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 September 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
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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, 1999 and December 31, 1998 (Unaudited)
(In thousands of dollars)
ASSETS
September 30 December 31
------------ -----------
Investments in local limited
partnerships, at equity $ 44 $ 42
Cash and cash equivalents 658 341
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$ 702 $ 383
========== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 149 $ 99
Accrued expenses 13 18
Partners' capital 540 266
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$ 702 $ 383
========== =========
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the nine months ended September 30, 1999 and 1998 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
------- --------
Balance at December 31, 1997 $ (73) $ 378
Net income 2 187
------- -------
Balance at September 30, 1998 $ (71) $ 565
======= =======
Balance at December 31, 1998 $ (74) $ 340
Net income 3 271
------- -------
Balance at September 30, 1999 $ (71) $ 611
======= =======
See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 1999 and 1998 (Unaudited)
(In thousands of dollars, except per Unit amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Other income from local
limited partnerships $ 27 $ 11 $ 440 $ 327
Interest income 8 8 16 22
------ ------- ------- -------
35 19 456 349
Expenses:
Management fees 50 50 149 149
General and administrative 18 55 70 142
------ ------- ------- -------
68 105 219 291
------ ------- ------- -------
Operating income (loss) (33) (86) 237 58
Partnership's share of local
limited partnerships' income 8 87 37 131
------ ------- ------- -------
Net income (loss) $ (25) $ 1 $ 274 $ 189
====== ======= ======= =======
Net income (loss) per Limited
Partnership Unit $(2.90) $ 0.11 $ 30.95 $ 21.39
====== ======= ======= =======
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 nine months ended September 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 $ 274 $ 189
Adjustments to reconcile net income to net cash
used in operating activities:
Partnership's share of local limited
partnerships' income (37) (131)
Other income from local limited partnerships (440) (327)
Changes in assets and liabilities:
Accounts payable - affiliates 50 (149)
Accrued expenses (5) (2)
-------- --------
Total adjustments (432) (609)
-------- --------
Net cash used in operating activities (158) (420)
Cash flows from investing activities:
Distributions from local limited partnerships 475 460
-------- --------
Net increase in cash and cash equivalents 317 40
Cash and cash equivalents, beginning of period 341 493
-------- --------
Cash and cash equivalents, end of period $ 658 $ 533
======== ========
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 September 30, 1999 and December 31, 1998 and revenues and
expenses for the three and nine months ended September 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 had been contemplated that the
sales of the remaining assets and a liquidation of the Partnership could be
accomplished by the end of calendar year 1999. At the present time, it appears
likely that the liquidation of the Partnership will not be completed until the
first quarter of the year 2000. 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 $149,000 during each of the
nine-month periods ended September 30, 1999 and 1998. Accounts payable -
affiliates at September 30, 1999 and December 31, 1998 consist of management
fees of $149,000 and $99,000, respectively, payable to the Adviser.
Included in general and administrative expenses for the nine-month periods
ended September 30, 1999 and 1998 is $28,000 and $27,000, 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, 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 nine months ended September 30, 1999 and 1998
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Rental revenues, including
government subsidies $ 2,526 $ 2,523 $ 7,432 $ 7,532
Interest income 25 27 74 84
------- ------- ------- -------
2,551 2,550 7,506 7,616
Property operating expenses 1,413 1,284 4,115 3,860
Interest expense 678 690 2,039 2,072
Depreciation and amortization 344 347 1,031 1,042
Real estate taxes 154 163 473 499
------- ------- ------- -------
2,589 2,484 7,658 7,473
------- ------- ------- -------
Net income (loss) $ (38) $ 66 $ (152) $ 143
======= ======= ======== =======
Net income (loss):
Partnership's share of
combined operations $ (34) $ 61 $ (130) $ 129
Local partners' share of
combined operations (4) 5 (22) 14
------- ------- ------- -------
$ (38) $ 66 $ (152) $ 143
======= ======= ======= =======
Reconciliation of Partnership's Share of Operations
For the three and nine months ended September 30, 1999 and 1998
(In thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Partnership's share of
combined operations,
as shown above $ (34) $ 61 $ (130) $ 129
Losses in excess of basis not
recognized by Partnership 42 26 170 22
Income offset with prior year
unrecognized losses - - (3) (20)
------- ------- ------- -------
Partnership's share of local
limited partnerships'
income $ 8 $ 87 $ 37 $ 131
======= ======= ======= =======
<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 September 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. Notwithstanding the restrictions on the Partnership's ability
to cause a sale of the properties, the Partnership and the operating general
partner of the Villages at Montpelier limited partnership reached an informal
agreement during the third quarter of 1999 to initiate a joint marketing effort
for the sale of the Villages at Montpelier property. In July, marketing
proposals were requested from three real estate brokerage firms with a strong
background in selling apartment properties. In August, after a review of each
company's proposals and their capabilities to sell this property, the
Partnership selected one of the firms and negotiated an agreement with them to
sell the property. Marketing materials are being prepared and comprehensive sale
efforts are expected to begin in December 1999 or in January 2000. In addition,
the Partnership continues to have discussions with representatives of the
general partner of each of the other five limited partnerships regarding a
possible sale of the Partnership's interests in the remaining properties to
these general partners or their affiliates. In light of these actions by the
Partnership, it had been 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. At the present time, it appears likely that the
liquidation of the Partnership will not be completed until the first quarter of
the year 2000. 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.
As of September 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 nine months ended September 30, 1999,
the Partnership received distributions totalling $475,000 from 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. Since the Partnership expects to be liquidated in
the near term, management does not currently plan to make any further
distributions until the Partnership's investments have been sold.
The average occupancy level at The Villages at Montpelier Apartments was
91% for the quarter ended September 30, 1999, compared to 86% 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 compared to the prior year 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.
At September 30, 1999, the Partnership had available cash and cash
equivalents of approximately $658,000, 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, although not likely, 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 September 30, 1999
- -------------------------------------
For the quarter ended September 30, 1999, the Partnership reported a net
loss of $25,000, as compared to net income of $1,000 for the same period in the
prior year. This unfavorable change in the Partnership's net operating results
for the third quarter of 1999 resulted from a $79,000 decrease in the
Partnership's share of local limited partnerships' income which was partially
offset by a $53,000 decline in the Partnership's operating loss. The decrease in
the Partnership's share of local limited partnerships' income is the result of
decrease in the Partnership's share of income from the Ramblewood Apartments
partnership and from the Fawcett's Pond partnership in the current three-month
period. As discussed further in the notes to the accompanying 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 September 30, 1999 and September 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 Ramblewood
partnership up to the point where the equity method basis of the Ramblewood
investment was reduced to zero. Net income at the Ramblewood Apartments
partnership decreased mainly due to an increase in property operating expenses
during the current three-month period. The unfavorable change in net income
(loss) at Fawcett's Pond was mainly due to an increase in property operating
expenses as well.
Overall, the combined net operating results of the six local limited
partnerships changed from net income of $66,000 for the three months ended
September 30, 1998 to net loss of $38,000 for the three months ended September
30, 1999. This unfavorable change in net operating results is primarily due to a
$129,000 increase in combined property operating expenses. Combined expenses
increased due to an increase in property operating expenses at four 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. Repairs and maintenance
costs were also higher at Fawcett's Pond due to some ongoing enhancement
projects. Property operating expenses increased at the Colonial Farms Apartments
due to higher utility and repairs and maintenance expenses.
The decrease in the Partnership's operating loss for the three months ended
September 30, 1999 was mainly due to an increase in other income from local
limited partnerships of $16,000 and a reduction in general and administrative
expenses of $37,000. As discussed in the notes to the accompanying 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 $6,000 increase
in distributions from the Marvin Gardens investment and a $21,000 increase in
distributions from the Colonial Farms investment. 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 three-month period.
Nine Months Ended September 30, 1999
- ------------------------------------
For the nine months ended September 30, 1999, the Partnership reported net
income of $274,000, as compared to net income of $189,000 for the same period in
the prior year. This increase in the Partnership's net income was attributable
to a $179,000 increase in the Partnership's operating income which was partially
offset by a $94,000 decrease in the Partnership's share of local limited
partnerships' income. The increase in the Partnership's operating income was
mainly attributable to a $113,000 increase in other income from local limited
partnerships and a $72,000 decline 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. In addition, due to the Partnership's
accounting policy and the carrying values of its equity method investments, more
of the distributions received from the local limited partnerships were recorded
as other income during 1999. 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 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. The Partnership's share of local
limited partnerships' operations for the current nine-month period represents
the allocable portion of the operations of the Fawcett's Pond partnership and
the Ramblewood partnership up to the point where the equity method basis of the
Ramblewood investment was reduced to zero. Overall, the combined net operating
results of the six local limited partnerships changed from net income of
$143,000 for the nine months ended September 30, 1998 to a net loss of $152,000
for the nine months ended September 30, 1999. This unfavorable change of
$295,000 resulted primarily from a $255,000 increase in combined property
operating expenses and a $100,000 decrease in rental revenues. Combined property
operating expenses increased mainly due to the higher repairs and maintenance
expenses incurred during the nine months ended September 30, 1999 at the
Ramblewood Apartments and Quaker Court Apartments due to an increase in unit
turnover costs. Repairs and maintenance costs were also higher at Fawcett's Pond
due to some ongoing enhancement projects. 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 $169,000 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.
<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 12, 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 September 30,
1999 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-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 658
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 658
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 702
<CURRENT-LIABILITIES> 162
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 540
<TOTAL-LIABILITY-AND-EQUITY> 702
<SALES> 0
<TOTAL-REVENUES> 493
<CGS> 0
<TOTAL-COSTS> 219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 274
<INCOME-TAX> 0
<INCOME-CONTINUING> 274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274
<EPS-BASIC> 30.95
<EPS-DILUTED> 30.95
</TABLE>
