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, 1996 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, 1996
PART I
FINANCIAL INFORMATION
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BALANCE SHEET
(Unaudited)
September 30, 1996 December 31, 1995
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ASSETS
Real estate investments:
Ground leases and mortgage loans,
net $ 16,426,675 $ 17,575,746
Property, net 15,802,291 15,381,902
Deferred leasing costs and
other assets, net 736,865 528,022
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32,965,831 33,485,670
Cash and cash equivalents 4,556,146 2,731,930
Short-term investments 1,314,698 2,525,926
Interest and rent receivable 92,335 331,174
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$ 38,929,010 $ 39,074,700
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 256,637 $ 505,813
Accrued management fee 62,089 62,089
Deferred disposition fees 341,914 314,464
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Total liabilities 660,640 882,366
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Partners' capital:
Limited partners ($889.89 per
unit; 110,000 units authorized,
39,917 units issued and
outstanding) 38,202,722 38,127,446
General partner 65,648 64,888
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Total partners' capital 38,268,370 38,192,334
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$ 38,929,010 $ 39,074,700
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<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 $ 594,992 $ 1,722,436 $ 483,612 $ 1,763,355
Property operating expenses (233,072) (721,120) (262,021) (696,993)
Depreciation and amortization (179,381) (511,135) (164,757) (453,725)
--------------- --------------- ---------------- ---------------
182,539 490,181 56,834 612,637
Provision for impaired mortgage
loans -- (310,000) -- (205,000)
Ground rentals and interest on
mortgage loans 630,948 1,894,379 630,948 1,977,347
--------------- --------------- ---------------- ---------------
Total real estate activity 813,487 2,074,560 687,782 2,384,984
Interest on cash equivalents
and short term investments 74,746 207,742 73,409 224,020
--------------- --------------- ---------------- ---------------
Total investment activity 888,233 2,282,302 761,191 2,609,004
--------------- --------------- ---------------- ---------------
Portfolio Expenses
Management fee 62,089 186,266 62,089 186,266
General and administrative 47,565 136,642 39,081 125,269
--------------- --------------- ---------------- ---------------
109,654 322,908 101,170 311,535
--------------- --------------- ---------------- ---------------
Net Income $ 778,579 $ 1,959,394 $ 660,021 $ 2,297,469
=============== =============== ================ ===============
Net income per limited partnership
unit $ 19.31 $ 48.60 $ 16.37 $ 56.98
=============== =============== ================ ===============
Cash distributions per
limited partnership unit $ 15.57 $ 46.71 $ 15.57 $ 45.60
=============== =============== ================ ===============
Number of limited partnership
units outstanding during the period 39,917 39,917 39,917 39,917
=============== =============== ================ ===============
<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 $ 64,140 $38,053,437 $ 64,888 $ 38,127,446 $ 76,709 $39,297,846 $ 72,444 $ 38,875,480
Cash
distributions (6,278) (621,508) (18,834) (1,864,524) (6,277) (621,508) (18,386) (1,820,216)
Net income 7,786 770,793 19,594 1,939,800 6,601 653,420 22,975 2,274,494
-------- --------- -------- ---------- -------- --------- --------- ---------
Balance at
end of period $ 65,648 $38,202,722 $ 65,648 $ 38,202,722 $ 77,033 $39,329,758 $ 77,033 $ 39,329,758
=========== =========== ========= =========== =========== =========== ========== ===========
<FN>
(See accompanying notes to financial statements)
SUMMARIZED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1996 1995
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Net cash provided by operating
activities $ 2,507,467 $ 2,887,259
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Cash flows from investing activities:
Net proceeds from sale of investment 836,852 --
Deferred disposition fee 27,450 --
Capital expenditures on owned property (875,423) (959,835)
Decrease (increase) in short-term
investments, net 1,211,228 (381,423)
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Net cash provided by (used in)
investing activities 1,200,107 (1,341,258)
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Cash flows from financing activity:
Distributions to partners (1,883,358) (1,838,602)
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Net increase (decrease) in
cash and cash equivalents 1,824,216 (292,601)
Cash and cash equivalents:
Beginning of period 2,731,930 4,101,201
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End of period $ 4,556,146 $ 3,808,600
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<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 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. 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, 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
- --------------------------------------------------------
One of the two Elkridge buildings was sold on May 14, 1996.
Sales proceeds of $864,302 were received by the Partnership in
partial payment of amounts due under its ground lease and mortgage
loan investment, which approximated the investment's carrying value
as previously adjusted for valuation allowances. A disposition fee
of $27,450 was accrued but not paid to the advisor. The Partnership
intends to distribute the sales proceeds to the limited partners
during the fourth quarter of 1996, when the second building is
expected to be sold.
The Susana Corporate Center was sold on October 23, 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 two mortgage loans which had matured
in 1994 and 1995. The maturity dates 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 properties will be increased. These
changes will be retroactive to the original maturity dates; however,
any adjustment to amounts previously recognized by the Partnership
as revenue is expected to be insignificant.
The mortgage loans on Elkridge, Susana Corporate Center and
Case Communications 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 activity in the valuation allowance during 1995 and 1996,
together with the related 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, 1995 $ 5,787,874 $(2,470,000) $ 3,317,874
========== ==========
Decrease in estimated fair
market value of collateral (205,000)
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Balance at September 30, 1995 $ 5,855,250 (2,675,000) $ 3,180,250
========== ==========
Decrease in estimated fair
market value of collateral (123,000)
Additional impaired loan (1,100,000)
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Balance at January 1, 1996 $ 15,619,235 (3,898,000) $ 11,721,235
========== ==========
Decrease in estimated fair
market value of collateral (310,000)
Sale of collateral 155,915
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Balance at September 30, 1996 $ 14,766,769 $(4,052,085) $ 10,714,684
========== =========== ==========
<FN>
The average recorded value of the impaired mortgage loans did
not differ materially from the balances at the end of the periods.
NOTE 3 - SUBSEQUENT EVENTS
- --------------------------
Distributions of cash from operations relating to the quarter
ended September 30, 1996 were made on October 24, 1996 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, 1996 as a result of
sales and similar transactions. Two of the Partnership's mortgage
loan investments had a maturity date in 1994; another matured in
1995. One of these matured investments is expected to be settled
with the sale of the underlying collateral in the fourth quarter of
1996. In October 1996, the Partnership reached an agreement in
principle with the borrower on the other two mortgage loans, whereby
the maturity dates 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 $5,870,844 in cash,
cash equivalents and short-term investments, of which $627,786 was
used for cash distributions to partners on October 24, 1996. On May
14, 1996, one of the two Elkridge buildings was sold. The
Partnership received net proceeds of $864,302, which are expected to
be distributed to the limited partners in the fourth quarter of
1996. The remainder of the cash and short-term investment balances,
after these distributions, 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 and 1995 were made at the annualized rate of
7% on the adjusted capital contribution.
The carrying value of real estate investments in the financial
statements, other than impaired mortgage loans, 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 carrying value of certain investments exceeded their
related appraised values by an aggregate of approximately $266,000
and the appraised values of the other investments exceeded their
related carrying values by an aggregate of approximately $234,000.
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 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 $1,087,000 at September 30, 1996, which largely
relates to space to be occupied by a major restaurant tenant late in
1996.
The remaining Elkridge building is currently under agreement
for sale. The sale is anticipated to close in the fourth quarter.
Occupancy at this building was 81% at the end of the third quarter.
The Susana Corporate Center is 100% leased to a single tenant.
The property was sold to the ground lessee in October 1996, for a
price which approximated its carrying value, as adjusted for
valuation allowances.
Occupancy at the Oakland property remained at 91% during the
third quarter of 1996. A lease for 47% of the currently occupied
space that expired earlier in 1996 was renewed.
The Case Communications property is fully occupied by a
government agency. The current lease expires in November 1996;
however, the tenant has indicated its intention to renew.
Investment Results
The provision for impaired mortgage loans relates to changes in
the estimated net fair market value of the collateral underlying the
Elkridge, Susana and Case Communications mortgage loans. The charge
in 1996 primarily relates to Susana, caused by a refinement to the
previous estimate of net fair market value based on the terms of the
pending sales transaction.
Exclusive of the provision for impaired mortgage loans, real
estate investment results were $2,384,560 and $2,589,984 for the
nine months ended September 30, 1996 and 1995, respectively. This
decrease of $205,424, or 8%, is primarily due to the decrease in net
operating income generated by Willows Shopping Center, as a result
of lower rentals and higher operating expenses. Revenue from Case
Communications also declined due to lower percentage rent payments.
Interest on cash equivalents and short-term investments
decreased by $16,278, or 7%, due to lower average yields and lower
average investment balances during the first four months of the nine-
month period, slightly offset by higher average balances during the
following five months as a result of the receipt of the Elkridge
sale proceeds.
The decrease in operating cash flow during the first nine
months of 1996 as compared to the prior year period is consistent
with the change in investment results, taken together with 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 and state
filing and tax fees.
Management fees were unchanged between the first nine months of
1996 and 1995, consistent with the level of distributable cash flow
for each period. General and administrative expenses for the first
nine months of 1996 increased by $11,000 or 9% as compared to the
respective period of the prior year primarily due to an increase in
professional fees.
NEW ENGLAND PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1996
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,
1996.
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 12, 1996
/s/ Peter P. Twining
-------------------------------
Peter P. Twining.
Managing Director and General
Counsel of General Partner,
Copley Properties Company II, Inc.
November 12, 1996
/s/ Daniel C. Mackowiak
--------------------------------
Daniel C. Mackowiak
Principal Financial and Accounting
Officer of General Partner,
Copley Properties Company II, Inc.