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, 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
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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 ___
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1995
PART I
FINANCIAL INFORMATION
----------------------
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
September 30, 1995 December 31, 1994
------------------ -----------------
ASSETS
Real estate investments:
Ground leases and mortgage loans
net $ 18,799,539 $ 19,014,308
Property, net 15,057,075 14,689,691
Deferred leasing costs and
other assets, net 577,522 591,963
--------------- ---------------
34,434,136 34,295,962
Cash and cash equivalents 3,808,600 4,101,201
Short-term investments 1,683,795 1,292,505
Interest and rent receivables 98,369 179,289
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$ 40,024,900 $ 39,868,957
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 241,556 $ 548,907
Accrued management fee 62,089 57,662
Deferred disposition fees 314,464 314,464
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Total liabilities 618,109 921,033
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Partners' capital:
Limited partners ($889.89 per
unit; 110,000 units authorized,
issued and outstanding) 39,329,758 38,875,480
General partner 77,033 72,444
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Total partners' capital 39,406,791 38,947,924
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$ 40,024,900 $ 39,868,957
=============== ===============
<FN>
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
(Unaudited)
Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1995 September 30, 1995 September 30, 1994 September 30, 1994
------------------ ------------------ ------------------ ------------------
INVESTMENT ACTIVITY
Property rentals $ 483,612 $ 1,763,355 $ 460,724 $ 1,305,475
Property operations expense (262,021) (696,993) (310,937) (761,060)
Depreciation and amortization (164,757) (453,725) (128,701) (389,201)
--------------- --------------- ---------------- ---------------
56,834 612,637 21,086 155,214
Provision from impaired mortgage
loans -- (205,000) -- (800,000)
Ground rentals and interest on
mortgage loans 630,948 1,977,347 681,551 2,136,844
--------------- --------------- ---------------- ---------------
Total real estate activity 687,782 2,384,984 702,637 1,492,058
Interest on cash equivalents
and short term investments 73,409 224,020 64,516 190,165
--------------- --------------- ---------------- ---------------
Total investment activity 761,191 2,609,004 767,153 1,682,223
--------------- --------------- ---------------- ---------------
Portfolio Expenses
Management fee 62,089 186,266 58,660 180,524
General and administrative 39,081 125,269 39,945 127,571
--------------- --------------- ---------------- ---------------
101,170 311,535 98,605 308,095
--------------- --------------- ---------------- ---------------
Net Income $ 660,021 $ 2,297,469 $ 668,548 $ 1,374,128
=============== =============== ================ ===============
Net income per limited partnership
unit $ 16.37 $ 56.98 $ 16.58 $ 34.08
=============== =============== ================ ===============
Cash distributions per
limited partnership unit $ 15.57 $ 45.60 $ 65.39 $ 95.95
=============== =============== ================ ===============
Number of limited partnership
units outstanding during the period 39,917 39,917 39,917 39,917
=============== =============== ================ ===============
<FN>
(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 Nine Months Ended Quarter Ended Nine Months Ended
September 30, 1995 September 30, 1995 September 30, 1994 September 30, 1994
------------------- ------------------- ------------------- ------------------
General Limited General Limited General Limited General Limited
Partner Partners Partner Partners Partner Partners Partner Partners
--------- --------- -------- --------- --------- --------- ------- --------
Balance at
beginning of
period $ 76,709 $39,297,846 $ 72,444 $38,875,480 $ 68,183 $40,454,053 $ 73,449 $40,975,393
Cash
distributions (6,277) (621,508) (18,386) (1,820,216) (6,160) (2,610,172) (18,482) (3,830,036)
Net income 6,601 653,420 22,975 2,274,494 6,685 661,863 13,741 1,360,387
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Balance at
end of period $ 77,033 $39,329,758 $ 77,033 $39,329,758 $ 68,708 $38,505,744 $ 68,708 $38,505,744
=========== ============ ========= =========== ========= =========== ========= ============
<FN>
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1995 1994
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Net cash provided by operating activities $ 2,887,259 $ 2,360,321
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Cash flows from investing activities:
Increase in mortgage loan -- (171,007)
Capital expenditures on owned property (959,835) (608,305)
Increase in short-term
investments, net (381,423) (310,217)
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Net cash used in
investing activities (1,341,258) (1,089,529)
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Cash flows from financing activity:
Distributions to partners (1,838,602) (3,848,518)
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Net decrease in cash and
cash equivalents (292,601) (2,577,726)
Cash and cash equivalents:
Beginning of period 4,101,201 7,075,659
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End of period $ 3,808,600 $ 4,497,933
============== ==============
<FN>
(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 September 30, 1995 and December 31, 1994 and the
results of its operations, its cash flows and changes in partners' capital for
the interim periods ended September 30, 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 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,
subsequently amended by Financial Accounting Standards No. 118, which the
Partnership adopted as of January 1, 1993, the mortgage loans on Elkridge and
Susana Corporate Center are impaired. Accordingly, a valuation allowance has
been established to adjust the carrying value of each loan to its estimated fair
market value less anticipated costs of sale. The 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 January 1, 1994 $ 5,541,140 $ (1,670,000) $ 3,871,140
============= =============
Decrease in estimated
fair market value of
collateral (800,000)
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Balance at September 30, 1994 $ 5,806,133 $ (2,470,000) $ 3,336,133
============ ============= ============
Balance at January 1, 1995 $ 5,517,874 $ (2,200,000) $ 3,317,874
============ ============
Decrease in estimated fair
market value of collateral (205,000)
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Balance at September 30, 1995 $ 5,585,250 $ (2,405,000) $ 3,180,250
============ ============= ============
During the fourth quarter of 1994, the allowance was reduced by $270,000.
NOTE 3 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended September
30, 1995 were made on October 26, 1995 in the aggregate amount of $627,786
($15.57 per limited partnership unit).
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 September 30, 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 September 30, 1995, the Partnership had $5,492,395 in cash, cash
equivalents and short-term investments, of which $627,786 was used for cash
distributions to partners on October 26, 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, second and third quarters of 1995 were made at the
annualized rate of 7% on the adjusted capital contribution, while the cash
distribution rate for the comparative prior year quarters was 6.5%. 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 cash distribution rate increased with the
stabilization of property operations and the attainment of appropriate reserve
levels.
The carrying value of 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 September 30, 1995, the carrying
values of the investments exceeded their appraised values by an aggregate of
approximately $1,685,000. 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 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
The Willows Shopping Center has remained 91% leased since the end of 1994.
(The Center was 74% leased at September 30, 1994.) 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 which shares in the ownership. The Partnership's share of the
remaining estimated rehabilitation cost is approximately $1,800,000. During the
second quarter a lease buyout was agreed upon with the tenant who had vacated
the pad site at the entrance to the Center. One of the anchor tenants at the
Center has been experiencing financial difficulties. During October 1995, this
tenant requested an early termination of its lease. The Partnership is
currently in negotiations with this tenant.
Overall occupancy at Elkridge remained at 43% during the third quarter of
1995. (Occupancy was 73% a year ago.) The warehouse building, which remains
vacant, continues to be marketed for sale. Occupancy at the R&D building is
73%.
The Susana Corporate Center remained 100% leased to a single tenant at
September 30, 1995. This property had been listed for sale. During the third
quarter, the Partnership received a purchase offer from the ground lessee,
however, he was unsuccessful in financing the property and the discussions were
terminated. The property will go back to market for sale.
Investment Results
The credit from (provision for) impaired mortgage loans relates to changes
in the net fair market value of the collateral underlying the Elkridge and
Susana Corporate Center mortgage loans.
Exclusive of the provision for impaired mortgage loans, real estate
investment results were $2,589,984 and $2,292,058 for the nine months ended
September 30, 1995 and 1994, respectively. This increase of $297,926 or 13% is
due to an increase in net operating income generated by Willows Shopping Center
of approximately $445,000 as a result of both improved occupancy and the
Partnership's share of the lease buyout proceeds (approximately $195,000)
received in the second quarter. This increase was partially offset by a
decrease in percentage rent of approximately $100,000 from Case Communications.
A final settlement of prior year percentage rent of $200,000 was recognized in
1994. Operating income from Susana Corporate Center decreased by $70,000
between the respective periods, due to the restructuring of the sole tenant's
lease during the first quarter of 1994.
Short-term interest income increased by approximately $34,000 or 18%
between the respective nine-month periods due to an increase in the average
investment balance and an increase in short-term investment rates.
The increase in operating cash flow during the first nine months of 1995 as
compared to the prior year period is generally consistent with the change in the
Partnership's investment results, exclusive of the non-cash provision for
impaired loans, taken together with changes in its 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 and state filing and tax fees.
General and administrative expenses remained relatively unchanged for the
nine months ended September 30, 1995 compared to the same period of the prior
year. The management fee increased during the respective periods due to an
increase in distributable cash flow.
NEW ENGLAND PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1995
PART II
OTHER INFORMATION
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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,
1995.
SIGNATURES
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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)
November 9, 1995 -----------------------------------------
Peter P. Twining
Managing Director and General Counsel
of General Partner,
Copley Properties Company II, Inc.
November 9, 1995 -----------------------------------------
Marie A. Welch
Investment Officer and Chief Accounting
Officer of General Partner,
Copley Properties Company II, Inc.