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 September 30, 1998 Commission File Number 0-17807 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2988542 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 225 Franklin Street, 25th Fl. 02110 Boston, Massachusetts (Zip Code) (Address of principal executive offices) 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 [_] COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 PART I FINANCIAL INFORMATION COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEETS (Unaudited) September 30, 1998 December 31, 1997 ------------------ ----------------- ASSETS Real estate investments: Joint ventures $1,689,520 $14,966,370 Property, net 4,222,796 4,201,553 ---------- ----------- 5,912,316 19,167,923 Cash and cash equivalents 3,579,646 2,105,728 Short-term investments - 1,432,651 ---------- ----------- $9,491,962 $22,706,302 ========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 80,015 $ 92,737 Accrued management fee 59,121 53,028 Deferred disposition fees 1,369,577 717,677 ---------- ----------- Total liabilities 1,508,713 863,442 ---------- ----------- Partners' capital (deficit): Limited partners ($660.29 per unit; 160,000 units authorized, 48,788 units issued and outstanding) 7,964,456 21,891,360 General partners 18,793 (48,500) ---------- ----------- Total partners' capital 7,983,249 21,842,860 ---------- ----------- $9,491,962 $22,706,302 ========== =========== (SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1997 ------------------ ------------------ ------------------ ------------------ Investment Activity Property rentals $ 191,744 $ 543,794 $205,847 $ 620,879 Property operating expenses (48,674) (156,814) (87,410) (284,912) Depreciation and amortization (32,333) (105,570) (75,761) (227,255) ---------- ---------- -------- ---------- 110,737 281,410 42,676 108,712 Joint venture earnings 61,894 841,887 342,905 1,000,444 ---------- ---------- -------- ---------- Total real estate operations 172,631 1,123,297 385,581 1,109,156 Gain on sale of investment 7,278,745 7,278,745 248,172 248,172 ---------- ---------- -------- ---------- Total real estate activity 7,451,376 8,402,042 633,753 1,357,328 Interest on cash equivalents and short-term investments 91,285 182,882 71,515 206,148 ---------- ---------- -------- ---------- Total investment activity 7,542,661 8,584,924 705,268 1,563,476 ---------- ---------- -------- ---------- Portfolio Expenses Management fee 59,121 159,719 124,530 227,564 General and administrative 36,737 142,461 45,003 151,281 ---------- ---------- -------- ---------- 95,858 302,180 169,533 378,845 ---------- ---------- -------- ---------- Net income $7,446,803 $8,282,744 $535,735 $1,184,631 ========== ========== ======== ========== Net income per limited partnership unit $ 151.11 $ 168.07 $ 10.87 $ 24.04 ========== ========== ======== ========== Cash distributions per limited partnership unit $ 432.33 $ 453.53 $ 10.57 $ 31.71 ========== ========== ======== ========== Number of limited partnership units outstanding during the period 48,788 48,788 48,788 48,788 ========== ========== ======== ========== (See accompanying notes to unaudited financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) (Unaudited) Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, 1998 September 30, 1998 September 30, 1997 September 30, 1997 ------------------------ ------------------------ ----------------------- ----------------------- General Limited General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners Partners Partners --------- ------------- --------- ------------- --------- ------------ --------- ------------ Balance at beginning of period $(50,589) $ 21,684,637 $(48,500) $ 21,891,360 $(40,093) $28,026,332 $(36,164) $28,415,303 Cash distributions (5,086) (21,092,516) (15,534) (22,126,821) (5,209) (515,689) (15,627) (1,547,067) Net income 74,468 7,372,335 82,827 8,199,917 5,357 530,378 11,846 1,172,785 -------- ------------ -------- ------------ -------- ----------- -------- ----------- Balance at end of period $ 18,793 $ 7,964,456 $ 18,793 $ 7,964,456 $(39,945) $28,041,021 $(39,945) $28,041,021 ======== ============ ======== ============ ======== =========== ======== =========== (See accompanying notes to unaudited financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP SUMMARIZED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1998 1997 ---------------- --------------- Net cash provided by operating activities $ 1,611,373 $ 1,502,628 ------------ ----------- Cash flows from investing activities: Net proceeds from sale of investments 19,947,381 4,199,193 Deferred disposition fees 651,900 135,000 Decrease in short-term investments, net 1,405,619 711,654 ------------ ----------- Net cash provided by investing activities 22,004,900 5,045,847 ------------ ----------- Cash flows from financing activity: Distributions to partners (22,142,355) (1,562,694) ------------ ----------- Net increase in cash and cash equivalents 1,473,918 4,985,781 Cash and cash equivalents: Beginning of period 2,105,728 3,076,103 ------------ ----------- End of period $ 3,579,646 $ 8,061,884 ============ =========== (See accompanying notes to unaudited financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP 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 September 30, 1998 and December 31, 1997 and its operations, its cash flows and partners' capital (deficit) for the three and nine months ended September 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 - ---------------------------------- Copley Pension Properties VI; 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 July 1988, and acquired the two real estate investments it currently owns prior to the end of 1991. It intends to dispose of its 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 - Investments in Joint Ventures - -------------------------------------- On July 14, 1998 the joint venture in which the Partnership held a 50% interest sold the White Phonic property in Petaluma, Cafifornia, to an unaffiliated third party (the "Buyer") for a total gross sale price of $5,380,000. The Partnership received its share of the net proceeds of $4,260,531, after closing costs, representing a return of capital and accrued interest plus its participation in net sales proceeds of $965,671 and recognized a gain of $1,051,219 ($21.33 per limited partnership unit). A disposition fee of $161,400 was accrued but not paid to the Advisor. On July 30, 1998, the Partnership made a capital distribution of $4,279,683 ($87.72 per limited partnership unit) from the proceeds of the sale. On August 7, 1998 the Waterford Apartments, in Frederick, Maryland, which was owned by the Partnership (75%) and an affiliate (25%), was sold to an institutional buyer (the "Buyer") which is unaffiliated with the Partnership. The total gross sale price was $21,800,000. The Partnership received its share of the net proceeds totaling $16,338,750, after closing costs, and recognized a gain of $6,227,526 ($126.37 per limited partnership unit). A disposition fee of $490,500 was accrued but not paid to the Advisor. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP On August 26, 1998, the Partnership made a capital distribution of $16,309,341 ($334.29 per limited partnership unit) from the proceeds of the sale. Summarized Financial Information The following summarized financial information is presented in the aggregate for the Partnership's joint ventures: Assets and Liabilities ---------------------- September 30, 1998 December 31, 1997 ------------------ ----------------- Assets Real property, at cost less accumulated depreciation of $814,803 and $6,910,873, respectively $2,438,581 $16,461,895 Other 17,705 1,029,387 ---------- ----------- 2,456,286 17,491,282 Liabilities 66,279 379,809 ---------- ----------- Net assets $2,390,007 $17,111,473 ========== =========== Results of Operations Nine Months Ended September 30, 1998 1997 --------------- -------------- Revenue: Rental income $2,417,165 $ 2,892,117 Other income 10,824 5,203 ---------- ----------- 2,427,989 2,897,320 ---------- ----------- Expenses: Operating expenses 856,840 1,035,934 Depreciation and amortization 412,802 574,550 ---------- ----------- 1,269,642 1,610,484 ---------- ----------- Net income $1,158,347 $ 1,286,836 ========== =========== COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP 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 3 - Property - ----------------- The following is a summary of the Partnership's remaining wholly-owned property: September 30, 1998 December 31, 1997 ------------------- ------------------ Land $ 2,770,056 $ 2,770,056 Buildings, improvements and other capitalized costs 4,894,641 4,894,641 Investment valuation allowance (1,500,000) (1,500,000) Accumulated depreciation and amortization (2,017,356) (1,918,953) Net operating assets (liabilities) 75,455 (44,191) ----------- ----------- $ 4,222,796 $ 4,201,553 =========== =========== Note 4 - Subsequent Event - ------------------------- Distributions of cash from operations relating to the quarter ended September 30, 1998 were made on October 29, 1998 in the aggregate amount of $363,200 ($7.37 per limited partnership unit). In addition, two special distributions were also made on October 29, 1998. A distribution from excess operating cash flow totaling $234,577 ($4.76 per limited partnership unit) and a special capital distribution, from working capital reserves, in the amount of $491,783 ($10.08 per limited partnership unit). COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and - --------------------------------------------------------------- Results of Operations - --------------------- Liquidity and Capital Resources - ------------------------------- The Partnership completed its offering of units of limited partnership interest on December 31, 1988. A total of 48,788 units were sold. The Partnership received proceeds of $43,472,858, net of selling commissions and other offering costs, which have been used for investment in real estate and for the payment of related acquisition costs, or retained as working capital reserves. The Partnership made seven real estate investments; one investment was sold in each of 1990, 1994, and 1997 and two investments were sold in 1998. Through September 30, 1998, capital of $37,162,795 ($761.72 per limited partnership unit) has been returned to the limited partners as a result of these sales and the reduction of cash reserves. On October 29, 1998, the Partnership distributed capital of $491,783 ($10.08 per limited partnership unit) which represented a reduction in original working capital. This capital distribution reduces the adjusted capital contribution to $228.20. On July 14, 1998 the joint venture in which the Partnership held a 50% interest sold the White Phonic property in Petaluma, Cafifornia, to an unaffiliated third party (the "Buyer") for a total gross sale price of $5,380,000. The Partnership received its share of the net proceeds of $4,260,531, after closing costs, representing a return of capital and accrued interest plus its participation in net sales proceeds of $965,671 and recognized a gain of $1,051,219 ($21.33 per limited partnership unit). A disposition fee of $161,400 was accrued but not paid to the Advisor. On July 30, 1998, the Partnership made a capital distribution of $4,279,683 ($87.72 per limited partnership unit) from the proceeds of the sale. On August 7, 1998 the Waterford Apartments, in Frederick, Maryland, which was owned by the Partnership (75%) and an affiliate (25%), was sold to an institutional buyer (the "Buyer") which is unaffiliated with the Partnership. The total sales price was $21,800,000. The Partnership received its share of the net proceeds totaling $16,338,750, after closing costs and recognized a gain of $6,227,526 ($126.37 per limited partnership unit). A disposition fee of $490,500 was accrued but not paid to the Advisor. On August 26, 1998, the Partnership made a capital distribution of $16,309,341 ($334.29 per limited partnership unit) from the proceeds of the sale. At September 30, 1998, the Partnership had $3,579,646 in cash and cash equivalents, of which $597,777 was used for operating cash distributions, and $491,783 for capital distributions to partners on October 29, 1998; the remainder is being retained as working capital reserves. The adjusted capital contribution was reduced from $660.29 to $238.28 per limited partnership unit during the third quarter of 1998, with the distributions of the sales proceeds from White Phonic and Waterford Apartments. Distributions of cash from operations relating to the first and second quarters of 1998 were made at an annualized rate of 6.25% on the adjusted capital contribution. Distributions of cash from operations relating to the third quarter of 1998 were made at an annualized rate of 6.25% on the weighted average adjusted capital contribution due to the mid-quarter sales of White Phonic and Waterford Apartments. Distributions of cash from operations relating to the first, second and third quarters of 1997 were made at an annualized rate of 5.5% on the adjusted capital contribution. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP 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 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 September 30, 1998, the appraised value of each real estate investment exceeded its carrying value; the aggregate excess was approximately $2,138,000. The current appraised value of real estate investments has been estimated by the managing general partner and is generally based on a correlation of traditional appraisal approaches performed by the Partnership's Advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. The Year 2000 Issue is a result of computer programs being written using two digits rather than four to define the applicable year. 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 Partnership relies on AEW Capital Management L.P. ("AEW Capital Management"), the parent of AEW Real Estate Advisors, Inc., to generate financial information and to provide other services which are dependent on the use of computers. The Partnership has obtained assurances from AEW Capital Management that: . AEW Capital Management has developed a Year 2000 Plan (the "Plan") consisting of five phases: inventory, assessment, testing, remediation/repair and certification. . As of September 30, 1998, AEW Capital Management had completed the inventory and assessment phases of this Plan and had commenced the testing and remediation/repair of internal systems. . AEW Capital Management expects to conclude the internal testing, remediation/repair and certifications of its Plan no later than December 31, 1998. The Partnership also relies on joint venture partners and/or property managers to supply financial and other data with respect to its real properties. The Partnership is in the process of surveying these third party providers and assessing their compliance with Year 2000 requirements. To date, the Partnership is not aware of any problems that would materially impact its results of operations, liquidity or capital resources. However, the Partnership has not yet obtained written assurances that these providers would be Year 2000 compliant. The Partnership currently does not have a contingency plan in the event of a particular provider or system not being Year 2000 compliant. Such a plan will be developed if it becomes clear that a provider (including AEW Capital Management) is not going to achieve its scheduled compliance objectives. The inability of one of these providers to complete its Year 2000 resolution process could materially impact the Partnership. In addition, the Partnership is also subject to external forces that might generally affect industry and commerce, such as utility or transportation company Year 2000 compliance failures and related service interruptions. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP Results of Operations - --------------------- Form of Real Estate Investments The Wilmington Industrial investment is a wholly-owned property. The Stemmons Industrial investment, which was sold in September 1997, was also a wholly-owned property. The other real estate investments in the portfolio are joint ventures. Operating Factors The Partnership's two industrial properties (Prentiss Copystar and Wilmington) were 100% leased at September 30, 1998, as they were at September 30, 1997. The Partnership sold its Stemmons Industrial investment on September 29, 1997, and recognized a gain of $248,172. Stemmons Industrial was vacant at the time of sale, as it had been since February 1996, with the expiration of a short term lease for 82% of the space. As previously discussed, the White Phonic industrial property was sold on July 14, 1998, and the Partnership recognized a gain of $1,051,218. At the time of the sale, White Phonic was 100% leased to a single tenant, as it had been since September 30, 1997. In addition, the Waterford Apartments was sold on August 7, 1998, and the Partnership recognized a gain of $6,227,526. At the time of the sale, the Waterford Apartments was 96% leased. At September 30, 1997 it was 93% leased. Investment Results - ------------------ For the three and nine months ended September 30, 1998, operating results from real estate operations were $172,631 and $1,123,297, respectively, compared to $385,581 and $1,109,156 for the comparable periods in 1997. The decrease of $212,950 for the comparative three month periods is primarily due to lower joint venture earnings as a result of the sale of White Phonic and Waterford Apartments. The increase of $14,141 for the comparative nine month periods is primarily due to improved operating results for owned property in 1998 due to the sale of Stemmons Industrial, which was vacant in 1997 until the time of sale. Interest on cash equivalents and short-term investments for the three and nine months ended September 30, 1998, was $91,285 and $182,882, respectively, compared to $71,515 and $206,148 for the same periods in 1997. The increase of approximately $20,000 or 28% for the comparative three month periods is primarily due to higher average investment balances in 1998 as a result of the receipt of the White Phonic and Waterford Apartments sales proceeds. The decrease of approximately $23,000 or 11% for the comparative nine month periods is primarily due to lower investment balances. The increase in operating cash flow of approximately $109,000 between the first nine months of 1997 and 1998 is primarily due to the increases in working capital and an increase in distributions from joint ventures. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP 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. For the three and nine months ended September 30, 1998, management fees were $59,121 and $159,719, respectively, compared to $124,530 and $227,564 for the comparable periods in 1997. The decrease of management fees for the respective three and nine month periods is due to less operational cash available for distributions as a result of the sale of Stemmons Industrial in 1997, and the sales of White Phonic and Waterford Apartments in 1998. General and administrative expenses for the three and nine months ended September 30, 1998 were $36,737 and $142,461, respectively, compared to $45,003 and $151,281 for the same periods in 1997. The decrease in expenses for the respective three and nine month periods is primarily due to lower appraisal fees as a result of the sale of investments. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 PART II OTHER INFORMATION Items 1-5. Not applicable Item 6. Exhibits and Reports on Form 8-K a. Exhibits: (27) Financial Data Schedule b. Reports on Form 8-K: During the quarter ended September 30, 1998, a Current Report on Form 8-K was filed on July 27, 1998 reporting on Item No. 2 (Acquisition or Disposition of Assets) and Item No. 7 (Financial statements and Exhibits), relating in both cases to the July 7, 1998 sale of White Phonic. Also during the quarter ended September 30, 1998, a Current Report on Form 8-K was filed on August 20, 1998 reporting on Item No. 2 (Acquisition or Disposition of Assets) and Item No. 7 (Financial statements and Exhibits), relating in both cases to the August 7, 1998 sale of Waterford Apartments. 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. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP (Registrant) November 13, 1998 /s/ J. Christopher Meyer III ------------------------------- J. Christopher Meyer III. President, Chief Executive Officer And Director of Managing General Partner, Sixth Copley Corp. November 13, 1998 /s/ Karin J. Lagerlund -------------------------------- Karin J. Lagerlund Principal Financial and Accounting Officer of Managing General Partner, Sixth Copley Corp.