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, 1996
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>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
BALANCE SHEETS
May 31, 1996 and August 31, 1995 (Unaudited)
(In thousands)
ASSETS
May 31 August 31
--------- ---------
Real estate investments:
Investment properties held for sale, net $ 9,900 $ 9,900
Land 230 230
Mortgage loan receivable 1,270 1,270
--------- ---------
11,400 11,400
Cash and cash equivalents 2,514 2,692
Interest and land rent receivable 10 10
Accounts receivable, net 81 26
Prepaid expenses 21 17
Deferred expenses, net 26 30
--------- ---------
$ 14,052 $ 14,175
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 33 $ 33
Accounts payable and accrued expenses 91 192
Tenant security deposits 85 79
Deferred management fees 245 245
Partners' capital 13,598 13,626
--------- ---------
$ 14,052 $ 14,175
======== ========
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF INCOME
For the three and nine months ended May 31, 1996 and 1995 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Nine Months Ended
May 31, May 31,
----------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest from mortgage loan $ 29 $ 29 $ 86 $ 86
Land rent 7 5 29 27
Other interest income 31 40 99 114
------ ------- ----- ------
67 74 214 227
Expenses:
Management fees 33 35 102 105
General and administrative 63 74 228 245
Amortization of deferred
expenses 2 2 4 4
------- ------- ----- ------
98 111 334 354
-------- ------- ----- ------
Operating loss (31) (37) (120) (127)
Income from operations of investment
properties held for sale, net 66 211 424 528
------- ------- ------- -------
Net income $ 35 $ 174 $ 304 $ 401
======= ====== ====== ======
Net income per Limited
Partnership Unit $0.05 $0.22 $0.39 $0.51
===== ===== ===== =====
Cash distributions per Limited
Partnership Unit $0.09 $0.26 $0.43 $0.74
===== ===== ===== =====
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.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended May 31, 1996 and 1995 (Unaudited)
(In thousands)
General Limited
Partners Partners
------- --------
Balance at August 31, 1994 $(75) $15,194
Net income 4 397
Cash distributions (6) (573)
---- -------
Balance at May 31, 1995 $(77) $15,018
==== =======
Balance at August 31, 1995 $(90) $13,716
Net income 3 301
Cash distributions (3) (329)
----- -------
Balance at May 31, 1996 $(90) $13,688
==== =======
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 304 $ 401
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred expenses 4 4
Changes in assets and liabilities:
Accounts receivable (55) (47)
Prepaid expenses (4) 3
Accounts payable and accrued expenses (101) (23)
Tenant security deposits 6 9
Deferred revenue - (4)
------- ------
Total adjustments (150) (58)
------- ------
Net cash provided by operating activities 154 343
Cash flows from financing activities:
Distributions to partners (332) (579)
------- ------
Net decrease in cash and cash equivalents (178) (236)
Cash and cash equivalents, beginning of period 2,692 3,035
------- ------
Cash and cash equivalents, end of period $2,514 $2,799
====== ======
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
Notes to Financial Statements
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should be
read in conjunction with the financial statements and footnotes contained in
the Partnership's Annual Report for the year ended August 31, 1995.
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, 1996 and August
31, 1995 (in thousands):
Date of
Property Amount of Loan Interest Rate Loan and Term
-------- -------------- ------------- -------------
Park South Apartments $1,270 9% 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, 1996 and August 31, 1995
(in thousands):
Cost of Land
Property to the Partnership Annual Base Rent
-------- ------------------ ----------------
Park South Apartments $ 230 $21 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 $13,000 and $11,000 during the nine-month periods ended
May 31, 1996 and 1995, 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.
<PAGE>
3. Investment Properties Held for Sale
At May 31, 1996 and August 31, 1995, 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
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 82% leased as of May 31,
1996. The combined balance of the land and the mortgage loan investments at
the time title was transferred to the Partnership was $9,789,000. The
estimated fair value of the operating property at the date of foreclosure
was $8,200,000. Accordingly, a write-down of $1,589,000 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, 1996 and August 31, 1995 is $4,900,000.
Spartan Place Shopping Center
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 36% occupied
as of May 31, 1996. The combined balance of the land and the mortgage loan
investment at the time title was transferred to the Partnership was
$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 $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 $2,840,000 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, 1996 and
August 31, 1995 is $5,000,000.
During the first quarter of fiscal 1996, the Partnership had entered
into a preliminary agreement to sell the Spartan Place property to a third
party. Subsequent to the buyer's due diligence period, the offer was
withdrawn. Management of the Partnership is currently considering whether to
re-market the property for sale or to hold the property and invest the funds
required to redevelop the property, which, as noted above, has a substantial
amount of vacant space. Funds for such a redevelopment could be provided
from a combination of Partnership cash reserves and secured non-recourse
borrowings.
<PAGE>
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, 1996 and 1995 are as follows (in thousands):
Three Months Ended Nine Months Ended
May 31 May 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rental income and
expense reimbursements $ 372 $ 469 $1,191 $1,452
Other income 2 3 7 9
------ ------ ------ ------
374 472 1,198 1,461
Expenses:
Property operating expenses 252 206 618 743
Property taxes and insurance 56 55 156 190
------ ------ ------ ------
308 261 774 933
------ ------ ------ ------
Income from operations of
investment properties held
for sale, net $ 66 $ 211 $ 424 $ 528
======= ====== ======= =======
4. Related Party Transactions
The Adviser earned basic management fees of $102,000 and $105,000 for the
nine-month periods ended May 31, 1996 and 1995, respectively. Accounts
payable - affiliates at both May 31, 1996 and August 31, 1995 consists of
management fees of $33,000 payable to the Adviser.
Included in general and administrative expenses for the nine months ended May
31, 1996 and 1995 is $105,000 and $119,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the nine months
ended May 31, 1996 and 1995 is $6,000 and $4,000, 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. At the present time,
the Managing General Partner cannot estimate the impact, if any, of these
matters on the Partnership's financial statements, taken as a whole.
<PAGE>
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 36%
occupied as of May 31, 1996. As previously reported, Circuit City vacated one of
the anchor tenant spaces at the property during the quarter ended May 31, 1995
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
remains obligated to pay annual base rent of approximately $112,000, plus its
pro rata share of operating expenses, through the end of its lease term, in
January 2008. During the second quarter of fiscal 1996, Circuit City began
withholding its rental payments as part of its efforts to negotiate a buyout of
its future rental obligations. The Partnership aggressively pursued its rights
under its lease agreement with this tenant and, as a result, Circuit City paid
all rent owed and is currently making timely monthly rental payments. In
addition, management of Phar-Mor, another anchor tenant, which occupied 26% of
the leasable space at Spartan Place, closed its store at Spartan Place and
terminated its lease in July 1995 as part of its bankruptcy reorganization plan.
A number of smaller shop space tenants also either went out of business or
failed to renew their leases during fiscal 1995. Re-leasing the Circuit City and
Phar-Mor spaces to high-profile, strong credit tenants will be critical to
increasing shopper traffic at the center which will be necessary to retain the
existing tenants and to lease the vacant shop space. However, such re-leasing
plans could require a significant expansion and/or repositioning of the shopping
center. Alternatively, management has considered a possible sale of the property
prior to undertaking any major re-leasing commitments and potentially spending
significant funds or assuming financing for capital and tenant improvements.
During the third quarter of fiscal 1995, the Partnership received offers to
purchase Spartan Place. During the first quarter of fiscal 1996, the Partnership
entered into a purchase and sale agreement with the highest bidder at a
negotiated sales price of $6,150,000. Under the terms of the contract, the buyer
had thirty days to perform its due diligence procedures. Subsequent to the
buyer's due diligence period, the offer to purchase the property was withdrawn.
Management of the Partnership re-contacted the other prospective buyers, but, to
date, has not been able to reach a mutually acceptable sale agreement. As a
result, management of the Partnership is currently considering whether to
re-market the property for sale or to hold the property and re-lease the vacant
anchor spaces. The Partnership has identified financing sources that would
provide non-recourse loans to the Partnership for the leasing costs, provided
lease terms can be finalized with prospective new anchor tenants. During the
quarter, management continued negotiations with tenants that may be interested
in occupying a new store in the location of the anchor space that was previously
occupied by Phar-Mor. The outcome of such negotiations cannot be determined at
this time.
The wholly-owned Hacienda Plaza office and retail complex was 82% leased as
of May 31, 1996, down from 88% as of February 29, 1996. 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. In addition, a portion of the land in the planned development area in
which Hacienda Plaza is located has been re-zoned for residential use.
Development of approximately 800 housing units is currently underway. This
development and any future residential development in the immediate vicinity of
Hacienda Plaza would reduce the amount of developable land available for new
competing office space and would increase the pedestrian traffic for the retail
tenants at the Partnership's property. As a result of these conditions,
management believes that operations at the Hacienda Plaza investment property
appear to have stabilized after several years of intense local office and retail
market competition. The decrease in occupancy during the current quarter was the
result of one office tenant relocating to a smaller space at the end of its
lease term and another tenant moving out of the building at the end of its lease
term. Current market rents are higher than the rents paid by these two tenants.
As a result, if market conditions remain strong and replacement tenants are
obtained, cash flows from the Hacienda Plaza property could be improved. The
Managing General Partner continues to plan to make selective capital
improvements aimed at enhancing marketing and leasing efforts until market
conditions favorable to a sale of the property can be achieved.
Occupancy at the Park South Apartments in Charlotte, North Carolina,
averaged 91% for the quarter ended May 31, 1996, compared to an average of 87%
in the prior fiscal quarter. 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 increase in occupancy at the property is a result of Park
South's leasing and management team expanding its marketing program and offering
rental concessions to attract new tenants. This strategy is due to an increased
level of competition from Charlotte's multi-family and single-family home
markets. Over the past year, more than 3,900 new apartment units have been added
to the overall Charlotte market. Approximately 1,500 of these new units are in
southeast Charlotte, where Park South is located, and 708 of these new units are
in Park South's submarket. This marketing program and rental concessions are
expected to continue during the fourth quarter of fiscal 1996.
At May 31, 1996, the Partnership had available cash and cash equivalents of
$2,514,000. 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 had increased to
3% per annum on remaining invested capital for the quarter ended August 31,
1995. Given the potential future capital needs of the Partnership's two
wholly-owned properties, as well as the loss of income at Spartan Place which
resulted from the significant decrease in occupancy during fiscal 1995, the
distribution rate was reduced to 1% per annum on remaining invested capital
effective for the payment made on January 12, 1996 for the quarter ending
November 30, 1995. Distributions are expected to remain at this level until
Spartan Place is either sold or its operations have been stabilized. 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. In addition, as discussed further above, the
Partnership may obtain certain secured borrowings to finance the potential
leasing costs to be incurred at the Spartan Place property.
Results of Operations
Three Months Ended May 31, 1996
The Partnership's net income decreased by $139,000 for the three months
ended May 31, 1996, when compared to the same period in the prior year. The
decrease in net income is primarily a result of a decrease in the income from
investment properties held for sale. The income from investment properties held
for sale decreased by $145,000 in the current three-month period due to
decreases in net income of $99,000 at Hacienda Plaza and $46,000 at Spartan
Place. Income decreased at Hacienda Plaza due to a decrease in rental income of
$33,000 and an increase in expenses of $66,000. Rental income at Hacienda Plaza
decreased due to a decline in occupancy for the current three-month period from
86% to 82%, when compared to the same period in the prior year. Expenses at
Hacienda Plaza increased primarily due to an increase in capital improvements.
Income decreased at Spartan Place due to a decrease in rental income of $65,000.
Rental income decreased due to a decline in occupancy for the current
three-month period from 66% to 36%, when compared to the same period in the
prior year. The decrease in income from investment properties held for sale was
partially offset by a decrease in the Partnership's operating loss of $6,000.
The Partnership's operating loss for the current three-month period decreased
primarily due to a decrease in general and administrative expenses of $11,000.
Nine Months Ended May 31, 1996
The Partnership's net income decreased by $97,000 for the nine months
ended May 31, 1996, when compared to the same period in the prior year. The
decrease in net income is mainly a result of a decrease in the income from
investment properties held for sale. The income from investment properties held
for sale decreased by $104,000 due to a decrease in net income of $119,000 at
Spartan Place. Income decreased at Spartan Place due to a decrease in rental
income of $191,000. Rental income decreased due to a decrease in occupancy for
the current nine-month period from 75% to 37%, when compared to the same period
in the prior year. The decrease in net income at Spartan Place was partially
offset by an increase in net income at Hacienda Plaza of $15,000. Net income
increased at Hacienda Plaza due to decreases in capital improvement and leasing
costs and other operating expenses of $93,000. The decreases in capital
improvement and leasing costs and other operating expenses was partially offset
by a decrease in rental income of $70,000. Rental income decreased as a result
of a decrease in occupancy for the current nine-month period from 87% to 85%,
when compared to the same period in the prior year. The decrease in income from
investment properties held for sale was partially offset by a decrease in the
Partnership's operating loss of $7,000. The Partnership's operating loss for the
current nine-month period decreased primarily due to a decrease in general and
administrative expenses of $17,000.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, Fifth Mortgage Partners, Inc. and Properties
Associates 1985, L.P., the General Partners of the Partnership, were named as
defendants in a class action lawsuit against PaineWebber Incorporated
("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of
70 direct investment offerings, including the offering of interests in the
Partnership. In January 1996, PaineWebber signed a memorandum of understanding
with the plaintiffs in the class action outlining the terms under which the
parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and a plan of allocation which the parties
expect to submit to the court for its consideration and approval within the next
several months. Until a definitive settlement and plan of allocation is approved
by the court, there can be no assurance what, if any, payment or non-monetary
benefits will be made available to unitholders in PaineWebber Mortgage Partners
Five, L.P.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with this litigation.
At the present time, the General Partners cannot estimate the impact, if any, of
these potential indemnification claims 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.
<PAGE>
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 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended May 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 2514
<SECURITIES> 0
<RECEIVABLES> 1361
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2626
<PP&E> 10130
<DEPRECIATION> 0
<TOTAL-ASSETS> 14052
<CURRENT-LIABILITIES> 209
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13598
<TOTAL-LIABILITY-AND-EQUITY> 14052
<SALES> 0
<TOTAL-REVENUES> 638
<CGS> 0
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<OTHER-EXPENSES> 0
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</TABLE>
