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
______________________________________________________________________
For Quarter Ended June 30, 2000 Commission File Number 0-14052
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2847256
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
World Trade Center East
Two Seaport Lane, 16/th/ Fl.
Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
____________________________________________________________________________
Former name, former address and former fiscal year if changed since last report
225 Franklin Street, 25th Fl.
Boston, Massachusetts 02110
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 III;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2000
PART I
FINANCIAL INFORMATION
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2
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
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ASSETS
Real estate investments:
Property, net $ -- $5,918,532
Property held for
Disposition, net 5,835,901 --
---------- ----------
5,835,901 5,918,532
Cash and cash equivalents 310,296 324,989
---------- ----------
$6,146,197 $6,243,521
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 88,009 $ 81,339
Accrued management fee 13,328 13,532
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Total liabilities 101,337 94,871
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Partners' capital:
Limited partners ($183.60
per unit;75,000 units
authorized, 68,414 units
issued and outstanding) 6,043,367 6,146,119
General partners 1,493 2,531
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Total partners' capital 6,044,860 6,148,650
---------- ----------
$6,146,197 $6,243,521
========== ==========
(See accompanying notes to unaudited financial statements)
3
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000 June 30, 1999 June 30, 1999
-------------- --------------- ------------- ---------------
INVESTMENT ACTIVITY
Property rentals $ 217,226 $ 450,071 $ 277,573 $ 594,440
Property operating expenses 28,386 (48,628) (60,689) (163,384)
Depreciation and amortization (56,037) (112,074) (56,038) (123,690)
----------- ----------- ----------- -----------
Total real estate operations 189,575 289,369 160,846 307,366
Gain on sale of property -- -- -- 1,509,931
----------- ----------- ----------- -----------
Total real estate activity 189,575 289,369 160,846 1,817,297
Interest on cash equivalents 4,228 8,534 39,710 61,965
----------- ----------- ----------- -----------
Total investment activity 193,803 297,903 200,556 1,879,262
----------- ----------- ----------- -----------
Portfolio Expenses
General and administrative 42,658 103,455 60,271 145,252
Management fee 13,328 26,655 14,968 71,216
----------- ----------- ----------- -----------
55,986 130,110 75,239 216,468
----------- ----------- ----------- -----------
Net Income $ 137,817 $ 167,793 $ 125,317 $ 1,662,794
=========== =========== =========== ===========
4
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
Net income per limited partnership
unit $ 1.99 $ 2.43 $ 1.81 $ 24.06
========== ========== ========== ==========
Cash distributions per
limited partnership unit $ 1.95 $ 3.93 $ 45.35 $ 48.56
========== ========== ========== ==========
Number of limited partnership
units outstanding during the period 68,414 68,414 68,414 68,414
========== ========== ========== ==========
(See accompanying notes to unaudited financial statements)
5
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited)
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000 June 30, 1999 June 30, 1999
------------------- ------------------- ----------------------- --------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
--------- --------- -------- --------- --------- --------- --------- ---------
Balance at
beginning of
period $ 1,463 $ 6,040,335 $ 2,531 $ 6,146,119 $ 13,366 $ 10,498,541 $ 209 $ 9,196,048
Cash
distributions (1,348) (133,407) (2,716) (268,867) (5,687) (3,102,575) (7,905) (3,322,184)
Net income 1,378 136,439 1,678 166,115 1,253 124,064 16,628 1,646,166
--------- ------------ ------------ ------------ ------------ ------------ ---------- -----------
Balance at
end of period $ 1,493 $ 6,043,367 $ 1,493 $ 6,043,367 $ 8,932 $ 7,520,030 $ 8,932 $ 7,520,030
========= ============ ============ ============ ============ ============ ========== ===========
(See accompanying notes to unaudited financial statements)
6
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
2000 1999
----------- -----------
Net cash provided by operating activities $ 271,270 $ 276,126
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of property - 2,639,445
Investment in property (14,380) (4,821)
----------- -----------
Net cash provided by
(used in) investing activities (14,380) 2,634,624
----------- -----------
Cash flows from financing activity:
Distributions to partners (271,583) (3,330,089)
----------- -----------
Net decrease in
cash and cash equivalents (14,693) (419,339)
Cash and cash equivalents:
Beginning of period 324,989 1,952,504
----------- -----------
End of period $ 310,296 $ 1,533,165
=========== ===========
(See accompanying notes to unaudited financial statements)
7
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO UNAUDITED 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, 2000 and December 31, 1999, the results of its
operations and partners' capital for the three and six months ended June 30,
2000 and 1999, and its cash flows for the six months ended June 30, 2000 and
1999. These adjustments are of a normal recurring nature.
See notes to unaudited financial statements included in the Partnership's
1999 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 III; 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 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 July
1985 and acquired the last remaining investment it currently owns prior to the
end of 1988. The Partnership intended to dispose of its investments within
twelve years of their acquisition, and then liquidate; however, the managing
general partner extended the holding period, having determined it to be in the
best interest of the limited partners. The Partnership has engaged AEW Real
Estate Advisors, Inc. (the "Advisor") to provide asset management advisory
services.
NOTE 2 - PROPERTY
- -----------------
270 Technology Park
-------------------
Effective January 1, 1998, the management and control of the business and
affairs of the 270 Technology Park joint venture, including the right to sell
the property, was vested solely in the Partnership through its 98% general
partner interest in the joint venture. Accordingly, as of January 1, 1998, the
investment has been accounted for as a wholly-owned property. The remaining 2%
general partner interest is owned by NELLP III/MORF III Associates Limited
Partnership, an entity in which the Partnership owns a 50% interest. The
carrying value of the joint venture investment at January 1, 1998 ($6,162,959)
was allocated to land, building and improvements, and other net operating
assets.
The building is being depreciated over 30 years, beginning January 1, 1998.
On June 30, 2000, the Partnership executed a Purchase and Sale agreement to
sell the 270 Technology Park investment. Although there can be no assurance that
this sale will occur, it is expected to be concluded by year end of 2000. This
investment is classified as Property Held for Disposition, net, on the Balance
Sheet ended June 30, 2000. During the six months ended June 30, 2000 and 1999,
the Partnership recognized $289,369 and $305,042 in net income from the 270
Technology Park investment, respectively.
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
North Cabot Industrial Park (formerly Marathon/Hayward)
------------------------------------------------------
In September 1985, the Partnership acquired land in Hayward, California,
for $786,130 and leased it back to the seller. The Partnership also made a
nonrecourse permanent mortgage loan of $2,663,870 to the ground lessee to
finance the two research and development buildings located on the land.
On November 15, 1994, the Partnership restructured this ground
lease/mortgage loan investment into a wholly-owned property, due to the
inability of the ground lessee/mortgagor to meet its financial obligations. The
Partnership received $85,000 in settlement of the guaranty that had been
provided by principals of the ground lessee.
The Partnership obtained title to the improvements on the land and to
certain other operating assets in full satisfaction of the related mortgage loan
and obligations under the ground lease, and in consideration of the assumption
by the Partnership of certain operating liabilities. The carrying value of the
ground lease/mortgage loan investment as of the date of restructuring was
allocated to land, buildings and net operating assets.
The buildings and improvements (two industrial buildings in Hayward,
California) were being depreciated over 25 years beginning November 15, 1994.
Prior to 1994, the Managing General Partner determined that the carrying
value of this investment should be reduced to its estimated fair market value.
Accordingly, the carrying value was reduced by $2,500,000.
On March 18, 1999, the North Cabot Industrial Park investment was sold to
an unaffiliated third party for gross proceeds of $2,800,000. The Partnership
received net proceeds of $2,639,445 and recognized a gain of $1,509,931 ($21.85
per limited partnership unit). On April 29, 1999, the Partnership made a capital
distribution of $2,539,528 ($37.12 per limited partnership unit) from the
proceeds of the sale.
9
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
The following is a summary of the Partnership's last remaining investment
in property:
June 30, 2000 December 31, 1999
------------- -----------------
Land $ -- $ 215,404
Buildings and improvements -- 5,667,126
Accumulated depreciation
and amortization -- (343,490)
Net operating assets -- 379,492
Property held for disposition 5,835,901 --
----------- -----------
$ 5,835,901 $ 5,918,532
=========== ===========
NOTE 3 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended June
30, 2000 were made on July 27, 2000 in the aggregate amount of $134,755 ($1.95
per limited partnership unit).
10
NEW ENGLAND LIFE PENSION PROPERTIES III;
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 December 1985 and a total of 68,414 units were sold. The Partnership
received proceeds of $61,950,285, 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 nine real
estate investments, six of which were sold prior to 1994, and one of which was
sold in each of 1998 and 1999. As a result of the sales and similar
transactions, capital of $55,853,190 ($816.40 per limited partnership unit) has
been returned to the limited partners through June 30, 2000.
At June 30, 2000, the Partnership had $310,296 in cash and cash
equivalents, of which $134,755 was used for operating cash distributions to
partners on July 27, 2000; the remainder is being retained as working capital
reserves. The source of future liquidity and cash distributions to partners will
primarily be cash generated by the Partnership's last remaining real estate
investment and invested cash and cash equivalents. Distributions of cash from
operations for the first and second quarters of 2000 were made at the annualized
rate of 4.25% on the adjusted capital contribution of $183.60 per limited
partnership unit. Distributions of cash from operations for the first two
quarters of 1999 were made at the annualized rate of 4.25% on the adjusted
capital contribution of $231.54 per limited partnership unit and the weighted
average adjusted capital contribution of $205.97 per limited partnership unit,
respectively. At the time of the operating distribution related to the second
quarter of 1999, the Partnership also made a special distribution of $5.77 per
limited partnership unit from operating cash previously held in reserves.
The carrying value of real estate investments in the financial statements
at June 30, 2000 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 June 30, 2000, the appraised value of the
Partnership's remaining real estate investment exceeded its related carrying
value by approximately $742,000. The current appraised value of the real estate
investment has been determined by the managing general partner and is generally
based on a combination of traditional appraisal approaches performed by the
Advisor and independent appraisers and includes consideration of the amounts
negotiated in the Purchase and Sale Agreement executed on June 30, 2000. Because
of the subjectivity inherent in the valuation process, the current appraised
value may differ significantly from amounts ultimately realized from the sale of
the Partnership's real estate investment.
11
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
Results of Operations
- ---------------------
Form of Real Estate Investments
North Cabot Industrial Park, which was sold in March 1999, was a wholly-
owned property. Effective January 1, 1998, 270 Technology Park was converted to
a wholly-owned property; it was previously structured as a joint venture with a
real estate management/development firm.
Operating Factors
The North Cabot Industrial Park was sold on March 18, 1999, and the
Partnership recognized a gain of $1,509,931. Occupancy at North Cabot Industrial
Park was 92% at the time of the sale.
Occupancy at 270 Technology Park decreased to 99% during the second quarter
of 2000, down from 100% during the second quarter of 1999.
Investment Results
Interest on cash equivalents for the three and six months ended June 30,
2000, was $4,228 and $8,534, respectively, compared to $39,710 and $61,965 for
the same periods in 1999. The decreases of $35,482 and $53,431 for the
respective three and six month periods, respectively, are primarily due to
higher average investment balances in 1999 as a result of the North Cabot
Industrial Park sale proceeds held prior to distribution and operating cash held
in reserves prior to distribution.
For the three and six months ended June 30, 2000, operating results from
real estate operations were $189,575 and $289,369, respectively, compared to
$160,846 and $307,366 for the comparable periods in 1999. The three month
increase of $28,729 is primarily due to a decrease in operating expense as a
result of a recapture of bad debt expense previously written off in 1999. The
overall six month decrease of $17,997 is due to lower rental revenue at 270
Technology Park as a result of high vacancy during the first several months of
2000. This decline in revenue was partially offset by lower operating expenses
during the three months ended June 30, 2000, as discussed above.
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, legal, accounting, printing and
servicing agent fees.
12
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
For the three and six months ended June 30, 2000, management fees were
$13,328 and $26,655, respectively, compared to $14,968 and $71,216 for the
comparable periods in 1999. The decreases in management fees for the respective
three and six month periods are due to higher operational cash distributions in
1999 as well as a special distribution from operational cash previously held in
reserves made during the six months ended June 30, 1999.
General and administrative expenses for the three and six months ended June
30, 2000 were $42,658 and $103,455, respectively, compared to $60,271 and
$145,252 for the same periods in 1999. The decreases of approximately $18,000
and $42,000 for the comparable three and six month periods, respectively, are
primarily due to a reimbursement of state taxes paid in 1999 received in 2000,
offset by higher legal fees and investor servicing fees incurred in 2000.
13
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 2000
PART II
OTHER INFORMATION
-------------------
Items 1-5 Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: None
14
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 III;
A REAL ESTATE LIMITED PARTNERSHIP
Registrant)
August 14, 2000
/s/ Alison L. Husid
-------------------------------
Alison L. Husid
President, Chief Executive Officer
and Director of Managing General
Partner, Copley Properties Company
III, Inc.
August 14, 2000
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Principal Financial and Accounting
Officer of Managing General Partner,
Copley Properties Company III, Inc.
15