SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1995 COMMISSION FILE NUMBER 0-13323
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2803902
(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 II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1995
PART I
FINANCIAL INFORMATION
Page(s)
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
March 31, 1995 December 31, 1994
-------------- -----------------
ASSETS
Real estate investments:
Ground leases and mortgage
loans, net $ 19,008,227 $ 19,014,308
Property, net 14,769,228 14,689,691
Deferred leasing costs and
other assets, net 601,407 591,963
------------- -------------
34,378,862 34,295,962
Cash and cash equivalents 2,789,070 4,101,201
Short-term investments 2,400,387 1,292,505
Interest and rent receivable 220,791 179,289
------------- -------------
$ 39,789,110 $ 39,868,957
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 224,815 $ 548,907
Accrued management fee 62,089 57,662
Deferred disposition fees 314,464 314,464
------------- -------------
Total liabilities 601,368 921,033
------------- -------------
Partners' capital:
Limited partners ($889.89
per unit; 110,000 units
authorized, 39,917 units
issued and outstanding) 39,112,900 38,875,480
General partner 74,842 72,444
------------- ------------
Total partners' capital 39,187,742 38,947,924
------------- ------------
$ 39,789,110 $ 39,868,957
============= ============
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
(Unaudited)
Quarter ended March 31,
-----------------------
1995 1994
---- ----
INVESTMENT ACTIVITY
Property rentals $ 582,329 $ 457,777
Property operations (213,747) (233,132)
Depreciation and amortization (145,491) (130,262)
---------- ----------
223,091 94,383
Ground rentals and interest
on mortgage loans 630,715 793,677
---------- ----------
Total real estate activity 853,806 888,060
Interest on cash equivalents
and short-term investments 74,881 56,179
---------- ----------
Total investment activity 928,687 944,239
---------- ----------
PORTFOLIO EXPENSES
Management fee 62,089 60,932
General and administrative 43,750 38,459
---------- ------------
105,839 99,391
---------- ------------
NET INCOME $ 822,848 $ 844,848
========== ============
Net income per limited
partnership unit $ 20.41 $ 20.95
========== ============
Cash distributions per
limited partnership unit $ 14.46 $ 15.28
========== ============
Number of limited partnership
units outstanding during
the period 39,917 39,917
========== ===========
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Quarter ended March 31,
-----------------------
1995 1994
---- -----
General Limited General Limited
Partner Partners Partner Partners
------- -------- ------- --------
Balance at beginning
of period $ 72,444 $38,875,480 $ 74,199 $ 41,049,643
Cash distributions (5,830) (577,200) (6,161) (609,932)
Net income 8,228 814,620 8,448 836,400
-------- ----------- ----------- ------------
Balance at end of
period $ 74,842 $39,112,900 $ 76,486 $41,276,111
======== =========== ========== ============
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
Quarter Ended March 31,
-----------------------
1995 1994
----- -----
Net cash provided by operating activities $ 774,225 $ 835,912
---------- ------------
Cash flows from investing activities:
Investment in mortgage loan - (110,253)
Capital expenditures on owned property (402,108) (150,080)
(Increase) decrease in short-term
investments, net (1,101,218) 375,932
----------- ------------
Net cash used in investing activities (1,503,326) 115,599
----------- ------------
Cash flows from financing activity:
Distributions to partners (583,030) (616,093)
---------- ------------
Net increase (decrease) in cash and
cash equivalents (1,312,131) 335,418
Cash and cash equivalents:
Beginning of period 4,101,201 7,075,659
---------- ------------
End of period $ 2,789,070 $ 7,411,077
========== =============
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
Notes to Financial Statements
(Unaudited)
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Partnership's financial
position as of March 31, 1995 and December 31, 1994 and the results of its
operations and its cash flows for the interim periods ended March 31, 1995 and
1994. These adjustments are of a normal recurring nature.
See notes to financial statements included in the Partnership's 1994 Annual
Report on Form 10-K, as amended by Form 10-K/A for additional information
relating to the Partnership's financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- - - - - ----------------------------------
New England Life Pension Properties II; 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. The Partnership commenced operations in June 1984 and acquired
several properties through 1986. 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
- - - - - --------------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 114, the
mortgage loans on Elkridge and Susana Corporate Center are impaired.
Accordingly, a valuation allowance has been established to adjust the carrying
value of the loans to their estimated fair market value less anticipated costs
of sale. The aggregate recorded and carrying values of the impaired mortgage
loans at the beginning and end of the respective periods are as follows:
Recorded Valuation Carrying
Value Allowance Value
--------- ---------- ----------
Balance at December 31, 1993 $5,271,140 $(1,325,000) $3,946,140
========== =========== ==========
Balance at March 31, 1994 $5,378,206 $(1,325,000) $4,053,206
========== =========== ==========
Balance at December 31, 1994 $5,517,874 $(2,200,000) $3,317,874
========== =========== ==========
Balance at March 31, 1995 $5,520,250 $(2,200,000) $3,320,250
========== =========== ==========
During the second and fourth quarters of 1994 the valuation allowance was
increased by $875,000.
NOTE 3 - SUBSEQUENT EVENT
- - - - - -------------------------
Distributions of cash from operations relating to the quarter ended March 31,
1995 were made on April 27, 1995 in the aggregate amount of $627,786 ($15.57 per
limited partnership unit.
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE 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 November 1984. A total of 39,917 units were sold. The Partnership received
proceeds of $36,296,995, 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. Capital of $4,395,261 has been returned
to the limited partners through March 31, 1995. Two of the Partnership's
mortgage loan investments had a maturity date in 1994; another matured in early
1995. The Partnership is in the process of evaluating various alternatives to
renewing these loans.
At March 31, 1995, the Partnership had $5,189,457 in cash, cash equivalents and
short-term investments, of which $627,786 was used for cash distributions to
partners on April 27, 1995; 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 investments and proceeds from
the sale of such investments. Distributions of cash from operations for the
first quarter of 1995 were made at the annualized rate of 7% on an adjusted
capital contribution while the cash distribution rate for the comparative prior
year quarter was 6.5%. The cash distribution rate increased with the
stabilization of property operations and the attainment of appropriate reserve
levels. The adjusted capital contribution was reduced from $940 per unit to
$889.89 per unit due to the distribution of the Oxford Place sale proceeds (sold
in December 1993) during July 1994.
The carrying value of the Partnership's real estate investments in the financial
statements, other than impaired mortgage loans, is reduced to its lower net
realizable value if the investment's carrying value is determined not to be
recoverable through expected undiscounted future cash flows. At March 31, 1995,
the carrying value of Willows Shopping Center exceeded its appraised value by
approximately $930,000, and the carrying values of the remainder of the
investments exceeded their appraised values by an aggregate of approximately
$100,000. The current appraised value of real estate investments has been
estimated by the advisor 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
Leasing at the Willows Shopping Center remained at 91% during the first quarter
of 1995. The center was 78% leased at March 31, 1994 and December 31, 1993.
This property is undergoing a full rehabilitation, including the complete
renovation and reconfiguration of the center. The general partner has
determined that it is in the best interest of the Partnership to provide funding
for the rehabilitation costs together with its affiliate. The Partnership's
share of the estimated rehabilitation cost is approximately $2,250,000. Two new
tenants (totaling 3,200 square feet) have signed leases this quarter and are
scheduled to occupy the space beginning in the second quarter. The two
remaining anchor spaces continue to be actively marketed.
Occupancy at Elkridge decreased from 76% to 40% during the first quarter of 1995
(occupancy was 55% a year ago). The decrease is due to the departure of the
sole tenant in the warehouse building in January 1995, which is currently being
marketed for sale. This departure was partially offset by a lease expansion at
the R & D building which brings its occupancy up to 68% at March 31, 1995.
The Susana Corporate Center remained 100% leased to a single tenant at March 31,
1995. During the first quarter, this property was listed for sale at a price
which approximates the Partnership's carrying value.
INVESTMENT RESULTS
Real estate investment results decreased $33,254 or 4% for the first quarter of
1995 as compared to the same period in 1994, primarily due to a decrease in
income of approximately $160,000 from Case Communications. Income in the first
quarter of 1994 included the settlement of prior year percentage rent
approximating $200,000. There decreases were partially offset by an increase in
net operating income from the Willows Shopping Center of $129,000, due to an
increase in occupancy.
Short-term interest income increased between the respective quarters due to an
increase in the average investment balance and an increase in short-term
investment rates.
The decrease in operating cash flow for the first quarter ended March 31, 1995
compared to the prior year period is generally consistent with the change in the
Partnership's investment results. Notwithstanding the change in real estate
operations between the comparative periods, the change is also due to the change
in 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, investor servicing fees and state
filing and tax fees.
General and administrative expenses increased by $5,291 or 14% for the quarter
ended March 31, 1995 compared to the same period of the prior year primarily due
to an increase in professional 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 the
Partnership's real estate investments over time, if rental rates and replacement
costs increase. Recently, declines in property values, due to market and
economic conditions, have overshadowed the positive effect inflation may have on
the value of the Partnership's investments.
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1995
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 March 31, 1995.
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 II; A REAL
ESTATE LIMITED PARTNERSHIP
(Registrant)
May 15, 1995
Peter P. Twining
Managing Director and General Counsel of Managing
General Partner,
Copley Properties Company II, Inc.
May 15, 1995
Marie A. Welch
Investment Officer and Chief Accounting Officer of
Managing General Partner,
Copley Properties Company II, Inc.