SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended March 31, 1999 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
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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 MARCH 31, 1999
PART I
FINANCIAL INFORMATION
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BALANCE SHEETS
March 31, 1999 December 31, 1998
(Unaudited) (Audited)
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ASSETS
Real estate investments:
Joint ventures $15,613,233 $15,666,643
Property, net 8,949,523 9,106,457
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24,562,756 24,773,100
Cash and cash equivalents 6,022,258 5,932,931
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$30,585,014 $30,706,031
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 146,392 $ 145,103
Accrued management fee 28,803 32,314
Deferred management and
disposition fees 4,258,200 4,229,398
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Total liabilities 4,433,395 4,406,815
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Partners' capital (deficit):
Limited partners ($422
per unit; 120,000 units
authorized, 94,997 units
issued and outstanding) 26,195,808 26,341,929
General partners (44,189) (42,713)
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Total partners' capital (deficit) 26,151,619 26,299,216
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$30,585,014 $30,706,031
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(See accompanying notes to financial statements)
STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended March 31,
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1999 1998
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INVESTMENT ACTIVITY
Property rentals $ 526,106 $ 818,302
Property operating expenses (262,886) (373,781)
Depreciation and amortization (83,830) (153,408)
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179,390 291,113
Joint venture earnings 376,437 303,979
Amortization (1,327) (1,327)
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Total real estate operations 554,500 593,765
Interest on cash equivalents
and short term investments 69,115 87,112
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Total investment activity 623,615 680,877
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PORTFOLIO EXPENSES
Management fee 57,606 68,424
General and administrative 60,141 88,133
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117,747 156,557
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Net Income $ 505,868 $ 524,320
========= =========
Net income per limited
partnership unit $5.27 $5.46
========= =========
Cash distributions per
limited partnership unit $6.81 $8.40
========= =========
Number of limited partnership
units outstanding during
the period 94,997 94,997
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(See accompanying notes to financial statements)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Quarter Ended March 31,
------------------------------------
1999 1998
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General Limited General Limited
Partners Partners Partners Partners
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Balance at
beginning of
period $(42,713) $26,341,929 $(67,328) $33,594,888
Cash
distributions (6,535) (646,930) (8,060) (797,974)
NET INCOME 5,059 500,809 5,243 519,077
--------- ----------- --------- -----------
Balance at
end of period $(44,189) $26,195,808 $(70,145) $33,315,991
========= =========== ========= ===========
(See accompanying notes to financial statements)
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter Ended March 31,
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1999 1998
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Net cash provided by operating activities $ 742,792 $ 703,870
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Cash flows from investing activities:
Investment in property - (18,845)
Decrease in short-term investments, net - 2,838,711
Loan Repayment by joint venture partner - 136,437
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Net cash provided by
investing activities - 2,956,303
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Cash flows from financing activity:
Distributions to partners (653,465) (806,034)
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Net increase in
cash and cash equivalents 89,327 2,854,139
Cash and cash equivalents:
Beginning of period 5,932,931 4,017,473
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End of period $6,022,258 $6,871,612
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(See accompanying notes to financial statements)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Partnership's
financial position as of March 31, 1999 and December 31, 1998 and the results of
its operations, its cash flows and partners' capital (deficit) for the interim
periods ended March 31, 1999 and 1998. These adjustments are of a normal
recurring nature.
See notes to financial statements included in the Partnership's 1998 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
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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 three real estate investments it currently owns prior to the end of
1987. It intends to dispose of the investments within 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 advisory services.
NOTE 2 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The following summarized financial information is presented in the
aggregate for the Partnership's two joint ventures:
Assets and Liabilities
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March 31, 1999 December 31, 1998
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Assets
Real property, at cost less
accumulated depreciation
of $2,837,335 and
$2,743,676, respectively $19,804,930 $19,830,637
Other 786,280 888,075
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20,591,210 20,718,712
Liabilities 331,001 339,188
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Net Assets $20,260,209 $20,379,524
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Results of Operations
Quarter ended March 31,
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1999 1998
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Revenue
Rental income $637,815 $640,710
Other income 128,049 2,937
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765,864 643,647
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Expenses
Operating expenses 195,519 159,637
Depreciation and amortization 93,659 93,659
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289,178 253,296
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Net income $476,686 $390,351
======== ========
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
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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 of the Reflections
investment, 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 its former venture
partner in the Metor 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 former venture partner to the Partnership under the
loan made by the Partnership to the former venture partner in connection with
the original acquisition of the property and (ii) the Partnership paid the
remainder of the purchase price in cash in the amount of $2,210.
On September 23, 1998, the Metro Business Center was sold to an
institutional buyer which was unaffiliated with the Partnership. The gross sale
price was $9,900,000. The Partnership received net proceeds totaling
$9,680,132, after closing costs and recognized a gain of $3,706,950 ($38.63 per
limited partnership unit). A disposition fee of $297,000 was accrued but not
paid to the Advisor. On October 29, 1998, the Partnership made a capital
distribution of $9,689,694 ($102 per limited partnership unit) from the proceeds
of the sale.
The following is a summary of the Partnership's wholly-owned investment:
March 31, 1999 December 31, 1998
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Land $ 1,538,883 $1,538,883
Buildings and improvements
and other capitalized costs 8,383,001 8,383,001
Accumulated depreciation and
amortization (1,015,837) (932,007)
Net operating liabilities 43,476 116,580
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$ 8,949,523 $9,106,457
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NOTE 4 - SUBSEQUENT EVENT
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Distributions of cash from operations relating to the quarter ended March
31, 1999 were made on April 29, 1999 in the aggregate amount of $582,456 ($6.07
per limited partnership unit).
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
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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. Six investments have been sold; one each in 1988, 1993,
1994, 1996, 1997 and 1998. As a result of the sale, and similar transactions,
capital of $54,908,266 ($578 per limited partnership unit) has been returned to
the limited partners through March 31, 1999.
At March 31, 1999, the Partnership had $6,022,258 in cash and cash
equivalents, of which $582,456 was used for cash distributions to partners on
April 29, 1999; 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 quarter
of 1999 were made at the annualized rate of 5.75% on the adjusted capital
contribution of $422 per limited partnership unit. Distributions of cash from
operations relating to the first quarter of 1998 were made at the annualized
rate of 5.5% on the adjusted capital contribution of $524 per limited
partnership unit.
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 March 31, 1999, appraised values exceeded the related carrying values by an
aggregate of approximately $5,800,000. 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.
Year 2000 Readiness Disclosure
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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 June 30,
1999.
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 by June
30, 1999. 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. Given the nature of its
operations, the Partnership will not incur any costs associated with Year 2000
compliance. All such costs are borne by AEW Capital Management and the property
managers.
Results of Operations
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At March 31, 1999, two of the investments in the portfolio are structured
as joint ventures with real estate development/management firms, and in one
case, with an affiliate of the Partnership. The Reflections Apartments
investment is a wholly-owned property.
Operating Factors
Columbia Gateway Corporate Park was 100% occupied at March 31, 1999 and
March 31, 1998. Ownership of the Columbia Gateway Corporate Park joint venture
has been restructured whereby the Partnership and its affiliate have obtained
full control over the business of the joint venture. This restructuring was
effective January 1, 1998.
Occupancy at Reflections Apartments ended the first quarter of 1999 at
97%, which is consistent with the quarter ended March 31, 1998.
As discussed, Metro Business Center was sold on September 23, 1998 and the
Partnership recognized a gain of $3,706,950. At the time of sale the property
was 100% leased.
Occupancy at 270 Technology Center was 96% at March 31, 1999, up from 70%
at March 31, 1998.
Investment Activity
Interest on cash equivalents and short-term investments decreased by
approximately $18,000 or 21% between the first quarter of 1998 and 1999. The
decrease is primarily due to lower average invested balances as a result of the
sale of Metro Business Center in 1998.
Real estate operating activity for the period ended March 31, 1999 was
$554,500 compared to $593,765 for the comparable period in 1998. The decrease
is primarily due to the sale of Metro Business Center in September, 1998. This
is partially offset by increases in operating performance by Columbia Gateway
due to fewer rent concessions in 1999 and lower vacancy at 270 Technology
Center.
Operating cash flow increased $38,922 between the first quarter of 1998 and
1999, primarily due to increases in distributions from joint ventures and
changes in working capital.
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 Partnership management fee decreased approximately $11,000 between the
first quarter of 1998 and 1999 due to a decrease in distributions as a result of
the sale of Metro Business Center in 1998. General and administrative expenses
decreased approximately $28,000 or 32% due primarily to a reduction in legal
fees and investor servicing fees between the first quarter of 1998 and 1999.
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1999
PART II
OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: No Current Reports on Form 8-K were
filed during the quarter ended March 31, 1999
SIGNATURES
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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)
May 13, 1999
/s/ J. Christopher Meyer III
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J. Christopher Meyer III
President, Chief Executive Officer
and Director of the Managing General Partner,
Fourth Copley Corp.
May 13, 1999
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Principal Financial and Accounting
Officer of Managing General Partner,
Fourth Copley Corp.