<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended September 30, 1998 Commission File Number 0-18735
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-3058134
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Franklin Street, 25th Fl.
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
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Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1998
PART I
FINANCIAL INFORMATION
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Assets
Real estate joint ventures $3,508,122 $3,661,072
Cash and cash equivalents 1,526,893 1,081,267
Short-term investments - 472,710
Accounts receivable - 23,824
---------- ----------
$5,035,015 $5,238,873
========== ==========
Liabilities and Partners' Capital
Accounts payable $ 31,583 $ 37,784
Accrued management fee 11,705 12,813
Deferred disposition fees 197,700 197,700
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Total liabilities 240,988 248,297
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Partners' capital:
Limited partners ($561 per
unit; 100,000 units
authorized, 11,931 units issued
and outstanding) 4,790,591 4,985,173
General partners 3,436 5,403
---------- ----------
Total partners' capital 4,794,027 4,990,576
---------- ----------
$5,035,015 $5,238,873
========== ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Investment Activity
Joint venture earnings $66,145 $198,769 $ 88,000 $ 344,764
Interest on cash equivalents
and short-term investments 20,211 59,959 21,761 75,558
Gain on sale of property - - - 973,919
------- -------- -------- ----------
86,356 258,728 109,761 1,394,241
------- -------- -------- ----------
Portfolio Expenses
General and administrative 14,904 50,368 25,395 73,770
Management fee 11,705 35,114 14,124 49,774
Amortization 1,183 3,549 1,542 5,051
------- -------- -------- ----------
27,792 89,031 41,061 128,595
------- -------- -------- ----------
Net Income $58,564 $169,697 $ 68,700 $1,265,646
======= ======== ======== ==========
Net income per limited partnership unit $ 4.86 $ 14.08 $ 5.70 $ 105.02
======= ======== ======== ==========
Cash distributions per limited
partnership unit $ 9.82 $ 30.39 $ 14.26 $ 279.56
======= ======== ======== ==========
Number of limited partnership units
outstanding during the period 11,931 11,931 11,931 11,931
======= ======== ======== ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1997
--------------------- -------------------- -------------------- ----------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
-------- ---------- -------- ---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $ 4,034 $4,849,775 $ 5,403 $4,985,173 $(2,254) $6,231,532 $(10,451) $ 8,211,849
Cash distributions (1,184) (117,162) (3,664) (362,582) (1,719) (170,136) (5,491) (3,335,430)
Net income 586 57,978 1,697 168,000 687 68,013 12,656 1,252,990
------- ---------- ------- ---------- ------- ---------- -------- -----------
Balance at end of
period $ 3,436 $4,790,591 $ 3,436 $4,790,591 $(3,286) $6,129,409 $ (3,286) $ 6,129,409
======= ========== ======= ========== ======= ========== ======== ===========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1997
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<S> <C> <C>
Net cash provided by operating activities $ 350,770 $ 532,491
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Cash flows from investing activities:
Net proceeds from sale of property - 2,736,433
Increase in deferred disposition fees - 89,700
Investment in joint venture - (49,881)
Decrease in short-term
investments, net 461,102 214,966
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Net cash provided by investing
activities 461,102 2,991,218
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Cash flows from financing activity:
Distributions to partners (366,246) (3,340,921)
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Net increase in cash
and cash equivalents 445,626 182,788
Cash and cash equivalents:
Beginning of period 1,081,267 941,045
---------- -----------
End of period $1,526,893 $ 1,123,833
========== ===========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Partnership's
financial position as of September 30, 1998 and December 31, 1997 and the
results of its operations, its cash flows and partners' capital (deficit) for
the three and nine months ended September 30, 1998 and 1997. These adjustments
are of a normal recurring nature.
See notes to financial statements included in the Partnership's 1997 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
Copley Realty Income Partners 4; A Limited Partnership (the "Partnership")
is a Massachusetts limited partnership organized for the purpose of investing
primarily in newly-constructed and existing income-producing real properties.
The Partnership commenced operations in September 1989, and acquired its
remaining real estate investment prior to 1991. The Partnership intends to
dispose of this investment within nine years of acquisition, and then liquidate.
The Partnership has engaged AEW Real Estate Advisors, Inc. (the "Advisor") to
provide asset management advisory services.
NOTE 2 - REAL ESTATE JOINT VENTURES
- -----------------------------------
On May 1, 1997, the Hohokam property within the Newhew joint venture was
sold for $2,990,000. The Partnership received net proceeds of $2,826,133, after
closing costs, and recognized a gain of $973,919 ($80.81 per limited partnership
unit) on the sale. A disposition fee of $89,700 was accrued but not paid to AEW.
On May 29, 1997, the Partnership made a capital distribution of $2,791,854 ($234
per limited partnership unit) from the proceeds of the sale.
The following summarized financial information is presented in the
aggregate for the joint ventures (one at September 30, 1998 and December 31,
1997 and two at September 30, 1997):
Assets and Liabilities
----------------------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation of
$2,449,352 and $2,132,388 $7,249,032 $7,565,996
Other 136,418 165,813
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7,385,450 7,731,809
Liabilities 88,926 81,052
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Net assets $7,296,524 $7,650,757
========== ==========
</TABLE>
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
Results of Operations
---------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
-------- --------
<S> <C> <C>
Revenue
Rental income $944,650 $1,378,618
Other income - 3,970
-------- ----------
944,650 1,382,588
-------- ----------
Expenses
Operating expenses 124,319 296,307
Depreciation and amortization 345,588 430,498
Interest expense - 74,810
-------- ----------
469,907 801,615
-------- ----------
Net income $474,743 $ 580,973
======== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint venture) its affiliate on behalf of
their various financing arrangements with the joint ventures. Interest expense
in 1997 relates to a note payable to an insurance company, secured by the
Fairmont property. The note was repaid in full on October 24, 1997, concurrent
with the sale of the property.
NOTE 3 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended
September 30, 1998 were made on October 29, 1998 in the aggregate amount of
$118,346 ($9.82 per limited partnership unit).
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership completed its offering of units of limited partnership
interest in December 1990 and a total of 11,931 units were sold. The
Partnership received proceeds of $10,097,962, net of selling commissions and
other offering costs, which have been used for investment in real estate and to
pay related acquisition costs, or retained as working capital reserves.
In July 1995, the Partnership reduced its working capital reserves by
making a capital distribution of $441,447 ($37 per limited partnership unit).
After the distribution, the Partnership's adjusted capital contribution was $963
per unit.
During 1997, capital of $4,796,262 was returned to the limited partners as
a result of the sales of Hohokam and Fairmont. On May 29, 1997, the Partnership
made a capital distribution of $2,791,854 ($234 per limited partnership unit)
from the sale proceeds of Hohokam, which reduced the adjusted capital
contribution to $729 per unit. On November 24, 1997, the Partnership made a
capital distribution of $2,004,408 ($168 per limited partnership unit) from the
sale proceeds of Fairmont, which reduced the adjusted capital contribution to
$561 per unit.
At September 30, 1998, the Partnership had $1,526,893 in cash and cash
equivalents, of which $118,346 was used for cash distributions to the partners
on October 29, 1998; the remainder is being retained for working capital
reserves. The source of future liquidity and cash distributions to partners
will be cash generated by the Partnership's real estate and invested cash and
cash equivalents. Distributions of cash from operations related to the first
three quarters of 1997 were made at the annualized rate of 6.5%; the first
quarter 1997 distribution was based on the adjusted capital contribution of $963
per unit; the second quarter 1997 distribution was based on the weighted average
adjusted capital contribution of $877.67; the third quarter distribution was
based on the adjusted capital contribution of $729. Cash distributions from
operations related to the first three quarters of 1998 were made at the
annualized rate of 7.0% on the adjusted capital contribution of $561 per unit.
The carrying value of the remaining real estate investment in the financial
statements at September 30, 1998 is at depreciated cost. However, it is the
Partnership's policy that if the investment's carrying value is determined not
to be recoverable through expected undiscounted future cash flows, the carrying
value is reduced to estimated fair market value. The fair market value of such
an investment is further reduced by the estimated cost of sale for properties
held for sale. Carrying value may be greater or less than current appraised
value. At September 30, 1998, the appraised value of the Partnership's remaining
real estate investment exceeded its carrying value by approximately $1,600,000.
The current appraised value of real estate investments has been determined by
the managing general partner and is generally based on a combination of
traditional appraisal approaches performed
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
by the Advisor and independent appraisers. Because of the subjectivity inherent
in the valuation process, the current appraised value may differ significantly
from that which could be realized if the real estate were actually offered for
sale in the marketplace.
The Year 2000 Issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.
The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:
. AEW Capital Management has developed a Year 2000 Plan (the "Plan")
consisting of five phases: inventory, assessment, testing,
remediation/repair and certification.
. As of September 30, 1998, AEW Capital Management had completed the
inventory and assessment phases of this Plan and had commenced the
testing and remediation/repair of internal systems.
. AEW Capital Management expects to conclude the internal testing,
remediation/repair and certifications of its Plan no later than
December 31, 1998.
The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the
Partnership is not aware of any problems that would materially impact its
results of operations, liquidity or capital resources. However, the Partnership
has not yet obtained written assurances that these providers would be Year 2000
compliant.
The Partnership currently does not have a contingency plan in the event of
a particular provider or system not being Year 2000 compliant. Such a plan will
be developed if it becomes clear that a provider (including AEW Capital
Management) is not going to achieve its scheduled compliance objectives. The
inability of one of these providers to complete its Year 2000 resolution process
could materially impact the Partnership. In addition, the Partnership is also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failures and
related service interruptions.
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
Results of Operations
- ---------------------
Operating Factors
Shasta Way is 100% occupied by a single tenant under a lease with an
initial lease term which expires December 31, 1998. In February 1998, the tenant
exercised its renewal option for a 5-year term which commences on January 1,
1999.
Investment Results
For the three and nine months ended September 30, 1998, real estate
operating results were $66,145 and $198,769, respectively, compared to $88,000
and $344,764 for the comparable periods in 1997. The decreases of $21,855 and
$145,995 for the three and nine-month periods, respectively, are primarily due
to a reduction in aggregate operating income of $28,893 and $174,793 over the
same periods as a result of the sales of the Hohokam and Fairmont investments in
May 1997 and October 1997, respectively.
Joint venture earnings from Shasta Way were $59,107 and $169,971 for the
three and nine month periods ended September 30, 1997, respectively, compared to
$66,145 and $198,769 for the same periods in 1998. The increases of $7,038 and
$28,798 for the respective periods are primarily the result of a rental increase
as of April 1, 1998, in addition to a favorable 1997 expense reimbursement
adjustment recorded in the first quarter of 1998. Accounting fees have also
decreased between both of the respective periods.
Cash flow from operations decreased by approximately $182,000 in 1998 as
compared to the respective prior-year nine-month period, due to both the timing
of distributions from Shasta Way, and from a decrease in real estate operating
results due to the sales of Hohokam and Fairmont in 1997.
Interest on cash equivalents and short-term investments decreased by
approximately $2,000 and $16,000 between the first three and nine-month periods
of 1998 and 1997, respectively, as a result of a decrease in average investment
balances from the receipt of Hohokam sale proceeds in May 1997.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. These expenses
decreased by approximately $10,000 and $23,000 between the respective three and
nine-month periods of 1998 and 1997, primarily due to decreases in accounting
and appraisal fees.
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. Management fees decreased between
the comparable three and nine month periods of 1998 and 1997, respectively, due
to the decrease in distributable cash flow.
<PAGE>
COPLEY REALTY INCOME PARTNERS 4;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1998
PART II
OTHER INFORMATION
Items 1-5 Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: No current reports on Form 8-K were filed
during the quarter ended September 30, 1998.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COPLEY REALTY INCOME PARTNERS 4; A LIMITED
PARTNERSHIP (Registrant)
November 13, 1998
/s/ J. Christopher Meyer III
-------------------------------
J. Christopher Meyer III
President, Chief Executive Officer and Director
of Managing General Partner,
Fourth Income Corp.
November 13, 1998
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Treasurer and Principal Financial and Accounting
Officer of Managing General Partner,
Fourth Income Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,526,893
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,526,893
<PP&E> 3,508,122
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,035,015
<CURRENT-LIABILITIES> 240,988
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,794,027
<TOTAL-LIABILITY-AND-EQUITY> 5,035,015
<SALES> 198,769
<TOTAL-REVENUES> 258,728
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 89,031
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 169,697
<INCOME-TAX> 0
<INCOME-CONTINUING> 169,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,697
<EPS-PRIMARY> 14.08
<EPS-DILUTED> 14.08
</TABLE>
