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 March 31, 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
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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, 1999 and December 31, 1998 (Unaudited)
(In thousands of dollars)
ASSETS
March 31 December 31
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Investments in local limited
partnerships, at equity $ 130 $ 42
Cash and cash equivalents 234 341
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$ 364 $ 383
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable - affiliates $ 50 $ 99
Accrued expenses 28 18
Partners' capital 286 266
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$ 364 $ 383
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STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the three months ended March 31, 1999 and 1998 (Unaudited)
(In thousands of dollars)
General Limited
Partner Partners
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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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Balance at December 31, 1998 $ (74) $ 340
Net income - 20
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Balance at March 31, 1999 $ (74) $ 360
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See accompanying notes.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF INCOME
For the three months ended March 31, 1999 and 1998 (Unaudited)
(In thousands of dollars, except per Unit amounts)
1999 1998
---- ----
Revenues:
Interest income $ 3 $ 7
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3 7
Expenses:
Management fees 50 50
General and administrative 21 49
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71 99
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Operating loss (68) (92)
Partnership's share of local
limited partnerships' income 88 96
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Net income $ 20 $ 4
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Net income per Limited
Partnership Unit $ 2.31 $0.49
====== =====
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 three months ended March 31, 1999 and 1998 (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands of dollars)
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 20 $ 4
Adjustments to reconcile net income to net
cash used in operating activities:
Partnership's share of local limited
partnerships' income (88) (96)
Changes in assets and liabilities:
Accounts payable - affiliates (49) 50
Accrued expenses 10 35
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Total adjustments (127) (11)
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Net decrease in cash and cash equivalents (107) (7)
Cash and cash equivalents, beginning of period 341 493
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Cash and cash equivalents, end of period $ 234 $ 486
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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, 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 March 31, 1999 and December 31, 1998 and revenues and
expenses for the three months ended March 31, 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 prior to 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 $50,000 during each of the
three-month periods ended March 31, 1999 and 1998. Accounts payable - affiliates
at March 31, 1999 and December 31, 1998 consist of management fees of $50,000
and $99,000, respectively, payable to the Adviser.
Included in general and administrative expenses for both of the
three-month periods ended March 31, 1999 and 1998 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 months
ended March 31, 1999 and 1998 is $200 and $400, 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.
<PAGE>
Summarized operating results of these local limited partnerships follow:
Condensed Combined Summary of Operations
For the three months ended March 31, 1999 and 1998
(In thousands of dollars)
1999 1998
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Rental revenues, including
government subsidies $ 2,471 $ 2,502
Interest income 24 27
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2,495 2,529
Property operating expenses 1,179 1,164
Interest expense 680 691
Depreciation and amortization 347 347
Real estate taxes 160 168
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2,366 2,370
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Net income $ 129 $ 159
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Net income:
Partnership's share of
combined operations $ 116 $ 141
Local partners' share of
combined operations 13 18
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$ 129 $ 159
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Reconciliation of Partnership's Share of Operations
For the three months ended March 31, 1999 and 1998
(In thousands of dollars)
1999 1998
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Partnership's share of combined
operations, as shown above $ 116 $ 141
Losses in excess of basis not
recognized by Partnership 19 3
Income offset with prior year
unrecognized losses (47) (48)
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Partnership's share of local
limited partnerships' income $ 88 $ 96
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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, 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 March 31, 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 1998, the Partnership received
distributions totalling $460,000 from all six local limited partnership
investments. During 1997 the Partnership received distributions totalling
$370,000 from five of the six local limited partnerships. The amounts received
in 1997 and 1998 represented the cash flow available for distribution as of
December 31, 1996 and 1997, respectively, 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 in 1998 due to increases in distributions from three of
the local limited partnership investments and 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 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 March 31, 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 65% to 81% 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 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, 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
87% for the quarter ended March 31, 1999, compared to 92% 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 attributable to increased competition
from one newly constructed townhome community and one 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.
At March 31, 1999, the Partnership had available cash and cash equivalents
of approximately $234,000, which it intends to use for its working capital
requirements and distribution 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 March 31, 1999
- ---------------------------------
For the quarter ended March 31, 1999, the Partnership reported net income
of $20,000, as compared to a net income of $4,000 for the same period in the
prior year. This increase in the Partnership's net income for the first quarter
of 1998 resulted from a $24,000 decrease in the Partnership's operating loss
which was partially offset by an $8,000 decline in the Partnership's share of
local limited partnerships' income. The decrease in the Partnership's operating
loss was mainly attributable to additional professional fees incurred during the
three months ended March 31, 1998 for an evaluation of potential disposition
strategies for the Partnership's investments and an independent third party
valuation of the local limited partnership interests.
The decrease in the Partnership's share of local limited partnerships'
income is the result of a $12,000 reduction in the Partnership's share of income
from the Ramblewood Apartments partnership (Holbrook Apartments Company) which
was partially offset by a $4,000 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 March 31, 1999 and March
31, 1998, the Holbrook and Fawcett's Pond investments were the only investments
with positive equity method carrying values. Net income at the Ramblewood
Apartments partnership declined mainly due to an 11% increase in property
operating expenses during the current three-month period. Net income at
Fawcett's Pond increased mainly due to a 13% decline in property operating
expenses.
Overall, the combined net operating results of the six local limited
partnerships declined from a net income of $159,000 for the three months ended
March 31, 1998 to net income of $129,000 for the three months ended March 31,
1999. This decrease in combined net income resulted from a $34,000 decline in
combined revenues which were partially offset by a $4,000 decrease in combined
expenses. Combined revenues decreased mainly due to a 4% 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 decreased mainly due to a reduction in
interest expense at all six properties due to scheduled principal payments as
well as declines in real estate taxes at Ramblewood and Quaker Meadows. An
increase in property operating expenses at four of the six local limited
partnerships partially offset the declines in the interest expense and real
estate tax expense categories.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings. NONE
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Item 2 through 5. NONE
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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: May 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 March 31,
1999 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-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 234
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 234
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 364
<CURRENT-LIABILITIES> 78
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 286
<TOTAL-LIABILITY-AND-EQUITY> 364
<SALES> 0
<TOTAL-REVENUES> 91
<CGS> 0
<TOTAL-COSTS> 71
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20
<INCOME-TAX> 0
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 2.31
</TABLE>
