UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995
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: 0-17149
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
(Exact name of registrant as specified in its charter)
Delaware 04-2889712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes .X No.
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Page 1 of 10
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
BALANCE SHEETS
February 28, 1995 and August 31, 1994
(Unaudited)
ASSETS
February 28 August 31
Real estate investments:
Investment properties held for sale, net $10,900,000 $10,900,000
Land 230,000 230,000
Mortgage loan receivable 1,270,000 1,270,000
12,400,000 12,400,000
Cash and cash equivalents 2,847,001 3,035,278
Interest and land rent receivable 9,588 9,588
Accounts receivable 147,510 88,096
Prepaid expenses 19,122 23,943
Deferred expenses, net 32,580 35,015
$15,455,801 $15,591,920
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 32,920 $ 32,920
Accounts payable and accrued expenses 130,570 127,753
Tenant security deposits 79,361 62,504
Deferred revenue - 4,281
Deferred management fees 245,375 245,375
Partners' capital 14,967,575 15,119,087
$15,455,801 $15,591,920
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended February 28, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at August 31, 1993 $(62,211) $16,474,250
Net income 2,596 254,363
Cash distributions (3,227) (322,838)
BALANCE AT FEBRUARY 28, 1994 $(62,842) $16,405,775
Balance at August 31, 1994 $(75,205) $15,194,292
Net income 2,299 225,309
Cash distributions (3,763) (375,357)
BALANCE AT FEBRUARY 28, 1995 $(76,669) $15,044,244
See accompanying notes.
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF INCOME
For the three and six months ended February 28, 1995 and 1994
(Unaudited)
Three Months Ended Six Months Ended
February 28, February 28,
1995 1994 1995 1994
REVENUES:
Interest from mortgage loan $ 28,557 $ 28,557 $ 57,115 $ 57,115
Land rent 11,470 7,497 21,750 14,404
Other interest income 38,783 22,731 73,588 46,066
78,810 58,785 152,453 117,585
EXPENSES:
Management fees 34,874 34,539 69,613 69,077
General and administrative
expenses 104,769 74,254 170,132 148,262
Amortization of deferred
expenses 1,217 1,218 2,435 2,435
140,860 110,011 242,180 219,774
Operating loss (62,050) (51,226) (89,727) (102,189)
Income from operations of
investment properties
held for sale, net 136,736 119,079 317,335 359,148
NET INCOME $ 74,686 $ 67,853 $227,608 $256,959
Net income per Limited
Partnership Unit $0.10 $0.09 $0.29 $0.33
Cash distributions per Limited
Partnership Unit $0.24 $0.22 $0.48 $0.42
The above net income and cash distributions per Limited Partnership Unit are
based upon the 776,988 Units ($50 per Unit) of Limited Partnership Interest
outstanding during each period.
See accompanying notes.
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF CASH FLOWS
For the six months ended February 28, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $ 227,608 $ 256,959
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred expenses 2,435 2,435
Changes in assets and liabilities:
Accounts receivable (59,414) 18,992
Prepaid expenses 4,821 15,136
Accounts payable - affiliates - (27,543)
Accounts payable and accrued expenses 2,817 (85,448)
Tenant security deposits 16,857 (2,521)
Deferred revenue (4,281) -
Total adjustments (36,765) (78,949)
Net cash provided by operating activities 190,843 178,010
Cash flows from financing activities:
Distributions to partners (379,120) (326,065)
Net decrease in cash and cash equivalents (188,277) (148,055)
Cash and cash equivalents, beginning of period 3,035,278 3,115,673
Cash and cash equivalents, end of period $2,847,001 $2,967,618
See accompanying notes.
1.General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 31, 1994.
In the opinion of management, the accompanying financial statements, which
have not been audited, reflect all adjustments necessary to present fairly
the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2.Mortgage Loan and Land Investments
The following first mortgage loan was outstanding at February 28, 1995 and
August 31, 1994.
Date of
Property Amount of Loan Interest Rate Loan and Term
Park South $1,270,000 9% through 12/28/01 12/29/88
Charlotte, 13 years
North Carolina
The loan is secured by a first mortgage on the property and an assignment of
all tenant leases. Interest is payable monthly and the principal is due at
maturity.
In addition to the above mortgage loan, the following land purchase-leaseback
transaction had also been entered into as of February 28, 1995 and August 31,
1994.
Cost of Land
Property to the Partnership Annual Base Rent
Park South $ 230,000 $20,769 through 12/28/28
The land lease has a term of 40 years. Among the provisions of the lease
agreement, the Partnership is entitled to additional rent based upon gross
revenues in excess of a base amount, as defined. The Partnership received
additional rent of $11,366 and $4,020 during the six months ended February
28, 1995 and 1994, respectively. The lessee has the option to repurchase the
land for a specified period of time beginning in December of 1997 at a price
based on the fair market value, as defined, but not less than the original
cost to the Partnership.
The objectives of the Partnership with respect to its mortgage loan and land
investments are to provide current income from fixed mortgage interest
payments and base land rents, then to provide increases to this current
income through participation in the annual revenues generated by the property
as they increase above a specified base amount. In addition, the
Partnership's investment is structured to share in the appreciation in value
of the underlying real estate. Accordingly, upon either sale, refinancing,
maturity of the mortgage loan or exercise of the option to repurchase the
land, the Partnership will receive a 50% share of the appreciation above a
specified base amount.
3. Investment Properties Held for Sale
At February 28, 1995 and August 31, 1994, the Partnership owned two
operating investment properties directly as a result of foreclosure
proceedings prompted by defaults under the terms of first mortgage loans
held by the Partnership. Descriptions of the transactions through which the
Partnership acquired these properties and of the properties themselves are
summarized below:
HACIENDA PLAZA
As discussed in the Annual Report, the Partnership assumed ownership of
Hacienda Plaza on June 22, 1990. The property, which is comprised of 78,415
square feet of leasable office and retail space in Pleasanton, California,
was 88% leased as of February 28, 1995. The combined balance of the land
and the mortgage loan investments at the time title was transferred to the
Partnership was $9,789,495. The estimated fair value of the operating
property at the date of foreclosure was $8,200,000. Accordingly, a write-
down of $1,589,495 was recorded in fiscal 1990. Since the date of the
foreclosure, the Partnership has recorded provisions for possible investment
loss totalling $3,300,000 to write down the net carrying value of the
Hacienda Plaza investment property to reflect additional declines in its
estimated fair value, net of selling expenses. The resulting net carrying
value of the Hacienda Plaza investment property at both February 28, 1995
and August 31, 1994 is $4,900,000.
SPARTAN PLACE SHOPPING CENTER
As discussed in the Annual Report, the Partnership assumed ownership of
the Spartan Place Shopping Center, in Spartanburg, South Carolina, on
February 12, 1991. The property, which is comprised of 151,489 square feet
of leasable retail space, was 78% leased as of February 28, 1995. The
combined balance of the land and the mortgage loan investment at the time
title was transferred to the Partnership was approximately $8,419,000.
Management estimated that the fair value of the property, net of selling
expenses, at the time of the foreclosure was approximately $7,840,000.
Accordingly, a loss of approximately $579,000 was recorded in fiscal 1991 to
adjust the carrying value to this estimate. Since the date of the
foreclosure, the Partnership has recorded provisions for possible investment
loss totalling $1,840,000 to write down the net carrying value of the
Spartan Place investment property to reflect additional declines in its
estimated fair value, net of selling expenses. The resulting net carrying
value of the Spartan Place investment property at both February 28, 1995 and
August 31, 1994 is $6,000,000.
The Partnership recognizes income from its investment properties held for
sale in the amount of the excess of the properties' gross revenues over the
sum of property operating expenses (including capital improvement expenses
and leasing commissions), taxes and insurance.
Combined summarized operating results for Hacienda Plaza and Spartan Place
for the three-and six-month periods ended February 28, 1995 and 1994 are as
follows:
Three Months Ended Six Months Ended
February 28, February 28,
1995 1994 1995 1994
REVENUES:
Rental income and
expense reimbursements $512,077 $426,712 $982,738 $876,336
Other income 3,648 2,250 5,942 4,795
515,725 428,962 988,680 881,131
EXPENSES:
Property operating
expenses 270,647 244,335 536,894 109,093
378,989 309,883 671,345 521,983
Income from operations of
investment properties
held for sale, net $136,736 $119,079 $317,335 $359,148
4. Related Party Transactions
The Adviser earned basic management fees of $69,613 and $69,077 for the six-
month periods ended February 28, 1995 and 1994, respectively. Accounts
payable - affiliates at both February 28, 1995 and August 31, 1994 consists
of management fees of $32,920 payable to the Adviser.
Included in general and administrative expenses for the six months ended
February 28, 1995 and 1994 is $79,656 and $67,626, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months ended
February 28, 1995 and 1994 is $4,171 and $3,668, respectively, representing
fees earned by Mitchell Hutchins Institutional Investors, Inc. for managing
the Partnership's cash assets.
5.Contingencies
The Partnership is involved in certain legal actions. The Managing General
Partner believes these actions will be resolved without material adverse
effect on the Partnership's financial statements, taken as a whole.
PAINEWEBBER MORTGAGE PARTNERS FIVE, L. P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Spartan Place Shopping Center, in Spartanburg, South Carolina, was 78%
leased as of February 28, 1995, down from 85% as of August 31, 1994. A tenant
which occupied 6,400 square feet at the Center went out of business and
terminated its lease during the quarter ended November 30, 1994. In addition,
another tenant which occupied 3,600 square feet went out of business during the
current quarter. As previously reported, the overbuilt status of this
Spartanburg sub-market has prevented the Spartan Place property from achieving a
stabilized occupancy level since the time of its original construction in 1988.
During the third quarter of fiscal 1994, management of the Partnership was
informed that one of the property's major tenants, Circuit City, plans to close
their store at Spartan Place and move to a location they believe is better
suited to their future operations. Circuit City currently occupies 16,412
square feet at the Center and pays annual base rent of approximately $112,000.
Although Circuit City is obligated to pay rent at Spartan Place through January
2008, replacing this tenant will be crucial to retaining existing tenants and
leasing other vacant space. In order to accomplish these objectives, the
Partnership recently hired a nationally recognized leasing and property
management company to take over these functions at the property. Management is
currently in discussions with two prospective anchor tenants interested in
occupying space at the Center. Re-leasing the Circuit City space to a high-
profile, credit tenant may require a significant expansion and repositioning of
the shopping center. In addition, management continues to closely monitor the
status of the Phar-Mor anchor store, which occupies 26% of the leasable space at
Spartan Place, in light of Phar-Mor's Chapter 11 bankruptcy status. Despite
closing many other stores across the country as part of its reorganization
proceedings, thus far, this tenant has given no formal notice that it plans to
close its store at Spartan Place. Nonetheless, the future tenancy of Phar-Mor
at Spartan Place is uncertain at the present time. Funds for any substantial
capital work which may result from future repositioning efforts at Spartan Place
could be provided from the Partnership's cash reserves. Alternatively,
management may consider selling the property prior to spending any significant
funds on capital improvements if a current sale were deemed to be in the
Partnership's best interests. Management is currently in the process of
analyzing various business plans for the Spartan Place property and will
formalize its strategy with regard to this investment during fiscal 1995.
The wholly-owned Hacienda Plaza office and retail complex was 88% leased as
of February 28, 1995. As previously reported, a substantial amount of office
and retail space and undeveloped land remains available within the same planned
development area in which the property is located. Despite this fact, rental
rates in the Pleasanton, California office and retail market have improved in
recent months and fewer concessions are being offered. A portion of the land in
the planned development area in which Hacienda Plaza is located has been re-
zoned for residential use. Approximately 800 housing units are scheduled for
construction in the near future. This development and possible future
residential development in the immediate vicinity of Hacienda Plaza will reduce
the amount of developable land available for new competing office space and will
increase the pedestrian traffic for the retail tenants at the Partnership's
property. As a result of these conditions, management believes that the value
of the Hacienda Plaza investment property has now stabilized after several years
of decline. The Managing General Partner continues to plan to make selective
capital improvements which will enhance marketing and leasing efforts until
market conditions favorable to a sale of the property can be achieved. A
substantial amount of the property's cash flow has been, and will likely
continue to be, reinvested to pay for the leasing costs associated with
attracting new tenants and renewing existing leases.
Occupancy at the Park South Apartments, in Charlotte, North Carolina, was at
94% for the quarter ended February 28, 1995. Operations of the property
continue to fully support the debt service and ground lease payments owed to the
Partnership, in addition to providing a small amount of supplemental rent under
the terms of the ground lease. The Partnership received additional rent of
$11,366 under the terms of the Park South ground lease during the six months
ended February 28, 1995. Such results are reflective of the strengthening
local and national market conditions for multi-family residential properties
and the favorable position that this property enjoys in its local sub-market.
Further improvement in such conditions could lead to increases in additional
rent earned in future quarters.
At February 28, 1995, the Partnership had available cash and cash
equivalents of approximately $2,847,000. Such cash and cash equivalents will be
used for the working capital requirements of the Partnership, distributions to
the partners and, if necessary, for leasing costs related to the Spartan Place
and Hacienda Plaza properties. Beginning with the quarter ended February 28,
1992, the Managing General Partner began a program to gradually increase the
quarterly distribution rate to the Limited Partners. The quarterly distribution
rate increased to 3% per annum on remaining invested capital for the current
quarter. Given the potential future capital needs of the Partnership's two
wholly-owned properties, distributions to the partners are likely to remain at
3% per annum for the foreseeable future. A formal review of the Partnership's
distribution policy is presently in progress. The source of future liquidity
and distributions to the partners is expected to be from the operations and
future sale of the two wholly-owned investment properties, mortgage interest and
land rent payments from the Partnership's mortgage loan and ground lease
investments, interest income on the Partnership's cash reserves, the repayment
of the mortgage loan receivable and the sale of the underlying parcel of land.
RESULTS OF OPERATIONS
The Partnership's net income decreased by approximately $29,000 for the
six months ended February 28, 1995, when compared to the same period in the
prior year. This decrease in net income resulted from a decrease in income
from the operations of investment properties held for sale, of approximately
$42,000, and an increase in general and administrative expenses of
approximately $22,000. Income from investment properties held for sale
decreased primarily as a result of an increase in capital expenditures at the
Hacienda Plaza property in connection with management's ongoing efforts to
retain existing tenants and lease vacant space. Such efforts have resulted
in an increase in rental revenues to partially offset these expenses which
were incurred primarily during the first quarter. Occupancy at Hacienda
Plaza has increased to its present level of 88% from a level of 78% as of
February 28, 1994. This increase in occupancy at Hacienda Plaza is the
primary reason that income from the operations of investment properties held
for sale increased by approximately $18,000 for the three months ended
February 28, 1995, as compared to the same period in the prior year. General
and administrative expenses increased for both the three and six months ended
February 28, 1995 primarily due to professional fees incurred to perform
market research and tenant analysis as part of the process of generating the
various potential business plans for the Spartan Place property referred to
above. The decrease in income from investment properties held for sale and
the increase in general and administrative expenses was partially offset by
an increase in other interest income of approximately $28,000 and an increase
in land rent of approximately $7,000 for the six months ended February 28,
1995. Interest income increased for both the three and six months ended
February 28, 1995 as a result of the higher interest rates being earned on
the Partnership's invested cash reserves in the current period. Land rent
increased for both the three and six months ended February 28, 1995 as a
result of additional supplemental rent received from the Park South
Apartments investment during the current period.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
defendants, including Fifth Mortgage Partners, Inc. and Properties Associates
1985, L.P., which are the General Partners in the Partnership and affiliates of
PaineWebber.
The amended complaint in the New York Limited Partnership Actions alleges
that, in connection with the sale of interests in PaineWebber Mortgage Partners
Five, L.P., PaineWebber, Fifth Mortgage Partners, Inc. and Properties Associates
1985, L.P. (1) failed to provide adequate disclosure of the risks involved; (2)
made false and misleading representations about the safety of the investments
and the Partnership's anticipated performance; and (3) marketed the Partnership
to investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in PaineWebber
Mortgage Partners Five, L.P., also allege that following the sale of the
partnership interests, PaineWebber, Fifth Mortgage Partners, Inc. and Properties
Associates 1985, L.P. misrepresented financial information about the
Partnership's value and performance. The amended complaint alleges that
PaineWebber, Fifth Mortgage Partners, Inc. and Properties Associates 1985, L.P.
violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the
federal securities laws. The plaintiffs seek unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
limited partnerships. In addition, the plaintiffs also seek treble damages
under RICO. The defendants' time to move against or answer the complaint has
not yet expired.
Pursuant to provisions of the Partnership Agreement and other contractual
obligations, under certain circumstances the Partnership may be required to
indemnify Fifth Mortgage Partners, Inc., Properties Associates 1985, L.P. and
their affiliates for costs and liabilities in connection with this litigation.
The General Partners intend to vigorously contest the allegations of the action,
and believe that the action will be resolved without material adverse effect on
the Partnership's financial statements, taken as a whole.
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
By: FIFTH MORTGAGE PARTNERS, INC.
-
Managing General Partner
By: /s/ Walter V. Arnold
Walter V. Arnold
Senior Vice President and Chief
Financial Officer
Dated: April 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the six months ended February 28,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 2,847,001
<SECURITIES> 0
<RECEIVABLES> 1,427,098
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,023,221
<PP&E> 11,130,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,455,801
<CURRENT-LIABILITIES> 242,851
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 14,967,575
<TOTAL-LIABILITY-AND-EQUITY> 15,455,801
<SALES> 0
<TOTAL-REVENUES> 469,788
<CGS> 0
<TOTAL-COSTS> 242,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227,608
<INCOME-TAX> 0
<INCOME-CONTINUING> 227,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,608
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
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