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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-17151
PAINE WEBBER/CMJ PROPERTIES, LP
(Exact name of registrant as specified in its charter)
Delaware
04-2780288
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
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Page 1 of 10
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PAINE WEBBER/CMJ PROPERTIES, LP
BALANCE SHEETS
March 31, 1996 and December 31, 1995 (Unaudited)
(In thousands of dollars)
ASSETS
March 31 December
31
Investments in local limited partnerships,
at equity $ 228 $ 161
Cash and cash equivalents 268 325
---------- --------
$ 496 $ 486
========= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 50 $ -
Accrued expenses 20 22
Partners' capital 426 464
---------- ---------
$ 496 $ 486
========= ========
STATEMENTS OF INCOME
For the three months ended March 31, 1996 and 1995 (Unaudited)
(In thousands of dollars, except per Unit information)
1996 1995
---- ----
Revenues:
Interest income $ 4 $ 4
----------- ----------
4 4
Expenses:
Management fees 50 50
General and administrative 15 14
----------- ---------
65 64
----------- ---------
Operating loss (61) (60)
Partnership's share of local
limited partnerships' income 67 103
----------- -------
Net income $ 6 $ 43
=========== =======
Net income per Limited
Partnership Unit $0.64 $4.96
===== =====
Cash distributions per Limited
Partnership Unit $5.00 $5.00
===== =====
The above net income and cash distributions per Limited Partnership Unit are
based upon the 8,745 Limited Partnership Units outstanding for each period.
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended March 31, 1996 and 1995 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
Balance at December 31, 1994 $ (71) $ 582
Cash distributions - (44)
Net income - 43
-------- --------
Balance at March 31, 1995 $ (71) $ 581
===== ======
Balance at December 31, 1995 $ (72) $ 536
Cash distributions - (44)
Net income - 6
-------- ---------
Balance at March 31, 1996 $ (72) $ 498
===== ======
STATEMENTS OF CASH FLOWS For the three months ended
March 31, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1996 1995
Cash flows from operating activities:
Net income $ 6
$ 43
Adjustments to reconcile net income to net cash used for operating
activities:
Partnership's share of local limited
partnerships' income (67) (103)
Changes in assets and liabilities:
Accounts payable - affiliates 50 50
Accrued expenses (2) 4
----------- --------
Total adjustments (19) (49)
---------- ------
Net cash used for operating activities (13) (6)
Cash flows from financing activities:
Distributions to partners (44) (44)
----------- ---------
Net decrease in cash and cash equivalents (57) (50)
Cash and cash equivalents, beginning of period 325 324
---------- ----------
Cash and cash equivalents, end of period $ 268 $ 274
========= ==========
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. General
The accompanying financial statements, footnotes and discussion should
be read in conjunction with the financial statements and footnotes contained
in the Partnership's Annual Report for the year ended December 31, 1995.
In the opinion of management, the accompanying financial statements,
which have not been audited, reflect all adjustments necessary to present
fairly the results for the interim period. All of the accounting adjustments
reflected in the accompanying interim financial statements are of a normal
recurring nature.
2. Local Limited Partnerships
The Partnership has investments in six local limited partnerships which
own operating investment properties, as discussed further in the Annual
Report. These local limited partnerships are accounted for on the equity
method. Under the equity method of accounting for limited partnership
interests, the investments are carried at cost adjusted for the
Partnership's share of the local limited partnership's earnings, losses and
distributions. Losses in excess of the investment in individual local
limited partnerships are not recognized currently, but rather, are offset
against future earnings from such entities. Distributions received from
investments in limited partnerships with carrying values of zero are
recorded as other income in the Partnership's income statement.
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operations For the three months
ended March 31, 1996 and 1995
(In thousands of dollars)
Three Months Ended March 31,
1996 1995
---- ----
Rental revenues, including
government subsidies $ 2,462 $ 2,463
Interest income 19 18
---------- ----------
2,481 2,481
Property operating expenses 1,276 1,109
Interest expense 713 723
Depreciation and amortization 323 306
Real estate taxes 165 151
-------- ---------
2,477 2,289
-------- ---------
Net income $ 4 $ 192
========= =========
Net income:
Partnership's share of
combined operations $ 7 $ 165
Local partners' share of
combined operations (3) 27
-------- --------
$ 4 $ 192
========= ========
<PAGE>
Reconciliation of Partnership's share of operations:
For the three months ended March 31, 1996 and 1995
(In thousands of dollars)
Three Months Ended March 31,
1996 1995
---- ----
Partnership's share of operations,
as shown above $ 7 $ 165
Losses in excess of basis not
recognized by Partnership 102 8
Income offset with prior year
unrecognized losses (42) (70)
--------- -------
Partnership's share of local limited
partnerships' income $ 67 $ 103
========= ======
3. Related Party Transactions
The Adviser earned basic management fees of $50,000 during each of the
three-month periods ended March 31, 1996 and 1995. Accounts payable
affiliates at March 31, 1996 consists of $50,000 of management fees payable
to the Adviser.
Included in general and administrative expenses for the three months ended
March 31, 1996 and 1995 is $9,000 and $7,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the three months
ended March 31, 1995 is $1,000, representing fees earned by Mitchell Hutchins
Institutional Investors, Inc. for managing the Partnership's cash assets.
4. Contingencies
The Partnership is involved in certain legal actions. At the present time,
the Managing General Partner is unable to estimate the impact, if any, of
these matters on the Partnership's financial statements, taken as a whole.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Occupancy levels at all six properties in which the Partnership has invested
remained in the mid to high 90% range for the quarter ended March 31, 1996, as
demand for government subsidized low-income housing continues to exceed the
available supply. As discussed further in the Annual Report, with the exception
of The Villages at Montpelier Apartments, which has only 20% of its units
restricted for low-income housing, cash flow from the properties in which the
Partnership has invested is restricted by the Department of Housing and Urban
Development ("HUD") and other applicable state housing agencies, which set
rental rates for low-income units and require significant cash reserves to be
established for future capital improvements. In addition, a substantial amount
of the revenues generated by these properties comes from rental subsidy payments
made by federal or state housing agencies. These features, which are
characteristic of all subsidized low-income housing properties, significantly
limit the pool of potential buyers for these real estate assets. Furthermore,
the current uncertainty regarding potential future reductions in the level of
federal government assistance for these programs may further restrict the
properties' marketability. Accordingly, management does not expect the general
partners of the local limited partnerships, which receive management fee
revenues from the properties, to attempt to sell any of the properties in the
near term. As a limited partner of the local limited partnerships, the
Partnership does not control property disposition decisions. The partnership
agreements state that the limited partner may cause the sale of the assets of
the local limited partnerships subsequent to June 30, 1995, but not earlier than
one year after it has given written notice to the operating general partner of
its intent to cause such sale, and only if, during such one year period, the
operating general partner does not cause the sale of such assets. If the
operating general partner has not caused the assets of the partnership to be
sold within such one year period the limited partner may cause such sale, but
only after it has offered to sell such assets to the operating general partner,
and either the operating general partner does not accept such offer within 90
days of receiving it, or the operating general partner does not complete the
sale in accordance with such offer after accepting the terms.
All six of the Partnership's operating investment properties receive
rental subsidy payments from the federal government under Section 8 of the
National Housing Act. With the exception of The Villages at Montpelier
Apartments, the subsidy agreements covering the operating investment properties
do not expire for another 5 to 7 years. The subsidy agreement covering the 20%
portion of The Villages at Montpelier Apartments is scheduled to expire in July
1997. Based on current market conditions, in the event that the agreement is not
renewed, management believes that the units currently designated as low-income
units could be re-leased at market rates which would keep the total revenues of
the local limited partnership relatively unchanged from the current subsidized
level. In addition, if the market for conventional multi-family apartment
properties remains strong over the next 15 months, the expiration of the rental
subsidy agreement at The Villages at Montpelier Apartments could enhance the
property's marketability for a potential sale to a third-party. However, there
are no assurances that the market conditions will remain strong over this
period. If conditions were to deteriorate, The Villages at Montpelier Apartments
could experience declines in occupancy and revenues upon the expiration of the
subsidy agreement. It is uncertain at this time, what operating decisions and
strategic actions the general partner of the local limited partnership will make
concerning the expiration of this subsidy agreement. For the five properties
which contain 100% low-income housing units, the government subsidy payments
range from 75% to 82% of the total revenues of the related local limited
partnerships. At the present time, certain legislative initiatives and
governmental budget negotiations could result in a reduction in funds available
for the various HUD-administered housing programs and new limitations on
increases in subsidized rent levels. Such changes could adversely impact the net
operating income generated by the local limited partnerships. In light of the
uncertainty regarding the near term prospects for government assisted,
low-income housing and the restrictions on the Partnership's ability to cause a
sale of the operating properties, and since the properties are currently
generating a stable, self-sustaining cash flow stream, management does not have
any plans, at the present time, to initiate the sale process under the terms of
the agreements described above. A decision as to whether to take such actions to
initiate the sale process with respect to any/or all of the operating investment
properties in the future will be based upon a number of factors including the
availability of a pool of qualified buyers, an evaluation of the future of the
relevant subsidy programs, the availability of financing and an assessment of
local market conditions.
During 1995, all six of the properties in which the Partnership has
invested generated sufficient cash flow from operations to cover their operating
expenses and debt service payments, and all properties generated excess cash
flow, a portion of which will be distributed to the Partnership during 1996 in
accordance with the respective regulatory and limited partnership agreements.
The Partnership received distributions totalling $435,000 in 1995 from its six
limited partnership investments. The distributions received in the 1995
represented the available cash flow for distribution as of December 31, 1994, as
determined by the general partners of the local limited partnerships in
accordance with the partnership, financing and regulatory agreements.
Distributions of 1995 cash flow will generally be made in the second quarter of
1996 and are expected to be at approximately the same level as the prior year
distributions. The distributions received in 1995 were more than sufficient to
cover the Partnership's management fees and administrative expenses, which
totalled $288,000, and enabled the Partnership to continue its program of
regular quarterly distributions to the Limited and General Partners at an annual
rate of 2% of original invested capital, or $177,000 per year. Management
intends to maintain distributions at the present level for 1996 unless actual
results of operations, economic conditions or other factors differ substantially
from the assumptions used in setting the planned distribution rate.
At March 31, 1996, the Partnership had available cash and cash equivalents of
$268,000, which it intends to use for its working capital requirements and for
distributions to partners. The source of future liquidity and distributions to
the partners is expected to be from cash generated from the operations of the
Partnership's real estate investments and from the proceeds received from the
sale or refinancing of the properties owned by the local limited partnerships.
Such sources of liquidity are expected to be sufficient to meet the
Partnership's needs on both a short-term and long-term basis.
Results of Operations
Three Months Ended March 31, 1996
For the three-month period ended March 31, 1996, the Partnership reported net
income of $6,000 compared to net income of $43,000 for the same period in the
prior year. The unfavorable change in net operating results for the first
quarter of 1996 resulted from a decrease in the Partnership's recorded share of
local limited partnership income of $36,000. As discussed further in the Notes
to the Financial Statements, under the equity method of accounting for limited
partnership interests losses in excess of the investment in individual local
limited partnerships are not recognized currently, but rather, are offset
against future earnings from such entities. The Partnership's share of local
limited partnerships' income in the current period, as well as the same period
in the prior year, represents the allocable income of the Ramblewood
partnership; the only one of the Partnership's investments which still has a
positive equity method carrying value. The unfavorable change in the net
operating results of the Ramblewood partnership for the current three-month
period resulted mainly from an increase in real estate taxes and an increase in
snow removal costs due to the record level snowfall at the property. Overall
combined results for the six local limited partnerships declined over the same
three-month period in the prior year primarily due to an increase in property
operating expenses. Property operating expenses increased primarily due to
additional snow removal costs at certain of the operating properties and
exterior painting performed at The Villages at Montpelier Apartments.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, PW Shelter Fund, Inc. and Properties Associates,
L.P., the Managing General Partners of the Partnership, were named as defendants
in a class action lawsuit against PaineWebber Incorporated ("PaineWebber") and a
number of its affiliates relating to PaineWebber's sale of 70 direct investment
offerings, including the offering of interests in the Partnership. In January
1996, PaineWebber signed a memorandum of understanding with the plaintiffs in
the class action outlining the terms under which the parties have agreed to
settle the case. Pursuant to that memorandum of understanding, PaineWebber
irrevocably deposited $125 million into an escrow fund under the supervision of
the United States District Court for the Southern District of New York to be
used to resolve the litigation in accordance with a definitive settlement
agreement and a plan of allocation which the parties expect to submit to the
court for its consideration and approval within the next several months. Until a
definitive settlement and plan of allocation is approved by the court, there can
be no assurance what, if any, payment or non-monetary benefits will be made
available to unitholders in PaineWebber/CMJ Properties, LP. Under certain
limited circumstances, pursuant to the Partnership Agreement and other
contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with this litigation.
At the present time, the General Partners cannot estimate the impact, if any, of
this matter on the Partnership's financial statements, taken as a whole.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleges, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages. The eventual outcome
of this litigation and the potential impact, if any, on the Partnership's
unitholders cannot be determined at the present time.
Item 2 through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: NONE
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the registrant during the quarter
for which this report is filed.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER/CMJ PROPERTIES, LP
By: PW SHELTER FUND, INC.
Managing General Partner
By:/s/Walter V. Arnold
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
Dated: May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended March 31,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 268
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 268
<PP&E> 228
<DEPRECIATION> 0
<TOTAL-ASSETS> 496
<CURRENT-LIABILITIES> 70
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 426
<TOTAL-LIABILITY-AND-EQUITY> 496
<SALES> 0
<TOTAL-REVENUES> 71
<CGS> 0
<TOTAL-COSTS> 65
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6
<INCOME-TAX> 0
<INCOME-CONTINUING> 6
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
