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, 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 - ---------------------------------------------------------------------------- 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, 1999 PART I FINANCIAL INFORMATION ----------------------- NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEETS June 30, 1999 December 31, 1998 (Unaudited) (Audited) ------------- ----------------- ASSETS Real estate investments: Joint ventures $15,626,635 $15,666,643 Property, net - 9,106,457 Property held for disposition 8,903,583 - Other assets 15,440 - ----------- ----------- 24,545,658 24,773,100 Cash and cash equivalents 6,027,260 5,932,931 ----------- ----------- $30,572,918 $30,706,031 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 107,787 $ 145,103 Accrued management fee 28,803 32,314 Deferred management and disposition fees 4,287,003 4,229,398 ----------- ----------- Total liabilities 4,423,593 4,406,815 ----------- ----------- Partners' capital (deficit): Limited partners ($422 per unit; 120,000 units authorized, 94,997 units issued and outstanding) 26,193,538 26,341,929 General partners (44,213) (42,713) ----------- ----------- Total partners' capital (deficit) 26,149,325 26,299,216 ----------- ----------- $30,572,918 $30,706,031 =========== =========== (See accompanying notes to unaudited financial statements) NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended Three Months Ended Six Months Ended June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998 ------------- ------------- ------------- ------------- INVESTMENT ACTIVITY Property rentals $ 500,816 $1,026,922 $ 834,263 $1,652,565 Property operating expenses (289,681) (552,567) (328,450) (702,231) Depreciation and amortization - (83,830) (155,403) (308,811) --------- ---------- --------- ---------- 211,135 390,525 350,410 641,523 Joint venture earnings 443,249 819,686 422,650 726,629 Amortization (1,327) (2,654) (1,327) (2,654) --------- ---------- --------- ---------- Total real estate operations 653,057 1,207,557 771,733 1,365,498 Interest on cash equivalents and short term investments 71,194 140,309 87,637 174,749 --------- ---------- --------- ---------- Total investment activity 724,251 1,347,866 859,370 1,540,247 --------- ---------- --------- ---------- Portfolio Expenses Management fee 57,605 115,211 68,425 136,849 General and administrative 86,483 146,624 83,090 171,223 --------- ---------- --------- ---------- 144,088 261,835 151,515 308,072 --------- ---------- --------- ---------- Net Income $ 580,163 $1,086,031 $ 707,855 $1,232,175 ========= ========== ========= ========== NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP Net income per limited partnership unit $ 6.05 $ 11.32 $ 7.38 $ 12.84 ======= ======= ======= ======= Cash distributions per limited partnership unit $ 6.07 $ 12.88 $ 7.21 $ 15.61 ======= ======= ======= ======= Number of limited partnership units outstanding during the period 94,997 94,997 94,997 94,997 ======= ======= ======= ======= (See accompanying notes to unaudited financial statements) NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF PARTNERS' CAPITAL (DEFICIT) (Unaudited) Three Months Ended Six Months Ended Three Months Ended Six Months Ended June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998 -------------------- ---------------- ------------------ ---------------- General Limited General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners Partners Partners ---------- ------------ ----------- ------------ ----------- ------------- ---------- ------------- Balance at beginning of period $ (44,189) $26,195,808 $ (42,713) $26,341,929 $ (70,145) $ 33,315,991 $ (67,328) $ 33,594,888 Cash distributions (5,825) (576,632) (12,360) (1,223,562) (6,918) (684,928) (14,978) (1,482,902) Net income 5,801 574,362 10,860 1,075,171 7,079 700,776 12,322 1,219,853 ---------- ------------ ----------- ------------ ----------- ------------- ---------- ------------- Balance at end of period $ (44,213) $26,193,538 $ (44,213) $26,193,538 $ (69,984) $ 33,331,839 $ (69,984) $ 33,331,839 ========== ============ =========== ============ =========== ============= ========== ============= (See accompanying notes to unaudited financial statements) NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP SUMMARIZED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, ------------------------- 1999 1998 ----------- ----------- Net cash provided by operating activities $ 1,330,251 $ 1,501,792 ----------- ----------- Cash flows from (used in) investing activities: Investment in property - (47,339) Decrease in short-term investments, net - 2,838,711 Loan repayment by joint venture partner - 136,437 ----------- ----------- Net cash provided by investing activities - 2,927,809 ----------- ----------- Cash flows from financing activity: Distributions to partners (1,235,922) (1,497,880) ----------- ----------- Net increase in cash and cash equivalents 94,329 2,931,721 Cash and cash equivalents: Beginning of period 5,932,931 4,017,473 ----------- ----------- End of period $ 6,027,260 $ 6,949,194 =========== =========== (See accompanying notes to unaudited financial statements) NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP NOTES TO UNAUDITED 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, 1999 and December 31, 1998 and the results of its operations, its cash flows and partners' capital (deficit) for the three and six months ended June 30, 1999 and 1998. These adjustments are of a normal recurring nature. See notes to unaudited 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 - ---------------------------------- 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 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 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 ---------------------- June 30, 1999 December 31, 1998 ------------- ----------------- Assets Real property, at cost less accumulated depreciation of $2,930,994 and $2,743,676, respectively $19,898,843 $19,830,637 Other 651,409 888,075 ----------- ----------- 20,550,252 20,718,712 Liabilities 194,090 339,188 ----------- ----------- Net Assets $20,356,162 $20,379,524 =========== =========== NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP Results of Operations Six Months ended June 30, ------------------------- 1999 1998 ---- ---- Revenue Rental income $1,569,247 $1,418,150 Other income 13,331 8,815 ---------- ---------- 1,582,578 1,426,965 ---------- ---------- Expenses Operating expenses 356,622 320,829 Depreciation and amortization 187,318 187,318 ---------- ---------- 543,940 508,147 ---------- ---------- Net income $1,038,638 $ 918,818 ========== ========== 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 an 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. In mid June 1999, a Purchase and Sale agreement was executed by the owning partnership to sell the Reflections investment. Although there can be no assurance that this sale will occur, it is expected to be concluded during the third quarter of 1999. This investment has been classified as Property Held for Disposition at June 30, 1999. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP The following is a summary of the Partnership's wholly-owned investment: June 30, 1999 December 31, 1998 ------------- ------------------ Land $ - $ 1,538,883 Buildings and improvements and other capitalized costs - 8,383,001 Accumulated depreciation and amortization - (932,007) Net operating liabilities - 116,580 Property, held for disposition 8,903,583 - ------------- -------------- $ 8,903,583 $ 9,106,457 ============= ============== NOTE 4 - SUBSEQUENT EVENT - ------------------------- Distributions of cash from operations relating to the quarter ended June 30, 1999 were made on July 29, 1999 in the aggregate amount of $582,456 ($6.07 per limited partnership unit). NEW ENGLAND LIFE PENSION PROPERTIES IV; 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 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 sales, capital of $54,908,266($578 per limited partnership unit) has been returned to the limited partners through June 30, 1999. At June 30, 1999, the Partnership had $6,027,260 in cash and cash equivalents, of which $582,456 was used for cash distributions to partners on July 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 and second quarters 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 and second quarters 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 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, 1999, appraised values exceeded the related carrying values by an aggregate of approximately $5,400,000. 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 - ------------------------------ 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. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP 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 concluded the internal testing, remediation/repair and certifications of its Plan in June 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 is developing a contingency plan in the event of a particular provider or system not being Year 2000 compliant. 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 - --------------------- At June 30, 1999, two of the investments in the portfolio are structured as joint ventures with a real estate development/management firm, one of which is with an affiliate of the Partnership. The Reflections Apartments is a wholly- owned property. Metro Business Center, which was sold in September 1998, was a wholly-owned property. Operating Factors Columbia Gateway Corporate Park was 100% occupied at June 30, 1999 and June 30, 1998. Occupancy at Reflections Apartments ended the second quarter of 1999 at 94%, which is consistent with the quarter ended June 30, 1998. 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. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP Occupancy at 270 Technology Center was 100% at June 30, 1999 and June 30, 1998. Investment Activity Interest on cash equivalents and short-term investments for the three and six months ended June 30, 1999, was $71,194 and $140,309, respectively, compared to $87,637 and $174,749 for the same periods in 1998. The decreases of approximately $16,000 and $ 34,000 for the comparative three and six month periods are primarily due to lower average investment balances in 1999 as a result of the sale of Metro Business Park in September 1998. For the three and six months ended June 30, 1999, operating results from real estate operations were $653,057 and $1,207,557, respectively, compared to $771,733 and $1,365,498 for the comparable periods in 1998. The decreases of $118,676 and $157,941 for the comparative three and six month periods are primarily due to the sale of Metro Business Center in September, 1998. This is partially offset by increases in operating performance by Columbia Gateway and 270 Technology Center due to fewer rent concessions in 1999 and higher occupancy, respectively. Operating cash flow decreased $171,541 between the six months ended June 30, 1998 and June 30, 1999, 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. For the three and six months ended June 30, 1999, management fees were $57,605 and $115,211, respectively, compared to $68,425 and $136,849 for the comparable periods in 1998. The decreases in management fees for the respective three and six month periods are due to lower operational cash distributions as a result of the sale of Metro Business Center in September 1998. General and administrative expenses for the three and six months ended June 30, 1999 were $86,483 and $146,624, respectively, compared to $83,090 and $171,223 for the same periods in 1998. The increase of approximately $3,300 or 4% for the three month periods is primarily due to an increase in accounting fees, in the second quarter of 1999, associated with the 1998 audit of Metro Business Center, which was sold in September 1998. For the respective six month periods, expenses decreased approximately $25,000 or 14% due primarily to decreases in legal, printing and investor servicing fees. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 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, 1999. 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 11, 1999 /s/ Alison Husid Cutler ------------------------------- Alison Husid Cutler President, Chief Executive Officer and Director of the Managing General Partner, Fourth Copley Corp. August 11, 1999 /s/ Karin J. Lagerlund -------------------------------- Karin J. Lagerlund Principal Financial and Accounting Officer of Managing General Partner, Fourth Copley Corp.