SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------------------------------------------ For Quarter Ended September 30, 1996 Commission File Number 0-11884 NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2774875 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 399 Boylston Street, 13th Fl. Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 578-1200 - ----------------------------------------------------------------- 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 ___ NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 PART I FINANCIAL INFORMATION ---------------------- BALANCE SHEET (Unaudited) September 30, 1996 December 31, 1995 ------------------ ----------------- ASSETS Real estate investments: Ground leases and mortgage loans, net $ 11,458,875 $ 11,508,875 Property, net 5,257,448 5,117,318 Deferred leasing costs and other assets, net 245,622 176,007 ------------- ------------- 16,961,945 16,802,200 Cash and cash equivalents 1,112,382 1,204,043 Short-term investments 1,019,088 1,109,814 Interest, rent and other receivables 34,747 123,928 ------------- ------------- $ 19,128,162 $ 19,239,985 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 110,373 $ 239,062 Deposit from property sale 41,000 -- Accrued management fee 28,681 24,575 Deferred disposition fees 457,768 457,768 ------------ ------------ Total liabilities 637,822 721,405 ------------ ------------ Partners' capital: Limited partners ($546.66 per unit; 30,000 units authorized, issued and outstanding) 18,439,749 18,467,706 General partner 50,591 50,874 ------------ ------------ Total partners' capital 18,490,340 18,518,580 ------------ ------------ $ 19,128,162 $ 19,239,985 ============ ============ <FN> (See accompanying notes to financial statements) STATEMENT OF OPERATIONS (Unaudited) Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended September 30, 1996 September 30, 1996 September 30, 1995 September 30, 1995 ------------------ ------------------ ------------------ ----------------- INVESTMENT ACTIVITY Property rentals $ 198,330 $ 574,144 $ 161,203 $ 587,785 Property operating expenses (77,690) (240,373) (87,340) (232,331) Depreciation and amortization (59,529) (169,585) (54,654) (149,719) --------------- --------------- ---------------- --------------- 61,111 164,186 19,209 205,735 Credit from (provision for) impaired mortgage loans 125,000 (50,000) -- 30,000 Ground rentals and interest on mortgage loans 311,675 776,625 283,355 837,625 --------------- --------------- ---------------- --------------- Total real estate activity 497,786 890,811 302,564 1,073,360 Interest on cash equivalents and short term investments 26,058 81,325 31,840 99,083 --------------- --------------- ---------------- --------------- Total investment activity 523,844 972,136 334,404 1,172,443 --------------- --------------- ---------------- --------------- Portfolio Expenses Management fee 28,681 86,044 24,575 73,726 General and administrative 29,333 85,847 28,894 86,673 --------------- --------------- ---------------- --------------- 58,014 171,891 53,469 160,399 --------------- --------------- ---------------- --------------- Net Income $ 465,830 $ 800,245 $ 280,935 $ 1,012,044 =============== =============== ================ =============== Net income per limited partnership unit $ 15.37 $ 26.41 $ 9.27 $ 33.40 =============== =============== ================ =============== Cash distributions per limited partnership unit $ 9.57 $ 27.34 $ 8.20 $ 24.60 =============== =============== ================ =============== Number of limited partnership units outstanding during the period 30,000 30,000 30,000 30,000 =============== =============== ================ =============== <FN> (See accompanying notes to financial statements) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended September 30, 1996 September 30, 1996 September 30, 1995 September 30, 1995 ------------------- ------------------- ------------------- ------------------ General Limited General Limited General Limited General Limited Partner Partners Partner Partners Partner Partners Partner Partners --------- --------- --------- --------- --------- --------- --------- --------- Balance at beginning of period $ 48,833 $18,265,677 $ 50,874 $18,467,706 $ 47,462 $ 18,129,929 $ 45,121 $17,898,131 Cash distributions (2,900) (287,100) (8,285) (820,200) (2,485) (246,000) (7,455) (738,000) Net income 4,658 461,172 8,002 792,243 2,809 278,126 10,120 1,001,924 --------- ---------- --------- ---------- --------- ---------- ---------- ---------- Balance at end of period $ 50,591 $18,439,749 $ 50,591 $18,439,749 $ 47,786 $ 18,162,055 $ 47,786 $18,162,055 =========== ============ ========= ============== =========== ============= =========== ============ <FN> (See accompanying notes to financial statements) SUMMARIZED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, -------------------------------- 1996 1995 ----------- --------- Net cash provided by operating activities $ 896,907 $ 932,092 ------------ ------------ Cash flows from investing activities: Deposit from property sale 41,000 -- Capital expenditures on owned property (291,809) (319,945) Decrease (increase) in short-term investments, net 90,726 (1,048,414) ---------- ---------- Net cash used in investing activities (160,083) (1,368,359) ---------- ---------- Cash flows from financing activity: Distributions to partners (828,485) (745,455) ---------- ---------- Net decrease in cash and cash equivalents (91,661) (1,181,722) Cash and cash equivalents: Beginning of period 1,204,043 2,431,089 ---------- ---------- End of period $ 1,112,382 $ 1,249,367 ============ ============ <FN> (See accompanying notes to financial statements) 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, 1996 and December 31, 1995 and the results of its operations, its cash flows and changes in partners' capital for the interim periods ended September 30, 1996 and 1995. These adjustments are of a normal recurring nature. See notes to financial statements included in the Partnership's 1995 Annual Report on Form 10-K for additional information relating to the Partnership's financial statements. NOTE 1 - ORGANIZATION AND BUSINESS - ---------------------------------- New England Life Pension Properties; 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 June, 1983 and acquired several investments through 1985. It intends to dispose of its investments within twelve years of their acquisition, and then liquidate; however, the general partner could extend the investment period if it is in the best interest of the limited partners. NOTE 2 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS - -------------------------------------------------------- Decatur TownCenter was sold on October 10, 1996 for a price which approximated the Partnership's carrying value, as previously adjusted for valuation allowances. In October 1996, the Partnership reached an agreement in principle with the borrower on the mortgage loan which had matured in 1994. The maturity date will be extended to December 1997. In addition, the fixed interest and ground rental payments will be reduced, but the Partnership's rate of participation in revenue from the underlying property will be increased. These changes will be retroactive to the original maturity date; however, any adjustment to amounts previously recognized by the Partnership as revenue is expected to be insignificant. The mortgage loan on Decatur TownCenter has been impaired. Accordingly, a valuation allowance was established to adjust the carrying value of the loan to its estimated fair market value less anticipated costs of sale. The activity in the valuation allowance during 1995 and 1996, together with the related recorded and carrying values of the impaired mortgage loan at the beginning and end of the respective periods, are as follows: Recorded Valuation Carrying Value Allowance Value ----------- ----------- ---------- Balance at January 1, 1995 $ 6,646,927 $(2,600,000) $ 4,046,927 =========== =========== Increase in estimated fair market value of collateral 30,000 ----------- Balance at September 30, 1995 $ 6,848,933 (2,570,000) $ 4,278,933 =========== =========== Increase in estimated fair market value of collateral 230,000 ------------ Balance at December 31, 1995 $ 6,781,928 (2,340,000) $ 4,441,928 =========== =========== Reduction in estimated fair market value of collateral (50,000) ----------- Balance at September 30, 1996 $ 6,781,928 $(2,390,000) $ 4,391,928 ============ ============= ============ <FN> The average recorded value of the impaired mortgage loan did not differ materially from the balance at the end of the period. NOTE 3 - SUBSEQUENT EVENT - ------------------------- Distributions of cash from operations relating to the quarter ended September 30, 1996 were made on October 24, 1996 in the aggregate amount of $290,000 ($9.57 per limited partnership unit). Additionally, a capital distribution of $5,599,800 ($186.66 per limited partnership unit) was made from the proceeds from the sale of Decatur TownCenter. 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 June, 1983. A total of 30,000 units were sold. The Partnership received proceeds of $27,253,251, net of selling commissions and other offering costs, which were invested in real estate, used to pay related acquisition costs, or retained as working capital reserves. The Partnership made six real estate investments; one was sold in 1985, one in 1991 and another in 1994. As a result of these sales and similar transactions, capital of $13,600,200 has been returned to the limited partners as of September 30, 1996. On October 24, 1996, the Partnership distributed capital of $5,599,800 ($186.66 per limited partnership unit) which represented proceeds from the sale of Decatur TownCenter. This capital distribution reduces the adjusted capital contribution to $360 per unit. One of the Partnership's mortgage loan investments matured in 1994. In October 1996, the Partnership reached an agreement in principle with the borrower on the mortgage loan, whereby the maturity date will be extended to December 1997 and payment terms will be modified retroactively. The modifications, however, are not expected to significantly alter the amounts previously recognized as revenue by the Partnership. At September 30, 1996, the Partnership had $2,131,470 in cash, cash equivalents and short-term investments, $290,000 of which was used for cash distributions to partners on October 24, 1996; the remainder will be used to fund the rehabilitation of the Willows Shopping Center or retained as working capital reserves. The source of future liquidity and cash distributions to partners is expected to be cash generated by the Partnership's real estate investments and proceeds from the sale of such investments. Distributions of cash from operations for the first, second and third quarters of 1996 were made at the annualized rate of 7% on the adjusted capital contribution. The cash distribution rate for the comparative prior year quarters was 6%. The cash distribution rate was increased with the attainment of appropriate cash reserve levels and the stabilization of property operations. The carrying value of real estate investments in the financial statements, other than impaired mortgage loans (Decatur TownCenter), is at depreciated cost or, if the investment's carrying value is determined not to be recoverable through expected undiscounted future cash flows, the carrying value is reduced to estimated fair market value. The fair market value of such investments is further reduced by the estimated cost of sale for properties held for sale. Carrying value may be greater or less than current appraised value. At September 30, 1996, the appraised value of each real estate investment exceeded its carrying value; the aggregate excess was approximately $54,000. The current appraised value of real estate investments has been estimated by the general partner and is generally based on a combination of traditional appraisal approaches performed by the Partnership's advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Results of Operations - --------------------- Operating Factors Occupancy at the Willows Shopping Center was at 91% at September 30, 1996 and 1995. A fifteen-year lease was signed by a significant new anchor tenant which began operating in October 1996. The ground lessee/borrower has been renovating and reconfigurating the Center. The general partner determined that it is in the best interest for the Partnership, together with its affiliate which owns a share of the Center, to provide funding for the rehabilitation costs. The Partnership's share of the remaining estimated rehabilitation cost is approximately $360,000 at September 30, 1996, which largely relates to space to be occupied by a major restaurant tenant late in 1996. Decatur TownCenter occupancy remained at 97% in the third quarter of 1996. (The property was 93% leased at September 30, 1995.) In the third quarter of 1995, the ground lease was restructured to provide the Partnership with the sole right to cause a sale. The property was sold to the ground lessee in October 1996, for a price which approximated its carrying value, as adjusted for valuation allowances. Rivers Corporate Park was 100% leased at September 30, 1996, as it was at September 30, 1995. However, on September 27, 1996, the sole tenant filed for Chapter 11 bankruptcy protection. The tenant is in the process of filing its reorganization plan, and at this time it is unknown whether the lease will be accepted or abandoned. At the time of the bankruptcy filing, the tenant was current on its rental payments. However, amounts due since then have not been paid. Investment Results The credit from (provision for) impaired mortgage loans relates to changes in the estimated net fair market value of the collateral underlying the Decatur TownCenter mortgage loan. Exclusive of the credit from (provision for) impaired mortgage loans, real estate investment results were $940,811 and $1,043,360 for the first nine months of 1996 and 1995, respectively. The change was caused by decreased operating results at Willows and a decline in the amount of interest received on the impaired Decatur TownCenter mortgage loan, slightly offset by additional amounts received from Rivers Corporate Park. Interest on cash equivalents and short-term investments decreased by $17,758, or 18%, between the first nine month periods due to lower average investment balances and lower average yields. Cash flow from operations decreased by $35,185 between the respective nine month periods. This decrease is primarily due to the above mentioned changes in operating results offset by changes in net working capital. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the general partner. General and administrative expenses primarily consist of real estate appraisal, printing, legal, accounting and investor servicing fees. The Partnership management fee for the first nine months of 1996 increased as compared to the respective prior year period due to the increase in distributable cash flow. General and administrative expenses were relatively unchanged between the comparative nine month periods. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 PART II OTHER INFORMATION ------------------- Item 6. Exhibits and Reports on Form 8-K a. Exhibits: None. b. Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended September 30, 1996. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP (Registrant) November 12, 1996 /s/ Peter P. Twining ------------------------------- Peter P. Twining. Managing Director and General Counsel of General Partner, Copley Properties Company, Inc. November 12, 1996 /s/ Daniel C. Mackowiak -------------------------------- Daniel C. Mackowiak Principal Financial and Accounting Officer of General Partner, Copley Properties Company, Inc.