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, 1997
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, 1997 and December 31, 1996 (Unaudited)
(In thousands of dollars)
ASSETS
June 30 December 31
------- -----------
Investments in local limited
partnerships, at equity $ - $ 92
Cash and cash equivalents 520 323
--------- --------
$ 520 $ 415
========= ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 99 $ 132
Accrued expenses 10 21
Partners' capital 411 262
--------- --------
$ 520 $ 415
========= ========
STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 1997 and 1996 (Unaudited)
(In thousands of dollars, except per Unit amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ 276 $ - $ 276 $ -
Interest income 8 3 12 6
-------- -------- ------- -------
284 3 288 6
Expenses:
Management fees 49 49 99 99
General and administrative 23 25 38 39
-------- -------- ------- -------
72 74 137 138
-------- -------- ------- -------
Operating income (loss) 212 (71) 151 (132)
Partnership's share of local
limited partnerships'
income (losses) 49 51 (2) 118
-------- -------- ------- -------
Net income (loss) $ 261 $ (20) $ 149 $ (14)
======== ======= ======= ========
Net income (loss) per Limited
Partnership Unit $29.55 $(2.16) $16.87 $ (1.52)
====== ====== ====== =======
Cash distributions per Limited
Partnership Unit $ - $ 5.00 $ - $ 10.00
====== ====== ====== =======
The above net income (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, 1997 and 1996 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1995 $ (72) $ 536
Cash distributions - (87)
Net loss - (14)
----- ------
Balance at June 30, 1996 $ (72) $ 435
===== ======
Balance at December 31, 1996 $ (74) $ 336
Net income 1 148
----- ------
Balance at June 30, 1997 $ (73) $ 484
===== ======
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and 1996 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 149 $ (14)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of local limited
partnerships' income (losses) 2 (118)
Other income from local limited partnerships (276) -
Changes in assets and liabilities:
Accounts payable - affiliates (33) 99
Accrued expenses (11) (14)
-------- -------
Total adjustments (318) (33)
-------- -------
Net cash used in operating activities (169) (47)
Cash flows from investing activities:
Distributions from local limited partnerships 366 -
Cash flows from financing activities:
Distributions to partners - (87)
-------- -------
Net increase (decrease) in cash and cash equivalents 197 (134)
Cash and cash equivalents, beginning of period 323 325
-------- -------
Cash and cash equivalents, end of period $ 520 $ 191
======== =======
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, 1996. 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.
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of June 30, 1997 and December 31, 1996
and revenues and expenses for the three and six months ended June 30, 1997
and 1996. Actual results could differ from the estimates and assumptions
used.
2. Related Party Transactions
The Adviser earned basic management fees of $99,000 during each of the
six-month periods ended June 30, 1997 and 1996. Accounts payable-affiliates
at June 30, 1997 and December 31, 1996 consist of management fees payable to
the Adviser.
Included in general and administrative expenses for each of the six
months ended June 30, 1997 and 1996 is $17,000, 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, 1997 and 1996 is $1,000, representing fees earned by an
affiliate, Mitchell Hutchins Institutional Investors, Inc., for managing the
Partnership's cash assets.
3. 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 statements of operations.
<PAGE>
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operations
For the three and six months ended June 30, 1997 and 1996
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
Rental revenues, including
government subsidies $ 2,508 $ 2,484 $ 5,025 $ 4,946
Interest income 22 27 41 46
------- ------- ------- -------
2,530 2,511 5,066 4,992
Property operating expenses 1,390 1,207 2,867 2,483
Interest expense 702 713 1,405 1,426
Depreciation and amortization 337 324 673 647
Real estate taxes 154 144 314 309
------- ------- ------- -------
2,583 2,388 5,259 4,865
------- ------- ------- -------
Net income (loss) $ (53) $ 123 $ (193) $ 127
======= ======= ======= =======
Net income (loss):
Partnership's share of
combined operations $ (54) $ 110 $ (183) $ 117
Local partners' share of
combined operations 1 13 (10) 10
------- ------- ------- -------
$ (53) $ 123 $ (193) $ 127
======= ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and six months ended June 30, 1997 and 1996
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of
combined operations,
as shown above $ (54) $ 110 $ (183) $ 117
Losses in excess of basis
not recognized by
Partnership 103 - 195 87
Income offset with prior
year unrecognized losses - (59) (14) (86)
------ ------- ------- ------
Partnership's share of
local limited
partnerships' income
(losses $ 49 $ 51 $ (2) $ 118
====== ======= ======= ======
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As discussed further in the Annual Report, during 1996 distributions to
the Partnership from the local limited partnerships declined, causing management
to suspend distributions effective for the fourth quarter of 1996 until further
notice. In the future, to the extent there is distributable cash flow from the
properties after the payment of Partnership management fees and operating
expenses, the Partnership will make annual distribution payments each November.
During 1996, the Partnership received distributions totalling $310,000 from four
of the six local limited partnership investments: Holbrook, Quaker Meadows,
Colonial Farms and Fawcett's Pond. During the quarter ended June 30, 1997, the
Partnership received annual distributions totalling $366,000 from the same four
local limited partnership investments. The amounts received in 1996 and 1997
represented the cash flow available for distribution as of December 31, 1995 and
1996, respectively, as determined by the general partners of the local limited
partnerships in accordance with the partnership, financing and regulatory
agreements. Total distributions from the Partnership's investments increased
slightly in the current year due to an increase in distributions from the Quaker
Meadows and Holbrook partnerships but remain below the level of distributions
received in 1994 and 1995. Also during the quarter ended June 30, 1997,
management of the Partnership completed its detailed review of each property
with the affiliate of the operating general partners which manages the
day-to-day operations of the investment properties. Based on the current
environment of rising property operating and capital improvement costs, and the
strict restrictions on available cash flow from the properties, the Partnership
will not make an annual distribution to the Limited Partners for 1997.
Management believes the next likely distribution would be a distribution to be
made in November 1998 at an annualized rate of 1% on invested capital, provided
that current projections for 1998 are met.
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,
1997. Cash flow from the properties in which the Partnership as 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 through
an affiliated management company, 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.
Through June 30, 1997, all six of the Partnership's operating investment
properties were receiving rental subsidy payments from the federal government
under Section 8 of the National Housing Act. With the exception of the Villages
at Montpelier Apartments, which has only 20% of its units restricted for
low-income housing, the subsidy agreements covering the operating investment
properties do not expire for another 4-to-6 years. The subsidy agreement
covering the 20% portion of the Villages at Montpelier Apartments expired in
July 1997. The agreement did not provide for any renewal options, and the
general partner of the local limited partnership which owns the Villages at
Montpelier Apartments did not apply for an extension of this subsidy agreement.
Accordingly, during the second half of 1997 the former subsidized units at the
property are expected to be converted to market rent units. When this occurs,
there could be a decline in occupancy at the property as these units are
re-leased. Based on current market conditions, the units currently designated as
low-income units are expected to be re-leased at market rates which would keep
the total revenues of the local limited partnership relatively unchanged from
the previously subsidized level. All residents who had been receiving government
subsidies are being issued certificates by the government so that they may
continue receiving assistance on an individual basis. These tenants may use the
certificates at Villages at Montpelier or at any other property that accepts the
certificates. The property's management company reports that of the 87
subsidized units, to date tenants in 28 units have moved or are currently
planning to move from the property as a result of the expiration of the subsidy
agreement. As these tenants move, the units will be rented at market rates to
non-subsidized tenants. If the market for conventional multi-family apartment
properties remains strong throughout 1997, the expiration of the rental subsidy
agreement at the Villages at Montpelier Apartments could enhance the property's
marketability for a potential sale by increasing the pool of interested buyers.
However, there are no assurances that such market conditions will remain strong
over this period, and the ability of the Partnership to cause a sale of the
property will remain restricted by the terms of the limited partnership
agreement discussed further above. If market conditions were to deteriorate, the
Villages at Montpelier Apartments could experience extended declines in
occupancy and revenues upon the expiration of the 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 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, 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, an assessment of local market
conditions and future appreciation potential. Now that the regulatory agreement
on the Villages at Montpelier Apartments has expired, the decision of whether to
initiate a sale process for that property will be based on a more traditional
analysis of existing market conditions and future appreciation potential.
At June 30, 1997, the Partnership had available cash and cash equivalents
of approximately $520,000, which it intends to use for its working capital
requirements. 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, 1997
- --------------------------------
For the three months ended June 30, 1997, the Partnership reported a net
income of $261,000, as compared to net loss of $20,000 for the same period in
the prior year. This favorable change in the Partnership's net operating results
for the second quarter of 1997 is mainly due to a $276,000 increase 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 statements of operations. The increase in other
income for the current three-month period results from a change in the timing of
the receipt of the annual cash flow distributio?~ns from the local limited
partnerships. Such distributions were received in the third quarter during 1996.
As discussed furth?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.
All six local limited partnership investments had carrying values of zero at
June 30, 1997 (five at June 30, 1996). During the current three-month period,
the Partnership's share of local limited partnerships' operations represents the
allocable portion of the operations of the Ramblewood and Fawcett's Pond
partnerships prior to obtaining a zero equity method basis. The corresponding
three-month period in the prior year includes the operations of only the
Ramblewood investment. Overall, the combined net operating results of the six
local limited partnerships changed from net income of $123,000 for the three
months ended June 30, 1996 to a net loss of $53,000 for the three months ended
June 30, 1997. This unfavorable change of $176,000 resulted primarily from an
increase in combined property operating expenses which were partially offset by
an increase in combined rental revenues. The increase in combined property
operating expenses resulted primarily due to a timing difference in the payment
of certain required reimbursements to the California Housing Finance Agency at
Colonial Farms along with an overall increase in repairs and maintenance costs
at several of the properties.
Six Months Ended June 30, 1997
- ------------------------------
For the six months ended June 30, 1997, the Partnership reported net income
of $149,000, as compared to a net loss of $14,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results is
primarily attributable to a $276,000 increase in other income from local limited
partnerships which was partially offset by a $120,000 unfavorable change in the
Partnership's share of local limited partnerships' income (losses). The increase
in other income from local limited partnership is due to a change in the timing
of the receipt of the annual cash flow distributions from the local limited
partnerships, as discussed further above. Also as discussed further above, 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' operations for
the current six-month period represents the allocable portion of the operations
of the Ramblewood and Fawcett's Pond partnerships. The Partnership's share of
local limited partnerships' operations for the six months ended June 30, 1996
includes only the operations of the Ramblewood partnership. Overall, the
combined net operating results of the six local limited partnerships changed
from net income of $127,000 for the six months ended June 30, 1996 to a net loss
of $193,000 for the six months ended June 30, 1997. This unfavorable change of
$320,000 resulted primarily from an increase in combined property operating
expenses which was partially offset by an increase in combined rental revenues.
Combined property operating expenses increased mainly due to the inclusion of
incentive management fee expense of $228,000 in the current six-month period.
Incentive management fees, which are based on the distributable cash of the
local limited partnership, will fluctuate depending upon the amount and timing
of the cash distributions. Incentive management fee expense in 1996 was
recognized in the quarter ended September 30, 1996. Also contributing to the
increase in property operating expenses were increases in repairs and
maintenance expenditures at five of the six properties during the six months
ended June 30, 1997, which included repair and resealing of the parking lot at
Colonial Farms, repainting of the building exterior at Quaker Meadows,
installation of two automatic door operating systems to assist handicapped
tenants at Ramblewood, replacement of carpeting in stairwells at Fawcett's Pond
and the removal and replacement of diseased trees at Marvin Gardens. The
increase in combined rental income is primarily attributable to an increase in
average occupancy at the Villages at Montpelier Apartments over the same
six-month period in the prior year.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
As previously disclosed, the Partnership's General Partners 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
various limited partnership investments and REIT stocks, including those offered
by 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. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs 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 and REITs. 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 was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds has not occurred to date
pending the resolution of an appeal of the settlement agreement by two of the
plaintiff class members. As part of the settlement agreement, PaineWebber has
agreed not to seek indemnification from the related partnerships and real estate
investment trusts at issue in the litigation (including the Partnership) for any
amounts that it is required to pay under the settlement. In addition, in
December 1996 PaineWebber agreed to settle the Abbate action discussed further
in the Annual Report. Final releases and dismissals with regard to this action
were received during the quarter ended June 30, 1997. Based on the settlement
agreements discussed above covering all of the outstanding shareholder
litigation, and notwithstanding the appeal of the class action settlement
referred to above, management does not expect that the resolution of these
matters will have a material impact on the Partnership's financial statements,
taken as a whole.
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, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the quarter ended June 30, 1997
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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 520
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 520
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 520
<CURRENT-LIABILITIES> 109
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 411
<TOTAL-LIABILITY-AND-EQUITY> 520
<SALES> 0
<TOTAL-REVENUES> 288
<CGS> 0
<TOTAL-COSTS> 137
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 149
<INCOME-TAX> 0
<INCOME-CONTINUING> 149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149
<EPS-PRIMARY> 16.87
<EPS-DILUTED> 16.87
</TABLE>
