SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------------------------------------------------------- For Quarter Ended March 31, 1997 Commission File Number 0-11884 NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2774875 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 225 Franklin Street, 25th Fl. Boston, Massachusetts 02110 (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 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; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997 PART I FINANCIAL INFORMATION ----------------------- BALANCE SHEET (Unaudited) March 31, 1997 December 31,1996 -------------- ----------------- ASSETS Real estate investments: Ground leases and mortgage loans, net $ 4,761,213 $ 4,722,880 Property, net 5,531,184 5,588,459 Deferred leasing costs and other assets, net 275,283 269,876 ----------- ----------- 10,567,680 10,581,215 Cash and cash equivalents 2,392,976 2,300,885 Short-term investments 546,313 498,869 Interest, rent and other receivables 8,013 50,452 ----------- ----------- $13,514,982 $13,431,421 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 409,654 $ 437,083 Deferred disposition fees 654,543 654,543 ----------- ----------- Total liabilities 1,064,197 1,091,626 ----------- ----------- Partners' capital: Limited partners ($360.00 per unit; 30,000 units authorized, issued and outstanding) 12,404,591 12,294,711 General partner 46,194 45,084 ----------- ----------- Total partners' capital 12,450,785 12,339,795 ----------- ----------- $13,514,982 $13,431,421 =========== =========== (See accompanying notes to financial statements) STATEMENT OF OPERATIONS (Unaudited) Quarter Ended March 31, 1997 1996 ------ ------ INVESTMENT ACTIVITY Property rentals $ 240,543 $ 191,362 Property operating expenses (72,667) (86,004) Depreciation and amortization (63,018) (52,117) --------- --------- 104,858 53,241 Ground rentals and interest on mortgage loans -- 306,625 --------- --------- Total real estate activity 104,858 359,866 Interest on cash equivalents and short term investments 33,957 27,575 --------- --------- Total investment activity 138,815 387,441 --------- --------- PORTFOLIO EXPENSES Management fee -- 28,681 General and administrative 27,825 27,265 --------- --------- 27,825 55,946 --------- --------- Net Income $ 110,990 $ 331,495 ========= ========= Net income per limited partnership unit $ 3.66 $ 10.94 ========= ========= Cash distributions per limited partnership unit $ -- $ 8.20 ========= ========= Number of limited partnership units outstanding during the period 30,000 30,000 ========= ========= (See accompanying notes to financial statements) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (Unaudited) Quarter Ended March 31, 1997 1996 ---------------------- ------------------------- General Limited General Limited Partner Partners Partner Partners --------- --------- --------- --------- Balance at beginning of period $ 45,084 $ 12,294,711 $ 50,874 $ 18,467,706 Cash distributions -- -- (2,485) (246,000) Net income 1,110 109,880 3,315 328,180 --------- ----------- -------- ------------ Balance at end of period $ 46,194 $ 12,404,591 $ 51,704 $ 18,549,886 ========= ============ ========= ============ (See accompanying notes to financial statements) SUMMARIZED STATEMENT OF CASH FLOWS (Unaudited) Quarter Ended March 31, ------------------------------- 1997 1996 ----------- ----------- Net cash provided by operating activities $ 144,011 $ 161,526 ----------- ----------- Cash flows from investing activities: Capital expenditures on owned property (4,476) (5,598) (Increase) decrease in short-term investments, net (47,444) 114,550 ----------- ----------- Net cash(used in) provided by investing activities (51,920) 108,952 ----------- ----------- Cash flows from financing activity: Distributions to partners -- (248,485) ----------- ----------- Net increase in cash and cash equivalents 92,091 21,993 Cash and cash equivalents: Beginning of period 2,300,885 1,204,043 ----------- ----------- End of period $ 2,392,976 $ 1,226,036 =========== =========== (See accompanying notes to financial statements) NOTES TO FINANCIAL STATEMENTS (Unaudited) In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Partnership's financial position as of March 31, 1997 and December 31, 1996 and the results of its operations, its cash flows and changes in partners' capital for the interim periods ended March 31, 1997 and 1996. These adjustments are of a normal recurring nature. See notes to financial statements included in the Partnership's 1996 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; A Real Estate Limited Partnership (the "Partnership") is a Massachusetts limited partnership organized for the purpose of investing primarily in newly constructed and existing income producing real properties. It primarily serves as an investment for qualified pension and profit sharing plans and other entities intended to be exempt from Federal income tax. The Partnership commenced operations in June, 1983 and acquired six real estate investments through 1985, four of which have been sold as of March 31, 1997. It intends to dispose of its investments within twelve years of their acquisition, and then liquidate; however, the general partner could extend the investment period if it is in the best interest of the limited partners. NOTE 2 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS - -------------------------------------------------------- Decatur TownCenter was sold on October 10, 1996 for a price which approximated the Partnership's carrying value, as previously adjusted for valuation allowances. In September 1996, the sole tenant at Rivers Corporate Park filed for Chapter 11 bankruptcy protection. The Partnership's ground lessee is negotiating with the tenant to settle amounts due under the tenant's lease. The Partnership has not received ground rent payments or interest payments on the mortgage loan since the bankruptcy filing, and believes that a portion of the mortgage amount may not be collected. In October 1996, the Partnership reached an agreement in principle with the borrower on the Rivers Corporate Park mortgage loan which had matured in 1994, whereby the maturity date will be extended to December 1997. In addition, the fixed interest and ground rental payments will be reduced, but the Partnership's rate of participation in revenue from the underlying property will be increased. These changes will be retroactive to January 1, 1996; however, any adjustment to amounts previously recognized by the Partnership is expected to be insignificant. Further, the Partnership will be able to cause a sale of the property. The mortgage loan on Rivers Corporate Park is impaired, as were the mortgage loans on Decatur TownCenter. Accordingly, a valuation allowance has been established to adjust the carrying value of each loan to its estimated fair market value less anticipated costs of sale. The activity in the valuation allowance during 1996 and 1997, together with the related recorded and carrying values of the impaired mortgage loans at the beginning and end of the respective periods, are as follows: Recorded Valuation Carrying Value Allowance Value ----------- ----------- ---------- Balance at January 1, 1996 $ 6,781,928 $ (2,340,000) $ 4,441,928 ============= ============= ============= Balance at March 31, 1996 $ 6,781,928 $ (2,340,000) $ 4,441,928 ============= ============= Reduction in estimated fair market value of collateral, net (9,592) Additional impaired loan (400,000) Sale of collateral 2,349,592 ------------- Balance at December 31, 1996 $ 4,000,000 $ (400,000) $ 3,600,000 ============= ============= ============= Balance at March 31, 1997 $ 4,038,333 $ (400,000) $ 3,638,333 ============= ============= ============= The average recorded value of the impaired mortgage loans did not differ materially from the balance at the end of the quarterly periods. NOTE 3 - SUBSEQUENT EVENT - ------------------------- The general partner decided not to make a quarterly distribution of cash flow from operations related to the first quarter of 1997. The uncertainty as to cash flow from Rivers Corporate Park due to the bankruptcy of the sole tenant has warranted an increase in working capital reserves. 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 June, 1983. A total of 30,000 units were sold. The Partnership received proceeds of $27,253,251, net of selling commissions and other offering costs, which have been used for investment in real estate and the payment of related acquisition costs, or retained as working capital reserves. The Partnership made six real estate investments; four investments have been sold, one in each of 1985, 1991, 1994 and 1996. As a result of these sales and similar transactions, capital of $19,200,000 ($640 per limited partnership unit) has been returned to the limited partners. At March 31, 1997, the Partnership had $2,939,289 in cash, cash equivalents and short-term investments which is primarily being retained as working capital reserves. The Partnership also has a commitment to fund the balance of its share of the renovation of the Willows Shopping Center, which approximates $316,000. As a result of the bankruptcy of the sole tenant at Rivers Corporate Park and the uncertainty as to future cash flow from this investment, the general partner determined that it is prudent to augment working capital reserves. Accordingly, no distribution of cash from operations was made relating to the first quarter of 1997 or the fourth quarter of 1996. Distributions for the first quarter of 1996 were made at the annualized rate of 7% on the adjusted capital contribution. The carrying value of real estate investments in the financial statements, other than impaired mortgage loans (Rivers Corporate Park), 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 March 31, 1997, the appraised value of Willows Shopping Center exceeded its carrying value by approximately $294,000. The current appraised value of real estate investments has been estimated by the general partner and is generally based on a correlation of traditional appraisal approaches performed by the Partnership's advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Results of Operations - --------------------- Operating Factors At March 31, 1997, the Willows Shopping Center was 94% leased, compared to 91% at March 31, 1996. The ground lessee/borrower has substantially completed the full rehabilitation of the Center. The Partnership's share of the remaining cost is approximately $316,000 at March 31, 1997 which largely relates to the renovation of space occupied by a significant anchor tenant which began operating in October 1996. Rivers Corporate Park was 100% leased at March 31, 1997 and 1996. However, on September 27, 1996, the sole tenant filed for chapter 11 bankruptcy protection. The Partnership's ground lessee is negotiating with the tenant to settle amounts due under the tenant's lease. The Partnership has not received ground rent payments and interest payments on its mortgage loan since the bankruptcy filing, and believes a portion of the mortgage amount may not be collected. The mortgage loan matured in 1994. In October 1996, the Partnership reached an agreement in principle with the borrower, whereby the maturity date will be extended to December 1997. In addition, the fixed interest and ground rental payments will be reduced, but the Partnership's rate of participation in revenue from the underlying property will be increased. These changes will be retroactive to January 1, 1996; however, any adjustment to amounts previously recognized by the Partnership is expected to be insignificant. Further, the Partnership will be able to cause a sale of the property. Investment Results Exclusive of the operating results from Decatur TownCenter in 1996 of $160,000, total real estate activity was $104,858 and $199,866 for the quarters ended March 31, 1997 and 1996, respectively. This decrease was caused by the lack of interest income and ground rent from Rivers Corporate Park as a result of the tenant's bankruptcy, partially offset by an increase in operating results at Willows Shopping Center due to increased occupancy and lower operating expenses. Interest on cash equivalents and short-term investments increased by $6,382, or 23%, between the two first quarters due primarily to higher invested balances caused by the retention of a portion of the Decatur TownCenter sales proceeds. While net income decreased by $220,505 between the first quarter of 1997 and 1996, cash flow from operations decreased by only $17,515, or 11%, because of changes in net working capital and the timing of cash payments from Decatur Town Center in 1996. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the general partner. General and administrative expenses primarily consist of real estate appraisal, printing, legal, accounting and investor servicing fees. No Partnership management fee was incurred for the first quarter of 1997 due to the suspension of cash distributions. General and administrative expenses were relatively unchanged between the first quarters of 1996 and 1997. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997 PART II OTHER INFORMATION ------------------- Item 6. Exhibits and Reports on Form 8-K a. Exhibits: None. b. Reports on Form 8-K: No Current Reports on Form 8-K were filed during the quarter ended March 31, 1997. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP (Registrant) May 12, 1997 /s/ James J. Finnegan ------------------------------- James J. Finnegan Managing Director and General Counsel of General Partner, Copy Properties Company, Inc. May 12, 1997 /s/ Daniel C. Mackowiak -------------------------------- Daniel C. Mackowiak Principal Financial and Accounting Officer of General Partner, Copley Properties Company, Inc.