<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, 1998 Commission File Number 0-20126
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-3035851
(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>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1998
PART I
FINANCIAL INFORMATION
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
JOINT VENTURES $ 9,108,563 $12,693,813
PROPERTY, NET 10,832,048 10,957,147
----------- -----------
19,940,611 23,650,960
CASH AND CASH EQUIVALENTS 4,506,588 3,154,152
SHORT-TERM INVESTMENTS - 1,320,041
----------- -----------
$24,447,199 $28,125,153
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
ACCOUNTS PAYABLE $ 75,097 $ 82,215
ACCRUED MANAGEMENT FEE 61,328 65,027
DEFERRED DISPOSITION FEES 641,608 478,108
----------- -----------
TOTAL LIABILITIES 778,033 625,350
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
LIMITED PARTNERS ($755 AND $844 PER
unit, respectively;160,000 units
authorized, 42,076 units issued
and outstanding) 23,692,545 27,539,153
General partners (23,379) (39,350)
----------- -----------
Total partners' capital 23,669,166 27,499,803
----------- -----------
$24,447,199 $28,125,153
=========== ===========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Investment Activity
Property rentals $ 520,972 $1,492,123 $ 474,593 $1,390,832
Property operating expenses (197,941) (569,956) (197,428) (539,698)
Depreciation and amortization (87,249) (263,553) (87,701) (263,101)
---------- ---------- --------- ----------
235,782 658,614 189,464 588,033
Joint venture earnings 257,074 972,719 330,607 975,545
---------- ---------- --------- ----------
Total real estate operations 492,856 1,631,333 520,071 1,563,578
Gain on sale of joint venture 2,076,945 2,076,945 - -
---------- ---------- --------- ----------
Total real estate activity 2,569,801 3,708,278 520,071 1,563,578
Interest on cash equivalents
and short-term investments 73,779 189,484 59,145 173,554
---------- ---------- --------- ----------
Total investment activity 2,643,580 3,897,762 579,216 1,737,132
---------- ---------- --------- ----------
Portfolio Expenses
Management fees 61,328 191,381 65,026 195,080
General and administrative 47,476 136,741 40,593 140,918
---------- ---------- --------- ----------
108,804 328,122 105,619 335,998
---------- ---------- --------- ----------
Net Income $2,534,776 $3,569,640 $ 473,597 $1,401,134
========== ========== ========= ==========
Net income per limited partnership
unit $ 59.64 $ 83.99 $ 11.14 $ 32.97
========== ========== ========= ==========
Cash distributions per limited
partnership unit $ 144.47 $ 175.41 $ 15.47 $ 45.34
========== ========== ========= ==========
Number of limited partnership units
outstanding during the period 42,076 42,076 42,076 42,076
========== ========== ========= ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---------------------- ---------------------- ---------------------- ----------------------
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 $(42,151) $27,261,836 $(39,350) $27,539,153 $(36,347) $27,836,473 $(32,927) $28,175,021
OF PERIOD
CASH DISTRIBUTIONS (6,575) (6,078,720) (19,725) (7,380,552) (6,575) (650,916) (19,270) (1,907,726)
NET INCOME 25,347 2,509,429 35,696 3,533,944 4,736 468,861 14,011 1,387,123
-------- ----------- -------- ----------- -------- ----------- -------- -----------
BALANCE AT END
OF PERIOD $(23,379) $23,692,545 $(23,379) $23,692,545 $(38,186) $27,654,418 $(38,186) $27,654,418
======== =========== ======== =========== ======== =========== ======== ===========
</TABLE>
(SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS)
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 2,003,737 $ 1,897,662
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of joint venture 5,282,750 -
Deferred disposition fee 163,500 -
Decrease in short-term
investments, net 1,302,726 253,534
----------- -----------
Net cash provided by
investing activities 6,748,976 253,534
----------- -----------
Cash flows from financing activity:
Distributions to partners (7,400,277) (1,926,996)
----------- -----------
Net increase in cash
and cash equivalents 1,352,436 224,200
Cash and cash equivalents:
Beginning of period 3,154,152 3,030,587
----------- -----------
End of period $ 4,506,588 $ 3,254,787
=========== ===========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY PENSION PROPERTIES VII;
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, 1998 and December 31, 1997 and the results of its
operations, its cash flows and partners' capital (deficit) for the three and
nine months ended September 30, 1998 and 1997. These adjustments are of a
normal recurring nature.
See notes to financial statements included in the Partnership's 1997 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.
Note 1 - Organization and Business
- ----------------------------------
Copley Pension Properties VII; 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 March 1989. It acquired
three of the four real estate investments it currently owns prior to 1991, and a
fourth property in 1995. It intends to dispose of its investments within eight
to twelve years of their acquisition, and then liquidate. The Partnership has
engaged AEW Real Estate Advisors, Inc. (the "Advisor") to provide asset
management services.
Note 2 - Real Estate Joint Ventures
- -----------------------------------
On August 7, 1998 the Waterford Apartments, in Frederick, Maryland, which was
owned by the Partnership (25%) and an affiliate (75%), was sold to an
institutional buyer (the "Buyer") which is unaffiliated with the Partnership.
The total sales price was $21,800,000. The Partnership received its share of the
net proceeds totaling $5,446,250, after closing costs and recognized a gain
of $2,076,945 ($48.87 per limited partnership unit). A disposition fee of
$163,500 was accrued but not paid to the Advisor. On August 26, 1998, the
Partnership made a capital distribution of $5,427,804 ($129 per limited
partnership unit) from the proceeds of the sale.
The following summarized financial information is presented in the aggregate for
the Partnership's joint ventures:
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Assets and Liabilities
----------------------
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation of
$2,959,852 and $8,403,624
respectively $ 9,297,151 $21,473,990
Other 1,035,539 1,615,524
----------- -----------
10,332,690 23,089,514
Liabilities 163,388 385,634
----------- -----------
Net assets $10,169,302 $22,703,880
=========== ===========
<CAPTION>
Results of Operations
---------------------
Nine Months Ended September 30,
1998 1997
---------- ----------
<S> <C> <C>
Revenue
Rental income $3,346,874 $3,704,717
Other 5,714 4,890
---------- ----------
3,352,588 3,709,607
---------- ----------
Expenses
Operating expenses 1,039,807 1,225,093
Depreciation and amortization 586,907 730,234
---------- ----------
1,626,714 1,955,327
---------- ----------
Net income $1,725,874 $1,754,280
========== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to two joint ventures) its affiliates on behalf of
their various financing arrangements with the joint ventures.
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Note 3 Property
- ----------------
The following is a summary of the Partnership's two wholly-owned properties:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------- ------------------
<S> <C> <C>
Land $ 2,190,969 $ 2,190,969
Buildings and improvements 9,865,883 9,865,883
Accumulated depreciation (1,346,852) (1,090,317)
Other net assets (liabilities) 122,048 (9,388)
----------- -----------
$10,832,048 $10,957,147
=========== ===========
</TABLE>
Note 4 - Subsequent Event
- -------------------------
Distributions of cash from operations relating to the quarter ended September
30, 1998 were made on October 29, 1998 in the aggregate amount of $620,090
($14.59 per limited partnership unit). In addition, a special capital
distribution was also made on October 29, 1998 in the amount of $541,939
($12.88 per limited partnership unit). This special capital distribution was
funded from working capital reserves.
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Liquidity and Capital Resources
The Partnership's offering of units of limited partnership interest was
completed as of September 30, 1990. A total of 42,076 units were sold. The
Partnership received proceeds of $36,522,542, net of selling commissions and
other offering costs, which have been used for investment in real estate and the
payment of related acquisition costs, or retained as working capital reserves.
The Partnership made seven real estate investments, one of which was sold in
each of 1991, 1994 and another in 1998. Capital of $10,308,620 ($245 per limited
partnership unit) has been returned to the limited partners as a result of these
sales and the reduction of cash reserves. On October 29, 1998, the Partnership
distributed capital of $541,939 ($12.88 per limited partnership unit) which
represented a reduction in working capital. This capital distribution reduced
the adjusted capital contribution to $742.12 per unit.
On August 7, 1998 the Waterford Apartments, in Frederick, Maryland, which
was owned by the Partnership (25%) and an affiliate (75%), was sold to an
institutional buyer (the "Buyer") which is unaffiliated with the Partnership.
The total gross sale price was $21,800,000. The Partnership received its share
of the net proceeds totaling $5,446,250, after closing costs and recognized a
gain of $2,076,945 ($48.87 per limited partnership unit). A disposition fee was
accrued but not paid to the Advisor. On August 26, 1998, the Partnership made a
capital distribution of $5,427,804 ($129 per limited partnership unit) from the
proceeds of the sale.
At September 30, 1998, the Partnership had $4,506,588 in cash and cash
equivalents, of which $620,090 was used for operating cash distributions and
$541,939 for capital distributions to partners on October 29, 1998. The source
of future liquidity and cash distributions to partners will primarily be cash
flow generated by the Partnership's invested cash and cash equivalents and real
estate investments and proceeds from the sale of such investments. The adjusted
capital contribution was reduced from $884 to $755 per limited partnership unit
during the third quarter of 1998, with a distribution of the sales proceeds from
Waterford Apartments. Distributions of cash from operations relating to the
first and second quarters of 1998 were made at an annualized rate of 7% on the
adjusted capital contribution. Distributions of cash from operations relating to
the third quarter of 1998 were made at an annualized rate of 7% on the weighted
average adjusted capital contribution which was adjusted due to the mid-quarter
sale of Waterford Apartments. Distributions of cash from operations relating
to the first, second and third quarters of 1997 were made at an annualized rate
of 7% on the adjusted capital contribution.
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
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
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, 1998, the appraised value of each
real estate investment exceeded its carrying value; the aggregate excess was
approximately $9,200,000. The current appraised value of real estate
investments has been estimated by the managing general partner and is generally
based on a correlation 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.
The Year 2000 Issue is a result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.
The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:
. AEW Capital Management has developed a Year 2000 Plan (the "Plan")
consisting of five phases: inventory, assessment, testing,
remediation/repair and certification.
. As of September 30, 1998, AEW Capital Management had completed the
inventory and assessment phases of this Plan and had commenced the testing
and remediation/repair of internal systems.
. AEW Capital Management expects to conclude the internal testing,
remediation/repair and certifications of its Plan no later than December
31, 1998.
The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the
Partnership is not aware of any problems that would materially impact its
results of operations, liquidity or capital resources. However, the Partnership
has not yet obtained written assurances that these providers would be Year 2000
compliant.
The Partnership currently does not have a contingency plan in the event of
a particular provider or system not being Year 2000 compliant. Such a plan will
be developed if it becomes clear that a provider (including AEW Capital
Management) is not going to achieve its scheduled compliance objectives. The
inability of one of these providers to complete its Year 2000 resolution process
could materially impact the Partnership. In addition, the Partnership is also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failures and
related service interruptions.
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Results of Operations
Form of Real Estate Investment
The Drilex and Regency Court investments are wholly-owned properties. The
other two investments in the portfolio are structured as joint ventures.
Operating Factors
The Partnership's two industrial properties, Drilex and Prentiss Copystar,
were 100% leased, each by a single tenant, at September 30, 1998 and
September 30, 1997.
As previously discussed, the Waterford Apartments was sold on August 7,
1998, and the Partnership recognized a gain of $2,076,945. At the time of the
sale, the Waterford Apartments was 96% leased. At September 30, 1997 it was 93%
leased.
The Partnership's multi-family residential property, Regency Court
Apartments, ended the third quarter of 1998 with an occupancy level of 98%
compared to 97% for the period ended September 30, 1997.
Occupancy at Parkmoor Plaza was 100% at September 30, 1998 and
September 30, 1997.
Investment Results
For the three and nine months ended September 30, 1998, operating results
from real estate operations were $492,856 and $1,631,333, respectively, compared
to $520,071 and $1,563,578 for the comparable periods in 1997. The decrease of
$27,215 for the comparative three month periods is primarily due to lower joint
venture earnings due to the sale of Waterford Apartments. The increase of
$67,755 for the comparative nine month periods is primarily due to improved
operating results at Regency Court as a result of improved market conditions and
lower vacancy.
Interest on cash equivalents and short-term investments for the three and
nine months ended September 30, 1998, was $73,779 and $189,484, respectively,
compared to $59,145 and $173,554 for the same periods in 1997. The increases of
approximately $14,600 or 25% and $16,000 or 9% for the three and nine month
periods respectively, are primarily due to higher average investment balances in
1998 as a result of the receipt of the Waterford Apartments sales proceeds.
The increase in operating cash flow of approximately $106,000 between the
first nine months of 1997 and 1998 is primarily due to the increase in operating
results discussed above, increases in working capital and an increase in
distributions from 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.
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
For the three and nine months ended September 30, 1998, management fees
were $61,328 and $191,381, respectively, compared to $65,026 and $195,080 for
the comparable periods in 1997. The decrease of management fees for the
respective three and nine month periods is due to less operational cash
available for distributions as a result of the sale of Waterford Apartments on
August 7, 1998.
General and administrative expenses for the three and nine months ended
September 30, 1998 were $47,476 and $136,741, respectively, compared to $40,593
and $140,918 for the same periods in 1997. Expenses remained relatively
unchanged for both comparable periods.
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1998
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: During the quarter ended September 30,
1998, one Current Report on Form 8-K was filed on August 20,
1998 reporting on Item No. 2 (Acquisition or Disposition of
Assets) and Item No. 7 (Financial statements and Exhibits),
relating in both cases to the August 7, 1998 sale of Waterford
Apartments.
<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.
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
(Registrant)
November 13, 1998
/s/ J. Christopher Meyer III
-------------------------------
J. Christopher Meyer III
President, Chief Executive Officer
And Director of Managing General
Partner, Seventh Copley Corp.
November 13, 1998
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Principal Financial and Accounting
Officer of Managing General Partner,
Seventh Copley Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,506,588
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,506,588
<PP&E> 19,940,611
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,447,199
<CURRENT-LIABILITIES> 136,425
<BONDS> 641,608
0
0
<COMMON> 0
<OTHER-SE> 23,669,166
<TOTAL-LIABILITY-AND-EQUITY> 24,447,199
<SALES> 2,464,842
<TOTAL-REVENUES> 4,731,271
<CGS> 569,956
<TOTAL-COSTS> 569,956
<OTHER-EXPENSES> 591,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,569,640
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,569,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,569,640
<EPS-PRIMARY> 83.99
<EPS-DILUTED> 83.99
</TABLE>
