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, 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
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
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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, 1998 and December 31, 1997 (Unaudited)
(In thousands of dollars)
ASSETS
March 31 December 31
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Investments in local limited partnerships,
at equity $ 123 $ 27
Cash and cash equivalents 486 493
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$ 609 $ 520
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 249 $ 199
Accounts payable and accrued expenses 51 16
Partners' capital 309 305
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$ 609 $ 520
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STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended March 31, 1998 and 1997 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
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Balance at December 31, 1996 $ (74) $ 336
Net loss (1) (111)
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Balance at March 31, 1997 $ (75) $ 225
======= =======
Balance at December 31, 1997 $ (73) $ 378
Net income - 4
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Balance at March 31, 1998 $ (73) $ 382
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See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1998 and 1997 (Unaudited)
(In thousands of dollars, except per Unit amounts)
1998 1997
---- ----
Revenues:
Interest income $ 7 $ 4
------ ------
7 4
Expenses:
Management fees 50 50
General and administrative 49 15
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99 65
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Operating loss (92) (61)
Partnership's share of local
limited partnerships' income (losses) 96 (51)
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Net income (loss) $ 4 $ (112)
====== ======
Net income (loss) per Limited
Partnership Unit $ 0.49 $(12.68)
====== =======
The above net income (loss) 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 three months ended March 31, 1998 and 1997 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $ 4 $ (112)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Partnership's share of local limited
partnerships' income (losses) (96) 51
Changes in assets and liabilities:
Accounts payable - affiliates 50 50
Accounts payable and accrued expenses 35 -
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Total adjustments (11) 101
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Net decrease in cash and cash equivalents (7) (11)
Cash and cash equivalents, beginning of period 493 323
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Cash and cash equivalents, end of period $ 486 $ 312
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See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. General
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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 March 31, 1998 and December 31, 1997 and revenues and
expenses for the three-month periods ended March 31, 1998 and 1997. 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, 1998 and 1997. Accounts payable - affiliates
at March 31, 1998 and December 31, 1997 consist management fees of $249,000 and
$199,000, respectively, payable to the Adviser.
Included in general and administrative expenses for both of the
three-month periods ended March 31, 1998 and 1997 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-month
periods ended March 31, 1998 and 1997 is $400 and $100, respectively,
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 months ended March 31, 1998 and 1997
(In thousands of dollars)
1998 1997
---- ----
Rental revenues, including
government subsidies $ 2,502 $ 2,518
Interest income 27 18
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2,529 2,536
Property operating expenses 1,164 1,477
Interest expense 691 703
Depreciation and amortization 347 337
Real estate taxes 168 159
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2,370 2,676
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Net income (loss) $ 159 $ (140)
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Net income (loss):
Partnership's share of
combined operations $ 141 $ (129)
Local partners' share of
combined operations 18 (11)
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$ 159 $ (140)
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Reconciliation of Partnership's Share of Operations
For the three months ended March 31, 1998 and 1997
(In thousands of dollars)
1998 1997
---- ----
Partnership's share of combined
operations, as shown above $ 141 $ (129)
Losses in excess of basis not
recognized by Partnership 3 117
Income offset with prior year
unrecognized losses (48) (39)
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Partnership's share of local limited
partnerships' income (losses) $ 96 $ (51)
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<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 March 31, 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 the majority 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. As discussed further in the Annual Report,
during 1997 the Partnership received distributions totalling $370,000 from five
of the six local limited partnership investments: Ramblewood, Quaker Meadows,
Marvin Gardens, Colonial Farms and Fawcett's Pond. The amounts received in 1997
represented the cash flow available for distribution as of December 31, 1996 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 1997, but
remained below the level of distributions received in 1994 and 1995. 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 current 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. Subsequent to the end of
the first quarter of 1998, the Partnership received distributions totalling
$423,000 from four of the local limited partnerships, which represented the
Partnership's share of the cash available for distribution as of December 31,
1997. Small distribution payments from the two remaining partnerships,
aggregating approximately $35,000, are expected within the next several months.
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. The increase
in the amount of the distribution payments from the local limited partnerships
can be primarily attributed to the receipt of $66,000 from The Villages at
Montpelier partnership in 1998. No distributions were received from this
partnership in 1997.
As of March 31, 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
increased to 96% for the quarter ended March 31, 1998 compared to 90% for 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 quarter 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 the restrictions on the
Partnership's ability to cause a sale of the operating properties, management
does not have any immediate plans to initiate the sale process under the terms
of the agreements described above. Notwithstanding this, the Partnership is
currently in the process of developing potential disposition strategies for each
of the properties. 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
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. It is
currently contemplated that dispositions of the Partnership's assets could be
completed within the next 2 to 3 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 March 31, 1998, the Partnership had available cash and cash equivalents
of approximately $486,000, 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, 1998
- ---------------------------------
For the quarter ended March 31, 1998, the Partnership reported net income
of $4,000, as compared to a net loss of $112,000 for the same period in the
prior year. This favorable change in the Partnership's net operating results for
the first quarter of 1998 resulted from a $147,000 favorable change in the
Partnership's share of local limited partnerships' income (losses) which was
partially offset by a $31,000 increase in the Partnership's operating loss.
The favorable change in the Partnership's share of local limited
partnerships' income (losses) is the result of a $132,000 favorable change in
the Partnership's share of operations of the Ramblewood Apartments partnership
(Holbrook Apartments Company) and the inclusion of $15,000 in income from the
operations of the Fawcett's Pond partnership in 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 March 31, 1997, the
Holbrook Apartments Company was the only investment with a positive equity
method carrying value. At March 31, 1998, in addition to Holbrook, the Fawcett's
Pond investment had a positive equity method carrying value. The favorable
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. 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 1998 will be paid and recorded in the second quarter.
Overall, the combined net operating results of the six local limited
partnerships improved from a net loss of $140,000 for the three months ended
March 31, 1997 to net income of $159,000 for the three months ended March 31,
1998. This favorable change of $299,000 resulted primarily from a decrease in
combined property operating expenses. Combined property operating expenses
decreased mainly due to the inclusion of incentive management fees of $221,000
in the results for the first quarter of 1997. 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 $69,000 and $6,000, respectively,
were recorded at the Quaker Meadows and Fawcett's Pond partnerships during the
quarter ended March 31, 1997. As with Ramblewood, incentive management fees for
these partnerships for 1998 will be paid and recorded in the second quarter.
<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: May 12, 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 March 31,
1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 486
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 486
<PP&E> 123
<DEPRECIATION> 0
<TOTAL-ASSETS> 609
<CURRENT-LIABILITIES> 300
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 309
<TOTAL-LIABILITY-AND-EQUITY> 609
<SALES> 0
<TOTAL-REVENUES> 103
<CGS> 0
<TOTAL-COSTS> 99
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4
<INCOME-TAX> 0
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
