UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to ________.
Commission File Number: 0-12087
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2780287
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X|. No |_|.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1998 and September 30, 1997 (Unaudited)
(In thousands)
ASSETS
June 30 September 30
------- ------------
Cash and cash equivalents $ 2,834 $ 2,165
Investment in joint ventures, at equity 304 -
-------- --------
$ 3,138 $ 2,165
======== ========
LIABILITIES AND PARTNERS' DEFICIT
Losses in excess of investments and
advances in joint ventures $ - $ 3,305
Accounts payable and accrued expenses 61 47
Note and interest payable to affiliate 4,010 -
Partners' deficit (933) (1,187)
-------- ---------
$ 3,138 $ 2,165
======== ========
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the nine months ended June 30, 1998 and 1997 (Unaudited)
(In thousands)
General Limited
Partner Partners
------- --------
Balance at September 30, 1996 $ (206) $ (1,056)
Net income 1 112
------- ---------
Balance at June 30, 1997 $ (205) $ (944)
======= =========
Balance at September 30, 1997 $ (205) $ (982)
Net income 3 251
------- ---------
Balance at June 30, 1998 $ (202) $ (731)
======= =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF INCOME
For the three and nine months ended June 30, 1998 and 1997
(Unaudited) (In thousands, except per Unit data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Interest and other income $ 40 $ 24 $ 159 $ 71
Expenses:
Interest expense 10 - 10 -
General and administrative 125 94 242 185
------- ------ ------- -------
135 94 252 185
------- ------ ------- -------
Operating loss (95) (70) (93) (114)
Partnership's share of
unconsolidated ventures'
income 109 116 347 227
------- ------ ------- -------
Net income $ 14 $ 46 $ 254 $ 113
======= ====== ======= =======
Net income per Limited
Partnership Unit $ 0.40 $ 1.31 $ 7.20 $ 3.21
======= ====== ======= =======
The above net income per Limited Partnership Unit is based upon the 34,928
Units of Limited Partnership Interest outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 254 $ 113
Adjustments to reconcile net income to
net cash used in operating activities:
Interest on note payable to affiliate 10 -
Partnership's share of ventures' income (347) (227)
Changes in assets and liabilities:
Accounts payable and accrued expenses 14 11
-------- ---------
Total adjustments (323) (216)
-------- ---------
Net cash used in operating activities (69) (103)
-------- ---------
Cash flows from investing activities:
Distributions from joint ventures 794 65
Additional investments in joint ventures (4,056) (14)
-------- ---------
Net cash (used in) provided by
investing activities (3,262) 51
-------- ---------
Cash flows from financing activities:
Proceeds from note payable to affiliate 4,000 -
-------- ---------
Net increase (decrease) in cash and cash
equivalents 669 (52)
Cash and cash equivalents, beginning of period 2,165 1,739
-------- ---------
Cash and cash equivalents, end of period $ 2,834 $ 1,687
======== =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
1. General
-------
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in the
Partnership's Annual Report for the year ended September 30, 1997. In the
opinion of management, the accompanying financial statements, which have not
been audited, reflect all adjustments necessary to present fairly the results
for the interim period. All of the accounting adjustments reflected in the
accompanying interim financial statements are of a normal recurring nature.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of June 30, 1998 and September 30, 1997 and revenues and
expenses for the three- and nine-month periods ended June 30, 1998 and 1997.
Actual results could differ from the estimates and assumptions used.
2. Related Party Transactions
--------------------------
Included in general and administrative expenses for the nine-months ended
June 30, 1998 and 1997 is $76,000 and $64,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for both of the nine
months ended June 30, 1998 and 1997 is $5,000, representing fees earned by an
affiliate, Mitchell Hutchins Institutional Investors, Inc., for managing the
Partnership's cash assets.
As discussed further in Note 4, during the quarter ended June 30, 1998 the
Partnership obtained a $4 million loan from an affiliate of the Managing General
Partner to finance a restructuring of the joint venture that owns the Carriage
Hill Apartments. Interest expense on the related party loan totalled $10,000 for
the quarter ended June 30, 1998.
3. Investments in Joint Ventures
-----------------------------
The Partnership has investments in four joint ventures which own operating
properties as more fully described in the Partnership's Annual Report. The joint
venture investments are accounted for using the equity method because the
Partnership does not have a voting control interest in the ventures. Under the
equity method the assets, liabilities, revenues and expenses of the joint
ventures do not appear in the Partnership's financial statements. Instead, the
investments are carried at cost adjusted for the Partnership's share of the
ventures' earnings and losses and distributions.
On June 23, 1998, the Partnership and its original co-venture partner,
JBG/Carriage Hill Village Limited Partnership, purchased the 50% interest of its
other co-venture partner, Signature Carriage Hill Village Apartments Limited
Partnership, in the Randallstown Carriage Hill Associates Joint Venture. The
Partnership had held a 40% interest and the original co-venture partner had held
a 10% interest in the Joint Venture prior to this transaction. The Partnership
contributed $4,048,000 and the original co-venturer contributed $1,012,000 to
complete the purchase of the other partner's interest. After the purchase, the
Partnership holds an 80% interest and the original co-venture partner holds a
20% interest.
<PAGE>
Summarized operating results of the joint ventures for the three and nine
months ended June 30, 1998 and 1997 are as follows:
CONDENSED COMBINED SUMMARY OF OPERATIONS
For the three and nine months ended June 30, 1998 and 1997
(in thousands)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues and
expense recoveries $ 2,998 $2,948 $8,876 $8,900
Interest and other income 174 143 513 448
------- ------ ------ ------
3,172 3,091 9,389 9,348
Property operating expenses 1,301 1,176 3,617 3,757
Interest expense 1,016 1,121 3,257 3,362
Depreciation and
amortization 687 670 2,063 2,029
------- ------ ------ ------
3,004 2,967 8,937 9,148
------- ------ ------ ------
Net income $ 168 $ 124 $ 452 $ 200
======= ====== ====== ======
Net income:
Partnership's share
of combined income
(losses) $ 109 $ 116 $ 347 $ 227
Co-venturers' share of
combined income
(losses) 59 8 105 (27)
------- ------ ------ ------
$ 168 $ 124 $ 452 $ 200
======= ====== ====== ======
4. Note Payable to Affiliate
-------------------------
On June 17, 1998, the Partnership obtained a $4,000,000 loan from
PaineWebber Capital, Inc., an affiliate of the Managing General Partner. The
proceeds of the note were used to finance the restructuring of the Carriage Hill
joint venture (see Note 3). The note is payable on demand and bears interest at
a rate of 6.56% per annum. As of June 30, 1998, the total balance of the
principal and interest owed to the affiliate amounted to $4,010,000. The
Partnership expects to repay the loan from the proceeds of the sale of the
Greenbrier Apartments which is currently being marketed for sale.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended September 30, 1997 under the heading "Certain Factors Affecting
Future Operating Results", which could cause actual results to differ materially
from historical results or those anticipated. The words "believe," "expect,"
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
The Partnership's four remaining investment properties consist of three
multi-family apartment complexes and one retail shopping center. While the
current estimated market values of certain of the remaining properties are below
the amounts paid for the properties at the time of the Partnership's original
investments in 1983 and 1984, all of the properties currently have estimated
values above their respective outstanding mortgage debt obligations. As
previously reported, the Partnership's management is focusing on potential
disposition strategies for the remaining investment properties. As a result, the
Partnership could be positioned for a possible liquidation within the next 2
years. There are no assurances, however, that the Partnership will be able to
achieve the sale of its remaining assets within this time frame.
On June 23, 1998, the Partnership and its original co-venture partner,
JBG/Carriage Hill Village Limited Partnership, purchased the 50% interest of its
other co-venture partner, Signature Carriage Hill Village Apartments Limited
Partnership ("Signature"), in the Randallstown Carriage Hill Associates Joint
Venture (the "Joint Venture"). The Partnership had held a 40% interest and the
original co-venture partner had held a 10% interest in the Joint Venture prior
to this transaction. The Partnership contributed $4,048,000 and the original
co-venturer contributed $1,012,000 to complete the purchase of the other
partner's interest. After the purchase, the Partnership holds an 80% interest
and the original co-venture partner holds a 20% interest.
On March 19, 1998, the Partnership was notified by Signature that it would
be exercising the "buy/sell" provision in the Joint Venture agreement. Under the
terms of this provision, this co-venturer, which was admitted to the Joint
Venture as part of a 1988 restructuring transaction, had to propose a price at
which it would either purchase the other partners' interests in the Venture or
agree to the sale of its interest in the Venture to the other partners. The
Partnership and its original co-venture partner in the Carriage Hill Joint
Venture had 45 days to decide whether to sell their interests to the exercising
partner or acquire the interest of the exercising partner at the specified gross
sale price for the Venture's assets of approximately $33.3 million. At an
equivalent gross sale price of $33.3 million, the net proceeds to the
Partnership for the sale of its interest would have been approximately $700,000
after repayment of the outstanding first mortgage debt of $27.4 million, the
exercising partner's preferred investment return of approximately $5 million and
the original co-venturer's share of the proceeds of $200,000. After a thorough
review and analysis, the Partnership and the original co-venturer notified the
exercising partner on May 1, 1998 of their decision to buy its interest for
approximately $5 million in cash and put up a $300,000 deposit in connection
with the pending transaction in accordance with the terms of the Joint Venture
agreement. The Partnership obtained its 80% share of the needed $5 million by
executing a $4 million demand note to PaineWebber Capital, Inc., an affiliate of
the Managing General Partner of the Partnership. The note bears interest at a
rate of 6.56% per annum. The loan proceeds will be repaid upon the earlier to
occur of the sale of the Greenbrier Apartments which, as discussed further
below, is currently under contract for sale at a price which will generate
sufficient proceeds to repay the loan, or the sale of the Carriage Hill
Apartments. Now that the Partnership and the original co-venturer have completed
the acquisition of the other partner's interest, the parties have begun to
explore the potential for a possible near-term sale of the Carriage Hill
property to a third-party. Management believes that such a sale will result in a
gross sale price of greater than $33.3 million.
The average occupancy level at the Greenbrier Apartments, located in
Indianapolis, Indiana, was 89% for the quarter ended June 30, 1998, down
slightly from 91% for the prior quarter. As discussed further in the Annual
Report, because the first mortgage loan secured by the Greenbrier Apartments was
scheduled to mature on June 29, 1998, the Partnership and its joint venture
partner had begun to review both refinancing and sale opportunities during the
latter part of fiscal 1997. During the first quarter of fiscal 1998, the
Partnership and the co-venturer agreed to initiate a marketing program for the
possible sale of the property. During the second quarter, the Partnership and
the co-venturer engaged a national real estate brokerage firm to market
Greenbrier for sale. As part of the formal marketing campaign, which began in
early March, the property was marketed extensively. Sales packages were
distributed to national, regional, and local prospective purchasers. As a result
of these sales efforts, several offers were received. Management then asked the
prospective purchasers to submit best and final offers. Management subsequently
received best and final offers from five of the prospective buyers. After
completing an evaluation of the final offers and the relative strength of the
prospective purchasers, the Partnership and its co-venture partner selected an
offer and negotiated a purchase and sale agreement. This prospective buyer has
made a non-refundable deposit of $350,000, and, while there can be no assurances
that this transaction will be completed, management expects to close the sale of
Greenbrier by August 31, 1998. Management has also reached agreement with the
existing lender for a short-term extension of the maturity date of the first
mortgage loan secured by the Greenbrier property to coincide with the actual
sale closing date.
The average occupancy level for the Seven Trails West Apartments, located
in St. Louis, Missouri, decreased to 92% for the quarter ended June 30, 1998,
from 94% in the prior quarter. The property's occupancy level remains comparable
to other competitive properties in the local market. In order to maintain
occupancy levels, the property's management team has been forced to match the
leasing concessions of its competition by offering $100 off the first month's
rent. Nonetheless, the property's leasing team did implement a 1.5% rental rate
increase in January 1998 on new leases being signed at the property. A further
increase of 1% was implemented in June 1998. As previously reported, there are
three new apartment communities with a total of 888 units currently being
developed approximately five miles from the Seven Trails West Apartments. While
these properties are not expected to compete directly with Seven Trails West,
the property's management and leasing team is closely monitoring their leasing
progress. One property, which will have 112 units, began pre-leasing in June
1998, and another with 276 units was 70% leased and 50% occupied as of June 30,
1998. Construction of the additional 500 units is underway; it is expected that
300 units will be completed in the spring of 1999 and the other 200 units will
be completed in the fall of 1999. Because of the improvements in the apartment
segment of the real estate market, the Partnership believes that it is the
appropriate time to take advantage of any potential sale opportunities for the
Seven Trails West Apartments. The Partnership has initiated discussions with
real estate firms in order to define potential marketing strategies for selling
this property.
Bell Plaza Shopping Center in Amarillo, Texas, remained 97% leased as of
June 30, 1998, unchanged from last quarter. However, two tenants that closed
their operations in the Center in January 1997, with leases totalling 3,237
square feet, are no longer meeting their contractual rental obligations. The
property's management team is actively pursuing the available legal remedies for
the collection of all unpaid rent, but management believes that the recovery of
any of the delinquent amounts is unlikely due to the poor financial condition of
both tenants. The property's leasing team is actively negotiating a potential
lease for a portion of the remaining 5,000 square feet of vacant space at Bell
Plaza. Over the next year, four leases representing a total of 24,020 square
feet will expire. The largest of the four, a cinema tenant, has a June 1999
lease expiration and represents 15,050 square feet of this total. The prospects
for the renewal of this significant lease are uncertain at the present time.
Modifying the cinema space to accommodate another type of user could result in a
significant amount of capital improvement costs. In light of the property's
current leasing status and the uncertainty regarding the cinema's lease
expiration, the Partnership has decided to renew efforts to sell the Bell Plaza
property in the near term. As part of a plan to market the property for sale,
discussions are being held with real estate firms with a specialty in selling
retail centers like Bell Plaza.
At June 30, 1998, the Partnership had cash and cash equivalents of
$2,834,000. Such cash and cash equivalents will be utilized for the working
capital requirements of the Partnership and for future capital contributions, as
necessary, related to the Partnership's joint ventures. The source of future
liquidity and distributions to the partners is expected to be from cash
generated by the Partnership's income-producing properties and from the proceeds
received from the sale or refinancing of such properties or from the sale of the
Partnership's interests in the joint ventures. These sources of liquidity are
expected to be sufficient to meet the Partnership's needs on both a short-term
and long-term basis.
Results of Operations
Three Months Ended March 31, 1998
- ---------------------------------
The Partnership reported net income of $14,000 for the three-month period
ended June 30, 1998, as compared to net income of $46,000 for the same period in
the prior year. This decrease of $32,000 in net income is due to an increase in
the Partnership's operating loss of $25,000 and a decrease of $7,000 in the
Partnership's share of ventures' income. The Partnership's operating loss
increased primarily due to an increase in general and administrative expenses.
General and administrative expenses increased mainly due to an increase in
certain required legal fees incurred in connection with the restructuring of the
Carriage Hill joint venture, as discussed further above. In addition, interest
expense increased due to the $4,000,000 demand note obtained by the Partnership
for the purchase of the co-venturer's interest in the Carriage Hill joint
venture. The increases in general and administrative and interest expenses were
partially offset by an increase in interest and other income of $16,000.
Interest income was higher in the current three-month period due to an increase
in the Partnership's average outstanding cash reserve balances.
The Partnership's share of ventures' income decreased slightly mainly due
to an increase in combined property operating expenses for the current
three-month period. Property operating expenses increased mainly due to higher
utilities costs and management fee expense at the Carriage Hill joint venture.
In addition, utilities and general and administrative expenses increased at the
Seven Trails joint venture for the current three-month period. The increase in
combined property operating expenses was partially offset by an increase in
rental income and expense recoveries. Rental revenues increased primarily due to
higher rental rates achieved at the Carriage Hill property.
Nine Months Ended March 31, 1998
- --------------------------------
The Partnership reported net income of $254,000 for the nine-month period
ended June 30, 1998, as compared to net income of $113,000 for the same period
in the prior year. This increase in net income of $141,000 is primarily due to
an increase of $120,000 in the Partnership's share of ventures' income. The
Partnership's share of ventures' income increased mainly due to decreases in
combined property operating expenses and interest expense. Property operating
expenses decreased mainly due to a reduction in utilities and advertising
expenses at the Carriage Hill joint venture. In addition, management fees
declined at the Greenbrier and Seven Trails joint ventures due to a
restructuring of the related management agreements which resulted in a reduction
in the percentage rate of gross rents used to calculate the monthly fees.
Utilities expense also decreased at the Greenbrier joint venture. Interest
expense decreased due to the regular principal amortization of the mortgage
loans encumbering three of four joint venture properties.
A decrease of $21,000 in the Partnership's operating loss also contributed
to the increase in net income for the current nine-month period. The
Partnership's operating loss improved primarily due to an increase in interest
income of $78,000. Interest income was higher in the current nine-month period
due to an increase in the Partnership's average outstanding cash reserve
balances and due to interest payments received in the current period on a loan
from the Partnership to the Seven Trails joint venture. The increase in interest
income was partially offset by an increase in general and administrative
expenses of $57,000. The increase in general and administrative expenses was
caused mainly by an increase in certain legal and other professional fees
incurred in connection with the restructuring of the Carriage Hill joint
venture, as discussed further above. Interest expense also increased due to the
$4,000,000 demand note obtained by the Partnership for the purchase of the
co-venturer's interest in the Carriage Hill joint venture.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
The Partnership filed a report on Form 8-K dated June 23, 1998 reporting
the purchase by the Partnership and its original co-venturer of a second
co-venturer's interest in the Randallstown Carriage Hill Associates Joint
Venture. Such report is hereby incorporated herein by reference.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER INCOME PROPERTIES FIVE
LIMITED PARTNERSHIP
By: FIFTH INCOME PROPERTIES FUND, INC.
----------------------------------
Managing General Partner
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Date: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,834
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,834
<PP&E> 304
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,138
<CURRENT-LIABILITIES> 4,071
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (933)
<TOTAL-LIABILITY-AND-EQUITY> 3,138
<SALES> 0
<TOTAL-REVENUES> 506
<CGS> 0
<TOTAL-COSTS> 242
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 254
<INCOME-TAX> 0
<INCOME-CONTINUING> 254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254
<EPS-PRIMARY> 7.20
<EPS-DILUTED> 7.20
</TABLE>
