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 MAY 31, 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.
Page 1 of 12
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
BALANCE SHEETS
May 31, 1995 and August 31, 1994
(Unaudited)
ASSETS
May 31 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 2,798,593 3,035,278
Interest and land rent receivable 9,588 9,588
Accounts receivable 135,425 88,096
Prepaid expenses 20,650 23,943
Deferred expenses, net 31,363 35,015
$15,395,619 $15,591,920
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 32,920 $ 32,920
Accounts payable and accrued expenses 105,240 127,753
Tenant security deposits 71,064 62,504
Deferred revenue - 4,281
Deferred management fees 245,375 245,375
Partners' capital 14,941,020 15,119,087
$15,395,619 $15,591,920
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended May 31, 1995 and 1994
(Unaudited)
General Limited
Partners Partners
Balance at August 31, 1993 $(62,211) $16,474,250
Net income 4,893 479,478
Cash distributions (4,974) (494,096)
BALANCE AT MAY 31, 1994 $(62,292) $16,459,632
Balance at August 31, 1994 $(75,205) $15,194,292
Net income 4,049 396,764
Cash distributions (5,781) (573,099)
BALANCE AT MAY 31, 1995 $ (76,937) $15,017,957
See accompanying notes.
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1995 and 1994
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
REVENUES:
Interest from mortgage loan $ 28,558 $ 28,558 $ 85,673 $ 85,673
Land rent 5,192 5,963 26,942 20,367
Other interest income 40,191 26,553 113,779 72,619
73,941 61,074 226,394 178,659
EXPENSES:
Management fees 34,943 34,672 104,556 103,749
General and administrative 75,255 75,936 245,387 224,198
Amortization of deferred
expenses 1,217 1,217 3,652 3,652
111,415 111,825 353,595 331,599
Operating loss (37,474) (50,751) (127,201) (152,940)
Income from operations of
investment properties
held for sale, net 210,679 278,163 528,014 637,311
NET INCOME $173,205 $227,412 $400,813 $484,371
Net income per Limited
Partnership Unit $0.22 $0.29 $0.51 $0.62
Cash distributions per Limited
Partnership Unit $0.26 $0.22 $0.74 $0.64
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 nine months ended May 31, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
1995 1994
Cash flows from operating activities:
Net income $ 400,813 $ 484,371
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred expenses 3,652 3,652
Changes in assets and liabilities:
Accounts receivable (47,329) (24,353)
Prepaid expenses 3,293 2,260
Accounts payable - affiliates - (27,543)
Accounts payable and accrued expenses (22,513) (106,246)
Tenant security deposits 8,560 9
Deferred revenue (4,281)
- -
Total adjustments (58,618) (152,221)
Net cash provided by operating activities 342,195 332,150
Cash flows from financing activities:
Distributions to partners (578,880) (499,070)
Net decrease in cash and cash equivalents (236,685) (166,920)
Cash and cash equivalents, beginning of period 3,035,278 3,115,673
Cash and cash equivalents, end of period $2,798,593 $2,948,753
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 May 31, 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,
North Carolina 13 years
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 May 31, 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 $11,365 and $4,790 during the nine months ended May 31,
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 May 31, 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 86% leased as of May 31, 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 May 31, 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 66% leased as of May 31, 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 May 31, 1995 and August 31, 1994
is $6,000,000.
During the quarter ended May 31, 1995, the Partnership received two
offers to purchase the Spartan Place Shopping Center. Subsequent to the
quarter-end, the Partnership entered into a tentative agreement with the
higher bidder at a negotiated sales price of $6,150,000. There can be no
assurances that this transaction will be consummated. If the transaction
does close, management would expects to distribute the majority of the
proceeds from the disposition of Spartan Place to the Limited Partners.
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
nine-month periods ended May 31, 1995 and 1994 are as follows:
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1995 1994
REVENUES:
Rental income and
expense reimbursements $468,691 $520,463 $1,451,429 $1,396,799
Other income 3,210 1,244 9,152 6,039
471,901 521,707 1,460,581 1,402,838
EXPENSES:
Property operating expenses 205,878 189,093 742,772 601,983
Property taxes and insurance 55,344 54,451 189,795 163,544
261,222 243,544 932,567 765,527
Income from operations of
investment properties held
for sale, net $210,679 $278,163 $ 528,014 $ 637,311
4. Related Party Transactions
The Adviser earned basic management fees of $104,556 and $103,749 for the
nine-month periods ended May 31, 1995 and 1994, respectively. Accounts
payable - affiliates at both May 31, 1995 and August 31, 1994 consists of
management fees of $32,920 payable to the Adviser.
Included in general and administrative expenses for the nine months ended May
31, 1995 and 1994 is $118,518 and $104,535, 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 nine months
ended May 31, 1995 and 1994 is $4,429 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 66%
leased as of May 31, 1995, down from 85% as of August 31, 1994 and 78% last
quarter. 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 and
another tenant which occupied 3,600 square feet went out of business during the
quarter ended February 28, 1995. In addition, during the current quarter,
another tenant which occupied 1,600 square feet did not renew its lease and, as
previously reported, Circuit City vacated one of the anchor tenant spaces at the
property to move to a location they believed to be better suited to their future
operations. Circuit City had occupied 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. In addition, management of the Phar-Mor anchor store, which
occupies 26% of the leasable space at Spartan Place, has indicated that they may
close their store at Spartan Place in the near future as part of their
bankruptcy reorganization plan. Re-leasing the Circuit City and Phar-Mor space
to high-profile, credit tenants could require a significant expansion and
repositioning of the shopping center. 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. Management is currently in
discussions with two prospective anchor tenants which have expressed interest in
occupying space at the Center. Alternatively, management has been considering a
possible sale of the property prior to spending any significant funds on capital
improvements.
During the quarter ended May 31, 1995, the Partnership received two offers
to purchase Spartan Place. Subsequent to the quarter-end, the Partnership
entered into a tentative agreement with the higher bidder at a negotiated sales
price of $6,150,000. However, there can be no assurances that this transaction
will be consummated. While the potential sales price is substantially lower
than the amount of the Partnership's original investment in Spartan Place, of
$9.8 million, management believes that it may be in the Partnership's best
interests to dispose of this investment at the present time. A current sale
transaction at fair market value would enable the Partnership to avoid the risks
and costs of re-leasing the vacant space at the Center, as well as the potential
costs of redeveloping the property. Management will continue to explore the re-
leasing options for the property in the event that a sale transaction cannot be
completed. If a sale of Spartan Place were to be completed, management would
expect to distribute the majority from the disposition of this investment to the
Limited Partners. In addition to the net sales proceeds, the distribution would
likely include the proceeds of the $1,550,000 letter of credit which the
Partnership retained at the time of the Spartan Place borrower's original
default. Such funds remain in the balance of the Partnership's cash reserves as
of May 31, 1995.
The wholly-owned Hacienda Plaza office and retail complex was 86% leased as
of May 31, 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.
At May 31, 1995, the Partnership had available cash and cash equivalents of
approximately $2,799,000. 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 November 30, 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 during the quarter ended
February 28, 1995. 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
Three Months Ended May 31, 1995
The Partnership's net income decreased by approximately $54,000 for the
three months ended May 31, 1995, when compared to the same period in the prior
year. This decrease in net income is primarily a result of a decrease in the
income from operations of investment properties held for sale. The income from
operations of investment properties held for sale decreased by approximately
$67,000 for the third quarter of fiscal 1995 due to a decrease in income at the
Spartan Place Shopping Center. Income decreased by approximately $117,000 at
Spartan Place due to a decrease in rental income of approximately $86,000 and an
increase in bad debt expenses of approximately $26,000. Rental income decreased
due to a decrease in occupancy to 66% for the current quarter as compared to 85%
during the same quarter in the prior year. The decrease in income at Spartan
Place was partially offset by an increase in income at Hacienda Plaza of
approximately $49,000 primarily due to an increase in rental income of
approximately $34,000. Rental income increased due to an increase in occupancy
to 86% for the current quarter as compared to 83% during the same quarter in the
prior year. The decrease in income from operations of investment properties
held for sale was partially offset by a decrease in the Partnership's operating
loss of approximately $13,000 due to an increase in interest earned on short
term investments of approximately $14,000. Interest earned on short term
investments increased due to an increase in the interest rates earned on such
investments.
Nine Months Ended May 31, 1995
The Partnership's net income decreased by approximately $84,000 for the
nine months ended May 31, 1995, when compared to the same period in the prior
year. This decrease in net income is primarily a result of a decrease in the
income from operations of investment properties held for sale. The income from
operations of investment properties held for sale decreased by approximately
$109,000 for the current nine-month period due to a decrease in income at the
Spartan Place Shopping Center. Income from Spartan Place decreased by
approximately $128,000 due to a decrease in rental income of approximately
$44,000 and increases in real estate tax and bad debt expenses of approximately
$42,000 and $26,000, respectfully. Rental income decreased due to the decrease
in occupancy to 66% as of May 31, 1995, as compared to the level of 85% of one
year earlier. The decrease in income at Spartan Place was partially offset by
an increase in income at Hacienda Plaza of approximately $19,000 due to an
increase in rental income of approximately $99,000. Rental income increased
mainly due to the increase in occupancy to 86% as of May 31, 1995, as compared
to 83% at May 31, 1994. The decrease in income from operations of investment
properties held for sale was partially offset by a decrease in the Partnership's
operating loss of approximately $26,000 due to an increase in interest earned on
short term investments of approximately $41,000 and an increase in land rent
income of approximately $7,000. Interest earned on short term investments
increased due to an increase in the interest rates earned on such investments in
fiscal 1995. Land rents increased as a result of additional supplemental rent
received under the terms of the ground lease on the Park South Apartments.
These increases in interest income on short term investments and land rent
income were partially offset by an increase in general and administrative
expenses of approximately $21,000 primarily due to certain professional fees
incurred to perform market research and tenant analysis as part of the process
of generating alternative business plans for the Spartan Place property referred
to above.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Partnership's quarterly report on Form 10-Q for the
period ended February 28, 1995, 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. On May 30, 1995, the
court certified class action treatment of the claims asserted in the litigation.
Refer to the description of the claims in the prior quarterly report for further
information. The General Partners continue to 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
for which this report is filed.
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: July 14, 1995
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the 9 months ended May 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> MAY-31-1995
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<RECEIVABLES> 1,415,013
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<PP&E> 11,130,000
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0
0
<OTHER-SE> 14,941,020
<TOTAL-LIABILITY-AND-EQUITY> 15,395,619
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