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 March 31, 1998
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, Suite 270, Greenwich, CT 06830
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 862-7444
(Registrant's telephone number, including area code)
None
(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>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1998 and December 31, 1997
STATEMENTS OF OPERATIONS - For the three months ended March 31, 1998
and 1997
STATEMENT OF PARTNERS' EQUITY - For the three months ended March 31,
1998
STATEMENTS OF CASH FLOWS - For the three months ended March 31, 1998
and 1997
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
BALANCE SHEETS
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investment in mortgage loans ............ $25,362,011 $25,448,823
Cash and cash equivalents ............... 16,796,240 15,725,616
Real estate - net ....................... 7,690,185 9,232,074
Other assets ............................ 212,606 181,635
Interest receivable - mortgage loans .... 258,690 126,512
Interest receivable - other ............. 74,796 78,593
----------- -----------
$50,394,528 $50,793,253
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable ................... $ 632,316 $ 632,316
Accounts payable and accrued expenses ... 456,588 779,912
Other liabilities ....................... 443,050 608,438
Due to affiliates ....................... 196,140 321,525
----------- -----------
Total liabilities .................... 1,728,094 2,342,191
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (5,690,843
units issued and outstanding) ........ 48,179,780 47,966,562
General partners' equity ................ 486,654 484,500
----------- -----------
Total partners' equity ............... 48,666,434 48,451,062
----------- -----------
$50,394,528 $50,793,253
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENTS OF OPERATIONS
For the three months ended
March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Mortgage loans interest income .......... $ 800,332 $ 759,652
Operating income - real estate .......... 302,233 277,718
Short term investment interest .......... 194,165 99,147
Other income ............................ 14,779 35,280
----------- -----------
1,311,509 1,171,797
Costs and expenses
Management fees ......................... 181,009 180,705
Operating expenses - real estate ........ 118,382 149,371
Depreciation and amortization expense ... 61,275 53,000
General and administrative expenses ..... 42,570 11,548
Property management fees ................ 17,295 13,924
Mortgage servicing fees ................. 15,134 19,838
Recovery of loan loss ................... -- (721,946)
----------- -----------
435,665 (293,560)
----------- -----------
875,844 1,465,357
Loss on disposition of real estate ........... (28,156) --
----------- -----------
Net income ................................... $ 847,688 $ 1,465,357
=========== ===========
Net income attributable to
Limited partners ........................ $ 839,211 $ 1,450,704
General partners ........................ 8,477 14,653
----------- -----------
$ 847,688 $ 1,465,357
=========== ===========
Net income per unit of limited partnership
interest (5,690,843 units outstanding) .. $ .15 $ .25
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1998 ............... $ 484,500 $ 47,966,562 $ 48,451,062
Net income for the three months ended
March 31, 1998 ..................... 8,477 839,211 847,688
Distributions for the three months ended
March 31, 1998 ($.11 per limited
partnership unit) ................. (6,323) (625,993) (632,316)
------------ ------------ ------------
Balance, March 31, 1998 ................ $ 486,654 $ 48,179,780 $ 48,666,434
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ............................................ $ 847,688 $ 1,465,357
Adjustments to reconcile net income to
net cash provided by operating activities
Recovery of loan loss .......................... -- (721,946)
Depreciation and amortization expense .......... 61,275 53,000
Amortization of origination and acquisition fees 4,403 31,926
Loss on disposition of real estate ............. 28,156 --
Changes in assets and liabilities
Other assets ....................................... (35,357) (8,609)
Interest receivable - mortgage loans ............... (132,178) (14,666)
Interest receivable - other ........................ 3,797 24,800
Accounts payable and accrued expenses .............. (323,324) (40,343)
Other liabilities .................................. (165,388) --
Due to affiliates .................................. (125,385) 200,543
------------ ------------
Net cash provided by operating activities .. 163,687 990,062
------------ ------------
Cash flows from investing activities
Proceeds from disposition of real estate, net ......... 1,456,844 --
Mortgage loan repayments received ..................... 82,409 99,909
Investment in mortgage loan ........................... -- (2,000,000)
Additions to real estate .............................. -- (94,464)
------------ ------------
Net cash provided by (used in)
investing activities ..................... 1,539,253 (1,994,555)
------------ ------------
Cash flows from financing activities
Distributions to partners ............................. (632,316) (632,316)
------------ ------------
Net increase (decrease) in cash and
cash equivalents ...................................... 1,070,624 (1,636,809)
Cash and cash equivalents, beginning of period ............. 15,725,616 10,375,892
------------ ------------
Cash and cash equivalents, end of period ................... $ 16,796,240 $ 8,739,083
============ ============
</TABLE>
See notes to financial statements.
<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 discussions 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, 1997. The
results of operations for the three months ended March 31, 1998 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 investments 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
is not recognized as revenue during periods where there are
concerns about the ultimate realization of the interest or the
loan principal.
Allowance for loan losses
A provision 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
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses (continued)
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
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
March 31, 1998. Accordingly, the Partnership may provide additional
losses in subsequent periods and such provisions could be material. A
provision for loan looses was not required for the quarterly periods
ended March 31, 1998 and 1997.
Write-down for impairment
The Partnership records write-downs for impairment based upon a
quarterly review of the real estate in its portfolio. Real estate
property is carried at the lower of depreciated cost or estimated fair
value. In performing this review, management considers the estimated
fair value of the property based upon the undiscounted future cash
flows, as well as other factors, such as the current occupancy, the
prospects for the property and the economic situation in the region
where the property is located. Because this determination of estimated
fair 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 at each
period. Accordingly, the Partnership may record additional write-downs
in subsequent periods and such write-downs could be material. A
write-down for impairment was not required for the quarterly periods
ended March 31, 1998 and 1997.
Fair value of financial instruments
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The
Partnership's financial instruments include cash and cash equivalents
and investments in mortgage loans. Unless otherwise disclosed, the fair
value of financial instruments approximates their recorded values.
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. 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.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES(continued)
On November 2, 1997, the Administrative Services Agreement with Wexford
Management LLC ("Wexford"), the administrator for Presidio, expired.
Pursuant to that agreement Wexford had the authority to designate
directors of the General Partners. Effective November 3, 1997, Wexford
and Presidio entered into an Administrative Services Agreement dated as
of November 3, 1997 (the "ASA"), which expired on May 3, 1998. Under
the terms of the ASA, Wexford provided consulting and administrative
services to Presidio and its affiliates, including the General Partners
and the Partnership. Presidio also entered into a management agreement
with NorthStar Presidio Management Company LLC ("NorthStar Presidio").
Under the terms of the management agreement NorthStar Presidio will
provide the day-to-day management of Presidio and its direct and
indirect subsidiaries and affiliates. For the quarter ended March 31,
1998 reimbursable expenses due to NorthStar Presidio amounted to $997.
Subject to the rights of the Limited Partners under the Partnership
Agreement, Presidio controls the Partnership through its direct and
indirect ownership of the General Partners. On August 28, 1997, an
affiliate of NorthStar Capital Partners acquired all of the Class B
shares of Presidio. This acquisition, when aggregated with previous
acquisitions, caused NorthStar Capital Partners to acquire indirect
control of the General Partners.
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 March 31,
1998 and 1997, the Administrative General Partner earned $181,009 and
$180,705, 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 March 31, 1998 and 1997, the Investment General Partner
earned $15,134 and $19,838, 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
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES(continued)
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 quarters ended March 31, 1998 and 1997. Management fees
earned by the unaffiliated local management company amounted to $17,295
and $12,424 for the quarters ended March 31, 1998 and 1997,
respectively.
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 March
31, 1998 and 1997, the Administrative General Partner, Investment
General Partner and Associate General Partner were allocated net income
(loss) of $8,307, $85 and $85 and $14,361, $146 and $146, respectively.
As of March 31, 1998 affiliates of Presidio have purchased 1,486,944
limited partnership units of the Partnership. These units represent
approximately 26% of the issued and outstanding limited partnership
units and entitle the purchaser to approximately $163,564 in
distributions for the quarter ended March 31, 1998.
4 INVESTMENTS IN MORTGAGE LOANS
DVL Loan
On February 28, 1997, the Partnership funded a Negotiable Promissory
Note (the "Note") to DVL, Inc. ("DVL"), in the principal amount of
$2,000,000 at an annual interest rate of 12% with interest payable
monthly. In addition, the Partnership is entitled to receive payments
equal to DVL's excess cash flow (as defined) from the mortgages
underlying DVL's collateral assignment, which is to be applied as a
reduction of principal. The Note matures on February 27, 2000 and may
be pre-paid during the first two years. The Note is secured by (among
other things) a collateral assignment of DVL's interest in certain
promissory notes payable to DVL.
On July 30, 1997, DVL sold one of the properties underlying the Note
and made a $1,075,000 prepayment to the Partnership. Approximately
$1,032,000 of the prepayment was applied towards the principal balance
of the Note and the remainder was applied to interest and yield
maintenance fee.
On April 1, 1998, DVL sold another of the properties underlying the
Note and made a $500,000 prepayment to the Partnership. Approximately
$467,787 was applied towards the principal balance of the Note and the
remainder was applied to interest and yield maintenance fee.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Xerox Loan
The Xerox loan was originally a $1,100,000 first mortgage loan which
was secured by an office building located in Arlington, Texas. In March
1997, the Xerox loan matured in accordance with its terms. On September
30, 1997, the Partnership received a deed-in-lieu of foreclosure on the
property underlying this loan. At that date, the Xerox loan had a
carrying value of $1,100,000 (this loan was accounted for under the
investment method) and the underlying property had an estimated net
realizable value of $1,500,000. Accordingly, the Partnership had
reduced its investments in mortgage loans by the carrying value of the
Xerox loan and recorded an addition to real estate for the fair market
value of the underlying property, which resulted in recognition of
interest income for amounts previously deferred in the amount of
$400,000. A separate entity was formed, 2810 Arlington Holding, LLC, to
take title to the property. The Partnership is the sole member of the
entity and is entitled to 100% of all assets, distributions and net
income.
On March 10, 1998, the Partnership sold this property for $1,550,000,
net of closing costs of approximately $93,000. At that time the
property had a net carrying value of $1,485,000, resulting in a loss on
the disposition of the property of approximately $28,000.
Bank of California Loan
The Bank of California Loan, in the original 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").
In August 1993, Gum Loong filed for bankruptcy protection under Chapter
11 of the United States Bankruptcy Code, and a plan of reorganization
was approved in September 1993.
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 June 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. The Borrower has notified the Partnership of its intent to
pay off the loan.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Bank of California Loan (continued)
Management of the Investment General Partner estimates the fair value
of the Wrap Loan to be approximately $11,800,000 at March 31, 1998.
Methods and assumptions used in estimating fair value included, but
were not limited to, (i) present value of expected cash flows, (ii)
current rates for similar issues, (iii) recent transactions for similar
issues and (iv) market risks.
Information with respect to the Partnership's investments in mortgage
loans is summarized below:
<TABLE>
<CAPTION>
Interest Contractual Carrying
Interest Rate Maturity Amount March 31, March 31, March 31,
Description Current % Accrued % Date Advanced 1998 1998 (2) 1998 (1)
----------- --------- --------- ---- -------- ---- -------- --------
<CAPTION>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers
Lucky Supermarket
Buena Park, CA (4) ... 8.41-10.00 1.82 - 0 May 2005 $ 2,200,000 $ 55,385 2,479,412 $ 2,237,934
Avon Market Ctr ......
Avon, CO (3) ....... 8.35 -- April 2003 3,750,000 76,078 3,641,061 3,641,060
DVL, Inc. (3) ........ 12.00 -- February 2000 2,000,000 21,037 677,890 677,890
Hotel
Crowne Plaza Hotel (3)
Cincinnati, Ohio ..... 11.00 -- October 2000 6,500,000 178,750 6,402,048 6,402,048
Office Buildings
Bank of California
Seattle, WA (4) .... 9.36 - 10.24 3.0 - 0 May 1998 8,500,000 386,324 16,904,438 8,510,839
Lionmark Corp. Ctr ...
Columbus, OH (3) ... 8.5 -- June 2003 4,000,000 82,758 3,892,240 3,892,240
----------- ----------- ----------- -----------
$26,950,000 $ 800,332 $33,997,089 $25,362,011
=========== =========== =========== ===========
</TABLE>
1. The carrying values of the above mortgage loans are inclusive of
acquisition fees, accrued interest recognized, loan origination fees
and allowance for loan losses.
2. The contractual balance represents the original mortgage amount
advanced plus accrued interest calculated in accordance with the loan
agreements, less principal amortization received.
3. These loans are accounted for under the interest method.
4. These loans are accounted for under the investment method.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
5 REAL ESTATE
Landover, Maryland
The owner of the Landover Mall ("Mall Owner"), where the property is
located, had 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 believed it was obligated only
for the actual value of certain items. Discussions between the
Partnership and Mall Owner were on-going as to the exact amount to be
paid. The Partnership had provided a liability (included in accounts
payable and accrued expenses in the accompanying balance sheets) in the
amount of $672,329 at December 31, 1997, for such charges. On December
22, 1997 the Partnership entered into a settlement agreement with Mall
Owner and on February 4, 1998 the Partnership paid $667,407 in full
satisfaction of amounts owed at December 31, 1997 (excluding energy
charges for December 1997).
Avon Market Center Loan
On March 19, 1993, the Partnership funded a first mortgage loan in the
principal amount of $3,750,000 at an annual interest rate of 8.35%,
payable in monthly installments of principal and interest (based on a
35-year amortization schedule). The loan is for a period of ten years,
may not be prepaid during its first two years and may be prepaid
thereafter without penalty. The loan does not provide for any accrued
or contingent interest. The loan is secured by a shopping center
located in Eagle County, Colorado. The Borrower has notified the
Partnership of its intent to pay off the loan.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
3 REAL ESTATE (continued)
Arlington, Texas
As discussed in Note 4, this property which was originally owned by
Xerox was acquired by the Partnership via a deed-in-lieu of foreclosure
on September 30, 1997. The property has been recorded at its estimated
net realizable value at such date. On March 10, 1998, the Partnership
sold this property for approximately $1,457,000, net of closing costs.
The following table is a summary of the Partnership's real estate as
of:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Land ................................. $ 1,902,000 $ 2,202,000
Building and improvements ............ 6,680,162 7,880,162
------------ ------------
8,582,162 10,082,162
Less accumulated depreciation ........ (891,977) (850,088)
------------ ------------
$ 7,690,185 $ 9,232,074
============ ============
</TABLE>
6 DISTRIBUTIONS PAYABLE TO PARTNERS
Distributions payable are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Limited partners ($.11 per unit) ............. $625,993 $625,993
General partners ............................. 6,323 6,323
-------- --------
$632,316 $632,316
======== ========
</TABLE>
Such distributions were paid subsequent to March 31, 1998 and December
31, 1997, respectively.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
7 OFFER TO TENDER
On February 18, 1998, Presidio RPS Acquisition Corp. (the "Purchaser"),
an affiliate of the General Partners and a subsidiary of Presidio,
filed an offer to tender for up to 2,000,000 limited partnership units
of the Partnership at $6.00 per unit. Included in the offering is a
discussion of the estimated fair market value of the Partnership's
investments in mortgage loans and real estate assets, which is not
necessarily indicative of the carrying values presented in the
accompanying balance sheets. On March 3, 1998 the Purchaser increased
the offer price to $6.50 per unit. In connection therewith, 862,679
units were purchased at a cost of $5,607,413.
<PAGE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and capital resources
As of March 31, 1998, the Partnership has funded an aggregate of
$26,950,000 to the mortgagors in six outstanding mortgage loans,
consisting of five first mortgage loans and one wraparound mortgage
loan. See Note 4 to the financial statements.
On February 28, 1997, the Partnership funded a Negotiable Promissory
Note (the "Note") to DVL, Inc. ("DVL"), in the principal amount of
$2,000,000 at an annual interest rate of 12% with interest payable
monthly.
On July 30, 1997, DVL sold one of the properties underlying the
promissory notes and made a $1,075,000 prepayment of the Note.
Approximately $1,032,000 of the prepayment was applied toward the
principal balance of the Note and the remainder was applied to interest
and a yield maintenance fee.
On April 1, 1998 DVl sold another of the properties underlying the Note
and made a $500,000 prepayment to the Partnership. Approximately
$467,787 was applied towards the principal balance of the Note and the
remainder was applied to interest and yield maintenance fee.
In March 1997, the Xerox loan matured. On September 30, 1997 the
Partnership received a deed-in-lieu of foreclosure on the property
underlying this loan. At that date, the Xerox loan had a carrying value
of $1,100,000 and the underlying property had an estimated net
realizable value of $1,500,000. Accordingly, the Partnership has
reduced its investments in mortgage loans by the carrying value of the
Xerox loan and recorded an addition to real estate for the estimated
net realizable value of the underlying property. On March 10, 1998, the
Partnership sold this property for net proceeds of approximately
$1,457,000.
<PAGE>
Liquidity and capital resources (continued)
For the quarter ended March 31, 1998, the Partnership paid a cash
distribution to its partners representing a 4% annualized return on
each limited partner's original investment. If necessary, the
Partnership has the right to establish reserves either from disposition
proceeds or from cash flow. At March 31, 1998, working capital reserves
were approximately $15,863,000. Management is actively seeking new
investment opportunities for the recent disposition proceeds. According
to the Partnership Agreement, disposition proceeds are required to be
reinvested or held in reserves until August 1998 after which time
management will evaluate whether a distribution is warranted, or
proceeds will be held in working capital reserves.
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 require funds for capital improvements
to, and leasing of, the property which formerly secured the Groton
loan. Such funds may be drawn 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.
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each mortgage loan 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
March 31, 1998.
Write-down for impairment
The Partnership records write-downs for impairment based upon a
quarterly review of the real estate in its portfolio. Real estate
property is carried at the lower of depreciated cost or estimated fair
value. In performing this review, management considers the estimated
fair value of the property based upon the undiscounted future cash
flows, as well as other factors, such as the current occupancy, the
prospects for the property and the economic situation in the region
<PAGE>
Liquidity and capital resources (continued)
where the property is located. Because this determination of estimated
fair 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 at each
period. Accordingly, the Partnership may record additional write-downs
in subsequent periods and such write-downs could be material. A
write-down for impairment was not required for the three months ended
March 31, 1998 and 1997.
Results of operations
Net income decreased for three months ended March 31, 1998 compared
with the same period in the prior year. The decrease was primarily due
to a recovery of loan losses, recorded on the Santa Ana property in
1997.
Revenues increased for three months ended March 31, 1998 compared with
the same period in the prior year due to increases in mortgage interest
income, operating income, and short-term investment interest partially
offset by a decrease in other income. Mortgage interest income
increased primarily as a result of an increase in the interest income
related to the Bank of California loan. Operating income increased as a
result of the acquisition of the Xerox property. Short-term investment
income increased as a result of an increase in cash and cash
equivalents on which the interest is earned. Other income decreased as
a result of a decrease in transfer fee income.
Costs and expenses increased primarily as a result of a recovery of
loan losses recorded in 1997.
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
<PAGE>
Results of operations (continued)
Everest Litigation
On February 6, 1998, Everest Investors 8, LLC ("Everest") commenced an
action in the Superior Court of the state of California for the County
of Los Angeles, against, among others things, the HEP Partnerships and
the Partnership, and the general partners of each of the partnerships.
In the action, Everest alleged, among other things, that the
partnerships and the general partners breached the provisions of the
applicable partnership agreements by refusing to recognize transfers to
Everest of limited partnership units purportedly acquired pursuant to
tender offers that had been made by Everest (the "Everest Tender
Units"). Everest sought injunctive relief (i) directing the recognition
of the transfers to Everest of the Everest Tender Units and the
admission of Everest as a limited partner with respect to the Everest
Tender Units and (ii) enjoining the transfers of the Everest Tender
Units to any other party. Everest seeks damages, including punitive
damages, for alleged breach of contract, defamation and intentional
interference with contractual relations. Everest's motion for a
temporary restraining order was denied on February 6, 1998. A hearing
on Everest's application for a preliminary injunction had been
scheduled for February 26; however, on February 20, 1998, Everest asked
the Court to take its application off the calendar.
On March 27, 1998, Everest commenced an action in the United States
District Court for the Central District of California against, among
others, the general partners of the Partnership and of the HEP
partnerships. In the action, Everest alleged, among other things,
various violations of the Williams Act Section 14(d) of the Securities
Exchange Act of 1934 in connection with the general partners' refusal
to recognize transfers to Everest of limited partnership units
purportedly acquired pursuant to the Everest tender offers and the
letters sent by the general partners to the limited partners advising
them of the general partners' determination that the Everest tender
offers violated applicable securities laws. The general partners
believe that Everest's claims are without merit and intend to
vigorously contest the action.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) See Management Discussion and Analysis of Financial Condition and
Results of Operations 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: May 14, 1998 By: /s/ Richard Sabella
-------------------
Richard Sabella
President
(Duly Authorized Officer)
Dated: May 14, 1998 By: /s/ Lawrence Schachter
----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the March 31, 1998 Form 10Q of Resources Accrued Mortgage
Investors 2 L.P. and is qualified in its entirety by reference for such
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,796,240
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,129,726
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,394,528
<CURRENT-LIABILITIES> 1,728,094
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 48,666,434
<TOTAL-LIABILITY-AND-EQUITY> 50,394,528
<SALES> 0
<TOTAL-REVENUES> 1,311,509
<CGS> 0
<TOTAL-COSTS> 435,665
<OTHER-EXPENSES> (28,156)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 847,688
<INCOME-TAX> 0
<INCOME-CONTINUING> 847,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847,688
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
