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 June 30, 1996 Commission File Number 0-20126 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-3035851 (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 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 PART I FINANCIAL INFORMATION BALANCE SHEET (Unaudited) June 30, 1996 December 31, 1995 -------------- ----------------- Assets Real estate investments: Joint ventures $ 13,269,294 $ 13,489,028 Property, net 11,410,329 11,574,071 ----------- ----------- 24,679,623 25,063,099 Cash and cash equivalents 3,145,595 3,194,992 Short-term investments 1,564,804 1,524,276 ----------- ----------- $ 29,390,022 $ 29,782,367 =========== =========== Liabilities and Partners' Capital Accounts payable $ 48,398 $ 86,646 Accrued management fee 60,950 57,713 Deferred disposition fees 478,108 478,108 ----------- ---------- Total liabilities 587,456 622,467 ----------- ---------- Partners' capital (deficit): Limited partners ($892 per unit; 160,000 units authorized, 42,076 units issued and outstanding) 28,832,254 29,186,014 General partners (29,688) (26,114) ----------- ----------- Total partners' capital 28,802,566 29,159,900 ----------- ----------- $ 29,390,022 $ 29,782,367 =========== =========== <FN> (See accompanying notes to financial statements) STATEMENT OF OPERATIONS (Unaudited) Quarter Ended Six Months Ended Quarter Ended Six Months Ended June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995 ------------- --------------- ------------- --------------- Investment Activity Property rentals $ 425,534 $ 856,245 $ 354,195 $ 421,358 Property operating expenses (167,751) (343,505) (109,812) (114,968) Depreciation and amortization (87,743) (175,486) (77,205) (99,616) --------- ---------- ---------- ----------- 170,040 337,254 167,178 206,774 Joint venture earnings 308,058 601,650 263,983 546,742 ---------- ----------- ----------- ----------- Total real estate operations 478,098 938,904 431,161 753,516 Gain on sale of property by joint venture - - 13,321 195,295 ---------- ----------- ----------- ----------- Total real estate activity 478,098 938,904 444,482 948,811 Interest on cash equivalents and short-term investments 59,557 118,431 136,933 405,575 ---------- ----------- ----------- ---------- Total investment activity 537,655 1,057,335 581,415 1,354,386 ---------- ----------- ----------- ---------- Portfolio Expenses Management fees 60,949 121,899 56,199 112,777 General and administrative 44,472 92,967 67,848 118,954 ----------- ------------ ------------- ---------- 105,421 214,866 124,047 231,731 ----------- ------------ ------------- ---------- Net Income $ 432,234 $ 842,469 $ 457,368 $ 1,122,655 ========== =========== =========== ========== Net income per limited partnership unit $ 10.17 $ 19.82 $ 10.76 $ 26.41 ========== =========== =========== ========== Cash distributions per limited partnership unit $ 14.50 $ 28.23 $ 13.46 $ 51.16 ========== =========== =========== ========== Number of limited partnership units outstanding during the period 42,076 42,076 42,076 42,076 ========== =========== =========== ========== <FN> (See accompanying notes to financial statements) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Deficit) (Unaudited) Quarter Ended Six Months Ended Quarter Ended Six Months Ended June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995 ------------------- ------------------- --------------------- ---------------------- General Limited General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners Partners Partners --------- -------- -------- -------- -------- --------- -------- --------- Balance at beginning $(27,847) $29,014,444 $ (26,114) $29,186,014 $ (22,465) $32,913,380 $(23,295) $ 33,841,011 of period Cash distributions (6,163) (610,102) (11,998) (1,187,805) (5,721) (566,343) (11,544) (2,152,608) Net income 4,322 427,912 8,424 834,045 4,574 452,794 11,227 1,111,428 --------- ----------- --------- ---------- --------- ----------- --------- ----------- Balance at end of period $(29,688) $28,832,254 $ (29,688) $28,832,254 $ (23,612) $32,799,831 $(23,612) $ 32,799,831 ========= =========== ========= =========== ========== =========== ========= ========== <FN> (See accompanying notes to financial statements) SUMMARIZED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------------------- 1996 1995 ---------- ---------- Net cash provided by operating activities $ 1,143,091 $ 1,138,391 ----------- ----------- Cash flows from investing activities: Investment in property 32,744 (9,733,113) Decrease (increase) in short-term investments, net (25,429) 2,288,085 Investment in joint venture - (79,190) Net proceeds from sale of investment - 195,295 ---------- ----------- Net cash provided by (used in) investing activities 7,315 (7,328,923) ----------- ----------- Cash flows from financing activity: Distributions to partners (1,199,803) (2,164,152) ----------- ----------- Net decrease in cash and cash equivalents (49,397) (8,354,684) Cash and cash equivalents: Beginning of period 3,194,992 13,419,447 ----------- ----------- End of period $ 3,145,595 $ 5,064,763 =========== =========== <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 June 30, 1996 and December 31, 1995 and the results of its operations, its cash flows and changes in partners' capital (deficit) for the interim periods ended June 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 Copley Pension Properties VII; 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 March 1989. It acquired four of the five real estate investments it currently owns prior to 1991, and a fifth property in 1995. The Partnership intends to dispose of its investments within eight to twelve years of their acquisition, and then liquidate. Note 2 - Real Estate Joint Ventures The following summarized financial information is presented in the aggregate for the Partnership's joint ventures: Assets and Liabilities ----------------------- June 30, 1996 December 31, 1995 --------------- ------------------ Assets Real property, at cost less accumulated depreciation of $6,974,813 and $6,395,506, respectively $ 22,802,054 $ 23,455,289 Other 1,361,352 1,421,726 ------------ ------------ 24,163,406 24,877,015 Liabilities 260,954 358,871 ------------ ------------ Net assets $ 23,902,452 $ 24,518,144 ============ ============ Results of Operations --------------------- Six Months Ended June 30, 1996 1995 ----------- ----------- Revenue Rental income $2,342,968 $ 2,206,032 Other 2,695 48,020 ----------- ----------- 2,345,663 2,254,052 ----------- ----------- Expenses Operating expenses 800,817 719,826 Depreciation and amortization 549,459 550,338 ----------- ----------- 1,350,276 1,270,164 ----------- ----------- Net income $ 995,387 $ 983,888 =========== =========== Liabilities and expenses exclude amounts owed and attributable to the Partnership and (with respect to two joint ventures) its affiliates on behalf of their various financing arrangements with the joint ventures. Note 3 - Property On April 14, 1995, the Partnership acquired a 174-unit apartment complex in Sherman Oaks, California, known as Regency Court Apartments, for a total price of $9,605,021. The purchase and sale agreement requires the seller to supplement the monthly rental income generated from the property to the extent such income is less than $125,000 per month during the one year period ended April 13, 1996, but not to exceed $300,000 in total. The total shortfall was $108,994, of which $101,399 has been credited against the purchase price; the remainder will be so credited upon receipt. The following is a summary of the Partnership's property investments: June 30, 1996 December 31, 1995 ------------- ----------------- Land $ 2,190,969 $ 2,190,969 Buildings and improvements 9,793,547 9,826,291 Accumulated depreciation (541,310) (371,106) Other net liabilities (32,877) (72,083) ----------- ------------ $11,410,329 $ 11,574,071 =========== ============ In February, 1995, the Partnership entered into a purchase and sale agreement for the purchase of a research and development facility located in Tempe, Arizona. After completing its due diligence review and further negotiating with the seller, a final agreement could not be reached and the Partnership abandoned the transaction in the second quarter. Note 4 - Subsequent Event Distributions of cash from operations relating to the quarter ended June 30, 1996 were made on July 25, 1996 in the aggregate amount of $616,265 ($14.50 per limited partnership unit). Management's Discussion and Analysis of Financial Condition - ----------------------------------------------------------- and Results of Operations - ------------------------- Liquidity and Capital Resources The Partnership's offering of units of limited partnership interest was completed as of September 30, 1990. A total of 42,076 units were sold. The Partnership received proceeds of $36,522,542, net of selling commissions and other offering costs, which have been used for investment in real estate, the payment of related acquisition costs, and for working capital reserves. The Partnership made seven real estate investments, one of which was sold in 1991 and another in 1994. Through June 30, 1996, capital of $4,544,208 has been returned to the limited partners as a result of these sales. At June 30, 1996, the Partnership had $4,710,399 in cash, cash equivalents and short-term investments, of which $616,265 was used for operating cash distributions to partners on July 25, 1996. The source of future liquidity and cash distributions to partners will primarily be cash flow generated by the Partnership's short-term and real estate investments and proceeds from the sale of such investments. The adjusted capital contribution was reduced from $996 to $972 per limited partnership unit during the first quarter of 1995, and then to $892 during the fourth quarter of 1995, with the distribution of proceeds from the sale of Kachina Apartments in 1994. The sales transaction also resulted in the payment of previously accrued, but deferred, management fees of $203,452 to the advisor. Distributions of cash from operations relating to the first and second quarters of 1996 were made at an annualized rate of 6.5% on the adjusted capital contribution. Distributions of cash from operations relating to the first and second quarters of 1995 were made at an annualized rate of 5.5% on the weighted average adjusted capital contribution. The increase in the distribution rate results from the attainment of appropriate cash reserve levels. The carrying value of real estate investments in the financial statements 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 estimated cost of sale for properties held for sale. Carrying value may be greater or less than current appraised value. At June 30, 1996, the appraised value of each real estate investment exceeded its carrying value; the aggregate excess was approximately $4,100,000. The current appraised value of real estate investments has been estimated by the managing 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 Form of Real Estate Investment Three of the investments in the portfolio are structured as joint ventures; Drilex and Regency Court Apartments are wholly-owned properties. The Kachina Apartments investment, which was sold in 1994, was a joint venture. Operating Factors The Partnership's two industrial properties, Drilex and Prentiss Copystar, were 100% leased, each by a single tenant, at June 30, 1996, as they were at December 31, 1995 and June 30, 1995. The Partnership's two multi-family residential properties, Waterford Apartments and Regency Court Apartments, ended the second quarter of 1996 with an occupancy level of 96% and 91%, respectively. Occupancy at Waterford Apartments remained in the mid 90% range during the first six months of 1996, which is consistent with the prior year. Occupancy at Regency Court declined from the mid 90% range earlier in the year, due to increased competition. Occupancy at Parkmoor Plaza was 100% at June 30, 1996 where it has remained since the second quarter of 1995. Investment Results Interest on short-term investments and cash equivalents decreased significantly between the first six months of 1995 and the first six months of 1996 due to a decrease in the average investment balance as a result of the distribution of sale proceeds from the Kachina sale and the investment in Regency Court Apartments in 1995. During the first six months of 1995, the Partnership received an additional $195,295 in final settlement of the Kachina joint venture activities, which was recognized as a gain on sale of property by joint venture in the accompanying statement of operations. Exclusive of the results from Regency Court Apartments in 1996 ($248,904) and 1995 ($127,550), real estate operations for the first six months of 1996 and 1995 were $690,000 and $625,966, respectively. This increase is primarily due to improved operating results at Parkmoor Plaza as a result of an increase in rental revenue. Operating results from the remainder of the Partnership's investments were relatively unchanged between the respective quarterly periods. Exclusive of the payment of deferred management fees of $203,452 in 1995, cash flow from operations decreased by approximately $199,000 between the respective six month periods. This change was primarily due to the reduction in short-term investment interest and changes in property working capital, partially offset by the addition of cash flow from Regency Court and the timing of cash distributions from joint ventures. 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 managing general partner. General and administrative expenses primarily consist of real estate appraisal, printing, legal, accounting and investor servicing fees. The Partnership management fee increased between the first six months of 1996 and 1995 due to an increase in distributable cash flow. General and administrative expenses decreased between the respective six month periods due to professional fees incurred in 1995 related to due diligence performed in connection with an abandoned property acquisition. COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED JUNE 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 Current Reports on Form 8-K were filed during the quarter ended June 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. COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP (Registrant) August 9, 1996 /s/ Peter P. Twining ------------------------------- Peter P. Twining Managing Director and General Counsel of Managing General Partner, Seventh Copley Corp. August 9, 1996 /s/ Daniel C. Mackowiak -------------------------------- Daniel C. Mackowiak Principal Financial and Accounting Officer of Managing General Partner, Seventh Copley Corp.