-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K5DOiDgk4SAv4g6E56DoR9afYAobd+0+P0Ov7baKEBXTAMttKGQeKRmWWX+qc3Q6 zKNj5Y2PbBufVtg6at0Nlw== 0000930661-97-000970.txt : 19970417 0000930661-97-000970.hdr.sgml : 19970417 ACCESSION NUMBER: 0000930661-97-000970 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970416 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSITY REAL ESTATE PARTNERSHIP V CENTRAL INDEX KEY: 0000311173 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 953240567 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-08914 FILM NUMBER: 97581917 BUSINESS ADDRESS: STREET 1: 200 CRESCENT CT STE 1300 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2148713935 MAIL ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 1300 CITY: DALLAS STATE: TX ZIP: 75201 10-K405 1 FORM 10-K405 UNITED STATES FINANCIAL UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 ------------------------------------------------------ [_] 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 0-8914 --------------- UNIVERSITY REAL ESTATE PARTNERSHIP V - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3240567 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2001 Ross Avenue, Suite 4600, Dallas, Texas 75201 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) - -------------------------------------------------------------------------------- (Former address, if changed since last report) Registrant's telephone number, including area code (214) 740-2200 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Not applicable Securities registered pursuant to Section 12 (g) of the Act: Limited Partnership Units Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] All of the registrant's 34,301 Limited Partnership Units are held by non- affiliates of the registrant. The aggregate market value of units held by non- affiliates is not determinable since there is no public trading market for Limited Partnership Units. Documents Incorporated by Reference: None Exhibit Index: See Page 16 TOTAL OF 49 PAGES UNIVERSITY REAL ESTATE PARTNERSHIP V INDEX TO ANNUAL REPORT ON FORM 10-K
Item No. Page - -------- ---- PART I 1 Business.............................................................................................. 3 2 Properties............................................................................................ 6 3 Legal Proceedings..................................................................................... 8 4 Submission of Matters to a Vote of Security Holders................................................... 8 PART II 5 Market for Registrant's Units of Limited Partnership and Related Security Holder Matters.............. 8 6 Selected Financial Data............................................................................... 9 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................. 10 8 Consolidated Financial Statements and Supplementary Data.............................................. 13 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 14 PART III 10 Directors and Executive Officers of the Registrant.................................................... 14 11 Executive Compensation................................................................................ 15 12 Security Ownership of Certain Beneficial Owners and Management........................................ 15 13 Certain Relationships and Related Transactions........................................................ 15 PART IV 14 Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K.................................. 16
2 PART I ITEM 1. BUSINESS - ------- -------- ORGANIZATION - ------------ University Real Estate Partnership V (the "Partnership" or "Registrant") was organized on August 12, 1977, as a limited partnership under the provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is University Advisory Company ("UAC" or the "General Partner"), a California general partnership. Prior to December 15, 1996, Southmark Commercial Management, Inc. ("SCM"), and Southmark Investors, Inc. ("SII"), both wholly- owned subsidiaries of Southmark Corporation ("Southmark") were the two general partners of UAC. On December 15, 1996, OS General Partner Company ("OSGPC"), a Texas corporation, and OS Holdings, Inc. ("OS"), a Texas corporation, acquired both interests in UAC held by SCM and SII. See discussion of SCM, SII, OS and OSGPC transaction below. The principal place of business for the General Partner is 2001 Ross Avenue, Suite 4600, Dallas, Texas 75201. On January 6, 1978, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission pursuant to which the Partnership offered for sale an aggregate of $25,000,000 Income and Growth/Shelter Limited Partnership Units. The Limited Partnership Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Limited Partnership Units closed on July 13, 1978, with 34,800 Limited Partnership Units sold at $500 each for gross proceeds of $17,400,000. Of the Limited Partnership Units sold, 499 have subsequently been repurchased by the Partnership. Of the 34,301 Limited Partnership Units currently outstanding, 17,733 are Income Units and 16,568 are Growth/Shelter Units. On March 9, 1993, Southmark and several of its affiliates (including the General Partner) entered into an Asset Purchase Agreement with SHL Acquisition Corp. III, a Texas corporation, and its permitted assigns (collectively "SHL") to sell various general and limited partnership interests owned by Southmark and its affiliates, including the general partnership interest of the Partnership. On December 16, 1993, Southmark and SHL executed the Second Amendment to Asset Purchase Agreement whereby SHL acquired an option to purchase the general partnership interest of the Partnership, rather than purchase the partnership interest itself. On the same date, SHL assigned its rights under the amended Asset Purchase Agreement to Hampton Realty Partners, L.P., a Texas limited partnership ("Hampton") and Hampton and Southmark affiliates also entered into an Option Agreement whereby Hampton acquired the right to purchase the option assets, including the general partnership interest of the Partnership, subject to the approval of the limited partners. On April 20, 1994, Insignia Financial Group, Inc., a Delaware corporation, and certain of its affiliates (collectively "Insignia") entered into an Option Purchase Agreement with Hampton to acquire Hampton's rights to solicit proxies from the Limited Partners seeking their consent to Hampton becoming the general partner of the Partnership. On August 8, 1994, the Insignia contract was terminated. On December 30, 1994, Hampton entered into an Assignment and Assumption of Option Agreement with JKD Financial Management, Inc. ("JKD"), a Texas corporation, whereby, among other things, JKD obtained the right to acquire Hampton's rights to proxy into the Partnership subject to approval of the Limited Partners. As a result of a 1996 transaction between OS, OSGPC, SCM and SII, JKD's option was assigned to OSGPC. See discussion of transaction between SCM, SII, OSGPC and OS below. Effective as of December 14, 1992, the Partnership entered into a Portfolio Services Agreement and a Property Management Agreement with Hampton UREF Management, Ltd. ("Hampton UREF"), Texas limited partnership, pursuant to which Hampton UREF began providing management for the Partnership's properties and certain other portfolio services. The operations of the Partnership's properties were managed by Hampton Management, Inc. (formerly SHL Management, Inc.) through a subcontract agreement with Hampton UREF. From April 20, 1994 to August 8, 1994, the Partnership and its properties were managed by Insignia pursuant to a Property Management Subcontract Agreement with Hampton UREF. As of August 8, 1994, the properties only were managed by an affiliate of Insignia under a Property Management Agreement directly with the Partnership. As of December 30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio Services Agreement with JKD pursuant to which JKD oversees the management of the Partnership. 3 On January 29, 1996, SCM and SII entered into a purchase agreement to sell their partnership interests in UAC to OS and JKD, respectively. The transfer documents were executed January 31, 1996, and placed into escrow. The transfer would not be effective until certain conditions precedent were satisfied and, if the conditions precedent were not satisfied by April 29, 1996, the transfer documents would be returned to SCM and SII and the transfer would not occur. On April 29, 1996 the purchase agreement was amended to facilitate the substitution of OSGPC for JKD and to extend the escrow period through June 30, 1996. On June 25, 1996 a Second Amendment of Escrow Agreement was entered into to extend the escrow period through August 31, 1996. On December 15, 1996, it was determined that all conditions precedent to the OS and OSGPC purchase of the partnership interests in UAC had been met and the sale was consummated and OS and OSGPC became the owners and interest holders in UAC. CURRENT OPERATIONS - ------------------ General: The Partnership's primary business is to own, operate and ultimately dispose of its portfolio of income-producing real properties for the benefit of its partners. The Partnership has liquidated many of its properties and is currently operating two income-producing properties, Glasshouse Square, and through its investment in Washington Towne Apartments, LLC, Washington Towne Apartments. In the course of liquidating certain of its properties, the Partnership has taken partial consideration in the form of notes receivable. Currently, a part of the Partnership's cash collections and revenue relates to one remaining note receivable. Glasshouse Square Environmental Issue: During 1993, it was determined in a Phase II Environmental Audit that the soils and groundwater in the Garcia's Tract and possibly part of the Glasshouse Square parking lot, located in the Northeastern most corner of Glasshouse Square property, contain elevated levels of certain petroleum products. During 1994 and 1995, the Partnership worked with counsel and environmental engineers in connection with further investigation of the alleged leaking of petroleum products from underground storage tanks and with San Diego County officials to determine the necessary level of clean-up. The Partnership also obtained a health risk assessment to ensure that the gasoline constituents beneath the Garcia's Tract are not emitting harmful vapors inside the building. The health assessment was returned "non detect" meaning no such harmful vapors were detected. In 1996, additional testing was conducted by the environmental engineers who determined there was no "free product" at the portions of the site that were tested and, also, no human health risks exist at this time. Management does not believe that the County of San Diego will take further action. Therefore, this situation should not have a material effect on the Partnership. As a result of the County's no further action position, the Partnership, in 1996, entered into ground lease agreements with two fast food providers. The restaurants have constructed the improvements and the related ground lease income to the partnership is expected to be in excess of $155,000 annually for the twenty-year term of the leases. Payments under these lease agreements are scheduled to begin in 1997. Business Plan: The business of the Partnership is not seasonal. The Partnership's anticipated plan of operation for 1997 is to preserve or increase gross revenue whenever possible and to maintain or decrease property operating expenditures whenever possible, while at the same time making whatever capital expenditures are reasonable under the circumstances in order to preserve and enhance the value of its properties. The General Partner is continually analyzing current market conditions and trends and if it is determined that liquidating the Partnership's properties is in the best interest, the Partnership decisions will be made regarding potential dispositions of the properties. In addition, the General Partner continues to explore other types of transactions that could benefit the partnership such as favorable long-term financing for the Partnership properties becoming available and the possibility of entering into some type of tax free exchange that could enhance Partnership cash flow. There can be no assurances however as to the ultimate completion of the differing types of transactions, which might be available to the Partnership and its assets. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations". From December 14, 1992 through April 20, 1994, Hampton UREF and its affiliates managed the day-to-day operations of the Partnership and its properties under terms of Property Management and Portfolio Services Agreements. From April 20, 1994 through December 31, 1994, the Partnership's properties were managed by Insignia or an affiliate, first pursuant to a Property Management Subcontract Agreement with Hampton UREF and then a Property Management Agreement with the Partnership itself. On December 30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio Services Subcontract Agreement with JKD. 4 Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate, the Partnership is subject to all of the risks incidental to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and federal or local economic or rent controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changes in these circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership and broader experience than the General Partner) in connection with the acquisition, sale, financing and leasing of properties. It appears that the Partnership's original schedule for meeting its objectives of, among other things, preservation of capital, current cash distributions and capital gains through potential appreciation of Partnership property is unlikely to be achieved. The Partnership has not been able to liquidate its property within the originally expected time frame of from five to ten years after its acquisition (i.e. between 1983 and 1988). The General Partner now expects to hold the Partnership's real estate investments until such time as the performance of the Partnership's investment improves and permits the Partnership to achieve its capital preservation and capital gains objectives. There can be no assurance, however, that the property's value will increase over an extended holding period. SOUTHMARK BANKRUPTCY - -------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership nor its General Partner was included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which include Southmark's interests in the General Partner, are being sold or liquidated for the benefit of creditors. Because neither the Partnership nor the General Partner was included in the Southmark bankruptcy proceedings, there has been no direct effect on the Partnership's operations during the bankruptcy period or resulting from confirmation of the plan. Ultimate decision-making authority with respect to the operations of the Partnership remains with the General Partner until such time as the Limited Partners approve a substitute general partner. SALE OF GENERAL PARTNER INTEREST - -------------------------------- As a result of Southmark's bankruptcy and its plan to liquidate all of its assets, the General Partner concluded that it was in the best interest of the Partnership to seek, as its qualified replacement as general partner, an entity which intends to remain involved in the management of real estate and real estate limited partnerships. On March 9, 1993, Southmark and several of its affiliates (including the General Partner) entered into an Asset Purchase Agreement with SHL to sell various general and limited partnership interests owned by Southmark and its affiliates, including the general partnership interest of the Partnership. On December 16, 1993, Southmark and SHL executed the Second Amendment to Asset Purchase Agreement whereby SHL acquired an option to purchase the general partnership interest of the Partnership, rather than purchase the partnership interest itself. On the same date, SHL assigned its rights under the amended Asset Purchase Agreement to Hampton and Hampton and Southmark affiliates also entered into an Option Agreement whereby Hampton acquired the right to purchase the option assets, including the general partnership interest of the Partnership subject to the approval of the Limited Partners. On April 20, 1994, Insignia entered into an Option Purchase Agreement with Hampton to acquire Hampton's rights to solicit proxies from the Limited Partners seeking their consent to Hampton becoming the general partner of the Partnership. On August 8, 1994, the Insignia contract was terminated. On December 30, 1994, Hampton entered into an Assignment and Assumption of Option Agreement with JKD, whereby, among other things, JKD obtained the right to acquire Hampton's rights to proxy into the Partnership subject to the approval of the Limited Partners. As a result of a 1996 transaction between OS, OSGPC, SCM and SII, JKD's option was assigned to OSGPC. 5 Effective as of December 14, 1992, the Partnership entered into a Portfolio Services Agreement and a Property Management Agreement with Hampton UREF pursuant to which Hampton UREF began providing management for the Partnership's properties and certain other portfolio services. The operations of the Partnership's properties were managed by Hampton Management, Inc. (formerly SHL Management, Inc.) through a subcontract agreement with Hampton UREF. From April 20, 1994 to August 8, 1994, the Partnership and its properties were managed by Insignia pursuant to a Property Management Subcontract Agreement with Hampton UREF. As of August 8, 1994, the properties were managed by an affiliate of Insignia under a Property Management Agreement directly with the Partnership. As of December 30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio Services Agreement with JKD pursuant to which JKD oversees the management of the Partnership. On January 29, 1996, SCM and SII entered into a purchase agreement to sell their partnership interests in UAC to OS and JKD, respectively. The transfer documents were executed January 31, 1996, and placed into escrow. The transfer would not be effective until certain conditions precedent were satisfied and, if the conditions precedent were not satisfied by April 29, 1996, the transfer documents would be returned to SCM and SII and the transfer would not occur. On April 29, 1996 the purchase agreement was amended to facilitate the substitution of OSGPC for JKD and to extend the escrow period through June 30, 1996. On June 25, 1996 a Second Amendment of Escrow Agreement was entered into to extend the escrow period through August 31, 1996. On December 15, 1996, it was determined that all conditions precedent to the OS and OSGPC purchase of the partnership interests in UAC had been met and the sale was consummated and OS and OSGPC became the interest holders in UAC. ITEM 2. PROPERTIES - ------- ---------- Description of Real Estate: The following table sets forth the investment portfolio of the Partnership at December 31, 1996. It is the opinion of management that both properties are adequately covered by insurance. The mortgage notes payable totaled $10,789,414 at December 31, 1996 for Washington Towne Apartments and Glasshouse Square Shopping Center. A full detail of each mortgage is described in Item 8 - "Note 7 - Mortgage Notes Payable".
Gross Book Value Occupancy Date Property Description of Property Rate Acquired - -------- ----------- ----------- ---------- ------------- Glasshouse Square Shopping Center San Diego, California 92,839 sq. ft. $16,974,936 86% December 1978 Washington Towne Apartments Apartments Atlanta, Georgia 148 units 2,442,533 94% July 1991 ----------- $19,417,469 ===========
Glasshouse Square - ----------------- The Glasshouse Square Shopping Center, along with the Garcia's Tract, are currently owned by the Partnership subject to a first and second lien deeds of trust as set forth more fully in Item 8 - "Note 6 - Mortgage Notes Payable". The section of land commonly referred to as the Garcia's Tract, located in the Northeastern most corner of the Glasshouse Square property, was leased to the Partnership through September 1993. The Partnership purchased a 50% undivided interest in the Garcia's Tract on April 14, 1989, and purchased the remaining 50% undivided interest from the Stallard Family Trust on September 16, 1993. At December 31, 1996, the mortgages payable for Glasshouse Square had unpaid principal amounts of $7,573,193 and $1,492,431 both of which are due December 2000 (see Item 8 - "Note 6 - Mortgage Notes Payable"). 6 On January 17, 1995, the lender filed a notice of default in San Diego County related to the Glasshouse Square mortgages payable. On March 27, 1995, the mortgages were modified and a forbearance agreement was executed whereby the lender agreed to discontinue foreclosure proceedings. Additionally, on March 27, 1995, the Partnership obtained from this same lender a $400,000 line of credit due in December 2000 (see Item 8 - "Note 6 - Mortgage Notes Payable"). During 1993, it was determined in a Phase II Environmental Audit that the soils and groundwater in the Garcia's Tract and possibly part of the Glasshouse Square parking lot, located in the Northeastern most corner of Glasshouse Square property, contain elevated levels of certain petroleum products. In 1994 and 1995, the Partnership worked with counsel and environmental engineers in connection with further investigation of the alleged leaking of petroleum products from underground storage tanks and with San Diego County officials to determine the necessary level of clean-up. The Partnership also obtained a health risk assessment to ensure that the gasoline constituents beneath the Garcia's Tract are not emitting harmful vapors inside the building. The health assessment was returned "non detect" meaning no such harmful vapors were detected. In 1996, additional testing was conducted by the environmental engineers who determined there was no "free product" at the portions of the site that were tested and, also, no human health risk exists at this time. Management does not believe that the County of San Diego will take further action. Therefore, this situation should not have a material effect on the Partnership. Washington Towne Apartments - --------------------------- The mortgage payable for Washington Towne Apartments, LLC had unpaid principal amount of $1,723,790 at December 31, 1996. In September 1995, the Partnership obtained a mortgage loan payable in the amount of $1,750,000 from a new lender. In order to preserve the Partnership's ownership interest in the Washington Towne Apartments and in order to satisfy the new lender's structural requirements with respect to the refinancing of the mortgage note payable, the Partnership contributed the property on September 13, 1995 to an affiliated entity, Washington Towne Apartments, LLC, a Georgia limited liability company. The Partnership is the owner of all the capital stock of Washington Towne, Inc. The Partnership is the 99% member and Washington Towne, Inc. is the 1% managing member of Washington Towne Apartments, LLC. Therefore, the Partnership effectively retained a 100% interest in the property. In connection with the contribution of the property to Washington Towne Apartments, LLC, the lender provided sufficient funds to satisfy the matured loan obligation and to provide for certain property improvements. Property improvements were completed prior to the end of the first quarter 1996 and have significantly enhanced the value of the property (see Item 8 - "Note 6 - Mortgage Notes Payable"). Operating Data: OCCUPANCY RATES FOR THE YEARS 1992-1996
1992 1993 1994 1995 1996 - ------------------------------------------------------- Glasshouse Square 73% 74% 75% 82% 86% - ------------------------------------------------------- Washington Towne 82% 98% 98% 94% 94% - -------------------------------------------------------
The following table shows tenants in Glasshouse Square occupying ten percent or more of the rentable square footage and their lease provisions:
Nature of Rent Per Lease Lease Tenant Business Annum Expiration Renewal Options - ---------------------------------------------------------------------------- Showbiz Pizza Family Pizza $161,304 4/18/03 Two - 5 Restaurant year options - ---------------------------------------------------------------------------- Staples, Inc. Office Products $364,351 8/31/06 Four - 5 Super Store year options - ---------------------------------------------------------------------------- UA Theater Movie Theater $254,400 7/31/01 Four - 5 year options - ---------------------------------------------------------------------------- Blockbuster Music Electronics, $189,324 9/30/04 Three - 5 Audio and Video year Software options - ----------------------------------------------------------------------------
During 1995, Silo California, a major tenant at Glasshouse Square, ceased retail operations. Litigation has been filed by the Partnership. See Item 3 - "Legal Proceedings". 7 The following is a table of scheduled lease expirations:
GLASSHOUSE SQUARE SHOPPING CENTER SCHEDULE OF LEASE EXPIRATIONS As of 12/31/96 - ---------------------------------------------------------------- Number of Square % of Gross Year Lease Expirations Footage Annual Rental Annual Rental - ---------------------------------------------------------------- 1997 1 1,200 $ 12,000 1.12% - ---------------------------------------------------------------- 1998 1 5,579 $ 58,088 5.30% - ---------------------------------------------------------------- 1999 0 0 $ 0 0.00% - ---------------------------------------------------------------- 2000 0 0 $ 0 0.00% - ---------------------------------------------------------------- 2001 1 21,200 $254,400 23.68% - ---------------------------------------------------------------- 2002 0 0 $ 0 0.00% - ---------------------------------------------------------------- 2003 1 11,523 $169,372 15.01% - ---------------------------------------------------------------- 2004 1 14,425 $248,863 17.44% - ---------------------------------------------------------------- 2005 0 0 $ 0 0.00% - ---------------------------------------------------------------- 2006 1 28,027 $466,209 33.70% - ----------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Partnership filed a lawsuit styled University Real Estate Partnership V v. --------------------------------------- Silo California, Inc. No. 692441 (Superior Court of the State of California) to - --------------------- recover possession of leased premises and damages related to breach of a lease at Glasshouse Square Shopping Center. The Partnership obtained an unlawful detainer judgment against the defendant on October 25, 1995, in the amount of $41,757. The Partnership filed a claim against Silo California, Inc. on February 9, 1996, in a bankruptcy proceeding entitled In re: Silo California, Inc., a California ------------------------------------------- corporation, No. 95-1581 (U.S. Bankruptcy Court, District of Delaware), to - ----------- recover on the $41,757 unlawful detainer judgment. A second claim in the amount of $312,992 for additional damages related to breach of the lease was filed on February 20, 1996 against Silo California, Inc. and an identical $312,992 claim was filed against Silo Holdings, Inc. in In re: Silo Holdings, Inc., No. 95- -------------------------- 1578 (U.S. Bankruptcy Court, District of Delaware) on February 20, 1996. All three claims are still pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED - ------- -------------------------------------------------------------------- SECURITY HOLDER MATTERS ----------------------- (A) There is no established public trading market for Limited Partnership Units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders -------------- ----------------------------- Limited Partnership Units 1,532 as of March 31, 1997 Income Units 861 as of March 31, 1997 Growth/Shelter Units 941 as of March 31, 1997 (C) Cash distributions from the Partnership were suspended in 1992 and the Partnership is continuing to experience negative cash flows after debt service and capital items as of December 31, 1996. Cash distributions from operations totaled $265,463 to the Income Unit Holders, $475,684 to the Growth/Shelter Unit Holders and $64,447 to the General Partner in 1991. Cumulative distributions through December 31, 1996, were $15,812,536, $1,786,307, and $590,957 to the Income, Growth/Shelter, and General Partners, respectively. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" for discussion of distributions and likelihood of the reinstatement of distributions. 8 ITEM 6. SELECTED FINANCIAL DATA - ------- ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's consolidated financial statements and notes thereto appearing in Item 8.
Consolidated Statements Year Ended December 31, - ----------------------- -------------------------------------------------------------------- Of Operations 1996 1995 1994 1993 1992 - ------------- ------------ ------------ ------------ ------------ ------------ Rental income................ $ 2,087,301 $ 2,329,859 $ 2,484,310 $ 1,946,723 $ 1,911,199 Interest income.............. 32,797 150,809 212,896 876,840 915,414 Other income................. 28,057 44,345 - - - Expenses (before provision)................. (3,063,489) (3,477,628) (3,792,909) (3,232,592) (3,442,298) Loss on sale of note receivable................. - - (350,000) Loss on modification of note receivable............ - - (530,695) Provision for loss on note receivable............ - (100,000) - - (270,000) Loss on sale of repossessed real estate................ - (121,518) - - - Loss before extraordinary items........ (915,334) (1,174,133) (1,976,398) (409,029) (884,885) Extraordinary item........... - 75,000 - - - ----------- ----------- ----------- ----------- ----------- Net loss..................... $ (915,334) $(1,099,133) $(1,976,398) $ (409,029) $ (884,885) =========== =========== =========== =========== =========== Net loss per Limited Partnership Unit: Loss before extraordinary items...... $(26.42) $(33.84) $(56.79) $(11.75) $(25.43) Extraordinary item......... - 2.16 - - - ----------- ----------- ----------- ----------- ----------- Net loss................... $(26.42) $(31.68) $(56.79) $(11.75) $(25.43) =========== =========== =========== =========== =========== Distributions per Limited Partnership Unit: Income Partners............ $ - $ - $ - $ - $ - Growth/Shelter Partners................. $ - $ - $ - $ - $ - Consolidated Balance As of December 31, - -------------------- ------------------------------------------------------------------- Sheets 1996 1995 1994 1993 1992 - ------ ----------- ----------- ----------- ----------- ----------- Real estate, net............. $11,398,265 $11,673,695 $11,799,899 $12,144,308 $10,646,914 Notes receivable, net........ 250,000 250,000 750,000 4,319,022 4,319,022 Total assets................. 12,670,367 13,416,272 14,666,336 17,469,314 17,172,610 Mortgage notes payable....... 10,789,414 10,674,931 9,453,587 11,778,476 11,052,490 Partners' equity............. 885,961 1,801,295 2,900,428 4,876,826 5,285,855
Net loss per Limited Partnership Unit is computed by dividing net loss allocated to the Limited Partners by the weighted average number of Limited Partnership Units outstanding during the year. Per unit information has been computed based on 34,301 and 34,353 Limited Partnership Units outstanding in 1996 and 1995, respectively and 34,453 Limited Partnership Units outstanding in 1994, 1993, and 1992. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS ------------- FINANCIAL CONDITION - ------------------- The Partnership was formed in 1977 to acquire, operate and ultimately dispose of a diversified portfolio of income-producing real property. Five of the Partnership's properties were sold and a sixth was deeded to the lender in cancellation of indebtedness in 1985, a seventh property was sold in 1986, and another in 1987. The Partnership received partial consideration from the sale of certain properties in the form of notes receivable. The Partnership held one note receivable (secured by the Bank of San Pedro Office Building) and operated two income-producing properties as of December 31, 1996. In March 1994, the borrower on the Bank of San Pedro note receivable defaulted on the note and the Partnership began to contemplate foreclosure proceedings. In June 1994, the borrower signed over the deed in lieu of foreclosure on the property as a result of a Settlement Agreement. On July 20, 1995, the Partnership sold the Bank of San Pedro Office Building (see Item 8 - "Note 4 - Repossessed Real Estate Held for Resale"). In September 1994, the Las Oficinas note receivable and the underlying wrap mortgage payable matured. Commitment letters were executed in 1994 modifying the note receivable principal balance and terms as well as transferring the entire underlying debt balance to the borrower on the note receivable. On February 27, 1995, this contract was executed and the Partnership was released from all liability. On April 7, 1995, the modified note receivable was sold to a third party (see Item 8 - "Note 5 - Notes Receivable" and "Note 6 - Mortgage Notes Payable"). RESULTS OF OPERATIONS - --------------------- Revenues: Rental income was $2,087,301 in 1996 as compared to $2,329,859 and $2,484,310 in 1995 and 1994, respectively. The decrease of $242,558 in 1996 as compared to 1995 is due primarily to the sale of the Bank of San Pedro Office Building on July 20, 1995. The decrease in 1995 as compared to 1994 is also due to the sale of the Bank of San Pedro Office Building. This property was repossessed on June 20, 1994 by the Partnership (see Item 8 - "Note 4 - Repossessed Real Estate Held for Resale"). Of the total revenues recorded by the Partnership, the amount attributable to rental income from Glasshouse Square Shopping Center was 39% in 1996, 36% in 1995 and 39% in 1994. Of the 39% of revenues attributable to Glasshouse Square Shopping Center, 90 % was contributed by four tenants. Interest income decreased to $32,797 in 1996 from $150,809 and $212,896 in 1995 and 1994 respectively. The decrease of $118,012 in 1996 compared to 1995 and the decrease of $62,087 in 1995 as compared to 1994 are primarily due to the sale of the Las Oficinas note receivable on April 7, 1995. During 1994, the borrower on the Bank of San Pedro Office Building note receivable ceased making regularly scheduled debt payments. Additionally, the Las Oficinas note receivable was modified (see Item 8 - "Note 5 - Notes Receivable"). Interest earned on the Bank of San Pedro note receivable was approximately 1.5% in 1996 and .5% in 1995 of the total rental and interest income of the Partnership. No interest was earned by the Partnership on this note in 1994 due to the fact that the borrower ceased making regularly scheduled debt payments constituting an event of default on the note receivable held by the Partnership (see Item 8 - "Note 4 - Repossessed Real Estate Held for Resale"). Of the total revenues recorded by the Partnership, the amount attributable to rental income from the Bank of San Pedro Office Building was 11% for the six months in 1994 that the Partnership owned the property. Expenses: Interest expense was $1,058,343 in 1996 as compared to $1,096,581 and $1,335,552 in 1995 and 1994, respectively. The $38,238 decrease in 1996 as compared to 1995 is the result of extension fees incurred on the Bank of San Pedro Office Building promissory note payable to Southmark in 1995. The $238,971 decrease in 1995 as compared to 1994, is the result of the transfer of the Las Oficinas underlying debt balance to the borrower on the note receivable (see Item 8 - "Note 5 - Notes Receivable"). Approximately $89,000 of the decrease is due to the sale of the Bank of San Pedro Office Building on July 20, 1995. (see Item 8 - - "Note 6 - Mortgage Notes Payable" and "Note 2 - Transactions with Affiliates"). 10 Depreciation and amortization expense was $544,080 in 1996 as compared to $488,347 and $464,185 in 1995 and 1994 respectively. Property taxes were $98,675 in 1996 as compared to $138,106 and $205,576 in 1995 and 1994 respectively. The decrease of $39,431 in 1996 compared to 1995 and $67,470 decrease in 1995 as compared to 1994 is primarily the result of the sale of the Bank of San Pedro Office Building on July 20, 1995. Other property operating expenses, the provisions for doubtful accounts, and property management fees were $975,552 in 1996 as compared to $1,249,227 and $1,260,566 in 1995 and 1994, respectively. The $273,675 decrease in 1996 as compared to 1995 is primarily the result of the sale of the Bank of San Pedro Office building on July 20, 1995. General and administrative expenses were $150,593 in 1996 as compared to $262,148 and $260,640 in 1995 and 1994 respectively. The decrease in 1996 as compared to 1995 is primarily a result of the final resolution on the Bank of San Pedro Office Building occurring in 1995 which significantly increased general and administrative expenses. General and administrative expenses - affiliates were $236,246 in 1996 as compared to $243,219 and $266,390 in 1995 and 1994 respectively. The Partnership incurred a loss of $530,695 related to the modification of the Las Oficinas note receivable and the transfer of the underlying mortgage debt to the borrower on the note receivable (see Item 8 - "Note 5 - Notes Receivable" and "Note 6 - Mortgage Notes Payable"). The modification of the note receivable occurred in December 1994 and the transfer of the underlying mortgage debt to the borrower occurred in February 1995. The Partnership incurred an additional loss of $350,000 related to the sale of the Las Oficinas note receivable on April 7, 1995 for $750,000 (see Item 8 - "Note 5 - Notes Receivable"). On July 20, 1995, the Partnership incurred a loss of $46,518 on the sale of the Bank of San Pedro Office Building. This amount consists of a loss of $121,518 on the sale and an extraordinary gain on debt forgiveness of $75,000 on the promissory note payable to Southmark (see Item 8 - "Note 2 - Transactions with Affiliates" and "Note 4 - Repossessed Real Estate Held for Resale"). The Partnership recorded at year end 1995 a $100,000 provision for loss to reduce the carrying value of the Bank of San Pedro Office Building note receivable to $250,000 after the purchaser defaulted on the note during the first quarter of 1996. Even though the default has been cured, the provision for loss was recorded in the event of any future complications with the purchaser. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- At December 31, 1996, the Partnership held cash and cash equivalents of $175,878 of which $19,355 was tenant security deposits and $30,722 was held in lender required escrow accounts. Cash and cash equivalents at the end of 1996 decreased by $484,684 as compared to the balance held at December 31, 1995. Negative cash flow from operations in 1996 was $366,118. Negative cash flow from investing activities in 1996 was $233,049. Positive cash flow from financing activities in 1996 was $114,483. Commitments for 1997 capital expenditures on Glasshouse Square or Washington Towne will be funded from current cash and projected cash flow. The mortgage payable relating to the Bank of San Pedro matured in June 1992, and management was successful in obtaining an extension on the note payable to April 1, 1994. After the note matured in April 1994, the Partnership was not able to negotiate another extension or renewal of the first lien. In June 1994, Southmark paid off the first lien mortgage and held the first lien position on the property until the property was sold by the Partnership on July 20, 1995, at which time all unpaid principal due Southmark was paid (see Item 8 - "Note 4 - Repossessed Real Estate Held for Resale"). The mortgage payable on the Washington Towne Apartments matured in June 1995. In September 1995, the Partnership obtained a mortgage loan payable in the amount of $1,750,000 from a new lender. In order to preserve the Partnership's ownership interest in the Washington Towne Apartments and in order to satisfy the new lender's structural requirements with respect to the refinancing of the mortgage note payable, the Partnership contributed the property on September 13, 1995 to an affiliated entity, Washington Towne Apartments, LLC, a Georgia limited liability company. The Partnership is the owner of all the capital stock of Washington Towne, Inc. The Partnership is 11 the 99% member and Washington Towne, Inc. is the 1% managing member of Washington Towne Apartments, LLC. Therefore, the Partnership effectively retained a 100% interest in the property. In connection with the contribution of the property to Washington Towne Apartments, LLC, the lender provided sufficient funds to satisfy the matured loan obligation and to provide for certain property improvements. Property improvements were completed prior to the end of the first quarter 1996 and have significantly enhanced the value of the property (see Item 8 "Note 6 -Mortgage Notes Payable"). The mortgage payable on the Las Oficinas Office Building matured in September 1994. In October 1994, the Partnership executed a commitment letter with the lender and the new borrower whereby the Partnership would be released from all liabilities associated with the mortgage upon transfer of the mortgage payable directly to the new borrower. On February 27, 1995, this contract was executed and the Partnership was released from all liability. With its present cash reserves, an outlook for positive cash flow from 1997 operating activities and continued efficient operation and management of the Partnership, the General Partner expects that the Partnership will have sufficient cash to meet its commitments. However, should present cash resources be insufficient for current needs, the Partnership has no non-restrictive existing lines of credit, and thus would require other sources of working capital, such as support from affiliates or sale of Partnership property. Neither the General Partner and its affiliates nor Hampton and its affiliates or assigns have any obligation to provide financial support to the Partnership and there is no assurance that the sale of any property can be timed to coincide with the Partnership's needs. 12 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------------------- Page Number ------ INDEX TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ Consolidated Financial Statements: Independent Auditors' Report, December 31, 1996, 1995 and 1994...... F1 Consolidated Balance Sheets at December 31, 1996 and 1995........... F2 Consolidated Statements of Operations for the Three Years Ended December 31, 1996................................................ F3 Consolidated Statement of Partners' Equity (Deficit) for the Three Years Ended December 31, 1996.................................... F4 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996................................................ F5 Notes to Consolidated Financial Statements.......................... F9 Consolidated Financial Statement Schedules: For the Three Years Ended December 31, 1996: Schedule VIII - Valuation and Qualifying Accounts................ F24 Schedule X - Supplementary Statements of Operations Information..................................................... F25 Schedule XI - Real Estate Investments and Accumulated Depreciation and Amortization................................... F26 Schedule XII - Mortgage Loans on Real Estate..................... F28 13 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners of University Real Estate Partnership V: We have audited the accompanying consolidated balance sheets of University Real Estate Partnership V as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' equity (deficit) and cash flows for the years ended December 31, 1996, 1995, and 1994. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of University Real Estate Partnership V as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1996, 1995 and 1994 in conformity with generally accepted accounting principles. /s/ Wallace Sanders & Company WALLACE SANDERS & COMPANY Dallas, Texas March 21, 1997 See accompanying notes to consolidated financial statements. F1 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED BALANCE SHEETS
December 31, -------------------------- ASSETS 1996 1995 - ------ ------------ ------------ Real estate investments (Notes 3 and 6) Land $ 5,255,247 $ 5,255,247 Buildings and improvements 14,162,222 13,929,173 ----------- ----------- 19,417,469 19,184,420 Less: Accumulated depreciation and amortization (8,019,204) (7,510,725) ----------- ----------- 11,398,265 11,673,695 ----------- ----------- Note receivable, net (Note 5) 250,000 250,000 ----------- ----------- Cash and cash equivalents (including $19,355 and $17,990 for security deposits at December 31, 1996 and 1995, respectively) 175,878 660,562 Accounts receivable, net of allowance for doubtful accounts of $107,044 at December 31, 1996 and 1995 21,088 54,916 Deferred borrowing costs, net of accumulated amortization of $111,433 and $83,280 at December 31, 1996 and 1995, respectively 234,908 262,796 Prepaid expenses and other assets 590,228 514,303 ----------- ----------- $12,670,367 $13,416,272 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable, net of discounts (Note 6) $10,789,414 $10,674,931 Accrued mortgage interest 173,156 86,568 Accrued property taxes 45,756 98,828 Accounts payable and accrued expenses 202,763 156,500 Subordinated real estate commissions (Note 2) 549,218 549,218 Security deposits 24,099 48,932 ----------- ----------- 11,784,406 11,614,977 ----------- ----------- Partners' equity (deficit) (Notes 1 and 7): Limited Partners - 50,000 Units authorized; 34,301 and 34,353 Units issued and outstanding at December 31, 1996 and 1995, respectively, (17,733 Income Units at December 31, 1996 and 1995 and 16,568 and 16,620 Growth/Shelter Units at December 31, 1996 and 1995, respectively) 1,428,405 2,334,586 General Partner (542,444) (533,291) ----------- ----------- 885,961 1,801,295 ----------- ----------- $12,670,367 $13,416,272 =========== ===========
See accompanying notes to consolidated financial statements. F2 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, --------------------------------------- 1996 1995 1994 ----------- ------------ ------------ Revenues: Rental income $2,087,301 $ 2,329,859 $ 2,484,310 Interest 32,797 150,809 212,896 Other income 28,057 44,345 - ---------- ----------- ----------- Total revenues 2,148,155 2,525,013 2,697,206 ---------- ----------- ----------- Expenses: Interest 1,058,343 1,096,581 1,335,552 Depreciation and amortization 544,080 488,347 464,185 Property taxes 98,675 138,106 205,576 Other property operations 809,620 933,138 1,023,960 Provision for doubtful accounts 72,820 207,243 116,882 Property management fees (Note 2) 93,112 108,846 119,724 General and administrative 150,593 262,148 260,640 General and administrative - affiliates (Note 2) 236,246 243,219 266,390 Provision for loss on note receivable (Note 5) - 100,000 - ---------- ----------- ----------- Total expenses 3,063,489 3,577,628 3,792,909 ---------- ----------- ----------- Net operating loss (915,334) (1,052,615) (1,095,703) ---------- ----------- ----------- Other expenses: Loss on sale of note receivable - - (350,000) Loss on modification of note receivable - - (530,695) Loss on sale of repossessed real estate - (121,518) - ---------- ----------- ----------- Loss before extraordinary item (915,334) (1,174,133) (1,976,398) Extraordinary item - gain on debt forgiveness - 75,000 - ---------- ----------- ----------- Net loss $ (915,334) $(1,099,133) $(1,976,398) ========== =========== =========== Net loss allocable to General Partner $ (9,153) $ (10,991) $ (19,764) Net loss allocable to Limited Partners $ (906,181) $(1,088,142) $(1,956,634) ---------- ----------- ----------- Net loss $ (915,334) $(1,099,133) $(1,976,398) ========== =========== =========== Net loss per Limited Partnership Unit: Loss before extraordinary item $(26.42) $(33.84) $(56.79) Extraordinary item - 2.16 - ---------- ----------- ----------- Net loss $(26.42) $(31.68) $(56.79) ========== =========== ===========
See accompanying notes to consolidated financial statements. F3 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Total Partners' General Limited Equity Partner Partners (Deficit) ---------- ------------ ------------ Balance at December 31, 1993 $(502,536) $ 5,379,362 $ 4,876,826 Net loss (19,764) (1,956,634) (1,976,398) --------- ----------- ----------- Balance at December 31, 1994 (522,300) 3,422,728 2,900,428 Net loss (10,991) (1,088,142) (1,099,133) --------- ----------- ----------- Balance at December 31, 1995 (533,291) 2,334,586 1,801,295 Net loss (9,153) (906,181) (915,334) --------- ----------- ----------- Balance at December 31, 1996 $(542,444) $ 1,428,405 $ 885,961 ========= =========== ===========
See accompanying notes to consolidated financial statements. F4 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Cash received from tenants $2,027,060 $2,180,199 $2,381,350 Cash paid to suppliers (1,339,645) (1,464,349) (1,757,581) Interest received 32,797 150,809 212,896 Interest paid (943,603) (920,164) (763,662) Property taxes paid (151,747) - (103,742) Property tax refund 23,557 31,508 - Insurance refund - 12,092 - ---------- ---------- ---------- Net cash used in operating activities (351,581) (9,905) (30,739) ---------- ---------- ---------- Cash flows from investing activities: Additions to real estate investments (251,727) (352,820) (110,527) Net cash received as a result of repossession of real estate - - 58,657 Sale of Las Oficinas note receivable - 750,000 - Sale of equipment 4,141 - - Sale of repossessed real estate - 291,562 - ---------- ---------- ---------- Net cash provided by (used in) investing activities (247,586) 688,742 (51,870) ---------- ---------- ---------- Cash flows from financing activities: Principal payments on mortgage notes payable (105,978) (173,222) (194,591) Principal payment on note payable to Southmark affiliate - (750,000) - Advances from line of credit 220,461 186,206 - Cash received on the refinance of the mortgage note payable for Washington Towne Apartments - 604,663 - Borrowing costs incurred on the refinance of mortgage note payable - (83,205) - ---------- ---------- ---------- Net cash provided by (used in) financing activities 114,483 (215,558) (194,591) ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (484,684) 463,279 (277,200) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 660,562 197,283 474,483 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 175,878 $ 660,562 $ 197,283 ========== ========== ==========
See accompanying notes to consolidated financial statements. F5 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED STATEMENTS OF CASH FLOWS Reconciliation of Net Loss to Net Cash Used in Operating Activities
For the Years Ended December 31, ------------------------------------- 1996 1995 1994 --------- ----------- ----------- Net loss $(915,334) $(1,099,133) $(1,976,398) --------- ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 544,080 488,347 464,185 Amortization of discounts on mortgage notes payable - - 20,037 Loss on sale of note receivable - - 350,000 Loss on modification of note receivable - - 530,695 Provision for loss on note receivable - 100,000 - Interest and fees added to note payable to Southmark affiliate - 120,040 337,460 Gain on debt forgiveness - (75,000) - Amortization of deferred borrowing costs 28,152 17,385 12,963 Loss on sale of repossessed real estate - 121,518 - Gain on sale of equipment (915) - - Changes in assets and liabilities: Accounts receivable 33,828 11,931 36,605 Prepaid expenses and other assets (96,072) 66 8,361 Accounts payable and accrued expenses 45,997 103,830 (19,711) Accounts payable, affiliates - (20,894) (75,518) Accrued mortage interest 86,588 38,992 201,431 Accrued property taxes (53,072) 138,472 101,834 Security deposits (24,833) 44,541 (22,683) --------- ----------- ----------- Total adjustments 563,753 1,089,228 1,945,659 --------- ----------- ----------- Net cash used in operating activities $(351,581) $ (9,905) $ (30,739) ========= =========== ===========
See accompanying notes to consolidated financial statements. F6 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: The following noncash transactions occurred in 1995: On March 31, 1995, the Partnership converted $250,000 of accrued liabilities into a note payable to Imperial Bank secured by Washington Towne Apartments second lien. On September 13, 1995, the Partnership paid all outstanding principal and accrued interest as a result of the refinancing of the Washington Towne Apartments. On July 20, 1995 the Partnership sold the Bank of San Pedro Office Building for $1,350,000. The Partnership received, as partial consideration, a note receivable for $350,000. At year end a $100,000 provision for loss was recorded to reduce the carrying value of the Bank of San Pedro Office Building note receivable to $250,000 after the borrower defaulted on the note during the first quarter of 1996. Even though the default situation has been cured, the provision for loss was recorded in the event of any future complications with the borrower. The mortgage payable on the Washington Towne Apartments matured in June 1995. In September 1995, Washington Towne, L.L.C., obtained a mortgage loan payable in the amount of $1,750,000 from a new lender. In connection with this refinancing, the lender included in the mortgage loan principal balance the payment of borrowing costs, required escrows, property taxes, interest, and the payoff of two mortgage notes payable secured by the Washington Towne Apartments. The following table represents the components of this refinancing:
Cash $ 604,663 Mortgage notes payable 791,641 Deferred borrowing costs 68,429 Accrued interest and property taxes 53,647 Escrows 231,620 ---------- $1,750,000 ==========
The following noncash transactions occurred in 1994: On June 20, 1994 the Partnership consummated a Settlement Agreement with the borrower on the Bank of San Pedro Office Building note receivable, whereby the Partnership received title to the Bank of San Pedro Office Building in lieu of foreclosure. The note receivable from the borrower was retired and the property was placed on the Partnership books at the net note receivable balance, which approximated net realizable value, plus the value of certain other assets and liabilities acquired on the date of repossession. The following table represents the components of the cost of the repossessed real estate:
Note receivable, net $ 5,060,000 Deferred gain on sale (3,502,914) Provision for loss (270,000) Accounts payable and accrued expenses 243,289 Other assets (49,327) Cash (58,657) ----------- Repossessed real estate held for resale $ 1,422,391 ===========
See accompanying notes to consolidated financial statements. F7 UNIVERSITY REAL ESTATE PARTNERSHIP V CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES (CONTINUED): In June 1994, Southmark paid off the first lien mortgage on the Bank of San Pedro Office Building. Consequently, the Partnership had a 90-day promissory note payable to Southmark bearing interest at 10%, secured by a first lien deed of trust, assignment of rents, and security agreement on the Bank of San Pedro Office Building, with all outstanding principal and accrued interest due on September 30, 1995, as a result of two maturity date extensions. The initial principal balance of this note was $877,000. At every maturity date extension, the Partnership incurred a fee in the amount of $78,075 in accordance with the note agreement. In 1994, the extension fees totaling $156,150 and all accrued interest were added to the principal balance in accordance with the note agreement. At December 31, 1994, the principal balance (which included both extension fees and accrued interest) was $1,086,554. The Las Oficinas note receivable was reduced in 1994 to reflect the sale of the Las Oficinas note receivable in April 1995 for $750,000.
Note receivable $1,100,000 Loss on write-down to net realizable value (350,000) ---------- Net realizable value $ 750,000 ==========
Prior to that sale, certain letters of commitment were entered into in 1994 that essentially modified the Las Oficinas note receivable and related underlying mortgage payable. These transactions resulted in a loss on modification of note receivable in the amount of $530,695. See accompanying notes to consolidated financial statements. F8 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------- Organization - ------------ University Real Estate Partnership V (the "Partnership") was organized in 1977, as a limited partnership under the provisions of the California Uniform Limited Partnership Act as then in effect. The general partner of the Partnership is University Advisory Company ("UAC" or the "General Partner"), a California general partnership. Southmark Commercial Management, Inc. ("SCM"), and Southmark Investors, Inc. ("SII"), both wholly-owned subsidiaries of Southmark Corporation ("Southmark"), were the two general partners of UAC through December 15, 1996. On December 15, 1996, OS General Partner Company ("OSGPC"), a Texas corporation and OS Holdings, Inc. ("OS"), a Texas corporation acquired the interests held in UAC by SCM and SII. The Partnership was formed to acquire, operate and ultimately dispose of a diversified portfolio of income-producing property. On March 9, 1993, Southmark and several of its affiliates (including the General Partner) entered into an Asset Purchase Agreement with SHL Acquisition Corp. III, a Texas corporation, and its permitted assigns (collectively "SHL") to sell various general and limited partnership interests owned by Southmark and its affiliates, including the general partnership interest of the Partnership. On December 16, 1993, Southmark and SHL executed the Second Amendment to Asset Purchase Agreement whereby SHL acquired an option to purchase the general partnership interest of the Partnership, rather than purchase the Partnership interest itself. On the same date, SHL assigned its rights under the amended Asset Purchase Agreement to Hampton Realty Partners, L.P., a Texas limited partnership ("Hampton"). Hampton and Southmark affiliates also entered into an Option Agreement whereby Hampton acquired the right to purchase the option assets, including the general partnership interest of the Partnership, subject to the approval of the limited partners. On April 20, 1994, Insignia Financial Group, Inc., a Delaware corporation, and certain of its affiliates (collectively "Insignia") entered into an Option Purchase Agreement with Hampton to acquire Hampton's rights to solicit proxies from the Limited Partners seeking their consent to Hampton becoming the general partner of the Partnership. On August 8, 1994, the Insignia contract was terminated. On December 30, 1994, Hampton entered into an Assignment and Assumption of Option Agreement with JKD Financial Management, Inc. ("JKD"), a Texas corporation, whereby, among other things, JKD obtained the right to acquire Hampton's rights to proxy into the Partnership subject to approval of the Limited Partners. As a result of a 1996 transaction between OS, OSGPC, SCM and SII, JKD's option was assigned to OSGPC. Effective as of December 14, 1992, the Partnership entered into a Portfolio Services Agreement and a Property Management Agreement with Hampton UREF Management, Ltd. ("Hampton UREF"), Texas limited partnership, pursuant to which Hampton UREF began providing management for the Partnership's properties and certain other portfolio services. The operations of the Partnership's properties were managed by Hampton Management, Inc. (formerly SHL Management, Inc.) through a subcontract agreement with Hampton UREF. From April 20, 1994 to August 8, 1994, the Partnership and its properties were managed by Insignia pursuant to a Property Management Subcontract Agreement with Hampton UREF. As of August 8, 1994, the properties only were managed by an affiliate of Insignia under a Property Management Agreement directly with the Partnership. On December 30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio Services Agreement with JKD pursuant to which JKD oversees the management of the Partnership. On January 29, 1996, SCM and SII entered into a purchase agreement to sell their partnership interests in UAC to OS and JKD, respectively. The transfer documents were executed January 31, 1996, and placed into escrow. The transfer would not be effective until certain conditions precedent were satisfied and, if the conditions precedent were not satisfied by April 29, 1996, the transfer documents would be returned to SCM and SII and the transfer would not occur. On April 29, 1996 the purchase agreement was amended to facilitate the substitution of OSGPC for JKD and to extend the escrow period through June 30, 1996. On June 25, 1996 a Second Amendment of Escrow Agreement was entered into to extend the escrow period through August 31, 1996. On December 15, 1996, it was determined that all conditions precedent to the OS and OSGPC purchase of the partnership interests in UAC had been met and the sale was consummated and OS and OSGPC became the owners and interest holders in UAC. F9 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - -------------------------------------------------------------------------------- Principles of Consolidation - --------------------------- On September 13, 1995, the Partnership contributed the Washington Towne Apartments to an affiliated entity, Washington Towne Apartments, LLC, a Georgia limited liability company. The Partnership is the 99% member and Washington Towne, Inc. is the 1% managing member of Washington Towne Apartments, LLC. The Partnership is the owner of all the capital stock of Washington Towne, Inc. Therefore, the Partnership effectively retained a 100% interest in the Washington Towne Apartments. The consolidated financial statements include the accounts of the Partnership, Washington Towne Apartments, LLC, and Washington Towne, Inc. Real Estate Investments - ----------------------- Real estate investments and improvements are generally stated at cost except in cases where it has been determined that the property has sustained an impairment in value. At such time, a provision for loss is recorded to reduce the basis of the property to its net realizable value. Improvements are capitalized and repairs and maintenance are charged to operations as incurred. Real estate accounted for as an in-substance foreclosure is recorded at the lower of the note balance or the fair value of the property at the date the in- substance foreclosure is deemed to have occurred. Effective December 1992, in- substance foreclosure assets are valued at the fair value of the property in accordance with Statement of Position 92-3. Repossessed Real Estate Held for Resale - --------------------------------------- Repossessed real estate held for resale is recorded at the lower of the net note receivable balance or the net realizable value of the property at the date of repossession. Depreciation - ------------ Buildings and improvements are depreciated using the straight-line method over 5 to 30 years. Tenant improvements are amortized over the terms of the related tenant lease using the straight-line method. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand, demand deposits, money market funds and investments in certificates of deposit with original maturities of three months or less. Cash and cash equivalents also include cash held in segregated accounts for tenant security deposits. Deferred Borrowing Costs - ------------------------ Loan fees for long-term financing of real property are capitalized and are amortized over the terms of the related mortgage note payable using the straight-line method. Amortization of deferred borrowing costs is included in interest expense in the Consolidated Statements of Operations. Rental Revenues - --------------- The Partnership leases its residential property under short-term operating leases. Lease terms generally are less than one year in duration. Rental income is recognized as earned. The Partnership leases its commercial property under noncancelable operating leases that expire over the next 10 years. Some leases provide concessions and periods of escalating or free rent. Rental income is recognized on a straight-line basis over the life of the lease. The excess of the rental income recognized over the contractual rental payments due is recorded as accrued rent receivable. F10 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - -------------------------------------------------------------------------------- Notes Receivable - ---------------- Notes receivable are recorded at their original basis, net of any allowance for uncollectible amounts. Interest income is recognized as it is earned. Interest accrual is ceased at such time as management determines collection is doubtful. Discounts on Mortgage Notes Payable - ----------------------------------- Discounts on mortgage notes payable are amortized over the remaining terms of the related notes using the interest method. Amortization of discounts is included in interest expense. Income Taxes - ------------ The Partnership is not a tax paying entity, and accordingly no provision has been recorded for Federal or state income tax purposes. The partners are individually responsible for reporting their share of the Partnership's taxable income or loss on their income tax returns. In the event of an examination of the Partnership's tax return by the Internal Revenue Service, the tax liability of the partners could be changed if an adjustment in the Partnership's income or loss is ultimately sustained by the taxing authorities. Certain transactions of the Partnership may be subject to accounting methods for income tax purposes that differ from the accounting methods used in preparing these consolidated financial statements in accordance with generally accepted accounting principles. Accordingly, the net income or loss of the Partnership and the resulting balances in the partners' capital accounts reported for income tax purposes may differ from the balances reported for those same items in these consolidated financial statements. Use of Estimates - ---------------- The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Financial Instruments - --------------------- The Partnership's carrying values for financial instruments approximate their fair values. Allocation of Net Income and Net Loss - ------------------------------------- The Partnership Agreement provides for net income of the Partnership for both consolidated financial statements and income tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner. Net income allocated to the Limited Partners shall be allocated first to the Limited Partners holding Growth/Shelter Units in the same ratio and manner that losses were charged to these Limited Partners and up to amounts equal to such previously charged losses and then to all of the Limited Partners in the same ratio that distributions from all sources, other than proceeds from the sale of Limited Partnership units, have been allocated. The Partnership Agreement provides for net losses of the Partnership for both financial statement and income tax reporting purposes to be allocated 1% to the General Partner and 99% to the Growth/Shelter Unit holders. F11 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - -------------------------------------------------------------------------------- Net Loss Per Limited Partnership Unit - ------------------------------------- Net loss per Limited Partnership Unit is computed by dividing net loss allocated to the Limited Partners by the weighted average number of Limited Partnership Units outstanding during the year. Per unit information has been computed based on 34,301, 34,353 and 34,453 Limited Partnership Units outstanding in 1996, 1995 and 1994, respectively. Distributions - ------------- Distributions to the Partners are made at the discretion of the General Partner and are subject to payment of expenses of the Partnership, including debt service, and maintenance of reserves. Distributions to the Partners are paid from operations of the Partnership's properties, from sales or refinancing of properties, or from other sources, if any. Distributions to the Partners were suspended in the first quarter of 1992. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------------------------------------- On March 9, 1993, Southmark and several of its affiliates (including the General Partner) entered into an Asset Purchase Agreement with SHL to sell various general and limited partnership interests owned by Southmark and its affiliates, including the general partnership interest of the Partnership. On December 16, 1993, Southmark and SHL executed the Second Amendment to Asset Purchase Agreement whereby SHL acquired an option to purchase the general partnership interest of the Partnership, rather than purchase the partnership interest itself. On the same date, SHL assigned its rights under the amended Asset Purchase Agreement to Hampton. Hampton and Southmark affiliates also entered into an Option Agreement whereby Hampton acquired the right to purchase the option assets, including the general partnership interest of the Partnership, subject to the approval of the limited partners. On April 20, 1994, Insignia entered into an Option Purchase Agreement with Hampton to acquire Hampton's rights to solicit proxies from the Limited Partners seeking their consent to Hampton becoming the general partner of the Partnership. On August 8, 1994, the Insignia contract was terminated. On December 30, 1994, Hampton entered into an Assignment and Assumption of Option Agreement with JKD, whereby, among other things, JKD obtained the right to acquire Hampton's rights to proxy into the Partnership subject to approval of the Limited Partners. As a result of a 1996 transaction between OS, OSGPC, SCM and SII, JKD's option was assigned to OSGPC. Effective as of December 14, 1992, the Partnership entered into a Portfolio Services Agreement and a Property Management Agreement with Hampton UREF, pursuant to which Hampton UREF began providing management for the Partnership's properties and certain other portfolio services. The operations of the Partnership's properties were managed by Hampton Management, Inc. (formerly SHL Management, Inc.) through a subcontract agreement with Hampton UREF. From April 20, 1994 to August 8, 1994, the Partnership and its properties were managed by Insignia pursuant to a Property Management Subcontract Agreement with Hampton UREF. As of August 8, 1994, the properties only were managed by an affiliate of Insignia under a Property Management Agreement directly with the Partnership. As of December 30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio Services Agreement with JKD pursuant to which JKD oversees the management of the Partnership. On January 29, 1996, SCM and SII entered into a purchase agreement to sell their partnership interests in UAC to OS and JKD, respectively. The transfer documents were executed January 31, 1996, and placed into escrow. The transfer would not be effective until certain conditions precedent were satisfied and, if the conditions precedent were not satisfied by April 29, 1996, the transfer documents would be returned to SCM and SII and the transfer would not occur. On April 29, 1996 the purchase agreement was amended to facilitate the substitution of OSGPC for JKD and to extend the escrow period through June 30, 1996. On June 25, 1996 a Second Amendment of Escrow Agreement was entered into to extend the escrow period through August 31, 1996. On December 15, 1996, it was determined F12 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - TRANSACTIONS WITH AFFILIATES (CONTINUED) - ------------------------------------------------- that all conditions precedent to the OS and OSGPC purchase of the partnership interests in UAC had been met and the sale was consummated and OS and OSGPC became the owners and interest holders in UAC. The Partnership pays property management fees based on 5% of gross rental revenues for supervising the maintenance and operations of the Partnership's properties. Beginning December 14, 1992, the Partnership began reimbursing SHL, and subsequently Hampton, for its costs, including overhead, of administering the Partnership's affairs. Reimbursements are "Overhead Fees" which include salaries, travel and other expenses properly allocated to the services provided for the benefit of the Partnership, and an Asset Management Fee is charged at 0.75% of the Partnership's Tangible Asset Value. The Partnership's Tangible Asset Value of the Partnership's real properties is determined by applying a capitalization rate of 10% to annualize the net operating income of each real property, plus the book value of all other tangible assets. At December 31, 1996 and 1995, there were no amounts due to affiliates. Under the Partnership Agreement, the General Partner or an affiliate is entitled to a subordinated real estate commission upon the sale of Partnership properties. Payment of the commission is subordinated to distributions to the Limited Partners of original invested capital plus a 9% per annum cumulative return. Subordinated real estate commissions payable to a Southmark affiliate but assigned to Hampton pursuant to the Second Amendment to Asset Purchase Agreement totaled $549,218 at December 31, 1996 and 1995. Compensation and reimbursements paid to or accrued for the benefit of Hampton and affiliates for the years ending December 31:
1996 1995 1994 -------- -------- -------- Property management fees $ - $ - $ 59,676 Asset management fee 86,259 95,714 135,702 Charged to general and administrative expense: Partnership and Financial administration, data processing, accounting and tax reporting, and investor relations 149,987 147,505 130,688 -------- -------- -------- Total compensation and reimbursements $236,246 $243,219 $326,066 ======== ======== ========
In June 1994, Southmark paid off the first lien mortgage on the Bank of San Pedro Office Building. Consequently, the Partnership had a 90-day promissory note payable to Southmark bearing interest at 10%, secured by a first lien deed of trust, assignment of rents, and security agreement on the Bank of San Pedro Office Building, with all outstanding principal and accrued interest due on September 30, 1995, as a result of two maturity date extensions. The initial principal balance of this note was $877,000. At every maturity date extension, the Partnership incurred a fee in the amount of $78,075 in accordance with the note agreement. In 1994, the extension fees totaling $156,150 and all accrued interest were added to the principal balance in accordance with the note agreement. At December 31, 1994, the principal balance (which included both extension fees and accrued interest) was $1,086,554. On April 11, 1995, the Partnership made a principal prepayment in the amount of $750,000 on the promissory note payable to Southmark. In consideration for this principal prepayment, Southmark reduced the remaining unpaid principal balance of the note payable by $75,000 and extended the maturity date for an additional 90 days. The $75,000 gain on debt forgiveness is included as an extraordinary item in the consolidated statements of operations at December 31, 1995. On July 20, 1995, the Partnership sold the Bank of San Pedro Office Building and paid all remaining principal and accrued interest, totaling $381,593, due on the promissory note payable to Southmark (see Note 4 - "Repossessed Real Estate Held for Resale"). F13 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - REAL ESTATE INVESTMENTS - -------------------------------- The cost and accumulated depreciation and amortization of the Partnership's real estate investments held at December 31, 1996 and 1995, is set forth in the following tables:
Buildings and Accumulated 1996 Land Improvements Depreciation Total ---- ---------- ------------- ------------- ----------- Glasshouse Square Shopping Center $4,731,102 $12,243,834 $(7,499,669) $ 9,475,267 Washington Towne Apartments 524,145 1,918,388 (519,535) 1,922,998 ---------- ----------- ----------- ----------- $5,255,247 $14,162,222 $(8,019,204) $11,398,265 ========== =========== =========== =========== Buildings and Accumulated 1995 Land Improvements Depreciation Total ---- ---------- ------------- ------------ ----------- Glasshouse Square Shopping Center $4,731,102 $12,163,008 $(7,152,145) $ 9,741,965 Washington Towne Apartments 524,145 1,766,165 (358,580) 1,931,730 ---------- ----------- ----------- ----------- $5,255,247 $13,929,173 $(7,510,725) $11,673,695 ========== =========== =========== ===========
On March 31, 1995, the Partnership executed a note payable secured by the Washington Towne Apartments for a principal amount of $250,000, bearing interest at 11.5% per annum with one payment of principal and interest in the amount of $2,476 due May 1, 1995, and all remaining outstanding principal and accrued interest originally due and payable June 1, 1995. The lender subsequently extended the maturity date and on September 13, 1995, the Partnership paid all outstanding principal and accrued interest as a result of the refinancing of the Washington Towne Apartments as described below. The mortgage payable on the Washington Towne Apartments matured in June 1995. In September 1995, the Partnership obtained a mortgage loan payable in the amount of $1,750,000 from a new lender. In order to preserve the Partnership's ownership interest in the Washington Towne Apartments and in order to satisfy the new lender's structural requirements with respect to the refinancing of the mortgage note payable, the Partnership contributed the property on September 13, 1995 to an affiliated entity, Washington Towne Apartments, LLC, a Georgia limited liability company. The Partnership is the owner of all the capital stock of Washington Towne, Inc. The Partnership is the 99% member and Washington Towne, Inc. is the 1% managing member of Washington Towne Apartments, LLC. Therefore, the Partnership effectively retained a 100% interest in the property. In connection with the contribution of the property to Washington Towne Apartments, LLC, the lender provided sufficient funds to satisfy the matured loan obligation and to provide for certain property improvements. Property improvements were completed prior to the end of the first quarter 1996 and have significantly enhanced the value of the property (see Note 6 - "Mortgage Notes Payable"). The Partnership leased under a noncancelable operating lease through September 1993 fifty percent of the Glasshouse Square Shopping Center land tract, known as the Garcia's Tract. Rent expense was $110,337 for the year ended December 31, 1993. On September 16, 1993, the Partnership purchased the remaining fifty percent undivided interest in the land for a cash purchase price of $1,716,005 including closing costs. F14 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - REAL ESTATE INVESTMENTS (CONTINUED) - -------------------------------------------- During 1993 it was determined in a Phase II Environmental Audit that the soils and groundwater in the Garcia's Tract and possibly part of the Glasshouse Square parking lot, located in the Northeastern most corner of Glasshouse Square property, contain elevated levels of certain petroleum products. In 1994 and 1995, the Partnership worked with counsel and environmental engineers in connection with further investigation of the alleged leaking of petroleum products from underground storage tanks and with San Diego County officials to determine the necessary level of clean-up. The Partnership also obtained a health risk assessment to ensure that the gasoline constituents beneath the Garcia's Tract are not emitting harmful vapors inside the building. The health assessment was returned "non detect" meaning no such harmful vapors were detected. In 1996, additional testing was conducted by the environmental engineers who determined there was no "free product" at the portions of the site that were tested and, also, no human health risks exist at this time. Management does not believe that the County of San Diego will take further action. Therefore, this situation should not have a material effect on the Partnership. As a result of the County's no further action position, the Partnership, in 1996, entered into ground lease agreements with two fast food providers. The restaurants have constructed the improvements and the related ground lease income to the partnership is expected to be in excess of $155,000 annually for the twenty year term of the leases. Payments under these lease agreements are scheduled to begin in 1997. The Partnership leases Glasshouse Square Shopping Center, its only commercial property, under noncancelable operating lease agreements that expire over the next 20 years. Future minimum rents over the next five years are as follows:
1997 $ 1,159,873 1998 1,145,988 1999 1,092,260 2000 1,092,260 2001 859,060 Thereafter 5,231,277 ----------- $10,580,718 ===========
On January 17, 1995, the lender filed a notice of default in San Diego County related to the Glasshouse Square mortgages payable. On March 27, 1995, the mortgages were modified and a forbearance agreement was executed whereby the lender agreed to discontinue foreclosure proceedings. The first lien mortgage is payable in varying monthly installments of principal and interest, bearing interest at 9.5% per annum and maturing in December 2000. The second lien mortgage payable requires monthly interest only payments in the amount of $6,595, bearing interest at 11% per annum and maturing in December 2000. Principal balances for the first and second lien mortgages as of December 31, 1996, were $7,573,193 and $1,492,431, respectively, compared to $7,435,834 and $1,492,431, respectively in 1995. In addition to the mortgage modifications and forbearance agreement, on March 27, 1995, the lender granted the Partnership a line of credit for the maximum amount of $400,000 bearing interest at 9.5% per annum payable in full on December 1, 2000. The line of credit is restricted to Glasshouse Square for the use of mortgage payment shortfalls, tenant improvements, leasing commissions, and a monument sign. The line of credit is secured by a deed of trust. As of December 31, 1996 and 1995, the Partnership owed $400,000 and $186,206 respectively, against the line of credit. This draw on the line of credit increased the first lien mortgage principal balance to $7,573,193 and $7,435,834 as of December 31, 1996 and 1995, respectively (see Note 6 - "Mortgage Notes Payable"). In September 1995, Silo California, a major tenant that provided approximately 25% of the gross rental revenues to Glasshouse Square, defaulted on its lease and ceased retail operations. The Partnership filed a lawsuit styled University ---------- Real Estate Partnership V v. Silo California, Inc. No. 692441 (Superior Court of - ------------------------------------------------- the State of California) to recover possession of leased premises and damages related to breach of a lease at Glasshouse Square Shopping Center. The Partnership obtained an unlawful detainer judgment against the defendant on October 25, 1995, in the amount of $41,757. F15 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - REAL ESTATE INVESTMENTS (CONTINUED) - -------------------------------------------- The Partnership seeks to collect from Silo California all base rent and common area maintenance charges, $18,689 and $5,919, respectively, per month, for the periods that they are in default or until a new tenant has been secured to lease their location. At December 31, 1996 and 1995, an allowance for doubtful accounts in the amount of $107,044 was recorded for the Silo California lease default The Partnership filed a claim against Silo California, Inc. on February 9, 1996, in a bankruptcy proceeding entitled In re: Silo California, Inc., a -------------------------------- California corporation, No. 95-1581 (U.S. Bankruptcy Court, District of - ---------------------- Delaware), to recover on the $41,757 unlawful detainer judgment. A second claim in the amount of $312,992 for additional damages related to breach of the lease was filed on February 20, 1996 against Silo California, Inc. and an identical $312,992 claim was filed against Silo Holdings, Inc. in In re: Silo Holdings, ---------------------- Inc., No. 95-1578 (U.S. Bankruptcy Court, District of Delaware) on February 20, - ---- 1996. All three claims are still pending. The Partnership cannot predict what the final recovery amount will be. NOTE 4 - REPOSSESSED REAL ESTATE HELD FOR RESALE - ------------------------------------------------ In January 1994, the borrower ceased making regularly scheduled debt payments constituting an event of default on a note receivable held by the Partnership resulting from the sale of Bank of San Pedro Office Building in 1987. In March 1994, the Bank of San Pedro Office Building was placed in receivership due to the contemplation of a foreclosure proceeding by the Partnership against the borrower. The Partnership, instead of initiating foreclosure proceedings against the borrower, entered into a Settlement Agreement with the borrower. Under the Settlement Agreement, the Bank of San Pedro Office Building was conveyed to the Partnership in lieu of the foreclosure of the wrap lien held by the Partnership on June 20, 1994. In return, the Partnership paid $30,000. At December 31, 1994, the Bank of San Pedro Office Building was recorded on the consolidated financial statements as repossessed real estate held for resale with a value of $1,422,391. This amount was the net note receivable balance plus the book value of assets and liabilities acquired at the date of repossession, which approximated net realizable value. The Partnership did not plan to hold the Bank of San Pedro Office Building as an income-producing property. Thus, it was not considered a depreciable real estate investment. The underlying mortgage note on the Bank of San Pedro Office Building matured in June 1992. Negotiations with the lender for an extension were completed in June 1993, and the maturity date was extended to April 1, 1994. After the note matured in April 1994, the Partnership was not able to negotiate another extension or renewal of the first lien. In June 1994, Southmark paid off the first lien mortgage. Consequently, the Partnership had a promissory note payable to Southmark that matured September 30, 1995. On July 20, 1995, the Partnership sold the Bank of San Pedro Office Building for $1,350,000. The Partnership received partial consideration from the sale in the form of a note receivable for $350,000, bearing interest at 9% per annum with interest only payments due monthly, secured by a second lien deed of trust on the Bank of San Pedro Office Building, maturing on July 20, 1998 and net cash of $291,562. On the date of sale, all remaining principal and accrued interest, totaling $381,593, due on the promissory note payable to Southmark was paid (see Note 2 - "Transactions with Affiliates" and Note 5 - "Notes Receivable"). F16 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - REPOSSESSED REAL ESTATE HELD FOR RESALE (CONTINUED) - ------------------------------------------------------------ A loss on sale of repossessed real estate was recognized in 1995 relating to this transaction as follows:
Cash proceeds $ 291,562 Note receivable 350,000 Repayment of note payable to Southmark affiliate 381,593 Payment of property taxes 230,098 Escrow holdback 15,000 ----------- Total proceeds 1,268,253 Less: net assets sold (1,389,771) ----------- Loss on sale of repossessed real estate $ (121,518) ===========
On March 30, 1996, the borrower on the note receivable ceased making regularly scheduled debt payments constituting an event of default. The borrower has currently cured the default situation; however, a provision for loss in the amount of $100,000 was recorded in 1995 in the event of any future complications. NOTE 5 - NOTES RECEIVABLE - ------------------------- On July 20, 1995, the Partnership sold the Bank of San Pedro Office Building for $1,350,000. The Partnership received, as partial consideration from the sale, a note receivable for $350,000, bearing interest at 9% per annum with interest only payments due monthly, secured by a second lien deed of trust on the Bank of San Pedro Office Building, maturing on July 20, 1998 (see Note 2 - "Transactions with Affiliates" and Note 4 - "Repossessed Real Estate Held for Resale"). On March 30, 1996, the borrower on the note receivable ceased making regularly scheduled debt payments constituting an event of default. The borrower has currently cured the default situation; however, a provision for loss in the amount of $100,000 was recorded in 1995 in the event of any future complications. In September 1994, the Las Oficinas note receivable and the underlying mortgage payable matured. On October 1, 1994, a commitment letter was executed regarding the Las Oficinas mortgage payable in order to transfer all liability from the Partnership to the borrower on the Las Oficinas note receivable. On December 1, 1994, a commitment letter was executed between the borrower and the Partnership stating that the Partnership, among other things, would reduce the note receivable principal balance from $3,031,936 to $1,100,000. Both of these modifications took place simultaneously. On February 27, 1995, the closing of the above transactions was executed. At this time, the Partnership was released from the mortgagor position on the Las Oficinas mortgage payable. Concurrently, the Las Oficinas note receivable was modified reducing the principal amount by $1,931,936 to $1,100,000, bearing interest at a rate of 8% per annum and maturing on September 1, 1999. The modification of the Las Oficinas note receivable and underlying mortgage payable, as previously discussed, is reflected as of December 31, 1994 as a loss on modification of note receivable in the amount of $530,695. On April 7, 1995, the modified Las Oficinas note receivable for $1,100,000 was sold to a third party for $750,000. This $350,000 valuation loss was recorded as of the modification date, December 1, 1994. F17 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 NOTES RECEIVABLE (CONTINUED) - ------------------------------------ The following is a summary of the activity for the notes receivable.
For the years ended December 31, ----------------------------------- 1996 1995 1994 -------- ---------- ------------- Balance at beginning of year $250,000 $ 750,000 $ 4,319,022 Repossession of real estate - - (1,287,086) Modification of note receivable with the borrower - - (1,931,936) Sale of Las Oficinas note receivable - (750,000) - Partial consideration from sale of repossessed real estate - 350,000 - Provision for loss on note receivable - (100,000) - Loss on sale of note receivable - - (350,000) -------- --------- ------------ Balance at end of year $250,000 $ 250,000 $ 750,000 ======== ========= ============
NOTE 6 - MORTGAGE NOTES PAYABLE - ------------------------------- The following is a summary of mortgage notes payable.
December 31, ------------ 1996 1995 --------- --------- Mortgage payable bearing interest at 8.625%, secured by Washington Towne Apartments, payable in monthly installments of principal and interest of $14,239; maturing October 2005. 1,723,790 1,746,666 Mortgage payable bearing interest ranging from 9% to 15.71%, secured by a first lien deed of trust on Glasshouse Square Shopping Center, payable in varying monthly installments of principal and interest; maturing December 2004. In March 1995, the mortgage payable was modified . The modification bears an interest rate of 9.5%, payable in monthly principal and interest payments beginning April 1995 based on a 25-year amortization, maturing December 2000. An additional advance note payable was obtained in March 1995, bearing interest at 9.5%, also secured by the same first lien deed of trust on Glasshouse Square Shopping Center, payable in monthly principal and interest payments beginning April 1995 based on a 25-year amortization, maturing December 2000. 7,573,193 7,435,834
F18 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - MORTGAGE NOTES PAYABLE (CONTINUED) - -------------------------------------------
December 31, ----------------------- 1996 1995 ---------- ---------- Mortgage payable bearing interest ranging from 8% to 14%, secured by a second lien deed of trust on Glasshouse Square Shopping Center, payable in varying monthly installments of interest from October 1993 to September 1994; then, monthly installments of principal and interest; maturing September 2008. In March 1995, the mortgage payable was modified. The modification bears an interest rate of 11%, payable in monthly interest only installments of $6,595, maturing December 2000. 1,492,431 1,492,431 ----------- ----------- $10,789,414 $10,674,931 =========== ===========
Scheduled principal maturities of the mortgage notes under existing terms are as follows at December 31, 1996:
1997 $ 109,520 1998 122,190 1999 134,079 2000 8,802,808 2001 32,333 Thereafter 1,588,484 ----------- Total $10,789,414 ===========
On September 16, 1993, the Partnership granted a second lien on Glasshouse Square in order to finance the purchase of the remaining 50% undivided interest in the land. Interest only payments are required for the first year, and beginning in the second year payments of principal and interest are required until maturity in September 2008. On January 17, 1995, the lender filed a notice of default in San Diego County related to the Glasshouse Square mortgages payable. On March 27, 1995, the mortgages were modified and a forbearance agreement was executed whereby the lender agreed to discontinue foreclosure proceedings. The first lien mortgage is payable in varying monthly installments of principal and interest, bearing interest at 9.5% per annum and maturing in December 2000. The second lien mortgage payable requires monthly interest only payments in the amount of $6,595, bearing interest at 11% per annum and maturing in December 2000. In addition to the mortgage modifications and forbearance agreement, on March 27, 1995, the lender granted the Partnership a line of credit for the maximum amount of $400,000 bearing interest at 9.5% per annum payable in full on December 1, 2000. The line of credit is restricted to Glasshouse Square for the use of mortgage payment shortfalls, tenant improvements, leasing commissions, and a monument sign. The line of credit is secured by the same first lien deed of trust as the first lien mortgage. As of December 31, 1996 and 1995 the Partnership owed $400,000 and $186,206, respectively against the line of credit. This draw on the line of credit increased the first lien mortgage principal balance to $7,573,193 and $7,435,834 as of December 31, 1996 and 1995, respectively. On March 31, 1995, the Partnership executed a note payable secured by the Washington Towne Apartments for a principal amount of $250,000, bearing interest at 11.5% per annum with one payment of principal and interest in the amount of $2,476 due May 1, 1995 and all remaining outstanding principal and accrued interest originally due and payable June 1, 1995. The lender subsequently extended the maturity date and on September 13, 1995, the Partnership paid all outstanding principal and accrued interest as a result of the refinancing of the Washington Towne Apartments as described below. F19 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - MORTGAGE NOTES PAYABLE (CONTINUED) - ------------------------------------------- The mortgage payable on the Washington Towne Apartments matured in June 1995. In September 1995, the Partnership obtained a mortgage loan payable in the amount of $1,750,000 from a new lender. In order to preserve the Partnership's ownership interest in the Washington Towne Apartments and to satisfy the new lender's structural requirements with respect to the refinancing of the mortgage note payable, the Partnership contributed the property on September 13, 1995 to an affiliated entity, Washington Towne Apartments, LLC, a Georgia limited liability company. The Partnership is the owner of all the capital stock of Washington Towne, Inc. The Partnership is the 99% member and Washington Towne, Inc. is the 1% managing member of Washington Towne Apartments, LLC. Therefore, the Partnership effectively retained a 100% interest in the property. In connection with the contribution of the property to Washington Towne Apartments, LLC, the lender provided sufficient funds to satisfy the matured loan obligation and to provide for certain property improvements. Property improvements were completed prior to the end of the first quarter of 1996 and have significantly enhanced the value of the property. In September 1994, the mortgage payable on Las Oficinas matured. On October 1, 1994, a commitment letter was executed regarding the transfer of the mortgage from the Partnership to the borrower on the Las Oficinas note receivable. On February 27, 1995, the transaction, as discussed above, was executed. On this date, the Partnership was released from the mortgagor position on the mortgage payable on Las Oficinas. Concurrent with this transaction, the Las Oficinas note receivable modification was executed (see Note 5 - "Notes Receivable"). NOTE 7 - DISTRIBUTIONS - ---------------------- Distributions of cash from operations, to the extent deemed available by the General Partner for distribution, are allocated 92% to the Limited Partners and 8% to the General Partner, and are made in the following order: (a) First to the holders of Income Units until they receive a return of 9% per annum cumulative on their adjusted capital investment; then, (b) to the holders of Growth/Shelter Units until they receive a non-cumulative return for the year of distribution equal to 5% per annum on their adjusted capital investment; then, (c) to all the Limited Partners based on number of Units held. Distributions of cash from other sources, including sales and refinancing and cash reserves, are made in the following order: (a) First, 99% to the Limited Partners and 1% to the General Partner until the Limited Partners have received a return of their aggregate capital investment plus a 9% per annum cumulative return on their adjusted capital investment. In this regard, distributions to the Limited Partners are allocated first to holders of Income Units until they have received their entire capital investment and their 9% return. Holders of Growth/Shelter Units then receive return of their entire capital investment and their 9% return. Further distributions to the Limited Partners under this section are allocated generally 20% to holders of Income Units and 80% to holders of Growth/Shelter Units. Distributions then continue; (b) to the General Partner until the General Partner has received 12% of all distributions from other sources; then, F20 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 DISTRIBUTIONS (CONTINUED) - --------------------------------- (c) 12% to the General Partner and 88% to all the Limited Partners. During 1996, 1995 and 1994, no distributions were made by the Partnership. NOTE 8 - SOUTHMARK BANKRUPTCY - ------------------------------ On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership nor its General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which include Southmark's interests in the General Partner, are being sold or liquidated for the benefit of creditors. Because neither the Partnership nor the General Partner was included in the Southmark bankruptcy proceedings, there has been no direct effect on the Partnership's operations during the bankruptcy period or resulting from confirmation of the plan. Ultimate decision-making authority with respect to the operations of the Partnership remains with the General Partner until such time as the Limited Partners approve a substitute general partner (see Note 9 - "Sale of General Partner Interest"). NOTE 9 - SALE OF GENERAL PARTNER INTEREST - ----------------------------------------- As a result of Southmark's bankruptcy and its plan to liquidate all of its assets, the General Partner concluded that it was in the best interest of the Partnership to seek, as its qualified replacement as general partner, an entity which intends to remain involved in the management of real estate and real estate limited partnerships. On March 9, 1993, Southmark and several of its affiliates (including the General Partner) entered into an Asset Purchase Agreement with SHL to sell various general and limited partnership interests owned by Southmark and its affiliates, including the general partnership interest of the Partnership. On April 22, 1993, Southmark and SHL executed the First Amendment to Asset Purchase Agreement whereby SHL acquired an option to purchase the general partnership interest of the Partnership, rather than purchase the Partnership interest itself. On December 16, 1993, SHL assigned its rights under the amended Asset Purchase Agreement to Hampton. Hampton and Southmark affiliates also entered into an Option Agreement whereby Hampton acquired the right to purchase the option assets, including the general partnership interest of the Partnership subject to the approval of the Limited Partners. On April 20, 1994, Insignia entered into an Option Purchase Agreement with Hampton to acquire Hampton's rights to solicit proxies from the Limited Partners seeking their consent to Hampton becoming the general partner of the Partnership. On August 8, 1994, the Insignia contract was terminated. On December 30, 1994, Hampton entered into an Assignment and Assumption of Option Agreement with JKD whereby, among other things, JKD obtained the right to acquire Hampton's rights to proxy into the Partnership subject to the approval of the Limited Partners. As a result of a 1996 transaction between OS, OSGPC, SCM and SII, JKD's option was assigned to OSGPC. Effective as of December 14, 1992, the Partnership entered into a Portfolio Services Agreement and a Property Management Agreement with Hampton UREF pursuant to which Hampton UREF began providing management for the Partnership's properties and certain other portfolio services. The operations of the Partnership's properties were managed by Hampton Management, Inc. (formerly SHL Management, Inc.) through a subcontract agreement with Hampton UREF. From April 20, 1994 to August 8, 1994, the Partnership and its properties were managed by Insignia pursuant to a Property Management Subcontract Agreement with Hampton UREF. As of August 8, 1994, the properties were managed by an affiliate of Insignia under a Property Management Agreement directly with the Partnership. As of December 30, 1994, Hampton UREF entered into an Assignment and Assumption of Portfolio Services Agreement with JKD pursuant to which JKD oversees the management of the Partnership. F21 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - SALE OF GENERAL PARTNER INTEREST (CONTINUED) - ----------------------------------------------------- On January 29, 1996, SCM and SII entered into a purchase agreement to sell their partnership interests in UAC to OS and JKD, respectively. The transfer documents were executed January 31, 1996, and placed into escrow. The transfer would not be effective until certain conditions precedent were satisfied and, if the conditions precedent were not satisfied by April 29, 1996, the transfer documents would be returned to SCM and SII and the transfer would not occur. On April 29, 1996 the purchase agreement was amended to facilitate the substitution of OSGPC for JKD and to extend the escrow period through June 30, 1996. On June 25, 1996 a Second Amendment of Escrow Agreement was entered into to extend the escrow period through August 31, 1996. On December 15, 1996, it was determined that all conditions precedent to the OS and OSGPC purchase of the partnership interests in UAC had been met and the sale was consummated and OS and OSGPC became the owners and interest holders in UAC. NOTE 10 - PRO FORMA INFORMATION - ------------------------------- Unaudited pro forma balance sheet information as of December 31, 1994, has been prepared to reflect the financial condition of the Partnership as if the sales of the Bank of San Pedro Office Building and the Las Oficinas Note Receivable had occurred on December 31, 1994.
Pro Forma Historical Adjustments Pro Forma ----------- ------------ ----------- Real estate investments $11,799,899 $ - $11,799,899 Cash 197,283 289,856 (C) 487,139 Accounts receivable 84,929 (43,111) (A) 41,818 Note receivable 750,000 (750,000) (B) - 350,000 (D) 350,000 Other assets 411,834 4,178 (A) 416,012 Repossessed real estate held for resale 1,422,391 (1,422,391) (A) - ----------- ----------- ----------- $14,666,336 $(1,571,468) $13,094,868 =========== =========== =========== Mortgage notes payable $ 9,453,587 $ - $ 9,453,587 Note payable to Southmark affiliate 1,086,554 (1,086,554) (A) - Accounts payable and other liabilities 655,655 (282,749) (A) 372,906 Accounts payable - affiliates 570,112 - 570,112 Partners' equity 2,900,428 (202,165) (A)(B) 2,698,263 ----------- ----------- ----------- $14,666,336 $(1,571,468) $13,094,868 =========== =========== ===========
F22 UNIVERSITY REAL ESTATE PARTNERSHIP V NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - PRO FORMA INFORMATION (CONTINUED) - ------------------------------------------- Unaudited pro forma information for the year ended December 31, 1994, has been prepared to reflect the results of operations as if the sales of the Bank of San Pedro Office Building and the Las Oficinas Note Receivable had occurred on January 1, 1994. The results are not necessarily indicative of the results which would have occurred had these transactions been consummated at the beginning of 1994 or of future results of operations of the Partnership.
Pro Forma Historical Adjustments Pro Forma ----------- ------------ ------------ Revenues: Rental income $ 2,484,310 $ (305,677) (E) $ 2,178,633 Interest 212,896 (207,852) (F) 31,500 (D) 36,544 ---------- ---------- ----------- 2,697,206 (482,029) 2,215,177 ----------- ---------- ----------- Expenses: Interest 1,335,552 (391,513) (E)(F) 944,039 Depreciation and amortization 464,185 - 464,185 Property taxes 205,576 (47,071) (E) 158,505 Operating expenses 1,260,566 (238,464) (E) 1,022,102 General and administrative 527,030 3,983 (E) 531,013 ----------- ---------- ----------- 3,792,909 (673,065) 3,119,844 ----------- ---------- ----------- Net operating loss (1,095,703) (191,036) (904,667) Other income (expenses): Loss on sale of note receivable 350,000 1,231,809 (F) 1,581,809 Loss on modification of note receivable 530,695 (530,695) - Loss on sale of repossessed real estate held for resale - 154,138 (E) 154,138 ----------- ---------- ----------- Net loss $(1,976,398) $ (664,216) $(2,640,614) =========== ========== =========== Net Loss per Limited Partnership Unit $(56.79) $(19.09) $(75.88) =========== ========== ===========
Pro Forma Adjustments - --------------------- (A) To record the effect of the sale of Bank of San Pedro Office Building including (1) a reduction in repossessed real estate held for resale and retirement of underlying note payable to Southmark affiliate and (2) reductions in accounts receivable, other assets, accounts payable and other liabilities resulting from the disposition of the property. (B) To record the effect of the sale of the Las Oficinas Note Receivable. (C) To record the cash proceeds from the sales ($1,750,000), security deposit cash surrendered ($1,706), and cash payments of selling expenses, accounts payable, and repayment of debt ($1,458,438). (D) To record the note receivable received as proceeds and interest earned from the sale of the Bank of San Pedro Office Building. (E) To remove the revenues and expenses related to the Bank of San Pedro Office Building rental operations and record loss on the sale of the Bank of San Pedro Office Building. (F) To remove interest income, interest expense, and record loss on the sale of the Las Oficinas note receivable. F23 SCHEDULE VIII UNIVERSITY REAL ESTATE PARTNERSHIP V VALUATION AND QUALIFYING ACCOUNTS December 31, 1996
Additions ---------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period - ----------- ---------- ---------- ---------- ----------- ---------- 1996 - ---- Allowance for Doubtful Accounts $107,044 $ - $ - $ - $107,044 Allowance for Notes Receivable $100,000 - - - 100,000 1995 - ---- Allowance for Doubtful Accounts $ 72,740 107,044 - (72,740) 107,044 Allowance for Notes Receivable $ - 100,000 - - 100,000 1994 - ---- Allowance for Doubtful Accounts $362,981 72,740 - (362,981) 72,740 Allowance for Notes Receivable $270,000 - - (270,000) -
F24 SCHEDULE X UNIVERSITY REAL ESTATE PARTNERSHIP V SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION For the Years Ended December 31, 1996, 1995 and 1994
Charged to Expense ---------------------------- Item 1996 1995 1994 - ------------------------------- -------- -------- -------- Maintenance and repairs $182,562 $201,633 $226,012 Taxes, other than payroll and income taxes 98,675 138,106 205,576
1) Amortization of deferred borrowing costs was not set forth as such items do not exceed one percent of total sales as shown in the related statements of operations. 2) Advertising costs was not set forth as such items do not exceed one percent of total sales as shown in the related statements of operations. 3) Royalty expense is not applicable to these financial statements. F25 SCHEDULE XI UNIVERSITY REAL ESTATE PARTNERSHIP V REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1996
Gross Amount at Costs Which Carried at Close of Period Initial Costs Capitalized ------------------------------------- ----------------------- Subsequent Buildings Related Buildings & to Cumulative and Description Encumbrances Land Improvements Acquisition Write-downs Land Improvements Total(s) ----------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ ------------ Glasshouse Square Shopping Center San Diego, CA $ 9,065,624 $1,540,892 $11,268,742 $4,759,625 $(2,400,000) $4,731,102 $12,243,834 $16,974,936 Washington Towne Apartments Atlanta, GA 1,723,790 524,145 931,812 840,807 - 524,145 1,918,388 2,442,533 ------------ ---------- ------------ ----------- ----------- ---------- ------------ ---------- $10,789,414 $2,065,037 $12,200,554 $5,600,432 $(2,400,000) $5,255,247 $14,162,222 $19,417,469 ============ ========== ============ =========== =========== ========== ============ =========== Accumulated Depreciation and Date of Date Depreciable Amortization Construction Acquired lives (years) ------------ ------------ -------- ------------- Glasshouse Square Shopping Center San Diego, CA $(7,499,669) 1981 12/78 3-30 Washington Towne Apartments Atlanta, GA (519,535) 1971 07/91 3-25 ----------- $(8,019,204) ===========
F26 UNIVERSITY REAL ESTATE PARTNERSHIP V Real Estate Investments and Accumulated Depreciation and Amortization Note to Schedule XI Changes in real estate investments and accumulated depreciation and amortization are as follows:
For the years ended December 31, -------------------------------------- 1996 1995 1994 ------------ ----------- ----------- Real estate: - ----------- Balance at beginning of year $19,184,420 $18,835,045 $18,724,518 Acquisitions - 88,548 - Improvements 251,727 260,827 110,527 Dispositions (18,678) - - ----------- ----------- ----------- Balance at end of year $19,417,469 $19,184,420 $18,835,045 =========== =========== ===========
Accumulated depreciation and amortization: - ------------------------------------------
Balance at beginning of year $7,510,725 $7,035,146 $6,580,210 Depreciation and amortization 523,933 475,579 454,936 Dispositions (15,454) - - ---------- ---------- ---------- Balance at end of year $8,019,204 $7,510,725 $7,035,146 ========== ========== ==========
F27 SCHEDULE XII UNIVERSITY REAL ESTATE PARTNERSHIP V MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996
Principal Amount Final Periodic Face Carrying of Loans Subject Maturity Payment Prior Amount of Amount of to Delinquent Description Interest Rate Date Terms Liens Mortgage Mortgage Principal or Interest - --------------------------- -------------- --------- ---------- ----------- ------------- ---------- --------------------- Mortgage payable on 8.625% October (1) None $1,750,000 $1,723,790 None Washington Towne 2005 Apartments, secured by a first lien deed of trust Mortgage payable on 9.5% December (2) None $7,314,713 $7,573,193 None Glasshouse Square 2000 Shopping Center, secured by a first lien deed of trust with an additional advance note of $400,000 Mortgage payable on 11% September (3) See above $1,492,431 $1,492,431 None Glasshouse Square 2000 Shopping Center, secured by second lien deed of trust
(1) Monthly installments of principal and interest of $14,239. (2) Varying monthly installments of principal and interest. (3) Monthly installments of interest only of $6,595. F28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------ Price Waterhouse LLP served as the independent accountant previously engaged to audit the financial statements of University Real Estate Partnership V (the "Partnership") for the three years ended December 31, 1993. On May 10, 1995, the Partnership's Manager selected Wallace Sanders & Company to serve the Partnership as its independent accountant to audit the Partnership's financial statements for the calendar year ended December 31, 1994. The failure of the Manager of the Partnership to select Price Waterhouse LLP as the Partnership's independent accountant to audit the financial statements for the year ended December 31, 1994, constituted Price Waterhouse LLP being "dismissed" (as such term is used in Item 304 of Regulation S-K). During the years Price Waterhouse LLP served as the independent accountants to audit the financial statements of the Partnership and thereafter through the date hereof, the Partnership has not had any disagreement with Price Waterhouse LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which disagreement, if not resolved to the satisfaction of Price Waterhouse LLP, would have caused Price Waterhouse LLP to make reference to the subject matter of the disagreement in connection with this report. The decision to change accountants was not recommended by an audit or similar committee (since the Manager has no such committee) and was made only by the Manager. The Partnership has provided Price Waterhouse LLP with a copy of the foregoing disclosures at the same time as the filing of this report with the Commission and has requested such former accountant to furnish the Partnership with a letter addressed to the Securities and Exchange Commission (the "Commission") stating whether Price Waterhouse LLP agrees with the statements made by the Partnership herein and, if not, stating the respects in which it does not agree. Price Waterhouse LLP by letter dated July 18, 1995, addressed to the Office of the Chief Accountant of the Commission, and advised that it agrees with the statements made by the Partnership. A copy of the Price Waterhouse LLP letter was attached to Form 8-K as filed with the Securities and Exchange Commission on July 24, 1995. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- -------------------------------------------------- The Partnership does not have officers or directors. University Advisory Company is the General Partner of the Partnership. OS General Partner Company and OS Holdings, Inc., are the two general partners of UAC. The executive officer and director of the General Partner who controls the affairs of the Partnership is as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Curtis R. Boisfontaine, 38 From 1991 to the present, Mr. Boisfontaine Jr., President and has served as Chief Executive Officer of Chairman of the Board of Hampton Real Estate Group and as President Directors of OS General of Meridian Capital Corporation. OSGPC was Partner Company formed in 1995 and Mr. Boisfontaine is the majority shareholder, President and sole director of OSGPC. 14 ITEM 11. EXECUTIVE COMPENSATION - -------- ---------------------- No individual principal or principals as a group received over $60,000 in direct remuneration from the Registrant. The General Partner is not compensated directly for services rendered to the Partnership. Certain officers and directors of the General Partner and Hampton receive compensation from the General Partner or Hampton and/or their affiliates (but not from the Registrant) for services performed for various affiliated entities which may include services performed for the Registrant. See "Item 13 - - Certain Relationships and Related Transactions" and Note 2 to the financial statements appearing in Item 8. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- (A) Security Ownership of certain beneficial owners. No individual or group as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the Registrant is the beneficial owner of more than 5 percent of the Registrant's securities. (B) Security ownership of management. Neither the General Partner nor any of its officers or directors owns any Limited Partnership Units. The General Partner is entitled to distributions of cash from operations and from other sources (primarily from the sale or refinancing of Partnership properties and the reserve account) as set forth in Item 8 - "Note 7 -Distributions." (C) Change in Control. None. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Beginning December 14, 1992, Property Management and Portfolio Services Agreements were entered into with Hampton UREF and the Partnership began paying property management fees, through a subcontract agreement with the Hampton UREF, to Hampton and began reimbursing Hampton for its costs of administering the Partnership's affairs. Beginning April 20, 1994, the Partnership began paying property management fees to Insignia, through a Property Management Subcontract Agreement with Hampton UREF and later the Partnership directly. On December 30, 1994 an Assignment and Assumption of Portfolio Services Agreement was entered into between Hampton UREF and JKD whereby the Partnership began reimbursing JKD for its costs of administering the Partnership's affairs. Compensation or reimbursements paid to or accrued for the benefit of Hampton and affiliates and Insignia during 1996 are as follows: JKD Insignia -------- -------- Property management fees $ - $93,112 Charged to general and administrative expense: Partnership and financial administration, data processing, accounting and tax reporting, and investor relations 149,987 - Asset management fees 86,259 - -------- -------- Total compensation and reimbursements $236,246 $93,112 ======== ======== 15 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON - -------- ---------------------------------------------------------------------- FORM 8-K -------- (a)(1) Consolidated Financial Statements Consolidated financial statements for University Real Estate Partnership V, listed in the Index to the Consolidated Financial Statements and Supplementary Data on page 16, are filed as part of this Annual Report. (a)(2) Consolidated Financial Statement Schedules Consolidated Financial Statement Supplementary Data for University Real Estate Partnership V, listed in the Index to the Consolidated Financial Statements and Supplementary Data on page 16, are filed as part of this Annual Report. Page ---- (a)(3) Index to Exhibits.............................................. 16 (b) Reports on Form 8-K............................................ 19 (a)(3) The following documents are filed as part of this report and is an index to the exhibits: Exhibit Number Description ------- ----------- 3.1 Limited Partnership Agreement (Incorporated by reference to Registration Statement No. 2-74914 on Form S-11 filed by Registrant). 3.2i Articles of Incorporation of Washington Towne, Inc. executed on August 9, 1995. (6) 3.2ii Washington Towne, Inc. Bylaws. (6) 3.3i Articles of Organization of Washington Towne Apartments, L.L.C. executed on August 9, 1995. (6) 3.3ii Operating Agreement of Washington Towne Apartments, L.L.C. entered into and effective August 9, 1995 by and between Washington Towne, Inc.,a Georgia corporation and University Real Estate Partnership V, a California limited partnership. (6) 4. Limited Partnership Agreement (Incorporated by reference to Registration Statement No. 2-74914 on Form S-11 filed by Registrant). 4.1 Trust Indenture Agreement (Incorporated by reference to Exhibit 4.1 to Registration Statement 2-74914 on Form S-11 filed by Registrant). 10.1 Asset Purchase Agreement among Southmark Corporation and its affiliates and SHL Acquisition Corp. III dated March 9, 1993. (2) 16 Exhibit Number Description ------- ----------- 10.2 Asset Purchase Agreement among Southmark Corporation and its affiliates and SHL Acquisition Corp. III dated March 9, 1993 as amended by the First Amendment to Asset Purchase Agreement dated April 22, 1993. Incorporated by reference to the Annual Report of the Registrant on Form 10-K for the period ended December 31, 1992, as filed with the Securities and Exchange Commission on May 1, 1993. 10.3 Asset Purchase Agreement among Southmark Corporation and its affiliates and SHL Corp. III dated March 9, 1993, as amended by the Second Amendment to Asset Purchase Agreement dated December 14, 1993. (2) 10.4 University V Option Agreement entered into as of December 16, 1993, by and among University Advisory Company and Hampton Realty Partners, L.P. and/or its Permitted Assigns. (3) 10.5 Portfolio Services Agreement between the Partnership and Hampton UREF Management, Ltd. dated December 16, 1993 to be effective as of December 14, 1992. (3) 10.6 Assignment of Rights of the Asset Purchase Agreement between SHL Acquisition Corp. III and Hampton HCW, Hampton Realty Partners, L.P., and Hampton UREF Management, Ltd. dated December 16, 1993. (3) 10.7 Portfolio Service Subcontract between Hampton UREF Management, Ltd. and IFGP Corporation dated April 20, 1994. (3) 10.8 Property Management Subcontract between Hampton UREF Management, Ltd. and Insignia Management Group, L.P. dated April 20, 1994. (3) 10.9 Purchase Agreement between Hampton Realty Partners, L.P. and Insignia Financial Group, Inc. dated April 20, 1994. (3) 10.10 Note dated June 10, 1994 by and between University Real Estate Partnership V, a California limited partnership, and Southmark Corporation, a Georgia corporation, in the amount of $877,000.00. (3) 10.11 Settlement Agreement between PDP Venture V, a California limited partnership, and University Real Estate Partnership V, a California limited partnership, dated June 20, 1994. (3) 10.12 Portfolio Services Subcontract Agreement between Hampton UREF Management, Ltd. and IFGP Corporation dated April 20, 1994 as amended July 31, 1994. (3) 10.13 Termination of Purchase Agreement between Hampton Realty Partners, L.P. and Insignia Financial Group, Inc. dated August 8, 1994. (3) 10.14 Property Management Subcontract Agreement between Hampton UREF Management, Ltd. and Insignia Management Group, L.P. dated April 20, 1994, as amended August 8, 1994. (3) 10.15 Termination of Property Management Agreement between Hampton UREF Management, Ltd. and the Partnership dated August 8, 1994. (3) 17 Exhibit Number Description ------- ----------- 10.16 Property Management Agreement between the Partnership and Insignia Commercial Group, Inc. dated August 8, 1994. (3) 10.17 Termination of Property Management Subcontract Agreement between Hampton UREF Management, Ltd. and Insignia Management Group, Ltd. dated September 1, 1994. (3) 10.18 Assignment and Assumption of Portfolio Services Agreement between Hampton UREF Management, Ltd. and JKD Financial Management, Inc. dated December 30, 1994. (4) 10.19 Assignment and Assumption of Option Agreement between Hampton Realty Partners, L.P. and JKD Financial Management, Inc. dated December 30, 1994. (4) 10.20 Modification and/or Extension Agreement dated March 27, 1995 by and between Imperial Bank, a California banking corporation, and University Real Estate Partnership V, a California limited partnership. (5) 10.21 Disbursement Agreement and Deed of Trust dated March 27, 1995, between Imperial Bank, a California banking corporation, and University Real Estate Partnership V, a California limited partnership for the additional line of credit granted to the Partnership in the amount of $400,000. (5) 10.22 Forbearance Agreement dated March 27, 1995 by and between University Real Estate Partnership V, a California limited partnership and Imperial Bank, a California banking corporation. (5) 10.23 Note dated March 31, 1995 by and between University Real Estate Partnership V, a California limited partnership, and Imperial Bank, a California banking corporation in the amount of $250,000. (5) 10.24 Amended and Restated Forbearance Agreement entered into on April 28, 1995 by and between University Real Estate Partnership V, a California limited partnership and Imperial Bank, a California banking corporation. (5) 10.25 Promissory Note dated September 13, 1995 by and between Washington Towne Apartments, L.L.C. and First Union National Bank of North Carolina for the principal amount of $1,750,000. (6) 10.26 Deed to Secure Debt and Security Agreement dated September 13, 1995 by and between Washington Towne Apartments, L.L.C. and First Union National Bank of North Carolina. (6) 10.27 Assignment of Leases and Rents dated September 13, 1995, by and between Washington Apartments, L.L.C. and First Union Bank of North Carolina. (6) 10.28 Indemnity and Guaranty Agreement dated September 13, 1995 by and between University Real Estate Partnership V and First Union National Bank. (6) 18 Exhibit Number Description ------- ----------- 11. Statement regarding computation of Net Loss per Limited Partnership Unit: Net Loss per Limited Partnership Unit is computed by dividing net loss allocated to the Limited Partners by the number of Limited Partnership Units outstanding. Per unit information has been computed based on 34,301, 34,353 and 34,453 Limited Partnership Units outstanding in 1996, 1995 and 1994, respectively. 16. Letter dated July 18, 1995 from Price Waterhouse LLP with respect to a change in certifying accountant. Incorporated by reference to Form 8-K - Current Report for the period ending September 30, 1995, as filed with the Securities and Exchange Commission on July 24, 1995. (2) Incorporated by reference to Annual Report of the Registrant on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1995. (3) Incorporated by reference to Quarterly Report of the Registrant on Form 10-Q for the period ended September 30, 1994, as filed with the Securities and Exchange Commission on October 6, 1995. (4) Incorporated by reference to Annual Report of the Registrant on From 10-K for the period ended December 31, 1994, as filed with the Securities and Exchange Commission on October 10, 1995. (5) Incorporated by reference to Quarterly Report of the Registrant on Form 10-Q for the period ending March 31, 1995, as filed with the Securities and Exchange Commission on November 20, 1995. (6) Incorporated by reference to Quarterly Report of the Registrant on Form 10-Q for the period ending September 30, 1995, as filed with the Securities and Exchange Commission on May 23, 1996. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 1996. 19 UNIVERSITY REAL ESTATE PARTNERSHIP V SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) 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. UNIVERSITY REAL ESTATE PARTNERSHIP V By: UNIVERSITY ADVISORY COMPANY General Partner By: OS GENERAL PARTNER COMPANY April 3, 1997 By: /s/ Curtis R. Boisfontaine, Jr. - ------------------------------- ----------------------------------- Date Curtis R. Boisfontaine, Jr. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. April 3, 1997 By: /s/ Curtis R. Boisfontaine, Jr. - ------------------------------- ---------------------------------- Date Curtis R.Boisfontaine, Jr. President, Principal Executive Officer and Director OS General Partner Company April 3, 1997 By: /s/ John W. Dennis - ------------------------------- ---------------------------------- Date John W. Dennis Financial and Accounting Officer OS General Partner Company 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 175,878 0 378,132 107,044 0 787,194 19,417,469 8,019,204 12,670,367 445,774 11,338,632 0 0 0 885,961 12,670,367 2,087,301 2,148,155 0 1,152,000 780,326 72,820 1,058,343 (915,334) 0 (915,334) 0 0 0 (915,334) (26.42) 0
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