UNITED STATES 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 QUARTER ENDED June 30, 1999
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
--------------------------------------
(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
June 30, 1999 and December 31, 1998 (Unaudited)
(In thousands of dollars)
ASSETS
June 30 December 31
------- -----------
Investments in local limited partnerships,
at equity $ 47 $ 42
Cash and cash equivalents 626 341
-------- --------
$ 673 $ 383
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 99 $ 99
Accrued expenses 9 18
Partners' capital 565 266
-------- --------
$ 673 $ 383
======== ========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the six months ended June 30, 1999 and 1998 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1997 $ (73) $ 378
Net income 2 251
-------- --------
Balance at June 30, 1998 $ (71) $ 629
======== ========
Balance at December 31, 1998 $ (74) $ 340
Net income 3 296
-------- --------
Balance at June 30, 1999 $ (71) $ 636
======== ========
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF INCOME
For the three and six months ended June 30, 1999 and 1998 (Unaudited)
(In thousands of dollars, except per Unit amounts)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ 413 $ 381 $ 413 $ 381
Interest income 5 7 8 14
------ ------ ------ ------
418 388 421 395
Expenses:
Management fees 49 49 99 99
General and administrative 31 38 52 87
------ ------ ------ ------
80 87 151 186
------ ------ ------ ------
Operating income 338 301 270 209
Partnership's share of local
limited partnerships'
income (losses) (59) (52) 29 44
------ ------ ------ ------
Net income $ 279 $ 249 $ 299 $ 253
====== ====== ====== ======
Net income per Limited
Partnership Unit $31.54 $28.46 $33.85 $28.95
====== ====== ====== ======
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, 1999 and 1998 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 299 $ 253
Adjustments to reconcile net income to net cash
used in operating activities:
Partnership's share of local limited
partnerships' income (29) (44)
Other income from local limited partnerships (413) (381)
Changes in assets and liabilities:
Accounts payable - affiliates - (199)
Accrued expenses (9) (8)
-------- -------
Total adjustments (451) (632)
-------- -------
Net cash used in operating activities (152) (379)
Cash flows from investing activities:
Distributions from local limited partnerships 437 449
-------- -------
Net increase in cash and cash equivalents 285 70
Cash and cash equivalents, beginning of period 341 493
-------- -------
Cash and cash equivalents, end of period $ 626 $ 563
======== =======
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, 1998. 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, 1999 and December 31, 1998 and revenues and
expenses for the three and six months ended June 30, 1999 and 1998. Actual
results could differ from the estimates and assumptions used.
The Partnership is currently pursuing potential disposition strategies for
the six investments in its portfolio. As discussed further in the Annual Report,
during 1998 the Partnership initiated the formal process prescribed in the local
limited partnership agreements for liquidating the Partnership's interests in
the local limited partnerships. Accordingly, it is currently contemplated that
the sales of the remaining assets and a liquidation of the Partnership could be
accomplished by the end of calendar year 1999. There are no assurances, however,
that the sale of the remaining assets and the liquidation of the Partnership
will be completed within this time frame.
2. Related Party Transactions
--------------------------
The Adviser earned basic management fees of $99,000 during each of the
six-month periods ended June 30, 1999 and 1998. Accounts payable - affiliates
both at June 30, 1999 and December 31, 1998 consist of management fees of
$99,000 payable to the Adviser.
Included in general and administrative expenses for the six-month periods
ended June 30, 1999 and 1998 is $19,000 and $18,000, 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, 1999 and 1998 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 six months ended June 30, 1999 and 1998
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
Rental revenues, including
government subsidies $ 2,435 $ 2,507 $ 4,906 $ 5,009
Interest income 25 30 49 57
------- ------- ------- -------
2,460 2,537 4,955 5,066
Property operating expenses 1,523 1,412 2,702 2,576
Interest expense 681 691 1,361 1,382
Depreciation and amortization 340 348 687 695
Real estate taxes 159 168 319 336
------- ------- ------- -------
2,703 2,619 5,069 4,989
------- ------- ------- -------
Net income (loss) $ (243) $ (82) $ (114) $ 77
======= ======= ======= =======
Net income (loss):
Partnership's share of
combined operations $ (212) $ (73) $ (96) $ 68
Local partners' share of
combined operations (31) (9) (18) 9
------- ------- ------- -------
$ (243) $ (82) $ (114) $ 77
======= ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and six months ended June 30, 1999 and 1998
(In thousands of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of combined
operations, as shown above $ (212) $ (73) $ (96) $ 68
Losses in excess of basis not
recognized by Partnership 153 24 128 27
Income offset with prior year
unrecognized losses - (3) (3) (51)
------ ------ ------ ------
Partnership's share of local
limited partnerships'
income $ (59) $ (52) $ 29 $ 44
======= ====== ====== ======
<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, 1998 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, 1999 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. During the quarter ended June 30, 1999, the
Partnership received distributions totalling $437,000 from four of the six
partnerships including $113,000 from The Villages at Montpelier. The Partnership
received $66,000 from this partnership for all of 1998. During 1998, the
Partnership received distributions totalling $460,000 from all six local limited
partnership investments. The amounts received in 1999 and 1998 represented the
cash flow available for distribution as of December 31, 1998 and 1997,
respectively, as determined by the general partners of the local limited
partnerships in accordance with the partnership, financing and regulatory
agreements. 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 believed that there was sufficient cash flow to make a
distribution for 1998. Accordingly, the Partnership made an annual distribution
to the Limited Partners on November 23, 1998 at a rate of 2% on original
invested capital. Such distribution totalled approximately $175,000, or $20 per
original $1,000 investment. 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 June 30, 1999, 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 for 100% of the rental units. The
government subsidy payments range from 75% to 82% of the total revenues of the
related local limited partnerships. As discussed previously, 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 2-to-4 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, require
significant cash reserves to be established for future capital improvements and,
in some cases, impose strict limitations on the amounts of owner distributions
which can be paid in any given year. 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. 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 an acceptable 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
86% for the quarter ended June 30, 1999, compared to 87% for the prior quarter
and 96% for the same period in the prior year. The reduction in the occupancy
level at The Villages at Montpelier is mainly attributable to increased
competition from a newly renovated apartment facility in the immediate market
area. 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. The average
occupancy level at the property had stabilized by the first quarter of 1998. 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. Notwithstanding
this restriction, the Partnership and the operating general partner of the
Villages at Montpelier limited partnership reached an informal agreement
subsequent to the quarter ended June 30, 1999 to initiate a joint marketing
effort for this property. The Partnership is currently in the process of
interviewing potential real estate brokerage firms for the purpose of beginning
such marketing efforts.
At June 30, 1999, the Partnership had available cash and cash equivalents
of approximately $626,000, which it intends to use for its working capital
requirements and 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 or from the sale of the Partnership's interests in 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.
As noted above, it is possible that the Partnership could be liquidated
prior to the end of calendar year 1999. Notwithstanding this, the Partnership
believes that it has made all necessary modifications to its existing systems to
make them year 2000 compliant and does not expect that additional costs
associated with year 2000 compliance, if any, will be material to the
Partnership's results of operations or financial position.
Results of Operations
Three Months Ended June 30, 1999
- --------------------------------
For the quarter ended June 30, 1999, the Partnership reported net income of
$279,000, as compared to net income of $249,000 for the same period in the prior
year. This increase in the Partnership's net income for the second quarter of
1999 resulted from a $37,000 increase in the Partnership's operating income
which was partially offset by a $7,000 increase in the Partnership's share of
local limited partnerships' losses. The increase in the Partnership's operating
income for the three months ended June 30, 1999 was mainly due to an increase in
other income from local limited partnerships of $32,000. 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 $47,000 increase in distributions from the Villages at
Montpelier investment.
The increase in the Partnership's share of local limited partnerships'
losses is the result of a $10,000 increase in the Partnership's share of losses
from the Ramblewood Apartments partnership (Holbrook Apartments Company), which
was partially offset by a $3,000 increase in the Partnership's share of income
from 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 June 30, 1999 and June 30,
1998, the Fawcett's Pond investment was the only investment with a positive
equity method 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 losses of the
Ramblewood partnership up to the point where the equity method basis of the
Ramblewood investment was reduced to zero. Net loss at the Ramblewood Apartments
partnership increased mainly due to a 15% increase in property operating
expenses during the current three-month period. Net income at Fawcett's Pond
increased mainly due to a 11% decline in depreciation and amortization expense.
Overall, the combined net operating results of the six local limited
partnerships changed from a net loss of $82,000 for the three months ended June
30, 1998 to net loss of $243,000 for the three months ended June 30, 1999. This
increase in combined net loss resulted from a $77,000 decline in combined
revenues and an $84,000 increase in combined expenses. Combined revenues
decreased mainly due to a 9% decline in rental revenues at The Villages at
Montpelier Apartments. Rental revenues at The Villages at Montpelier Apartments
decreased due to a decline in the average occupancy level at the property as a
result of the increased competition referred to above. Combined expenses
increased due to an increase in property operating expenses at three of the six
local limited partnerships. Property operating expenses increased at the
Ramblewood Apartments and Quaker Court Apartments mainly due to higher repairs
and maintenance costs resulting from unit turnover. Property operating expenses
increased at the Colonial Farms Apartments due to higher utility and repairs and
maintenance expenses.
Six Months Ended June 30, 1999
- ------------------------------
For the six months ended June 30, 1999, the Partnership reported net
income of $299,000, as compared to net income of $253,000 for the same period in
the prior year. This favorable change in the Partnership's net operating results
was attributable to a $61,000 increase in the Partnership's operating income
which was offset by a $15,000 decrease in the Partnership's share of local
limited partnerships' income. The increase in the Partnership's operating income
was mainly attributable to a $32,000 increase in other income from local limited
partnerships and a $35,000 decrease in general and administrative expenses.
Other income from local limited partnerships increased mainly due to a $47,000
increase in the distributions received from the Villages at Montpelier
investment, as discussed further above. General and administrative expenses
decreased mainly due to a reduction in professional fees related to costs
incurred for an independent third party valuation of the local limited
partnerships performed during the prior 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 Fawcett's Pond partnership. Overall,
the combined net operating results of the six local limited partnerships changed
from net income of $77,000 for the six months ended June 30, 1998 to a net loss
of $114,000 for the six months ended June 30, 1999. This unfavorable change of
$191,000 resulted primarily from a $126,000 increase in combined property
operating expenses and a $103,000 decrease in rental revenues. Combined property
operating expenses increased mainly due to the higher repairs and maintenance
expenses incurred during the six months ended June 30, 1999 at the Ramblewood
Apartments and Quaker Court Apartments due to an increase in unit turnover
costs. Property operating expenses increased at the Colonial Farms Apartments
due to higher utility and repairs and maintenance expenses. Rental revenues
decreased mainly due to a $137,000 decrease in rental revenues at The Villages
at Montpelier Apartments. Rental revenues at The Villages at Montpelier
Apartments decreased due to a decline in the average occupancy level at the
property as a result of the increased competition referred to above.
<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: August 10, 1999
<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, 1999
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-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 626
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 626
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 673
<CURRENT-LIABILITIES> 108
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 565
<TOTAL-LIABILITY-AND-EQUITY> 673
<SALES> 0
<TOTAL-REVENUES> 450
<CGS> 0
<TOTAL-COSTS> 151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 299
<INCOME-TAX> 0
<INCOME-CONTINUING> 299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-BASIC> 33.85
<EPS-DILUTED> 33.85
</TABLE>
