UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-15690
RESOURCES PENSION SHARES 5, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3353722
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue Greenwich, CT 06830
(Address of principal executive offices) (Zip Code)
(203) 862-7000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark 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>
RESOURCES PENSION SHARES 5, L.P.
FORM 10-Q - SEPTEMBER 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1996 and December 31, 1995
STATEMENTS OF OPERATIONS - For the three months ended September 30,
1996 and 1995 and the nine months ended September 30, 1996 and
1995
STATEMENT OF PARTNERS' EQUITY - For the nine months ended September 30,
1996
STATEMENTS OF CASH FLOWS - For the nine months ended September 30, 1996
and 1995
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
BALANCE SHEETS
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Investments in mortgage loans .................. $ 30,387,234 $ 32,252,926
Cash and cash equivalents ...................... 10,163,380 9,192,906
Real estate - net .............................. 7,816,110 7,881,094
Interest receivable ............................ 306,101 306,101
Other assets ................................... 122,449 98,043
------------ ------------
$ 48,795,274 $ 49,731,070
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses .......... $ 639,123 $ 451,810
Distributions payable .......................... 632,316 402,383
Other liabilities .............................. 443,050 443,050
Due to affiliates .............................. 223,291 201,948
------------ ------------
Total liabilities ........................... 1,937,780 1,499,191
Commitments and contingencies
Partners' equity
Limited partners' equity (5,690,843 units issued
and outstanding) ............................ 46,930,319 48,290,961
General partners' deficit ...................... (72,825) (59,082)
------------ ------------
Total partners' equity ...................... 46,857,494 48,231,879
------------ ------------
$ 48,795,274 $ 49,731,070
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Mortgage loan interest income .......................... $ 745,052 $ 689,366 $ 2,316,254 $ 1,699,976
Operating income ....................................... 207,943 187,668 728,456 541,384
Short term investment interest ......................... 120,570 174,254 294,152 600,170
Other income ........................................... 220,509 77,913 247,464 98,893
----------- ----------- ----------- -----------
1,294,074 1,129,201 3,586,326 2,940,423
----------- ----------- ----------- -----------
Costs and expenses
Provision for loan losses .............................. 1,547,830 -- 1,547,830 --
Operating expenses ..................................... 205,221 117,980 491,578 402,350
Asset management fees .................................. 204,245 184,465 569,387 553,482
General and administrative expenses .................... 70,010 170,226 199,963 309,287
Depreciation expense ................................... 48,826 47,129 145,472 141,139
Mortgage servicing fees ................................ 19,046 17,383 57,138 44,975
Property management fees ............................... 13,500 17,970 42,420 34,256
Amortization expense ................................... 3,473 -- 9,975 --
Write-down for impairment .............................. -- -- -- 1,860,000
----------- ----------- ----------- -----------
2,112,151 555,153 3,063,763 3,345,489
----------- ----------- ----------- -----------
Net (loss) income ........................................... $ (818,077) $ 574,048 $ 522,563 $ (405,066)
=========== =========== =========== ===========
Net (loss) income attributable to
Limited partners ....................................... $ (809,897) $ 568,308 $ 517,337 $ (401,015)
General partners ....................................... (8,180) 5,740 5,226 (4,051)
----------- ----------- ----------- -----------
$ (818,077) $ 574,048 $ 522,563 $ (405,066)
Net (loss) income per unit of limited partnership
interest (5,690,843 units outstanding) ................. $ (.14) $ .10 $ .09 $ (.07)
=========== =========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Deficit Equity Equity
------- ------ ------
<S> <C> <C> <C>
Balance, January 1, 1996 ................ $ (59,082) $ 48,290,961 $ 48,231,879
Net income for the nine months ended
September 30, 1996 .................. 5,226 517,337 522,563
Distributions for the nine months ended
September 30, 1996 ($.33 per limited
partner unit) ...................... (18,969) (1,877,979) (1,896,948)
------------ ------------ ------------
Balance, September 30, 1996 ............. $ (72,825) $ 46,930,319 $ 46,857,494
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENT OF CASH FLOWS
For the nine months ended
September 30,
----------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ........................................... $ 522,563 $ (405,066)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Provision for loan losses ............................ 1,547,830 --
Depreciation expense ................................. 145,472 141,139
Amortization of acquisition fees ..................... 95,779 60,158
Amortization of leasing commissions .................. 9,975 --
Deferred interest receivable ......................... (75,463) (105,415)
Write-down for impairment ............................ -- 1,860,000
Changes in assets and liabilities
Interest receivable ...................................... -- 109,611
Other assets ............................................. (34,381) (82,989)
Accounts payable and accrued expenses .................... 187,313 37,795
Due to affiliates ........................................ 21,343 201,924
------------ ------------
Net cash provided by operating activities ......... 2,420,431 1,817,157
------------ ------------
Cash flows from investing activities
Medford loan funding ........................................ -- (8,746,179)
Mortgage loan repayments received ........................... 297,546 32,031
Additions to real estate .................................... (80,488) (186,464)
------------ ------------
Net cash provided by (used in) investing activities 217,058 (8,900,612)
------------ ------------
Cash flows from financing activities
Distributions to partners ................................... (1,667,015) (977,215)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............. 970,474 (8,060,670)
Cash and cash equivalents, beginning of period ................... 9,192,906 16,864,138
------------ ------------
Cash and cash equivalents, end of period ......................... $ 10,163,380 $ 8,803,468
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussion should be read in conjunction with
the financial statements, related footnotes and discussions contained
in the Resources Pension Shares 5, L.P. (the "Partnership") annual
report on Form 10-K for the year ended December 31, 1995. The results
of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership accounts for its investment in mortgage loans under the
following methods:
Investment method
Mortgage loans representing transactions in which the Partnership is
considered to have substantially the same risks and potential rewards
as the borrower are accounted for as investments in real estate rather
than as loans. Although the transactions are structured as loans, due
to the terms of the deferred interest portion of the mortgage loan, it
is not readily determinable at inception that the borrower will
continue to maintain a minimum investment in the property. Under this
method of accounting, the Partnership will recognize as revenue the
lesser of the amount of interest as contractually provided for in the
mortgage loan, or the pro rata share of the actual cash flow from
operations of the underlying property inclusive of depreciation and
interest expense on any senior indebtedness.
Interest method
Under this method of accounting, the Partnership recognizes revenue as
interest income over the term of the mortgage loan so as to produce a
constant periodic rate of return. Interest income will not be
recognized as revenue during periods where there are concerns about the
ultimate realization of the interest or the loan principal.
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each of the mortgage loans in the Partnership's portfolio. In
performing the review, management considers the estimated net
realizable value of the mortgage loan or collateral as well as other
factors, such as the current occupancy, the amount and status of any
senior debt, the prospects for the property and the economic situation
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses (continued)
in the region where the property is located. Because this determination
of net realizable value is based upon projections of future economic
events which are inherently subjective, the amounts ultimately realized
at disposition may differ materially from the carrying value as of
September 30, 1996. An allowance of $1,547,830 was recorded for the
quarter ended September 30, 1996 (Note 4).
Impairment of assets
In March 1995, the Financial Accounting Standards Board issued
Statement #121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" ("SFAS #121"). The adoption of
the statement was required for fiscal years beginning after December
15, 1995. The Partnership implemented SFAS #121 beginning January 1,
1996. The implementation of SFAS #121 did not result in a write-down of
the Partnership's assets. Under SFAS #121 the initial test to determine
if an impairment exists is to compute the recoverability of the asset
based on anticipated cash flows (net realizable value) compared to the
net carrying value of the asset. If anticipated cash flows on an
undiscounted basis are insufficient to recover the net carrying value
of the asset, an impairment loss should be recognized, and the asset
written down to its estimated fair value. The fair value of the asset
is the amount by which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. The net realizable value of an asset will generally
be greater than its fair value because net realizable value does not
discount cash flows to present value and discounting is usually one of
the assumptions used in determining fair value. The write-downs for
impairment do not affect the tax basis of the assets and the
write-downs are not included in the determination of taxable income or
loss.
Because the determination of both net realizable value and fair value
is based upon projections of future economic events such as property
occupancy rates, rental rates, operating cost inflation and market
capitalization rates which are inherently subjective, the amounts
ultimately realized at disposition may differ materially from the net
carrying value as of September 30, 1996. The cash flows used to
determine fair value and net realizable value are based on good faith
estimates and assumptions developed by management. Inevitably,
unanticipated events and circumstances may occur and some assumptions
may not materialize; therefore actual results may vary from our
estimate and the variances may be material. The Partnership may provide
additional losses in subsequent years if the real estate market or
local economic conditions change and such write-downs could be
material.
No write-down for impairment was recorded for the nine months ended
September 30, 1996. A write-down for impairment of $1,860,000 was
recorded on the Groton property for the nine months ended September 30,
1995.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Investment General Partner of the Partnership, Resources Pension
Advisory Corp., and the Administrative General Partner, Resources
Capital Corp., are wholly-owned subsidiaries of Presidio Capital Corp.
("Presidio"). As of February 28, 1995, the Associate General Partner of
the Partnership is Presidio AGP Corp., also a wholly-owned subsidiary
of Presidio and a Delaware Corporation, which replaced Richard H. Ader,
formerly an executive officer of Integrated Resources, Inc.
("Integrated"). The Administrative General Partner is also a general
partner in several other limited partnerships which are also affiliated
with Presidio, and which are engaged in businesses that are, or may be
in the future, in direct competition with the Partnership. Wexford
Management LLC ("Wexford"), a company controlled by certain officers
and directors of Presidio, performs administrative services for
Presidio and its direct and indirect subsidiaries as well as the
Partnership. During the three and nine months ended September 30, 1996,
reimbursable expenses to Wexford by the Partnership amounted to $29,101
and $88,539, respectively. Wexford is engaged to perform similar
services for other similar entities that may be in competition with the
Partnership.
For management of the affairs of the Partnership, the Administrative
General Partner is entitled to receive a management fee equal to 1.25%
per annum of the average month-end net asset value of the Partnership
for the first four years after the initial closing date; 1.5% for the
next six years; and 1.75% thereafter. For the quarters ended September
30, 1996 and 1995, the Administrative General Partner earned $204,245
and $184,465, respectively.
For the servicing of mortgage loans made by the Partnership, the
Investment General Partner is entitled to receive a mortgage servicing
fee of 1/4 of 1% per annum of the principal balances loaned. During the
quarters ended September 30, 1996 and 1995, the Investment General
Partner earned $19,046 and $17,383, respectively, for mortgage
servicing fees.
The Partnership has entered into a supervisory management agreement
with Resources Supervisory Management Corp. ("RSMC"), an affiliate of
the General Partners, to perform certain functions relating to
supervising the management of the Groton property. As such, RSMC is
entitled to receive as compensation for its supervisory management
services the greater of 6% of annual gross revenues from the Groton
property when leasing services are performed or 3% of gross revenue
when no leasing services are performed. During 1994, RSMC entered into
an agreement with an unaffiliated local management company to perform
such services on behalf of the Partnership. The terms of this agreement
are substantially the same as the agreement entered into between the
Partnership and RSMC. There was no supervisory management fee earned by
RSMC for the quarter ended September 30, 1996. Management fees earned
by the unaffiliated local management company amounted to $13,500 and
$17,970 for the quarters ended September 30, 1996 and 1995,
respectively.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
The General Partners collectively are allocated 1% of net income, loss
and cash flow distributions of the Partnership. Such amounts allocated
or distributed to the General Partners are apportioned .98% to the
Administrative General Partner, .01% to the Investment General Partner
and .01% to the Associate General Partner. For the quarters ended
September 30, 1996 and 1995, the Administrative General Partner,
Investment General Partner and Associate General Partner were allocated
net (loss) income of $(8,016), $(82) and $(82) and $5,624, $58 and $58,
respectively.
On August 15, 1996, Presidio Partnership II Corp., a wholly owned
indirect subsidiary of Presidio, purchased 500,000 units of the
Partnership from the Trustee for Policeman and Fireman Retirement
System of the City of Detroit. This purchase represents approximately
8.8% of the outstanding limited partnership units of the Partnership.
During 1996, affiliates of Presidio purchased approximately 6,600 units
of the Partnership from various other limited partners, which equals
less than 1% of the outstanding limited partnership units.
4 INVESTMENTS IN MORTGAGE LOANS
Bank of California, Seattle Loan
The Bank of California, Seattle Loan, in the principal amount of
$8,500,000 ("Wrap Loan"), is secured by, among other things, the
interest of Gum Loong Limited Partnership ("Gum Loong") in the Land
located in downtown Seattle, Washington underlying a building commonly
known as The Bank of California Building (the "Building"). The Land is
subject to a long term ground lease (the "Ground Lease"). Concurrently
with the closing of the Wrap Loan, Gum Loong acquired the lessor's
interest under the Ground Lease and Continental Seattle Partners, L.P.
("CSP"), a partnership related to Gum Loong, acquired the lessee's
interest under the Ground Lease. CSP also acquired the lessor's
interest under a master (net) sublease with The Bank of California for
a substantial portion of the Building. A first mortgage on the Land
("Land Loan") in the principal amount of $8,000,000, is held by Anchor
National Life Insurance Company ("Anchor"). Under the provisions of the
Wrap Loan, Gum Loong is required to make the payments required under
both the Land Loan and the Wrap Loan to the Partnership on a monthly
basis. The Wrap Loan, is secured by a Wraparound Deed of Trust,
Security Agreement, Financing Statement and Assignment of Lessor's
Interest in Ground Lease(s) dated May 5, 1988 in the amount of
$16,500,000, between the Partnership and Gum Loong. The Building is
encumbered by a loan ("Building Loan"), which matured on March 26,
1992, between The Bank of Tokyo Trust Company (Seattle Branch) ("BOT")
and CSP, in the principal amount of $48,000,000, secured by a first
mortgage on the Building and a third mortgage on the Land. This loan is
also guaranteed by Gum Loong. The Partnership's collateral for the Wrap
Loan is the Land, the lessor's interest in the Ground Lease and subject
to the Ground Lease, BOT's lien, the Building, the rents and profit and
proceeds therefrom.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Bank of California, Seattle Loan (continued)
The Partnership received a letter dated April 22, 1993, stating that
BOT had commenced a foreclosure action against CSP for failure to repay
the Building Loan which matured on March 26, 1992. An Option Agreement
entered into at the time the Wrap Loan was made gives BOT the right,
after commencing a foreclosure action, to exercise an option to
purchase either (i) the Land Loan and the Wrap Loan from Anchor and the
Partnership or (ii) the Land from Gum Loong subject to the Land Loan
and the Wrap Loan. On July 9, 1993 the Partnership received notice from
BOT that it intended to exercise its option to purchase the Land.
Gum Loong did not make timely payments of its scheduled July, August,
and September 1993 debt service on the Wrap Loan. The Partnership
utilized its working capital reserves to make the required payments on
the Land Loan. On July 20, 1993, and again on August 9, 1993, the
Partnership notified Gum Loong that an event of default had occurred
due to CSP's default on the BOT loan and Gum Loong's failure to make
its scheduled payments. Both Gum Loong and CSP filed for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code in
August 1993, staying BOT's foreclosure action. On September 27, 1993
the Partnership, Anchor and Gum Loong entered into an Interim
Stipulation and Order Concerning Cash Collateral, which was approved by
the Bankruptcy Court on September 29, 1993. Since October 1993, various
Cash Collateral Orders had been entered into which required Gum Loong
to make its monthly payments to the Partnership. The September 1993
payment and all monthly contract interest payments due thereafter under
the Cash Collateral Orders have been made. The current Cash Collateral
Order requires Gum Loong to make monthly payments to the Partnership
through the maturity date of the loan.
On January 31, 1994, a Proof of Claim was filed in connection with the
Gum Loong Bankruptcy by the Partnership as it relates to amounts due
under the Wrap Loan, including principal, interest and other amounts
due. On January 6, 1995, a Proof of Claim was filed in connection with
the CSP bankruptcy by the Partnership for a contingent and unliquidated
claim under the Wrap Loan. Despite the bankruptcy filings by both Gum
Loong and CSP, the Partnership has not provided for an allowance for
loan loss on this loan. The Partnership believes that the collateral
for the Wrap Loan, the Land as encumbered by the Ground Lease, is of
sufficient value to realize the amount due under the Wrap Loan. If BOT
exercises its option to purchase the Land, it will be required, as a
condition of such exercise, to cure any defaults by Gum Loong.
On or about January 3, 1995, the United States Trustee moved to convert
the Gum Loong Chapter 11 Bankruptcy to a Chapter 7 Bankruptcy or to
dismiss the Gum Loong Case, or to set a deadline for filing a plan of
reorganization. This motion was scheduled for a hearing on February 9,
1995. This motion has been adjourned pending the hearing on its
proposed disclosure statement and proposed plan. The hearing on the
adequacy of BOT's proposed disclosure statement was set for April 6,
1995. The Third Amended Disclosure Statement was approved on May 31,
1995.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Bank of California, Seattle Loan (continued)
Thereafter, BOT sought confirmation of various amended plans to which
the Partnership successfully objected. Such plans included provisions
that were adverse to the Partnership's interests. The Partnership's
objections, and the Bankruptcy Court's rulings thereon, prompted BOT to
make various amendments and revisions to its proposed plan of
reorganization and withdraw various provisions that were objectionable
to the Partnership. After extended confirmation hearings on BOT's
proposed plans, the Bankruptcy Court approved the revised Fifth Amended
Plan in September 1995. As part of the approved plan, in September
1995, approximately $335,000 was paid to the Partnership. This amount
consisted of approximately $266,000 of interest payments due the
Partnership which resulted from two missed interest payments in 1993,
and late charges and interest related to these payments of
approximately $69,000.
The approved plan calls for, among other things, a Bankruptcy Court
appointed liquidating agent to manage the Building securing the Wrap
Loan and to pay the installments due the Partnership. The liquidating
agent is also required to sell the Building by September 1998 in a sale
that must be approved by the Bankruptcy Court and to which the
Partnership may object, or at a court approved auction in which the
Partnership could bid. If the property is sold in a non-auction sale,
the purchaser can buy the Building by satisfying the Wrap Loan, or
purchase the Building subject to the Wrap Loan. If the Building is
purchased subject to the Wrap Loan, the purchaser will have the right
to extend the Wrap Loan for three years from the present maturity date
at a rate of 300 basis points over the yield on three year United
States Treasury Notes at that time, paying interest only from May 1998
until the new maturity date. Such a purchaser would also have to pay an
extension fee of 60 basis points if it elects the three year extension
option. In connection with the plan of reorganization, the Partnership
was reimbursed $216,000 in legal expenses related to the bankruptcy in
September 1996 which has been included in other income in the
accompanying statements of operations.
Medford Village Loan
On July 25, 1995, the Partnership purchased a first mortgage loan in
the principal amount of $8,612,500 for approximately $8,700,000 in
cash. In addition, the Partnership incurred $45,469 of consulting fees
with respect to this loan. The loan has a floating interest rate,
capped at 10%, based on the Eurodollar rate for each quarterly interest
period plus 280 basis points. It is payable in quarterly installments
of principal and interest, maturing on April 22, 1998, with a balloon
payment of $7,737,500, plus any accrued interest due. The borrower has
the right to two, one year extensions for a fee of $23,500 each year,
provided the loan to value ratio at the time does not exceed 60%. The
loan is collateralized by a guarantee from the borrowers principals,
should the borrower default, and is secured by a 121,660 square foot
shopping center known as the Medford Village Outlet Center located in
Medford, Minnesota.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Santa Ana Loan
For the quarter ended September 30, 1996, the Partnership recorded an
allowance for loan losses in the amount of $1,547,830 and ceased
accruing interest on the Santa Ana loan. As a result of an economic
decline in the surrounding area, the tenancy at the Santa Ana Shopping
Center has been slowly shifting from regional, credit tenants to local,
non-credit tenants. Consequently, although the cash flow from the
operation of the center has not declined, its value has been eroded due
to the shift in tenancy. Management performed cash flow projections and
analyzed data regarding sales of comparable centers in order to
estimate the fair value of the center for the purpose of valuing the
loan. Based upon analysis of the projected cash flow from the center
using a 13% capitalization rate and market comparables indicating a
value of approximately $78 per square foot, the fair value of the
center was estimated to be approximately $2,500,000. The net carrying
value of the loan at September 30, 1996, was $4,047,830, necessitating
an allowance of $1,547,830.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Santa Ana Loan (continued)
Information with respect to the Partnership's mortgage loans is
summarized below:
<TABLE>
<CAPTION>
Interest
Mortgage Recognized
Interest Rate Maturity Amount Sept. 30,
Description Current % Accrued % Date Advanced 1996
----------- --------- --------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Shopping Centers
Santa Ana Square,
Santa Ana, CA (5) 7.10 3.81 March 1997 $ 2,600,000 $ 277,157
Lucky Supermarket
Buena Park, CA (1) (6) 7.62 2.38 May 2005 2,200,000 172,154
Avon Market Ctr.
Avon, CO (5) (7) 8.35 - April 2003 3,750,000 230,914
Medford Village Outlet
Center
Medford, MN (5) (10) 8.55 - April 1998 8,612,500 493,992
Office Buildings
Bank of California
Seattle, WA (2) (6) (9) 7.33 2.93 May 1998 8,500,000 858,972
Xerox
Arlington, TX (6) 2.68 7.32 March 1997 1,100,000 31,885
Lionmark Corp. Ctr.
Columbus, OH (5) (8) 8.5 - June 2003 4,000,000 251,179
----------- -------------
$30,762,500 $ 2,316,253
=========== =============
<PAGE>
<CAPTION>
Contractual Carrying Carrying
Balance Value Value
Sept. 30, Sept. 30, Dec. 31,
Description 1996 (4) 1996 (3) 1995 (3)
----------- -------- -------- --------
<S> <C> <C> <C>
Shopping Centers
Santa Ana Square,
Santa Ana, CA (5) $ 4,079,088 $ 2,500,000 $ 3,984,645
Lucky Supermarket
Buena Park, CA (1) (6) 2,445,761 2,245,873 2,250,159
Avon Market Ctr.
Avon, CO (5) (7) 3,679,132 3,679,132 3,696,458
Medford Village Outlet
Center
Medford, MN (5) (10) 8,339,468 8,339,468 8,638,426
Office Buildings
Bank of California
Seattle, WA (2) (6) (9) 16,531,751 8,586,168 8,623,102
Xerox
Arlington, TX (6) 1,910,603 1,103,743 1,109,596
Lionmark Corp. Ctr.
Columbus, OH (5) (8) 3,932,850 3,932,850 3,950,540
------------- ------------- ------------
$ 40,918,653 $ 30,387,234 $32,252,926
============= ============= ===========
</TABLE>
1. In addition to the fixed interest, the Partnership is entitled to
contingent interest in an amount equal to a percentage of the rent
received by the borrower from the property securing the mortgage
above a base amount, payable annually, and/or a percentage of the
excess of the value of the property above a base amount, payable at
maturity. Approximately $6,000, $3,400, $800 and $1,600 of
contingent interest was earned in 1996, 1995, 1994, and 1993,
respectively.
2. All of the above mortgage loans are first mortgage loans except for
the Bank of California which is a wraparound mortgage loan,
subordinate to prior liens held by others with no recourse.
3. The carrying values of the above mortgage loans are inclusive of
acquisition fees and accrued interest recognized.
4. The contractual balance represents the original mortgage amount
advanced plus accrued interest calculated in accordance with the
loan agreements, less principal amortization received. There is no
assurance that the contractual balance will be realized at maturity.
5. This loan is accounted for under the interest method.
6. This loan is accounted for under the investment method.
7. This loan was made in March 1993.
8. This loan was made in September 1993.
9. This loan has cured its default and the borrower is current on debt
service payments, as previously discussed.
10. This loan was made in July 1995 and has a floating interest rate,
capped at 10%, based on the Eurodollar rate for each quarterly
interest period plus 280 basis points.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
5 REAL ESTATE
Garfinkel's
On December 21, 1992 the Investment General Partner, on behalf of the
Partnership, foreclosed on the property securing the Garfinkel's loan.
At the foreclosure sale, the Partnership acquired the property for a
bid of $3,200,000. In addition, in September 1993, the Partnership paid
$84,404 for costs associated with the foreclosure. Such costs have been
capitalized as real estate assets and are being depreciated over the
estimated useful life of the property.
On January 27, 1992, the Partnership received $450,000 from the former
property owner in exchange for a release of a personal guarantee in
which the former property owner was obligated to reimburse the
Partnership for asbestos removal up to a maximum of $500,000. The
receipt of these funds was recorded as a liability on the Partnership's
balance sheet. During June 1992, $6,950 was paid for remedial cleaning
in connection with the asbestos removal and the unexpended asbestos
reserve aggregated $443,050 at September 30, 1996 and December 31,
1995. The Partnership does not presently plan to commence removal of
the asbestos until a purchaser or tenant for the property is
identified.
The owner of the Landover Mall ("Mall Owner"), where the Garfinkel
property is located, has requested reimbursement from the Partnership
for common area maintenance and utility usage charges, allegedly due
under certain agreements made between the former owner of the property
and Mall Owner for periods subsequent to the date that the Partnership
took title to the property. The Partnership believes it may be
obligated only for the actual value of certain items. Discussions
between the Partnership and Mall Owner are on-going as to the exact
amount to be paid. However, the Partnership has accrued $144,000 for
the nine months ended September 30, 1996 for an aggregate accrual of
$500,829 from inception through September 30, 1996.
As of September 30, 1996, the Garfinkel's property is still vacant.
Groton
This property was acquired via foreclosure on December 9, 1993.
Occupancy at the shopping center declined from approximately 82% at the
time of foreclosure to 77% at March 31, 1995. The anticipated lease-up
of the vacant space had not occurred as of March 31, 1995 resulting in
lower than anticipated net operating income. It was determined as a
result of an analysis performed as of the quarter ended March 31, 1995,
that the carrying value of the property could not be realized and,
consequently, management recorded a write-down for impairment on the
shopping center of $1,860,000. This analysis indicated the value of the
building and improvements to be approximately $5,500,000, while the
carrying value was approximately $7,360,000, necessitating a $1,860,000
write-down.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Land ..................................... $ 2,460,000 $ 2,460,000
Building and improvements ................ 7,812,190 7,731,702
Write-down for impairment ................ (1,860,000) (1,860,000)
----------- -----------
8,412,190 8,331,702
Less accumulated depreciation ............ (596,080) (450,608)
----------- -----------
$ 7,816,110 $ 7,881,094
=========== ===========
</TABLE>
6 DISTRIBUTIONS PAYABLE TO PARTNERS
Distributions payable are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Limited partners ($0.11 and $0.07 per unit) ........ $625,993 $398,359
General partners ................................... 6,323 4,024
-------- --------
$632,316 $402,383
======== ========
</TABLE>
Such distributions were paid subsequent to September 30, 1996 and
December 31, 1995, respectively.
7 COMMITMENTS AND CONTINGENCIES
HEP Action
On or about May 11, 1993, three public real estate partnerships (the
"HEP Partnerships") including High Equity Partners, L.P. - Series 86
("HEP-86"), in which the Administrative General Partner is also a
General Partner, were advised of the existence of an action (the "B&S
Litigation") in which a complaint (the "HEP Complaint") was filed in
the Superior Court for the State of California for the County of Los
Angeles (the "Court") on behalf of a purported class consisting of all
of the purchasers of limited partnership interests in HEP-86.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
7 COMMITMENTS AND CONTINGENCIES (continued)
HEP Action (continued)
On April 7, 1994 Plaintiffs were granted leave to file an amended
complaint (the "Amended Complaint"). The amended complaint asserted
claims against the Administrative General Partner, certain former
officers of the Administrative General Partner, and other former
subsidiaries of Integrated and a number of other defendants, including
certain former officers of Integrated.
On July 19, 1995, the Court approved the B&S Litigation and approved a
form of notice (the "Notice") concerning such proposed settlement. In
response to the Notice, approximately 1.1% of the limited partners of
the three HEP Partnerships requested exclusion and 15 limited partners
filed written objections to the settlement. The California Department
of Corporations also sent a letter to the Court opposing the
settlement. Five objecting limited partners, represented by two law
firms, also made motions to intervene so they could participate more
directly in the action. The motions to intervene were granted by the
Court on September 14, 1995.
In October and November 1995, the attorneys for the
plaintiffs-intervenors conducted extensive discovery. At the same time,
there were continuing negotiations concerning possible revisions to the
proposed settlement.
On November 30, 1995, the original plaintiffs and the intervening
plaintiffs filed a Consolidated Class and Derivative Action Complaint
("Consolidated Complaint") against the General Partners alleging, among
other things, breach of fiduciary duties, breach of contract, and
negligence.
On or about January 31, 1996, the parties to the B&S Litigation agreed
upon a revised settlement, which would be significantly more favorable
to the HEP limited partners than the previously proposed settlement.
The revised settlement proposal, like the previous proposal, involves
the reorganization of the HEP Partnership (the "Revised Exchange").
Upon the effectuation of the Revised Exchange, the B&S Litigation would
be dismissed with prejudice.
On February 8, 1996, at a hearing on preliminary approval of the
revised settlement, the Court determined that in light of renewed
objections to the settlement by the California Department of
Corporations, the Court would appoint a securities litigation expert to
evaluate the settlement. On May 6, 1996, the expert submitted a report
stating that he was unable to conclude that the revised settlement as
proposed is fair, reasonable and adequate, and recommended that the
revised settlement be restructured in certain respects. On May 28,
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
7 COMMITMENTS AND CONTINGENCIES (continued)
HEP Action (continued)
1996, at a hearing in connection with the expert's report, the Court
ordered the parties to brief certain valuation issues, the requisite
consents required from limited partners to approve the Revised Exchange
and the applicability of exemptions from the California securities law.
A hearing on the issues the Court had ordered the parties to brief was
held on July 9, 1996. On July 18, 1996, the Court preliminarily
approved the proposed, revised settlement of the B&S Litigation, and
made a preliminary finding that the proposed revised settlement is
fair, adequate and reasonable to the class, and that a settlement class
should be conditionally certified. The Court also set a hearing for
August 19, 1996 to settle the form and method of notice to limited
partners regarding the proposed, revised settlement. If final approval
of the settlement is granted by the Court, a solicitation statement
concerning the settlement and the reorganization would be sent to all
HEP limited partners. At a hearing on October 23, 1996, the Court
stated that it wished to consider late-filed briefs from certain
objectors which were filed up to and including the date of the hearing.
On November 4, 1996, the Court issued an order seeking comment on the
final version of the settlement from the California Department of
Corporations and additional information from the plaintiffs. The Court
requested a response within 17 days of its order. Upon final approval
of the settlement by the Court the Consent Solicitation Statement
concerning the Revised Exchange would be sent to all HEP limited
partners. There would be at least a 60 day solicitation period and a
reorganization of the HEP Partnerships cannot be consummated unless a
majority of the limited partners in the HEP Partnerships affirmatively
vote to approve it.
It is impossible to predict what financial exposure the Administrative
General Partner will have, if any, as a result of this litigation, or
its indirect effect on the Partnership.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and capital resources
The Partnership's public offering commenced on May 15, 1986 and terminated on
February 12, 1988 generating gross proceeds of $56,907,425, including $699,565
through the Partnership's Reinvestment Plan. The Partnership initially made ten
permanent investments, consisting of nine first mortgage loans and one
wraparound mortgage loan, in which the Partnership had funded a total of
$49,300,000 or 100% of its net proceeds available for investment. On May 21,
1992 and November 16, 1992 loans in the original principal amounts of $8,200,000
and $3,800,000, respectively were prepaid. In addition, on December 21, 1992 the
Investment General Partner, on behalf of the Partnership foreclosed on the
property securing the Garfinkel Loan. The original principal amount of this loan
was $4,850,000. On March 12, 1993, the Partnership funded an additional mortgage
loan in the principal amount of $3,750,000 at an annual rate of 8.35%. On
September 15, 1993 the Partnership funded another new mortgage loan in the
principal amount of $4,000,000 at an annual interest rate of 8.5% payable in
monthly installments of principal and interest. On December 9, 1993 the
Investment General Partner on behalf of the Partnership foreclosed on the
shopping center securing the Groton loan which was in the original principal
amount of $8,000,000. On February 2, 1994 the mortgagor on the 415 East 149th
Street loan prepaid the entire amount of such loan. The Partnership received
$4,781,922 of gross proceeds, consisting of $4,739,540 of principal and $43,382
of interest. On October 11, 1994 the mortgagor on the 134-140 East Fordham Road
loan prepaid the entire amount of such loan. The Partnership received $5,238,595
of gross proceeds. In July 1995 the Partnership funded an additional mortgage
loan in the principal amount of $8,612,500, payable in quarterly installments of
principal and interest at a floating interest rate based on the Eurodollar plus
280 basis points for the applicable period, capped at 10%. As of September 30,
1996, the Partnership has funded an aggregate of $30,762,500 to the mortgagors
in seven mortgage loans which are outstanding, consisting of six first mortgage
loans and one wraparound mortgage loan.
Previously, the Bank of California, Seattle wraparound mortgage loan was in
default. See Note 4 to the financial statements. As part of a plan of
reorganization approved in 1995, approximately $336,000 was paid to the
Partnership in September 1995 which included approximately $226,000 in missed
payments and $69,000 of late charges and interest relating to the payments. The
borrower is currently making the required payments to the Partnership on the
Wrap Loan. In connection with the plan of reorganization related to the Bank of
California Loan, the Partnership was reimbursed for legal fees of approximately
$216,000 which was received in September 1996 and is included in other income in
the accompanying statements of operations.
For the quarter ended September 30, 1996, the Partnership paid a cash
distribution to its partners equivalent to a 4.4% annualized return on each
limited partner's original investment. At September 30, 1996, working capital
reserves were approximately $9,048,000. This represents an increase of
approximately $979,000 from December 31, 1995. The Partnership has the right to
establish reserves either from disposition proceeds or from cash flow, if
necessary.
<PAGE>
Currently, the foreclosed property which formerly secured the Garfinkel Loan is
vacant. Funds which are necessary to lease up the property and to remedy
deferred maintenance conditions at the Garfinkel's property will be supplied
from the Partnership's working capital reserves. In addition, the Partnership
may need to expend funds for capital improvements to and leasing of the property
which formerly secured the foreclosed Groton loan. Such funds may be expended
from working capital reserves. The Partnership currently holds working capital
reserves in short term investments, at rates which are lower than the returns
previously earned on the loans that have been prepaid. If excess working capital
is ultimately invested in new loans, these investments are likely to be at lower
rates than previous investments due to current market conditions.
Except as discussed above, management is not aware of any other known trends,
events, commitments or uncertainties that will have a significant impact on
liquidity.
Real estate market
The real estate market continues to suffer from the effects of the recent
recession which included a substantial decline in the market value of existing
properties. Market values have begun to recover, and while the pace of new
construction has slowed, high vacancy rates continue to exist in many areas.
These factors may continue to reduce rental rates. As a result, the
Partnership's potential for realizing the full value of its investments in
mortgages is at increased risk.
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly review of
each mortgage loan and property in the Partnership's portfolio. In performing
the review, management considers the estimated net realizable value of the
property or collateral as well as other factors, such as the current occupancy,
the amount and status of any senior debt, the prospect for the property and the
economic situation in the region where the property is located. Because this
determination of net realizable value is based upon projections of future
economic events which are inherently subjective, the amounts ultimately realized
at disposition may differ materially from the carrying value as of September 30,
1996.
For the quarter ended September 30, 1996, the Partnership recorded an allowance
for loan losses in the amount of $1,547,830 and ceased accruing interest on the
Santa Ana loan. As a result of an economic decline in the surrounding area, the
tenancy at the Santa Ana Shopping Center has been slowly shifting from regional,
credit tenants to local, non-credit tenants. Consequently, although the cash
flow from the operation of the center has not declined, its value has been
eroded due to the shift in tenancy. Management performed cash flow projections
and analyzed data regarding sales of comparable centers in order to estimate the
fair value of the center for the purpose of valuing the loan. Based upon
analysis of the projected cash flow from the center using a 13% capitalization
rate and market comparables indicating a value of approximately $78 per square
foot, the fair value of the center was estimated to be approximately $2,500,000.
The net carrying value of the loan at September 30, 1996, was $4,047,830,
necessitating an allowance of $1,547,830.
<PAGE>
Impairment of assets
In March 1995, the Financial Accounting Standards Board issued Statement #121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of" ("SFAS #121"). The adoption of the statement was required for
fiscal years beginning after December 15, 1995. The Partnership implemented SFAS
#121 beginning January 1, 1996. The implementation of SFAS #121 did not result
in a write-down of the Partnership's assets.
Under SFAS #121 the initial test to determine if an impairment exists is to
compute the recoverability of the asset based on anticipated cash flows (net
realizable value) compared to the net carrying value of the asset. If
anticipated cash flows on an undiscounted basis are insufficient to recover the
net carrying value of the asset, an impairment loss should be recognized, and
the asset written down to its estimated fair value. The fair value of the asset
is the amount by which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. The net realizable value of an asset will generally be greater
than its fair value because net realizable value does not discount cash flows to
present value and discounting is usually one of the assumptions used in
determining fair value. The write-downs for impairment do not affect the tax
basis of the assets and the write-downs are not included in the determination of
taxable income or loss.
Because the determination of both net realizable value and fair value is based
upon projections of future economic events such as property occupancy rates,
rental rates, operating cost inflation and market capitalization rates which are
inherently subjective, the amounts ultimately realized at disposition may differ
materially from the net carrying value as of September 30, 1996. The cash flows
used to determine fair value and net realizable value are based on good faith
estimates and assumptions developed by management. Inevitably, unanticipated
events and circumstances may occur and some assumptions may not materialize;
therefore actual results may vary from our estimate and the variances may be
material. The Partnership may provide additional losses in subsequent years if
the real estate market or local economic conditions change and such write-downs
could be material.
No write-downs for impairment were recorded for the three months ended September
30, 1996 or 1995. A write-down for impairment of $1,860,000 was recorded on the
Groton property in the first quarter 1995. See Note 5 to the Financial
Statements.
Allowances and write-downs are inherently subjective and are based on
management's best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide for additional losses or
write-downs in subsequent years and such amounts could be material.
Results of operations
Net income increased for the nine months and decreased for the three months
ended September 30, 1996 when compared to the same periods in 1995. The increase
for the nine months was due to an increase in revenues and a decrease in
expenses. The decrease for the three months was due to a greater increase in
costs and expenses (primarily as a result of the provision for loan losses
recorded on the Santa Ana loan) than the increase in revenues.
<PAGE>
Results of operations (continued)
The increase in revenues for both the nine and three months ended September 30,
1996 when compared to the same periods in 1995 was primarily due to an increase
in mortgage interest income and other income partially offset by a decrease in
short term investment interest. Mortgage interest income increased due to the
funding of the Medford loan in July of 1995. Other income increased due to the
reimbursement of legal expenses related to the Bank of California loan, as
discussed above. Short term investment interest decreased as a result of
decreased interest rates and decreased working capital reserves as a result of
the Medford funding.
The decrease in costs and expenses for the nine months ended September, 30, 1996
was primarily a result of a decrease in the write-down for impairment recorded
in March 1995, partially offset by the provision for loan losses recorded in
September 1996 on the Santa Ana loan. The increase in costs and expenses for the
three months ended September 30, 1996 when compared to the same period in 1995
was primarily due to the provision for loan losses recorded on the Santa Ana
loan as discussed above, partially offset by a decrease in general and
administrative expenses. General and administrative expenses decreased primarily
as a result of a decrease in payroll costs.
Inflation has not had a material effect on the Partnership's revenues during the
last year and is not expected to have a material effect in the future. However,
prolonged periods of low or no inflation could result in low levels of interest
rates which could result in certain of the Partnership's loans being prepaid
prior to maturity and the Partnership receiving decreased revenues on any
reinvestment of such funds.
Legal proceedings
For a discussion on a Legal Proceedings, please see Note 7 ("Commitments and
Contingencies") to the Financial Statements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Notes to Financial
Statements - Note 7 which is herein incorporated by reference.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
<PAGE>
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.
RESOURCES PENSION SHARES 5, L.P.
By: Resources Capital Corp.
Administrative General Partner
Dated: November 14, 1996 By: /s/ Joseph M. Jacobs
--------------------
Joseph M. Jacobs
President
(Duly Authorized Officer)
Dated: November 14, 1996 By: /s/ Jay L. Maymudes
-------------------
Jay L. Maymudes
Vice President, Secretary and
Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1996 Form 10-Q of Resources Pension Shares 5
L.P. and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,163,380
<SECURITIES> 0
<RECEIVABLES> 306,101
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,591,930
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,795,274
<CURRENT-LIABILITIES> 1,494,730
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 46,857,494
<TOTAL-LIABILITY-AND-EQUITY> 48,795,274
<SALES> 0
<TOTAL-REVENUES> 3,586,326
<CGS> 0
<TOTAL-COSTS> 1,360,486
<OTHER-EXPENSES> 155,447
<LOSS-PROVISION> 1,547,830
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 522,563
<INCOME-TAX> 0
<INCOME-CONTINUING> 522,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 522,563
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
