<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 September 30, 1997 Commission File Number 0-15429
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2893298
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Franklin Street, 25th Fl.
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
- ------------------------------------------------------------------------
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 IV;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1997
PART I
FINANCIAL INFORMATION
----------------------
<PAGE>
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Real estate investments:
Joint ventures $16,288,049 $15,733,520
Property, net 15,063,036 27,204,871
----------- -----------
31,351,085 42,938,391
Property held for disposition 11,664,190 --
Cash and cash equivalents 5,110,686 5,045,964
Short-term investments 2,384,063 2,726,532
----------- -----------
$50,510,024 $50,710,887
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 120,684 $ 119,344
Accrued management fee 45,458 56,277
Deferred management and disposition
fees 3,470,130 3,333,754
----------- -----------
Total liabilities 3,636,272 3,509,375
----------- -----------
Partners' capital (deficit):
Limited partners ($766
per unit; 120,000 units
authorized, 94,997 units
issued and outstanding) 47,037,511 47,361,993
General partners (163,759) (160,481)
----------- -----------
Total partners' capital 46,873,752 47,201,512
----------- -----------
$50,510,024 $50,710,887
=========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1997 September 30, 1997 September 30, 1996 September 30, 1996
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $1,374,798 $ 4,148,923 $1,316,886 $ 2,981,718
Property operating expenses (514,165) (1,572,417) (506,798) (1,040,237)
Depreciation and amortization (255,286) (760,523) (240,429) (575,386)
---------- ----------- ---------- -----------
605,347 1,815,983 569,659 1,366,095
Joint venture earnings 424,978 1,087,706 536,560 1,823,327
Amortization (1,327) (3,981) (2,292) (10,430)
---------- ----------- ---------- -----------
Total real estate operations 1,028,998 2,899,708 1,103,927 3,178,992
Interest on cash equivalents
and short term investments 94,880 276,071 90,990 262,030
---------- ----------- ---------- -----------
Total investment activity 1,123,878 3,175,779 1,194,917 3,441,022
---------- ----------- ---------- -----------
Portfolio Expenses
Management fee 90,915 272,749 122,899 368,695
General and administrative 77,865 254,217 82,649 258,055
---------- ----------- ---------- -----------
168,780 526,966 205,548 626,750
---------- ----------- ---------- -----------
Net Income $ 955,098 $ 2,648,813 $ 989,369 $ 2,814,272
========== =========== ========== ===========
Net income per limited partnership
unit $ 9.95 $ 27.60 $ 10.31 $ 29.33
========== =========== ========== ===========
Cash distributions per
limited partnership unit $ 9.58 $ 31.02 $ 12.95 $ 38.85
========== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Number of limited partnership
units outstanding during
the period 94,997 94,997 94,997 94,997
========== =========== ========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1997 September 30, 1997 September 30, 1996 September 30, 1996
---------------------- ---------------------- ---------------------- ----------------------
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 $(164,117) $47,002,035 $(160,481) $47,361,993 $(161,305) $56,495,191 $(154,702) $57,148,961
Cash
distributions (9,193) (910,071) (29,766) (2,946,807) (12,426) (1,230,212) (37,278) (3,690,636)
Net income 9,551 945,547 26,488 2,622,325 9,894 979,475 28,143 2,786,129
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Balance at
end of period $(163,759) $47,037,511 $(163,759) $47,037,511 $(163,837) $56,244,454 $(163,837) $56,244,454
========= =========== ========= =========== ========= =========== ========= ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1997 1996
--------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 2,979,988 $ 3,972,317
----------- -----------
Cash flows from investing activities:
Deposit from property sale -- 59,000
Payment of note payable to venture partner (64,000) --
Loan repayment by joint
venture partner -- 263,000
Investment in property (213,778) --
Decrease in short-term investments, net 339,085 417,020
----------- -----------
Net cash provided by
investing activities 61,307 739,020
----------- -----------
Cash flows from financing activity:
Distributions to partners (2,976,573) (3,727,914)
----------- -----------
Net increase in
cash and cash equivalents 64,722 983,423
Cash and cash equivalents:
Beginning of period 5,045,964 4,051,999
----------- -----------
End of period 5,110,686 $ 5,035,422
=========== ===========
</TABLE>
Non-cash transactions:
Effective April 1, 1996, the Partnership's joint venture investment in
Reflections Apartments was converted to a wholly-owned property. The carrying
value of this investment at conversion was $10,469,514. Effective July 1, 1996,
the Partnership's joint venture investment in Metro Business Center was
converted to a wholly-owned property. The carrying value of this investment at
conversion was $5,889,265.
(See accompanying notes to financial statements)
<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 September 30, 1997 and December 31, 1996 and the
results of its operations, its cash flows and partners' capital (deficit) for
the interim periods ended September 30, 1997 and 1996. These adjustments are of
a normal recurring nature.
See notes to financial statements included in the Partnership's 1996 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 IV; 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 organizations intended to be exempt
from federal income tax. The Partnership commenced operations in May, 1986 and
acquired the five real estate investments it currently owns prior to the end of
1987. It intends to dispose of the investments within twelve years of their
acquisition, and then liquidate; however, the managing general partner could
extend the investment period if it is considered to be in the best interest of
the limited partners. The Partnership has engaged AEW Real Estate Advisors,
Inc. (the "Advisor") to provide asset management services.
NOTE 2 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The Reflections Apartments joint venture was restructured as a wholly-owned
investment for financial reporting purposes effective April 1, 1996.
The Metro Business Center joint venture was restructured as a wholly-owned
investment for financial reporting purposes effective July 1, 1996.
The Partnership sold its interest in the Decatur TownCenter II joint
venture on October 10, 1996.
Ownership of the Columbia Gateway Corporate Park joint venture is being
restructured whereby the Partnership and its affiliate will obtain full control
over the business of the joint venture. Although there can be no assurance that
this restructuring will occur, the restructuring is expected to be completed
during the fourth quarter.
The following summarized financial information is presented in the
aggregate for the Partnership's joint ventures (two as of September 30, 1997 and
December 31, 1996; three as of September 30, 1996):
<TABLE>
<CAPTION>
Assets and Liabilities
----------------------
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation
of $3,091,974 and
$2,820,980, respectively $20,400,560 $19,919,292
Other 812,568 466,934
----------- -----------
21,213,128 20,386,226
Liabilities 213,881 76,032
----------- -----------
Net Assets $20,999,247 $20,310,194
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Results of Operations
Nine Months ended September 30,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Revenue
Rental income $2,100,155 $4,227,017
Other income 11,217 28,815
---------- ----------
2,111,372 4,255,832
---------- ----------
Expenses
Operating expenses 441,071 1,402,629
Depreciation and amortization 280,977 756,995
---------- ----------
722,048 2,159,624
---------- ----------
Net income $1,389,324 $2,096,208
========== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint venture) its affiliate on behalf of
their various financing arrangements with the joint ventures.
NOTE 3 - PROPERTY
- -----------------
Effective April 1, 1996, the Reflections joint venture was restructured,
whereby the Partnership's venture partner became an indirect limited partner.
Accordingly, the investment has been accounted for as a wholly-owned property
since that date. The carrying value of the joint venture investment at
conversion was allocated to land, building and improvements and other net
operating assets.
Effective January 1, 1996, the Metro Business Center joint venture
agreement was amended to grant the Partnership full control over management
decisions, beginning July 1, 1996. Since July 1, 1996, the investment has been
accounted for as a wholly-owned property. The carrying value of the joint
venture investment at conversion was allocated to land, buildings and
improvements, and other net operating assets. Effective December 30, 1996, the
property owned by the joint venture was distributed to the venture partners as
tenants-in-common. The Partnership, however, retained its overall decision-
making authority.
In connection with the restructuring of the Palms Business Center joint
venture, effective January 1, 1995, the venture partner is entitled to 40% of
the excess cash flow above a specified level up to $360,000. As of September
30, 1997, $66,000 of this obligation remains unpaid.
The following is a summary of the Partnership's three wholly-owned
investments:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
Land $ 3,451,272 $ 6,523,605
Buildings and improvements
and other capitalized costs 12,555,210 22,122,254
Accumulated depreciation and
amortization (739,553) (1,171,576)
Payable to venture partner -- (130,000)
Net operating assets
(liabilities) (203,893) (139,412)
Property held for disposition 11,664,190 --
----------- -----------
$26,727,226 $27,204,871
=========== ===========
</TABLE>
NOTE 4 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended
September 30, 1997 were made on October 30, 1997 in the aggregate amount of
$919,264 ($9.58 per limited partnership unit).
On October 24, 1997, the Partnership sold the Palms Business Center
property to an institutional buyer (the "Buyer"), which is unaffiliated with the
Partnership. The selling price was determined by arm's length negotiations
between the Partnership and the Buyer. The property was sold for $23,200,000.
The Partnership received net proceeds of approximately
<PAGE>
$23,000,000. Accordingly, the property has been reclassified on the Balance
Sheet as "Property held for disposition". This transaction will be accounted for
in the fourth quarter of 1997.
<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 December, 1986. A total of 94,997 units were sold. The Partnership
received proceeds of $85,677,259, net of selling commissions and other offering
costs, which have been invested in real estate, used to pay related acquisition
costs, or retained as working capital reserves. The Partnership made nine real
estate investments. Four investments have been sold; one each in 1988, 1993,
1994 and 1996. As a result of the sales, capital of $22,229,298 has been
returned to the limited partners through September 30, 1997.
At September 30, 1997, the Partnership had $7,494,749 in cash, cash
equivalents and short-term investments, of which $919,264 was used for cash
distributions to partners on October 30, 1997; the remainder will primarily be
used for working capital reserves. The source of future liquidity and cash
distributions to partners will be cash generated by the Partnership's real
estate and short-term investments. On October 24, 1996, the Partnership made a
capital distribution of $97 per limited partnership unit ($9,214,709) from the
proceeds of the Decatur TownCenter II sale, which reduced the adjusted capital
contribution from $863 to $766 per unit. Distributions of cash from operations
for the first three quarters of 1997 were at the annualized rate of 5% on the
adjusted capital contribution. Distributions of cash from operations relating to
the first three quarters of 1996 were made at the annualized rate of 6% on the
adjusted capital contribution. The distribution rate was reduced for 1997 in
anticipation of cash requirements related to lease rollovers.
The carrying value of real estate investments in the financial statements
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, 1997, certain appraised values exceeded the related carrying
values by an aggregate of $12,000,000 and certain appraised values were less
than their related carrying values by an aggregate of $900,000. The current
appraised value of real estate investments has been estimated by the managing
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.
On October 24, 1997, the Partnership sold the Palms Business Center
property to an institutional buyer (the "Buyer"), which is unaffiliated with the
Partnership. The selling price was determined by arm's length negotiations
between the Partnership and the Buyer. The property was sold for $23,200,000.
The Partnership received net proceeds of approximately $23,000,000.
Accordingly, the property has been reclassified on the Balance Sheet as
"Property held for disposition". This transaction will be accounted for in the
fourth quarter of 1997.
Results of Operations
- ---------------------
At September 30, 1997, two of the investments in the portfolio are
structured as joint ventures with real estate development/management firms, and
in one case, with an affiliate of the Partnership. The Decatur TownCenter II
property, which was sold in October 1996, was owned by a joint venture. The
Palms Business Center, Reflections Apartments and Metro Business Center
investments were originally structured as joint ventures. However, effective
January 1, 1995, April 1, 1996 and July 1, 1996, respectively, the Partnership
was granted full control over management decisions and the investments have been
accounted for as wholly-owned properties since those dates.
Operating Factors
Overall occupancy at Columbia Gateway Corporate Park was 99% during the
third quarter of 1997, an increase from 95% during the second quarter. No
leases are due to expire until December 1997. Ownership of the Columbia Gateway
Corporate Park joint venture is being restructured whereby the Partnership and
its affiliate will obtain full control over the business of the joint venture.
Although there can be no assurance that this restructuring will occur, the
restructuring is expected to be completed during the fourth quarter.
<PAGE>
Occupancy at Reflections Apartments ended the third quarter of 1997 at 88%,
down from 93% at June 30, 1997. Current rental rates are at the high end of the
market range.
Occupancy at Metro Business Center at September 30, 1997 was at 92%, up
from 91% at September 30, 1996 and 87% at June 30, 1997. Rents at this property
are higher than the average for comparable property types in the surrounding
area.
Occupancy at Palms Business Center was 86% at September 30, 1997, a
decrease from both earlier in the year and from September 30, 1996.
Occupancy at 270 Technology Center was 67% at September 30, 1997, down from
97% at June 30, 1997. This decrease in occupancy was expected due to the
expiration of a lease whose tenant occupied 30% of the space. This space is
currently being marketed.
Investment Activity
Interest on cash equivalents and short-term investments increased by 5%
between the first nine-month periods of 1996 and 1997 due to higher yields.
Real estate operating activity for the first nine months of 1997 and 1996
was $2,899,708 and $3,178,992, respectively. The 1996 amount includes $90,000
of income which was received by 270 Technology Center from a former tenant in
bankruptcy and income of $387,000 from Decatur TownCenter II, a property that
was sold during the fourth quarter of 1996. This decline in operating activity
during 1997 was partially offset by improved operating results at Metro Business
Center ($79,000), Palms Business Center ($63,000), and Columbia Gateway
Corporate Park ($54,000). These improvements in operations are primarily
attributable to higher rents and increases in reimbursable income at the
properties.
Operating cash flow in 1996 includes $250,000 received pursuant to a loan
guarantee from one of the Partnership's joint venture partners, relating to
previously accrued investment income. Exclusive of this item, operating cash
flow decreased $741,766 between the first nine-month periods of 1996 and 1997.
The change primarily stems from the change in Partnership operating results
discussed above, together with the timing of cash distributions from certain
joint ventures.
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, printing, legal, accounting and
investor servicing fees.
The management fee decreased between the first nine-month periods of 1996
and 1997 due to a decrease in distributable cash flow from operations. General
and administrative expenses did not change significantly between the respective
nine-month periods.
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1997
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: No reports on Form 8-K
were filed during the quarter ended September 30,
1997.
<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 IV;
A REAL ESTATE LIMITED PARTNERSHIP
(Registrant)
November 12 , 1997
/s/ James J. Finnegan
-------------------------------
James J. Finnegan
Vice President
of Managing General Partner,
Fourth Copley Corp.
November 12 , 1997
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Principal Financial and Accounting
Officer of Managing General Partner,
Fourth Copley Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,110,686
<SECURITIES> 2,384,063
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,494,749
<PP&E> 43,015,275
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,510,024
<CURRENT-LIABILITIES> 166,142
<BONDS> 3,470,130
0
0
<COMMON> 0
<OTHER-SE> 46,873,752
<TOTAL-LIABILITY-AND-EQUITY> 50,510,024
<SALES> 5,236,629
<TOTAL-REVENUES> 5,512,700
<CGS> 1,572,417
<TOTAL-COSTS> 1,572,417
<OTHER-EXPENSES> 1,291,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,648,813
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,648,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,648,813
<EPS-PRIMARY> 27.60
<EPS-DILUTED> 27.60
</TABLE>
