UNITED STATES 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 QUARTER ENDED September 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
PAINEWEBBER/CMJ PROPERTIES LP
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(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
September 30, 1998 and December 31, 1997 (Unaudited)
(In thousands of dollars)
ASSETS
September 30 December 31
------------ -----------
Investments in local limited
partnerships, at equity $ 25 $ 27
Cash and cash equivalents 533 493
------ -------
$ 558 $ 520
====== =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 50 $ 199
Accrued expenses 14 16
Partners' capital 494 305
------- -------
$ 558 $ 520
======= =======
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended September 30, 1998 and 1997 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1996 $ (74) $ 336
Net income 1 73
-------- -------
Balance at September 30, 1997 $ (73) $ 409
======== =======
Balance at December 31, 1997 $ (73) $ 378
Net income 2 187
-------- -------
Balance at September 30, 1998 $ (71) $ 565
======== =======
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF INCOME
For the three and nine months ended September 30, 1998 and 1997
(Unaudited)
(In thousands of dollars, except per Unit amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ 11 $ 4 $ 327 $ 189
Interest income 8 7 22 18
------ ----- ------ -------
19 11 349 207
Expenses:
Management fees 50 50 149 149
General and
administrative 55 35 142 73
------ ----- ------- -------
105 85 291 222
------ ----- ------- -------
Operating income (loss) (86) (74) 58 (15)
Partnership's share of
local limited
partnerships' income 87 91 131 89
------ ----- ------- -------
Net income $ 1 $ 17 $ 189 $ 74
====== ===== ======= =======
Net income per Limited
Partnership Unit $ 0.11 $1.92 $ 21.39 $ 8.39
====== ===== ======= =======
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 nine months ended September 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 $ 189 $ 74
Adjustments to reconcile net income to
net cash used in operating activities:
Partnership's share of local limited
partnerships' income (131) (89)
Other income from local limited partnerships (327) (189)
Changes in assets and liabilities:
Accounts payable - affiliates (149) 17
Accrued expenses (2) (4)
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Total adjustments (609) (265)
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Net cash used in operating activities (420) (191)
Cash flows from investing activities:
Distributions from local limited partnerships 460 370
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Net increase in cash and cash equivalents 40 179
Cash and cash equivalents, beginning of period 493 323
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Cash and cash equivalents, end of period $ 533 $ 502
======= =======
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 September 30, 1998 and December 31, 1997 and revenues and
expenses for the three and nine months ended September 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 $149,000 during each of the
nine-month periods ended September 30, 1998 and 1997. Accounts payable -
affiliates at September 30, 1998 and December 31, 1997 consist of management
fees of $50,000 and $199,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the nine months ended
September 30, 1998 and 1997 is $27,000 and $26,000, 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
nine-month periods ended September 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:
<PAGE>
Condensed Combined Summary of Operations
For the three and nine months ended September 30, 1998 and 1997
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Rental revenues, including
government subsidies $ 2,523 $ 2,427 $ 7,532 $ 7,452
Interest income 27 23 84 64
------- ------- ------- -------
2,550 2,450 7,616 7,516
Property operating
expenses 1,284 1,320 3,860 4,187
Interest expense 690 700 2,072 2,105
Depreciation and
amortization 347 337 1,042 1,010
Real estate taxes 163 151 499 465
------- ------- ------- -------
2,484 2,508 7,473 7,767
------- ------- ------- -------
Net income (loss) $ 66 $ (58) $ 143 $ (251)
======= ======= ======= =======
Net income (loss):
Partnership's share of
combined operations $ 61 $ (50) $ 129 $ (233)
Local partners' share of
combined operations 5 (8) 14 (18)
------- ------- ------- -------
$ 66 $ (58) $ 143 $ (251)
======= ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended September 30, 1998 and 1997
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership's share of
combined operations,
as shown above $ 61 $ (50) $ 129 $ (233)
Losses in excess of basis
not recognized by
Partnership 26 141 22 322
Income offset with prior
year unrecognized
losses - - (20) -
------ ------- ------ -------
Partnership's share of
local limited
partnerships' income $ 87 $ 91 $ 131 $ 89
====== ======= ======= =======
<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 September 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 nine
months of 1998, the Partnership had received distributions totalling $460,000
from the six local limited partnership investments. 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. 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 the current year 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 existing 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 believes that there is sufficient cash flow to make a
distribution for the current year. Accordingly, an annual distribution will be
made to the Limited Partners on November 23, 1998 at a rate of 2% on original
invested capital. The ability to make future distributions of operating cash
flow will continue to be assessed on an annual basis in the fourth quarter of
each year.
As of September 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 3-to-5 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 uncertainty
regarding potential future reductions in the level of federal government
assistance for these programs may further restrict the properties'
marketability. Accordingly, the general partners of the local limited
partnerships, which receive management fee revenues from the properties through
an affiliated management company, were not expected to initiate efforts 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. Subsequent to the end of the third quarter, in October 1998, the
Partnership gave the written notice described above to the operating general
partner of all six local limited partnerships after meeting with representatives
of the operating general partner to discuss the Partnership's desire to
liquidate its investments in the near term. The Partnership must now wait for
the one-year notification period to lapse or for the possible earlier receipt of
a liquidation proposal from the operating general partner. In light of the
decision by the Partnership to initiate this action under the terms of the
limited partnership agreements, it is currently contemplated that the
disposition of the Partnership's investments and a liquidation of the
Partnership could be completed by the end of calendar year 1999. 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.
The average occupancy level at The Villages at Montpelier Apartments was
96% for the quarter ended September 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 stabilized at 96% for the first three
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 remains restricted by the terms of the limited
partnership agreement discussed further above.
At September 30, 1998, the Partnership had available cash and cash
equivalents of approximately $533,000 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 September 30, 1998
- -------------------------------------
For the three months ended September 30, 1998, the Partnership reported net
income of $1,000, as compared to net income of $17,000 for the same period in
the prior year. This decrease in the Partnership's net income for the third
quarter of 1998 resulted from a $12,000 increase in the Partnership's operating
loss and a $4,000 decrease in the Partnership's share of local limited
partnership's income. The increase in the Partnership's operating loss for the
three months ended September 30, 1998 was mainly due to a $20,000 increase in
general and administrative expenses which was partially offset by a $7,000
increase in other income from local limited partnerships. General and
administrative expenses increased due to additional professional fees incurred
during the current three-month period to investigate potential disposition
strategies for the Partnership's investments. As discussed in the notes to the
financial statements, in accordance with the equity method of accounting 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
resulted from a $7,000 increase in distributions from the Marvin Garden
investment as compared with the prior three-month period.
The decline in the Partnership's share of local limited partnerships'
income is the result of a $23,000 unfavorable change in the Partnership's share
of the net operating results of the Ramblewood Apartments partnership (Holbrook
Apartments Company) which was partially offset by an $19,000 increase 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. As a result, during both the current and prior three-month periods, the
Partnership's share of local limited partnerships' operations represents only
the allocable portions of the net operating results of the Ramblewood and
Fawcett's Pond partnerships. The unfavorable change in the net operating results
of the Ramblewood Apartments partnership resulted mainly from an increase in
real estate tax expense as a result of an increase in the real estate tax rate
at the property when compared to the same period in the prior year. The increase
in income from the operations of the Fawcett's Pond partnership was mainly due
to a decrease in property operating expenses for the current three-month period.
Overall, the combined net operating results of the six local limited
partnerships improved from a net loss of $58,000 for the three months ended
September 30, 1997 to net income of $66,000 for the three months ended September
30, 1998. This favorable change in combined net income (loss) resulted primarily
from an increase in rental revenues and a decrease in combined property
operating expenses. Combined property rental revenues increased primarily due to
an increase in the rental rate and average occupancy level at The Villages at
Montpelier Apartments during the current three-month period when compared to the
same period in the prior year. Combined property operating expenses decreased
mainly due to a decline in repairs and maintenance expenses at Fawcett's Pond,
Quaker Meadows, Montpelier and Marvin Gardens for the current three-month
period.
Nine Months Ended September 30, 1998
- ------------------------------------
For the nine months ended September 30, 1998, the Partnership reported net
income of $189,000, as compared to net income of $74,000 for the same period in
the prior year. This increase in the Partnership's net income was mainly
attributable to a $138,000 increase in other income from local limited
partnerships and a $42,000 increase in the Partnership's share of local limited
partnership's income which were partially offset by a $69,000 increase in
general and administrative expenses. As discussed in the notes to the financial
statements, in accordance with the equity method of accounting 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 $68,000 in the portion of the distributions from the Holbrook
investment being applied to other income after that investment reached a zero
carrying value in the current year. General and administrative expenses
increased mainly due to additional professional fees incurred for an evaluation
of potential disposition strategies for the Partnership's investments and an
independent third party valuation of the local limited partnership interests
performed during the current nine-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. As a result, the Partnership's share
of local limited partnerships' operations for both the current and prior
nine-month periods represent only the allocable portions of the operations of
the Ramblewood and Fawcett's Pond partnerships. The Partnership's share of
income from Fawcett's Pond increased by $29,000 primarily due to additional
repairs and maintenance expenditures incurred during the nine months ended
September 30, 1997. The Partnership's share of income from Ramblewood increased
by $12,000 for the current nine-month primarily due to a reduction in repairs
and maintenance expenses which was partially offset by an increase in the
property's real estate taxes. Overall, the combined net operating results of the
six local limited partnerships changed from a net loss of $251,000 for the nine
months ended September 30, 1997 to net income of $143,000 for the nine months
ended September 30, 1998. This favorable change of $394,000 resulted primarily
from a $327,000 decrease in combined property operating expenses and an $80,000
increase in rental revenues. Combined property operating expenses decreased
mainly due to the higher repairs and maintenance-related expenditures incurred
during the nine months ended September 30, 1997, 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. Combined property rental revenues increased primarily due to
an increase in the rental rates and average occupancy level at The Villages at
Montpelier Apartments.
<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
SIGNATURE
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 13, 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 September 30,
1998 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-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 533
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 533
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 558
<CURRENT-LIABILITIES> 64
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 494
<TOTAL-LIABILITY-AND-EQUITY> 558
<SALES> 0
<TOTAL-REVENUES> 480
<CGS> 0
<TOTAL-COSTS> 291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 189
<INCOME-TAX> 0
<INCOME-CONTINUING> 189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> 21.39
<EPS-DILUTED> 21.39
</TABLE>
