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, 1998
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
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(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, 1998 and December 31, 1997 (Unaudited)
(In thousands of dollars)
ASSETS
June 30 December 31
------- -----------
Investments in local limited partnerships,
at equity $ 3 $ 27
Cash and cash equivalents 563 493
------- -------
$ 566 $ 520
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ - $ 199
Accrued expenses 8 16
Partners' capital 558 305
------- -------
$ 566 $ 520
======= =======
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended June 30, 1998 and 1997 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1996 $ (74) $ 336
Net income 1 148
-------- -------
Balance at June 30, 1997 $ (73) $ 484
======== =======
Balance at December 31, 1997 $ (73) $ 378
Net income 2 251
-------- -------
Balance at June 30, 1998 $ (71) $ 629
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF INCOME
For the three and six months ended June 30, 1998 and 1997 (Unaudited)
(In thousands of dollars, except per Unit amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ 381 $ 276 $ 381 $ 276
Interest income 7 8 14 12
------- ------- ------ --------
388 284 395 288
Expenses:
Management fees 49 49 99 99
General and
administrative 38 23 87 38
------- ------- ------ --------
87 72 186 137
------- ------- ------ --------
Operating income 301 212 209 151
Partnership's share of local
limited partnerships'
income (losses) (52) 49 44 (2)
------- ------- ------ --------
Net income $ 249 $ 261 $ 253 $ 149
======= ======= ====== ========
Net income per Limited
Partnership Unit $ 28.46 $ 29.55 $28.95 $ 16.87
======= ======= ====== ========
The above net income per Limited Partnership Unit is 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 six months ended June 30, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 253 $ 149
Adjustments to reconcile net income to net
cash used in operating activities:
Partnership's share of local limited
partnerships' income (losses) (44) 2
Other income from local limited partnerships (381) (276)
Changes in assets and liabilities:
Accounts payable - affiliates (199) (33)
Accrued expenses (8) (11)
------- -------
Total adjustments 632 (318)
------- -------
Net cash used in operating activities (379) (169)
Cash flows from investing activities:
Distributions from local limited partnerships 449 366
------- -------
Net increase in cash and cash equivalents 70 197
Cash and cash equivalents, beginning of period 493 323
------- -------
Cash and cash equivalents, end of period $ 563 $ 520
======= =======
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, 1997. 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, 1998 and December 31, 1997 and revenues and
expenses for the three and six months ended June 30, 1998 and 1997. 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, 1998 and 1997. Accounts payable affiliates at
December 31, 1997 consisted of management fees of $199,000 payable to the
Adviser.
Included in general and administrative expenses for the six months ended
June 30, 1998 and 1997 is $18,000 and $17,000, 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 both of the
six-month periods ended June 30, 1998 and 1997 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.
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operations
For the three and six months ended June 30, 1998 and 1997
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues,
including government
subsidies $ 2,507 $ 2,508 $ 5,009 $ 5,025
Interest income 30 22 57 41
------- ------- ------- -------
2,537 2,530 5,066 5,066
Property operating
expenses 1,412 1,390 2,576 2,867
Interest expense 691 702 1,382 1,405
Depreciation and
amortization 348 337 695 673
Real estate taxes 168 154 336 314
------- ------- ------- -------
2,619 2,583 4,989 5,259
------- ------- ------- -------
Net income (loss) $ (82) $ (53) $ 77 $ (193)
======= ======= ======= =======
Net income (loss):
Partnership's share of
combined operations $ (73) $ (54) $ 68 $ (183)
Local partners' share
of combined
operations (9) 1 9 (10)
------- ------- ------- -------
$ (82) $ (53) $ 77 $ (193)
======= ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and six months ended June 30, 1998 and 1997
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
combined operations,
as shown above $ (73) $ (54) $ 68 $ (183)
Losses in excess of basis
not recognized by
Partnership 24 103 27 195
Income offset with prior
year unrecognized
losses (3) - (51) (14)
------- ------- ------- -------
Partnership's share of
local limited
partnerships' income
(losses) $ (52) $ 49 $ 44 $ (2)
======== ======== ======= ========
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997 under the heading "Certain Factors Affecting Future
Operating Results", which could cause actual results to differ materially from
historical results or those anticipated. The words "believe," "expect,"
"anticipate," and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which were made based on facts and conditions as they existed as of
the date of this report. The Partnership undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1998 all six of the properties in which the Partnership has
invested are generating sufficient cash flow from operations to cover their
operating expenses and debt service payments, and all of the properties are
generating excess cash flow, a portion of which is being distributed to the
Partnership on an annual basis in accordance with the respective regulatory and
limited partnership agreements. Through the first six months of 1998, the
Partnership had received distributions totalling $449,000 from five of the six
local limited partnership investments: Ramblewood, Quaker Meadows, Villages at
Montpelier, Colonial Farms and Fawcett's Pond. The amounts received in 1998
represent the cash flow available for distribution as of December 31, 1997 as
determined by the general partners of the local limited partnerships in
accordance with the partnership, financing and regulatory agreements. A small
distribution payment of $11,000 was received from the Marvin Gardens partnership
subsequent to the quarter ended June 30, 1998. As discussed further in the
Annual Report, during 1997 the Partnership received distributions totalling
$370,000 from five of the six local limited partnerships. Total distributions
from the Partnership's investments increased in 1998 mainly due to the receipt
of $66,000 from The Villages at Montpelier partnership in 1998. No distributions
were received from this partnership in 1997. As previously reported, during the
second quarter of 1997 management of the Partnership completed a 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 environment
of rising property operating expenses and capital improvement costs, as well as
the restrictions on distributable cash flow from the properties, there was not
sufficient cash flow to support the payment of a distribution by the Partnership
for 1997. Based on the amounts of the 1998 distribution payments from the local
limited partnerships, management expects to recommend to the Board of Directors
of the Managing General Partner that an annual distribution be made to the
Limited Partners during 1998 at a rate of 1% on original invested capital.
As of June 30, 1998, 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. As discussed further in the Annual
Report, the subsidy agreement covering The 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. Due to the limited
availability of government subsidized housing, these properties consistently
achieve occupancy levels of 99% to 100%. Cash flow from these five properties 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 the 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.
The average occupancy level at The Villages at Montpelier Apartments was
96% for the quarter ended June 30, 1998, unchanged from the previous quarter. As
previously reported, prior to July 1997, 80% of the apartments at The Villages
at Montpelier were rented at market rates while 20% received government
subsidies under the Section 8 rental assistance program. With the expiration of
the subsidy agreement in July 1997, the property management team began the
process of converting the former subsidized units at the property to market rent
units during the third quarter of 1997. 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. Subsequent to the
expiration of the Section 8 contract, the average occupancy level at the
property fell to 88% for the third quarter of 1997 but rebounded to 90% for the
fourth quarter of 1997 and 96% for the first two quarters of 1998. Management
expects that cash flow from operations at The Villages at Montpelier will be
comparable to the previously subsidized level now that the occupancy rate at the
property has been stabilized. 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.
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 given the current liquidity in the
capital markets for investment in real estate, the Partnership is currently in
the process of developing potential disposition strategies for each of the
properties in its investment portfolio. A decision as to when actions will be
taken to initiate the sale process with respect to any or all of the operating
investment properties 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. It is currently contemplated that dispositions of the Partnership's
assets could be completed within the next 2 years. The disposition of the
remaining assets would be followed by the formal liquidation of the Partnership.
There are no assurances, however, that the disposition of the remaining assets
and a liquidation of the Partnership will be completed within this time frame
At June 30, 1998, the Partnership had available cash and cash equivalents
of approximately $563,000 which it intends to use for its working capital
requirements and for distributions to the 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, 1998
- --------------------------------
For the three months ended June 30, 1998, the Partnership reported net
income of $249,000, as compared to net income of $261,000 for the same period in
the prior year. This decrease in the Partnership's net income for the second
quarter of 1998 resulted from a $101,000 unfavorable change in the Partnership's
share of local limited partnerships' income (losses) which was partially offset
by a $89,000 increase in the Partnership's operating income.
The unfavorable change in the Partnership's share of local limited
partnerships' income (losses) is the result of a $96,000 unfavorable change in
the Partnership's share of the net operating results of the Ramblewood
Apartments partnership (Holbrook Apartments Company) and a $5,000 decline in
income from the operations of the Fawcett's Pond partnership for the current
three-month period. 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. At June 30, 1998 and 1997, Fawcett's Pond was the only investment with a
positive carrying value. During both the current and prior three-month periods,
the Partnership's share of local limited partnerships' operations represents
only the allocable portion of the net income of the Fawcett's Pond partnership
and the allocable portion of the net operating results of the Ramblewood
partnership up to the point where the equity method basis of the Ramblewood
investment was reduced to zero. The unfavorable change in the net operating
results of the Ramblewood Apartments partnership resulted mainly from the
inclusion of incentive management fee expense of $153,000 in the results for the
second quarter of 1998. 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 fees
for the Ramblewood Apartments partnership in 1997 were paid and recorded in the
first quarter of 1997.
Overall, the combined net operating loss of the six local limited
partnerships increased from $53,000 for the three months ended June 30, 1997 to
$82,000 for the three months ended June 30, 1998. This increase in combined net
loss resulted primarily from an increase in combined property operating
expenses. Combined property operating expenses increased mainly due to the
inclusion of incentive management fees of $230,000 in the results for the
current three-month period. As discussed further above, incentive management
fees will fluctuate depending upon the amount and timing of the cash
distributions. In addition to the Ramblewood incentive management fees discussed
above, incentive management fees of $77,000 were recorded at the Quaker Meadows
partnership during the quarter ended June 30, 1998. As with Ramblewood,
incentive management fees for this partnership in the prior year were paid and
recorded in the first quarter of 1997.
The increase in the Partnership's operating income for the three months
ended June 30, 1998 was mainly due to an increase in other income from local
limited partnerships of $105,000. As discussed in the notes to the financial
statements, in accordance with the equity method the Partnership records
distributions received from investments in limited partnerships with carrying
values of zero as other income from local limited partnerships. The increase in
other income from local limited partnerships is largely due to a $66,000
increase in distributions from the Villages at Montpelier investment and an
increase of $44,000 in the portion of the distributions from the Ramblewood
investment being applied to other income after the carrying value of that
investment was reduced to zero in the current year.
Six Months Ended June 30, 1998
- ------------------------------
For the six months ended June 30, 1998, the Partnership reported net income
of $253,000, as compared to net income of $149,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results is
attributable to a $58,000 increase in the Partnership's operating income and a
$46,000 favorable change in the Partnership's share of local limited
partnerships' income (losses). The increase in the Partnership's operating
income is mainly attributable to a $105,000 increase in other income from local
limited partnerships which was partially offset by a $49,000 increase in general
and administrative expenses. Other income from local limited partnerships
increased mainly due to the additional other income recognized from the
distributions attributable to the Villages at Montpelier and Ramblewood
investments, as discussed further above. General and administrative expenses
increased mainly due to additional costs incurred for an independent third party
valuation of the local limited partnerships performed during the current
six-month period.
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. Overall, the combined net operating results of the six local
limited partnerships changed from a net loss of $193,000 for the six months
ended June 30, 1997 to net income of $77,000 for the six months ended June 30,
1998. This favorable change of $270,000 resulted primarily from a $291,000
decrease in combined property operating expenses. Combined property operating
expenses decreased mainly due to higher repairs and maintenance-related
expenditures incurred during the six months ended June 30, 1997 as a result of
several special projects, including the repair and resealing of the parking lot
at Colonial Farms, repainting of the building exteriors 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 major drain repairs and landscaping maintenance at Marvin Gardens.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings
NONE
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 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the quarter ended June 30, 1998
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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 563
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 563
<PP&E> 3
<DEPRECIATION> 0
<TOTAL-ASSETS> 566
<CURRENT-LIABILITIES> 8
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 558
<TOTAL-LIABILITY-AND-EQUITY> 566
<SALES> 0
<TOTAL-REVENUES> 439
<CGS> 0
<TOTAL-COSTS> 186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 253
<INCOME-TAX> 0
<INCOME-CONTINUING> 253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253
<EPS-PRIMARY> 28.95
<EPS-DILUTED> 28.95
</TABLE>
