable - affiliates at September 30, 1997 and 1996 are
principally management fees and reimbursements payable to property managers.
Notes payable to venturers at September 30, 1997 and 1996 represent operating
notes provided by PWIP5 and its co-venturer to Seven Trails West Associates in
the amount of $847,000. 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.
5. Long-term Debt
--------------
Long-term debt at September 30, 1997 and 1996 consists of the following
(in thousands):
1997 1996
---- ----
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, 1997 and 1996. $ 27,494 $ 27,675
<PAGE>
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, 1997 and 1996. 3,204 3,250
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). The fair value of this note
payable approximated its carrying
value as of September 30, 1997 and
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 its
carrying value as of September 30,
1997 and 1996. 16,693 16,927
-------- --------
52,791 53,252
Less current portion (5,898) (461)
-------- --------
$ 46,893 $ 52,791
======== ========
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):
1998 $ 5,898
1999 539
2000 582
2001 629
2002 3,584
Thereafter 41,559
-------
$52,791
=======
In 1993, the Greenbrier joint venture exercised an option to extend the
maturity date of its first mortgage loan to June 29, 1998, at which time the
entire principal and any unpaid accrued interest are due. Management may attempt
to refinance the debt with similar terms, or the venture may elect to sell the
property prior to the June 1998 maturity date. There are no assurances, however,
that a refinancing or sale will be completed. Management cannot predict the
outcome of these uncertainties. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
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.
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.
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, 1997 are as follows (in thousands):
1998 $ 798
1999 676
2000 489
2001 437
2002 555
Thereafter 3,394
--------
$ 6,349
========
Revenues from three major tenants of the Bell Plaza Shopping Center
comprised approximately 31%, 12% and 10% of the total rental revenues of
Amarillo Bell Associates for the year ended September 30, 1997. 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, 1997
(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 $27,494 $1,000 $23,633 $4,875 $1,000 $28,508 $29,508 $ 14,982 1970-73 8/30/83 5-30 yrs.
Randallstown,
MD
Land - 563 - 38 601 - 601 - - 6/1/95 -
Randallstown,
MD
Shopping
Center 3,204 1,519 6,310 1,143 1,519 7,453 8,972 3,053 1979-82 9/30/83 5-40 yrs.
Amarillo,
TX
Apartment
Complex 5,400 420 8,990 761 420 9,751 10,171 4,246 1964-68 6/29/84 5-30 yrs.
Indianapolis,
IN
Apartment
Complex
Ballwin, MO 16,693 1,710 22,131 3,086 1,710 25,217 26,927 11,008 1968-74 9/13/84 5-30 yrs.
------- ------- ------- ------ ------ ------- ------- -------
Total $52,791 $ 5,212 $61,064 $9,903 $5,250 $70,929 $76,179 $33,289
======= ======= ======= ====== ====== ======= ======= =======
Notes
(A) The aggregate cost of real estate owned at September 30, 1997 for Federal income tax purposes is approximately $73,793,000.
(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:
1997 1996 1995
---- ---- ----
Balance at beginning of period $ 75,397 $ 73,494 $ 72,171
Acquisitions and improvements 782 1,903 1,323
-------- -------- --------
Balance at end of period $ 76,179 $ 75,397 $ 73,494
======== ======== ========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 30,544 $ 27,928 $ 25,427
Depreciation expense 2,745 2,616 2,501
-------- -------- --------
Balance at end of period $ 33,289 $ 30,544 $ 27,928
======== ======== ========
</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, 1997
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-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,165
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,165
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,165
<CURRENT-LIABILITIES> 47
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,187)
<TOTAL-LIABILITY-AND-EQUITY> 2,165
<SALES> 0
<TOTAL-REVENUES> 311
<CGS> 0
<TOTAL-COSTS> 236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 75
<INCOME-TAX> 0
<INCOME-CONTINUING> 75
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
</TABLE>
