<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended March 31, 1996 Commission File Number 0-13323
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2803902
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Boylston Street, 13th Fl.
Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 578-1200
- --------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last
report
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 twelve (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>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996
PART I
FINANCIAL INFORMATION
----------------------
<PAGE>
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- ----------------
ASSETS
<S> <C> <C>
Real estate investments:
Ground leases and mortgage
loans, net $17,574,953 $17,575,746
Property, net 15,259,908 15,381,902
Deferred leasing costs and
other assets, net 550,454 528,022
------------- ------------
33,385,315 33,485,670
Cash and cash equivalents 2,067,874 2,731,930
Short-term investments 3,395,031 2,525,926
Interest and rent receivable 92,595 331,174
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$38,940,815 $39,074,700
============= ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 256,640 $ 505,813
Accrued management fee 62,089 62,089
Deferred disposition fees 314,464 314,464
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Total liabilities 633,193 882,366
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Partners' capital:
Limited partners ($889.89 per
unit; 110,000 units
authorized, 39,917 units
issued and outstanding) 38,241,581 38,127,446
General partner 66,041 64,888
------------- ------------
Total partners' capital 38,307,622 38,192,334
------------- ------------
$38,940,815 $39,074,700
============= ============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995
------------- -------------
INVESTMENT ACTIVITY
<S> <C> <C>
Property rentals $ 574,073 $ 582,329
Property operating expenses (258,011) (213,747)
Depreciation and amortization (157,144) (145,491)
------------- -------------
158,918 223,091
Ground rentals and interest on
mortgage loans 632,483 630,715
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Total real estate activity 791,401 853,806
Interest on cash equivalents
and short term investments 63,970 74,881
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Total investment activity 855,371 928,687
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Portfolio Expenses
Management fee 62,089 62,089
General and administrative 50,208 43,750
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112,297 105,839
------------- -------------
Net Income $ 743,074 $ 822,848
============= =============
Net income per limited
partnership unit $ 18.43 $ 20.41
============= =============
Cash distributions per
limited partnership unit $ 15.57 $ 14.46
============= =============
Number of limited partnership
units outstanding during the
period 39,917 39,917
============= =============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995
------------------- -------------------
General Limited General Limited
Partner Partners Partner Partners
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance at
beginning of
period $ 64,888 $38,127,446 $ 72,444 $38,875,480
Cash
distributions (6,278) (621,508) (5,830) (577,200)
Net income 7,431 735,643 8,228 814,620
--------- ----------- --------- -----------
Balance at
end of period $ 66,041 $38,241,581 $ 74,842 $39,112,900
========= =========== ========= ============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
------------------------------
1996 1995
------------- -----------
<S> <C> <C>
Net cash provided by operating
activities $ 849,623 $ 774,225
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Cash flows from investing activities:
Capital expenditures on owned
property (16,788) (402,108)
Increase in short-term
investments, net (869,105) (1,101,218)
----------- ------------
Net cash used in
investing activities (885,893) (1,503,326)
----------- ------------
Cash flows from financing activity:
Distributions to partners (627,786) (583,030)
----------- ------------
Net decrease in cash and
cash equivalents (664,056) (1,312,131)
Cash and cash equivalents:
Beginning of period 2,731,930 4,101,201
----------- ------------
End of period $2,067,874 $ 2,789,070
=========== ============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
Partnership's financial position as of March 31, 1996 and December 31, 1995
and the results of its operations, its cash flows and changes in partners'
capital for the interim periods ended March 31, 1996 and 1995. These
adjustments are of a normal recurring nature.
See notes to financial statements included in the Partnership's 1995
Annual Report on Form 10-K for additional information relating to the
Partnership's financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
New England Life Pension Properties II; A Real Estate Limited
Partnership (the "Partnership") is a Massachusetts limited partnership
organized for the purpose of investing primarily in newly constructed and
existing income producing real properties. It primarily serves as an
investment for qualified pension and profit sharing plans and other
entities intended to be exempt from Federal income tax. The Partnership
commenced operations in June, 1984 and acquired several properties through
1986. It intends to dispose of its investments within twelve years of
their acquisition, and then liquidate; however, the general partner could
extend the investment period if it is in the best interest of the limited
partners.
NOTE 2 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS
- --------------------------------------------------------
The mortgage loans on Elkridge, Susana Corporate Center and Case
Communications are impaired. Accordingly, a valuation allowance has been
established to adjust the carrying value of each loan to its estimated fair
market value less anticipated costs of sale. The activity in the valuation
allowance during 1995 and 1996, together with the related recorded and
carrying values of the impaired mortgage loans at the beginning and end of
the respective periods are as follows:
<TABLE>
<CAPTION>
Recorded Valuation Carrying
Value Allowance Value
---------- ---------- ---------
<S> <C> <C> <C>
Balance at January 1, 1995 $ 5,787,874 $(2,470,000) $ 3,317,874
========== ========== ==========
Balance at March 31, 1995 $ 5,790,250 $(2,470,000) $ 3,320,250
=========== =========== ==========
Decrease in estimated fair
market value of collateral,
net $ (328,000)
Additional impaired loan $(1,100,000)
-----------
Balance at January 1, 1996 $15,619,235 $(3,898,000) $ 11,721,235
=========== ============ ===========
Balance at March 31, 1996 $15,619,235 $(3,898,000) $ 11,721,235
=========== ============ ===========
</TABLE>
During the fourth quarter of 1995, the Partnership determined that the
Case Communications mortgage loan was impaired. Therefore, it is also
included in the above table.
The average recorded value of the impaired mortgage loans did not
differ materially from the balances at the end of the period.
<PAGE>
NOTE 3 - SUBSEQUENT EVENTS
- --------------------------
Distributions of cash from operations relating to the quarter ended
March 31, 1996 were made on April 25, 1996 in the aggregate amount of
$627,786 ($15.57 per limited partnership unit).
One of the two buildings included in the Elkridge investment is under
agreement for sale for a price which approximates the Partnership's
carrying value. The transaction is expected to be completed in the second
quarter of 1996.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership completed its offering of units of limited partnership
interest in November, 1984. A total of 39,917 units were sold. The
Partnership received proceeds of $36,296,995, net of selling commissions
and other offering costs, which were invested in real estate, used to pay
related acquisition costs, or retained as working capital reserves.
Capital of $4,395,261 has been returned to the limited partners through
March 31, 1996 as a result of sales and similar transactions. Two of the
Partnership's mortgage loan investments had a maturity date in 1994;
another matured in 1995. The Partnership is evaluating various
alternatives to extending these loans.
At March 31, 1996, the Partnership had $5,462,905 in cash, cash
equivalents and short-term investments, of which $627,786 was used for cash
distributions to partners on April 25, 1996; the remainder will be used to
fund the rehabilitation of the Willows Shopping Center or retained as
working capital reserves. The source of future liquidity and cash
distributions to partners is expected to be cash generated by the
Partnership's real estate investments and proceeds from the sale of such
investments. Distributions of cash from operations for the first quarter
of 1996 and 1995 were made at the annualized rate of 7% on the adjusted
capital contribution.
The carrying value of real estate investments in the financial
statements, other than impaired mortgage loans, is at depreciated cost or,
if the investment's carrying value is determined not to be recoverable
through expected undiscounted future cash flows, the carrying value is
reduced to estimated fair market value. The fair market value of such
investments is further reduced by the estimated cost of sale for properties
held for sale. Carrying value may be greater or less than current
appraised value. At March 31, 1996, the carrying value of certain
investments exceeded their related appraised values by an aggregate of
approximately $1,390,000 and the appraised value of the remaining
investments exceeded their related carrying values by an aggregate of
approximately $212,000. The current appraised value of real estate
investments has been estimated by the general partner and is generally
based on a combination of traditional appraisal approaches performed by the
Partnership's advisor and independent appraisers. Because of the
subjectivity inherent in the valuation process, the estimated current
appraised value may differ significantly from that which could be realized
if the real estate were actually offered for sale in the marketplace.
Results of Operations
- ---------------------
Operating Factors
The Willows Shopping Center has remained 91% leased since the end of
1994. The ground lessee/borrower is rehabilitating this property,
including the complete renovation and reconfiguration of the Center. The
general partner determined that it is in the best interest of the
Partnership, together with its affiliate which owns a share of the Center,
to provide funding for the rehabilitation costs. The Partnership's share
of the remaining estimated rehabilitation cost is approximately $1,800,000
at March 31, 1996.
The Partnership has entered into a purchase and sale agreement for the
vacant warehouse building which is part of the Elkridge investment. The
sale is scheduled to close in the second quarter. Occupancy at the R&D
building is 81% at the end of the first quarter.
The Susana Corporate Center is 100% leased to a single tenant. The
Partnership is currently negotiating the sale of the property to the ground
lessee. An agreement is contingent on the buyer's obtaining suitable
financing.
<PAGE>
Occupancy at the Oakland property remained at 91% during the first
quarter of 1996; however, leases for 47% of the currently occupied space
expire later in 1996.
The Case Communications property is fully occupied by a government
agency; however, the current lease expires in November 1996.
Investment Results
Real estate investment results were $791,401 and $853,806 for the
quarters ended March 31, 1996 and 1995, respectively. This decrease of
$62,405, or 7%, is due to the decrease in net operating income generated by
Willows Shopping Center, primarily as a result of higher operating
expenses.
Interest on cash equivalents and short-term investments decreased by
$10,911, or 15%, due primarily to lower average investment balances and
lower average yields.
The increase in operating cash flow of $75,398 in the first quarter of
1996 as compared to the prior year period is primarily due to the timing of
payments from Susana Corporate Center and Case Communications.
Portfolio Expenses
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the general partner. General and administrative expenses
primarily consist of real estate appraisal, printing, legal, accounting and
investor servicing fees and state filing and tax fees.
General and administrative expenses for the first quarter of 1996
increased as compared to the respective period of the prior year primarily
due to an increase in professional fees.
<PAGE>
NEW ENGLAND PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996
PART II
OTHER INFORMATION
-------------------
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None.
b. Reports on Form 8-K: No Current Reports on
Form 8-K were filed during the quarter ended
March 31, 1996.
<PAGE>
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.
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
(Registrant)
May 10, 1996
/s/ Peter P. Twining
-------------------------------
Peter P. Twining
Managing Director and General
Counsel of General Partner,
Copley Properties Company II, Inc.
May 10, 1996
/s/ Daniel C. Mackowiak
--------------------------------
Daniel C. Mackowiak
Principal Financial and Accounting
Officer of General Partner,
Copley Properties Company II, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,067,874
<SECURITIES> 3,395,031
<RECEIVABLES> 92,595
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,555,500
<PP&E> 32,834,861
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,940,815
<CURRENT-LIABILITIES> 318,729
<BONDS> 314,464
0
0
<COMMON> 0
<OTHER-SE> 38,307,622
<TOTAL-LIABILITY-AND-EQUITY> 38,940,815
<SALES> 1,206,556
<TOTAL-REVENUES> 1,270,526
<CGS> 258,011
<TOTAL-COSTS> 258,011
<OTHER-EXPENSES> 269,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 743,074
<INCOME-TAX> 0
<INCOME-CONTINUING> 743,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 743,074
<EPS-PRIMARY> 18.43
<EPS-DILUTED> 18.43
</TABLE>
