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, 1997
Commission File No. 0-20126
____________________
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-3035851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Franklin Street, 25th Floor
Boston, Massachusetts 02110
(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
PART I
Item 1. Business.
--------
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.
As of December 31, 1997, the Partnership had five real property
investments, one of which was acquired in 1995. Two additional investments were
sold: a research and development facility in 1991 and an apartment complex in
1994. Sales proceeds have been distributed in the amount of $108 per Unit as a
result of these sales. In addition, capital of $8 per Unit has been distributed
as a result of a discretionary reduction in cash reserves. The Partnership has
no current plan to renovate, improve, or further develop any of its existing
real property. In the opinion of the Managing General Partner of the
Partnership, the properties are adequately covered by insurance.
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
A. Apartment Complex in Frederick, Maryland ("Waterford
----------------------------------------------------
Apartments").
------------
On March 20, 1989, the Partnership acquired a 16.25% 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 48.75%
interest, and Frederick Bozzuto Limited Partnership. On October 23, 1990 the
Partnership agreed to increase its maximum commitment from $3,000,000 to
$4,700,000 of which $3,525,000 is considered Senior Capital and $1,175,000 is
considered Junior Capital. As of December 31, 1997, the Partnership had
contributed $4,699,993 to the capital of the joint venture. The joint venture
agreement entitles the Partnership and the Affiliate to receive a preferred
return on their respective invested capital at the rate of 10.09% per annum.
Such preferred return will be payable currently until the
Partnership and the Affiliate have received an aggregate of $687,471;
thereafter, the preferred return on the Senior Capital will be payable currently
and the preferred return on the Junior Capital will accrue and bear interest at
the rate of 10.09% per annum, compounded monthly, if sufficient cash flow is not
available therefor. In the event of a sale or refinancing prior to the tenth
anniversary of the joint venture agreement, the Partnership would be entitled to
have 25% of its contribution repaid without premium and to have 75% repaid
subject to a premium designed to preserve the stipulated rate of return through
the ninth anniversary of the joint venture agreement. The joint venture
agreement also entitles the Partnership to receive 16.25% of remaining cash flow
and 16.25% of sale and refinancing proceeds following the return of the
Partnership's and the Affiliate's investments.
On February 11, 1998, Frederick Bozzuto Limited Partnership filed a
declaratory judgment action in the Circuit Court for Baltimore County. The
Partnership and the Affiliate had declared that an impasse under the joint
venture agreement existed because of a disagreement between the Partnership and
the Affiliate, on the one hand, and Frederick Bozzuto Limited Partnership, on
the other hand, with respect to the contents of the business plan to be adopted
by the joint venture for 1998. The Partnership and the Affiliate had sought to
effect the dissolution of the joint venture pursuant to the terms of the joint
venture agreement. The declaratory judgment action asks the Court to hold that
no impasse (and, hence, no right to dissolve the joint venture) can exist with
respect to a disagreement over the contents of the annual business plan of the
joint venture.
The joint venture owns approximately 16.35 acres of land improved with
an approximately 295,074 square foot, 314-unit apartment complex, which was
developed in two phases between 1989 and 1991. As of December 31, 1997, this
complex was approximately 93% leased.
B. Retail Center in San Jose, California ("Parkmoor Plaza").
--------------------------------------------------------
On September 20, 1989, the Partnership acquired a 75% interest in a
joint venture formed with SBC & D Co., Inc. As of December 31, 1997, the
Partnership had contributed $9,786,330 to the capital of the joint venture out
of a maximum commitment of $10,000,000. The joint venture agreement entitles
the Partnership to receive a preferred return on its invested capital at the
rate of 10% per annum. During the first 120 months following the date of the
joint venture agreement, to the extent sufficient cash flow is not available
therefor, up to 1% of such preferred return may accrue and bear interest at the
rate of 10% per annum, compounded monthly. The balance of the preferred return
will be payable monthly on a current basis. Commencing with the 121st month
following the date of the joint venture agreement, the full amount of the
preferred return will be payable monthly on a current basis. The joint venture
agreement also entitles the Partnership to receive 75% of remaining cash flow
and 75% of sale and refinancing proceeds following the return of the
Partnership's investment.
The joint venture owns a leasehold interest pursuant to a ground lease
in 13.791 acres of land and a fee interest in three retail buildings totaling
approximately 149,825 square feet in San Jose, California. The ground lease
terminates on November 12, 2014 and provides for an annual rental of $73,230
payable in equal monthly installments. The joint venture has the option to
extend the lease for an additional 25 years. The rent for the extended term will
be determined in accordance with provisions set forth in the lease. The joint
venture also has the option to purchase the land upon notice from the owner of
its intention to sell to an unrelated third party and its acceptance of a bona
fide offer. The property has been fully converted from industrial to retail use.
As of December 31, 1997, this retail center was 100% leased.
C. 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 ("Trammel
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 owns 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. As of December 31, 1997, the
building was 100% occupied by a single tenant under a long-term lease that
expires in August 2001.
D. 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. As of December 31,
1997, the Partnership had contributed $1,027,386 to the capital of the joint
venture out of a maximum commitment of $1,029,084, of which $690,224 is
characterized as Senior Capital and $308,725 is characterized as Junior Capital.
The joint venture agreement entitles the Partnership to receive a preferred
return, compounded monthly, of 11% per annum of which the return on Senior
Capital will be payable currently and the return on Junior Capital may accrue
and compound monthly if sufficient cash flow is not available therefor. If the
Senior Capital is 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 treasury 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 entitles 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.
The joint venture owns 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. As of December 31, 1997,
the building was 100% leased to a single tenant for a term which expires in
1999. The tenant has an option that commenced in September, 1995 to purchase
the facility at fair market value. As of December 31, 1997, the tenant has not
expressed any interest in exercising the option.
E. Apartment Complex in Sherman Oaks, California ("Regency Court
-------------------------------------------------------------
Apartments")
-----------
On April 14, 1995, Regency Court Associates, L.P., a California
limited partnership (the "Acquisition Partnership"), acquired a 174-unit
apartment complex located in Sherman Oaks, California for $9,605,021. The sole
limited partner of the Acquisition Partnership is the Partnership, and the sole
general partner of the Acquisition Partnership is Copp VII Holding Corp., a
Massachusetts corporation which is a wholly-owned subsidiary of the Partnership
(the "Subsidiary"). As of December 31, 1997, the Partnership had contributed
$9,700,000 to the capital of the Acquisition Partnership. The partnership
agreement of the Acquisition Partnership entitles the Partnership to receive 99%
of cash flow and 99% of sale and financing proceeds. The Subsidiary has a 1%
interest in cash flow and sale and financing proceeds. The Subsidiary has been
capitalized with a $1,000,000 demand promissory note from the Partnership.
The Acquisition Partnership owns a 174-unit apartment complex known as
Regency Court located on approximately 1.64 acres of land. As of December 31,
1997, the apartment complex was approximately 95% leased.
The seller of Regency Court was obligated to supplement the monthly
rental income from the Apartment Complex to the extent such income was less than
$125,000 per month during the one-year period ended April 13, 1996 (the
"Supplement Period"), prorated for any partial month at the beginning or
expiration of such Supplement Period. To secure this obligation, the seller
deposited $300,000 in an interest-bearing account with First American Title
Insurance Company. The seller's total liability for its obligation to
supplement rental income was limited to the $300,000 deposit plus any interest
earned thereon. The total supplemental rental income required to be paid by
the seller was $115,323.
Item 2. Properties
----------
The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties:
Estimated Number of
1997 Tenants
Annual with 10% or Square Feet
Realty more of Name(s) of of Contract
Property Taxes GLA Tenant(s) Each Tenant Rent
- -------------------------------------------------------------------------------------------------
Retail Center in San Jose, CA $ 65,688 4 Baby Super 25,000 $ 8.61
Discount
Food 4 Less 54,600 $11.59
U.S. Post Office 22,000 $ 4.16
Family Fitness 30,000 $ 7.96
Center
Office/Warehouse Building in $ 0 (1) 1 Drilex Systems 53,750 $ 5.67
Houston, TX
Apartment Complex in Sherman $113,570 N/A N/A N/A N/A
Oaks, CA
Apartment Complex in $276,192 N/A N/A N/A N/A
Frederick, MD
Industrial Building, $ 69,975 1 Mita Copystar of 70,535 $ 5.19
Itasca, IL America, Inc.
- ----------------------------------------------------------------------------------------------
Line of business
Lease Renewal Business of
Property Expiration Options Principal Tenants
- -------------------------------------------------------------------------------
Retail Center in San Jose, CA 3/2008 Two 10 year Baby retailer
options
9/2007 Six 5 year Food Retailer
options
2/2001 One 5 year U.S. Post
option Office
1/2014 Two 5 year Fitness Center
options
Office/Warehouse Building in 8/2001 One 5 year Drill
Houston, TX option Manufacturer
Apartment Complex in Sherman N/A N/A N/A
Oaks, CA
Apartment Complex in N/A N/A N/A
Frederick, MD
Industrial Building, 9/1999 None Photocopier
Itasca, IL Distributor
- -----------------------------------------------------------------------------------
(1) Tenant responsible for real property taxes.
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenue, and net effective rent for the
Partnership's properties:
- -----------------------------------------------------------------------------------------------------------------
Rental
Gross Leasable Year-End Revenue Net Effective
PROPERTY Area Occupancy Recognized Rent ($/sf/yr)*
- -----------------------------------------------------------------------------------------------------------------
Retail Center in San Jose, CA
-----------------------------
1993 149,825 93% $1,203,654 $9.13
1994 149,825 93% $1,384,330 $9.94
1995 149,825 100% $1,433,239 $9.74
1996 149,825 100% $1,529,230 $10.21
1997 149,825 100% $1,590,646 $10.62
Office/Warehouse Building in Houston, TX
----------------------------------------
1993 53,750 100% $284,988 $5.30
1994 53,750 100% $264,960 $4.93
1995 53,750 100% $283,886 $5.28
1996 53,750 100% $302,304 $5.62
1997 53,750 100% $303,592 $5.65
Apartment Complex in Frederick, MD
----------------------------------
1993 295,074 91% $2,487,886 $9.16
1994 295,074 96% $2,551,410 $9.25
1995 295,074 94% $2,661,022 $9.57
1996 295,074 97% $2,726,498 $9.70
1997 295,074 93% $2,912,841 $11.15
Industrial Building, Itasca, IL
-------------------------------
1993 70,535 100% $467,000 $6.62
1994 70,535 100% $475,000 $6.73
1995 70,535 100% $479,000 $6.79
1996 70,535 100% $492,000 $6.98
1997 70,535 100% $462,000 $6.55
Apartment Complex, Sherman Oaks, CA(1)
-------------------------------------
1993 N/A N/A N/A N/A
1994 N/A N/A N/A N/A
1995 111,540 95% $1,001,293 $12.73
1996 111,540 98% $1,411,825 $13.36
1997 111,540 95% $1,501,502 $13.95
- --------------------------------------------------------------------------- ----------------------------------
*Net effective rent calculation is based on average occupancy during the
respective year.
(1) Property acquired April 14, 1995.
Note: N/A denotes that the property was not in operation
Following is a schedule of lease expirations for each of the next ten
years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1997:
- -------------------------------------------------------------------------------------------------------
TENANT AGING REPORT
Property # of Lease Total Total Percentage of
Expirations Square Feet Annual Contract Gross Annual
Rent Rental(2)
- -------------------------------------------------------------------------------------------------------
Retail Center in San Jose, CA(1)
- --------------------------------
1998 0 0 $0 0%
1999 2 13,000 $137,760 10%
2000 0 0 $0 0%
2001 1 22,000 $91,444 7%
2002* 1 0 $24,000 2%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 1 4,800 $53,208 4%
2006 0 0 $0 0%
2007 1 54,600 $632,814 47%
Office/Warehouse Building in Houston, TX
- ----------------------------------------
1998 0 0 $0 0%
1999 0 0 $0 0%
2000 0 0 $0 0%
2001 1 53,750 $305,016 100%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
Apartment Complex in Frederick, MD
- ----------------------------------
1998 N/A N/A N/A N/A
1999 N/A N/A N/A N/A
2000 N/A N/A N/A N/A
2001 N/A N/A N/A N/A
2002 N/A N/A N/A N/A
2003 N/A N/A N/A N/A
2004 N/A N/A N/A N/A
2005 N/A N/A N/A N/A
2006 N/A N/A N/A N/A
2007 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
*Rent received for a telecommunication company satellite dish mounted on a
building at the property.
Industrial Building, Itasca, IL
- -------------------------------
1998 0 0 $0 0%
1999 1 70,535 $281,000 100%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
Apartment Complex in Sherman Oaks, CA
- -------------------------------------
1998 N/A N/A N/A N/A
1999 N/A N/A N/A N/A
2000 N/A N/A N/A N/A
2001 N/A N/A N/A N/A
2002 N/A N/A N/A N/A
2003 N/A N/A N/A N/A
2004 N/A N/A N/A N/A
2005 N/A N/A N/A N/A
2006 N/A N/A N/A N/A
2007 N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
* Does not include expenses paid by tenants.
(1) Remaining leases do not expire within 10 years .
Note: N/A denotes that disclosure does not apply based on the nature of the
property.
The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:
Rate of Life Accumulated
Entity / Property Tax Basis Depreciation Method in years Depreciation
- ---------------------------------------------------------------------------------------------------------------------------
Apartment Complex, Frederick, MD
- --------------------------------
Building & Improvements $ 2,680,594 N/A 150% DB 15 $1,436,726
Building & Improvements 10,239,068 3.64% SL 27.5 2,668,709
----------- ----------
Total Depreciable Assets $12,919,662 $4,105,435
Retail Center, San Jose, CA
- ---------------------------
Building & Improvements $ 7,848,233 3.18% SL 31.5 $1,607,937
Building & Improvements 540,633 2.56% SL 39 54,904
Land Improvements 768,437 6.67% SL 15 259,798
Land Improvements 13,000 5% SL 20 731
----------- ----------
Total Depreciable Assets $ 9,170,303 $1,923,370
Office/Warehouse Building, Houston, TX
- --------------------------------------
Building & Improvements $ 2,045,494 2.50% SL 40 $ 348,607
----------- ----------
Total Depreciable Assets $ 2,045,494 $ 348,607
Industrial Building, Itasca Illinois
- ------------------------------------
Building & Improvements $ 2,121,478 2.50% SL 40 $ 333,084
----------- ----------
Total Depreciable Assets $ 2,121,478 $ 333,084
Apartment Complex, Sherman Oaks, CA
- -----------------------------------
Building & Improvements $ 7,729,434 3.64% SL 27.5 $ 759,419
----------- ----------
Total Depreciable Assets $ 7,729,434 $ 759,419
Total Depreciable Assets $33,986,371 $7,469,915
=========== ==========
- ---------------------------------------------------------------------------------------------------------------------------
SL = Straight Line
DB = Declining Balance
Following is information regarding the competitive market conditions for
each of the Partnership's properties. This information has been gathered from
sources deemed reliable. However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness:
Industrial Building in Itasca, Illinois
---------------------------------------
This industrial building is located in the metropolitan Chicago industrial
market, where employment is approximately 1.7% higher than in 1996. The jobless
rate at year-end 1997 stood at approximately 4.6%, and labor force growth
continues to accelerate. Over the past year, years of supply in the
metropolitan Chicago industrial market fell from 6.4 years to 4.3 years. The
year-end 1997 industrial vacancy rate is expected to be 10.6%, up from 10.1%
recorded at the close of 1996. Available space in the property's submarket,
DuPage County, climbed over 400,000 square feet in 1996 to approximately 5.9
million square feet.
Apartment Complex in Sherman Oaks, California
---------------------------------------------
This apartment complex is located in Sherman Oaks, which is within the San
Fernando Valley apartment market, approximately 14 miles from downtown Los
Angeles. The San Fernando area was hit hard by the 1994 Northridge Earthquake,
and as a result, apartment occupancy rates dipped during 1995 and 1996 as
damaged units had to undergo repairs in order to be returned to habitable
condition. Occupancy in the area over the last year has improved to 96%. The
property also benefits from its unusual density as it is one of the few large
apartment complexes in Sherman Oaks, with 100 units to the acre. Of the 847
buildings in Sherman Oaks of five or more units, only 10 (1%) buildings contain
100 units or more.
Apartment Complex in Frederick, MD
----------------------------------
This apartment complex is located in the southwestern section of the city of
Frederick, Maryland, which is approximately 50 miles from both Washington, D.C.
and Baltimore, Maryland. Demand for office space is shifting from northern
Virginia toward suburban Maryland, which is prompting office construction in the
area. This could have a positive effect on the Frederick apartment market,
which experienced a 96% occupancy rate at year-end 1997. Average rental rates
in the Frederick market increased by approximately 5% - 7% between 1996 and
1997, as businesses continue to move up the I-270 corridor, positively impacting
the Frederick market.
Retail Center in San Jose, California
-------------------------------------
This retail center is located in the San Jose metropolitan market, which has a
gross leasable area of approximately 9.6 million square feet, of which there is
approximately .8 million square feet of space currently available. Current job
growth in San Jose is currently under 4% per year, down from its peak of 7% in
1996. The metro area's unemployment rate of 2.9% is a constraining factor on
the area's employment expansion. Year-end 1997 retail net absorbtion of
available space in the San Jose metropolitan area is expected to be 3.6%, a
decrease from the 4.4% recorded in 1996. The year-end 1997 vacancy rate in the
retail sector for this market is expected to be 8.3%, an improvement from the
8.9% recorded at the close of 1996.
Office/Warehouse Building in Houston, Texas
-------------------------------------------
The property is located in the metropolitan Houston industrial market, which
consists of approximately 93 million square feet of high-quality, investor-grade
industrial space spread between eight submarkets. More specifically, the
property is located in the Northwest Houston industrial submarket, which
contains almost 32.6 million square feet of primary bulk warehouse space. The
Northwest Houston market was approximately 91.5% occupied at year-end 1997, a
slight decrease from 1996 occupancy of 92.7%. The Northwest Houston submarket
is the largest in terms of square footage and is also the most active in terms
of development. Of the 2.5 million square feet of industrial space expected to
be delivered in 1997, almost 1.5 million square feet will be in the Northwest
submarket.
Item 3. Legal Proceedings.
-----------------
A partner in a joint venture in which the Partnership holds an
interest has filed a declaratory judgment action with respect to certain
provisions of the joint venture agreement. See Item 1.A.
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, 1997, there were 5,977 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, 1997, cash
distributions paid in 1997 or distributed after year end with respect to 1997 to
the Limited Partners totaled $2,603,664. For the year ended December 31, 1996,
cash distributions paid in 1996 or distributed after year end with respect to
1996 to the Limited Partners totaled $2,772,808, including $336,608 representing
a return of capital as a result of a discretionary reduction of cash reserves.
Cash distributions exceeded net income in 1997 and 1996. However,
distributions of operating cash flow were less than cash generated by operating
activities. Reference is made to the Partnership's Statement of Changes in
Partner's Capital (Deficit) and Statement of Cash Flows in Item 8 hereof.
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:
12/31/97 12/31/96(1) 12/31/95(2) 12/31/94(3) 12/31/93
---------- ----------- ----------- ----------- --------
Revenues $3,453,194 $3,250,812 $3,235,068 $4,228,813 $1,984,489
Net Income $1,942,196 $1,751,136 $2,060,318 $3,705,107 $1,554,364
Net Income per
Unit of Limited
Partnership
Interest
Outstanding $45.70 $41.20 $48.48 $87.18 $36.57
Total Assets $28,125,153 $28,758,619 $29,782,367 $34,628,130 $32,918,162
Total Cash
Distributions
per Limited
Partnership
Unit
Outstanding
for the entire
period,
including amounts
distributed after
year end with
respect to such year $61.88 $65.90 $135.14 $78.80 $84.67
(1) 1996 Cash Distributions include a return of capital of $8.00.
(2) 1995 Net Income includes a gain on sale of investment of $228,086. Cash
distributions include a return of capital of $80.00.
(3) 1994 Net Income includes a gain on sale of investment of $1,870,749. Cash
distributions include a return of capital of $24.00.
Item 7.
- -------
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 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. The
Partnership made the five investments described in Item 1 hereof, and two
additional investments which were sold in 1991 and 1994, respectively. Through
December 31, 1997, capital of $4,880,816 ($116 per limited partnership unit) has
been returned to the limited partners; $4,544,208 as a result of sales, and
$336,608 in 1996 as a result of a discretionary reduction of cash reserves.
On October 16, 1996, the Partnership made a capital distribution of
$336,608 ($8 per limited partnership unit) from the proceeds of prior sales
previously held in reserves. As a result, the adjusted capital contribution was
reduced to $884 per unit.
At December 31, 1997, the Partnership had $4,474,193 in cash, cash
equivalents and short-term investments which was partially used for cash
distributions of $657,491 to partners on January 29, 1998; the remainder will
primarily be used as working capital reserves. The source of future liquidity
and cash distributions to partners will primarily be cash flow generated by the
Partnership's short-term and real estate investments and proceeds from the sale
of such investments. Quarterly distributions of cash from operations relating to
1997 were made at an annualized rate of 7.0% on the adjusted capital
contribution. Distributions of cash from operations relating to 1996 were made
at the annualized rate of 6.5% on the weighted average adjusted capital
contribution. The increases in the distribution rate resulted from the
attainment of appropriate cash reserves and increased cash flow from operations.
The carrying value of real estate investments in the financial
statements at December 31, 1997 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 December 31, 1997, the appraised value of each
real estate investment exceeded its carrying value; the aggregate excess was
approximately $8,100,000. The current appraised value of real estate
investments has been estimated by the Managing General Partner and is generally
based on a combination of traditional appraisal approaches performed by the
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.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Partnership's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions or
engage in normal business operations. The Managing General Partner and its
affiliates are assessing the modifications or replacements of its software that
may be necessary for its computer systems to function properly with respect to
the dates in the year 2000 and thereafter. The Managing General Partner and its
affiliates do not believe that the cost of either modifying existing software
or converting to new software will be significant or that the year 2000 issue
will pose significant operational problems.
Results of Operations
---------------------
Form of Real Estate Investments
The Drilex and Regency Court Apartments investments are wholly-owned
properties. The remaining real estate investments in the portfolio are
structured as joint ventures.
Operating Factors
The Partnership's two industrial properties, Drilex and Prentiss
Copystar, were each 100% leased by a single tenant, at December 31, 1997, as
they have been for the last five years.
The Partnership's two multi-family residential properties, Waterford
Apartments and Regency Court Apartments, ended 1997 with an occupancy of 93% and
95%, respectively. Occupancy at Waterford Apartments has been consistently in
the mid-90% range over the last four years. Occupancy at Regency Court
Apartments decreased slightly during 1997; it was 98% at December 31, 1996.
Occupancy at Parkmoor Plaza was 100% at December 31, 1997, where
it has remained since the second quarter of 1995.
Investment Results
Interest on short-term investments and cash equivalents decreased
approximately $6,400 or 2.7% in 1997 as compared to 1996, due to a decrease in
average investment balances.
1997 Compared to 1996
Total real estate activity for the twelve months ended December 31,
1997 and 1996 was $2,137,069 and $1,931,881, respectively. This increase is due
to improved operating income at Regency Court Apartments of approximately
$142,000 as a result of increased rental revenues due to higher average
occupancy during 1997 as compared to 1996, slightly offset by increased
earthquake insurance premiums. Operating results at Waterford Apartments
increased approximately $42,000 due to higher rental rates combined with a
decrease in depreciation expense related to personal property that became fully
depreciated. In addition, operating results at Prentiss Copystar improved by
approximately $18,000 due to a reduction in real estate taxes combined with a
decrease in amortization expense related to leasing commissions that became
fully amortized. Operating results at the two remaining properties were
relatively unchanged between the respective periods.
Cash flow from operations increased approximately $163,000 between the
respective twelve month periods. This change is primarily due to the increases
in operating results discussed above, partially offset by an increase in
property working capital.
1996 Compared to 1995
Total real estate operations for 1996 were $1,931,881 as compared to
$1,680,429 in 1995. Approximately $74,000 of the increase stems from Regency
Court Apartments which was owned for a full year in 1996. In addition,
operating results improved at Parkmoor Plaza, by $150,000 as a result of an
increase in rental revenue due to occupancy increasing from 93% to 100% at the
end of the second quarter 1995. Also, approximately $60,000 in expenses were
incurred in 1995 for repairs to the parking lot, roof, doors and windows.
Operating results from the remainder of the Partnership's investments were
relatively unchanged.
Exclusive of the payment of deferred management fees of $203,452 in
1995, cash flow from operations decreased approximately $94,000 between the
respective years. This change is primarily due to a reduction in short-term
interest and changes in working capital, partially offset by additional cash
flow from Parkmoor Plaza and Regency Court.
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. A portion of the cash distribution
for the third quarter of 1996 was attributable to a discretionary reduction of
cash reserves. To the extent the distributed reserves had not been generated
from operations, no management fee was payable. General and administrative
expenses primarily consist of real estate appraisal, printing, legal, accounting
and investor servicing fees.
1997 Compared to 1996
The Partnership management fee increased between 1997 and 1996 due to
an increase in distributable cash flow and a corresponding increase in operating
distributions to partners. General and administrative expenses decreased
approximately $9,000 primarily due to a decrease in professional fees for 1997
which was the result of a reduction in accounting fees. Printing expenses
decreased as well, compared to 1996.
1996 Compared to 1995
The Partnership management fee increased between 1996 and 1995 due to
an increase in distributable cash flow. General and administrative expenses
decreased $33,000 between the respective periods primarily due to legal fees
incurred in 1995 related to due diligence performed in connection with an
abandoned property acquisition.
Inflation
- ---------
By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may result in appreciation in the value of the
Partnership's 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 affect inflation may have on the value of the Partnership's investments
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
See the Financial Statements of the Partnership included as a part of
this Annual Report on Form 10-K.
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.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers.
--------------------------------------------------
The following table sets forth the names of the directors and
executive officers of the General Partner and the age and position held by each
of them as of December 31, 1997.
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
Wesley M. Gardiner, Jr. President, Chief Executive Officer 39
and Director
Pamela J. Herbst Vice President and Director 42
J. Grant Monahon Vice President and Director 52
James J. Finnegan Vice President 37
Karin J. Lagerlund Treasurer and Principal Financial and 33
Accounting Officer
(c) Identification of Certain Significant Employees.
-----------------------------------------------
None.
(d) Family Relationships.
--------------------
None.
(e) Business Experience.
-------------------
The Managing General Partner was incorporated in Massachusetts on
October 3, 1988. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:
Wesley M. Gardiner, Jr. joined AEW Real Estate Advisors, Inc.
("AEW") , formerly known as Copley Real Estate Advisors, Inc., in 1990 and has
been a Vice President at AEW since January, 1994. AEW is a subsidiary of AEW
Capital Management, L.P. ("AEW Capital Management"). From 1982 to 1990, he was
employed by Metric Realty, a nationally-known real estate investment advisor and
syndication firm, as a portfolio manager responsible for several public and
private limited partnerships. His career at AEW has included asset management
responsibility for the company's Georgia and Texas holdings. Presently, Mr.
Gardiner has overall responsibility for all the partnerships advised by AEW
whose securities are registered under the Securities and Exchange Act of 1934.
He received a B.A. in Economics from the University of California at San Diego.
Pamela J. Herbst directs AEW Capital Management's Portfolio Advisory
Services, with oversight responsibility for the asset and portfolio management
areas. Ms. Herbst is a member of AEW Capital Management's Investment Policy
Group and Management Committee. She came to AEW Capital Management in December
1996 as a result of the firm's merger with Copley Real Estate Advisors, Inc.,
where she held various senior level positions in asset and portfolio management,
acquisitions, and corporate operations since 1982. Ms. Herbst is a graduate of
the University of Massachusetts (B.A.) and Boston University (M.B.A.).
J. Grant Monahon is AEW Capital Management's General Counsel and a member
of the firm's Management Committee and Investment Policy Group. He has over 25
years of experience in real estate law and investments. Prior to joining AEW
Capital Management in 1987, Mr. Monahon 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.
Mr. Monahon is a graduate of Dartmouth College (B.A.) and Georgetown University
Law Center (J.D.).
James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management.
Mr. Finnegan has over ten years of experience in real estate law, including
seven years of experience in private practice with major New York City and
Boston law firms. Mr. Finnegan also serves as AEW's securities and regulatory
compliance officer. Mr. Finnegan is a graduate of the University of Vermont
(B.A.) and Fordham University School of Law (J.D.).
Karin J. Lagerlund directs the Advisory Services Portfolio Accounting
Group at AEW Capital Management, overseeing portfolio accounting, performance
measurement and client financial reporting for AEW's private equity investment
portfolios. Ms. Lagerlund is a Certified Public Accountant and has over ten
years experience in real estate consulting and accounting. Prior to joining AEW
Capital Management in 1994, she was an Audit Manager at EY/Kenneth Leventhal
LLP. Ms. Lagerlund is a graduate of Washington State University (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 6 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, 1997. Cash distributions to General
Partners include amounts paid after year end with respect to 1997.
Amount of Compensation
Receiving Entity Type of Compensation and Reimbursement
- ---------------- -------------------- ----------------------
General Partners Share of Distributable Cash $ 26,300
AEW Real Estate Management Fees
Advisors, Inc. and Expense
(formerly known as Copley Reimbursements
Real Estate Advisors, Inc.) 272,106
New England Securities Servicing Fees and out
Corporation of pocket reimbursements 8,371
Back Bay Advisors, L.P. Servicing Fees 4,412
---------
TOTAL $311,189
=========
For the year ended December 31, 1997 the Partnership allocated $17,839
of taxable income to the General Partners.
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, 1997. 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,
1997.
(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 11, above.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
-------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedule and Financial Statement
Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedule--The Financial Statement
Schedule listed on the accompanying Index to Financial Statements and Schedule
is filed as part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit
Index are filed as a part of this Annual Report and incorporated in this Annual
Report as set forth in said Index.
(b) Reports on Form 8-K. During the last quarter of the year ending
December 31, 1997, the Partnership filed no Current Report on Form 8-K.
Copley Pension Properties VII;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1997
COPLEY PENSION PROPERTIES VII;
-----------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets - December 31, 1997 and 1996
Statements of Operations - Years ended December 31, 1997, 1996
and 1995
Statements of Partners' Capital (Deficit) - Years
ended December 31, 1997, 1996 and 1995
Statements of Cash Flows - Years ended December 31, 1997, 1996
and 1995
Notes to Financial Statements
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997
Report of Independent Accountants
---------------------------------
To the Partners
Copley Pension Properties VII;
A Real Estate Limited Partnership
In our opinion, based upon our audits and the reports of other auditors for the
years ended December 31, 1997, 1996 and 1995, 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Seventh Copley Corp., the
Managing General Partner of the Partnership; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of the Partnership's South Bay Associates joint venture
investee for the years ended December 31, 1996 and 1995, which results of
operations are recorded using the equity method of accounting in the
Partnership's financial statements. Equity in joint venture income for South
Bay Associates was $940,867 and $790,479 for the years ended December 31, 1996
and 1995. We also did not audit the financial statements of the Partnership's
Waterford Apartments joint venture investee for the years ended December 31,
1996 and 1995, which results of operations are recorded using the equity method
of accounting in the Partnership's financial statements. Equity in joint
venture income for Waterford Apartments was $237,080 and $250,172 for the years
ended December 31, 1996 and 1995, respectively. We also did not audit the
financial statements of the Partnership's investment in Regency Court Apartments
for the year ended December 31, 1996 or for the period April 10, 1995
(Acquisition Date) to December 31, 1995. Net income for Regency Court
Apartments was $475,408 for the year ended December 31, 1996 and $401,083 for
the period April 10, 1995 (Acquisition Date) through December 31, 1995. Those
statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for the equity in joint venture income for South Bay Associates
for the years ended December 31, 1996, and 1995 for the equity in joint venture
income for Waterford Apartments for the years ended December 31, 1996 and 1995,
and for net income for Regency Court Apartments for the year ended December 31,
1996 and for the period April 10, 1995 (Acquisition Date) to December 31, 1995,
is based solely on the reports of the other auditors. We conducted our audits
of these statements in accordance with generally accepted auditing standards
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 and the reports of other auditors for the years ended December 31, 1997,
1996, and 1995 provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Boston, Massachusetts
March 18, 1998
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
------------------------
1997 1996
----------- -----------
Assets
Real estate investments:
Joint ventures $12,693,813 $13,073,326
Property, net 10,957,147 11,224,191
----------- -----------
23,650,960 24,297,517
Cash and cash equivalents 3,154,152 3,030,587
Short-term investments 1,320,041 1,430,515
----------- -----------
$28,125,153 $28,758,619
=========== ===========
Liabilities and Partners' Capital
Accounts payable $ 82,215 $ 77,888
Accrued management fee 65,027 60,529
Deferred disposition fees 478,108 478,108
----------- -----------
Total liabilities 625,350 616,525
----------- -----------
Partners' capital (deficit):
Limited partners ($884 and $884 per unit,
respectively; 160,000 units authorized,
42,076 units issued and outstanding) 27,539,153 28,175,021
General partners (39,350) (32,927)
----------- -----------
Total partners' capital 27,499,803 28,142,094
----------- -----------
$28,125,153 $28,758,619
=========== ===========
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
Investment Activity
Property rentals $1,900,041 $1,759,993 $1,308,372
Property operating expenses (709,195) (711,552) (450,731)
Depreciation and amortization (373,154) (367,187) (282,155)
---------- ---------- ----------
817,692 681,254 575,486
Joint venture earnings 1,319,377 1,250,627 1,104,943
---------- ---------- ----------
Total real estate operations 2,137,069 1,931,881 1,680,429
Gain on sale of property by
joint venture - - 228,086
---------- ---------- ----------
Total real estate activity 2,137,069 1,931,881 1,908,515
Interest on cash equivalents
and short-term investments 233,776 240,192 593,667
---------- ---------- ----------
Total investment activity 2,370,845 2,172,073 2,502,182
---------- ---------- ----------
Portfolio Expenses
Management fee 260,106 243,377 231,775
General and administrative 168,543 177,560 210,089
---------- ---------- ----------
428,649 420,937 441,864
---------- ---------- ----------
Net Income $1,942,196 $1,751,136 $2,060,318
========== ========== ==========
Net income per limited
partnership unit $ 45.70 $ 41.20 $ 48.48
========== ========== ==========
Cash distributions per limited
partnership unit 60.81 $ 65.23 $ 159.11
========== ========== ==========
Number of limited partnership units
outstanding during the year 42,076 42,076 42,076
========== ========== ==========
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
Year ended December 31,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ -----------------------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
-------- ----------- --------- ----------- -------- -----------
Balance at beginning
of year $(32,927) $28,175,021 $(26,114) $29,186,014 $(23,295) $33,841,011
Cash distributions (25,845) (2,558,642) (24,324) (2,744,618) (23,422) (6,694,712)
Net income 19,422 1,922,774 17,511 1,733,625 20,603 2,039,715
-------- ----------- -------- ----------- -------- -----------
Balance at end
of year $(39,350) $27,539,153 $(32,927) $28,175,021 $(26,114) $29,186,014
======== =========== ======== =========== ======== ===========
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------
1997 1996 1995
----------- ----------- ------------
Cash flows from operating activities:
Net income $ 1,942,196 $ 1,751,136 $ 2,060,318
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 373,154 367,187 282,155
Equity in joint venture earnings (1,319,377) (1,250,627) (1,104,943)
Cash distributions from joint ventures 1,688,325 1,655,764 1,397,182
Gain on sale of investment by joint venture - - (228,086)
(Increase) decrease in investment income receivable (1,939) (9,615) 60,258
(Increase) decrease in property working capital (41,344) (21,351) 98,354
Payment of deferred management fee - - (203,452)
(Decrease) increase in operating liabilities 8,825 (5,942) 15,505
----------- ----------- ------------
Net cash provided by operating activities 2,649,840 2,486,552 2,377,291
----------- ----------- ------------
Cash flows from investing activities:
Investment in joint ventures - - (79,190)
Investment in property (54,201) 14,609 (9,795,937)
Net proceeds from sale of investment - - 228,086
Decrease in short-term investments, net 112,413 103,376 3,763,429
----------- ----------- ------------
Net cash provided by (used in) investing
activities 58,212 117,985 (5,883,612)
----------- ----------- ------------
Cash flows from financing activity:
Distributions to partners (2,584,487) (2,768,942) (6,718,134)
----------- ----------- ------------
Net cash used in financing activity (2,584,487) (2,768,942) (6,718,134)
----------- ----------- ------------
Net (decrease) increase in cash and cash equivalents 123,565 (164,405) (10,224,455)
Cash and cash equivalents:
Beginning of year 3,030,587 3,194,992 13,419,447
----------- ----------- ------------
End of year $ 3,154,152 $ 3,030,587 $ 3,194,992
=========== =========== ============
(See accompanying notes to financial statements)
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, acquired four
of the five real estate investments it currently owns prior to the end of 1991,
and acquired the fifth property in 1995. The Partnership intends to dispose of
its investments within eight to twelve years of their acquisition, and then
liquidate.
The Managing General Partner of the Partnership is Seventh Copley Corp., a
wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), 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 AEW pursuant to an advisory contract.
On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC"), a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
operations"). Simultaneously, a new entity, AEW Capital Management, L.P., was
formed into which NEIC contributed its interest in Copley and its affiliates.
As a result, the AEW operations were combined with Copley to form the business
operations of AEW Capital Management, L.P. This transaction is not expected to
have a material effect on the operations of the Partnership. At the end of
1997, NEIC completed a restructuring plan under which it contributed all of its
operations to a newly formed private partnership, NEIC Operating Partnership,
L.P., in exchange for a general partnership interest in the newly formed entity.
As such, at December 31, 1997, AEW Capital Management, L.P. is wholly owned by
NEIC Operating Partnership, L.P.. AEW is a subsidiary of AEW Capital
Management, L.P.
Prior to August 30, 1996, New England Mutual Life Insurance Company ("The New
England") was NEIC's principal unit holder and owner of all of the outstanding
stock of NEIC's general partner. On August 30, 1996, The New England merged
with and into Metropolitan Life Insurance Company ("Met Life"). Met Life is the
surviving entity and, therefore, through a wholly-owned subsidiary, became the
owner of the units of partnership interest previously owned by The New England
and of the stock of NEIC's general partner.
Management
----------
AEW, as 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. Payment of a portion of the
management fees incurred through 1991 had been deferred in accordance with the
advisory agreement; however, during 1995, these deferred fees totaling $203,452
were paid to AEW in connection with the distribution of sale proceeds (See Note
3). AEW is also reimbursed for expenses incurred in connection with
administering the Partnership ($12,000, $12,000 and $14,506 in 1997, 1996, and
1995, respectively). Acquisition fees were paid at the time commitments were
initially funded in an amount equal to 2% of the gross proceeds from the
offering. 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.
New England Securities Corporation ("NESC"), an indirect subsidiary of Met
Life, is engaged by the Partnership to act as its unitholder servicing agent.
Fees and out-of-pocket expenses for such services totaled $8,371 in 1997, $8,000
in 1996, and $7,168 in 1995. Fees to Back Bay Advisors, L.P., a wholly-owned
subsidiary of NEIC, for short-term investment advisory services totaled, $4,412,
$4,424, and $8,984 for the same annual periods.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
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 are 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. Currently, the Partnership
records an amount equal to 100% of the operating results of each joint venture,
after the elimination of all inter-entity transactions, except for the two
ventures which include an affiliate of the Partnership, which has substantial
economic equity in the respective projects. Joint ventures are consolidated
with the accounts of the Partnership if, and when, the venture partner no longer
shares in the control of the business.
Property
--------
Property includes land and buildings, which are 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 equals the Partnership's carrying value of the prior investment on the
conversion date.
Capitalized Costs, Depreciation and Amortization
------------------------------------------------
Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are 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 are amortized using the straight-line
method over the estimated useful lives of the underlying property.
Certain tenant leases provide for rental increases over the respective lease
terms. Rental revenue is being recognized on a straight-line basis over the
lease terms.
Realizability of Real Estate Investments
----------------------------------------
The Partnership considers a real estate investment to be impaired when it
determines the carrying value of the investment is not recoverable through
undiscounted cash flows generated from the operations and disposition of the
property. The impairment loss is 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 includes estimated costs of sale.
Property held for disposition is not depreciated during the holding period.
Carrying value may be greater or less than current appraised value. The
appraised values of all of the Partnership's investments exceeded their carrying
values by a total of approximately $8,100,000 and $4,900,000 at December 31,
1997 and 1996, respectively. The current appraised value of real estate
investments has been estimated by the Managing General Partner and is generally
based on a combination of traditional appraisal approaches performed by the
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.
Cash Equivalents and Short-Term Investments
-------------------------------------------
Cash equivalents are stated at cost, plus accrued interest. The Partnership
considers all highly liquid debt instruments purchased with a maturity of ninety
days or less to be cash equivalents; otherwise, they are classified as short-
term investments.
The Partnership has the positive intent and ability to hold all short-term
investments to maturity; therefore, short-term investments are carried at cost,
plus accrued interest, which approximates market value. At December 31, 1997
and December 31, 1996, all investments were in commercial paper with less than
three and eight months, respectively, remaining to maturity.
Deferred Disposition Fees
-------------------------
Disposition fees due to AEW related to sales of investments are 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.
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.
Effective January 1, 1998, the Partnership adopted FAS 128 "Earnings per
Share," which simplifies the standards of reporting earnings per share (EPS)
previously found in APB No. 15. It provides guidance on the computation and
disclosure of basic and diluted EPS and requires restatement of prior periods
for comparative purposes. The adoption of FAS 128 did not have a material
impact on the Partnership's financial statements.
Note 3 - 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 investment was sold
in 1991 and another in 1994. The Drilex investment was converted to a wholly-
owned property in 1993. The Partnership has committed to make capital
contributions to the ventures, which are subject to preferential cash
distributions at a specified rate and to priority distributions with respect to
sale or refinancing proceeds. The joint venture agreements provide 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 does not contribute proportionately.
The respective real estate management/development firm is responsible for day-
to-day development and operating activities, although overall authority and
responsibility for the business is shared by the venturers. The real estate
management/development firm, or its affiliates, also provides various services
to the respective joint ventures for a fee.
The following is a summary of cash invested in joint ventures, net of returns
of capital and acquisition fees:
Preferential
Investment/ Rate of Ownership December 31,
Location Return Interest 1997 1996
- -------- ------ -------- ---------- ----------
Waterford Apartments
Frederick, Maryland 10.09% 16.25% $4,699,993 $4,699,993
Parkmoor Plaza
San Jose, California 10% 75% $9,786,330 $9,786,330
Prentiss Copystar
Itasca, Illinois 11% 23.25% $1,027,386 $1,027,386
Waterford Apartments
--------------------
On March 20, 1989, the Partnership entered into a joint venture with an
affiliate of Bozzuto and Associates, and with an affiliate of the Partnership,
to develop and operate a garden-style apartment complex. The Partnership and
its affiliate collectively have a 65% ownership interest in the joint venture.
The Partnership committed to contribute up to $4,700,000 to the capital of the
joint venture. The preferential return related to $1,175,000 is payable
currently only to the extent of available cash flow. In the event of a sale or
refinancing prior to the tenth anniversary of the joint venture agreement, 25%
of the Partnership's contribution would first be repaid at par. The remaining
75% would be repaid subject to a premium designed to preserve the stipulated
rate of return through the ninth anniversary of the joint venture agreement.
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 is
deferrable during the first ten years if sufficient operating cash flow is not
available. The joint venture is required to return all cash contributions made
by the Partnership by the tenth anniversary of its initial funding. The non-
cancelable ground lease has an initial expiration date of November 12, 2014 and
requires annual ground rental payments by the venture of $73,230. The joint
venture also has an option to extend the term of the ground lease for an
additional 25 years. Future minimum rental payments due to the venture under
non-cancelable operating leases are: $1,409,356 in 1998;
$1,353,277 in 1999; $1,285,871 in 2000; $1,213,660 in 2001; $1,208,612 in 2002;
and $7,486,563 thereafter.
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
collectively have a 75% interest in the joint venture. The Partnership
committed to make a maximum capital contribution of $1,029,084. The
preferential return related to $308,725 of the Partnership's capital
contribution is payable currently only to the extent of available cash flow. If
$720,359, or any portion thereof, is returned to the Partnership between the
second and tenth anniversary of the joint venture agreement, the return will be
increased by an amount sufficient to preserve the stipulated rate of return
through the tenth anniversary. The minimum future rental payments due to the
venture under a non-cancelable operating lease are: $366,000 in 1998; and
$281,000 in 1999.
Sale of Kachina Apartments
--------------------------
On May 25, 1990, the Partnership entered into a joint venture with an
affiliate of Evans Withycombe, Inc., to develop and operate an apartment
complex. The Partnership contributed a total of $7,956,422 to the capital of
the venture. On August 17, 1994 the joint venture sold its property. After
closing costs, the payment of preferential returns to the Partnership and the
allocation to the venture partner, the Partnership received sale proceeds of
$9,679,291 which resulted in a gain of $1,870,749 ($44.02 per limited
partnership unit). A disposition fee of $322,468 was accrued but not paid to
the advisor. During 1995, the Partnership received an additional $228,086 in
connection with the final settlement of the venture's activities, which was also
recognized as a gain. The Partnership made two capital distributions in
connection with the sale: one on January 26, 1995 for $1,009,824 ($24.00 per
limited partnership unit) and another on October 26, 1995 for $3,366,080 ($80.00
per limited partnership unit).
Summarized Financial Information
The following summarized financial information is presented in the aggregate
for the joint ventures:
Assets and Liabilities
----------------------
December 31,
------------------------
1997 1996
----------- -----------
Assets
Real property, at cost less
accumulated depreciation
of $8,403,624 and $7,454,395,
respectively $21,473,990 $22,409,515
Other 1,615,524 1,359,304
----------- -----------
23,089,514 23,768,819
Liabilities 385,634 242,965
----------- -----------
Net assets $22,703,880 $23,525,854
=========== ===========
Results of Operations
---------------------
Year ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
Revenue
Rental income $4,965,963 $4,747,319 $4,573,261
Other 5,824 7,243 6,733
---------- ---------- ----------
4,971,787 4,754,562 4,579,994
---------- ---------- ----------
Expenses
Operating expenses 1,632,169 1,557,688 1,511,063
Depreciation and amortization 974,446 1,083,033 1,082,690
---------- ---------- ----------
2,606,615 2,640,721 2,593,753
---------- ---------- ----------
Net income $2,365,172 $2,113,841 $1,986,241
========== ========== ==========
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to two joint ventures) its affiliates on behalf of
their various financing arrangements with the joint ventures.
Note 4 - Property
- -----------------
Regency Court Apartments
On April 14, 1995, the Partnership acquired a 174-unit apartment complex in
Sherman Oaks, California, known as Regency Court Apartments, for a total price
of $9,605,021. The purchase and sale agreement 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 has been applied to reduce the purchase
price in 1995 and 1996.
The buildings and improvements are being depreciated over 30 years using
the straight-line method.
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 are being depreciated over 25 years. The
building is leased to a single tenant under an agreement which continues through
July 2001. The lease provides for annual rents of $264,960 for the first five
years and $305,016 thereafter.
The following is a summary of the Partnership's property investments:
December 31,
--------------------------
1997 1996
------------ ------------
Land $ 2,190,969 $ 2,190,969
Buildings and improvements 9,865,883 9,811,682
Accumulated depreciation (1,090,317) (727,728)
Other net liabilities (9,388) (50,732)
----------- -----------
$10,957,147 $11,224,191
=========== ===========
Note 5 - Income Taxes
- ---------------------
The Partnership's income for federal income tax purposes differs from that
reported in the accompanying statement of operations as follows:
Year ended December 31,
1997 1996 1995
----------- ----------- -----------
Net income per financial
statements $1,942,196 $1,751,136 $2,060,318
Property operations (19,111) (43,545) (12,182)
Joint venture earnings (158,706) (103,944) (85,334)
Gain on sale - - -
Expenses 10,565 11,827 10,565
Depreciation 8,941 - 62,052
---------- ---------- ----------
Taxable income $1,783,885 $1,615,474 $2,035,419
========== ========== ==========
Note 6 - 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. Cash distributions are made
quarterly.
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. 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.
Note 7 - Litigation
- -------------------
On February 11, 1998, Frederick Bozzuto Limited Partnership filed a
declaratory judgment action in the Circuit Court for Baltimore County. The
Partnership and the Affiliate had declared that an impasse under the joint
venture agreement existed because of a disagreement between the Partnership and
the Affiliate, on the one hand, and Frederick Bozzuto Limited Partnership, on
the other hand, with respect to the contents of the business plan to be adopted
by the joint venture for 1998. The Partnership and the Affiliate had sought to
effect the dissolution of the joint venture pursuant to the terms of the joint
venture agreement. The declaratory judgment action asks the Court to hold that
no impasse (and, hence, no right to dissolve the joint venture) can exist with
respect to a disagreement over the contents of the annual business plan of the
joint venture.
Note 8 - Subsequent Event
- -------------------------
Distributions of cash from operations relating to the quarter ended December
31, 1997 were made on January 29, 1998 in the aggregate amount of $657,491
($15.47 per limited partnership unit).
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Schedule III
Initial Cost to Costs Capitalized
the Partnership Subsequent to Acquisitions
------------------------------------------------ -----------------------------
Change in
Buildings & Other Net Other
Description Land Improvements Assets/(Liabilities) Improvements Net Assets
- ------------------------------------------- ------------ ------------- -------------------- ------------ -------------
Houston, TX 244,346 1,976,977 23,788 0 26,392
- - Drilex Office/Warehouse (see Note A)
Sherman Oaks, CA 1,946,623 7,786,490 0 102,416 (59,568)
- - Regency Court Apartments (see Note A)
------------ ------------ ---------- ------------ -------------
Total wholly-owned property 2,190,969 9,763,467 23,788 102,416 (33,176)
============ ============ ========== ============ =============
16.25% interest in
Waterford Apartments.
Owner of a 314-unit See Note B ------
apartment complex in -------------------------- -----------------------------------
Frederick, Maryland.
75% interest in Parkmoor
Plaza. Leasehold interest See Note B ------
in land & fee interest in -------------------------- -----------------------------------
3 retail buildings
in San Jose, California.
23.25% interest in Prentiss Copystar. See Note B ------
Owner of land and an industrial -------------------------- -----------------------------------
facility in Itasca, Illinois.
-------------------------------------------------------------------------------
Gross amount at which
Carried at Close of Period
---------------------------
Buildings & Other Accumulated
Description Land Improvements Net Assets Total Depreciation
- -------------------------------------------- ----------- -------------- ------------ --------------- ---------------
Houston, TX 244,346 1,976,977 50,180 2,271,503 (336,756)
- - Drilex Office/Warehouse (see Note A)
Sherman Oaks, CA 1,946,623 7,888,906 (59,568) 9,775,961 (753,561)
- - Regency Court Apartments (see Note A)
------------ -------------- ------------ --------------- ---------------
Total wholly-owned property 2,190,969 9,865,883 (9,388) 12,047,464 (1,090,317)
============ ============== ============ =============== ===============
16.25% interest in
Waterford Apartments.
Owner of a 314-unit See Note B ------ $3,389,019 NA
apartment complex in -------------- ----------
Frederick, Maryland.
75% interest in Parkmoor
Plaza. Leasehold interest See Note B ------ $8,427,873 NA
in land & fee interest in -------------- ----------
3 retail buildings in San Jose, California.
23.25% interest in Prentiss Copystar. See Note B ------ $876,921
Owner of land and an industrial -------------- ----------
facility in Itasca, Illinois. NA
---------------------------------------------------------------
Total joint venture investments $12,693,813
===============================================================
Status of Date Depreciable
Description Construction Acquired Life
- ----------------------------------------------------------------------------- ------------------ -------------------
Houston, TX Completed 09/30/93 25 Years
- - Drilex Office/Warehouse (see Note A)
Sherman Oaks, CA
- - Regency Court Apartments (see Note A) Completed 4/14/95 30 Years
Total wholly-owned property
16.25% interest in
Waterford Apartments. Completed 03/20/89 27.5 Years
Owner of a 314-unit
apartment complex in
Frederick, Maryland.
Completed 09/20/89 40 Years
75% interest in Parkmoor
Plaza. Leasehold interest
in land & fee interest in
3 retail buildings
in San Jose, California.
23.25% interest in Prentiss Copystar. Completed 05/23/91 35 Years
Owner of land and an industrial
facility in Itasca, Illinois.
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY
SCHEDULE III NOTE A
AT DECEMBER 31, 1997
Balance Conversion to Additions to Change in
as of Wholly-Owned Lease Additions to Write Down Property Working
Description 1/1/95 Property Commissions Property of Property Capital
- ------------------------------------------------------------------------------------------------------------------------------------
Drilex 2,245,111 0 0 0 0 7,721
Regency Court 0 0 0 9,733,113 0 (103,592)
---------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 2,245,111 0 0 9,733,113 0 (95,871)
===================================================================================================
Balance Conversion to Additions to Change in
as of Wholly-Owned Lease Additions to Write Down Property Working
Description 1/1/96 Property Commissions Property of Property Capital
- ------------------------------------------------------------------------------------------------------------------------------------
Drilex 2,252,832 0 0 0 0 29,277
Regency Court 9,629,521 0 0 48,215 0 (7,926)
---------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 11,882,353 0 0 48,215 0 21,351
===================================================================================================
Balance Conversion to Additions to Change in
as of Wholly-Owned Lease Additions to Write Down Property Working
Description 1/1/97 Property Commissions Property of Property Capital
- ------------------------------------------------------------------------------------------------------------------------------------
Drilex 2,282,109 0 0 0 0 (10,606)
Regency Court 9,669,810 0 0 54,201 0 51,950
---------------------------------------------------------------------------------------------------
Total Wholly-Owned Property 11,951,919 0 0 54,201 0 41,344
===================================================================================================
Balance 12/31/94 1995 12/31/95 1995
as of Accumulated Depreciation Accumulated Sales Balance per
Description 12/31/95 Depreciation Expense Depreciation G/L @ 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------
Drilex 2,252,832 99,516 (79,080) 178,596 0 2,074,236
Regency Court 9,629,521 0 (192,510) 192,510 0 9,437,011
-----------------------------------------------------------------------------------------------
Total Wholly-Owned Property 11,882,353 99,516 (271,590) 371,106 0 11,511,247
===============================================================================================
Balance 12/31/95 1996 12/31/96 1996
as of Accumulated Depreciation Accumulated Sales Balance per
Description 12/31/96 Depreciation Expense Depreciation G/L @ 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------
Drilex 2,282,109 178,596 (79,080) 257,676 0 2,024,433
Regency Court 9,669,810 192,510 (277,542) 470,052 0 9,199,758
-----------------------------------------------------------------------------------------------
Total Wholly-Owned Property 11,951,919 371,106 (356,622) 727,728 0 11,224,191
===============================================================================================
Balance 12/31/96 1997 12/31/97 1997
as of Accumulated Depreciation Accumulated Sales Balance per
Description 12/31/97 Depreciation Expense Depreciation G/L @ 12/31/97
- -----------------------------------------------------------------------------------------------------------------------------
Drilex 2,271,503 257,676 (79,080) 336,756 0 1,934,747
Regency Court 9,775,961 470,052 (283,509) 753,561 0 9,022,400
-----------------------------------------------------------------------------------------------
Total Wholly-Owned Property 12,047,464 727,728 (362,589) 1,090,317 0 10,957,147
===============================================================================================
Page 1
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III NOTE B
REAL ESTATE AND ACCUMULATED DEPRECIATION-JOINT VENTURES
AT DECEMBER 31, 1997
PERCENT BALANCE INVESTMENT EQUITY IN 1995 AMORTIZATION
OF AS OF IN JOINT INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/94 VENTURES (LOSS) ACQUISITION FEES
- ----------------------- -------------- --------------- ---------------------- ---------------- ---------------------------
Waterford Apartments 16.25% $3,852,055 $0 $250,172 ($3,624)
Parkmore Plaza 75% 8,868,665 79,190 790,479 (4,200)
Prentiss Copystar 23.25% 991,922 0 64,292 (2,741)
--------------- ---------------------- ---------------- ---------------------------
$13,712,642 $79,190 $1,104,943 ($10,565)
=============== ====================== ================ ===========================
PERCENT BALANCE INVESTMENT EQUITY IN 1996 AMORTIZATION
OF AS OF IN JOINT INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/95 VENTURES (LOSS) ACQUISITION FEES
- ------------------------ --------------- --------------- ---------------------- ---------------- ---------------------------
Waterford Apartments 16.25% 3,709,838 $0 237,079 (3,624)
Parkmore Plaza 75% 8,835,601 0 940,867 (4,200)
Prentiss Copystar 23.25% 943,589 0 72,681 (2,741)
--------------- ---------------------- ---------------- ---------------------------
$13,489,028 $0 $1,250,627 ($10,565)
=============== ====================== ================ ===========================
PERCENT BALANCE INVESTMENT EQUITY IN 1997 AMORTIZATION
OF AS OF IN JOINT INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/96 VENTURES (LOSS) ACQUISITION FEES
- ------------------------ --------------- --------------- ---------------------- ---------------- ---------------------------
Waterford Apartments 16.25% 3,525,185 $0 288,129 (3,624)
Parkmore Plaza 75% 8,644,498 0 945,345 (4,200)
Prentiss Copystar 23.25% 903,643 0 85,903 (2,741)
--------------- ---------------------- ---------------- ---------------------------
$13,073,326 $0 $1,319,377 ($10,565)
=============== ====================== ================ ===========================
CASH
DISTRIBUTION CONVERSION TO BALANCE
FROM WHOLLY-OWNED 1995 AS OF
DESCRIPTION JOINT VENTURE PROPERTY DISPOSALS 12/31/95
- ------------------------ ---------------------- ------------------- -------------------- ------------------
Waterford Apartments ($388,765) $0 $0 $3,709,838
Parkmore Plaza (898,533) 0 0 8,835,601
Prentiss Copystar (109,884) 0 0 943,589
---------------------- ------------------- -------------------- ------------------
($1,397,182) $0 $0 $13,489,028
====================== =================== ==================== ==================
CASH
DISTRIBUTION CONVERSION TO BALANCE
FROM WHOLLY-OWNED 1996 AS OF
DESCRIPTION JOINT VENTURE PROPERTY DISPOSALS 12/31/96
- ------------------------ ---------------------- ------------------- -------------------- ------------------
Waterford Apartments (418,108) $0 $0 $3,525,185
Parkmore Plaza (1,127,770) 0 0 8,644,498
Prentiss Copystar (109,886) 0 0 $903,643
---------------------- ------------------- -------------------- ------------------
($1,655,764) $0 $0 $13,073,326
====================== =================== ==================== ==================
CASH
DISTRIBUTION CONVERSION TO BALANCE
FROM WHOLLY-OWNED 1997 AS OF
DESCRIPTION JOINT VENTURE PROPERTY DISPOSALS 12/31/97
- ------------------------ ---------------------- ------------------- -------------------- ------------------
Waterford Apartments (420,671) $0 $0 3,389,019
Parkmore Plaza (1,157,770) 0 0 8,427,873
Prentiss Copystar (109,884) 0 0 876,921
---------------------- ------------------- -------------------- ------------------
($1,688,325) $0 $0 $12,693,813
====================== =================== ==================== ==================
FINANCIAL STATEMENTS
INDEX NO. 2
Auditor's Report and Financial Statements
of South Bay/Copley VII Associates
(referred to elsewhere as Parkmoor Plaza)
Independent Auditors' Report of Soren, McAdam and Bartells
Balance Sheets - December 31, 1997 and 1996
Statements of Operations - For the Years Ended
December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Equity - For the Years Ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows - For the Years Ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
[LETTERHEAD OF SMB APPEARS HERE]
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, 1997 and 1996
and the related statements of operations, partners' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
SOREN . McADAM . BARTELLS
Certified Public Accountants, Inc.
/s/ Douglas R. McAdam
Redlands, California
January 15, 1998 By: Douglas R. McAdam, CPA
-1-
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Balance Sheets
December 31, 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Income-producing property $7,024,842 $7,290,094
Cash 964 3,912
Rents receivable, net of allowance for doubtful
accounts of $1,035 and $76,758 757,113 662,544
Other assets 260,166 281,891
---------- ----------
Total assets $8,043,085 $8,238,441
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable $ 10,381 $ 8,377
Accrued Priority Return 199,754 355,902
Security deposits 34,540 32,540
Unearned revenue 14,105 1,041
---------- ----------
Total liabilities 258,780 397,860
Partners' equity 7,784,305 7,840,581
---------- ----------
Total liabilities and partners' equity $8,043,085 $8,238,441
========== ==========
The accompanying notes are an integral part of these financial statements.
-2-
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Statements of Operations
For the Years Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Revenue
Building rentals $1,387,335 $1,370,411 $1,299,888
Other rental reimbursements 203,283 158,819 133,351
Interest 28 90 535
---------- ---------- ----------
Total revenue 1,590,646 1,529,320 1,433,774
---------- ---------- ----------
Expenses
Interest 1,001,621 1,012,404 1,009,533
Depreciation 265,252 263,085 259,383
Land rent 73,230 73,230 73,230
Property taxes 85,856 84,702 77,650
Property operations 204,712 156,755 216,520
General and administrative 16,251 10,681 16,512
---------- ---------- ----------
Total expenses 1,646,922 1,600,857 1,652,828
---------- ---------- ----------
Net loss $ (56,276) $ (71,537) $ (219,054)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
-3-
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, 1994 $8,051,981 $1 $8,051,982
Contributions of capital 79,190 79,190
Net loss (219,054) (219,054)
---------------------------------------
Balance, December 31, 1995 7,912,117 1 7,912,118
Net loss (71,537) (71,537)
---------------------------------------
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
=======================================
The accompanying notes are an integral part of these financial statements.
-4-
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Statements of Cash Flows
For the Years Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $ (56,276) $ (71,537) $(219,054)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities
Depreciation and amortization 290,479 287,775 281,948
Loss on disposal of asset 16,917
Increase in:
Rents receivable (94,569) (105,445) (119,931)
Other assets (3,502) (3,369) (10,223)
Increase (decrease) in:
Accounts payable 2,004 1,915 (1,101)
Accrued Priority Return (156,148) (100,366) 97,346
Security deposits 2,000 733 7,700
Unearned revenue 13,064 1,041 (1,050)
-----------------------------------
Net cash provided by (used in)
operating activities (2,948) 10,747 52,552
-----------------------------------
Cash flows from investing activities
Additions to properties (13,000) (139,709)
-----------------------------------
Net cash used in investing activities - (13,000) (139,709)
-----------------------------------
Cash flows from financing activities
Proceeds from partner contributions 79,190
------------------------------------
Net cash provided by financing
activities 79,190
------------------------------------
Net decrease in cash (2,948) (2,253) (7,967)
Cash Balance, beginning of year 3,912 6,165 14,132
------------------------------------
Balance, end of year $ 964 $ 3,912 $ 6,165
====================================
Cash paid for interest $ 1,157,770 $1,112,770 $ 913,533
====================================
The accompanying notes are an integral part of these financial statements.
-5-
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, revenues 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.
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.
-6-
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 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,
1997 1996
------------ ------------
Buildings $ 7,281,939 $ 7,281,939
Building improvements 899,407 899,407
Site improvements 781,437 781,437
------------ ------------
8,962,783 8,962,783
Less accumulated depreciation (1,937,941) (1,672,689)
------------ ------------
$ 7,024,842 $ 7,290,094
============ ============
Depreciation charged to operations during the years ended December 31, 1997,
1996 and 1995 was $265,252, $263,085 and $259,383, 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, 1997, the Partnership does not hold any assets
that meet the impairment criteria of SFAS No. 121.
3. Rents Receivable
Building rental revenue includes rents recognized in excess of amounts due
currently under the terms of the leases. Included in rents receivable at
December 31, 1997 and 1996 is $735,793 and $662,544, respectively, of rents in
excess of amounts due currently under the leases. During the years ended
December 31, 1997, 1996 and 1995, building rental revenue recognized exceeds the
amounts due under the terms of the leases in the amounts of $73,742, $104,952
and $119,931, respectively.
-7-
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
4. Other Assets
Other assets consisted of the following:
December 31,
1997 1996
--------- --------
Capitalized leasing costs $ 361,827 $367,551
Less accumulated amortization (104,367) (88,285)
--------- --------
257,460 279,266
Prepaid insurance 2,706 2,625
--------- --------
$ 260,166 $281,891
========= ========
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, 1997, 1996 and 1995 was $25,227, $24,690 and $22,565, 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, 1997, was $9,786,330. All unpaid Invested
Capital and accrued Priority Return are required to be paid in full no later
than September 30, 2000. The following is a summary of information relative to
the Priority Return:
For the Years Ended December 31,
1997 1996 1995
------------ ---------- ----------
Amount charged to operations $1,001,621 $1,012,404 $1,009,533
Amount capitalized to
construction of property 1,939
---------- ---------- ----------
Total amount incurred $1,001,621 $1,012,404 $1,011,472
========== ========== ==========
Cash payments $1,157,770 $1,112,770 $ 913,533
========== ========== ==========
-8-
SOUTH BAY/COPLEY VII ASSOCIATES
(A California General Partnership)
Notes to Financial Statements
5. Related Party Transactions (Continued)
December 31,
1997 1996
-------- --------
Accrued amount currently payable $ 73,397 $ 73,397
Cumulative deferred payments 126,357 282,505
-------- --------
Total $199,754 $355,902
======== ========
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,
1997 1996 1995
-------- -------- --------
Improvements to properties $122,417
Repairs and maintenance $ 11,755 $ 14,407 76,485
Management fees 39,779 37,945 35,374
Lease commissions 1,885 3,353 10,261
-------- -------- --------
$ 53,419 $ 55,705 $244,537
======== ======== ========
At December 31, 1997 and 1996, the Partnership had accounts payable to SBC&D
Co., Inc. of $3,408 and $3,185, respectively. There were no outstanding
balances due to SBCC Co., Inc.
-9-
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, 1997:
Year ending December 31,
1998 $ 1,409,356
1999 1,353,277
2000 1,285,871
2001 1,213,660
2002 1,208,612
Thereafter 7,486,563
-----------
Total $13,957,339
===========
The above schedule includes minimum future rentals of three significant tenants
that represent greater than 90 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 lessees are required to pay their
proportionate shares of property taxes, insurance and common area maintenance
charges.
7. Land Lease
The Partnership leases the land 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, 1997:
Year ending December 31,
1998 $ 73,230
1999 73,230
2000 73,230
2001 73,230
2002 73,230
Thereafter 872,902
----------
Total $1,239,052
==========
The total rental expense under this operating lease was $73,230 for each of the
years ended December 31, 1997, 1996 and 1995.
-10-
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 30, 1998 By: /s/ Wesley M. Gardiner, Jr.
---------------------------
Wesley M. Gardiner, Jr.
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
--------- ----- ----
/s/ Wesley M. Gardiner, Jr. President, Chief March 30, 1998
- ----------------------------- Executive Officer and
Wesley M. Gardiner, Jr. Director
/s/ Pamela J. Herbst Vice President and March 30, 1998
- ----------------------------- Director
Pamela J. Herbst
/s/ J. Grant Monahon Vice President and March 30, 1998
- ----------------------------- Director
J. Grant Monahon
/s/ James J. Finnegan Vice President March 30, 1998
- -----------------------------
James J. Finnegan
/s/ Karin J. Lagerlund Treasurer and Principal March 30, 1998
- ----------------------------- Financial and Accounting
Karin J. Lagerlund Officer
EXHIBIT INDEX
-------------
Exhibit Number Page Number
- -------------- -----------
10A. Frederick Partners General Partnership *
Agreement dated as of March 20, 1989
between Frederick Bozzuto Limited
Partnership, Copley Pension Properties
VI; A Real Estate Limited Partnership and
the Registrant.
10B. General Partnership Agreement of South Bay/ *
Copley VII Associates dated as of September 20,
1989 between SBC & D Co., Inc. and
Copley Pension Properties VII, A Real Estate
Limited Partnership.
10C. Purchase Agreement and Escrow Instructions *
dated March 7, 1989, as amended, between
Scottsdale Unified School District No. 48 of
Maricopa County, Arizona and Evans Withycombe
Construction, Inc.
10D. Letter Agreement dated November 30, 1989, *
between the Registrant and EW Kachina
Limited Partnership for the formation of
Kachina Associates.
10E. Loan Agreement dated as of November 30, 1989 *
between the Registrant and EW Funding Corp., Inc.
10F. Multiple Advance Note dated November 30, *
1989, in the Principal amount of $2,600,000
from EW Funding Corp., Inc., to the Registrant.
10G. Deed of Trust and Assignment of Rents dated *
as of November 30, 1989 between EW Funding
Corp., Inc., as Trustor, Ticor Title
Insurance Company of California, as Trustee,
and the Registrant, as Beneficiary.
10H. Ground Lease dated as of October 14, 1976, *
between Park West Associates, as Landlord
and Carl N. Swenson Co., Inc., as Tenant.
10I. Assignment of Ground Lease and Grant of Real *
Property dated as of September 20, 1989 by
and between Property Resources Fund III, as
Assignor and the Registrant as Assignee.