SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File No. 0-20126
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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
incorporation or organization) Identification No.)
World Trade Center East
Two Seaport Lane, 16(th) Floor
Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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 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___
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
No voting stock is held by nonaffiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
PART I
Item 1. Business.
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Copley Pension Properties VII; A Real Estate Limited Partnership (the
"Partnership") was organized under the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts on October 3, 1988, to invest primarily in
to-be-developed, newly constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of
$2,000 in the aggregate from Seventh Copley Corp. (the "Managing General
Partner") and ICOP Associates Limited Partnership (the "Associate General
Partner") (collectively, the "General Partners") and $10,000 from Copley Real
Estate Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on October 17, 1988, with respect to a
public offering of 80,000 units of limited partnership interest at a price of
$1,000 per unit (the "Units") with an option to sell up to an additional 80,000
Units (an aggregate of $160,000,000). The Registration Statement was declared
effective on January 9, 1989.
The first sale of Units occurred on April 27, 1989, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated on September 30, 1990 and the last group of initial
investors was admitted to the Partnership on October 10, 1990. As of December
31, 1990, a total of 42,076 Units had been sold, a total of 5,965 investors had
been admitted as limited partners (the "Limited Partners") and a total of
$41,956,740 net of discounts had been contributed to the capital of the
Partnership. The remaining 117,924 Units were deregistered on February 20, 1991.
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
As of December 31, 2001 the Partnership had disposed of all its real
estate property investments. The Partnership plans to liquidate and dissolve in
2002. The Partnership sold its last two remaining assets in 2001, as described
below. The Partnership sold seven real estate investments between 1991 and
2001. The principal terms of these sales are set forth in the following table:
Date Net Sale Distribution Distribution
Investment Sold Proceeds Per Unit Date
---------- ---- -------- -------- ----
Drilex 4/01 $2,361,968 $54.00 4/01
Prentiss Copystar 2/01 $1,364,298 $28.00 3/01
Parkmoor Plaza 5/00 $11,000,422 $252.78 6/00
Regency Court 3/99 $12,486,618 $286.00 3/99
Waterford Apartments 8/98 $5,446,250 $129.00 8/98
Kachina Apartments 8/94 $9,679,291 $104.00 *
Dornier Medical Systems 9/91 $4,696,621 $4.00 10/91
* In regards to the sale of the Kachina Apartments, two distributions were
made. The first one was made in January of 1995 in the amount of $24.00 per
Unit and the second one was made in October of 1995 in the amount of $80.00 per
Unit.
2
Office/Warehouse Building in Houston, Texas ("Drilex").
-------------------------------------------------------
On December 18, 1990, the Partnership acquired a 75% interest in a
joint venture formed with an affiliate of The Trammell Crow Company ("Trammell
Crow"). The Partnership had contributed $2,294,713 to the capital of the joint
venture. The joint venture agreement entitled the Partnership to receive a
preferred return on its invested capital at the rate of 11% per annum, which
was payable currently until the Partnership had received an aggregate of
$56,115. Upon completion of construction, the preferred return would accrue, if
sufficient cash flow was not available therefor. In addition, upon rental of
the building, the joint venture was also obligated to pay to the Partnership
the amount of $2,755 on a monthly basis. This amount represented full
amortization over a ten year period of the cost of special tenant improvements
and was applied against both the contributed capital and the preferred return.
The joint venture agreement also entitled the Partnership to receive 50% of the
net proceeds of sales after return of its capital if the building was sold
within one year of the tenant's occupancy for a cash price of greater than
$2,800,000. Under any other circumstances, the Partnership's share of sale
proceeds was 75%. As of January 1, 1993, the Partnership acquired Trammell
Crow's equity interest in the joint venture for $70,000.
The Partnership owned approximately 3.4 acres of land in Houston,
Texas, improved with an approximately 53,750 square foot single story
office/warehouse building constructed in 1991.
On April 6, 2001, the Partnership sold its Drilex investment to an
unaffiliated third party for gross proceeds of $2,500,000. The Partnership
received net proceeds of $2,361,968 and recognized a gain of $68,290 ($1.61 per
Unit) on the sale. On April 26, 2001, the Partnership made a capital
distribution of $2,272,104 ($54.00 per Unit) from the proceeds of the sale.
Industrial Building in Itasca, Illinois ("Prentiss Copystar").
--------------------------------------------------------------
On May 23, 1991, the Partnership acquired a 23.25% interest in a
joint venture formed with Copley Pension Properties VI; A Real Estate Limited
Partnership, an affiliate of the Partnership (the "Affiliate") with a 51.75%
interest, and with an affiliate of Prentiss Properties, Ltd. (the "Developer").
As of December 31, 2000, the Partnership had contributed $1,197,807 to the
capital of the joint venture, which included default contributions made on
behalf of the Developer. Of the capital contributed and not returned, $690,223
was characterized as Senior Capital, $308,725 was characterized as Junior
Capital and $198,859 was characterized as Deficit and Default Contributions The
joint venture agreement entitled the Partnership to receive a preferred return,
compounded monthly, of 11% per annum of which the return on Senior Capital was
payable currently and the return on Junior Capital, Deficit and Default
Contributions could accrue and compound monthly if sufficient cash flow was not
available therefor. If the Senior Capital was repaid prior to the termination
of the joint venture, the Partnership would be entitled to receive a return on
the Senior Capital at the lesser of 11% per annum or the interest rate for
treasury bonds having a maturity date coinciding with the termination of the
joint venture, plus 75 basis points. The joint venture agreement also entitled
the Partnership to receive 23.25% of the net proceeds of sales and financings
after return of its capital and 23.25% of cash flow remaining after payment of
the preferred return, both of which had been adjusted to 27.70% as of December
31, 2000, as a result of its Default Contribution, in accordance with the joint
venture agreement.
The joint venture owned approximately 3.75 acres of land in Itasca,
Illinois and during 1991 completed construction thereon of an approximately
70,535 square foot single-story industrial building.
On February 26, 2001, the Prentiss Copystar joint venture investment
in which the Partnership and an affiliate were entitled to 31% and 69%,
respectively, of the operating activity, sold its property to an unaffiliated
third party for gross proceeds of $4,575,000, of which the Partnership's share
was $1,418,250. The Partnership
3
received its 31% share of the net proceeds, $1,364,298 after closing costs, and
recognized a gain on the sale of $321,632 ($7.57 per Unit). On March 29, 2001,
the Partnership made a capital distribution of $1,178,128 ($28.00 per Unit)
from the proceeds of the sale.
Item 2. Properties.
-----------
The Partnership has disposed of all its real property investments.
Item 3. Legal Proceedings.
------------------
The Partnership is not a party to, nor are any of its properties
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
----------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.
As of December 31, 2001, there were 5,553 holders of Units.
The Partnership's Amended and Restated Agreement of Limited
Partnership dated April 27, 1989, as amended to date (the "Partnership
Agreement"), requires that any Distributable Cash (as defined therein) be
distributed quarterly to the Partners in specified proportions and priorities.
There are no restrictions on the Partnership's present or future ability to
make distributions of Distributable Cash. For the year ended December 31, 2001,
cash distributions paid in 2001 or distributed after year end with respect to
2001 to the Limited Partners totaled $5,110,130, including $3,450,232 of
returned capital from the proceeds of sales of real property and $1,136,052, of
returned capital from original working capital reserves. For the year ended
December 31, 2000, cash distributions paid in 2000 or distributed after year
end with respect to 2000 to the Limited Partners totaled $12,676,657, including
$10,635,971 of returned capital from the proceeds of a sale of real property
and $1,491,173, of returned capital from original working capital reserves.
Cash distributions exceeded net income in 2001 and 2000. Distributions
of operating cash flow exceeded cash generated by operating activities.
Reference is made to the Partnership's Statements of Changes in Partner's
Capital and Statements of Cash Flows in Item 8 hereof.
4
Item 6. Selected Financial Data.
-----------------------
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended or
As of: As of: As of: As of: As of:
12/31/01(1) 12/31/00(2) 12/31/99(3) 12/31/98(4) 12/31/97
------------ ------------ ------------ ------------ --------
Revenues $2,023,519 $ 3,643,661 $ 5,562,433 $ 5,544,041 $ 3,453,194
Net Income $1,666,795 $ 3,179,838 $ 4,871,411 $ 3,960,679 $ 1,942,196
Net Income per
Unit of Limited
Partnership
Interest
Outstanding $ 39.22 $ 74.82 $ 114.62 $ 93.19 $ 45.70
Total Assets $ 743,747 $ 5,472,706 $15,148,639 $23,685,914 $28,125,153
Total Cash
Distributions
per Limited
Partnership
Unit
Outstanding
for the entire
period,
including amounts
distributed after
year end with
respect to such year $ 121.45 $ 301.28 $ 325.53 $ 198.47 $ 61.88
(1) 2001 Revenues and Net Income include gains on sale of investments of
$389,922 and $1,427,406 of other income resulting from the reversal
of deferred disposition fees. Cash distributions include a return of
capital of $109.00.
(2) 2000 Revenues and Net Income include a gain on sale of investment of
$2,501,169. Cash distributions include a return of capital of
$288.22.
(3) 1999 Revenues and Net Income include a gain on sale of investment of
$3,287,303. Cash distributions include a return of capital of
$286.00.
(4) 1998 Revenues and Net Income include a gain on sale of investment of
$2,076,945. Cash distributions include a return of capital of $141.88.
See the audited financial statements for details of significant transactions.
5
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
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ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The Partnership recognizes rental revenue on a straight-line basis
over the lease terms.
The Partnership accounts for its investments in joint ventures using the
equity method of accounting. Under the equity method of accounting, the net
equity investment of the Partnership is reflected on the balance sheets, and the
Partnership's share of net income or loss from the joint ventures is included
in the statements of operations.
The Partnership records real estate sales at the time a sale is
consummated. A sale is consummated when the parties are bound by the terms of a
contract, all consideration has been exchanged, all conditions precedent to
closing have been met, and title has passed from seller to buyer.
Liquidation Basis of Accounting
- -------------------------------
The Partnership adopted a plan of liquidation on December 31, 2001, and,
as a result, the Partnership also adopted the liquidation basis of accounting
which, among other things, requires that assets and liabilities be stated at
their estimated net realizable value and that estimated costs of liquidating the
Partnership be provided to the extent that they are reasonably determinable.
Accrued expenses for liquidation as of December 31, 2001 include estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees, tax
preparation and filing fees and other professional services. The actual costs
could vary from the related provisions due to the uncertainty related to the
length of time required to complete the liquidation and dissolution of the
Partnership. The accrued expenses do not take into consideration possible
litigation arising from the customary representations and warranties made as
part of each sale. Such costs, if any, are unknown and are not estimable at this
time. Similarly, there can be no assurance as to the timing of a distribution of
the Partnership's assets or the amount of assets that will be distributed to the
Partnership's Unit holders.
LIQUIDITY AND CAPITAL RESOURCES
===============================
The Partnership completed its offering of Units in September, 1990 and
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 and the payment of related acquisition
costs, and for working capital reserves. As of December 31, 2001, the
Partnership had sold all of its real estate investments: one investment was
sold in each of 1991, 1994, 1998, 1999 and 2000, and two investments were sold
in 2001. Through December 31, 2001, capital of $39,677,668 ($943.00 per Unit)
has been returned to the limited partners; $36,091,951 as a result of sales,
$336,608 in 1996 as a result of a discretionary reduction of cash reserves and
$3,249,109 as a result of distributions of original working capital. As a
result of sales and similar transactions, the adjusted capital contribution was
reduced to $57.00.
On March 25, 1999, the Partnership sold the Regency Court Apartments
to an unaffiliated third party for a gross sale price of $13,050,000. The
Partnership received net proceeds of $12,486,618 and recognized a gain of
$3,287,303 ($77.35 per Unit). A disposition fee was accrued but not paid to AEW
Real Estate Advisors, Inc. (the "Advisor"). In accordance with the Partnership
agreement, this fee was reversed in 2001. On April 29, 1999, the Partnership
made a capital distribution of $12,033,736 ($286.00 per Unit) from the proceeds
of the sale.
On May 31, 2000, the South Bay/Parkmoor Plaza joint venture in which
the Partnership held a 75% interest, sold its property to an unaffiliated third
party for gross proceeds of $11,725,000. The Partnership received net proceeds
of $11,000,422 and a gain of $2,501,169 ($58.85 per Unit). A disposition fee
was accrued but not paid to the Advisor. In accordance with the Partnership
agreement, this fee was reversed in 2001. On June 28, 2000, the Partnership
made a capital distribution of $10,635,971 ($252.78 per Unit) from the proceeds
of the sale.
On February 26, 2001, the Prentiss Copystar joint venture investment
in which the Partnership and an affiliate were entitled to 31% and 69%,
respectively, of the operating activity, sold its property to an unaffiliated
third party for gross proceeds of $4,575,000, of which the Partnership's share
was $1,418,250. The Partnership received its 31% share of the net proceeds,
$1,364,298 after closing costs, and recognized a gain of $321,632 ($7.57 per
Unit). A disposition fee of $42,548 was accrued but not paid to the Advisor. In
accordance with the Partnership agreement, this fee was reversed during the
second quarter of 2001. On March 29, 2001, the Partnership made a capital
distribution of $1,178,128 ($28.00 per Unit) from the proceeds of the sale.
On April 6, 2001, the Partnership sold its Drilex investment to an
unaffiliated third party for gross proceeds of $2,500,000. The Partnership
received net proceeds of $2,361,968 and recognized a gain of $68,290 ($1.61 per
Unit) on the sale. On April 26, 2001, the Partnership made a capital
distribution of $2,272,104 ($54.00 per Unit) from the proceeds of the sale.
At December 31, 2001, the Partnership had $743,747 in cash and cash
equivalents which is being retained primarily as a reserve in connection with
the liquidation of the Partnership. A capital distribution of original working
capital previously held in reserves was made on April 26, 2001 in the amount of
$27.00 per Unit. A distribution of operational cash previously held in reserves
was made on July 26, 2001 in the amount of $12.45 per Unit. For the year ended
December 31, 2000 the Partnership made distributions of cash from operations
relating to the first quarter of 2000 at an annualized rate of 6.5% on the
adjusted capital contribution of $454.22. Distributions of cash from operations
relating to the second quarter of 2000 were made at an annualized rate of 5% on
the adjusted capital contribution of $454.22. The rate decrease in the second
quarter of 2000 is primarily due to a decrease in cash available for
distribution due to the sale of Parkmoor Plaza on May 31, 2000. A capital
distribution was made during the third quarter of 2000 from allocated working
capital reserves related to Parkmoor Plaza ($35.44 per Unit); however, there
were no distributions of cash from operations relating to the third and fourth
quarters of 2000 due to the reduction in cash flow resulting from the sale of
Parkmoor Plaza,
6
Prentiss Copystar being vacant during the first eight months of 2000 and the
Drilex property having reduced its cash flow to the Partnership due to payments
for capital expenditures.
RESULTS OF OPERATIONS
- ---------------------
FORM OF REAL ESTATE INVESTMENTS
The Regency Court and Drilex investments, which were structured as
wholly-owned properties, were sold on March 25, 1999 and April 6, 2001,
respectively. The Parkmoor Plaza and Prentiss Copystar investments, which were
structured as joint ventures, were sold on May 31, 2000 and February 26, 2001,
respectively.
OPERATING FACTORS
As discussed above, the Drilex investment was sold on April 6, 2001
and the Partnership recognized a gain of $68,290. Drilex was 100% leased at the
time of the sale as it was on December 31, 2000.
As discussed above, the Prentiss Copystar investment was sold on
February 26, 2001 and the Partnership recognized a gain of $321,632. Prentiss
Copystar was 100% leased at the time of the sale as it was on December 31, 2000.
As discussed above, the Parkmoor Plaza investment was sold on May 31,
2000, and the Partnership recognized a gain of $2,501,169. At the time of the
sale, Parkmoor Plaza was 100% leased as it was at December 31, 1999.
As discussed above, the Regency Court Apartments was sold on March 25,
1999, and the Partnership recognized a gain of $3,287,303. At the time of the
sale, the Regency Court Apartments was 97% leased.
INVESTMENT ACTIVITY
Interest on cash and cash equivalents decreased approximately $181,000
primarily due to lower average investment balances as a result of both the
sales discussed above as well as distributions during 2001 and 2000 of cash
previously held in reserves. Interest on cash and cash equivalents remained
relatively stable between 2000 and 1999.
2001 Compared to 2000
Total real estate operations for the years ended December 31, 2001 and
2000 were $83,668 and $660,370, respectively. The decrease of $576,702 is
primarily due to a decrease in joint venture earnings as a result of the sale
of the Parkmoor Plaza investment in May 2000, the sale of Prentiss Copystar
investment in February 2001 and a decrease in property operations due to the
sale of Drilex in April 2001.
The Partnership recognized other revenue of $1,427,406 during the year
ended December 31, 2001, which is attributable to the reversal of the deferred
disposition fees in accordance with the Partnership Agreement.
2000 Compared to 1999
Total real estate operations for the years ended December 31, 2000 and
1999 were $660,370 and $1,656,933, respectively. The decrease of $996,563 was
due to a decrease in joint venture earnings as well as a decrease in property
operations. The decrease in joint venture earnings is a result of the sale of
Parkmoor Plaza in May 2000 and the vacancy at Prentiss Copystar for the first
eight months of 2000 versus three months vacancy in 1999. The decrease in
property operations is due to the sale of the Regency Court Apartments in March
1999 as
7
well as a lease termination fee recorded as income at Drilex in 1999 as well as
an increase in depreciation and amortization expense in 2000 at Drilex.
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.
2001 Compared to 2000
The Partnership management fee remained relatively stable between 2001
and 2000. General and administrative expenses decreased approximately $35,000,
or 19% due to decreases in appraisal, printing and investor servicing fees as a
result of the sale of the Partnership's remaining two assets during 2001.
2000 Compared to 1999
The Partnership management fee decreased between 2000 and 1999 due to
a decrease in distributable cash flow as a result of the sale of the Parkmoor
Plaza on May 31, 2000 as well as insufficient cash flow resulting from Prentiss
Copystar being vacant during the first eight months of 2000 and the Drilex
property having reduced its cash flow to the Partnership due to payments of
capital expenditures. General and administrative expenses increased
approximately $6,500 or 4%, due to an increase in investor servicing fees which
is offset by a decrease in legal, appraisal and filing fees and taxes.
INFLATION
- ---------
By their nature, real estate investments tend not to be adversely
affected by inflation. Inflation may result in appreciation in the value of
real estate investments over time, if rental rates and replacement costs
increase. Declines in property values during the period of Partnership
operations, due to market and economic conditions, have overshadowed the
positive effect inflation may have on the value of the Partnership's
investments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 2001
and 2000.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The independent auditor's report and financial statements listed in
the accompanying index are filed as part of this report. See Index to the
Financial Statements on page 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
8
PART III
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Item 10. Directors and Executive Officers of the Registrant.
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(a) and (b) Identification of Directors and Executive Officers.
---------------------------------------------------
The following table sets forth the names of the directors and
executive officers of the Managing General Partner and the age and position
held by each of them as of December 31, 2001.
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
Alison L. Husid President, Chief Executive Officer and Director 39
Pamela J. Herbst Vice President and Director 46
J. Grant Monahon Vice President 56
James J. Finnegan Vice President 41
Jonathan Martin Treasurer and Principal Financial and Accounting
Officer 31
(c) Identification of Certain Significant Employees.
-----------------------------------------------
None.
(d) Family Relationships.
--------------------
None.
(e) Business Experience.
-------------------
The Managing General Partner was incorporated in Massachusetts on
October 13, 1987. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:
Alison L. Husid is a Portfolio Manager in the Direct Investments group
of AEW Capital Management, L.P. ("AEW"), with responsibility for several real
estate equity portfolios representing approximately $700 million in client
capital. She has over 17 years of experience in real estate finance and
investment management. Alison joined AEW in 1987 as Controller for a portfolio
management team responsible for the acquisition, management, restructuring and
disposition of client assets in New England and the western U.S. She later
served as Asset Manager for a portfolio of assets in Arizona and the West Coast.
Prior to joining AEW, Alison worked for several years as a Senior Auditor with
Peat Marwick, Main & Co. She is a member of New England Women in Real Estate
(NEWIRE), a Certified Public Accountant and a graduate of the University of
Massachusetts (B.A.).
Pamela J. Herbst is Head of AEW's Direct Investments group, with oversight
responsibility for approximately $4 billion of client assets. With over 20
years of direct real estate experience, Pam is a Principal of AEW, and a member
of its Management Committee, Investment Committee and Investment Policy Group.
Since joining AEW in 1982, Pam has held various senior level positions in
investment management, acquisitions and corporate operations. In addition to
holding a number of industry certifications, she is a member of various real
estate industry trade organizations and sits on the Board of Directors of the
National Association of Real Estate Investment Managers (NAREIM). Pam is a
graduate of the University of Massachusetts (B.A.) and Boston University
(M.B.A.).
J. Grant Monahon is a Principal of AEW focused primarily on expanding
AEW's activities in a variety of global real estate markets. Grant is a member
of AEW's Management Committee, Investment Committee and Investment Policy
Group. He has over 25 years of experience in real estate law and investments
and formerly has
9
served as AEW's Chief Operating Officer and as General Counsel. Prior to
joining AEW in 1987, Grant was a partner with a major Boston law firm. As the
head of that firm's real estate finance department, he represented a wide
variety of institutional clients, both domestic and international, in complex
equity and debt transactions. He is the former Chairman of the General Counsel
section of the National Association of Real Estate Investment Managers. Grant
is a graduate of Dartmouth College (B.A.) and Georgetown University Law Center
(J.D.).
James J. Finnegan is AEW's General Counsel. He has over fifteen years of
experience in real estate, including seven years in private practice with major
New York City and Boston law firms. Jay has extensive experience in creating
and implementing real estate investment and portfolio management strategies for
institutional investors. Jay joined AEW in 1992 and has been actively involved
in various aspects of AEW's investment activities, including public and private
debt and equity investments. He also serves as AEW's securities and regulatory
compliance officer, and is the Principal of AEW Securities, L.P., AEW's
affiliated broker/dealer. Jay is a member of the General Counsel section of the
National Association of Real Estate Investment Managers. He is a graduate of
the University of Vermont (B.A.) and Fordham University School of Law (J.D.).
Jonathan Martin is the Director of Portfolio Accounting for AEW's Direct
Investment group, with responsibility for overseeing all accounting,
performance measurement and financial reporting matters for the firm's direct
equity investment portfolios. Prior to joining AEW, Jon worked for nine years
as a Senior Manager with PricewaterhouseCoopers, LLP where he was an auditor
and financial consultant specializing in the real estate and mortgage banking
industries. A Certified Public Accountant and a member of NCREIF's Accounting
Committee, Jon is a graduate of the University of Notre Dame (B.A.).
(f) Involvement in Certain Legal Proceedings.
----------------------------------------
None.
Item 11. Executive Compensation.
-----------------------
Under the Partnership Agreement, the General Partners and their affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Notes 1, 2 and 7 of Notes to Financial Statements.
The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partners and
their affiliates for the year ended December 31, 2001. Cash distributions to
General Partners include amounts paid after year end with respect to 2001.
Amount of Compensation
Receiving Entity Type of Compensation and Reimbursement
- ---------------- -------------------- ---------------------
General Partners Share of Distributable
Cash $ 5,291
AEW Real Estate Advisors, Inc. Management Fees
(formerly known as Copley and Expense
Real Estate Advisors, Inc.) Reimbursements 68,308
---------
TOTAL $ 73,599
=========
For the year ended December 31, 2001 the Partnership allocated $186 of
taxable loss to the General Partners. See Note 1 to the audited financial
statements for additional information about transactions between the
Partnership and the General Partner and their affiliates.
10
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
No person or group is known by the Partnership to be the
beneficial owner of more than 5% of the outstanding Units at December 31, 2001.
Under the Partnership Agreement, the voting rights of the Limited Partners are
limited and, in some circumstances, are subject to the prior receipt of certain
opinions of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the
right to manage the business of the Partnership is vested exclusively in the
Managing General Partner.
(b) Security Ownership of Management.
---------------------------------
The General Partners of the Partnership owned no Units at
December 31, 2001.
(c) Changes in Control.
-------------------
There exists no arrangement known to the Partnership the operation
of which may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The Partnership has no relationships or transactions to report
other than as reported in Item 10, above.
11
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
-------------------------------------------------------
(a) The following documents are filed as part of this report:
Financial Statements--The Financial Statements listed on
the accompanying Index to Financial Statements and Financial Statement Index
No. 2 are filed as part of this Annual Report.
(b) Reports on Form 8-K: No Current Reports on Form 8-K were
filed during the last quarter of the year ended December 31, 2001.
12
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
* * * * * * *
DECEMBER 31, 2001
13
COPLEY PENSION PROPERTIES VII;
------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Report of Independent Accountants
Financial Statements (in liquidation as of December 31, 2001):
Balance Sheets - December 31, 2001 and 2000
Statements of Operations - Years ended December 31, 2001, 2000 and 1999
Statements of Partners' Capital - Years ended December 31, 2001, 2000, and
1999
Statements of Cash Flows - Years ended December 31, 2001, 2000, and 1999
Notes to Financial Statements
All schedules are omitted because they are not applicable.
14
Report of Independent Accountants
To the Partners of Copley Pension Properties VII; A Real Estate Limited
Partnership:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Copley
Pension Properties VII; A Real Estate Limited Partnership (the "Partnership")
at December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of Seventh Copley
Corp., the Managing General Partner of the Partnership (the "Managing General
Partner"); our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the Managing
General Partner, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Partnership adopted a
plan of liquidation on December 31, 2001 and as a result changed its basis of
accounting for periods subsequent to December 31, 2001 from the going concern
basis to the liquidation basis of accounting.
/s/ PriceWaterhouseCoopers LLP
Boston, MA
March 18, 2002
15
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
(in liquidation at December 31, 2001)
December 31,
--------------------------
2001 2000
---------- ------------
Assets
Joint venture held for disposition $ - $ 938,614
Property held for disposition - 2,318,455
---------- ------------
3,257,069
Cash and cash equivalents 743,747 2,215,637
---------- ------------
$ 743,747 $ 5,472,706
========== ============
Liabilities and Partners' Capital
Accounts payable $ 84,212 $ 88,687
Accrued expenses for liquidation 109,000 -
Deferred disposition fees - 1,384,858
---------- ------------
Total liabilities 193,212 1,473,545
---------- ------------
Partners' capital:
Limited partners ($57.00 and $166.00 per unit,
respectively; 160,000 units authorized,
42,076 units issued and outstanding) 511,410 3,971,413
General partners 39,125 27,748
---------- ------------
Total partners' capital 550,535 3,999,161
---------- ------------
$ 743,747 $ 5,472,706
========== ============
(See accompanying notes to financial statements)
16
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in liquidation at December 31, 2001)
Year ended December 31,
-------------------------------------
2001 2000 1999
------------ ----------- -----------
Investment Activity
Property rentals $ 113,217 $ 323,038 $ 937,404
Property operating expenses (46,367) (79,704) (265,271)
Depreciation and amortization - (145,428) (90,317)
------------ ------------ ------------
66,850 97,906 581,816
Joint venture earnings 16,818 562,464 1,075,117
------------ ------------ ------------
Total real estate operations 83,668 660,370 1,656,933
Gain on sale of joint venture investments 321,632 2,501,169 -
Gain on sale of properties 68,290 - 3,287,303
Reversal of deferred disposition fees 1,427,406 - -
------------ ------------ ------------
Total real estate activity 1,900,996 3,161,539 4,944,236
Interest on cash equivalents 76,156 256,990 262,609
------------ ------------ ------------
Total investment activity 1,977,152 3,418,529 5,206,845
------------ ------------ ------------
Portfolio Expenses
Management fee 52,332 54,896 158,173
Estimated liquidation period expenses 109,000 - -
General and administrative 149,025 183,795 177,261
------------ ------------ ------------
310,357 238,691 335,434
------------ ------------ ------------
Net Income $ 1,666,795 $ 3,179,838 $ 4,871,411
============ ============ ============
Net income per limited
partnership unit $ 39.22 $ 74.82 $ 114.62
============ ============ ============
Cash distributions per limited
partnership unit $ 121.45 $ 312.65 $ 327.22
============ ============ ============
Number of limited partnership units
outstanding during the year 42,076 42,076 42,076
============ =========== ============
(See accompanying notes to financial statements)
17
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
(in liquidation at December 31, 2001)
Year ended December 31,
--------------------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------------- ---------------------------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
-------- -------- -------- -------- -------- --------
Balance at beginning
of year $ 27,748 $3,971,413 $ 6,333 $ 13,978,434 $(25,669) $22,923,845
Cash distributions (5,291) (5,110,130) (10,383) (13,155,061) (16,712) (13,768,108)
Net income 16,668 1,650,127 31,798 3,148,040 48,714 4,822,697
-------- ---------- -------- ------------ -------- -----------
Balance at end of year $ 39,125 $ 511,410 $ 27,748 $ 3,971,413 $ 6,333 $13,978,434
======== ========== ======== ============ ======== ===========
(See accompanying notes to financial statements)
18
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in liquidation at December 31, 2001)
Year ended December 31,
-------------------------------------------------------------------
2001 2000 1999
------------- -------------- --------------
Cash flows from operating activities:
Net income $ 1,666,795 $ 3,179,838 $ 4,871,411
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization - 145,428 90,317
Equity in joint venture earnings (16,818) (562,464) (1,075,117)
Cash distributions from joint ventures - 557,565 1,159,146
Gain on sale of joint venture (321,632) (2,501,169) -
Gain on sale of property (68,290) - (3,287,303)
Decrease (increase) in deferred lease commissions 20,247 (109,296) (131,838)
Decrease (increase) in property working capital 4,530 (255,344) 272,222
Decrease (increase) in operating liabilities 104,525 (42,077) (15,366)
Reversal of deferred disposition fees (1,427,406) - -
------------- ------------- -------------
Net cash provided by (used for)
operating activities (38,049) 412,481 1,883,472
------------- ------------- -------------
Cash flows from investing activities:
Investment in property - (31,261) (400,000)
Investment in joint venture (44,686) (169,958) (1,276)
Net proceeds from sale of investments 3,683,718 10,648,672 12,095,118
Deferred disposition fees 42,548 351,750 391,500
------------- ------------- -------------
Net cash provided by investing
activities 3,681,580 10,799,203 12,085,342
------------- ------------- -------------
Cash flows from financing activity:
Distributions to partners (5,115,421) (13,165,444) (13,784,820)
------------- ------------- -------------
Net cash used in financing activity (5,115,421) (13,165,444) (13,784,820)
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents (1,471,890) (1,953,760) 183,994
Cash and cash equivalents:
Beginning of year 2,215,637 4,169,397 3,985,403
------------- ------------- -------------
End of year $ 743,747 $ 2,215,637 $ 4,169,397
============= ============= =============
(See accompanying notes to financial statements)
19
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business
- ----------------------------------
General
-------
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 and has
disposed of all of its investments as of December 31, 2001. On December 31,
2001, the Partnership adopted a plan of liquidation and intends to liquidate in
2002.
The Managing General Partner of the Partnership is Seventh Copley Corp., a
wholly-owned subsidiary of AEW Real Estate Advisors, Inc. (the "Advisor"),
formerly known as Copley Real Estate Advisors, Inc. ("Copley"). The associate
general partner is ICOP Associates Limited Partnership, a Massachusetts limited
partnership. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by the Advisor pursuant to an advisory
contract.
The Advisor is wholly-owned subsidiary of AEW Capital Management, L.P., a
wholly-owned subsidiary of Nvest Companies, L.P. (the "Company"). On October
30, 2000, Paris-based CDC IXIS Asset Management ("CDCIAM") acquired the Company
and its affiliated partnership, Nvest, L.P. (the "Acquisition"). Subsequently,
the Company's name was changed to CDC IXIS Asset Management North America, LP.
CDCIAM is the investment management arm of France's CDC IXIS, a subsidiary of
Caisse des Depots Group ("CDC").
The Acquisition was accomplished through CDCIAM's wholly owned subsidiary,
CDC IXIS Asset Management US Corporation ("CDCIAM US Corp."), which has a 99%
direct limited partnership interest in the Company and is the sole owner of the
Company's 1% general partner, CDC IXIS Asset Management US, LLC.
Prior to the Acquisition, the Company was owned by Nvest, L.P. ("Nvest"),
a publicly traded limited partnership with an approximate 15 percent interest,
and by private unitholders. The general partner of Nvest and the managing
general partner of the Company was a wholly-owned subsidiary of Metropolitan
Life Insurance Company ("MetLife"). In total, MetLife owned approximately 48%
of the partnership units of the Company at October 30, 2000 (including those
owned indirectly through ownership of Nvest units). Upon the consummation of
the Acquisition on October 30, 2000, all unitholders received cash in exchange
for each unit owned. Nvest, whose primary asset was its ownership of Nvest
Companies' units, was merged with and into the Company on December 31, 2000,
with the Company as the surviving entity.
Management
----------
The Advisor is entitled to receive stipulated fees from the Partnership in
consideration of services performed in connection with the management of the
Partnership and the acquisition and disposition of Partnership investments in
real property. Partnership management fees are 9% of distributable cash from
operations, as defined, before deducting such fees. The Advisor is also
reimbursed for expenses incurred in connection with administering the
Partnership ($12,000 in each of 2001, 2000 and 1999). Acquisition fees were
paid at the time commitments were initially funded in an amount equal to 2% of
the gross proceeds from the offering of units. Disposition fees are limited to
the lesser of 3% of the selling price of the property, or 50% of the standard
real estate commission customarily charged by an independent real estate
broker. Payments of disposition fees are subject to the prior receipt by the
limited partners of their capital contributions plus a stipulated return
thereon. Based on the Partnership's returns to date and the sale of the
Partnership's last two
20
remaining assets during 2001, the Managing General Partner determined that
previously accrued disposition fees of $1,427,406 would not be paid, and,
accordingly, recognized the reversal of such fees as other revenue in 2001.
New England Securities Corporation ("NESC"), an indirect subsidiary of Met
Life during 2000 and 1999, was engaged by the Partnership to act as its
unitholder servicing agent. Fees and out-of-pocket expenses for such services
totaled $9,846 in 2000 and $9,685 in 1999.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Revenue Recognition
-------------------
The Partnership recognizes rental revenue on a straight-line basis over the
lease terms.
The Partnership accounts for its investments in joint ventures using the
equity method of accounting. Under the equity method of accounting, the net
equity investment of the Partnership is reflected on the balance sheets, and the
Partnership's share of net income or loss from the joint ventures is included
in the statements of operations.
The partnership records real estate sales at the time a sale is
consummated. A sale is consummated when the parties are bound by the terms of a
contract, all consideration has been exchanged, all conditions precedent to
closing have been met, and title has passed from seller to buyer.
Liquidation Basis of Accounting
-------------------------------
In connection with its adoption of a plan of liquidation on December 31,
2001, the Partnership also adopted the liquidation basis of accounting which,
among other things, requires that assets and liabilities be stated at their
estimated net realizable value and that estimated costs of liquidating the
Partnership be provided to the extent that they are reasonably determinable.
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates
require an assessment of factors not within management's control, such as the
ability of tenants to perform under long-term leases and the ability of the
properties to sustain their occupancies in changing markets. Actual results,
therefore, could differ from those estimates.
Real Estate Joint Ventures
--------------------------
Investments in joint ventures were stated at cost plus (minus) equity in
undistributed joint venture income (losses). Allocations of joint venture
income (losses) were made to the Partnership's venture partners as long as they
had substantial economic equity in the project. Economic equity was measured
by the excess of the appraised value of the property over the Partnership's
total cash investment plus accrued preferential returns thereon.
Property
--------
Property included land and buildings, which were stated at cost less
accumulated depreciation, plus other operating net assets (liabilities). The
Partnership's initial carrying value of a property previously owned by a joint
venture equaled the Partnership's carrying value of the prior investment on the
conversion date.
Capitalized Costs, Depreciation and Amortization
------------------------------------------------
Maintenance and repair costs were expensed as incurred. Significant
improvements and renewals were capitalized. Depreciation was computed using
the straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs were also capitalized and amortized over the
related lease term.
Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land were amortized using the
straight-line method over the estimated useful lives of the underlying
property.
Leases provided for rental increases over the respective lease terms.
Rental revenue was being recognized on a straight-line basis over the lease
terms.
21
Realizability of Real Estate Investments
----------------------------------------
The Partnership considered a real estate investment to be impaired when it
determined the carrying value of the investment was not recoverable through
undiscounted cash flows generated from the operations and disposition of the
property. The impairment loss was based on the excess of the investment's
carrying value over its estimated fair market value. For investments held for
disposition, the impairment loss also included estimated costs of sale.
Property held for disposition was not depreciated during the holding period.
Investments were considered to be held for disposition at the time management
committed the Partnership to a plan to dispose of the investment.
Cash Equivalents
----------------
Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid investments purchased with a maturity
of ninety days or less to be cash equivalents; otherwise, they are classified
as short-term investments.
Deferred Disposition Fees
-------------------------
Disposition fees due to the Advisor related to sales of investments were
included in the determination of gains or losses resulting from such
transactions. According to the terms of the advisory contract, payment of such
fees has been deferred until the limited partners first receive their capital
contributions, plus stipulated returns thereon. Based on the Partnership's
returns to date and the sale of the Partnership's last two remaining assets,
the Managing General Partner determined that previously accrued disposition
fees of $1,427,406 would not be paid, and, accordingly, recognized the reversal
of such fees as revenue in 2001.
Income Taxes
------------
A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.
Per Unit Computations
---------------------
Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.
Segment Data
------------
Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment: investing in real estate properties which are
domiciled in the United States of America.
Note 3 - Accrued Expenses for Liquidation
- -----------------------------------------
Accrued expenses for liquidation as of December 31, 2001 include estimates
of costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees, tax
preparation and filing fees and other professional services. As of December
31, 2001 the Partnership accrued $109,000 for such expenses.
The actual costs could vary from the related provisions due to the
uncertainty related to the length of time required to complete the liquidation
and dissolution of the Partnership. The accrued expenses do not take into
22
consideration possible litigation arising from the customary representations
and warranties made as part of each sale. Such costs, if any, are unknown and
are not estimable at this time.
Note 4 - Real Estate Joint Ventures
- -----------------------------------
The Partnership invested in six real estate joint ventures, organized as
general partnerships with different real estate management/development firms,
and in two cases, with an affiliate of the Partnership. One such investment
was sold in each of 1991, 1994, 1998, 2000 and 2001. The Drilex investment was
converted to a wholly-owned property in 1993 and was sold in 2001. The
Partnership had committed to make capital contributions to the ventures, which
were subject to preferential cash distributions at a specified rate and to
priority distributions with respect to sale or refinancing proceeds. The joint
venture agreements provided for the funding of cash flow deficits by the
venture partners in proportion to ownership interests, and for the dilution of
ownership share in the event a venture partner did not contribute
proportionately.
The respective real estate management/development firm was responsible for
day-to-day development and operating activities, although overall authority and
responsibility for the business was shared by the venturers. The real estate
management/development firm, or its affiliates, also provided various services
to the respective joint ventures for a fee.
The following is a summary of cash invested in joint venture, net of
returns of capital and acquisition fees:
Preferential
Investment/ Rate of Ownership December 31,
Location Return Interest 2001 2000
-------- ------ -------- ----------------- ---------------
Prentiss Copystar 11% 27.70% $ - $ 1,197,807
Itasca, Illinois
Parkmoor Plaza
--------------
On September 20, 1989, the Partnership entered into a joint venture with
South Bay Construction and Development Company, Inc. to acquire a leasehold
interest in three industrial/service center buildings and to renovate and
operate these buildings. The Partnership committed to make a maximum capital
contribution of $10,000,000. The payment of up to 1% per annum of the
preferential return was deferrable during the first ten years if sufficient
operating cash flow is not available. The joint venture was required to return
all cash contributions made by the Partnership by the tenth anniversary of its
initial funding. The non-cancelable ground lease had an initial expiration
date of November 12, 2014 and required annual ground rental payments by the
venture of $73,230. The joint venture also had an option to extend the term of
the ground lease for an additional 25 years.
On May 31, 2000, the South Bay/Parkmoor Plaza joint venture in which the
Partnership held a 75% interest, sold its property to an unaffiliated third
party for gross proceeds of $11,725,000. The Partnership received net proceeds
of $11,000,422 and recognized a gain of $2,501,169 ($58.85 per Unit). A
disposition fee of $351,750 was accrued but not paid to the Advisor. This fee
was reversed in 2001 (see Note 2). On June 28, 2000, the Partnership made a
capital distribution of $10,635,971 ($252.78 per Unit) from the proceeds of the
sale.
23
Prentiss Copystar
-----------------
On May 23, 1991, the Partnership entered into a joint venture with an
affiliate of Prentiss Properties, Ltd., and an affiliate of the Partnership, to
develop and operate an industrial facility. The Partnership and its affiliate
initially had a collective 75% interest in the joint venture. The Partnership
committed to make a maximum capital contribution of $1,029,084 but subsequently
made additional contributions classified as Deficit Contributions as well as
contributions on behalf of the affiliate of Prentiss Properties, classified as
Default Contributions. The Default Contributions subsequently increased the
Partnership's and its Affiliate's collective interest to 89.34% as of December
31, 2000. The preferential return related to $308,725 of the Partnership's
capital contribution was payable currently only to the extent of available cash
flow. If $720,359, or any portion thereof, was returned to the Partnership
between the second and tenth anniversary of the joint venture agreement, the
return would be increased by an amount sufficient to preserve the stipulated
rate of return through the tenth anniversary.
On February 26, 2001, the Prentiss Copystar joint venture investment in
which the Partnership and an affiliate were entitled to 31% and 69%,
respectively, of the operating activity, sold its property to an unaffiliated
third party for gross proceeds of $4,575,000, of which the Partnership's share
was $1,418,250. The Partnership received its 31% share of the net proceeds,
$1,364,298 after closing costs, and had recognized a gain on the sale of
$321,632 ($7.57 per Unit). A disposition fee of $42,548 was accrued but not
paid to the Advisor. This fee was reversed during the second quarter of 2001
(see Note 2). On March 29, 2001, the Partnership made a capital distribution
of $1,178,128 ($28.00 per Unit) from the proceeds of the sale.
Summarized Financial Information
The following summarized financial information is presented in the
aggregate for the Prentiss Copystar joint venture investment:
Assets and Liabilities
----------------------
December 31,
------------------------------------
2001 2000
---------------- ---------------
Assets
Real property, at cost less
accumulated depreciation
of $496,142 at December 31, 2000 $ - $ 2,746,869
Other 9,500 73,107
---------------- ---------------
9,500 2,819,976
Liabilities 9,500 106,201
---------------- ---------------
Net assets $ - $ 2,713,775
================ ===============
The following summarized financial information is presented for the
Prentiss Copystar joint venture. With respect to the periods ended December
31, 2000 and 1999, net income includes results of operations from the South
Bay/Parkmoor Plaza joint venture through its sale date of May 31, 2000.
24
Results of Operations
---------------------
Year ended December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Revenue:
Rental $ 98,875 $ 940,158 $ 2,024,723
Expenses
Operating expenses 44,623 262,916 455,211
Depreciation and amortization 12,151 63,378 359,933
----------- ------------ -------------
56,774 326,294 815,144
----------- ------------ -------------
Net income $ 42,101 $ 613,864 $ 1,209,579
=========== ============ =============
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and its affiliates on behalf of their various financing
arrangements with the joint ventures.
The Prentiss Copystar investment was classified as "Joint venture held for
disposition" on the balance sheet at December 31, 2000. During the years ended
December 31, 2001 and 2000, the Partnership recognized equity in joint venture
earnings of $16,818 and $15,499 from this investment, respectively.
Note 5 - Property
- -----------------
Regency Court Apartments
------------------------
On April 14, 1995, the Partnership acquired, through a limited partnership
it controls, 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 required the seller to supplement the monthly rental income
generated from the property to the extent such income was less than $125,000
per month during the one-year period ended April 13, 1996, with such supplement
not to exceed $300,000 in total. The supplemental rental was $115,323, which
was applied to reduce the purchase price in 1995 and 1996.
The buildings and improvements were being depreciated over 30 years using
the straight-line method.
On March 25, 1999, the Partnership sold the Regency Court Apartments to an
unaffiliated third party for a gross sale price of $13,050,000. The Partnership
received net proceeds of $12,486,618 and recognized a gain of $3,287,303
($77.35 per Unit). A disposition fee was accrued but not paid to the Advisor.
This fee was reversed in 2001 (see Note 2). On April 29, 1999, the Partnership
made a capital distribution of $12,033,736 ($286.00 per Unit) from the proceeds
of the sale.
Drilex
------
On December 18, 1990, the Partnership entered into a joint venture with an
affiliate of The Trammell Crow Company to develop and own a build-to-suit
industrial building for the Drilex Corporation, Inc. The Partnership
contributed $2,294,713 to the capital of the venture. The Partnership acquired
the venture partner's interest for a payment of $70,000, and the investment
became a wholly-owned property as of September 30, 1993.
The building and improvements were being depreciated over 25 years.
On April 6, 2001, the Partnership sold its Drilex investment to an
unaffiliated third party for gross proceeds of $2,500,000. The Partnership
received net proceeds of $2,361,968 and recognized a gain of $68,290
25
($1.61 per Unit) on the sale. On April 26, 2001, the Partnership made a capital
distribution of $2,272,104 ($54.00 per Unit) from the proceeds of the sale.
The Drilex investment was classified as "Property held for disposition,
net", on the Balance Sheet at December 31, 2000. During the years ended
December 31, 2001 and 2000, the Partnership recognized $66,850 and $132,174
in net income from this investment, respectively.
Note 6 - Income Taxes
- ---------------------
The Partnership's income for federal income tax purposes differs from that
reported in the accompanying statements of operations as follows:
Year ended December 31,
2001 2000 1999
----------- ----------- ----------
Net income per financial
Statements $ 1,666,795 $ 3,179,838 $4,871,411
Property operations - 194,557 -
Joint venture earnings (1,313,098) 182,677 (82,742)
Gain on sale 43,582 1,256,696 535,320
Expenses (187,336) (418,370) 6,998
Depreciation (228,539) (12,224) -
------------ ----------- ----------
Taxable income (loss) $ (18,596) $ 4,383,174 $5,330,987
============ =========== ==========
Note 7 - Partners' Capital
- --------------------------
Allocation of net income (losses) from operations and distributions
of distributable cash from operations, as defined, are in the ratio
of 99% to the limited partners and 1% to the general partners.
Net sale proceeds and refinancing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the
limited partners and 15% to the general partners. The adjusted capital
contribution per limited partnership unit was reduced from $1,000 to $996
during 1991, and from $996 to $892 in 1995, as a result of capital returned
from sale transactions. The adjusted capital contribution was further reduced
to $884 in 1996, as a result of capital returned from a discretionary reduction
of cash reserves. In 1998 the adjusted capital contribution was reduced from
$884 to $755 as a result of capital returned from the sale of Waterford
Apartments and further reduced to $742.12 as a result of capital returned from
a discretionary reduction of original working capital. In 1999 the adjusted
capital contribution was reduced from $742.12 to $456.12 as a result of capital
returned from the sale of Regency Court and further reduced to $454.22 as a
result of capital returned from a discretionary reduction of original working
capital. In 2000 the adjusted capital contribution was reduced from $454.22 to
$201.44 as a result of capital returned from the sale of Parkmoor Plaza and
further reduced to $166.00 as a result of capital returned from a discretionary
reduction of original working capital. In 2001 the adjusted capital
contribution was reduced from $166.00 to $138.00 as a result of capital
returned from the sale of Prentiss Copystar, and further reduced to $57.00 as a
result of capital returned from the sale of Drilex and capital returned from a
discretionary reduction of original working capital and sales proceeds
previously held in reserves. No capital distributions have been made to the
general partners. Income from a sale is allocated in proportion to the
distribution of related proceeds, provided that the general partners are
allocated at least 1%. Income or losses from a sale, if there are no residual
proceeds after the repayment of the related debt, will be allocated 99% to the
limited partners and 1% to the general partners.
26
FINANCIAL STATEMENTS
INDEX NO. 2
AUDITOR'S REPORT AND FINANCIAL STATEMENTS
OF SOUTH BAY ASSOCIATES
Report of Independent Auditors from Soren McAdam Bartells
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - For the Years ended December 31, 1999, 1998 and 1997
Statements of Partners' Capital - For the Years ended December 31, 1999, 1998
and 1997
Statements of Cash Flows - For the Years ended December 31, 1999, 1998 and 1997
Notes to Financial Statements
27
[Letterhead of SMB]
[LOGO of SMB]
INDEPENDENT AUDITORS' REPORT
To the Partners
South Bay/Copley VII Associates
We have audited the accompanying balance sheets of South Bay/Copley VII
Associates (a California General Partnership) as of December 31, 1999 and 1998
and the related statements of operations, partners' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Bay/Copley VII
Associates (a California General Partnership) as of December 31, 1999 and 1998,
and the results of its operations and cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
SOREN . McADAM . BARTELLS
Certified Public Accountants, Inc.
Redlands, California /S/ Douglas R. McAdam
January 14, 2000 By: Douglas R. McAdam, CPA
28
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
BALANCE SHEET
December 31, 1999 1998
- ------------------------------------------------------------------------------
ASSETS
Income-producing property $6,597,614 $6,759,590
Cash 86,737 12,685
Rents receivable, net of allowance for
doubtful accounts of $-0- and $1,768 715,325 724,300
Other assets 283,009 243,752
---------------------
Total assets $7,682,685 $7,740,327
=====================
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable $ 30,735 $ 11,529
Accrued Priority Return 81,553 81,553
Security deposits 41,583 34,540
Unearned revenue 17,949 14,607
---------------------
Total liabilities 171,820 142,229
Partners' equity 7,510,865 7,598,098
---------------------
Total liabilities and partners' equity $7,682,685 $7,740,327
=====================
The accompanying notes are an integral part of these financial statements.
29
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Revenue
Building rentals $1,440,106 $1,406,426 $1,387,335
Other rental reimbursements 223,220 179,450 203,283
Interest 1,758 389 28
----------------------------------
Total revenue 1,665,084 1,586,265 1,590,646
-----------------------------------
Expenses
Interest 978,633 981,855 1,001,621
Depreciation 267,926 265,252 265,252
Land rent 73,230 73,230 73,230
Property taxes 89,470 88,404 85,856
Property operations 199,524 196,345 204,712
General and administrative 12,734 19,386 16,251
-----------------------------------
Total expenses 1,621,517 1,624,472 1,646,922
-----------------------------------
Net income (loss) $ 43,567 $ (38,207) $ (56,276)
===================================
The accompanying notes are an integral part of these financial statements.
30
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
STATEMENTS OF PARTNERS' EQUITY
Copley Pension SBC&D
Properties VII Co., Inc. Total
---------------------------------------
Balance, December 31, 1996 $7,840,580 $ 1 $7,840,581
Net loss (56,276) (56,276)
-------------------------------------
Balance, December 31, 1997 7,784,304 1 7,784,305
Distributions (111,000) (37,000) (148,000)
Net loss (75,206) 36,999 (38,207)
-------------------------------------
Balance, December 31, 1998 7,598,098 - 7,598,098
Distributions (98,100) (32,700) (130,800)
Net income 10,867 32,700 43,567
-------------------------------------
Balance, December 31, 1999 $7,510,865 $ - $7,510,865
=====================================
The accompanying notes are an integral part of these financial statements.
31
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 43,567 $ (38,207) $ (56,276)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 295,944 290,849 290,479
(Increase) decrease in:
Rents receivable 8,975 32,813 (94,569)
Other assets (67,275) (9,183) (3,502)
Increase (decrease) in:
Accounts payable 19,206 1,148 2,004
Accrued Priority Return (118,201) (156,148)
Security deposits 7,043 - 2,000
Unearned revenue 3,342 502 13,064
--------------------------------
Net cash provided by (used in) operating activities 310,802 159,721 (2,948)
--------------------------------
Cash flows from investing activities
Additions to properties (105,950) - -
--------------------------------
Net cash used in investing activities (105,950) - -
--------------------------------
Cash flows from financing activities
Distributions to partners (130,800) (148,000) -
--------------------------------
Net cash used in financing activities (130,800) (148,000) -
--------------------------------
Net increase (decrease) in cash 74,052 11,721 (2,498)
Cash
Balance, beginning of year 12,685 964 3,912
--------------------------------
Balance, end of year $ 86,737 $ 12,685 $ 964
=================================
Cash paid for interest $978,633 $1,100,056 $1,157,770
=================================
The accompanying notes are an integral part of these financial statements.
32
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed for the purpose of developing and leasing
approximately 13.8 acres in the City of San Jose, California. The project
includes the developing, leasing and management of the buildings. The
Partnership has concentrations of credit risk for rents receivable, as all of
the balances are due from businesses located within the same geographic region.
The partners are: Copley Pension Properties VII (a Massachusetts Limited
Partnership) and SBC&D Co., Inc. (a California corporation).
The preparation of these financial statements requires management to make
estimates and assumptions. Those estimates and assumptions affect the reported
amounts of assets, liabilities, revenue, and expenses, as well as the disclosure
of contingent assets and liabilities. Actual results could differ from those
estimates. Management also determines the accounting principles to be used in
the preparation of financial statements. A description of the significant
accounting policies employed in the preparation of these financial statements
follows:
RENTAL REVENUE
Revenue from leases is recognized on a straight-line basis over the lease term,
irrespective of when payments are due under the terms of the leases.
PROPERTIES
Properties consisting of buildings and site improvements are reported at cost
less accumulated depreciation and include improvements that significantly add to
utility or extend useful lives. Maintenance and repairs are charged to expense
as incurred. When items of property are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
included in the results of operations.
Depreciation is provided using the straight-line method over the estimated
useful lives of the buildings and improvements, 40 years and 20 years,
respectively. These useful lives do not exceed the term of the land lease,
including the option period. Certain building improvements related to specific
tenants are depreciated over the respective lease term, which is generally 15
years.
INCOME TAXES
Income or loss of the Partnership is allocated to the partners in accordance
with the Partnership Agreement. No income tax provision has been included in the
financial statements since all taxable items of the Partnership are required to
be reported by the respective partners on their income tax returns.
33
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
Additionally, the tax returns and the amount of distributable Partnership income
or loss are subject to examination by federal and state taxing authorities. If
the Partnership's taxable income or loss is ultimately changed by the taxing
authorities, the tax liability of the partners could be changed accordingly.
The income or loss reported for tax purposes may differ from the amount of the
income or loss on these financial statements primarily due to differences in
rental income recognition for federal income tax reporting purposes and
financial accounting purposes. In addition, in accordance with federal tax
requirements and certain provisions of the Partnership Agreement, the allocation
of income or loss for tax purposes may differ from these financial statements.
2. INCOME-PRODUCING PROPERTIES
Income-producing properties consisted of the following:
December 31,
1999 1998
--------------------------
Buildings $ 7,281,939 $ 7,281,939
Building improvements 975,927 899,407
Site improvements 810,868 781,437
--------------------------
9,068,734 8,962,783
Less accumulated depreciation (2,471,120) (2,203,193)
--------------------------
$ 6,597,614 $ 6,759,590
==========================
Depreciation charged to operations during the years ended December 31, 1999,
1998, and 1997 was $267,926, $265,252, and $265,252, respectively.
The Partnership evaluates its properties for impairment of value under standards
established under Statement of Financial Accounting Standards (SFAS) No. 121,
``Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of.'' Under these standards, an impairment occurs if the
estimated undiscounted cash flows from the properties were less than the
carrying amount of the asset. At December 31, 1999, the Partnership does not
hold any assets that meet the impairment criteria of SFAS No. 121.
34
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
NOTES TO FINANCIAL STATEMENTS
3. RENTS RECEIVABLE
Rents receivable include building rental revenue recognized in excess of amounts
due under the terms of the leases in addition to amounts due for reimbursable
charges. Included in rents receivable at December 31, 1999 and 1998 is $713,390
and $723,947, respectively, of rents in excess of amounts due currently under
the leases. During the year ended December 31, 1999, building rental revenue
recognized was $10,557 less than the amounts due under the terms of the leases.
For the year ended December 31, 1998, building rental revenue recognized was
$11,845 less than the amounts due under the terms of the leases. For the year
ended December 31, 1997, building rental revenue recognized exceeded the amounts
due under the terms of the leases in the amount of $73,742.
4. OTHER ASSETS
Other assets consisted of the following:
December 31,
1999 1998
---------------------
Capitalized leasing costs $ 426,727 $ 359,857
Less accumulated amortization (154,044) (127,995)
---------------------
272,683 231,862
Prepaid insurance 10,326 11,890
---------------------
$ 283,009 $ 243,752
=====================
Capitalized leasing costs represent initial direct costs incurred to acquire
leases and are amortized over the life of the related lease. Amortization of
capitalized leasing costs charged to property operations for the years ended
December 31, 1999, 1998 and 1997 was $28,018, $25,597, and $25,227,
respectively.
5. Related Party Transactions
Copley Pension Properties VII
Copley Pension Properties VII is entitled to receive a monthly Priority Return
at the rate of ten percent per annum on the balance of its Invested Capital. The
Partnership is permitted to defer payment of the Priority Return equal to one
percent per annum for the first 120 months from the date of the Partnership
Agreement. Any amounts deferred also bear interest at ten percent. Copley
Pension Properties VII has committed to a maximum Invested Capital of
$10,000,000 which, at December 31, 1999, was $9,786,330. All unpaid Invested
Capital and accrued Priority Return is required to be paid in full no later than
June 30, 2000.
35
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTION (CONTINUED)
The following is a summary of information relative to the Priority Return:
For the Years Ended December 31,
1999 1998 1997
----------------------------------
Amount charged to operations $978,633 $ 981,855 $1,001,621
==================================
Cash payments $978,663 $1,100,056 $1,157,770
==================================
December 31,
1999 1998
-------------------
Accrued Priority Return currently payable $81,553 $81,553
===================
SBC&D Co., Inc. and SBCC Co., Inc.
The Partnership has entered into a Property Management Agreement with SBC&D Co.,
Inc. for management of the property, in which SBC&D Co., Inc. is to receive
three percent of gross rents plus lease commissions equal to one-third of the
then prevailing market rate for each new lease, lease renewal, or lease
extension. SBCC Co., Inc. is the general contractor for improvements and repairs
to the Partnership properties. SBC&D Co., Inc. and SBCC Co., Inc. have common
shareholders, although only SBC&D Co., Inc. is a partner in the Partnership.
Charges related to these transactions were as follows:
For the Years Ended December 31,
1999 1998 1997
------------------------------------
Tenant improvements $ 76,519
Repairs and maintenance 4,256 $ 6,354 $11,755
Management fees 43,536 42,564 39,779
Lease commissions 25,350 1,885
------------------------------------
$149,661 $48,918 $53,419
====================================
At December 31, 1999 and 1998, the Partnership had accounts payable to SBC&D
Co., Inc. of $4,611 and $3,591, respectively. At December 31, 1999 and 1998, the
Partnership had accounts payable to SBCC Co., Inc. of $16,950 and $-0-,
respectively.
36
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
NOTES TO FINANCIAL STATEMENTS
6. RENTAL REVENUE
Portions of the project's buildings are rented under noncancellable leases with
initial lease terms of up to twenty years. The following is a schedule by years
of minimum future rentals on these leases as of December 31, 1999:
Year ending December 31,
2000 $ 1,540,986
2001 1,476,147
2002 1,478,683
2003 1,541,262
2004 1,519,865
Thereafter 5,454,744
----------
Total $13,011,687
==========
The above schedule includes minimum future rentals of three significant tenants
that represent greater than 80 percent of the minimum future rentals.
Certain lease agreements provide that rental amounts can be increased in
accordance with the Consumer Price Index for all wage earners and clerical
workers, San Francisco/Oakland metropolitan area, published by the United States
Department of Labor, Bureau of Labor Statistics. In addition, one lease
agreement is subject to a yearly fixed rate increase over its term. Under
certain of the lease agreements, the lessess are required to pay their
proportionate shares of property taxes, insurance, and common area maintenance
charges.
7. LAND LEASE
The Partnership leases the land used in its operations under a noncancellable
operating lease which has an initial expiration date of November 12, 2014 and an
option to extend the lease for an additional 25 years.
The following is a schedule by years of minimum future rentals as of December
31, 1999:
Year ending December 31,
2000 $ 73,230
2001 73,230
2002 73,230
2003 73,230
2004 73,230
Thereafter 726,442
---------
Total $1,092,592
=========
The total rental expense under this operating lease was $73,230 for each of the
years ended December 31, 1999, 1998, and 1997.
37
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
NOTES TO FINANCIAL STATEMENTS
8. SUBSEQUENT EVENT
In January 2000, the Partnership entered into a contract for the sale of all of
the Partnership's buildings and related improvements.
38
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 29, 2002 by: /s/ Alison L. Husid
----------------------
Alison L. Husid
President of the
Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President, Chief
/s/ Alison L. Husid Executive Officer and
- ----------------------------- Director of the Managing March 29, 2002
Alison L. Husid General Partner
/s/ Pamela J. Herbst Vice President and
- ------------------------- Director of the Managing March 29, 2002
Pamela J. Herbst General Partner
/s/ J. Grant Monahon Vice President and
- ------------------------- Director of the Managing March 29, 2002
J. Grant Monahon General Partner
/s/ James J. Finnegan Vice President of the March 29, 2002
- ------------------------- Managing General Partner
James J. Finnegan
/s/ Jonathan Martin Treasurer and Principal
- ------------------------- Financial and Accounting
Jonathan Martin Officer of the Managing March 29, 2002
General Partner
39