<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 March 31, 1999 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 MARCH 31, 1999
PART I
FINANCIAL INFORMATION
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
March 31, 1999 December 31, 1998
(Unaudited) (Audited)
-------------- -----------------
<S> <C> <C>
Assets
Real estate investments:
Joint ventures $ 8,940,409 $ 9,003,008
Property, net 1,990,124 1,871,598
Property held for disposition, net - 8,825,905
----------- -----------
10,930,533 19,700,511
Cash and cash equivalents 16,409,420 3,985,403
----------- -----------
$ 27,339,953 $ 23,685,914
=========== ===========
Liabilities and Partners' Capital
Accounts payable $ 108,761 $ 91,233
Accrued management fee 46,784 54,897
Deferred disposition fees 1,033,108 641,608
----------- -----------
Total liabilities 1,188,653 787,738
----------- -----------
Partners' capital (deficit):
Limited partners ($742.12 per unit;
160,000 units authorized,
42,076 units issued
and outstanding) 26,144,438 22,923,845
General partners 6,862 (25,669)
----------- -----------
Total partners' capital (deficit) 26,151,300 22,898,176
----------- -----------
$ 27,339,953 $ 23,685,914
=========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1999 1998
------ -------
<S> <C> <C>
INVESTMENT ACTIVITY
Property rentals $ 488,236 $ 483,185
Property operating expenses (189,826) (167,730)
Depreciation and amortization (21,505) (88,152)
----------- ----------
276,905 227,303
Joint venture earnings 275,015 356,803
----------- ----------
Total real estate operations 551,920 584,106
Gain on sale of property 3,302,085 -
----------- ----------
Total real estate activity 3,854,005 584,106
Interest on cash equivalents
and short-term investments 55,494 57,478
----------- ----------
Total investment activity 3,909,499 641,584
----------- ----------
PORTFOLIO EXPENSES
Management fees 46,784 65,027
General and administrative 54,527 51,725
----------- ----------
101,311 116,752
----------- ----------
Net Income $ 3,808,188 $ 524,832
=========== ==========
Net income per limited partnership
unit $ 89.60 $ 12.35
=========== ==========
Cash distributions per limited
partnership unit $ 13.06 $ 15.47
=========== ==========
Number of limited partnership units
outstanding during the period 42,076 42,076
=========== ==========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
STATEMENTS OF PARTNERS' CAPITAL (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended March 31,
----------------------------------------------
1999 1998
---------------------- ---------------------
General Limited General Limited
Partners Partners Partners Partners
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning $(25,669) $22,923,845 $(39,350) $27,539,153
of period
Cash distributions (5,551) (549,513) (6,575) (650,916)
Net income 38,082 3,770,106 5,248 519,584
-------- ----------- -------- -----------
Balance at end
of period $ 6,862 $26,144,438 $(40,677) $27,407,821
======== =========== ======== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended March 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
Net cash provided by operating activities $ 477,681 $ 765,907
----------- ----------
Cash flows from investing activities:
Net proceeds from sale of investment 12,109,900 --
Deferred disposition fees 391,500 --
Decrease in short-term
investments, net -- 1,302,726
----------- ----------
Net cash provided by
investing activities 12,501,400 1,302,726
----------- ----------
Cash flows from financing activity:
Distributions to partners (555,064) (657,491)
----------- ----------
Net increase in cash
and cash equivalents 12,424,017 1,411,142
Cash and cash equivalents:
Beginning of period 3,985,403 3,154,152
----------- ----------
End of period $16,409,420 $4,565,294
=========== ==========
</TABLE>
(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 March 31, 1999 and December 31, 1998 and the results of its
operations, its cash flows and partners' capital (deficit) for the interim
periods ended March 31, 1999 and 1998. These adjustments are of a normal
recurring nature.
See notes to financial statements included in the Partnership's 1998 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 the
three real estate investments it currently owns prior to 1991. The Partnership
intends to dispose of its investments within eight to 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 advisory services.
Note 2 - Real Estate Joint Ventures
On August 7, 1998, a joint venture, in which the Partnership held 25%
interest, sold the Waterford Apartments to an institutional buyer which was
unaffiliated with the Partnership. The gross sale price was $21,800,000. The
Partnership received its share of net proceeds after closing costs totaling
$5,446,250, 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>
Assets and Liabilities
----------------------
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation of
$3,127,774 and $3,043,811,respectively $ 9,129,229 $ 9,213,192
Other 1,061,171 1,011,628
----------- -----------
10,190,400 10,224,820
Liabilities 178,811 142,195
----------- -----------
Net assets $10,011,589 $10,082,625
=========== ===========
</TABLE>
Results of Operations
<TABLE>
<CAPTION>
Quarter ended March 31,
1999 1998
---------- -----------
<S> <C> <C>
Revenue
Rental income $531,759 $1,260,937
Other - 1,685
-------- ----------
531,759 1,262,622
-------- ----------
Expenses
Operating expenses 112,506 354,693
Depreciation and amortization 90,183 225,714
-------- ----------
202,689 580,407
-------- ----------
Net income $329,070 $ 682,215
======== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint ventures) its affiliates on behalf of
their various financing arrangements with the joint ventures.
Due to the sale noted above, the results of operations for the quarter
ended March 31, 1998 include the Partnership's investment in three joint
ventures while the results of operations for the quarter ended March 31, 1999
include two investments in joint ventures.
<PAGE>
Note 3 - Property
On April 14, 1995, the Partnership acquired, through a limited partnership
it controls, a 174-unit apartment complex in Sherman Oaks, California, known as
Regency Court Apartments, for a total price of $9,605,021. The purchase and sale
agreement required the seller to supplement the monthly rental income generated
from the property to the extent such income was less than $125,000 per month
during the one-year period ended April 13, 1996, with such supplement not to
exceed $300,000 in total. The supplemental rental was $115,323, which has been
applied to reduce the purchase price in 1995 and 1996.
The buildings and improvements were being depreciated over 30 years using
the straight-line method.
On March 25, 1999, the Partnership sold the Regency Court Apartments to an
unaffiliated third party (the "Buyer") for sale price of $13,050,000. The terms
of the sale were determined by arm's length negotiation between the Buyer and
the Partnership. The Partnership received net proceeds of approximately
$12,501,000 and recognized a gain of approximately $3,302,000 ($77.69 per
limited partnership unit). On April 29, 1999, the Partnership made a capital
distribution of $12,033,736 ($286 per limited partnership unit) from the
proceeds of the sale.
The following is a summary of the Partnership's investments in property (one at
March 31, 1999, and two at December 31, 1998):
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- ------------------
<S> <C> <C>
Land $ 244,346 $ 244,346
Buildings and improvements 1,976,977 1,976,977
Accumulated depreciation (435,606) (415,836)
Other net liabilities 204,407 66,111
Property held for disposition - 8,825,905
---------- -----------
$1,990,124 $10,697,503
========== ===========
</TABLE>
Note 4 - Subsequent Event
Distributions of cash from operations relating to the quarter ended March 31,
1999 were made on April 29, 1999 in the aggregate amount of $473,036.24 ($11.13
per limited partnership unit). As discussed above, the Partnership made a
capital distribution of $12,033,736 ($286 per limited partnership unit) from the
proceeds of the Regency Court Apartments sale.
<PAGE>
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, 1998 and 1999. Through March 31, 1999, capital of
$10,850,559 ($257.88 per limited partnership unit) has been returned to the
limited partners; $9,972,012 as a result of sales, $336,608 in 1996 as a result
of a discretionary reduction of cash reserves and $541,939 in 1998 as a result
of a distribution of original working capital. As a result of sales and similar
transactions, the adjusted capital contribution was reduced to $742.12.
At March 31, 1999, the Partnership had $16,409,420 in cash and cash
equivalents, of which $473,036 was used for operating cash distributions to
partners on April 29, 1999. In addition $12,033,736 was used for a capital
distribution to limited partners from the proceeds of the sale of Regency Court
Apartments. The remainder is being retained as working capital reserves. The
source of future liquidity and cash distributions to partners will primarily 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 1999 were made at the annualized rate of 6.0% on the adjusted
capital contribution of $742.12 per limited partnership unit. Distributions of
cash from operations for the first quarter of 1998 were made at the annualized
rate of 7.0% on the adjusted capital contribution of $884.00 per limited
partnership unit. The distribution rate was lower in 1999 primarily due to the
sale of investments in 1998 and 1999 and the consequent reduction in cash flow.
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 estimated cost of sale for properties held for
sale. Carrying value may be greater or less than current appraised value. At
March 31, 1999, the appraised value of each real estate investment exceeded its
carrying value; the aggregate of such excess was approximately $4,400,000. 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 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.
Year 2000 Readiness Disclosure
- ------------------------------
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
<PAGE>
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 June
30, 1999.
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 by June
30, 1999. 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. Given the nature of its
operations, the Partnership will not incur any costs associated with Year 2000
compliance. All such costs are born by AEW Capital Management and the property
managers.
<PAGE>
Results of Operations
- ---------------------
Form of Real Estate Investment
The Drilex investment is a wholly-owned property. The remaining real estate
investments in the portfolio are structured as joint ventures.
The Regency Court Apartments and Waterford Apartments were structured as a
wholly-owned property and joint venture, respectively.
Operating Factors
The Partnership's two industrial properties, Drilex and Prentiss Copystar,
were 100% leased at March 31, 1999 and March 31, 1998.
Occupancy at Parkmoor Plaza was 100% at March 31, 1999 where it has
remained since the second quarter of 1995.
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 were 96% leased. At December 31, 1997 it was 93%
leased.
In addition, the Regency Court Apartments investment was sold on March 25,
1999. The Partnership recognized a gain of approximately $3,302,000. Regency
Court was 97% leased at the time of sale. At December 31, 1998 it was 96%
leased.
Investment Results
Interest on short-term investments and cash equivalents was relatively
unchanged between the first quarter of 1998 and 1999.
Real estate operating results for the first quarter of 1999 and 1998 were
$551,920 and $584,106, respectively. The decrease of $32,186 is primarily due to
the sale of Waterford Apartments on August 7, 1998. Partially offsetting this is
an increase in operating results at Parkmoor Plaza of approximately $16,000 due
to higher rental rates and lower repairs and maintenance expenses. Operating
results from the remainder of the Partnership's investments were relatively
unchanged between the respective periods.
Cash flow from operations decreased by approximately $288,000 between the
respective three month periods. The decrease is primarily due to the decrease in
distributions from joint ventures as a result of the sale of Waterford
Apartments and a decrease in property 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 managing general partner. General and administrative expenses
primarily consist of real estate appraisal, printing, legal, accounting and
investor servicing fees.
<PAGE>
The Partnership management fee decreased approximately $18,000 between
the first quarter of 1998 and 1999 due to a decrease in distributions as a
result of the sale of Waterford Apartments in 1998. General and administrative
expenses remained relatively unchanged between the first quarter of 1998 and
1999.
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1999
PART II
OTHER INFORMATION
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 March 31, 1999, a
Current Report on Form 8-K was filed on April 8, 1999 reporting
on Item No. 2 (Acquisition or Disposition of Assets) and Item No.
7 (Financial statements and Exhibits), relating in both cases to
the March 25, 1999 sale of Regency Court 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)
May 13, 1999
/s/ J. Christopher Meyer III
--------------------------------
J. Christopher Meyer III
President, Chief Executive Officer
And Director of Managing General
Partner, Seventh Copley Corp.
May 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,409,420
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,409,420
<PP&E> 10,930,533
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,339,953
<CURRENT-LIABILITIES> 155,545
<BONDS> 1,033,108
0
0
<COMMON> 0
<OTHER-SE> 26,151,300
<TOTAL-LIABILITY-AND-EQUITY> 27,339,953
<SALES> 763,251
<TOTAL-REVENUES> 4,120,830
<CGS> 189,826
<TOTAL-COSTS> 189,826
<OTHER-EXPENSES> 122,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,808,188
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,808,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,808,188
<EPS-PRIMARY> 89.60
<EPS-DILUTED> 89.60
</TABLE>
