<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------------------------------------------
For Quarter Ended June 30, 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 JUNE 30, 1996
PART I
FINANCIAL INFORMATION
----------------------
<PAGE>
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
--------------- -----------------
ASSETS
<S> <C> <C>
Real estate investments:
Ground leases and mortgage
loans, net $ 16,427,468 $17,575,746
Property, net 15,336,027 15,381,902
Deferred leasing costs and
other assets, net 659,212 528,022
------------ -----------
32,422,707 33,485,670
Cash and cash equivalents 4,458,553 2,731,930
Short-term investments 1,880,258 2,525,926
Interest and rent receivable 114,024 331,174
------------ -----------
$ 38,875,542 $39,074,700
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 182,878 $ 505,813
Unearned revenue 171,084 -
Accrued management fee 62,089 62,089
Deferred disposition fees 341,914 314,464
------------ -----------
Total liabilities 757,965 882,366
------------ -----------
Partners' capital:
Limited partners ($889.89 per
unit; 110,000 units authorized,
39,917 units issued and
outstanding) 38,053,437 38,127,446
General partner 64,140 64,888
------------ -----------
Total partners' capital 38,117,577 38,192,334
------------ -----------
$ 38,875,542 $39,074,700
============ ===========
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
-------------- ---------------- ------------- ----------------
INVESTMENT ACTIVITY
<S> <C> <C> <C> <C>
Property rentals $ 553,371 $ 1,127,444 $ 697,414 $ 1,279,743
Property operating expenses (230,037) (488,048) (221,225) (434,972)
Depreciation and amortization (174,610) (331,754) (143,477) (288,968)
------------ ------------ ------------ ------------
148,724 307,642 332,712 555,803
Provision for impaired mortgage
loans (310,000) (310,000) (205,000) (205,000)
Ground rentals and interest on
mortgage loans 630,948 1,263,431 715,684 1,346,399
------------ ------------ ------------ ------------
Total real estate activity 469,672 1,261,073 843,396 1,697,202
Interest on cash equivalents
and short term investments 69,026 132,996 75,730 150,611
------------ ------------ ------------ ------------
Total investment activity 538,698 1,394,069 919,126 1,847,813
------------ ------------ ------------ ------------
Portfolio Expenses
Management fee 62,088 124,177 62,088 124,177
General and administrative 38,869 89,077 42,438 86,188
------------- ------------- ------------ ------------
100,957 213,254 104,526 210,365
------------- ------------- ------------ ------------
Net Income $ 437,741 $ 1,180,815 $ 814,600 $ 1,637,448
============= ============= ============ ============
Net income per limited
partnershipunit $ 10.86 $ 29.29 $ 20.20 $ 40.61
============= ============= ============ ============
Cash distributions per
limited partnership unit $ 15.57 $ 31.14 $ 15.57 $ 30.03
============= ============= ============ ============
Number of limited partnership
units outstanding during the
period 39,917 39,917 39,917 39,917
============= ============= ============ ============
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
-------------------- ------------------- -------------------- --------------------
General Limited General Limited General Limited General Limited
Partner Partners Partner Partners Partner Partners Partner Partners
------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period $66,041 $38,241,581 $64,888 $38,127,446 $74,842 $39,112,900 $72,444 $38,875,480
Cash
distributions (6,278) (621,508) (12,556) (1,243,016) (6,279) (621,508) (12,109) (1,198,708)
Net income 4,377 433,364 11,808 1,169,007 8,146 806,454 16,374 1,621,074
--------- ---------- --------- ---------- -------- ---------- --------- ---------
Balance at
end of period $64,140 $38,053,437 $64,140 $38,053,437 $76,709 $39,297,846 $76,709 $39,297,846
========= ========== ========= ========== ========= ========== ======== ==========
<FN>
(See accompanying notes to financial statements)
</TABLE>
<PAGE>
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1996 1995
---------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 1,718,763 $ 2,008,381
---------- -----------
Cash flows from investing activities:
Net proceeds from sale of investment 836,852 -
Capital expenditures on owned property (246,538) (492,159)
Decrease (increase) in short-term
investments, net 645,668 (373,262)
Deferred disposition fee 27,450 -
---------- -----------
Net cash provided by (used in)
investing activities 1,263,432 (865,421)
---------- -----------
Cash flows from financing activity:
Distributions to partners (1,255,572) (1,210,817)
---------- -----------
Net increase (decrease) in
cash and cash equivalents 1,726,623 (67,857)
Cash and cash equivalents:
Beginning of period 2,731,930 4,101,201
---------- -----------
End of period $ 4,458,553 $ 4,033,344
========== ===========
<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 June 30, 1996 and December 31, 1995
and the results of its operations, its cash flows and changes in partners'
capital for the interim periods ended June 30, 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.
<PAGE>
NOTE 2 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS
- --------------------------------------------------------
One of the two Elkridge buildings was sold on May 14, 1996. Sales
proceeds of $864,302 were received by the Partnership in partial payment of
amounts due under its ground lease and mortgage loan investment, which
approximated the investment's carrying value as previously adjusted for
valuation allowances. A disposition fee of $27,450 was accrued but not
paid to the advisor. The Partnership intends to distribute the sales
proceeds to the limited partners during the third quarter of 1996, when the
second building is expected to be sold.
The Susana Corporate Center is under agreement for sale for a price
which approximates the Partnership's carrying value, as adjusted for
valuation allowances. The transaction is expected to be completed in the
third quarter of 1996.
<PAGE>
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
========= =========
Decrease in estimated fair
market value of collateral (205,000)
---------
Balance at June 30, 1995 $ 5,585,250 (2,675,000) $ 3,180,250
========== ==========
Decrease in estimated fair
market value of collateral (123,000)
Additional impaired loan (1,100,000)
----------
Balance at January 1, 1996 $ 15,619,235 (3,898,000) $ 11,721,235
========== ==========
Decrease in estimated fair
market value of collateral (310,000)
Sale of collateral 155,915
----------
Balance at June 30, 1996 $14,889,944 $(4,052,085) $10,837,859
=========== =========== ===========
<FN>
The average recorded value of the impaired mortgage loans did not
differ materially from the balances at the end of the period.
</TABLE>
<PAGE>
NOTE 3 - SUBSEQUENT EVENTS
- --------------------------
Distributions of cash from operations relating to the quarter ended
June 30, 1996 were made on July 25, 1996 in the aggregate amount of
$627,786 ($15.57 per limited partnership unit).
<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
June 30, 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. One of these matured investments is expected to
be settled with the sale of the underlying collateral in the second half of
1996. The Partnership is evaluating alternatives to extending the other
two loans.
At June 30, 1996, the Partnership had $6,338,811 in cash, cash
equivalents and short-term investments, of which $627,786 was used for cash
distributions to partners on July 25, 1996. On May 14, 1996, one of the
two Elkridge buildings was sold. The Partnership received net proceeds of
$864,302, which are expected to be distributed to the limited partners in
the third quarter of 1996. The remainder of the cash and short-term
investment balances, after these distributions, 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 and second quarters 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 June 30, 1996, the carrying value of certain
investments exceeded their related appraised values by an aggregate of
approximately $1,074,000 and the appraised values of the remaining
investments exceeded their related carrying values by an aggregate of
approximately $317,000. 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.
<PAGE>
Results of Operations
- ---------------------
Operating Factors
Occupancy at the Willows Shopping Center decreased slightly to 90%
from 91%, where it had been since the end of 1994. A fifteen year lease
was recently signed by a significant new anchor tenant. The ground
lessee/borrower is in the process of a complete renovation and
reconfiguration of the Center. The general partner determined that it is
in the best interest for 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 $1,500,000 at June 30, 1996.
The Partnership is negotiating a purchase and sale agreement for the
remaining Elkridge building. The sale is anticipated to close in the third
quarter. Occupancy at this building was 81% at the end of the second
quarter.
The Susana Corporate Center is 100% leased to a single tenant. The
property is currently under agreement for sale to the ground lessee. The
sale is expected to close in the third quarter of 1996.
Occupancy at the Oakland property remained at 91% during the second
quarter of 1996; however, a lease for 47% of the currently occupied space
expires later in 1996. Lease renewal discussions with the tenant are
continuing.
The Case Communications property is fully occupied by a government
agency. The current lease expires in November 1996; however, the tenant
has indicated its intention to renew.
Investment Results
The provision for impaired mortgage loans relates to changes in the
estimated net fair market value of the collateral underlying the Elkridge,
Susana and Case Communications mortgage loans. The charge in 1996
primarily relates to Susana, caused by a refinement to the previous
estimate of net fair market value based on the terms of the pending sales
transaction.
Exclusive of the provision for impaired mortgage loans, real estate
investment results were $1,571,073 and $1,902,202 for the six months ended
June 30, 1996 and 1995, respectively. This decrease of $331,129, or 17%,
is primarily due to the decrease in net operating income generated by
Willows Shopping Center, as a result of lower rentals and higher operating
expenses. Revenue from Case Communications also declined due to lower
percentage rent payments.
<PAGE>
Interest on cash equivalents and short-term investments decreased by
$17,615, or 12%, due to lower average yields and lower average investment
balances during the first four months of the six-month period, slightly
offset by higher average balances during the remaining two months as a
result of the Elkridge sale proceeds.
The decrease in operating cash flow during the first six months of
1996 as compared to the prior year period is consistent with the change in
investment results, taken together with changes in net working capital.
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 six months 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 JUNE 30, 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
June 30, 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)
August 9, 1996
/s/ Peter P. Twining
-------------------------------
Peter P. Twining
Managing Director and General
Counsel of General Partner,
Copley Properties Company II, Inc.
August 9, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4458553
<SECURITIES> 1880258
<RECEIVABLES> 114024
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6452835
<PP&E> 31763495
<DEPRECIATION> 0
<TOTAL-ASSETS> 38875542
<CURRENT-LIABILITIES> 416051
<BONDS> 341914
0
0
<COMMON> 0
<OTHER-SE> 38117577
<TOTAL-LIABILITY-AND-EQUITY> 38875542
<SALES> 2390875
<TOTAL-REVENUES> 2523871
<CGS> 488048
<TOTAL-COSTS> 488048
<OTHER-EXPENSES> 545008
<LOSS-PROVISION> 310000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1180815
<INCOME-TAX> 0
<INCOME-CONTINUING> 1180815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1180815
<EPS-PRIMARY> 29.29
<EPS-DILUTED> 29.29
</TABLE>
