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 29, 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, Massachu 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
February 29, 1996 and August 31, 1995(Unaudited)
(In thousands)
ASSETS
February 29 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 2,564 2,692
Interest and land rent receivable 10 10
Accounts receivable, net 114 26
Prepaid expenses 9 17
Deferred expenses, net 28 30
--------- ---------
$14,125 $14,175
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 33 $ 33
Accounts payable and accrued expenses 135 192
Tenant security deposits 82 79
Deferred management fees 245 245
Partners' capital 13,630 13,626
--------- --------
$14,125 $14,175
========= =========
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF INCOME
For the six months ended February 29, 1996 and February 28, 1995 (Unaudited)
(In thousands, except per Unit data)
Three Months Ended Six Months Ended
February 29/28 February 29/28,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Interest from mortgage loan $ 28 $ 28 $ 57 $ 57
Land rent 10 12 22 22
Other interest income 33 39 68 74
------ ------- ------ ------
71 79 147 153
Expenses:
Management fees 34 35 69 70
General and administrative 102 105 165 170
Amortization of
deferred expenses 1 1 2 2
------ ------- ------ ------
137 141 236 242
------ ------- ------ ------
Operating loss (66) (62) (89) (89)
Income from operations of investment
properties held for sale, net 236 137 358 317
------ ------ ------- -------
Net income $ 170 $ 75 $ 269 $ 228
===== ======= ====== ======
Net income per Limited
Partnership Unit $0.21 $0.10 $0.34 $0.29
===== ===== ===== =====
Cash distributions per Limited
Partnership Unit $0.09 $0.24 $0.34 $0.48
===== ===== ===== =====
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 six months ended February 29, 1996 and February 28, 1995 Unaudited)
(In thousands)
General Limited
Partners Partners
Balance at August 31, 1994 $(75) $15,194
Net income 2 225
Cash distributions (4) (375)
------ -------
Balance at February 28, 1995 $(77) $15,044
==== =======
Balance at August 31, 1995 $(90) $13,716
Net income 3 266
Cash distributions (3) (262)
------ -------
Balance at February 29, 1996 $(90) $13,720
====- =======
See accompanying notes.
<PAGE>
PAINEWEBBER MORTGAGE PARTNERS FIVE, L.P.
STATEMENTS OF CASH FLOWS
For the six months ended February 29, 1996 and February 28, 1995
Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
(In thousands)
1996 1995
Cash flows from operating activities:
Net income $ 269 $ 228
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of deferred expenses 2 2
Changes in assets and liabilities:
Accounts receivable (88) (59)
Prepaid expenses 8 5
Accounts payable and accrued expenses (57) 3
Tenant security deposits 3 16
Deferred revenue - (4)
------- --------
Total adjustments (132) (37)
------- --------
Net cash provided by operating activities 137 191
Cash flows from financing activities:
Distributions to partners (265) (379)
------- -------
Net decrease in cash and cash equivalents (128) (188)
Cash and cash equivalents, beginning of period 2,692 3,035
-------- -------
Cash and cash equivalents, end of period $2,564 $2,847
====== ======
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 February 29, 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 February 29, 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 $11,000 during each of the six-month periods ended
February 29, 1996 and February 28, 1995. 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 February 29, 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 88% leased as of February
29, 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 February 29, 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 37% occupied
as of February 29, 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 February 29, 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 six-month periods ended
February 29, 1996 and February 28, 1995 are as follows (in thousands):
Three Months Ended Six Months Ended
February 29/28 February 29/28,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rental income and
expense reimbursements $ 441 $ 512 $ 819 $ 982
Other income 2 4 5 6
------ ------ ------ ------
443 516 824 988
Expenses:
Property operating expenses 163 271 366 537
Property taxes and insurance 44 108 100 134
----- ------- ------- -------
207 379 466 671
----- ------- ------- -------
Income from operations of
investment properties held
for sale, net $ 236 $137 $ 358 $ 317
====== ==== ====== ======
4. Related Party Transactions
The Adviser earned basic management fees of $69,000 for each of the six-month
periods ended February 29, 1996 and February 28, 1995. Accounts payable -
affiliates at both February 29, 1996 and August 31, 1995 consists of
management fees of $33,000 payable to the Adviser.
Included in general and administrative expenses for the six months ended
February 29, 1996 and February 28, 1995 is $69,000 and $80,000, 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 six months ended
February 29, 1996 and February 28, 1995 is $5,000 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 37%
occupied as of February 29, 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. Management is prepared to exercise its available
legal remedies to enforce the Circuit City lease agreement in the event that
acceptable terms for a buyout cannot be reached. 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 quarter ended May 31, 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 release the vacant
anchor spaces. The Partnership has identified financial sources that would
provide non-recourse financing for the releasing costs, provided lease terms can
be finalized with prospective new anchor tenants. During the quarter, management
began negotiations with a tenant 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 88% leased 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. Approximately 800 housing units are scheduled
for construction in the near future. 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. During the current
quarter, management renewed leases with two retail tenants. In addition, space
was leased to two new office tenants at rental rates substantially higher than
the average per square foot rate for office tenants in this property. 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 87% for the quarter ended February 29, 1996, compared to an average of
94% for the same period in the prior fiscal year. 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. Although much of the decrease in occupancy at the
property is due to expected seasonal leasing patterns, the change is also 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. In addition, many apartment
residents are attracted to the single-family home market since home prices in
Charlotte are fairly affordable and mortgage interest rates remain relatively
low. As a result of the increased level of competition and the resulting
increased vacancy level for two-bedroom apartment units, Park South's leasing
and management team has expanded its marketing program and is offering rental
concessions to attract new tenants. Rental concessions include discounts for new
two-bedroom apartment tenants and no rental rate increases for existing tenants
that renew their leases. Management expects that the occupancy level will
increase during the third fiscal quarter because late April and early May are
typically active leasing periods.
At February 29, 1996, the Partnership had available cash and cash
equivalents of $2,564,000. 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.
Results of Operations
Three Months Ended February 29, 1996
The Partnership's net income increased by $95,000 for the three month
period ended February 29, 1996, when compared to the same period in the prior
year. The primary reason for the increase in net income in the current period is
the increase in income from the operations of investment properties held for
sale. Income from operations of investment properties held for sale increased by
$99,000 in the current three-month period primarily due to an increase in income
from Hacienda Plaza of $93,000. The increase in income from Hacienda Plaza was
primarily due to a decrease in capital improvement and leasing costs during the
current period as compared to the same period in the prior year. The increase in
income from operations of investment properties held for sale was partially
offset by an increase in the Partnership's operating loss of $4,000. Operating
loss increased mainly due to a decrease in interest income earned on cash and
cash equivalents of $6,000. Interest income decreased due to a decrease in the
average balance of cash and cash equivalents held by the Partnership.
Six Months Ended February 29, 1996
The Partnership's net income increased by $41,000 for the six month period
ended February 29, 1996, when compared to the same period in the prior year. The
primary reason for the increase in net income in the current period is the
increase in income from the operations of investment properties held for sale.
Income from operations of investment properties held for sale increased by
$41,000 in the current six-month period due to an increase in income at the
Hacienda Plaza property. The increase in income from Hacienda Plaza of $114,000
was primarily due to a decrease in capital improvement and leasing costs during
the current period as compared to the same period in the prior year. The
increase in income from Hacienda Plaza was partially offset by a decrease in
income from Spartan Place of $73,000. Net income from Spartan Place decreased
due to a decrease in rental income of $126,000. Rental income decreased as a
result of the decrease in occupancy from 78% at February 28, 1995 to 37% at
February 29, 1996, as discussed further above.
<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 this matter 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: April 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's interim financial statements for the quarter ended February 29,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> FEB-29-1996
<CASH> 2564
<SECURITIES> 0
<RECEIVABLES> 1394
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2697
<PP&E> 10130
<DEPRECIATION> 0
<TOTAL-ASSETS> 14125
<CURRENT-LIABILITIES> 250
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13630
<TOTAL-LIABILITY-AND-EQUITY> 14125
<SALES> 0
<TOTAL-REVENUES> 505
<CGS> 0
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 269
<INCOME-TAX> 0
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</TABLE>
