SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------------------------------------------------------------- For Quarter Ended June 30, 1998 Commission File Number 0-15429 NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2893298 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 225 Franklin Street, 25th Fl. Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 261-9000 - ---------------------------------------------------------------------------- Former name, former address and former fiscal year if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED JUNE 30, 1998 PART I FINANCIAL INFORMATION ----------------------- BALANCE SHEETS (Unaudited) June 30, 1998 December 31, 1997 ------------- ----------------- ASSETS Real estate investments: Joint ventures $16,047,855 $15,879,130 Property, net 14,672,556 15,139,147 ----------- ----------- 30,720,411 31,018,277 Cash and cash equivalents 6,949,194 4,017,473 Short-term investments - 2,889,753 ----------- ----------- $37,669,605 $37,925,503 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 99,124 $ 152,095 Accrued management fee 34,212 39,859 Deferred management and disposition fees 4,274,414 4,205,989 ----------- ----------- Total liabilities 4,407,750 4,397,943 ----------- ----------- Partners' capital (deficit): Limited partners ($524 per unit; 120,000 units authorized, 94,997 units issued and outstanding) 33,331,839 33,594,888 General partners (69,984) (67,328) ----------- ----------- Total partners' capital 33,261,855 33,527,560 ----------- ----------- $37,669,605 $37,925,503 =========== =========== (See accompanying notes to financial statements) STATEMENTS OF OPERATIONS (Unaudited) Quarter Ended Six Months Ended Quarter Ended Six Months Ended June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997 ------------- ---------------- ------------- ---------------- INVESTMENT ACTIVITY Property rentals $ 834,263 $1,652,565 $1,405,293 $ 2,774,125 Property operating expenses (328,450) (702,231) (563,781) (1,058,252) Depreciation and amortization (155,403) (308,811) (251,533) (505,237) --------- ---------- ---------- ----------- 350,410 641,523 589,979 1,210,636 Joint venture earnings 422,650 726,629 355,692 662,728 Amortization (1,327) (2,654) (1,327) (2,654) --------- ---------- ---------- ----------- Total real estate operations 771,733 1,365,498 944,344 1,870,710 Interest on cash equivalents and short term investments 87,637 174,749 90,811 181,191 --------- ---------- ---------- ----------- Total investment activity 859,370 1,540,247 1,035,155 2,051,901 --------- ---------- ---------- ----------- Portfolio Expenses Management fee 68,425 136,849 90,918 181,834 General and administrative 83,090 171,223 87,289 176,352 --------- ---------- ---------- ----------- 151,515 308,072 178,207 358,186 --------- ---------- ---------- ----------- Net Income $ 707,855 $1,232,175 $ 856,948 $ 1,693,715 ========= ========== ========== =========== Net income per limited partnership unit $ 7.38 $ 12.84 $ 8.93 $ 17.65 ========= ========== ========== =========== Cash distributions per limited partnership unit $ 7.21 $ 15.61 $ 9.58 $ 21.44 ========= ========== ========== =========== Number of limited partnership units outstanding during the period 94,997 94,997 94,997 94,997 ========= ========== ========== =========== (See accompanying notes to financial statements) STATEMENT OF PARTNERS' CAPITAL (DEFICIT) (Unaudited) Quarter Ended Six Months Ended Quarter Ended Six Months Ended June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997 ---------------------- -------------------- -------------------- -------------------- General Limited General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners Partners Partners -------- -------- -------- -------- -------- -------- -------- -------- Balance at beginning of period $(70,145) $33,315,991 $(67,328) $33,594,888 $(163,493) $47,063,727 $(160,481) $47,361,993 Cash distributions (6,918) (684,928) (14,978) (1,482,902) (9,193) (910,071) (20,573) (2,036,736) Net income 7,079 700,776 12,322 1,219,853 8,569 848,379 16,937 1,676,778 -------- ----------- -------- ----------- --------- ----------- --------- ----------- Balance at end of period $(69,984) $33,331,839 $(69,984) $33,331,839 $(164,117) $47,002,035 $(164,117) $47,002,035 ======== =========== ======== =========== ========= =========== ========= =========== (See accompanying notes to financial statements) SUMMARIZED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------------ 1998 1997 ------- -------- Net cash provided by operating activities $ 1,501,792 $ 1,908,912 ----------- ----------- Cash flows from investing activities: Payment of note payable to venture partner - (64,000) Investment in property (47,339) (150,977) Decrease in short-term investments, net 2,838,711 1,888,189 Loan repayment by joint venture partner 136,437 - ----------- ----------- Net cash provided by investing activities 2,927,809 1,673,212 ----------- ----------- Cash flows from financing activity: Distributions to partners (1,497,880) (2,057,309) ----------- ----------- Net increase in cash and cash equivalents 2,931,721 1,524,815 Cash and cash equivalents: Beginning of period 4,017,473 5,045,964 ----------- ----------- End of period $ 6,949,194 $ 6,570,779 =========== =========== (See accompanying notes to financial statements) NOTES TO FINANCIAL STATEMENTS (Unaudited) In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Partnership's financial position as of June 30, 1998 and December 31, 1997 and the results of its operations, its cash flows and partners' capital (deficit) for the interim periods ended June 30, 1998 and 1997. These adjustments are of a normal recurring nature. See notes to financial statements included in the Partnership's 1997 Annual Report on Form 10-K for additional information relating to the Partnership's financial statements. NOTE 1 - ORGANIZATION AND BUSINESS - ---------------------------------- New England Life Pension Properties IV; 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 organizations intended to be exempt from federal income tax. The Partnership commenced operations in May, 1986 and acquired the four real estate investments it currently owns prior to the end of 1987. It intends to dispose of the investments within eight to twelve years of their acquisition, and then liquidate; however, the managing general partner could extend the investment period if it is considered to be in the best interest of the limited partners. The Partnership has engaged AEW Real Estate Advisors, Inc. (the "Advisor") to provide asset management services. NOTE 2 - REAL ESTATE JOINT VENTURES - ----------------------------------- Ownership of the Columbia Gateway Corporate Park joint venture has been restructured whereby the Partnership and its affiliate obtained full control over the business of the joint venture effective January 1, 1998. The following summarized financial information is presented in the aggregate for the Partnership's two joint ventures. Assets and Liabilities ---------------------- June 30, 1998 December 31, 1997 ------------- ----------------- Assets Real property, at cost less accumulated depreciation of $2,500,513 and $2,321,074, respectively $20,048,541 $19,858,721 Other 970,080 958,432 ----------- ----------- 21,018,621 20,817,153 Liabilities 266,708 240,284 ----------- ----------- Net Assets $20,751,913 $20,576,869 =========== =========== Results of Operations Six Months ended June 30, ------------------------- 1998 1997 ------------ ----------- Revenue Rental income $1,418,150 $1,318,227 Other income 8,815 8,296 ---------- ---------- 1,426,965 1,326,523 ---------- ---------- Expenses Operating expenses 320,829 301,690 Depreciation and amortization 187,318 187,318 ---------- ---------- 508,147 489,008 ---------- ---------- Net income $ 918,818 $ 837,515 ========== ========== Liabilities and expenses exclude amounts owed and attributable to the Partnership and (with respect to one joint venture) its affiliate on behalf of their various financing arrangements with the joint ventures. NOTE 3 - PROPERTY - ----------------- Effective April 1, 1996, the Reflections joint venture was restructured, whereby the Partnership's venture partner became an indirect limited partner. Accordingly, the investment has been accounted for as a wholly-owned property since that date. The carrying value of the joint venture investment at conversion was allocated to land, building and improvements and other net operating assets. In connection with the ownership restructuring, the Partnership agreed to release the affiliate of the venture partner from its guarantee upon payment to the Partnership of $650,000. The Partnership received $250,000 at the time the agreement was executed. During the third quarter of 1996, the Partnership received an additional $263,563. The final payment of $136,437 was received during the first quarter of 1998. The first payment was accounted for as a reduction of previously accrued investment income. The second and third payments were accounted for as a reduction of the Partnership's investment in the property. Effective January 1, 1996, the Metro Business Center joint venture agreement was amended to grant the Partnership full control over management decisions, beginning July 1, 1996. Since that date, the investment has been accounted for as a wholly-owned property. The carrying value of the joint venture investment at conversion was allocated to land, buildings and improvements, and other net operating assets. Effective December 30, 1996, the property owned by the joint venture was distributed to the venture partners as tenants-in-common. The Partnership, however, retained its overall decision- making authority. On February 28, 1998, the Partnership executed a purchase and sale agreement to purchase the tenancy-in-common interest of the Developer in Metro Business Center. The Partnership finalized the acquisition on July 17, 1998. The purchase price was $7,113,255 and was paid by the Partnership as follows: (i) A portion of the purchase price was paid through the discharge of all outstanding amounts, including but not limited to accrued but unpaid interest, owed by the Developer to the Partnership under the loan made by the Partnership to the Developer in connection with the original acquisition of the property and (ii) the Partnership paid the remainder of the purchase price in cash. The cash payment was $2,210. The following is a summary of the Partnership's two wholly-owned investments: June 30, 1998 December 31, 1997 -------------- ------------------ Land $ 3,451,272 $ 3,451,272 Buildings and improvements and other capitalized costs 12,559,320 12,648,418 Accumulated depreciation and amortization (1,180,444) (886,418) Net operating liabilities (157,592) (74,125) ----------- ----------- $14,672,556 $15,139,147 =========== =========== NOTE 4 - SUBSEQUENT EVENT - ------------------------- Distributions of cash from operations relating to the quarter ended June 30, 1998 were made on July 30, 1998 in the aggregate amount of $691,847 ($7.21 per limited partnership unit). Management's Discussion and Analysis of Financial Condition and - --------------------------------------------------------------- Results of Operations - --------------------- Liquidity and Capital Resources - ------------------------------- The Partnership completed its offering of units of limited partnership interest in December, 1986. A total of 94,997 units were sold. The Partnership received proceeds of $85,677,259, net of selling commissions and other offering costs, which have been invested in real estate, used to pay related acquisition costs, or retained as working capital reserves. The Partnership made nine real estate investments. Five investments have been sold: one each in 1988, 1993, 1994, 1996 and 1997. As a result of the sales, capital of $45,218,572 ($476 per limited partnership unit) has been returned to the limited partners through June 30, 1998. At June 30, 1998, the Partnership had $6,949,194 in cash and cash equivalents, of which $691,847 was used for cash distributions to partners on July 30, 1998; the remainder will primarily be used for working capital reserves. The source of future liquidity and cash distributions to partners will be cash generated by the Partnership's real estate and invested cash and cash equivalents. Distributions of cash from operations for the first and second quarters of 1998 were made at the annualized rate of 5.5% on the adjusted capital contribution. Distributions of cash from operations relating to the first and second quarters of 1997 were made at the annualized rate of 5% on the adjusted capital contribution. The distribution rate was lower in 1997 in anticipation of cash requirements related to lease rollovers. The carrying value of real estate investments in the financial statements is at depreciated cost, or if the investment's carrying value is determined not to be recoverable through expected undiscounted future cash flows, the carrying value is reduced to the estimated fair market value. The fair market value of such investments is further reduced by the estimated cost of sale for properties held for sale. Carrying value may be greater or less than current appraised value. At June 30, 1998, appraised values exceeded the related carrying values by an aggregate of approximately $9,100,000. The current appraised value of real estate investments has been estimated by the managing general partner and is generally based on a combination of traditional appraisal approaches performed by the Advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Results of Operations - --------------------- At June 30, 1998, two of the investments in the portfolio are structured as joint ventures, one with a real estate development/management firm, and the other with an affiliate of the Partnership. The Reflections Apartments and Metro Business Center investments are wholly-owned properties. Operating Factors Overall occupancy at Columbia Gateway Corporate Park remained at 100% during the second quarter of 1998 compared to 95% at June 30, 1997. Ownership of the Columbia Gateway Corporate Park joint venture has been restructured to give the Partnership and its affiliate full control over the business of the joint venture. This restructuring was effective January 1, 1998. One lease is due to expire in October, 1998 but an existing tenant has expressed an interest in exercising its right of first refusal to expand into this space upon the lease expiration. Occupancy at Reflections Apartments ended the second quarter of 1998 at 94%, up from 93% at June 30, 1997. Occupancy and rental rates are both slightly above budget. Occupancy at Metro Business Center at June 30, 1998 was at 100%, up from 87% at June 30, 1997. With only one vacancy upcoming during 1998, Metro Business Center is expected to retain a high occupancy level. Occupancy at 270 Technology Center increased to 100% at June 30, 1998 compared to 70% at March 31, 1998 due to the signing of a three year lease for 22,059 square feet effective April 15, 1998. Occupancy at Palms Business Center was 99% at June 30, 1997. This property was sold on October 24, 1997, and the Partnership recognized a gain of $10,482,458. At the time of sale, the property was 86% leased. Investment Activity Interest on cash equivalents and short-term investments decreased by approximately $6,400 or 4% between the first six-month periods of 1998 and 1997 due to lower investment balances. Real estate operating activity for the first six months of 1998 was $1,365,498 compared to $1,870,710 for the comparable six months of 1997. The decrease is primarily due to the sale of Rancho Road in October, 1997, partially offset by increases in operating performance by Reflections and Metro Business Center due to higher occupancy and market rates. Operating cash flow decreased $407,120 between the first six month periods of 1998 and 1997, which is consistent with the decrease in operating activity discussed above. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the managing general partner. General and administrative expenses primarily consist of real estate appraisal, printing, legal, accounting and investor servicing fees. The management fee decreased between the first six-month periods of 1998 and 1997 due to a decrease in distributable cash flow from operations. General and administrative expenses did not change significantly between the respective six-month periods. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED JUNE 30, 1998 PART II OTHER INFORMATION ------------------- Item 6. Exhibits and Reports on Form 8-K a. Exhibits: None. b. Reports on Form 8-K: No Current Reports on Form 8-K were filed during the quarter ended June 30, 1998. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP (Registrant) August 12, 1998 /s/ Wesley M. Gardiner, Jr. ------------------------------- Wesley M. Gardiner, Jr. President, Chief Executive Officer and Director of the Managing General Partner, Fourth Copley Corp. August 12, 1998 /s/ Karin J. Lagerlund -------------------------------- Karin J. Lagerlund Principal Financial and Accounting Officer of Managing General Partner, Fourth Copley Corp.