UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 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
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(Exact name of registrant as specified in its charter)
Delaware 04-2780287
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
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(Address of principal executive offices) (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 on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
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Prospectus of registrant dated Part IV
May 26, 1983, as supplemented
Current Reports on Form 8-K of registrant Part IV
dated September 10, 1998 and September 21, 1998
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
1998 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-3
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
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
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-30
<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-6 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, 1998 three of the
Partnership's original investments have been sold. As of September 30, 1998, the
Partnership owned interests in operating investment properties through joint
venture partnerships as set forth in the following table:
Name of Joint Venture Date of
Name and Type of Property Acquisition
Location Size of Interest Type of Ownership (1)
- ---------------------------- -------- ----------- ----------------------
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.
Seven Trails West Associates 532 9/13/84 Fee ownership of land and
Seven Trails West Apartments units improvements (through
Ballwin, Missouri joint venture)
(1) See Notes to the Financial Statements filed with this Annual Report for a
description of the long-term mortgage indebtedness secured by the
Partnership's operating property investments and for a description of the
agreements through which the Partnership has acquired these real estate
investments.
The Partnership previously owned an interest in Cambridge Associates, a
joint venture which owned the Cambridge Apartments, a 378-unit apartment complex
located in Omaha, Nebraska. On June 30, 1994, Cambridge Associates sold its
operating investment property to an affiliate of the Partnership's co-venture
partner for a gross purchase price of $9.7 million. After repayment of the
outstanding mortgage debt and payment of transaction closing costs, net proceeds
of approximately $4.7 million were available for distribution to the venture
partners. In accordance with the joint venture agreement, the Partnership was
entitled to and received approximately $3.7 million of such proceeds. A portion
of the Cambridge sales proceeds was added to the Partnership's cash reserves in
anticipation of future capital requirements at certain of the remaining joint
ventures. The remainder of the proceeds, totalling approximately $2.2 million,
was distributed to the Limited Partners in September 1994. On September 10,
1998, Greenbrier Associates, a joint venture which owned the Greenbrier
Apartments, a 324-unit apartment complex located in Indianapolis, Indiana, sold
its operating investment property to an unrelated third party for a gross sales
price of $11.85 million. The Partnership received net proceeds of approximately
$5,498,000 from the Greenbrier sale after deducting closing costs of
approximately $119,000, closing proration adjustment of approximately $424,000,
the repayment of the existing first mortgage loan of $5,400,000 and related
accrued interest of approximately $26,000, and a payment of approximately
$383,000 to the Partnership's co-venture partner for its share of the sales
proceeds in accordance with the joint venture agreement. On September 21, 1998,
Randallstown Carriage Hill Associates, and Signature Partners, L.L.C., a joint
venture and limited liability company which owned the Carriage Hill Village
Apartments and adjoining land, sold its operating investment property and land
to an unrelated third party for an aggregate sales price of $37.35 million. The
Partnership received net proceeds of approximately $8,481,000 after the receipt
of a credit of $1,168,000 for property adjustments and escrows held by the
Department of Housing and Urban Development (HUD) for tenant security deposits,
real estate taxes, property insurance and replacement reserves, and after
deducting closing costs of approximately $757,000, the assumption of the
existing first mortgage loan of $27,298,000 and a payment of approximately
$1,982,000 to the Partnership's co-venture partner for its share of the sales
proceeds in accordance with the joint venture agreement. Of the total proceeds
received by the Partnership of $8,481,000, as discussed further in Item 7, $4
million represented a reimbursement of funds originally advanced to buy out the
selling co-venture partner's interest in the Carriage Hill joint venture on June
23, 1998. The Partnership had borrowed the $4 million required to complete the
buyout of the selling partner's interest from an affiliate of the Managing
General Partner. The $4 million related party loan was repaid on September 11,
1998 from the Partnership's share of the net proceeds from the sale of the
Greenbrier Apartments.
The Partnership's original investment objectives were 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, 1998, 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 made through September
30, 1998 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. Subsequent to year-end on October 1, 1998, the Partnership
distributed approximately $3,493,000, or $100 per original $1,000 investment,
from the net sale proceeds of the Greenbrier Apartments. The Partnership expects
to distribute approximately $8,383,000, or $240 per original $1,000 investment,
from the net proceeds from the sale of the Carriage Hill property sometime in
early calendar year 1999 after it receives final approval from HUD for the
assumption of the HUD-insured first mortgage loan by the buyer of the Carriage
Hill property. The Partnership suspended the payment of regular quarterly
distributions of excess net cash flow in fiscal 1988. As of September 30, 1998,
the Partnership retains its ownership interest in two 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 be determined with certainty at
the present time. The Partnership is currently focusing on potential disposition
strategies for the two remaining investments in its portfolio. Although no
assurances can be given, it is currently contemplated that sales of the
Partnership's Seven Trails and Bell Plaza investments could be completed by the
end of calendar year 1999. The sales of the two remaining properties would be
followed by an orderly liquidation of the Partnership.
Both 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 complex competes 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. However, the impact of
the competition from the single-family home market has generally been offset by
the lack of significant new construction activity in the multi-family apartment
market over most of this period. Over the past two years, development activity
for multi-family properties in many markets has escalated significantly. The
shopping center competes for long-term commercial tenants with numerous projects
of similar type generally on the basis of location, rental rates, tenant mix and
tenant improvement allowances.
The Partnership has no operating property investments located outside the
United States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly owned subsidiary of PaineWebber Group, Inc.
("PaineWebber").
The general partners of the Partnership (the "General Partners") are Fifth
Income Properties Fund, Inc. and Properties Associates. Fifth Income Properties
Fund, Inc., a wholly-owned subsidiary of PaineWebber, is the Managing General
Partner of the Partnership. The Associate General Partner of the Partnership is
Properties Associates, a Massachusetts general partnership, certain general
partners of which are officers of the Adviser and the Managing General Partner.
Subject to the General Partner's overall authority, the business of the
Partnership is managed by the Adviser. The terms of transactions between the
Partnership and affiliates of the Managing General Partner of the Partnership
are set forth in Items 11 and 13 below to which reference is hereby made for a
description of such terms and transactions.
Item 2. Properties
As of September 30, 1998, the Partnership owned interests in two 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 1998, along with an
average for the year, are presented below for each property owned during fiscal
1998:
Percent Occupied At
--------------------------------------------------
Fiscal
1998
12/31/97 3/31/98 6/30/98 9/30/98 Average
-------- ------- ------- ------- -------
Seven Trails West Apartments 92% 94% 92% 91% 92%
Bell Plaza Shopping Center 98% 97% 97% 97% 97%
Greenbrier Apartments (1) 91% 91% 89% N/A N/A
Carriage Hill Village
Apartments (2) 95% 95% 95% N/A N/A
(1)The Greenbrier Apartments property was sold on September 10, 1998 (see Item
7).
(2)The Carriage Hill Village Apartments property was sold on September 21, 1998
(see Item 7).
Item 3. Legal Proceedings
The Partnership is not subject to any 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, 1998 there were 2,134 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 1998.
Item 6. Selected Financial Data
Paine Webber Income Properties Five Limited Partnership
For the years ended September 30, 1998, 1997, 1996, 1995 and 1994
(In thousands except per Unit data
<TABLE>
<CAPTION>
Years Ended September 30,
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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 231 $ 98 $ 90 $ 106 $ 87
Operating loss $ (91) $ (138) $ (132) $ (207) $ (262)
Partnership's share of
ventures' income (losses) $ 529 $ 213 $ (691) $(1,182) $ (995)
Partnership's share of gains on
sale of operating investment
properties $15,518 - - - $ 3,174
Net income (loss) $15,956 $ 75 $ (823) $(1,389) $ 1,917
Net income (loss) per Limited
Partnership Unit $452.25 $ 2.13 $(23.33) $(39.37) $ 54.36
Cash distributions from sale,
refinancing or other disposition
transactions per Limited
Partnership Unit - - - - $ 63.00
Total assets $15,719 $ 2,165 $ 1,739 $ 1,658 $ 1,836
</TABLE>
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.
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, which consisted of four residential apartment
properties and one retail shopping center. Through September 30, 1998, three of
the residential apartment properties had been sold, including two during fiscal
1998, as discussed further below. 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.
On September 10, 1998, Greenbrier Associates, a joint venture in which the
Partnership has an interest, sold the property known as Greenbrier Apartments
located in Indianapolis, Indiana, to an unrelated third party for $11,850,000.
The Partnership received net proceeds of approximately $5,498,000 after
deducting closing costs of approximately $119,000, closing proration adjustments
of approximately $424,000, the repayment of the existing first mortgage loan of
$5,400,000 and related accrued interest of approximately $26,000 and a payment
of approximately $383,000 to the Partnership's co-venture partner for its share
of the sales proceeds in accordance with the joint venture agreement. 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. As a result of the sale of Greenbrier Apartments, the Partnership
made a special distribution of $100 per original $1,000 investment, or
approximately $3,493,000, on October 1, 1998 to unitholders of record as of the
September 10, 1998 sale date. The remaining net proceeds from the sale of
Greenbrier of approximately $2,005,000, along with an amount of the
Partnership's cash reserves, were used to help pay off a $4,000,000 demand loan
that the Partnership had obtained from PaineWebber Capital, Inc., an affiliate
of the Managing General Partner, as discussed below.
On September 21, 1998, Randallstown Carriage Hill Associates and Signature
Partners LLC, a joint venture and a limited liability company in which the
Partnership had interests, sold the property known as Carriage Hill Village
Apartments and adjoining land located in Randallstown, Maryland, to unrelated
third parties for an aggregate sale price of $37,350,000. The Partnership
received net proceeds of approximately $8,481,000 after the receipt of a credit
of $1,168,000 for property adjustments and escrows held by the Department of
Housing and Urban Development (HUD) for tenant security deposits, real estate
taxes, property insurance and replacement reserves, and after deducting closing
costs of approximately $757,000, the assumption of the existing first mortgage
loan of $27,298,000 and a payment of approximately $1,982,000 to the
Partnership's co-venture partner for its share of the sales proceeds in
accordance with the joint venture agreement. Of the total proceeds received by
the Partnership of $8,481,000, as discussed further below, $4 million
represented a reimbursement of funds originally advanced to buy out the selling
co-venture partner's interest in the Carriage Hill joint venture on June 23,
1998. The Partnership had borrowed the $4 million required to complete the
buyout of the selling partner's interest from an affiliate of the Managing
General Partner. The $4 million related party loan was repaid on September 11,
1998 from a combination of cash reserves and the Partnership's share of the net
proceeds from the sale of the Greenbrier Apartments.
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 held an 80% interest and the original co-venture partner held 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 the assumption 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.
Because the Partnership believed that improvements in the apartment
segment of the real estate market would allow the Partnership to achieve a
higher net sale price now than may be possible in the future, the Partnership
and its remaining co-venture partner held discussions concerning the near-term
sale of the Carriage Hill Village Apartments immediately after completing the
purchase of the selling partner's interest in June 1998. Subsequently, the
Partnership and its co-venture partner selected a national real estate firm with
a strong background in selling apartments. Preliminary sale materials were then
finalized and extensive sale efforts began in late June 1998. As a result of
those efforts, ten offers were received. After completing an evaluation of the
offers and the relative strength of the prospective purchasers, the Partnership
and its co-venture partner selected an offer. On July 24, 1998, a purchase and
sale agreement was signed and a non-refundable deposit of $100,000 was made by
the prospective purchasers. The Carriage Hill sale allowed the Partnership to
return approximately $3.7 million more in net sale proceeds and property
escrows, after the repayment of the $4,000,000 buyout advance, than the $700,000
the Partnership would have received had it not acquired the selling co-venture
partner's interest. Because the Partnership expects to receive final
documentation by December 31, 1998 from HUD for the assumption of the
HUD-insured first mortgage loan by the buyer of the Carriage Hill property, a
special capital distribution is expected to be sent by January 15, 1999 from the
sale of the Carriage Hill Village Apartments in the amount of approximately
$8,383,000, or $240 per original $1,000 investment.
As previously reported, the Partnership has been focusing on potential
disposition strategies for the remaining investments in its portfolio. Although
no assurances can be given, it is currently contemplated that sales of the
Partnership's Seven Trails and Bell Plaza investments could be completed by the
end of calendar year 1999. The sale of the two remaining properties would be
followed by an orderly liquidation of the Partnership.
Bell Plaza Shopping Center in Amarillo, Texas, was 97% leased as of
September 30, 1998, compared to 99% as of September 30, 1997. The Partnership
and its co-venture partner held discussions during the third quarter of fiscal
1998 concerning potential sale opportunities for the Bell Plaza property. After
extensive discussions, it was agreed that marketing efforts would begin by the
Partnership's fiscal year-end and would focus on regional buyers of specialty
retail centers like Bell Plaza. These marketing efforts are currently underway.
While Bell Plaza is 97% occupied, it was also agreed that the property's leasing
team would actively pursue prospective retailers for the 5,000 square feet of
currently vacant space as well as for the 24,020 square feet under the four
leases that expire over the next twelve months. The largest of the four, a local
theatre operator, has a June 1999 lease expiration and represents 15,050 square
feet of this total. The property's leasing team is also pursuing lease renewals
with these existing tenants.
The occupancy level for the Seven Trails West Apartments, located in St.
Louis, Missouri, averaged 92% for fiscal 1998, compared to 93% for the prior
year. The Partnership and its Seven Trails co-venture partner held discussions
during the fourth quarter of fiscal 1998 concerning potential opportunities for
a near-term sale of this 532-unit multi-family apartment complex, and agreed to
market the property for sale. Subsequent to the fiscal year-end, the Partnership
and its joint venture partner selected a local brokerage firm with a strong
background in selling apartment properties in the St. Louis area. Preliminary
sales materials were prepared and extensive sale efforts began in mid-October.
At September 30, 1998, the Partnership had cash and cash equivalents of
$13,867,000. Such cash includes the net proceeds from the sales of the
Greenbrier and Carriage Hill properties, as discussed further above, after the
repayment of the outstanding related party loan. Approximately $3.5 million of
this cash balance was distributed to the Limited Partners subsequent to
year-end, on October 1, 1998. Another $8.4 million of this balance is expected
to be distributed to the Limited Partners in early calendar year 1999
immediately after the Partnership receives the formal approval from HUD for the
assumption of the HUD-insured mortgage loan secured by the Carriage Hill
property. The remainder of such cash and cash equivalents will be utilized for
the working capital requirements of the Partnership, distributions to the
Limited Partners and for future capital contributions, if necessary, related to
the Partnership's remaining 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.
As noted above, the Partnership expects to be liquidated by the end of
calendar year 1999. Notwithstanding this, the Partnership believes that it has
made all necessary modifications to its existing systems to make them year 2000
compliant and does not expect that additional costs associated with year 2000
compliance, if any, will be material to the Partnership's results of operations
or financial position.
<PAGE>
Results of Operations
1998 Compared to 1997
- ---------------------
The Partnership reported net income of $15,956,000 for the year ended
September 30, 1998, as compared to net income of $75,000 for the prior year.
This increase in net income was primarily due to the $15,518,000 recognized as
the Partnership's share of the gains on the sales of the Carriage Hill Village
Apartments and the Greenbrier Apartments in September 1998. In addition, the
Partnership's share of ventures' income increased by $316,000 in fiscal 1998.
The increase in the Partnership's share of ventures' income was mainly due to an
increase in interest and other income and decreases in interest expense and
management fees. Other income was higher at Seven Trails and Greenbrier due to
new management policies implemented at both properties during fiscal 1998 which
resulted in additional service fee income. Interest expense decreased due to the
regular principal amortization of the mortgage loans encumbering three of the
four joint venture properties. Management fees decreased at the Greenbrier and
Seven Trails joint ventures due to a restructuring of the related management
agreements which resulted in a reduction in the percentage rate of gross rents
used to calculate the monthly fees.
A decrease of $47,000 in the Partnership's operating loss also contributed
to the increase in net income for fiscal year 1998. The Partnership's operating
loss decreased primarily due to an increase in interest and other income of
$133,000. Interest income was higher due to an increase in the Partnership's
average outstanding cash reserve balances as a result of the sale of the two
properties in September 1998 and due to interest payments received during fiscal
1998 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. The increase in general and administrative expenses was
primarily due to an increase in legal expenses related to the Carriage Hill
restructuring transaction and the Partnership's asset disposition efforts
discussed further above. In addition, the Partnership incurred interest expense
of $63,000 in fiscal 1998 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.
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 was
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 was 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
the average occupancy levels at the Carriage Hill and Bell Plaza properties when
compared to fiscal 1996. The 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 was 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 a utilities conversion
project which transferred the obligation for the utilities payments to the
tenants. 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. 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 expenses of $91,000.
General and administrative expenses decreased mainly due to certain incremental
expenses incurred in fiscal 1995 relating to an independent valuation of the
Partnership's operating properties.
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 over the past two years.
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 continues to suffer 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 fifteenth full year of operations in fiscal
1998 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 project have short-term
leases, generally of 6-to-12 months in duration. Rental rates at this property
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 39 8/22/96
Terrence E. Fancher Director 45 10/10/96
Walter V. Arnold Senior Vice President and Chief
Financial Officer 51 10/29/85
David F. Brooks First Vice President and Assistant
Treasurer 56 11/19/82 *
Timothy J. Medlock Vice President and Treasurer 37 6/1/88
Thomas W. Boland Vice President and Controller 36 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.
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, 1998, 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. One limited partner
referred to below is known by the Partnership to own beneficially more than 5%
of the outstanding interests of the Partnership.
================================================================================
Amount
Name and Address Beneficially Percent
Title of Class of Beneficial Owner Owned of Class
- -------------- ------------------- ----- --------
Units of Limited Kensington Investments, Inc. 2,730 7.81%
Partnership 4 Orinda Way, Suite 220-D Units
Orinda, CA 94563
================================================================================
(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.
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 1998.
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, 1998 is $88,000, 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 $15,000 for managing the Partnership's
cash assets in fiscal 1998, 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) Current Reports on Form 8-K were filed on September 10, 1998 and
September 21, 1998 reporting the sales of the Greenbrier Apartments
and Carriage Hill Village Apartments, respectively, and are hereby
incorporated herein by reference.
(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, 1999
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, 1999
----------------------- ----------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: January 13, 1999
----------------------- ----------------
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, 1998 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, 1998 and 1997 F-4
Statements of operations for the years ended September 30,
1998, 1997 and 1996 F-5
Statements of changes in partners' capital (deficit) for the
years ended September 30, 1998, 1997 and 1996 F-6
Statements of cash flows for the years ended September 30,
1998, 1997 and 1996 F-7
Notes to financial statements F-8
Combined Joint Ventures of Paine Webber Income Properties Five Limited
Partnership:
Reports of independent auditors F-18
Combined balance sheets as of September 30, 1998 and 1997 F-20
Combined statements of operations and changes in
venturers' capital (deficit) for the years ended September
30, 1998, 1997 and 1996 F-21
Combined statements of cash flows for the years ended
September 30, 1998, 1997 and 1996 F-22
Notes to combined financial statements F-23
Schedule III - Real estate and accumulated depreciation F-30
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, 1998 and 1997, 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, 1998.
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. The financial statements of Randallstown
Carriage Hill Associates (a joint venture in which the Partnership has an 80%
and 40% interest as of September 30, 1998 and 1997, respectively) as of
September 30, 1998 and 1997 and for the years then ended have been audited by
other auditors whose report has been furnished to us; insofar as our opinion on
the financial statements relates to data included for Randallstown Carriage Hill
Associates as of September 30, 1998 and 1997 and for the years then ended, it is
based solely on their report. In the financial statements, the Partnership's
investment in Randallstown Carriage Hill Associates is stated at $(6,207,000) at
September 30, 1997, the Partnership's share of the net income (loss) of
Randallstown Carriage Hill Associates is stated at $182,000 and $(123,000) for
the years ended September 30, 1998 and 1997, respectively, and the Partnership's
share of gain on sale of operating investment property is stated at $9,537,000
for the year ended September 30, 1998.
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, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
--------------------
ERNST & YOUNG LLP
Boston, Massachusetts
December 18, 1998
<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 sheets of Randallstown Carriage
Hill Associates as of September 30, 1998 and 1997 and the related statements of
operations, changes in partners' equity and cash flows for the years 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Randallstown Carriage Hill
Associates as of September 30, 1998 and the results of its operations, the
changes in partners' equity and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/Reznick Fedder & Silverman
-----------------------------
Reznick Fedder & Silverman
Baltimore, Maryland
November 10, 1998
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1998 and 1997
(In thousands, except per Unit amounts)
ASSETS
1998 1997
---- ----
Investments in joint venture, at equity $ 1,507 $ -
Cash and cash equivalents 13,867 2,165
Accounts receivable - affiliates 345 -
--------- --------
$ 15,719 $ 2,165
========= ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Losses in excess of investments and
advances in joint ventures $ - $ 3,305
Accounts payable - affiliates 878 -
Accounts payable and accrued expenses 72 47
--------- --------
Total liabilities 950 3,352
Partners' capital (deficit):
General Partners:
Capital contributions 1 1
Cumulative net income (loss) 14 (146)
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 income (loss) 1,307 (14,489)
Cumulative cash distributions (18,047) (18,047)
--------- --------
Total partners' capital (deficit) 14,769 (1,187)
--------- --------
$ 15,719 $ 2,165
========= ========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the years ended September 30, 1998, 1997 and 1996
(In thousands, except per Unit amounts)
1998 1997 1996
---- ---- ----
Revenues:
Interest and other income $ 231 $ 98 $ 90
Expenses:
Interest expense 63 - -
General and administrative 259 236 222
------- ----- -------
322 236 222
------- ----- -------
Operating loss (91) (138) (132)
Partnership's share of ventures'
income (losses) 529 213 (691)
Partnership's share of gains on sale of
operating investment properties 15,518 - -
------- ----- -------
Net income (loss) $15,956 $ 75 $ (823)
======= ===== =======
Net income (loss) per Limited
Partnership Unit $452.25 $2.13 $(23.33)
======= ===== =======
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, 1998, 1997 and 1996
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
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)
Net income 160 15,796 15,956
-------- -------- ---------
Balance at September 30, 1998 $ (45) $ 14,814 $ 14,769
======== ======== =========
See accompanying notes.
<PAGE>
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended September 30, 1998, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 15,956 $ 75 $ (823)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Partnership's share of ventures' income (losses) (529) (213) 691
Partnership's share of gain on sales of operating
investment properties (15,518) - -
Changes in assets and liabilities:
Accounts payable - affiliates 878 - -
Accounts payable and accrued expenses 25 17 (8)
--------- ------- -------
Total adjustments (15,144) (196) 683
--------- ------- -------
Net cash provided by (used in)
operating activities 812 (121) (140)
--------- ------- -------
Cash flows from investing activities:
Distributions from joint ventures 15,080 533 249
Additional investments in and advances to
joint ventures (4,190) (14) (628)
Repayment of advances to joint ventures - 28 600
--------- ------- -------
Net cash provided by investing activities 10,890 547 221
--------- ------- -------
Net increase in cash and cash equivalents 11,702 426 81
Cash and cash equivalents, beginning of year 2,165 1,739 1,658
--------- ------- -------
Cash and cash equivalents, end of year $ 13,867 $ 2,165 $ 1,739
========= ======= =======
Cash paid for interest $ 63 $ - $ -
========= ======= =======
</TABLE>
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, three of the Partnership's original investments in
multi-family apartment complexes have been sold, including two during fiscal
1998. See Note 4 for a further discussion of the Partnership's remaining real
estate investments. The Partnership is currently focusing on potential
disposition strategies for the two remaining investments in its portfolio.
Although no assurances can be given, it is currently contemplated that sales of
the Partnership's Seven Trails and Bell Plaza investments could be completed by
the end of calendar year 1999. The sales of the two remaining properties would
be followed by an orderly liquidation of the Partnership.
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, 1998 and 1997 and revenues and expenses for
each of the three years in the period ended September 30, 1998. 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, 1998 and 1997, 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, 1998 and 1997 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. The principal
difference between the Partnership's accounting on a federal income tax basis
and the accompanying financial statements prepared in accordance with generally
accepted accounting principals (GAAP) relates to the methods used to determine
the depreciation expense on the unconsolidated operating investment properties.
As a result of the difference in depreciation, the gains calculated upon the
sale of the operating investment properties for GAAP purposes differ from those
calculated for federal income tax purposes.
3. The Partnership Agreement and Related Party Transactions
--------------------------------------------------------
The General Partners of the Partnership are Fifth Income Properties Fund,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group, Inc. ("PaineWebber") and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by PaineWebber Properties
Incorporated (the "Adviser") pursuant to an advisory contract. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated ("PWI"). The General
Partners, the Adviser and PWI receive fees and compensation, determined on an
agreed-upon basis, in consideration of various services performed in connection
with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds shall be distributed
generally 85% to the Limited Partners and 15% to the General Partners, after the
prior receipt by the Limited Partners of their adjusted capital contributions
and a cumulative, noncompounded return on their average adjusted capital
contributions ranging from 10% to 6% depending on when a Limited Partner was
admitted to the Partnership. All sale and refinancing proceeds received by the
Partnership to date have been distributed to the Limited Partners in accordance
with the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income and tax
loss of the Partnership will be allocated 99% to the Limited Partners and 1% to
the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited Partners
and to the General Partners in proportion to the amounts of sale or refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or refinancing. If
there are no sale or refinancing proceeds, taxable income and tax losses from a
sale or refinancing will be allocated 99% to the Limited Partners and 1% to the
General Partners. Notwithstanding this, the Partnership Agreement provides that
the allocation of taxable income and tax losses arising from the sale of a
property which leads to the dissolution of the Partnership shall be adjusted to
the extent feasible so that neither the General or Limited Partners recognize
any gain or loss as a result of having either a positive or negative balance
remaining in their capital accounts upon the dissolution of the Partnership. If
the General Partner has a negative capital account balance subsequent to the
sale of a property which leads to the dissolution of the Partnership, the
General Partner may be obligated to restore a portion of such negative capital
account balance as determined in accordance with the provisions of the
Partnership Agreement. Allocations of the Partnership's operations between the
General Partners and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities: to administer day-to-day operations of the Partnership and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser earns a basic management fee (4% of adjusted cash flow) and
an incentive management fee (5% of adjusted cash flow subordinated to a
noncumulative annual return to the Limited Partners equal to 6% based upon their
adjusted capital contribution) for services rendered. No management fees were
earned during the three-year period ended September 30, 1998.
Included in general and administrative expenses for the years ended
September 30, 1998, 1997 and 1996 is $88,000, $85,000 and $81,000, 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 $15,000, $6,000 and $4,000 for managing
the Partnership's cash assets in fiscal 1998, 1997 and 1996, respectively, which
amounts are included in general and administrative expenses on the accompanying
statements of operations.
Accounts receivable - affiliates at September 30, 1998 represents the
Partnership's remaining share of the net sale proceeds and operating cash flow
to be received from Greenbrier Associates subsequent to the sale of the
Greenbrier Apartments (see Note 4). Such amount was received subsequent to
year-end. Accounts payable - affiliates at September 30, 1998 represents the
co-venturer's remaining share of the net sales proceeds to be distributed from
the sale of the Carriage Hill Village Apartments and adjoining land.
4. Investments in Joint Venture Partnerships
-----------------------------------------
As of September 30, 1998, the Partnership had investments in two joint
ventures (four at September 30, 1997). 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:
<PAGE>
Condensed Combined Balance Sheet
September 30, 1998 and 1997
(in thousands)
Assets
1998 1997
---- ----
Current assets $ 2,014 $ 2,642
Operating investment properties, net 21,039 42,890
Other assets, net 413 2,200
--------- --------
$ 23,466 $ 47,732
========= ========
Liabilities and Venturers' Deficit
Current liabilities $ 1,877 $ 7,779
Other liabilities 878 878
Long-term mortgage debt,
less current portion 19,266 46,893
Partnership's share of combined capital (deficit) 937 (3,798)
Co-venturers' share of combined capital (deficit) 508 (4,020)
--------- --------
$ 23,466 $ 47,732
========= ========
Reconciliation of Partnership's Investments
(in thousands)
1998 1997
---- ----
Partnership's share of capital (deficit),
as shown above $ 937 $ (3,798)
Partnership's share of distributions and
notes payable to venturers 870 793
Less: Allowance for possible investment loss (1) (300) (300)
--------- --------
Investments in joint ventures, at equity, net $ 1,507 $ (3,305)
========= ========
(1)The carrying value of the Partnership's investments in joint ventures at
both September 30, 1998 and 1997 is net of an allowance for possible
investment loss of $300,000, which relates to the Amarillo Bell Associates
joint venture. See discussion below for further details.
Condensed Combined Summary of Operations
For the years ended September 30, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
---- ---- ----
Revenues:
Rental income and expense recoveries $ 12,057 $12,062 $11,646
Interest and other income 537 443 473
-------- ------- -------
12,594 12,505 12,119
Expenses:
Property operating expenses 5,371 5,055 5,602
Depreciation and amortization 2,616 2,805 2,647
Interest expense 4,434 4,503 4,955
-------- ------- -------
12,421 12,363 13,204
-------- ------- -------
Operating income (loss) 173 142 (1,085)
Gains on sale of operating
investment properties 26,917 - -
-------- ------- -------
Net income (loss) $ 27,090 $ 142 $(1,085)
======== ======= =======
Net income (loss):
Partnership's share of combined
income (loss) $ 23,068 $ 213 $ (691)
Co-venturers' share of combined
income (loss) 4,022 (71) (394)
-------- ------- --------
$ 27,090 $ 142 $(1,085)
======== ======= =======
<PAGE>
Reconciliation of Partnership's Share of Income (Loss)
1998 1997 1996
---- ---- ----
Partnership's share of income (loss),
as shown above $ 23,068 $ 213 $ (691)
Transfer of ownership (1) (2,973) - -
Additional contribution (1) (4,048) - -
-------- ------ -------
Partnership's share of ventures' net
income (loss) $ 16,047 $ 213 $ (691)
======== ====== =======
(1) As discussed further below, in June 1998, the Partnership received 80% of
the partnership interest and 80% of the membership interest of one of its
co-venture partners in the Randallstown Carriage Hill Associates and the
Signature Partners, L.L.C. joint ventures, respectively, in exchange for
cash in the amount of $4,048. At the time of the transaction, the
co-venturer's partnership interest in the Randallstown Carriage Hill
Associates joint venture had a historical cost basis of $(4,032) and its
membership interest in the Signature Partners L.L.C. joint venture had a
historical cost basis of $316.
The Partnership's share of ventures' net income (loss) is presented as
follows in the statements of operations (in thousands):
1998 1997 1996
---- ---- ----
Partnership's share of ventures'
income (loss) $ 529 $ 213 $ (691)
Partnership's share of gains on sale of
operating investment properties 15,518 - -
-------- ------ -------
$ 16,047 $ 213 $ (691)
======== ====== =======
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, 1998 and 1997 is comprised of the following (in
thousands):
1998 1997
---- ----
Randallstown Carriage Hill Associates $ - $ (6,207)
Signature Partners, L.L.C. - 246
Amarillo Bell Associates 1,518 1,578
Greenbrier Associates - 723
Seven Trails West Associates (11) 355
-------- ---------
$ 1,507 $ (3,305)
======== ========
The Partnership received cash distributions from the ventures as set
forth below (in thousands):
1998 1997 1996
---- ---- ----
Amarillo Bell Associates $ 152 $ 198 $ -
Greenbrier Associates 5,958 265 198
Randallstown Carriage Hill Associates 7,585 - 51
Signature Partners, L.L.C. 900 - -
Seven Trails West Associates 485 70 -
------- -------- -------
$15,080 $ 533 $ 249
======= ========= =======
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") was
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 initial
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, had a fixed interest rate
of 7.65% and a term of 35 years. 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. was owned by Signature, JBG and
the Partnership with the same ownership interest percentages as in the
Carriage Hill joint venture agreement.
On June 23, 1998, the Partnership and its original co-venture partner
purchased the 50% interest of its other co-venture partner, Signature, in
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. After the purchase, the Partnership held an 80%
interest and the original co-venture partner held 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 bore interest at a rate of 6.56% per annum. The loan
proceeds were repaid on September 11, 1998 from a combination of cash
reserves and the net proceeds from the sale of the Greenbrier Apartments
on September 10, 1998. The Partnership contributed a total of $4,048,000
and JBG contributed $1,012,000 to complete the purchase of Signature's
interest.
On September 21, 1998, the joint venture and Signature Partners LLC sold
the Carriage Hill Village Apartments and adjoining land to unrelated third
parties for an aggregate sale price of $37,350,000. The Partnership
received net proceeds of approximately $8,481,000 after the receipt of a
credit of $1,168,000 for property adjustments and escrows held by the
Department of Housing and Urban Development (HUD) for tenant security
deposits, real estate taxes, property insurance and replacement reserves,
and after deducting closing costs of approximately $757,000, the
assumption of the existing first mortgage loan of $27,298,000 and a
payment of approximately $1,982,000 to the Partnership's co-venture
partner for its share of the sales proceeds in accordance with the joint
venture agreement. Of the total proceeds received by the Partnership of
$8,481,000, as discussed further above, $4 million represented a
reimbursement of funds originally advanced to buy out the selling
co-venture partner's interest in the Carriage Hill joint venture on June
23, 1998.
<PAGE>
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, 1998, the balance of the mortgage
loan, which matures on July 1, 2002, was approximately $3,153,000.
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, 1998 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 owned and operated
Greenbrier Apartments, a 324-unit apartment complex located in
Indianapolis, Indiana. The Partnership was a general partner in the joint
venture. The Partnership's co-venturer was 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 was 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 were due.
On September 10, 1998, the joint venture sold the Greenbrier Apartments to
an unrelated third party for $11,850,000. The Partnership received net
proceeds of approximately $5,498,000 after deducting closing costs of
approximately $119,000, closing proration adjustments of approximately
$424,000, the repayment of the existing first mortgage loan of $5,400,000
and related accrued interest of approximately $26,000, and a payment of
approximately $383,000 to the Partnership's co-venture partner for its
share of the sales proceeds in accordance with the joint venture
agreement. 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. As a result of the sale of Greenbrier Apartments, the
Partnership made a special distribution of $100 per original $1,000
investment, or approximately $3,493,000, on October 1, 1998 to unitholders
of record as of the September 10, 1998 sale date. The remaining net
proceeds from the sale of Greenbrier of approximately $2,005,000, along
with an amount of the Partnership's cash reserves, were used to help pay
off a $4,000,000 demand loan that the Partnership had obtained from
PaineWebber Capital, Inc., an affiliate of the Managing General Partner,
during fiscal 1998 to finance the restructuring of the Carriage Hill joint
venture discussed further above.
d) Seven Trails West Associates
----------------------------
On September 13, 1984, the Partnership acquired an interest in Seven
Trails West Associates, a Missouri general partnership that owns and
operates Seven Trails West Apartments, a 532-unit apartment complex in
Ballwin, Missouri. The Partnership is a general partner in the joint
venture.
The aggregate cash investment by the Partnership for its interest was
approximately $10,011,000 (including an acquisition fee of $1,050,000 paid
to the Adviser). On April 17, 1996, the Partnership successfully completed
the refinancing of the existing first mortgage loan secured by the Seven
Trails West Apartments, reducing the annual interest rate from 12% to
7.87%. The new loan, in the initial principal amount of $17,000,000, is
for a term of ten years with monthly payments of principal and interest
totalling $130,000. The proceeds of the new loan, together with a
contribution of $159,000 from the joint venture, were used to pay off all
obligations of the prior first mortgage loan as well as to fund all
reserves and escrows required by the new lender. Because the prior
mortgage loan was not repaid by February 1, 1996, the joint venture
forfeited a $147,000 fee which had been paid to the prior lender in
connection with a fiscal 1994 extension agreement and was to be refundable
under certain conditions.
The joint venture agreement provides that the Partnership will receive
from available cash flow an annual cumulative preferred base return,
payable monthly, of $875,000. The Partnership's preference return was
cumulative on a year to year basis through September 30, 1987 and is
cumulative monthly but not annually thereafter. The cumulative preference
return of the Partnership in arrears at September 30, 1998 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, 1998, 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 originally 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. On April 1, 1997,
management of the operating property was transferred to an unrelated third
party. The management fee to the prior affiliated manager was equal to 5%
of the gross receipts collected from the property.
5. Subsequent event
----------------
On October 1, 1998, the Partnership made a special distribution of
approximately $3,493,000 to the Limited Partners of the net proceeds from
the sale of the Greenbrier Apartments.
<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, 1998 and 1997, and the related combined statements of operations
and changes in venturers' capital (deficit), and cash flows for each of the
three years in the period ended September 30, 1998. 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 (a joint venture in which the Partnership
has an 80% and 40% interest as of September 30, 1998 and 1997, respectively) as
of September 30, 1998 and 1997 and for the years then ended. Those statements
reflect total assets of $16,861,000 as of September 30, 1997, total revenues of
$5,621,000 and $5,529,000 for the years ended September 30, 1998 and 1997,
respectively, and a gain on the sale of operating investment property of
$20,644,000 for the year ended September 30, 1998. 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, 1998 and 1997 and for the years 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, 1998
and 1997, and the combined results of their operations and their cash flows for
each of the three years in the period ended September 30, 1998, 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 23, 1998
<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 sheets of Randallstown Carriage
Hill Associates as of September 30, 1998 and 1997 and the related statements of
operations, changes in partners' equity and cash flows for the years 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Randallstown Carriage Hill
Associates as of September 30, 1998 and 1997 and the results of its operations,
the changes in partners' equity and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/Reznick Fedder & Silverman
-----------------------------
Reznick Fedder & Silverman
Baltimore, Maryland
November 10, 1998
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
September 30, 1998 and 1997
(In thousands)
Assets
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 1,020 $ 833
Escrow deposits 823 1,103
Accounts receivable 93 129
Prepaid expenses 78 577
---------- --------
Total current assets 2,014 2,642
Operating investment properties:
Land 3,229 5,250
Buildings, improvements and equipment 33,181 70,929
---------- --------
36,410 76,179
Less accumulated depreciation (15,371) (33,289)
---------- --------
Net operating investment properties 21,039 42,890
Reserve for capital expenditures - 764
Deferred expenses, net of accumulated amortization
of $338 ($334 in 1997) 413 1,295
Other assets, net - 141
---------- --------
$ 23,466 $ 47,732
========== ========
Liabilities and Venturers' Capital (Deficit)
Current liabilities:
Current portion of long-term debt $ 328 $ 5,898
Accounts payable 45 104
Accounts payable - affiliates - 51
Accrued real estate taxes 303 526
Accrued interest 489 643
Tenant security deposits 122 395
Distributions payable to venturers 538 61
Other current liabilities 52 101
---------- --------
Total current liabilities 1,877 7,779
Notes payable to venturers 847 847
Other liabilities 31 31
Long-term debt 19,266 46,893
Venturers' capital (deficit) 1,445 (7,818)
---------- --------
$ 23,466 $ 47,732
========== ========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER INCOME PROPERTIES FIVE LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' CAPITAL (DEFICIT)
For the years ended September 30, 1998, 1997 and 1996
(In thousands)
1998 1997 1996
---- ---- ----
Revenues:
Rental income and expense recoveries $12,057 $12,062 $11,646
Interest and other income 537 443 473
------- ------- -------
12,594 12,505 12,119
Expenses:
Interest expense 4,434 4,503 4,955
Depreciation expense 2,556 2,745 2,616
Real estate taxes 1,005 1,025 958
Repairs and maintenance 880 816 920
Salaries and related expenses 1,456 1,333 1,454
Utilities 690 710 958
General and administrative 545 449 577
Management fees 491 591 573
Insurance 140 131 137
Bad debt expense 164 - 25
Amortization expense 60 60 31
------- ------- -------
12,421 12,363 13,204
------- ------- -------
Operating income (loss) 173 142 (1,085)
Gains on sale of operating
investment properties 26,917 - -
------- ------- -------
Net income (loss) 27,090 142 (1,085)
Contributions from venturers 237 - -
Distributions to venturers (18,064) (710) (444)
Venturers' deficit, beginning of year (7,818) (7,250) (5,721)
------- ------- -------
Venturers' capital (deficit), end of year $ 1,445 $(7,818) $(7,250)
======= ======= =======
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, 1998, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 27,090 $ 142 $ (1,085)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sales of operating investment properties (26,917) - -
Depreciation and amortization 2,616 2,805 2,647
Amortization of deferred financing costs 47 47 70
Changes in assets and liabilities:
Escrow deposits 280 (18) (55)
Accounts receivable 36 (46) 47
Prepaid expenses 499 (4) 91
Deferred expenses - (22) (86)
Other assets 141 - -
Accounts payable (59) (101) 88
Accounts payable - affiliates - (69) 90
Accrued real estate taxes (223) 15 (37)
Accrued interest (154) (5) 63
Tenant security deposits (273) 45 (14)
Other current liabilities (49) (1) (19)
Deferred interest - - (1,657)
Other liabilities - - 17
------- ---------- ---------
Total adjustments (24,056) 2,646 1,245
------- ---------- ---------
Net cash provided by operating activities 3,034 2,788 160
------- ---------- ---------
Cash flows from investment activities:
Proceeds from sales of operating investment properties 48,079 - -
Additions to operating investment properties (1,092) (782) (1,903)
Decrease (increase) in reserve for capital expenditures 764 (400) 325
------- ---------- ---------
Net cash provided by (used in)
investing activities 47,751 (1,182) (1,578)
------- ---------- ---------
Cash flows from financing activities:
Proceeds from long-term debt - - 17,000
Payment of deferred financing costs - - (243)
Contributions by venturers 186 - -
Distributions to venturers (17,587) (781) (312)
Repayment of long-term debt 33,197) (461) (14,984)
Repayment of notes to partners - - (119)
------- ---------- ---------
Net cash (used in) provided by
financing activities (50,598) (1,242) 1,342
------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 187 364 (76)
Cash and cash equivalents, beginning of year 833 469 545
------- ---------- ---------
Cash and cash equivalents, end of year $ 1,020 $ 833 $ 469
======= ========== ===========
Cash paid during the year for interest $ 4,541 $ 4,461 $ 6,479
======= ========== ==========
</TABLE>
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
During fiscal 1998 Randallstown Carriage Hill Associates sold the Carriage
Hill Village Apartments to an unrelated third party. Signature Partners L.L.C.
sold its land to the same unrelated third party. In addition, during fiscal 1998
Greenbrier Associates sold the Greenbrier Apartments to an unrelated third
party. See Note 3 for a further discussion of these transactions.
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, 1998 and 1997 and revenues and expenses for
each of the three years in the period ended September 30, 1998. 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 Combined Joint Ventures generally assess 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 over the terms of the related leases and loans, respectively.
Amortization of deferred loan fees, which is calculated using the effective
interest method, 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, 1998 and 1997 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, 1998 and 1997 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 owned and operated the Carriage Hill Village
Apartments, an 806-unit apartment complex located in Randallstown,
Maryland.
b. Signature Partners, L.L.C.
-------------------------
This limited liability company owned a 23-acre parcel of land
located in Randallstown, Maryland.
On June 23, 1998, PWIP 5 and its original co-venture partner
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. PWIP 5 had held a 40%
interest and the original co-venture partner had held a 10% interest in
the Joint Venture prior to this transaction. After the purchase, PWIP 5
held an 80% interest and the original co-venture partner held a 20%
interest.
On March 19, 1998, PWIP 5 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. PWIP 5 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 PWIP 5 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, PWIP 5 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.
On September 21, 1998, Randallstown Carriage Hill Associates and
Signature Partners LLC sold Carriage Hill Village Apartments and the
adjoining land to unrelated third parties for an aggregate sale price of
$37,350,000. PWIP 5 received net proceeds of approximately $8,481,000
after the receipt of a credit of $1,168,000 for property adjustments and
escrows held by the Department of Housing and Urban Development (HUD) for
tenant security deposits, real estate taxes, property insurance and
replacement reserves, and after deducting closing costs of approximately
$757,000, the assumption of the existing first mortgage loan of
$27,298,000 and a payment of approximately $1,982,000 to PWIP 5's
co-venture partner for its share of the sales proceeds in accordance with
the joint venture agreement.
c. Amarillo Bell Associates
------------------------
The joint venture owns and operates the Bell Plaza Shopping Center,
a 144,000 gross leasable square foot shopping center located in Amarillo,
Texas.
d. Greenbrier Associates
---------------------
The joint venture owned and operated the Greenbrier Apartments, a
324-unit apartment complex located in Indianapolis, Indiana.
On September 10, 1998, Greenbrier Associates, sold the Greenbrier
Apartments to an unrelated third party for $11,850,000. PWIP 5 received
net proceeds of approximately $5,498,000 after deducting closing costs of
approximately $119,000, closing proration adjustments of approximately
$424,000, the repayment of the existing first mortgage loan of $5,400,000
and related accrued interest of approximately $26,000, and a payment of
approximately $383,000 to the PWIP 5's co-venture partner for its share of
the sales proceeds in accordance with the joint venture agreement.
Because the first mortgage loan secured by the Greenbrier Apartments
was scheduled to mature on June 29, 1998, PWIP 5 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,
PWIP 5 and the co-venturer agreed to initiate a marketing program for the
possible sale of the property. During the second quarter, PWIP 5 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, PWIP 5 and its
co-venture partner selected an offer and negotiated a purchase and sale
agreement.
e. Seven Trails West Associates
----------------------------
The joint venture owns and operates the 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.
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 originally entered into property management
agreements with affiliates of the co-venturers, cancelable at the joint
ventures' option upon the occurrence of certain events. These original
management fees were equal to between 4% and 5% of gross receipts, as defined in
the agreements. As of April 1, 1997, management of the Greenbrier and Seven
Trails properties was transferred to unrelated third parties.
Accounts payable - affiliates at September 30, 1998 and 1997 are
principally management fees and reimbursements payable to property managers.
Notes payable to venturers at September 30, 1998 and 1997 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, 1998 and 1997 consists of the following (in
thousands):
1998 1997
---- ----
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. $ - $ 27,494
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, 1998 and 1997. 3,153 3,204
<PAGE>
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 was due
June 29, 1998. The fair value of
this note payable approximated its
carrying value as of September 30,
1997. - 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,
1998 and 1997. 16,441 16,693
--------- ---------
19,594 52,791
Less current portion (328) (5,898)
--------- ---------
$ 19,266 $ 46,893
========= =========
Maturities of long-term debt, which is all non-recourse to the joint
ventures and PWIP5, for each of the next five fiscal years and thereafter
are as follows (in thousands):
1999 $ 328
2000 354
2001 383
2002 3,320
2003 373
Thereafter 14,836
-------
$19,594
=======
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, 1998 are as follows (in thousands):
1999 $ 676
2000 489
2001 437
2002 428
2003 428
Thereafter 3,090
-------
$ 5,548
=======
Revenues from three major tenants of the Bell Plaza Shopping Center
comprised approximately 33%, 15% and 11% of the total rental revenues of
Amarillo Bell Associates for the year ended September 30, 1998. 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, 1998
(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:
Shopping
Center $ 3,153 $1,519 $ 6,310 $ 1,167 $1,519 $ 7,477 $ 8,996 $ 3,314 1979-82 9/30/83 5-40 yrs.
Amarillo,
TX
Apartment
Complex
Ballwin,
MO 16,441 1,710 22,131 3,573 1,710 25,704 27,414 12,057 1968-74 9/13/84 5-30 yrs.
------- ------ ------- ------- ------ ------- ------- -------
Total $19,594 $3,229 $28,441 $ 4,740 $3,229 $33,181 $36,410 $15,371
======= ====== ======= ======= ====== ======= ======= =======
Notes
(A) The aggregate cost of real estate owned at September 30, 1998 for Federal income tax purposes is approximately $34,410.
(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:
1998 1997 1996
---- ---- ----
Balance at beginning of period $ 76,179 $ 75,397 $ 73,494
Acquisitions and improvements 1,092 782 1,903
Dispositions (40,861) - -
-------- -------- --------
Balance at end of period $ 36,410 $ 76,179 $ 75,397
======== ======== ========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period $ 33,289 $ 30,544 $ 27,928
Depreciation expense 2,556 2,745 2,616
Dispositions (20,474) - -
-------- -------- --------
Balance at end of period $ 15,371 $ 33,289 $ 30,544
======== ======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the year ended September 30,
1998 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-30-1998
<PERIOD-END> Sep-30-1998
<CASH> 13,867
<SECURITIES> 0
<RECEIVABLES> 345
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,212
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,719
<CURRENT-LIABILITIES> 950
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,769
<TOTAL-LIABILITY-AND-EQUITY> 15,719
<SALES> 0
<TOTAL-REVENUES> 16,278
<CGS> 0
<TOTAL-COSTS> 259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 15,956
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,956
<EPS-PRIMARY> 452.25
<EPS-DILUTED> 452.25
</TABLE>
