<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1999
Commission File No.
0-20126
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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
incorporation or organization) Identification No.)
225 Franklin Street, 25th Floor
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
No voting stock is held by nonaffiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
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PART I
Item 1. Business.
Copley Pension Properties VII; A Real Estate Limited Partnership (the
"Partnership") was organized under the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts on October 3, 1988, to invest primarily in
to-be-developed, newly constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of $2,000 in
the aggregate from Seventh Copley Corp. (the "Managing General Partner") and
ICOP Associates Limited Partnership (the "Associate General Partner")
(collectively, the "General Partners") and $10,000 from Copley Real Estate
Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on October 17, 1988, with respect to a public
offering of 80,000 units of limited partnership interest at a price of $1,000
per unit (the "Units") with an option to sell up to an additional 80,000 Units
(an aggregate of $160,000,000). The Registration Statement was declared
effective on January 9, 1989.
The first sale of Units occurred on April 27, 1989, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated on September 30, 1990 and the last group of initial
investors was admitted to the Partnership on October 10, 1990. As of December
31, 1990, a total of 42,076 Units had been sold, a total of 5,965 investors had
been admitted as limited partners (the "Limited Partners") and a total of
$41,956,740 net of discounts had been contributed to the capital of the
Partnership. The remaining 117,924 units were deregistered on February 20, 1991.
As of December 31, 1999, the Partnership had the three real property
investments described below in A. B. and C. Four additional investments have
been sold: a research and development facility in 1991 and an apartment complex;
in each of 1994, 1998 and 1999. Sales proceeds have been distributed in the
amount of $523 per Unit as a result of these sales. In addition, capital of
$22.90 per Unit has been distributed as a result of a discretionary reduction in
cash reserves. The Partnership has no current plan to renovate, improve, or
further develop any of its existing real property. In the opinion of the
Managing General Partner of the Partnership, the properties are adequately
covered by insurance.
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
A. Retail Center in San Jose, California ("Parkmoor Plaza").
On September 20, 1989, the Partnership acquired a 75% interest in a joint
venture formed with SBC & D Co., Inc. As of December 31, 1999, the Partnership
had contributed $9,786,330 to the capital of the joint venture out of a maximum
commitment of $10,000,000. The joint venture agreement entitles the Partnership
to receive a preferred return on its invested capital at the rate of 10% per
annum. During the first 120 months following the date of the joint venture
agreement, to the extent sufficient cash flow is not available therefor, up to
1% of such preferred return was permitted to accrue and bear interest at the
rate of 10% per annum, compounded monthly. The balance of the preferred return
was payable monthly on a current basis. Commencing with the 121st month
following the date of the joint venture agreement, the full amount of the
preferred return has been payable monthly on a current basis. The joint venture
agreement also entitles the Partnership to receive 75% of remaining cash flow
and 75% of sale and refinancing proceeds following the return of the
Partnership's investment.
2
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The joint venture owns a leasehold interest pursuant to a ground lease in
13.791 acres of land and a fee interest in three retail buildings totaling
approximately 149,825 square feet in San Jose, California. The ground lease
terminates on November 12, 2014 and provides for an annual rental of $73,230
payable in equal monthly installments. The joint venture has the option to
extend the lease for an additional 25 years. The rent for the extended term will
be determined in accordance with provisions set forth in the lease. The joint
venture also has the option to purchase the land upon notice from the owner of
its intention to sell to an unrelated third party and its acceptance of a bona
fide offer. The property has been fully converted from industrial to retail use.
As of December 31, 1999, this retail center was 100% leased.
B. Office/Warehouse Building in Houston, Texas ("Drilex").
On December 18, 1990, the Partnership acquired a 75% interest in a joint
venture formed with an affiliate of The Trammell Crow Company ("Trammel Crow").
The Partnership had contributed $2,294,713 to the capital of the joint venture.
The joint venture agreement entitled the Partnership to receive a preferred
return on its invested capital at the rate of 11% per annum, which was payable
currently until the Partnership had received an aggregate of $56,115. Upon
completion of construction the preferred return would accrue, if sufficient cash
flow was not available therefor. In addition, upon rental of the building, the
joint venture was also obligated to pay to the Partnership the amount of $2,755
on a monthly basis. This amount represented full amortization over a ten year
period of the cost of special tenant improvements and was applied against both
the contributed capital and the preferred return. The joint venture agreement
also entitled the Partnership to receive 50% of the net proceeds of sales after
return of its capital if the building was sold within one year of the tenant's
occupancy for a cash price of greater than $2,800,000. Under any other
circumstances, the Partnership's share of sale proceeds was 75%. As of January
1, 1993, the Partnership acquired Trammell Crow's equity interest in the joint
venture for $70,000.
The Partnership owns approximately 3.4 acres of land in Houston, Texas,
improved with an approximately 53,750 square foot single story office/warehouse
building constructed in 1991. As of December 31, 1999, the building was 100%
occupied by a single tenant under a long-term lease that expires in January
2010.
C. Industrial Building in Itasca, Illinois ("Prentiss Copystar").
On May 23, 1991, the Partnership acquired a 23.25% interest in a joint
venture formed with Copley Pension Properties VI; A Real Estate Limited
Partnership, an affiliate of the Partnership (the "Affiliate") with a 51.75%
interest, and with an affiliate of Prentiss Properties, Ltd. As of December 31,
1999, the Partnership had contributed $1,025,607 to the capital of the joint
venture out of a maximum commitment of $1,029,084, of which $716,882 is
characterized as Senior Capital and $308,725 is characterized as Junior Capital.
The joint venture agreement entitles the Partnership to receive a preferred
return, compounded monthly, of 11% per annum of which the return on Senior
Capital will be payable currently and the return on Junior Capital may accrue
and compound monthly if sufficient cash flow is not available therefor. If the
Senior Capital is repaid prior to the termination of the joint venture, the
Partnership would be entitled to receive a return on the Senior Capital at the
lesser of 11% per annum or the interest rate for treasury bonds having a
maturity date coinciding with the termination of the joint venture, plus 75
basis points. The joint venture agreement also entitles the Partnership to
receive 23.25% of the net proceeds of sales and financings after return of its
capital and 23.25% of cash flow remaining after payment of the preferred return.
3
<PAGE>
The joint venture owns approximately 3.75 acres of land in Itasca, Illinois
and during 1991 completed construction thereon of an approximately 70,535 square
foot single-story industrial building. As of December 31, 1999, the building was
vacant. The Partnership is currently negotiating a long term lease with a single
tenant.
D. Apartment Complex in Sherman Oaks, California ("Regency Court
Apartments")
On April 14, 1995, Regency Court Associates, L.P., a California limited
partnership (the "Acquisition Partnership"), acquired a 174-unit apartment
complex located in Sherman Oaks, California for $9,605,021. The sole limited
partner of the Acquisition Partnership is the Partnership, and the sole general
partner of the Acquisition Partnership is Copp VII Holding Corp., a
Massachusetts corporation which is a wholly-owned subsidiary of the Partnership
(the "Subsidiary"). As of December 31, 1999, the Partnership had contributed
$9,700,000 to the capital of the Acquisition Partnership. The partnership
agreement of the Acquisition Partnership entitles the Partnership to receive 99%
of cash flow and 99% of sale and financing proceeds. The Subsidiary has a 1%
interest in cash flow and sale and financing proceeds. The Subsidiary has been
capitalized with a $1,000,000 demand promissory note from the Partnership.
The Acquisition Partnership owned a 174-unit apartment complex known as
Regency Court Apartments located on approximately 1.64 acres of land.
On March 25, 1999, the Partnership sold the Regency Court Apartments to an
unaffiliated third party for a gross sale price of $13,050,000. The Partnership
received net proceeds of $12,486,618 and recognized a gain of $3,287,303 ($77.35
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.
4
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Item 2. Properties
The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Estimated Number of
2000 Tenants Line of
Annual with 10% or Square Feet Business of
Realty more of Name(s) of of Contract Lease Renewal Principal
Property Taxes GLA Tenant(s) Each Tenant Rent Expiration Options Tenants
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Center in $89,322 4 Baby Super 25,000 $8.89 3/2008 Two 10 year Baby retailer
San Jose, CA Discount options
Fleming Foods 54,600 $13.02 9/2007 Six 5 year Food Retailer
options
U.S. Post Office 22,000 $4.16 2/2001 One 5 year U.S. Post Office
option
Family Fitness 30,000 $8.27 1/2014 Two 5 year Fitness Center
Center options
Office/Warehouse
Building in $0(1) 1 W-H Energy 53,750 $5.40 1/2010 Two 5 year Computer
Houston, TX Services options Chip
Manufacturer
Industrial Building, $72,500 0 N/A 70,535 N/A N/A N/A
Itasca, IL
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tenant responsible for real property taxes.
5
<PAGE>
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenue, and net effective rent for the
Partnership's properties:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Rental Net Effective
Gross Leasable Year-End Revenue Rent
PROPERTY Area Occupancy Recognized ($/sf/yr)*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail Center in
San Jose, CA
1995 149,825 100% $1,433,239 $9.74
1996 149,825 100% $1,529,230 $10.21
1997 149,825 100% $1,590,646 $10.62
1998 149,825 100% $1,586,265 $10.59
1999 149,825 100% $1,656,781 $11.06
Office/Warehouse
Building in
Houston, TX
1995 53,750 100% $283,886 $5.28
1996 53,750 100% $302,304 $5.62
1997 53,750 100% $303,592 $5.65
1998 53,750 100% $301,797 $5.61
1999 53,750 100% $522,374 $9.72
Industrial Building,
Itasca, IL
1995 70,535 100% $479,000 $6.79
1996 70,535 100% $492,000 $6.98
1997 70,535 100% $462,000 $6.55
1998 70,535 100% $468,000 $6.64
1999 70,535 0% $367,942 $6.96
- --------------------------------------------------------------------------------
</TABLE>
*Net effective rent calculation is based on average occupancy during the
respective year.
6
<PAGE>
Following is a schedule of lease expirations for each of the next ten years
for the Partnership's properties based on the annual contract rent in effect at
December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TENANT AGING REPORT
Total Percentage of
# of Lease Total Annual Contract Gross Annual
Property Expirations Square Feet Rent Rental
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail Center in San Jose, CA(1)
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 1 22,000 $91,444 7%
2003* 1 0 $24,960 2%
2004 1 11,000 $165,000 12%
2005 1 4,800 $54,732 4%
2006 0 0 $0 0%
2007 1 54,600 $711,121 53%
2008 1 25,000 $222,300 16%
2009 1 2,000 $78,000 6%
Office/Warehouse Building in Houston, TX(1)
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
2007 0 0 $0 0%
2008 0 0 $0 0%
2009 0 0 $0 0%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Rent received for a telecommunication company satellite dish mounted on a
building at the property.
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Building, Itasca, IL
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
2007 0 0 $0 0%
2008 0 0 $0 0%
2009 0 0 $0 0%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Does not include expenses paid by tenants.
(1) Remaining leases do not expire within 10 years.
8
<PAGE>
The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Rate of Life Accumulated
Entity / Property Tax Basis Depreciation Method in years Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Retail Center, San Jose, CA
Building & Improvements $8,465,385 2.50% SL 40 $2,082,680
Land Improvements 768,437 6.67% SL 15 362,256
Land Improvements 13,000 5% SL 20 2,031
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Total Depreciable Assets $9,246,822 $2,446,967
Office/Warehouse Building, Houston, TX
Building & Improvements $2,735,593 2.50% SL 40 $419,167
----------- ----------
Total Depreciable Assets $2,735,593 $419,167
Industrial Building, Itasca Illinois
Building & Improvements $2,121,478 2.50% SL 40 $439,154
----------- ----------
Total Depreciable Assets $2,121,478 $439,154
Total Depreciable Assets $14,103,893 $3,305,288
=========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SL = Straight Line
9
<PAGE>
Following is information regarding the competitive market conditions for
each of the Partnership's properties. This information has been gathered from
sources deemed reliable. However, the Partnership has not independently verified
the information and, as such, cannot guarantee its accuracy or completeness:
Industrial Building in Itasca, Illinois
The Metropolitan Chicago Industrial Market contains approximately 933 million
square feet of inventory with a year-end 1999 vacancy rate of 8.0%, an increase
from the 6.9% vacancy at year-end 1998. Currently, there is more than 3.2
million square feet of inventory under construction and an additional 8.5
million square feet proposed. Due to the scarcity of land located close to our
property, new construction has moved out, mainly west and south along the I-55
and I-80 corridors. The availability of new competitively priced product will
limit the growth of rental rates, but more so in the outlying markets with ample
land available for development. The property is located in the North DuPage
County submarket. Most tenants in this submarket rely on close proximity to the
O'Hare International Airport, and to convenient access to interstates 355, 290,
90, and the Elgin-O'Hare Expressway.
Retail Center in San Jose, California
The center is located in the San Jose metropolitan market. It is ranked number 2
among American cities in terms of exports, and is home to over 40% of the
greater Silicon Valley workforce. Over 11,000 high tech companies employ more
than 241,000 workers in the San Jose metropolitan area. Due to its tenant mix
and excellent regional accessibility, Parkmoor Plaza draws customers from a
larger-than-normal retail trade area. The trade area boasts a current population
of 228,000 which is estimated to grow to over 243,000 by the year 2004.
Office/Warehouse Building in Houston, Texas
Houston's Industrial market of high quality, investment grade product contains
in excess of 93 million square feet in eight submarkets. Drilex is located in
the Northwest Far Industrial Market, which contains nearly 33.7 million square
feet of primarily bulk warehouse space. This submarket is comprised of
industrial projects extending Northwest along US 290 and Hempstead Highway from
the I-610 interchange out to Highway 6. The Northwest Far submarket is by far
the largest in terms of square footage and most active in terms of new
development. Most of the new product is front-load distribution facilities.
Through Q4 1999 new product or product under construction was estimated at
703,000 SF, of which 325,00 SF was pre-leased. Overall net absorption outpassed
new construction with approximately 730,000 SF of space being absorbed through
Q4 1999. Less than 4% of the total space in the market is actually vacant, which
has made for strong demand and the concern that the area is poised for over
development in the next few years.
Item 3. Legal Proceedings.
A partner in a joint venture in which the Partnership holds an interest has
filed a declaratory judgment action with respect to certain provisions of the
joint venture agreement.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.
10
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no active market for the Units. Trading in the Units is sporadic
and occurs solely through private transactions.
As of December 31, 1999, there were 5,760 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership
dated April 27, 1989, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. For the year ended December 31, 1999, cash distributions
paid in 1999 or distributed after year end with respect to 1999 to the Limited
Partners totaled $13,696,999 including $12,033,736 of returned capital from the
proceeds of a sale of real property and $79,944 of returned capital from
original working capital reserves. For the year ended December 31, 1998, cash
distributions paid in 1998 or distributed after year end with respect to 1998 to
the Limited Partners totaled $8,434,977 including $5,427,804 of returned capital
from the proceeds of a sale by a joint venture of real property and $541,939 of
returned capital from original working capital reserves.
Cash distributions exceeded net income in 1999 and 1998. However,
distributions of operating cash flow were less than cash generated by operating
activities. Reference is made to the Partnership's Statement of Changes in
Partner's Capital (Deficit) and Statement of Cash Flows in Item 8 hereof.
11
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended or
As of: As of: As of: As of: As of:
12/31/99(1) 12/31/98 (2) 12/31/97 12/31/96 (3) 12/31/95 (4)
----------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,562,433 $ 5,544,041 $ 3,453,194 $ 3,250,812 $ 3,235,068
Net Income $ 4,871,411 $ 3,960,679 $ 1,942,196 $ 1,751,136 $ 2,060,318
Net Income per
Unit of Limited
Partnership
Interest
Outstanding $ 114.62 $ 93.19 $ 45.70 $ 41.20 $ 48.48
Total Assets $15,148,639 $23,685,914 $28,125,153 $28,758,619 $29,782,367
Total Cash
Distributions
per Limited
Partnership
Unit
Outstanding
for the entire
period,
including amounts
distributed after
year end with
respect to such year $ 325.53 $ 198.47 $ 61.88 $ 65.90 $ 135.14
</TABLE>
(1) 1999 Net Income includes a gain on sale of investment of $3,287,303. Cash
distributions include a return of capital of $286.
(2) 1998 Net Income includes a gain on sale of investment of $2,076,945. Cash
distributions include a return of capital of $141.88.
(3) 1996 Cash Distributions include a return of capital of $8.00.
(4) 1995 Net Income includes a gain on sale of investment of $228,086. Cash
distributions include a return of capital of $80.00.
12
<PAGE>
Item 7.
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 September, 1990 and 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, and for working capital reserves. The
Partnership made the three investments it currently owns described in Item 1
hereof, and four additional investments which were sold in 1991, 1994, 1998 and
1999, respectively. Through December 31, 1999, capital of $22,884,295 ($543.88
per Limited Partnership Unit) has been returned to the limited partners;
$22,005,748 as a result of sales, $336,608 in 1996 as a result of a
discretionary reduction of cash reserves and $621,883 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 $454.22.
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 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 AEW Real Estate Advisors, Inc. ("AEW"). 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.
On March 25, 1999, the Partnership sold the Regency Court Apartments to an
unaffiliated third party for a gross sale price of $13,050,000. The Partnership
received net proceeds of $12,486,618 and recognized a gain of $3,287,303 ($77.35
per Limited Partnership Unit). A disposition fee was accrued but not paid to AEW
Real Estate Advisors, Inc ("AEW"). 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.
At December 31, 1999, the Partnership had $4,169,397 in cash and cash
equivalents of which $483,236 was used for operating distributions to partners
on January 27, 1999; the remainder will primarily be used as working capital
reserves. The source of future liquidity and cash distributions to partners will
primarily be cash flow generated by the Partnership's cash equivalents and real
estate investments and proceeds from the sale of such investments. Distributions
of cash from operations relating to the first quarter of 1999 were made at an
annualized rate of 6% on the adjusted capital contribution of $742.12 per
Limited Partnership Unit. Cash distributions relating to the second quarter of
1999 were made at an annualized rate of 5.25% on the weighted average adjusted
capital contribution of $545.10 per Limited Partnership Unit. Cash distributions
relating to the third quarter of 1999 were made at an annualized rate of 7.00%
on the weighted average adjusted capital contribution of $456.12 per Limited
Partnership Unit. Cash distributions relating to the fourth quarter of 1999 were
made at an annualized rate of 10.00% on the weighted average adjusted capital
contribution of $454.78 per Limited Partnership Unit. The increase in the
annualized rate is due to an increase in cash flow from properties which was
higher than anticipated. Distributions of cash from operations relating to the
first and second quarters of 1998 were made at an annualized rate of 7.00% on
the adjusted capital contribution. Distributions of cash from operations
relating to the third and fourth quarters of 1998 were made at an annualized
rate of 7.00% on the weighted average adjusted capital contribution, which was
adjusted due to the mid-quarter sale of Waterford Apartments as well as a
distribution of original working capital.
The carrying value of real estate investments in the financial statements
at December 31, 1999 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.
13
<PAGE>
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 December 31, 1999, the appraised value of each
real estate investment exceeded its carrying value; the aggregate excess was
approximately $3,555,000. 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 AEW 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.
Results of Operations
Form of Real Estate Investments
The Drilex investment is a wholly-owned property and the Prentiss Copystar
and Parkmoor Plaza investments are joint ventures.
Operating Factors
The Partnership's industrial property, Drilex, was 100% leased at December
31, 1999 as it has been for the last seven years. The other industrial property,
Prentiss Copystar, was vacant at December 31, 1999 and 100% leased at December
31, 1998. The Partnership is currently negotiating a long term lease with a
single tenant for the Prentiss Copystar property.
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.
As previously discussed, the Regency Court Apartments was sold on March 25,
1999, and the Partnership recognized a gain of $3,287,303. At the time of the
sale, the Regency Court Apartments was 97% leased. At December 31,1998 it was
96% leased.
Occupancy at Parkmoor Plaza was 100% at December 31, 1999, where it has
remained since the second quarter of 1995. On February 29, 2000, the Partnership
executed a Purchase and Sale Agreement to sell the Parkmoor Plaza investment.
Although there can be no assurance that this sale will occur, it is anticipated
to be concluded during the second quarter of 2000.
Investment Results
Interest on short-term investments and cash equivalents increased
approximately $21,500 or 9% in 1999 as compared to 1998, due to an increase in
average investment balances as a result of the receipt of the Regency Court
Apartments sales proceeds.
1999 Compared to 1998
Total real estate operations for the twelve months ended December 31, 1999
and 1998 was $1,656,933 and $2,063,956, respectively. The decrease of $407,023
is primarily due to the sale of the Regency Court Apartments in the first
quarter of 1999 and the Waterford Apartments sale in August 1998. Partially
offsetting this is improved operating results at Parkmoor Plaza of approximately
$73,000 as a result of increased rental revenues due to improved market
conditions during 1999 as compared to 1998.
14
<PAGE>
Cash flow from operations decreased approximately $778,000 between the
twelve-month periods. This change is primarily due to the sales of Regency Court
Apartments and Waterford Apartments in 1998.
1998 Compared to 1997
Total real estate operations for the twelve months ended December 31, 1998
and 1997 was $2,063,956 and $2,137,069, respectively. The decrease of $73,113 is
primarily due to lower joint venture earnings due to the sale of Waterford
Apartments. Partially offsetting this is improved operating results at Regency
Court Apartments of approximately $49,000 as a result of increased rental
revenues due to improved market conditions during 1998 as compared to 1997.
Operating results at the three remaining properties were relatively unchanged
between the respective periods.
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.
1999 Compared to 1998
The Partnership management fee decreased between 1999 and 1998 due to a
decrease in distributable cash flow as a result of the sale of the Regency Court
Apartments on March 25, 1999. General and administrative expenses increased
approximately $2,100 or 1%, due to increase in out-of-pocket and investor
servicing fees which is offset by a decrease in printing and appraisal fees.
1998 Compared to 1997
The Partnership management fee decreased between 1998 and 1997 due to a
decrease in distributable cash flow as a result of the sale of Waterford
Apartments on August 7, 1998. General and administrative expenses increased
approximately $6,500 primarily due to an increase in legal and investor
servicing fees.
Inflation
By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may result in appreciation in the value of real estate
investments over time, if rental rates and replacement costs increase. Declines
in property values during the period of Partnership operations, due to market
and economic conditions, have overshadowed the positive affect inflation may
have on the value of the Partnership's investments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 1999.
The Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.
Item 8. Financial Statements and Supplementary Data.
The independent auditor's reports, financial statements and financial
statement schedule listed in the accompanying index are filed as part of this
report. See Index to the Financial Statements and Financial Statement Schedules
on page 21.
15
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) and (b) Identification of Directors and Executive Officers.
The following table sets forth the names of the directors and executive
officers of the General Partner and the age and position held by each of them as
of December 31, 1999.
<TABLE>
<CAPTION>
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
<S> <C> <C>
Alison Husid Cutler President, Chief Executive Officer and Director 37
Pamela J. Herbst Vice President and Director 44
J. Grant Monahon Vice President and Director 54
James J. Finnegan Vice President 39
Karin J. Lagerlund Treasurer and Principal Financial and Accounting Officer 35
</TABLE>
(c) Identification of Certain Significant Employees.
None.
(d) Family Relationships.
None.
(e) Business Experience.
The Managing General Partner was incorporated in Massachusetts on October
3, 1988. The background and experience of the executive officers and directors
of the Managing General Partner are as follows:
Alison Husid Cutler is a Portfolio Manager in AEW Institutional Real Estate
Services, with responsibility for several real estate equity portfolios
representing approximately $800 million in client capital. She has over 12 years
of experience in real estate finance and investment management. Ms. Cutler
joined the predecessor of AEW Capital Management, L.P. ("AEW Capital
Management") in 1987 as Controller for a portfolio management team responsible
for the acquisition, management, restructuring and disposition of client assets
in New England and the western U.S. She later served as Asset Manager for a
portfolio of assets in Arizona and the West Coast. Prior to joining AEW, Ms.
Cutler worked for several years as a Senior Auditor with Peat Marwick, Main &
Co. She is a Certified Public Accountant and a graduate of the University of
Massachusetts (B.A.).
Pamela J. Herbst directs AEW Capital Management, L.P.'s ("AEW Capital
Management")Institutional Real Estate Services, with oversight responsibility
for the direct equity investing and asset and portfolio management of existing
core and core-plus commingled funds and separate accounts. Ms. Herbst is a
member of AEW Capital Management's Investment Policy Group and Operating
Committee. She came to AEW Capital Management in December 1996 as a result of
the firm's merger with Copley Real Estate Advisors, Inc., where she held various
senior level positions in asset and portfolio management, acquisitions, and
corporate operations since 1982. Ms. Herbst is a graduate of the University of
Massachusetts (B.A.) and Boston University (M.B.A.).
16
<PAGE>
J. Grant Monahon is AEW Capital Management's Chief Operating Officer and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
the predecessor of AEW Capital Management in 1987, Mr. Monahon was a partner
with a major Boston law firm. As the head of that firm's real estate finance
department, he represented a wide variety of institutional clients, both
domestic and international, in complex equity and debt transactions. He is the
former Chairman of the General Counsel section of the National Association of
Real Estate Investment Managers. Mr. Monahon is a graduate of Dartmouth College
(B.A.) and Georgetown University Law Center (J.D.).
James J. Finnegan is the General Counsel of AEW Capital Management. Mr.
Finnegan served as Vice President and Assistant General Counsel of Aldrich,
Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr. Finnegan
has over ten years of experience in real estate law, including seven years of
experience in private practice with major New York City and Boston law firms.
Mr. Finnegan also serves as AEW's securities and regulatory compliance officer.
Mr. Finnegan is a graduate of the University of Vermont (B.A.) and Fordham
University School of Law (J.D.).
Karin J. Lagerlund directs the Institutional Real Estate Services Portfolio
Accounting Group at AEW Capital Management, overseeing portfolio accounting,
performance measurement and client financial reporting for AEW's private equity
investment portfolios. Ms. Lagerlund is a Certified Public Accountant and has
over ten years experience in real estate consulting and accounting. Prior to
joining AEW Capital Management in 1994, she was an Audit Manager at EY/Kenneth
Leventhal LLP. Ms. Lagerlund is a graduate of Washington State University
(B.A.).
(f) Involvement in Certain Legal Proceedings.
None.
Item 11. Executive Compensation.
Under the Partnership Agreement, the General Partners and their affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Notes 1, 2 and 6 of Notes to Financial Statements.
The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partners and their
affiliates for the year ended December 31, 1999. Cash distributions to General
Partners include amounts paid after year end with respect to 1999.
<TABLE>
<CAPTION>
Amount of Compensation
Receiving Entity Type of Compensation and Reimbursement
- ---------------- -------------------- ----------------------
<S> <C> <C>
General Partners Share of Distributable Cash $ 15,993
AEW Real Estate Advisors, Inc. Management Fees
(formerly known as Copley and Expense
Real Estate Advisors, Inc.) Reimbursements 170,173
New England Securities Servicing Fees and out
Corporation of pocket reimbursements 9,685
--------------
TOTAL $ 195,851
==============
</TABLE>
For the year ended December 31, 1999 the Partnership allocated $61,884 of
taxable income to the General Partners.
17
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
No person or group is known by the Partnership to be the
beneficial owner of more than 5% of the outstanding Units at December
31, 1999. Under the Partnership Agreement, the voting rights of the
Limited Partners are limited and, in some circumstances, are subject
to the prior receipt of certain opinions of counsel or judicial
decisions.
Except as expressly provided in the Partnership Agreement, the
right to manage the business of the Partnership is vested exclusively
in the Managing General Partner.
(b) Security Ownership of Management.
The General Partners of the Partnership owned no Units at
December 31, 1999.
(c) Changes in Control.
There exists no arrangement known to the Partnership the
operation of which may at a subsequent date result in a change in
control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
The Partnership has no relationships or transactions to report other than
as reported in Item 11, above.
18
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedule and Financial
Statement Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedule--The Financial Statement
Schedule listed on the accompanying Index to Financial Statements and
Schedule is filed as part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit
Index are filed as a part of this Annual Report and incorporated in
this Annual Report as set forth in said Index.
(b) Reports on Form 8-K: During the last quarter of the year ended December
31, 1999, the Partnership filed no Current Report on Form 8-K.
19
<PAGE>
Copley Pension Properties VII;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1999
20
<PAGE>
COPLEY PENSION PROPERTIES VII
A REAL ESTATE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - Years ended December 31, 1999, 1998 and 1997
Statements of Partners' Capital (Deficit) - Years ended December 31, 1999,
1998 and 1997
Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997
Notes to Financial Statements
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1999
All other schedules are omitted because they are not applicable
21
<PAGE>
Report of Independent Accountants
To the Partners of Copley Pension Properties VII; A Real Estate Limited
Partnership:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Copley
Pension Properties VII; A Real Estate Limited Partnership (the "Partnership") at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements. These
financial statements and the financial statement schedule are the responsibility
of Seventh Copley Corp., the Managing General Partner of the Partnership (the
"Managing General Partner"); our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by the Managing General Partner, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Boston, Massachusetts
March 21, 2000
22
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets
Real estate investments:
Joint ventures $ 820,724 $ 9,003,008
Property, net 2,065,242 1,871,598
Joint venture held for disposition, net 8,093,276 --
Property held for disposition, net -- 8,825,905
------------ ------------
10,979,242 19,700,511
Cash and cash equivalents 4,169,397 3,985,403
------------ ------------
$ 15,148,639 $ 23,685,914
============ ============
Liabilities and Partners' Capital
Accounts payable $ 82,971 $ 91,233
Accrued management fee 47,793 54,897
Deferred disposition fees 1,033,108 641,608
------------ ------------
Total liabilities 1,163,872 787,738
------------ ------------
Partners' capital (deficit):
Limited partners ($454.22 and $742.12 per unit,
respectively; 160,000 units authorized,
42,076 units issued and outstanding) 13,978,434 22,923,845
General partners 6,333 (25,669)
------------ ------------
Total partners' capital 13,984,767 22,898,176
------------ ------------
$ 15,148,639 $ 23,685,914
============ ============
</TABLE>
(See accompanying notes to financial statements)
23
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Investment Activity
Property rentals $ 937,404 $ 2,027,523 $ 1,900,041
Property operating expenses (265,271) (782,646) (709,195)
Depreciation and amortization (90,317) (379,361) (373,154)
----------- ----------- -----------
581,816 865,516 817,692
Joint venture earnings 1,075,117 1,198,440 1,319,377
----------- ----------- -----------
Total real estate operations 1,656,933 2,063,956 2,137,069
Gain on sale of investment in
joint venture -- 2,076,945 --
Gain on sale of property 3,287,303 -- --
----------- ----------- -----------
Total real estate activity 4,944,236 4,140,901 2,137,069
Interest on cash equivalents
and short-term investments 262,609 241,133 233,776
----------- ----------- -----------
Total investment activity 5,206,845 4,382,034 2,370,845
----------- ----------- -----------
Portfolio Expenses
Management fee 158,173 246,277 260,106
General and administrative 177,261 175,078 168,543
----------- ----------- -----------
335,434 421,355 428,649
----------- ----------- -----------
Net Income $ 4,871,411 $ 3,960,679 $ 1,942,196
=========== =========== ===========
Net income per limited
partnership unit $ 114.62 $ 93.19 $ 45.70
=========== =========== ===========
Cash distributions per limited
partnership unit $ 327.22 $ 202.88 $ 60.81
=========== =========== ===========
Number of limited partnership units
outstanding during the year 42,076 42,076 42,076
=========== =========== ===========
</TABLE>
(See accompanying notes to financial statements)
24
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
Year ended December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $ (25,669) $ 22,923,845 $ (39,350) $ 27,539,153 $ (32,927) $ 28,175,021
Cash distributions (16,712) (13,768,108) (25,926) (8,536,380) (25,845) (2,558,642)
Net income 48,714 4,822,697 39,607 3,921,072 19,422 1,922,774
------------ ------------ ------------ ------------ ------------ ------------
Balance at end
of year $ 6,333 $ 13,978,434 $ (25,669) $ 22,923,845 $ (39,350) $ 27,539,153
============ ============ ============ ============ ============ ============
</TABLE>
(See accompanying notes to financial statements)
25
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,871,411 $ 3,960,679 $ 1,942,196
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 90,317 379,361 373,154
Equity in joint venture earnings (1,075,117) (1,198,440) (1,319,377)
Cash distributions from joint ventures 1,159,146 1,674,686 1,688,325
Gain on sale of investment in joint venture -- (2,076,945) --
Gain on sale of property (3,287,303) -- --
Increase in deferred lease commissions (131,838) -- --
(Increase) decrease in investment income
receivable -- 17,315 (1,939)
Decrease (increase) in property working capital 272,222 (93,588) (41,344)
(Decrease) increase in operating liabilities (15,366) (1,112) 8,825
------------ ------------ ------------
Net cash provided by operating activities 1,883,472 2,661,956 2,649,840
------------ ------------ ------------
Cash flows from investing activities:
Investment in property (400,000) (17,375) (54,201)
Investment in joint venture (1,276) -- --
Net proceeds from sale of investment 12,095,118 5,282,750 --
Deferred disposition fees 391,500 163,500 --
Decrease in short-term investments, net -- 1,302,726 112,413
------------ ------------ ------------
Net cash provided by investing
activities 12,085,342 6,731,601 58,212
------------ ------------ ------------
Cash flows from financing activity:
Distributions to partners (13,784,820) (8,562,306) (2,584,487)
------------ ------------ ------------
Net cash used in financing activity (13,784,820) (8,562,306) (2,584,487)
------------ ------------ ------------
Net increase in cash and cash
equivalents 183,994 831,251 123,565
Cash and cash equivalents:
Beginning of year 3,985,403 3,154,152 3,030,587
------------ ------------ ------------
End of year $ 4,169,397 $ 3,985,403 $ 3,154,152
============ ============ ============
</TABLE>
(See accompanying notes to financial statements)
26
<PAGE>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business
General
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 and, acquired the
three real estate investments it currently owns prior to the end of 1991. The
Partnership intends to dispose of its investments within eight to twelve years
of their acquisition, and then liquidate.
The Managing General Partner of the Partnership is Seventh Copley Corp., a
wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly
known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general
partner is ICOP Associates Limited Partnership, a Massachusetts limited
partnership. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by AEW pursuant to an advisory contract.
On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC"), a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
operations"). Simultaneously, a new entity, AEW Capital Management, L.P., was
formed into which NEIC contributed its interest in Copley and its affiliates. As
a result, the AEW operations were combined with Copley to form the business
operations of AEW Capital Management, L.P. At the end of 1997, NEIC completed a
restructuring plan under which it contributed all of its operations to a newly
formed private partnership, NEIC Operating Partnership, L.P., in exchange for a
general partnership interest in the newly formed entity. Accordingly, at
December 31, 1997, AEW Capital Management, L.P. was wholly owned by NEIC
Operating Partnership, L.P. AEW is a subsidiary of AEW Capital Management, L.P.
Effective April 1, 1998, NEIC changed its name to Nvest, L.P. and NEIC Operating
Partnership, L.P. changed its name to Nvest Companies, L.P.
Prior to August 30, 1996, New England Mutual Life Insurance Company ("The
New England") was NEIC's principal unit holder and owner of all of the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner.
Management
AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash from operations, as defined, before deducting such fees.
Payment of a portion of the management fees incurred through 1991 had been
deferred in accordance with the advisory agreement; however, in 1995 these
deferred fees totaling $203,452 were paid to AEW in connection with a
distribution of sale proceeds (See Note 3). AEW is also reimbursed for expenses
incurred in connection with administering the Partnership ($12,000 in 1999,
1998, and 1997). Acquisition fees were paid at the time
27
<PAGE>
commitments were initially funded in an amount equal to 2% of the gross proceeds
from the offering. Disposition fees are limited to the lesser of 3% of the
selling price of the property, or 50% of the standard real estate commission
customarily charged by an independent real estate broker. Payments of
disposition fees are subject to the prior receipt by the limited partners of
their capital contributions plus a stipulated return thereon.
New England Securities Corporation ("NESC"), an indirect subsidiary of Met
Life, is engaged by the Partnership to act as its unitholder servicing agent.
Fees and out-of-pocket expenses for such services totaled $9,685 in 1999, $8,911
in 1998, and $8,371 in 1997. Fees to Back Bay Advisors, L.P., a wholly-owned
subsidiary of Nvest Companies, L.P., for short-term investment advisory services
totaled, $0, $0, and $4,412 for the same annual periods.
Note 2 - Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates require
an assessment of factors not within management's control, such as the ability of
tenants to perform under long-term leases and the ability of the properties to
sustain their occupancies in changing markets. Actual results, therefore, could
differ from those estimates.
Real Estate Joint Ventures
Investments in joint ventures are stated at cost plus (minus) equity in
undistributed joint venture income (losses). Allocations of joint venture income
(losses) were made to the Partnership's venture partners as long as they had
substantial economic equity in the project. Economic equity is measured by the
excess of the appraised value of the property over the Partnership's total cash
investment plus accrued preferential returns thereon. Currently, the Partnership
records an amount equal to 100% of the operating results of each joint venture,
after the elimination of all inter-entity transactions, except for the two
ventures which include an affiliate of the Partnership, which has substantial
economic equity in the respective projects. Joint ventures are consolidated with
the accounts of the Partnership if, and when, the venture partner no longer
shares in the control of the business.
Property
Property includes land and buildings, which are stated at cost less
accumulated depreciation, plus other operating net assets (liabilities). The
Partnership's initial carrying value of a property previously owned by a joint
venture equals the Partnership's carrying value of the prior investment on the
conversion date.
Capitalized Costs, Depreciation and Amortization
Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are also capitalized and amortized over the related
lease term.
Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land are amortized using the straight-line
method over the estimated useful lives of the underlying property.
28
<PAGE>
Certain tenant leases provide for rental increases over the respective
lease terms. Rental revenue is being recognized on a straight-line basis over
the lease terms.
Realizability of Real Estate Investments
The Partnership considers a real estate investment to be impaired when it
determines the carrying value of the investment is not recoverable through
undiscounted cash flows generated from the operations and disposition of the
property. The impairment loss is based on the excess of the investment's
carrying value over its estimated fair market value. For investments held for
disposition, the impairment loss also includes estimated costs of sale. Property
held for disposition is not depreciated during the holding period. Investments
are considered to be held for disposition at the time management commits the
Partnership to a plan to dispose of the investment.
Cash Equivalents
Cash equivalents are stated at cost, plus accrued interest. The Partnership
considers all highly liquid investments purchased with a maturity of ninety days
or less to be cash equivalents; otherwise, they are classified as short-term
investments.
Deferred Disposition Fees
Disposition fees due to AEW related to sales of investments are included in
the determination of gains or losses resulting from such transactions. According
to the terms of the advisory contract, payment of such fees has been deferred
until the limited partners first receive their capital contributions, plus
stipulated returns thereon.
Income Taxes
A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.
Per Unit Computations
Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.
Segment Data
Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment: investing in real estate properties which are
domiciled in the United States of America.
Reclassifications
Certain amounts in prior year financial statements have been reclassified
to conform with the current year presentation.
29
<PAGE>
Note 3 - Real Estate Joint Ventures
The Partnership invested in six real estate joint ventures, organized as
general partnerships with different real estate management/development firms,
and in two cases, with an affiliate of the Partnership. One such investment was
sold in each of 1991, 1994 and 1998. The Drilex investment was converted to a
wholly-owned property in 1993. The Partnership has committed to make capital
contributions to the ventures, which are subject to preferential cash
distributions at a specified rate and to priority distributions with respect to
sale or refinancing proceeds. The joint venture agreements provide for the
funding of cash flow deficits by the venture partners in proportion to ownership
interests, and for the dilution of ownership share in the event a venture
partner does not contribute proportionately.
The respective real estate management/development firm is responsible for
day-to-day development and operating activities, although overall authority and
responsibility for the business is shared by the venturers. The real estate
management/development firm, or its affiliates, also provides various services
to the respective joint ventures for a fee.
The following is a summary of cash invested in joint ventures, net of
returns of capital and acquisition fees:
<TABLE>
<CAPTION>
Preferential
Investment/ Rate of Ownership December 31,
Location Return Interest 1999 1998
-------- ------ -------- -------------- --------------
<S> <C> <C> <C> <C>
Parkmoor Plaza
San Jose, California 10% 75% $ 9,786,330 $ 9,786,330
Prentiss Copystar
Itasca, Illinois 11% 23.25% $ 1,025,607 $ 998,948
</TABLE>
Waterford Apartments
On March 20, 1989, the Partnership entered into a joint venture with an
affiliate of Bozzuto and Associates, and with an affiliate of the Partnership,
to develop and operate a garden-style apartment complex. The Partnership and its
affiliate collectively had a 65% ownership interest in the joint venture. The
Partnership committed to contribute up to $4,700,000 to the capital of the joint
venture. The preferential return related to $1,175,000 was payable currently
only to the extent of available cash flow. In the event of a sale or refinancing
prior to the tenth anniversary of the joint venture agreement, 25% of the
Partnership's contribution would first be repaid at par. The remaining 75% would
be repaid subject to a premium designed to preserve the stipulated rate of
return through the ninth anniversary of the joint venture agreement.
On August 7, 1998, the joint venture sold the Waterford Apartments to an
institutional 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 AEW Real Estate Advisors, Inc. 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.
30
<PAGE>
Parkmoor Plaza
On September 20, 1989, the Partnership entered into a joint venture with
South Bay Construction and Development Company, Inc. to acquire a leasehold
interest in three industrial/service center buildings and to renovate and
operate these buildings. The Partnership committed to make a maximum capital
contribution of $10,000,000. The payment of up to 1% per annum of the
preferential return is deferrable during the first ten years if sufficient
operating cash flow is not available. The joint venture is required to return
all cash contributions made by the Partnership by the tenth anniversary of its
initial funding. The non-cancelable ground lease has an initial expiration date
of November 12, 2014 and requires annual ground rental payments by the venture
of $73,230. The joint venture also has an option to extend the term of the
ground lease for an additional 25 years. Future minimum rental payments due to
the venture under non-cancelable operating leases are: $1,540,986 in 2000;
$1,476,147 in 2001; $1,478,683 in 2002; $1,541,262 in 2003; $1,519,865 in 2004
and $5,454,744 thereafter.
On February 29, 2000, the Partnership executed a Purchase and Sale
Agreement to sell the Parkmoor Plaza investment. Although there can be no
assurance that this sale will occur, it is expected to be concluded during the
second quarter of 2000. This investment is classified as Joint Venture Held for
Disposition on the 1999 Balance Sheet. During 1999, the Partnership recognized
$1,017,944 in joint venture earnings from this investment.
Prentiss Copystar
On May 23, 1991, the Partnership entered into a joint venture with an
affiliate of Prentiss Properties, Ltd., and an affiliate of the Partnership, to
develop and operate an industrial facility. The Partnership and its affiliate
collectively have a 75% interest in the joint venture. The Partnership committed
to make a maximum capital contribution of $1,029,084. The preferential return
related to $308,725 of the Partnership's capital contribution is payable
currently only to the extent of available cash flow. If $720,359, or any portion
thereof, is returned to the Partnership between the second and tenth anniversary
of the joint venture agreement, the return will be increased by an amount
sufficient to preserve the stipulated rate of return through the tenth
anniversary. As of December 31, 1999 the property is vacant. The Partnership is
currently negotiating a long term lease with a single tenant.
Summarized Financial Information
The following summarized financial information is presented in the
aggregate for the joint ventures: Assets and Liabilities
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation
of $2,901,209 and $3,043,811,
respectively $ 9,018,328 $ 9,213,192
Other 1,075,246 1,011,628
----------- -----------
10,093,574 10,224,820
Liabilities 230,935 142,195
----------- -----------
Net assets $ 9,862,639 $10,082,625
=========== ===========
</TABLE>
31
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Rental income $2,024,723 $3,875,878 $4,965,963
Other -- 6,399 5,824
---------- ---------- ----------
2,024,723 3,882,277 4,971,787
---------- ---------- ----------
Expenses
Operating expenses 455,211 1,214,405 1,632,169
Depreciation and amortization 359,933 679,314 974,446
---------- ---------- ----------
815,144 1,893,719 2,606,615
---------- ---------- ----------
Net income $1,209,579 $1,988,558 $2,365,172
========== ========== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and its affiliate on behalf of their various financing arrangements
with the joint ventures.
Note 4 - Property
Regency Court Apartments
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 was
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 for a gross sale price of $13,050,000. The Partnership
received net proceeds of $12,486,618 and recognized a gain of $3,287,303 ($77.35
per Limited Partnership Unit). A disposition fee was accrued but not paid to AEW
Real Estate Advisors, Inc. ("AEW"). 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.
Drilex
On December 18, 1990, the Partnership entered into a joint venture with an
affiliate of The Trammell Crow Company to develop and own a build-to-suit
industrial building for the Drilex Corporation, Inc. The Partnership contributed
$2,294,713 to the capital of the venture. The Partnership acquired the venture
partner's interest for a payment of $70,000, and the investment became a
wholly-owned property as of September 30, 1993.
The building and improvements are being depreciated over 25 years. The
building is leased to a single tenant under an agreement which continues through
January 2010. The lease provides for annual rents of $287,028 for the first 3
years; $299,928 for the next 2 years and $1,577,016 thereafter.
32
<PAGE>
The following is a summary of the Partnership's property investments (one
at December 31, 1999 and two at December 31, 1998):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Land $ 244,346 $ 244,346
Buildings and improvements 2,376,977 1,976,977
Lease Commissions 131,838 --
Accumulated depreciation (494,916) (415,836)
Accumulated amortization (4,981) --
Other net assets (liabilities) (188,022) 66,111
Property held for disposition, net -- 8,825,905
------------ ------------
$ 2,065,242 $ 10,697,503
============ ============
</TABLE>
During 1998 the Partnership recognized $665,849 from the Regency Court
Apartments which was held for disposition at December 31, 1998.
Note 5 - Income Taxes
The Partnership's income for federal income tax purposes differs from that
reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial
statements $ 4,871,411 $ 3,960,679 $ 1,942,196
Property operations -- 46,411 (19,111)
Joint venture earnings (82,742) (69,577) (158,706)
Gain on sale 535,320 1,075,138 --
Expenses 6,998 8,753 10,565
Depreciation -- 22,454 8,941
----------- ----------- -----------
Taxable income $ 5,330,987 $ 5,043,858 $ 1,783,885
=========== =========== ===========
</TABLE>
Note 6 - Partners' Capital
Allocation of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partners. Cash distributions are made
quarterly.
Net sale proceeds and refinancing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partners. The adjusted capital contribution per
limited partnership unit was reduced from $1,000 to $996 during 1991, and from
$996 to $892 in 1995, as a result of capital returned from sale transactions.
The adjusted capital contribution was further reduced to $884 in 1996, as a
result of capital returned from a discretionary reduction of cash reserves. In
1998 the adjusted capital contribution was reduced from $884 to $755 as a result
of capital returned from the sale of Waterford Apartments and further reduced to
$742.12 as a result of capital returned from a discretionary reduction of
original working capital. In 1999 the adjusted capital contribution was reduced
from $742.12 to $456.12 as a result of capital returned from the sale of Regency
Court and further reduced to $454.22 as a result of capital returned from a
discretionary reduction of original working
33
<PAGE>
capital. No capital distributions have been made to the general partners. Income
from a sale is allocated in proportion to the distribution of related proceeds,
provided that the general partners are allocated at least 1%. Income or losses
from a sale, if there are no residual proceeds after the repayment of the
related debt, will be allocated 99% to the limited partners and 1% to the
general partners.
Note 7 - Subsequent Event
Distributions of cash from operations relating to the quarter ended
December 31, 1999 were made on January 27, 2000 in the aggregate amount of
$483,236 ($11.37 per Limited Partnership Unit).
34
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
SCHEDULE III
AT DECEMBER 31, 1999
Initial Cost to Costs Capitalized
the Partnership Subsequent to Acquisitions
------------------------------------------- -------------------------------
Other Net Change in
Buildings & Assets/ Other
Description Land Improvements (Liabilities) Improvements Net Assets
- ------------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
Houston, TX 244,346 1,976,977 23,788 400,000 (107,460)
- - Drilex Office/Warehouse (see Note A)
Sherman Oaks, CA 1,946,623 7,786,490 0 119,791 27,486
- - Regency Court Apartments (see Note A)
------------------------------------------- ------------------------------
Total wholly-owned property 2,190,969 9,763,467 23,788 519,791 (79,974)
=========================================== ==============================
16.25% interest in
Waterford Apartments
Owner of a 314-unit
apartment complex in -------------------------------- See Note B ---------------------------------
Frederick, Maryland
75% interest in Parkmoor
Plaza. Leasehold interest
in land & fee interest in -------------------------------- See Note B ---------------------------------
3 retail buildings
in San Jose, California
23.25% interest in Prentiss Copystar
Owner of land and an industrial -------------------------------- See Note B ---------------------------------
facility in Itasca, Illinois
-----------------------------------------------------------------------------
Total joint venture investments
=============================================================================
<CAPTION>
Gross amount at which Carried at Close of Period
--------------------------------------------------------------------------------------
Buildings & Other Disposal of Accumulated
Description Land Improvements Net Assets Asset Total Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Houston, TX 244,346 2,376,977 (83,672) 0 2,537,651 (499,897)
- - Drilex Office/Warehouse (see Note A)
Sherman Oaks, CA 1,946,623 7,906,281 27,486 (9,852,902) 27,488 0
- - Regency Court Apartments (see Note A)
--------------------------------------------------------------------------------------
Total wholly-owned property 2,190,969 10,283,258 (56,186) (9,852,902) 2,565,139 (499,897)
======================================================================================
16.25% interest in
Waterford Apartments
Owner of a 314-unit
apartment complex in -------------------- See Note B ----------------------- $0 NA
Frederick, Maryland
75% interest in Parkmoor
Plaza. Leasehold interest
in land & fee interest in -------------------- See Note B ----------------------- $8,093,276 NA
3 retail buildings
in San Jose, California
23.25% interest in Prentiss Copystar
Owner of land and an industrial -------------------- See Note B ----------------------- $820,724 NA
facility in Itasca, Illinois
------------------------------------------------------------------------
Total joint venture investments $8,914,000
========================================================================
<CAPTION>
Status of Date Depreciable
Description Construction Acquired Life
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Houston, TX Completed 09/30/93 25 Years
- - Drilex Office/Warehouse (see Note A)
Sherman Oaks, CA
- - Regency Court Apartments (see Note A) Completed 04/14/95 30 Years
Total wholly-owned property
16.25% interest in
Waterford Apartments
Owner of a 314-unit
apartment complex in Completed 03/20/89 27.5 Years
Frederick, Maryland
75% interest in Parkmoor
Plaza. Leasehold interest
in land & fee interest in Completed 09/20/89 40 Years
3 retail buildings
in San Jose, California
23.25% interest in Prentiss Copystar
Owner of land and an industrial Completed 05/23/91 35 Years
facility in Itasca, Illinois
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY
SCHEDULE III NOTE A
AT DECEMBER 31, 1999
Balance Conversion to Additions to
as of Wholly-Owned Lease Additions to
Description 01/01/1997 Property Commissions Property
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex 2,282,109 0 0 0
Regency Court 9,669,810 0 0 54,201
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 11,951,919 0 0 54,201
=========================================================================================================
<CAPTION>
Balance Conversion to Additions to
as of Wholly-Owned Lease Additions to
Description 01/01/1998 Property Commissions Property
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex 2,271,503 0 0 0
Regency Court 9,775,961 0 0 17,375
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 12,047,464 0 0 17,375
=========================================================================================================
<CAPTION>
Balance Conversion to Additions to
as of Wholly-Owned Lease Additions to
Description 01/01/1999 Property Commissions Property
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex 2,287,434 0 131,838 400,000
Regency Court 9,870,993 0 0 0
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 12,158,427 0 131,838 400,000
=========================================================================================================
<CAPTION>
Change in Balance 12/31/1996
Write Down Property Working as of Accumulated
Description of Property Capital 12/31/1997 Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex 0 (10,606) 2,271,503 257,676
Regency Court 0 51,950 9,775,961 470,052
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 0 41,344 12,047,464 727,728
=========================================================================================================
<CAPTION>
Change in Balance 12/31/1997
Write Down Property Working as of Accumulated
Description of Property Capital 12/31/1998 Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex 0 15,931 2,287,434 336,756
Regency Court 0 77,657 9,870,993 753,560
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 0 93,588 12,158,427 1,090,317
=========================================================================================================
<CAPTION>
Change in Balance 12/31/1998
Write Down Property Working as of Accumulated
Description of Property Capital 12/31/1999 Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex 0 (281,621) 2,537,651 415,836
Regency Court 0 9,397 9,880,390 1,045,088
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 0 (272,224) 12,418,041 1,460,924
=========================================================================================================
<CAPTION>
1997 12/31/1997 1997
Depreciation Accumulated Sales Balance per
Description Expense Depreciation G/L @ 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex (79,080) 336,756 0 1,934,747
Regency Court (283,509) 753,561 0 9,022,400
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property (362,589) 1,090,317 10,957,147
=========================================================================================================
<CAPTION>
1998 12/31/1998 1998
Depreciation Accumulated Sales Balance per
Description Expense Depreciation G/L @ 12/31/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex (79,080) 415,836 0 1,871,598
Regency Court (291,528) 1,045,088 0 8,825,905
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property (370,608) 1,460,924 10,697,503
=========================================================================================================
<CAPTION>
1999 12/31/1999 1999
Depreciation Accumulated Sales Balance per
Description Expense Depreciation G/L @ 12/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Drilex (84,061) 499,897 0 2,037,754
Regency Court 0 0 (9,852,902) 27,488
---------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property (84,061) 499,897 (9,852,902) 2,065,242
=========================================================================================================
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III NOTE B
REAL ESTATE AND ACCUMULATED DEPRECIATION-JOINT VENTURES
AT DECEMBER 31, 1999
PERCENT BALANCE INVESTMENT
OF AS OF IN JOINT
DESCRIPTION OWNERSHIP 12/31/96 VENTURES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterford Apartments 16.25% 3,525,185 0
Parkmore Plaza 75% 8,644,498 0
Prentiss Copystar 23.25% 903,643 0
$13,073,326 $0
================================
<CAPTION>
PERCENT BALANCE INVESTMENT
OF AS OF IN JOINT
DESCRIPTION OWNERSHIP 12/31/97 VENTURES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterford Apartments 16.25% 3,389,019 0
Parkmore Plaza 75% 8,427,873 0
Prentiss Copystar 23.25% 876,921 0
$12,693,813 $0
================================
<CAPTION>
PERCENT BALANCE INVESTMENT
OF AS OF IN JOINT
DESCRIPTION OWNERSHIP 12/31/98 VENTURES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Parkmore Plaza 75% 8,156,265 0
Prentiss Copystar 23.25% 846,743 1,276
$9,003,008 $1,276
===============================
<CAPTION>
CASH
EQUITY IN 1997 AMORTIZATION DISTRIBUTION
INCOME/ OF DEFERRED FROM
DESCRIPTION (LOSS) ACQUISITION FEES JOINT VENTURE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterford Apartments 288,129 (3,624) (420,671)
Parkmore Plaza 945,345 (4,200) (1,157,770)
Prentiss Copystar 85,903 (2,741) (109,884)
$1,319,377 ($10,565) ($1,688,325)
=======================================================================
<CAPTION>
CASH
EQUITY IN 1998 AMORTIZATION DISTRIBUTION
INCOME/ OF DEFERRED FROM
DESCRIPTION (LOSS) ACQUISITION FEES JOINT VENTURE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterford Apartments 172,345 (1,812) (353,746)
Parkmore Plaza 943,648 (4,200) (1,211,056)
Prentiss Copystar 82,447 (2,741) (109,884)
$1,198,440 ($8,753) ($1,674,686)
=======================================================================
<CAPTION>
CASH
EQUITY IN 1999 AMORTIZATION DISTRIBUTION
INCOME/ OF DEFERRED FROM
DESCRIPTION (LOSS) ACQUISITION FEES JOINT VENTURE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Parkmore Plaza 1,017,944 (4,200) (1,076,733)
Prentiss Copystar 57,173 (2,056) (82,413)
$1,075,117 ($6,256) ($1,159,146)
=======================================================================
<CAPTION>
CONVERSION TO BALANCE
WHOLLY-OWNED 1997 AS OF
DESCRIPTION PROPERTY DISPOSALS 12/31/97
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterford Apartments 0 0 3,389,019
Parkmore Plaza 0 0 8,427,873
Prentiss Copystar 0 0 876,921
$0 $0 $12,693,813
===========================================================
<CAPTION>
CONVERSION TO BALANCE
WHOLLY-OWNED 1998 AS OF
DESCRIPTION PROPERTY DISPOSALS 12/31/98
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Waterford Apartments 0 ($3,205,806) 0
Parkmore Plaza 0 0 8,156,265
Prentiss Copystar 0 0 846,743
$0 ($3,205,806) $9,003,008
===========================================================
<CAPTION>
CONVERSION TO BALANCE
WHOLLY-OWNED 1999 AS OF
DESCRIPTION PROPERTY DISPOSALS 12/31/99
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Parkmore Plaza 0 0 8,093,276
Prentiss Copystar 0 0 820,724
$0 $0 $8,914,000
===========================================================
</TABLE>
37
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 2
Auditor's Report and Financial Statements
of SouthBay Associates
Report of Independent Auditors from Soren McAdam Bartells
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - For the Years ended December 31, 1999, 1998 and 1997
Statements of Partners' Capital - For the Years ended December 31, 1999, 1998
and 1997
Statements of Cash Flows - For the Years ended December31, 1999, 1998 and 1997
Notes to Finacial Statements
38
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Financial Statements
With
Independent Auditors' Report
For the Years Ended
December 31, 1999 and 1998
39
<PAGE>
TABLE OF CONTENTS
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Partners' Equity
Statements of Cash Flows
Notes to Financial Statements
40
<PAGE>
[LETTERHEAD OF SOREN o McADAM o BARTELLS]
Independent Auditors' Report
To the Partners
South Bay/Copley VII Associates
We have audited the accompanying balance sheets of South Bay/Copley VII
Associates (a California General Partnership) as of December 31, 1999 and 1998
and the related statements of operations, partners' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Bay/Copley VII Associates
(a California General Partnership) as of December 31, 1999 and 1998, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
SOREN o McADAM o BARTELLS
Certified Public
Accountants, Inc.
By: /s/ Douglas R. McAdam
Redlands, California -----------------------
January 14, 2000 Douglas R. McAdam, CPA
41
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Balance Sheets
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Income-producing property $6,597,614 $6,759,590
Cash 86,737 12,685
Rents receivable, net of allowance for doubtful accounts
of $-0- and $1,768 715,325 724,300
Other assets 283,009 243,752
---------- ----------
Total assets $7,682,685 $7,740,327
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable $ 30,735 $ 11,529
Accrued Priority Return 81,553 81,553
Security deposits 41,583 34,540
Unearned revenue 17,949 14,607
---------- ----------
Total liabilities 171,820 142,229
Partners' equity 7,510,865 7,598,098
---------- ----------
Total liabilities and partners' equity $7,682,685 $7,740,327
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Building rentals $ 1,440,106 $ 1,406,426 $ 1,387,335
Other rental reimbursements 223,220 179,450 203,283
Interest 1,758 389 28
----------- ----------- -----------
Total revenue 1,665,084 1,586,265 1,590,646
----------- ----------- -----------
Expenses
Interest 978,633 981,855 1,001,621
Depreciation 267,926 265,252 265,252
Land rent 73,230 73,230 73,230
Property taxes 89,470 88,404 85,856
Property operations 199,524 196,345 204,712
General and administrative 12,734 19,386 16,251
----------- ----------- -----------
Total expenses 1,621,517 1,624,472 1,646,922
----------- ----------- -----------
Net income (loss) $ 43,567 $ (38,207) $ (56,276)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Statements of Partners' Equity
<TABLE>
<CAPTION>
Copley Pension SBC&D
Properties VII Co., Inc. Total
---------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ 7,840,580 $ 1 $ 7,840,581
Net loss (56,276) (56,276)
----------- ----------- -----------
Balance, December 31, 1997 7,784,304 1 7,784,305
Distributions (111,000) (37,000) (148,000)
Net loss (75,206) 36,999 (38,207)
----------- ----------- -----------
Balance, December 31, 1998 7,598,098 -- 7,598,098
Distributions (98,100) (32,700) (130,800)
Net income 10,867 32,700 43,567
----------- ----------- -----------
Balance, December 31, 1999 $ 7,510,865 $ -- $ 7,510,865
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 43,567 $ (38,207) $ (56,276)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 295,944 290,849 290,479
(Increase) decrease in:
Rents receivable 8,975 32,813 (94,569)
Other assets (67,275) (9,183) (3,502)
Increase (decrease) in:
Accounts payable 19,206 1,148 2,004
Accrued Priority Return -- (118,201) (156,148)
Security deposits 7,043 -- 2,000
Unearned revenue 3,342 502 13,064
----------- ----------- -----------
Net cash provided by (used in) operating activities 310,802 159,721 (2,948)
----------- ----------- -----------
Cash flows from investing activities
Additions to properties (105,950) -- --
----------- ----------- -----------
Net cash used in investing activities (105,950) -- --
----------- ----------- -----------
Cash flows from financing activities
Distributions to partners (130,800) (148,000) --
----------- ----------- -----------
Net cash used in financing activities (130,800) (148,000) --
----------- ----------- -----------
Net increase (decrease) in cash 74,052 11,721 (2,948)
Cash Balance, beginning of year 12,685 964 3,912
----------- ----------- -----------
Balance, end of year $ 86,737 $ 12,685 $ 964
=========== =========== ===========
Cash paid for interest $ 978,633 $ 1,100,056 $ 1,157,770
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
1. Summary of Significant Accounting Policies
The Partnership was formed for the purpose of developing and leasing
approximately 13.8 acres in the City of San Jose, California. The project
includes the developing, leasing and management of the buildings. The
Partnership has concentrations of credit risk for rents receivable, as all of
the balances are due from businesses located within the same geographic region.
The partners are: Copley Pension Properties VII (a Massachusetts Limited
Partnership) and SBC&D Co., Inc. (a California corporation).
The preparation of these financial statements requires management to make
estimates and assumptions. Those estimates and assumptions affect the reported
amounts of assets, liabilities, revenue, and expenses, as well as the disclosure
of contingent assets and liabilities. Actual results could differ from those
estimates. Management also determines the accounting principles to be used in
the preparation of financial statements. A description of the significant
accounting policies employed in the preparation of these financial statements
follows:
Rental Revenue
Revenue from leases is recognized on a straight-line basis over the lease term,
irrespective of when payments are due under the terms of the leases.
Properties
Properties consisting of buildings and site improvements are reported at cost
less accumulated depreciation and include improvements that significantly add to
utility or extend useful lives. Maintenance and repairs are charged to expense
as incurred. When items of property are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in the results of operations.
Depreciation is provided using the straight-line method over the estimated
useful lives of the buildings and improvements, 40 years and 20 years,
respectively. These useful lives do not exceed the term of the land lease,
including the option period. Certain building improvements related to specific
tenants are depreciated over the respective lease term, which is generally 15
years.
Income Taxes
Income or loss of the Partnership is allocated to the partners in accordance
with the Partnership Agreement. No income tax provision has been included in the
financial statements since all taxable items of the Partnership are required to
be reported by the respective partners on their income tax returns.
46
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Additionally, the tax returns and the amount of distributable Partnership income
or loss are subject to examination by federal and state taxing authorities. If
the Partnership's taxable income or loss is ultimately changed by the taxing
authorities, the tax liability of the partners could be changed accordingly.
The income or loss reported for tax purposes may differ from the amount of the
income or loss on these financial statements primarily due to differences in
rental income recognition for federal income tax reporting purposes and
financial accounting purposes. In addition, in accordance with federal tax
requirements and certain provisions of the Partnership Agreement, the allocation
of income or loss for tax purposes may differ from these financial statements.
2. Income-Producing Properties
Income-producing properties consisted of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Buildings $ 7,281,939 $ 7,281,939
Building improvements 975,927 899,407
Site improvements 810,868 781,437
----------- -----------
9,068,734 8,962,783
Less accumulated depreciation (2,471,120) (2,203,193)
----------- -----------
$ 6,597,614 $ 6,759,590
=========== ===========
</TABLE>
Depreciation charged to operations during the years ended December 31, 1999,
1998, and 1997 was $267,926, $265,252, and $265,252, respectively.
The Partnership evaluates its properties for impairment of value under standards
established under Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Under these standards, an impairment occurs if the estimated
undiscounted cash flows from the properties were less than the carrying amount
of the asset. At December 31, 1999, the Partnership does not hold any assets
that meet the impairment criteria of SFAS No. 121.
47
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
3. Rents Receivable
Rents receivable include building rental revenue recognized in excess of amounts
due under the terms of the leases in addition to amounts due for reimbursable
charges. Included in rents receivable at December 31, 1999 and 1998 is $713,390
and $723,947, respectively, of rents in excess of amounts due currently under
the leases. During the year ended December 31, 1999, building rental revenue
recognized was $10,557 less than the amounts due under the terms of the leases.
For the year ended December 31, 1998, building rental revenue recognized was
$11,845 less than the amounts due under the terms of the leases. For the year
ended December 31, 1997, building rental revenue recognized exceeded the amounts
due under the terms of the leases in the amount of $73,742.
4. Other Assets
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
Capitalized leasing costs $ 426,727 $ 359,857
Less accumulated amortization (154,044) (127,995)
--------- ---------
272,683 231,862
Prepaid insurance 10,326 11,890
--------- ---------
$ 283,009 $ 243,752
========= =========
</TABLE>
Capitalized leasing costs represent initial direct costs incurred to acquire
leases and are amortized over the life of the related lease. Amortization of
capitalized leasing costs charged to property operations for the years ended
December 31, 1999, 1998 and 1997 was $28,018, $25,597, and $25,227,
respectively.
5. Related Party Transactions
Copley Pension Properties VII
Copley Pension Properties VII is entitled to receive a monthly Priority Return
at the rate of ten percent per annum on the balance of its Invested Capital. The
Partnership is permitted to defer payment of the Priority Return equal to one
percent per annum for the first 120 months from the date of the Partnership
Agreement. Any amounts deferred also bear interest at ten percent. Copley
Pension Properties VII has committed to a maximum Invested Capital of
$10,000,000 which, at December 31, 1999, was $9,786,330. All unpaid Invested
Capital and accrued Priority Return is required to be paid in full no later than
June 30, 2000.
48
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
5. Related Party Transactions (Continued)
The following is a summary of information relative to the Priority Return:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Amount charged to operations $ 978,633 $ 981,855 $1,001,621
========== ========== ==========
Cash payments $ 978,663 $1,100,056 $1,157,770
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
1999 1998
------- -------
<S> <C> <C>
Accrued Priority Return currently payable $81,553 $81,553
======= =======
</TABLE>
SBC&D Co., Inc. and SBCC Co., Inc.
The Partnership has entered into a Property Management Agreement with SBC&D Co.,
Inc. for management of the property, in which SBC&D Co., Inc. is to receive
three percent of gross rents plus lease commissions equal to one-third of the
then prevailing market rate for each new lease, lease renewal, or lease
extension. SBCC Co., Inc. is the general contractor for improvements and repairs
to the Partnership properties. SBC&D Co., Inc. and SBCC Co., Inc. have common
shareholders, although only SBC&D Co., Inc. is a partner in the Partnership.
Charges related to these transactions were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Tenant improvements $ 76,519
Repairs and maintenance 4,256 $ 6,354 $ 11,755
Management fees 43,536 42,564 39,779
Lease commissions 25,350 1,885
-------- -------- --------
$149,661 $ 48,918 $ 53,419
======== ======== ========
</TABLE>
At December 31, 1999 and 1998, the Partnership had accounts payable to SBC&D
Co., Inc. of $4,611 and $3,591, respectively. At December 31, 1999 and 1998, the
Partnership had accounts payable to SBCC Co., Inc. of $16,950 and $-0-,
respectively.
49
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
6. Rental Revenue
Portions of the project's buildings are rented under noncancellable leases with
initial lease terms of up to twenty years. The following is a schedule by years
of minimum future rentals on these leases as of December 31, 1999:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000 $ 1,540,986
2001 1,476,147
2002 1,478,683
2003 1,541,262
2004 1,519,865
Thereafter 5,454,744
-----------
Total $13,011,687
===========
</TABLE>
The above schedule includes minimum future rentals of three significant tenants
that represent greater than 80 percent of the minimum future rentals.
Certain lease agreements provide that rental amounts can be increased in
accordance with the Consumer Price Index for all wage earners and clerical
workers, San Francisco/Oakland metropolitan area, published by the United States
Department of Labor, Bureau of Labor Statistics. In addition, one lease
agreement is subject to a yearly fixed rate increase over its term. Under
certain of the lease agreements, the lessees are required to pay their
proportionate shares of property taxes, insurance, and common area maintenance
charges.
7. Land Lease
The Partnership leases the land used in its operations under a noncancellable
operating lease which has an initial expiration date of November 12, 2014 and an
option to extend the lease for an additional 25 years.
The following is a schedule by years of minimum future rentals as of December
31, 1999:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000 $ 73,230
2001 73,230
2002 73,230
2003 73,230
2004 73,230
Thereafter 726,442
----------
Total $1,092,592
==========
</TABLE>
The total rental expense under this operating lease was $73,230 for each of the
years ended December 31, 1999, 1998, and 1997.
50
<PAGE>
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
8. Subsequent Event
In January 2000, the Partnership entered into a contract for the sale of all of
the Partnership's buildings and related improvements.
51
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
10B. General Partnership Agreement of South Bay/ *
Copley VII Associates dated as of September 20,
1989 between SBC & D Co., Inc. and
Copley Pension Properties VII, A Real Estate
Limited Partnership.
10H. Ground Lease dated as of October 14, 1976, *
between Park West Associates, as Landlord
and Carl N. Swenson Co., Inc., as Tenant.
10I. Assignment of Ground Lease and Grant of Real *
Property dated as of September 20, 1989 by and
between Property Resources Fund III, as Assignor
and the Registrant as Assignee.
10S. Prentiss/Copley Itasca Associates General *
Partnership Agreement dated as of May 20,
1991 between Prentiss Properties Itasca
L.P., a Texas limited partnership, and Copley
Pension Properties VI; A Real Estate Limited
Partnership and Registrant.
27. Financial Data Schedule
- -----------------------------------------------
* Previously filed and incorporated herein by reference.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 29, 2000 By: /s/ Alison Husid Cutler
-------------------------
Alison Husid Cutler
President of the
Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chief March 29, 2000
Executive Officer and
Director of the Managing
/s/ Alison Husid Cutler General Partner
- ---------------------------------
Alison Husid Cutler
Vice President and March 29, 2000
Director of the Managing
/s/ Pamela J. Herbst General Partner
- ---------------------------------
Pamela J. Herbst
Vice President and March 29, 2000
Director of the Managing
/s/ J. Grant Monahon General Partner
- ---------------------------------
J. Grant Monahon
Vice President of the March 29, 2000
/s/ James J. Finnegan Managing General Partner
- ---------------------------------
James J. Finnegan
Treasurer and Principal March 29, 2000
Financial and Accounting
Officer of the Managing
/s/ Karin J. Lagerlund General Partner
- ---------------------------------
Karin J. Lagerlund
</TABLE>
53
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,169,397
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,169,397
<PP&E> 10,979,242
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,148,639
<CURRENT-LIABILITIES> 130,764
<BONDS> 1,033,108
0
0
<COMMON> 0
<OTHER-SE> 13,984,767
<TOTAL-LIABILITY-AND-EQUITY> 15,148,639
<SALES> 2,012,521
<TOTAL-REVENUES> 5,562,433
<CGS> 265,271
<TOTAL-COSTS> 265,271
<OTHER-EXPENSES> 425,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,871,411
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,871,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,871,411
<EPS-BASIC> 114.62
<EPS-DILUTED> 114.62
</TABLE>
