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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 September 30, 2000 Commission File Number 0-14052
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2847256
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Trade Center East
Two Seaport Lane, 16th Fl.
Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
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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
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2000
PART I
FINANCIAL INFORMATION
----------------------
2
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------------- ------------------
ASSETS
Real estate investments:
Property, net $ -- $5,918,532
Property held for disposition,
net 5,807,014 --
---------- ----------
5,807,014 5,918,532
Cash and cash equivalents 304,574 324,989
---------- ----------
$6,111,588 $6,243,521
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 94,334 $ 81,339
Accrued management fee -- 13,532
---------- ----------
Total liabilities 94,334 94,871
---------- ----------
Partners' capital:
Limited partners ($183.60
per unit, respectively;
75,000 units authorized,
68,414 units issued and
outstanding) 6,016,037 6,146,119
General partners 1,217 2,531
---------- ----------
Total partners' capital 6,017,254 6,148,650
---------- ----------
$6,111,588 $6,243,521
========== ==========
(See accompanying notes to unaudited financial statements)
3
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000 September 30, 1999 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Investment Activity
Property rentals $ 239,089 $ 689,160 $299,269 $ 893,709
Property operating expenses (81,976) (130,604) (42,444) (205,828)
Depreciation and amortization - (112,074) (56,037) (179,727)
---------- --------- -------- ---------
157,113 446,482 200,788 508,154
Total real estate operations 157,113 446,482 200,788 508,154
Gain on sale of Joint Venture - - - 1,509,931
---------- --------- -------- -----------
Total real estate activity 157,113 446,482 200,788 2,018,085
Interest on cash equivalents 5,267 13,801 10,256 72,221
---------- --------- -------- ----------
Total investment activity 162,380 460,283 211,044 2,090,306
---------- --------- -------- ----------
Portfolio Expenses
General and administrative 55,232 158,687 38,166 183,418
Management fee - 26,655 53,583 124,799
---------- --------- -------- ----------
55,232 185,342 91,749 308,217
---------- --------- -------- ----------
Net Income $ 107,148 $ 274,941 $119,295 $1,782,089
========== ========= ======== ==========
Net income per limited partnership
unit $ 1.55 $ 3.98 $ 1.73 $ 25.79
========== ========= ======== ==========
Cash distributions per
limited partnership unit $ 1.95 $ 5.88 $ 2.19 $ 50.75
========== ========= ======== ==========
Number of limited partnership
units outstanding during the period 68,414 68,414 68,414 68,414
========== ========= ======== ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
4
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000 September 30, 1999 September 30, 1999
------------------ ------------------ ------------------ ------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning of
period $ 1,493 $6,043,367 $ 2,531 $6,146,119 $ 8,932 $7,520,030 $ 209 $9,196,048
Cash
distributions (1,347) (133,407) (4,063) (402,274) (1,513) (149,827) (9,418) (3,472,011)
Net income 1,071 106,077 2,749 272,192 1,193 118,102 17,821 1,764,268
-------- ---------- -------- ---------- -------- ---------- ------- ----------
Balance at
end of period $ 1,217 $6,016,037 $ 1,217 $6,016,037 $ 8,612 $7,488,305 $ 8,612 $7,488,305
======== ========== ======= ========== ======= ========== ======= ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
5
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
---------------------------------
2000 1999
-------- ---------
Net cash provided by operating activities $ 471,675 $ 451,026
--------- -----------
Cash flows from investing activities:
Investment in property (85,753) (4,821)
Net proceeds from sale of joint venture - 2,639,445
Net cash provided by (used in)
investing activities (85,753) 2,634,624
--------- -----------
Cash flows from financing activity:
Distributions to partners (406,337) (3,481,429)
--------- -----------
Net decrease in
cash and cash equivalents (20,415) (395,779)
Cash and cash equivalents:
Beginning of period 324,989 1,952,504
--------- -----------
End of period $ 304,574 $ 1,556,725
========= ===========
(See accompanying notes to unaudited financial statements)
6
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
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 September 30, 2000 and December 31, 1999, the results
of its operations and partners' capital for the three and nine months ended
September 30, 2000 and 1999, and its cash flows for the nine months ended
September 30, 2000 and 1999. These adjustments are of a normal recurring
nature.
See notes to audited financial statements included in the Partnership's
1999 Annual Report on Form 10-K for additional information relating to the
Partnership's financial statements. We prepared the unaudited financial
statements following the requirements of the SEC for interim reporting. As
permitted under those rules, certain footnotes or other financial information
that are normally required by generally accepted accounting principles can be
condensed or omitted.
NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------
New England Life Pension Properties III; 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. The Partnership 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 July
1985 and acquired the one investment it currently owns prior to the end of 1988.
The Partnership intended to dispose of its investments within twelve years of
their acquisition, and then liquidate; however, the managing general partner
extended the holding period, having determined it to bein the best interest of
the limited partners. The Partnership has engaged AEW Real Estate Advisors,
Inc. (the "Advisor") to provide asset management advisory services.
NOTE 2 - PROPERTY
-----------------
270 Technology Park
-------------------
Effective January 1, 1998, the management and control of the business and
affairs of the 270 Technology Park joint venture, including the right to sell
the property, was vested solely in the Partnership through its 98% general
partner interest in the joint venture. Accordingly, as of January 1, 1998, the
investment has been accounted for as a wholly-owned property. The remaining 2%
general partner interest is owned by NELLP III/MORF III Associates Limited
Partnership, an entity in which the Partnership owns a 50% interest. The
carrying value of the joint venture investment at January 1, 1998 ($6,162,959)
was allocated to land, building and improvements, and other net operating
assets.
The building is being depreciated over 30 years, beginning January 1, 1998.
7
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
On June 30, 2000, the Partnership executed a Purchase and Sale agreement to
sell the 270 Technology Park investment. This investment is classified as
Property Held for Disposition, net, on the Balance Sheet ended September 30,
2000. The investment was sold on October 31, 2000 at a gain of approximately
$900,000. During the nine months ended September 30, 2000 and 1999, the
Partnership recognized $390,445 and $510,055 in net income from the 270
Technology Park investment, respectively.
North Cabot Industrial Park (formerly Marathon/Hayward)
-------------------------------------------------------
In September 1985, the Partnership acquired land in Hayward, California,
for $786,130 and leased it back to the seller. The Partnership also made a
nonrecourse permanent mortgage loan of $2,663,870 to the ground lessee to
finance the two research and development buildings located on the land.
On November 15, 1994, the Partnership restructured this ground
lease/mortgage loan investment into a wholly-owned property, due to the
inability of the ground lessee/mortgagor to meet its financial obligations. The
Partnership received $85,000 in settlement of the guaranty that had been
provided by principals of the ground lessee.
The Partnership obtained title to the improvements on the land and to
certain other operating assets in full satisfaction of the related mortgage loan
and obligations under the ground lease, and in consideration of the assumption
by the Partnership of certain operating liabilities. The carrying value of the
ground lease/mortgage loan investment as of the date of restructuring was
allocated to land, buildings and net operating assets.
The buildings and improvements (two industrial buildings in Hayward,
California) were being depreciated over 25 years beginning November 15, 1994.
Prior to 1994, the Managing General Partner determined that the carrying
value of this investment should be reduced to its estimated fair market value.
Accordingly, the carrying value was reduced by $2,500,000.
On March 18, 1999, the North Cabot Industrial Park investment was sold to
an unaffiliated third party for gross proceeds of $2,800,000. The Partnership
received net proceeds of $2,639,445 and recognized a gain of $1,509,931 ($21.85
per limited partnership unit). On April 29, 1999, the Partnership made a
capital distribution of $2,539,528 ($37.12 per limited partnership unit) from
the proceeds of the sale.
8
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
The following is a summary of the Partnership's last remaining investment
in property:
September 30, 2000 December 31, 1999
------------------ ------------------
Land $ - $ 215,404
Buildings and improvements - 5,667,126
Accumulated depreciation
and amortization - (343,490)
Net operating assets - 379,492
Property held for disposition 5,807,014 -
---------- ----------
$5,807,014 $5,918,532
========== ==========
NOTE 3 - SUBSEQUENT EVENT
-------------------------
See Note 2 for discussion of investment sale on October 31, 2000.
9
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
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 December 1985 and a total of 68,414 units were sold. The
Partnership received proceeds of $61,950,285, 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. The Partnership
made nine real estate investments, six of which were sold prior to 1994, and one
of which was sold in each of 1998 and 1999. As a result of the sales and
similar transactions, capital of $55,853,190 ($816.40 per limited partnership
unit) has been returned to the limited partners through September 30, 2000.
At September 30, 2000, the Partnership had $304,574 in cash and cash
equivalents. The source of future liquidity and cash distributions to partners
will primarily be cash generated by the Partnership's last remaining real estate
investment and invested cash and cash equivalents. Distributions of cash from
operations for the first and second quarters of 2000 were made at the annualized
rate of 4.25% on the adjusted capital contribution of $183.60 per limited
partnership unit. Due to the sale of the last remaining asset in October, 2000,
distributions were suspended for the third quarter of 2000 to enable the
Partnership to meet its fund level obligations for the remainder of its life
cycle. Distributions of cash from operations for the first three quarters of
1999 were made at the annualized rate of 4.25% on the adjusted capital
contribution of $231.54, the weighted average adjusted capital contribution of
$205.97 and the weighted average adjusted capital contribution of $194.42 per
limited partnership unit, respectively. At the time of the operating
distribution related to the third quarter of 1999, the Partnership also made a
special distribution of $5.77 per limited partnership unit from operating cash
previously held in reserves, as well as a capital distribution from sale
proceeds previously held in reserves in the amount of $10.82 per limited
partnership unit.
The carrying value of real estate investments in the financial statements
at September 30, 2000 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 September 30, 2000, the appraised value of the
Partnership's remaining real estate investment exceeded its related carrying
value by approximately $827,000. The current appraised value of the real estate
investment has been determined by the managing general partner and is based on
the amounts negotiated in the Purchase and Sale Agreement executed on June 30,
2000 less anticipated closing costs.
10
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
Results of Operations
---------------------
Form of Real Estate Investments
North Cabot Industrial Park, which was sold in March 1999, was a wholly-
owned property. Effective January 1, 1998, 270 Technology Park was converted to
a wholly-owned property; it was previously structured as a joint venture with a
real estate management/development firm.
Operating Factors
The North Cabot Industrial Park was sold on March 18, 1999, and the
Partnership recognized a gain of $1,509,931. Occupancy at North Cabot Industrial
Park was 92% at the time of the sale.
Occupancy at 270 Technology Park was 83% during the third quarter of 2000,
down from 95% during the third quarter of 1999.
In June 2000, a purchase and sale agreement was executed by the partnership
to sell the 270 Technology Park investment. The sale has been completed during
the fourth quarter of 2000.
Investment Results
Interest on cash equivalents for the three and nine months ended September
30, 2000, was $5,267 and $13,801, respectively, compared to $10,256 and $72,221
for the same periods in 1999. The decreases of $4,989 and $58,420 for the
respective three and nine month periods, respectively, are primarily due to
higher average investment balances in 1999 as a result of the North Cabot
Industrial Park sale proceeds held prior to distribution and operating cash held
in reserves prior to distribution.
For the three and nine months ended September 30, 2000, real estate
operations were $157,113 and $446,482, respectively, compared to $200,788 and
$508,154 for the comparable periods in 1999. The three month decrease of $43,675
is primarily due to lower rental revenue as a result of lower occupancy during
the quarter. Property operating expenses for the comparable three month periods
increased due to roof repairs as well as legal expenses related to several lease
negotiations. This increase in operating expenses was offset by discontinuing
depreciation and amortization expense during the quarter due to the pending sale
of 270 Technology Park. The nine month decrease of $61,672 is due to lower
average occupancy during the nine month period of 2000. This decrease was offset
by lower overall operating expenses, depreciation expense and amortization
expense at the property.
11
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
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 managing general partner. General and administrative expenses
primarily consist of real estate appraisal, legal, accounting, printing and
servicing agent fees.
For the three and nine months ended September 30, 2000, management fees
were $0 and $26,655, respectively, compared to $53,583 and $124,799 for the
comparable periods in 1999. The decreases in management fees for the respective
three and nine month periods are due to higher operational cash distributions in
1999 as well as a special distribution from operational cash previously held in
reserves made during the nine months ended September 30, 1999. There were no
distributions of cash from operations related to the third quarter of 2000.
General and administrative expenses for the three and nine months ended
September 30, 2000 were $55,232 and $158,687, respectively, compared to $38,166
and $183,418 for the same periods in 1999. The three month increase of $17,066
is primarily due to an increase of servicing agent fees. The nine month
decrease is primarily due to a reimbursement of state taxes paid in 1999 that
was received in 2000.
12
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2000
PART II
OTHER INFORMATION
-------------------
Items 1-5 Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: None
13
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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 III;
A REAL ESTATE LIMITED PARTNERSHIP
(Registrant)
November 9, 2000
/s/ Alison L. Husid
-----------------------------------------------
Alison L. Husid
President, Chief Executive Officer and Director
of Managing General Partner,
Copley Properties Company III, Inc.
November 9, 2000
/s/ Jem A. Hudgins
------------------------------------------------
Principal Financial and Accounting Officer of
Managing General Partner, Copley Properties
Company III, Inc.
14
