U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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. Employer
incorporation or organization) 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 .
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
BALANCE SHEETS
June 30, 1996 and December 31, 1995 (Unaudited)
(In thousands of dollars)
ASSETS
June 30 December 31
------- -----------
Investments in local limited partnerships,
at equity $ 279 $ 161
Cash and cash equivalents 191 325
------- -------
$ 470 $ 486
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 99 $ -
Accrued expenses 8 22
Partners' capital 363 464
------- --------
$ 470 $ 486
======= ========
STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 1996 and 1995 (Unaudited)
(In thousands of dollars, except per Unit information)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ - $ 100 $ - $ 100
Interest income 3 5 6 9
------ -------- ------- -------
3 105 6 109
Expenses:
Management fees 49 49 99 99
General and administrative 25 28 39 42
------ -------- ------- ------
74 77 138 141
------ -------- ------- ------
Operating income (loss) (71) 28 (132) (32)
Partnership's share of local
limited partnerships' income
(loss) 51 (103) 118 -
------ -------- ------- -------
Net loss $ (20) $ (75) $ (14) $ (32)
====== ======== ======= =======
Net loss per Limited
Partnership Unit $(0.88) $(8.53) $(1.52) $ (3.57)
====== ====== ====== =======
Cash distributions per Limited
Partnership Unit $ 5.00 $ 5.00 $10.00 $10.00
====== ====== ====== ======
The above net loss 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 six months ended June 30, 1996 and 1995 (Unaudited)
(In thousands of dollars)
General Limited
Partners Partners
-------- --------
Balance at December 31, 1994 $ (71) $ 582
Cash distributions (1) (87)
Net loss - (32)
------ ------
Balance at June 30, 1995 $ (72) $ 463
===== ======
Balance at December 31, 1995 $ (72) $ 536
Cash distributions - (87)
Net loss - (14)
------ ------
Balance at June 30, 1996 $ (72) $ 435
===== ======
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 and 1995 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (14) $ (32)
Adjustments to reconcile net loss to net cash
used in operating activities:
Partnership's share of local limited
partnerships' income (118) -
Other income from local limited partnerships - (100)
Changes in assets and liabilities:
Accounts payable - affiliates 99 99
Accrued expenses (14) (9)
------- -------
Total adjustments (33) (10)
------- -------
Net cash used in operating activities (47) (42)
-------- --------
Cash flows from financing activities:
Distributions from local limited partnerships - 301
Distributions to partners (87) (88)
--------- ---------
Net cash provided by (used in)
financing activities (87) 213
--------- ---------
Net increase (decrease) in cash and cash equivalents (134) 171
Cash and cash equivalents, beginning of period 325 324
--------- ---------
Cash and cash equivalents, end of period $ 191 $ 495
======== ========
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 statement of operations.
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operations
For the three and six months ended June 30, 1996 and 1995
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
Rental revenues, including
government subsidies $ 2,484 $ 2,484 $4,946 $4,947
Interest income 27 33 46 51
------- ------- ------ ------
2,511 2,517 4,992 4,998
Property operating expenses 1,207 1,396 2,483 2,505
Interest expense 713 723 1,426 1,446
Depreciation and amortization 324 306 647 612
Real estate taxes 144 216 309 367
-------- --------- -------- --------
2,388 2,641 4,865 4,930
------- -------- ------- -------
Net income (loss) $ 123 $ (124) $ 127 $ 68
======= ======== ======= ========
Net income (loss):
Partnership's share of
combined operations $ 110 $ (110) $ 117 $ 55
Local partners' share of
combined operations 13 (14) 10 13
------- -------- ------- -------
$ 123 $ (124) $ 127 $ 68
======= ======== ======= ========
<PAGE>
Reconciliation of Partnership's share of operations:
For the three and six months ended June 30, 1996 and 1995
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
Partnership's share of operations,
as shown above $ 110 $ (110) $ 117 $ 55
Losses in excess of basis not
recognized by Partnership - 53 87 61
Income offset with prior year
unrecognized losses (59) (46) (86) (116)
------ ------ -------- -------
Partnership's share of
local limited
partnerships' income (loss) $ 51 $ (103) $ 118 $ -
====== ====== ======= =======
3. Related Party Transactions
The Adviser earned basic management fees of $99,000 during each of the
six-month periods ended June 30, 1996 and 1995. Accounts payable affiliates
at June 30, 1996 consists of $99,000 of management fees payable to the
Adviser.
Included in general and administrative expenses for the six months ended June
30, 1996 and 1995 is $17,000 and $16,000, respectively, representing
reimbursements to an affiliate of the Managing General Partner for providing
certain financial, accounting and investor communication services to the
Partnership.
Also included in general and administrative expenses for the six months ended
June 30, 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, that
the resolution of these matters may have 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 June 30,
1996. 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 12 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 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 are now expected to be made in the third 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 June 30, 1996, the Partnership had available cash and cash equivalents
of $191,000, 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 June 30, 1996
For the three-month period ended June 30, 1996, the Partnership reported a
net loss of $20,000 compared to a net loss of $75,000 for the same period in the
prior year. The favorable change in net operating results for the second quarter
of 1996 resulted from an improvement in the Partnership's recorded share of
local limited partnership operations of $154,000, which was partially offset by
a $100,000 decrease in other income from local limited partnerships
Distributions received from investments in limited partnerships with carrying
values of zero are recorded as other income in the Partnership's statement of
operations. The decline in other income for the current three-month period
results from changes in the timing of the receipt of distributions from the
local limited partnerships. 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.
Five of the six local limited partnership investments had carrying values
of zero at both June 30, 1996 and 1995. As a result, the Partnership's share of
local limited partnerships' operations represents the allocable operations of
only the Ramblewood partnership in both the current and prior three-month
periods. The positive change in Ramblewood's operations for the current
three-month period resulted mainly from a reduction in incentive management fees
earned by the management affiliates of the local general partner as a result of
a change in the timing of the annual distribution payments from the local
limited partnerships. Overall combined net operating results for the six local
limited partnerships improved over the same three-month period in the prior year
primarily due to a decrease in property operating expenses. Property operating
expenses in the prior year included $144,000 of incentive management fees
incurred by the Ramblewood and Fawcett's Pond partnerships as a result of
distributions being made to the Partnership in the second quarter of fiscal
1995. No distributions were made in the current three-month period and no
related fees were incurred. In addition, combined real estate tax expense
declined by $71,000 for the three months ended June 30, 1996 due to lower taxes
incurred at the Ramblewood, Quaker Meadows and Villages at Montpelier
partnerships.
Six Months Ended June 30, 1996
For the six-month period ended June 30, 1996, the Partnership reported a
net loss of $14,000, as compared to a net loss of $32,000 for the same period in
the prior year. The favorable change in net operating results for the first six
months of 1996 resulted from an increase in the Partnership's recorded share of
local limited partnership income of $118,000. This favorable change was
partially offset by a $100,000 decrease in other income from local limited
partnerships due to the change in the timing of the receipt of distributions
from the local limited Partnerships discussed further above. As discussed
further above, the Partnership's share of local limited partnerships' income in
the current period 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. For the six months ended June 30, 1995,
the Ramblewood partnership generated a net loss, of which the Partnership's
allocable share amounted to $5,000. However, during the quarter ended June 30,
1995 the carrying value of the Ramblewood investment was reduced to zero as a
result of the Partnership's receipt of a cash distribution from the local
limited partnership. As a result, the Partnership did not recognize the loss
from the Ramblewood partnership for the six months ended June 1995. The positive
change in Ramblewood's operations resulted mainly from incentive management fees
earned on distributions made to the joint venture partners in the second quarter
of 1995, as discussed further above. Overall combined net income for the six
local limited partnerships increased over the same six-month period in the prior
year primarily due to decreases in incentive management fees and real estate
taxes, which were partially offset by an increase in 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 discussed in prior quarterly and annual reports, in November 1994 a
series of purported class actions (the "new York Limited Partnership Actions")
were filed in the United State District Court for the Southern District of New
York concerning PaineWebber Incorporated's sale and sponsorship of 70 limited
partnership investments, including those offered by the Partnership. The
lawsuits were brought against PaineWebber Incorporated and PaineWebber Group
Inc. (together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated under
the title In re PaineWebber Limited Partnership Litigation, the plaintiffs
amended their complaint to assert claims against a variety of other defendants,
including PW Shelter Fund, Inc. and Properties Associates, L.P. ("PA"), which
are the General Partners of the Partnership and affiliates of PaineWebber. On
May 30, 1995, the court certified class action treatment of the claims asserted
in the litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions 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 plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which has been preliminarily approved the court and provides for the complete
resolution of the class action litigation, including releases in favor of the
Partnership and the General Partners, and the allocation of the $125 million
settlement fund among investors in the various partnerships at issue in the
case. As part of the settlement, PaineWebber also agreed to provide class
members with certain financial guarantees relating to some of the partnerships.
The details of the settlement are described in a notice mailed directly to class
members at the direction of the court. A final hearing on the fairness of the
proposed settlement has been scheduled for October 25, 1996.
The status of the other litigation involving the Partnership and its
General Partners remains unchanged from the description provided in the
Partnership's Quarterly Report on Form 10-Q for the period ended March 31, 1996.
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 the litigation
discussed above. At the present time, the Managing General Partner cannot
estimate the impact, if any, of the potential indemnification claims on the
Partnership's financial statements, taken as a whole. Accordingly, no provision
for any liability which could result from the eventual outcome of these matters
has been made in the accompanying financial statements of the Partnership.
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: August 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the six months ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 191
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191
<PP&E> 279
<DEPRECIATION> 0
<TOTAL-ASSETS> 470
<CURRENT-LIABILITIES> 107
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 363
<TOTAL-LIABILITY-AND-EQUITY> 470
<SALES> 0
<TOTAL-REVENUES> 124
<CGS> 0
<TOTAL-COSTS> 138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14)
<EPS-PRIMARY> (1.52)
<EPS-DILUTED> (1.52)
</TABLE>
