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 SEPTEMBER 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
September 30, 1997 and December 31, 1996 (Unaudited)
(In thousands of dollars)
ASSETS
September 30 December 31
------------ -----------
Investments in local limited partnerships,
at equity $ - $ 92
Cash and cash equivalents 502 323
------- --------
$ 502 $ 415
======= ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 149 $ 132
Accounts payable and accrued expenses 17 21
Partners' capital 336 262
------- --------
$ 502 $ 415
======= ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended September 30, 1997 and 1996 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1995 $ (72) $ 536
Cash distributions (1) (131)
Net loss - (35)
------ ------
Balance at September 30, 1996 $ (73) $ 370
====== ======
Balance at December 31, 1996 $ (74) $ 336
Net income 1 73
------ ------
Balance at September 30, 1997 $ (73) $ 409
====== ======
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 1997 and 1996
(Unaudited)
(In thousands of dollars, except per Unit amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Other income from local limited
partnerships $ 4 $ 101 $ 189 $ 101
Interest income 7 3 18 9
----- ------- ------ -------
11 104 207 110
Expenses:
Management fees 50 50 149 149
General and administrative 35 23 73 62
----- ------- ------ -------
85 73 222 211
----- ------- ------ -------
Operating income (loss) (74) 31 (15) (101)
Partnership's share of local
limited partnerships'
income (losses) 91 (52) 89 66
----- ------- ------ -------
Net income (loss) $ 17 $ (21) $ 74 $ (35)
===== ====== ====== =======
Net income (loss) per Limited
Partnership Unit $1.92 $(2.45) $ 8.39 $ (3.97)
===== ====== ====== =======
Cash distributions per Limited
Partnership Unit $ - $ 5.00 $ - $ 15.00
===== ====== ====== ========
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 CASH FLOWS
For the nine months ended September 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) $ 74 $ (35)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of local limited
partnerships' income (89) (66)
Other income from local limited partnerships (189) (101)
Changes in assets and liabilities:
Accounts payable - affiliates 17 82
Accounts payable and accrued expenses (4) -
------ --------
Total adjustments (265) (85)
------ --------
Net cash used in operating activities (191) (120)
Cash flows from investing activities:
Distributions from local limited partnerships 370 310
Cash flows from financing activities:
Distributions to partners - (132)
------ --------
Net increase in cash and cash equivalents 179 58
Cash and cash equivalents, beginning of period 323 325
------ --------
Cash and cash equivalents, end of period $ 502 $ 383
====== ========
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 September 30, 1997 and December 31, 1996 and revenues and
expenses for the three and nine months ended September 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 $149,000 during each of the
nine-month periods ended September 30, 1997 and 1996. Accounts payable -
affiliates at September 30, 1997 and December 31, 1996 consist management fees
of $149,000 and $132,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the nine months ended
September 30, 1997 and 1996 is $26,000 and $24,000, 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 both of the
nine-month periods ended September 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 nine months ended September 30, 1997 and 1996
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Rental revenues, including
government subsidies $ 2,427 $ 2,485 $ 7,452 $ 7,431
Interest income 23 25 64 71
------- ------- ------- -------
2,450 2,510 7,516 7,502
Property operating expenses 1,320 1,503 4,187 3,986
Interest expense 700 711 2,105 2,137
Depreciation and amortization 337 323 1,010 970
Real estate taxes 151 164 465 473
------- ------- ------- -------
2,508 2,701 7,767 7,566
------- ------- ------- -------
Net loss $ (58) $ (191) $ (251) $ (64)
======= ======= ======= =======
Net loss:
Partnership's share of
combined operations $ (50) $ (161) $ (233) $ (44)
Local partners' share of
combined operations (8) (30) (18) (20)
------- ------- ------- -------
$ (58) $ (191) $ (251) $ (64)
======= ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended September 30, 1997 and 1996
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Partnership's share of combined
operations, as shown above $ (50) $ (161) $ (233) $ (44)
Losses in excess of basis not
recognized by Partnership 141 128 322 215
Income offset with prior year
unrecognized losses - (19) - (105)
------ ------- ------- ------
Partnership's share of local
limited partnerships'
income (losses) $ 91 $ (52) $ 89 $ 66
====== ======= ======= ======
<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: Ramblewood, Quaker Meadows,
Colonial Farms and Fawcett's Pond. Through the quarter ended September 30, 1997,
the Partnership received annual distributions totalling $366,000 from the same
four local limited partnership investments, plus a distribution of $4,000 from
Marvin Gardens. 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
Ramblewood partnerships and the distribution from the Marvin Gardens
partnership, but remain below the level of distributions received in 1994 and
1995. As reported in the second quarter, 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.
As a result of such review, management determined that the Partnership should
not make an annual distribution to the Limited Partners for 1997. Based on the
current environment of rising property operating and capital improvement costs,
and the strict restrictions on available cash flow from the properties, there is
not sufficient cash flow at the present time to support the payment of a
distribution for the current year. 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 five of the properties in which the Partnership
has invested remained in the mid-to-high 90% range for the quarter ended
September 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.
As of September 30, 1997, five of the Partnership's six operating
investment properties were receiving rental subsidy payments from the federal
government under Section 8 of the National Housing Act. The subsidy agreement
covering Villages at Montpelier Apartments expired in July 1997. The subsidy
agreements covering the other five operating investment properties do not expire
for another 4-to-6 years. As previously reported, 80% of the apartments at
Villages at Montpelier were rented at market rates while 20% received government
subsidies under the Section 8 rental assistance. With the expiration of the
subsidy agreement, the property management team began the process of converting
the former subsidized units at the property to market rent units during the
third quarter. As expected, the conversion resulted in a decline in occupancy at
the property as a number of subsidized tenants vacated the property and their
units were prepared to be re-leased. Average occupancy for the quarter ended
September 30, 1997 was 88%, compared to 94% for the prior quarter. Based on
current market conditions, the units which had been 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. If the market for conventional multi-family
apartment properties remains strong in the near term, 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, 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 as a result of the expiration of the subsidy agreement.
For the remaining five properties, which each 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 September 30, 1997, the Partnership had available cash and cash
equivalents of approximately $502,000, 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 September 30, 1997
- -------------------------------------
For the three months ended September 30, 1997, the Partnership reported
net income of $17,000, as compared to a net loss of $21,000 for the same period
in the prior year. This favorable change in the Partnership's net operating
results for the third quarter of 1997 is mainly due to a $143,000 favorable
change in the Partnership's share of local limited partnership's income (losses)
which was partially offset by a decrease of $97,000 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 decrease in other income for the
current three-month period results from a timing difference in the receipt of
distributions from the local limited partnerships, the majority of which were
received in the second quarter during 1997. 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. 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. The corresponding three-month period in the prior
year includes the operations of only the Ramblewood investment. Income from
Fawcett's Pond in the prior period was offset against prior unrecognized losses.
In addition, the net operating results of the Ramblewood partnership improved
over the same period in the prior year mainly due to the recognition of an
incentive management fee in the third quarter of 1996 in connection with the
annual distribution payment. The incentive management fee was recorded in the
second quarter in 1997. Overall, the combined net operating results of the six
local limited partnerships changed from a net loss of $191,000 for the three
months ended September 30, 1996 to a net loss of $58,000 for the three months
ended September 30, 1997. This favorable change of $133,000 resulted primarily
from a decrease in combined property operating expenses which was partially
offset by a decrease in rental revenues. The decrease in combined property
operating expenses was primarily due to the timing difference in the payment of
incentive management fees for those partnerships which made distribution
payments in 1996 and 1997.
<PAGE>
Nine Months Ended September 30, 1997
- ------------------------------------
For the nine months ended September 30, 1997, the Partnership reported net
income of $74,000, as compared to a net loss of $35,000 for the same period in
the prior year. This favorable change in the Partnership's net operating results
is primarily attributable to a decrease in the Partnership's operating loss of
$86,000 and an increase in the Partnership's share of local limited
partnerships' income of $23,000. The decrease in the Partnership's operating
loss is primarily attributable to an increase in other income from local limited
partnerships of $88,000 and a $9,000 increase in interest income which were
partially offset by an increase in general and administrative expenses of
$11,000. Other income from local limited partnerships increased mainly due to an
increase in the distributions received from the Ramblewood and Quaker Meadows
partnerships in 1997. Interest income improved due to an increase in the
Partnership's average outstanding cash reserve balances. General and
administrative expenses increased mainly due to additional professional fees
incurred in 1997.
The Partnership's share of local limited partnerships' operations for the
current nine-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 nine months ended September 30, 1996
included only the operations of the Ramblewood partnership because the income
from Fawcett's Pond was offset against prior unrecognized losses. Overall, the
combined net operating results of the six local limited partnerships changed
from a net loss of $64,000 for the nine months ended September 30, 1996 to a net
loss of $251,000 for the nine months ended September 30, 1997. This unfavorable
change of $187,000 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 an earned surplus reimbursement expense at Colonial Farms during
the current nine-month period. Earned surplus reimbursements represent surplus
cash flows in excess of allowable owner distribution limits for projects
regulated by the California Housing Finance Agency. During the current
nine-month period, Colonial Farms paid earned surplus reimbursement fees of
$68,000, representing the partnership's excess cash flow for the year ended
December 31, 1996. The earned surplus reimbursement for the year ended December
31, 1995 was not recorded until the fourth quarter of 1996. Increases in repairs
and maintenance expenses at four of the six properties during the nine months
ended September 30, 1997 also contributed to the increase in property operating
expenses. Additional repairs and maintenance related expenses included
re-carpeting and painting, plus repair of the parking lot at Colonial Farms,
repainting of the building exterior and replacement of trees at Quaker Meadows,
wallpaper and painting at Fawcett's Pond and re-carpeting and painting at Marvin
Gardens.
<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 had been delayed pending the
resolution of an appeal of the settlement agreement by two of the plaintiff
class members. In July 1997, the United States Court of Appeals for the Second
Circuit upheld the settlement over the objections of the two 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,
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: November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the nine months ended September
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 502
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 502
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 502
<CURRENT-LIABILITIES> 166
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 336
<TOTAL-LIABILITY-AND-EQUITY> 502
<SALES> 0
<TOTAL-REVENUES> 296
<CGS> 0
<TOTAL-COSTS> 222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 74
<INCOME-TAX> 0
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> 8.39
<EPS-DILUTED> 8.39
</TABLE>
