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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, 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
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(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
March 31, 1997 and December 31, 1996 (Unaudited)
(In thousands of dollars)
ASSETS
March 31 December 31
-------- -----------
Investments in local limited partnerships,
at equity $ 41 $ 92
Cash and cash equivalents 312 323
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$ 353 $ 415
======= ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 182 $ 132
Accrued expenses 21 21
Partners' capital 150 262
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$ 353 $ 415
======= ======
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996 (Unaudited)
(In thousands of dollars, except per Unit amounts)
1997 1996
---- ----
Revenues:
Interest income $ 4 $ 4
------ -------
4 4
Expenses:
Management fees 50 50
General and administrative 15 15
------ -------
65 65
------ -------
Operating loss (61) (61)
Partnership's share of local
limited partnerships' income (losses) (51) 67
------ -------
Net income (loss) $ (112) $ 6
====== =======
Net income (loss) per Limited
Partnership Unit $(12.68) $ 0.64
======= =======
Cash distributions per Limited
Partnership Unit $ - $ 5.00
======= =======
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 three months ended March 31, 1997 and 1996 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1995 $ (72) $ 536
Cash distributions - (44)
Net income - 6
----- ------
Balance at March 31, 1996 $ (72) $ 498
===== ======
Balance at December 31, 1996 $ (74) $ 336
Net loss (1) (111)
----- ------
Balance at March 31, 1997 $ (75) $ 225
===== ======
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 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) $ (112) $ 6
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of local limited
partnerships' income (losses) 51 (67)
Changes in assets and liabilities:
Accounts payable - affiliates 50 50
Accrued expenses - (2)
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Total adjustments 101 (19)
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Net cash used in operating activities (11) (13)
Cash flows from financing activities:
Distributions to partners - (44)
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Net decrease in cash and cash equivalents (11) (57)
Cash and cash equivalents, beginning of period 323 325
-------- -------
Cash and cash equivalents, end of period $ 312 $ 268
======== ========
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 March 31, 1997 and December 31, 1996
and revenues and expenses for the three-month periods ended March 31, 1997
and 1996. Actual results could differ from the estimates and assumptions
used.
2. Related Party Transactions
The Adviser earned basic management fees of $50,000 during each of the
three-month periods ended March 31, 1997 and 1996. Accounts payable-
affiliates at March 31, 1997 and December 31, 1996 consist of management fees
payable to the Adviser.
Included in general and administrative expenses for each of the three
months ended March 31, 1997 and 1996 is $9,000, 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 three
months ended March 31, 1997 is $100, 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 income statement.
<PAGE>
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operation
For the three months ended March 31, 1997 and 1996
(In thousands of dollars)
Three Months Ended
March 31,
-------------------
1997 1996
---- ----
Rental revenues, including government
subsidies $ 2,518 $ 2,462
Interest income 18 19
-------- -------
2,536 2,481
Property operating expenses 1,477 1,276
Interest expense 703 713
Depreciation and amortization 337 323
Real estate taxes 159 165
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2,676 2,477
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Net income (loss) $ (140) $ 4
======= =======
Net income (loss):
Partnership's share of combined
operations $ (129) $ 7
Local partners' share of
combined operations (11) (3)
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$ (140) $ 4
======= =======
Reconciliation of Partnership's Share of Operations
For the three months ended March 31, 1997 and 1996
(In thousands of dollars)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
Partnership's share of combined operations,
as shown above $ (129) $ 7
Losses in excess of basis not
recognized by Partnership 117 102
Income offset with prior year
unrecognized losses (39) (42)
-------- -------
Partnership's share of local limited
partnerships' income (losses) $ (51) $ 67
======== =======
<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 Fawcetts Pond. Subsequent to March 31, 1997, the Partnership
received annual distributions totalling $340,000 from three of the six local
limited partnership investments: Holbrook, Quaker Meadows and Fawcetts Pond. A
small distribution from the Colonial Farms partnership is expected prior to the
end of the second quarter of 1997. 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 subsequent to the current quarter end,
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. Given the current
environment of rising property operating and capital improvement costs, and the
strict restrictions on available cash flow from the properties, it is highly
unlikely that management of the Partnership will recommend making an annual
distribution to the Limited Partners for 1997. Based on current projections,
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.
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,
1997. 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 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.
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, 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 is scheduled to expire in July 1997.
The agreement does not provide for any renewal options, and the general partner
of the local limited partnership which owns the Villages at Montpelier
Apartments does not have any current plans to apply for an extension of this
subsidy agreement. Accordingly, during the second half of 1997 the subsidized
units at the property are expected to be converted to market rent units. There
is likely to be at least a temporary decline in occupancy at the property as
these units are re-leased. Based on current market conditions, 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 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 and an assessment of local
market conditions. If, as expected, the regulatory agreement on the Villages at
Montpelier Apartments expires in 1997, the decision of whether to initiate a
sale process for that property would be based on a more traditional analysis of
existing market conditions and future appreciation potential.
At March 31, 1997, the Partnership had available cash and cash equivalents
of approximately $312,000, 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 March 31, 1997
- ---------------------------------
For the quarter ended March 31, 1997, the Partnership reported a net loss
of $112,000, as compared to net income of $6,000 for the same period in the
prior year. This unfavorable change in the Partnership's net operating results
for the first quarter of 1997 resulted from an unfavorable change of $118,000 in
the Partnership's share of local limited partnerships' income (losses). As
discussed further in the notes to the financial statements, under the equity
method of accounting for limited partnership interests, the Partnership does not
record losses from investment properties when losses exceed the Partnership's
equity method basis in these properties, and future income is recognized only
when it exceeds the previously unrecorded losses. Five of the Partnership's six
investments had an equity method basis of zero as of March 31, 1997. The
Holbrook Apartments Company (Ramblewood Apartments) was the only remaining
investment with a positive equity method carrying value as of March 31, 1997.
The Partnership's share of operations from the Ramblewood Apartments changed
from net income of $67,000 for the three-month period ended March 31, 1996 to a
net loss of $51,000 for the three-month period ended March 31, 1997. This
unfavorable change in the net operating results of the Ramblewood Apartments
partnership resulted mainly from the inclusion of incentive management fee
expense of $146,000 in the results for the first quarter of 1997. The Ramblewood
Apartments partnership did not recognize incentive management fee expense until
the second quarter in 1996. 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.
Overall, the combined net operating results of the six local limited
partnerships changed from net income of $4,000 for the three months ended March
31, 1996 to a net loss of $140,000 for the three months ended March 31, 1997.
This unfavorable change of $144,000 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 $221,000 in
the current three-month period, including the $146,000 from the Ramblewood
partnership discussed further above. Incentive management fee expense was
generally recognized in the second quarter in 1996. Property operating expenses
prior to the effect of the incentive management fees declined by $20,000 for the
current three-month period mainly due to additional snow removal and exterior
painting costs incurred at the Villages at Montpelier Apartments during the
three months ended March 31, 1996. The increase in combined rental income of
slightly more than 2% is primarily attributable to an increase in occupancy at
the Villages at Montpelier Apartments over the same three-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. 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
subsequent to the quarter ended March 31, 1997. Based on the settlement
agreements discussed above covering all of the outstanding unitholder
litigation, 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: May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the three months ended March 31,
1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 312
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 312
<PP&E> 41
<DEPRECIATION> 0
<TOTAL-ASSETS> 353
<CURRENT-LIABILITIES> 203
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 150
<TOTAL-LIABILITY-AND-EQUITY> 353
<SALES> 0
<TOTAL-REVENUES> 4
<CGS> 0
<TOTAL-COSTS> 65
<OTHER-EXPENSES> 51
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (112)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112)
<EPS-PRIMARY> (12.68)
<EPS-DILUTED> (12.68)
</TABLE>
