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 0-20126
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 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 [ ]
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1999
PART I
FINANCIAL INFORMATION
2
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1999 December 31, 1998
(Unaudited) (Audited)
------------ ------------
Assets
Real estate investments:
Joint ventures $ 8,938,535 $ 9,003,008
Property, net 1,876,313 1,871,598
Property held for disposition, net -- 8,825,905
------------ ------------
10,814,848 19,700,511
Cash and cash equivalents 4,270,452 3,985,403
------------ ------------
$ 15,085,300 $ 23,685,914
============ ============
Liabilities and Partners' Capital
Accounts payable $ 71,560 $ 91,233
Accrued management fee 30,055 54,897
Deferred disposition fees 1,033,108 641,608
------------ ------------
Total liabilities 1,134,723 787,738
------------ ------------
Partners' capital(deficit):
Limited partners ($456.12 and
$742.12 per unit, respectively;
160,000 units authorized, 42,076
units issued and outstanding) 13,945,385 22,923,845
General partners 5,192 (25,669)
------------ ------------
Total partners' capital 13,950,577 22,898,176
------------ ------------
$ 15,085,300 $ 23,685,914
============ ============
(See accompanying notes to unaudited financial statements)
3
COPLEY PENSION PROPERTIES VII;
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 $ 72,555 $ 560,791 $ 487,966 $ 971,151
Property operating expenses (51,844) (241,670) (204,285) (372,015)
Depreciation and amortization (21,505) (43,010) (88,152) (176,304)
----------- ----------- ----------- -----------
(794) 276,111 195,529 422,832
Joint venture earnings 276,491 551,506 358,842 715,645
----------- ----------- ----------- -----------
Total real estate operations 275,697 827,617 554,371 1,138,477
Gain on sale of property -- 3,302,085 -- --
----------- ----------- ----------- -----------
Total real estate activity 275,697 4,129,702 554,371 1,138,477
Interest on cash equivalents
and short-term investments 95,009 150,503 58,227 115,705
----------- ----------- ----------- -----------
Total investment activity 370,706 4,280,205 612,598 1,254,182
----------- ----------- ----------- -----------
4
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998
------------- ------------- ------------- -------------
Portfolio Expenses
Management fees 30,055 76,838 65,026 130,053
General and administrative 34,602 89,130 37,540 89,265
---------- ---------- ---------- ----------
64,657 165,968 102,566 219,318
---------- ---------- ---------- ----------
Net Income $ 306,049 $4,114,237 $ 510,032 $1,034,864
========== ========== ========== ==========
Net income per limited partnership
unit $ 7.20 $ 96.80 $ 12.00 $ 24.35
========== ========== ========== ==========
Cash distributions per limited
partnership unit $ 297.13 $ 310.19 $ 15.47 $ 30.94
========== ========== ========== ==========
Number of limited partnership units
outstanding during the period 42,076 42,076 42,076 42,076
========== ========== ========== ==========
(See accompanying notes to unaudited financial statements)
5
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------------------------- -------------------------------------
General Limited General Limited
Partners Partners Partners Partners
------------ ------------ ------------ ------------
Balance at beginning $ 6,862 $ 26,144,438 $ (25,669) $ 22,923,845
of period
Cash distributions (4,730) (12,502,042) (10,281) (13,051,555)
Net income 3,060 302,989 41,142 4,073,095
------------ ------------ ------------ ------------
Balance at end
of period $ 5,192 $ 13,945,385 $ 5,192 $ 13,945,385
============ ============ ============ ============
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------------------------------- -------------------------------------
General Limited General Limited
Partners Partners Partners Partners
------------ ------------ ------------ ------------
Balance at beginning $ (40,677) $ 27,407,821 $ (39,350) $ 27,539,153
of period
Cash distributions (6,575) (650,916) (13,150) (1,301,832)
Net income 5,101 504,931 10,349 1,024,515
------------ ------------ ------------ ------------
Balance at end
of period $ (42,151) $ 27,261,836 $ (42,151) $ 27,261,836
============ ============ ============ ============
(See accompanying notes to unaudited financial statements)
6
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------------
1999 1998
------------ ------------
Net cash provided by operating activities $ 845,485 $ 1,429,965
------------ ------------
Cash flows from investing activities:
Net proceeds from sale of investment 12,109,900 --
Deferred disposition fees 391,500 --
Increase in short-term
investments, net -- 1,302,726
------------ ------------
Net cash provided by
investing activities 12,501,400 1,302,726
------------ ------------
Cash flows from financing activity:
Distributions to partners (13,061,836) (1,314,982)
------------ ------------
Net increase in cash
and cash equivalents 285,049 1,417,709
Cash and cash equivalents:
Beginning of period 3,985,403 3,154,152
------------ ------------
End of period $ 4,270,452 $ 4,571,861
============ ============
(See accompanying notes to unaudited financial statements)
7
COPLEY PENSION PROPERTIES VII;
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 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 month periods ended June 30, 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
- ----------------------------------
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. It acquired the
three real estate investments it currently owns prior to 1991. The Partnership
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 advisory services.
Note 2 - Real Estate Joint Ventures
- -----------------------------------
The following summarized financial information is presented in the
aggregate for the Partnership's joint ventures:
Assets and Liabilities
----------------------------------
June 30, 1999 December 31, 1998
------------- -----------------
Assets
Real property, at cost less
accumulated depreciation of
$3,211,737 and $3,043,811
respectively $ 9,045,266 $ 9,213,192
Other 1,072,808 1,011,628
----------- -----------
10,118,074 10,224,820
Liabilities 179,460 142,195
----------- -----------
Net assets $ 9,938,614 $10,082,625
=========== ===========
8
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Results of Operations
---------------------
Six Months Ended June 30,
1999 1998
---------- ----------
Revenue
Rental income $1,061,482 $2,545,519
Other -- 4,873
---------- ----------
1,061,482 2,550,392
---------- ----------
Expenses
Operating expenses 230,339 749,188
Depreciation and amortization 180,365 451,428
---------- ----------
410,704 1,200,616
---------- ----------
Net income $ 650,778 $1,349,776
========== ==========
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint venture) its affiliates on behalf of
their various financing arrangements with the joint ventures.
Note 3 - Property
- -----------------
On April 14, 1995, the Partnership acquired, through a limited
partnership it controls, 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 were being depreciated over 30 years
using the straight-line method.
On March 25, 1999, the Partnership sold the Regency Court Apartments to
an unaffiliated third party (the "Buyer") for sale price of $13,050,000. The
terms of the sale were determined by arm's length negotiation between the Buyer
and the Partnership. The Partnership received net proceeds of $12,501,400 and
recognized a gain of $3,302,085 ($77.69 per limited partnership unit). On April
29, 1999, the Partnership made a capital distribution of $12,033,736 ($286 per
limited partnership unit) from the proceeds of the sale.
9
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
The following is a summary of the Partnership's investment in property (one
at June 30, 1999 and two at December 31, 1998):
June 30, 1999 December 31, 1998
------------- -----------------
Land $ 244,346 $ 244,346
Buildings and improvements 1,976,977 1,976,977
Accumulated depreciation (455,376) (415,836)
Other net liabilities 110,366 66,111
Property held for disposition -- 8,825,905
------------ ------------
$ 1,876,313 $ 10,697,503
============ ============
Note 4 - Subsequent Events
- -------------------------
Distributions of cash from operations relating to the quarter ended June 30,
1999 were made on July 29, 1999 in the aggregate amount of $303,882 ($7.15 per
limited partnership unit).
10
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------
and Results of Operations
- -------------------------
Liquidity and Capital Resources
The Partnership's offering of units of limited partnership interest was
completed as of September 30, 1990. 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, or retained as working capital reserves.
The Partnership made seven real estate investments, one of which was sold in
each 1991, 1994, 1998 and 1999. Through June 30, 1999, capital of $22,884,295
($543.88 per limited partnership unit) has been returned to the limited partners
as a result of sales and the reduction of cash reserves.
At June 30, 1999, the Partnership had $4,270,452 in cash and cash
equivalents, of which $303,882 was used for operating cash distributions to
partners on July 29, 1999; the remainder is being retained as working capital
reserves. The source of future liquidity and cash distributions to partners will
primarily be cash generated by the Partnership's invested cash and cash
equivalents and real estate investments, and proceeds from the sale of such
investments. Distributions of cash from operations relating to the first quarter
of 1999 were made at an annualized rate of 6% on the adjusted capital
contribution of $742.12. Cash distributions relating to the second quarter of
1999 were made at an annualized rate of 5.25% on the weighted average adjusted
capital contribution of $545.10. Distributions of cash from operations relating
to the first two quarters of 1998 were made at an annualized rate of 7% on the
adjusted capital contribution of $884. The distribution rate was lower in 1999
due to sales in 1998 and 1999.
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 estimated cost of sale
for properties held for sale. Carrying value may be greater or less than current
appraised value. At June 30, 1999, the appraised value of each real estate
investment exceeded its carrying value; the aggregate excess was approximately
$4,400,000. 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 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.
11
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
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.
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.
12
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
Results of Operations
Form of Real Estate Investment
The Drilex is a wholly-owned property. The remaining real estate
investments, Parkmoor Plaza and Prentiss Copystar are structured as joint
ventures.
Operating Factors
The Partnership's two industrial properties, Drilex and Prentiss
Copystar, were 100% leased, each by a single tenant, at June 30, 1999, as they
were at June 30, 1998.
Occupancy at Parkmoor Plaza was 100% at June 30, 1999, where it has
remained since the second quarter of 1995.
In addition, the Regency Court Apartments investment was sold on March
25, 1999. The Partnership recognized a gain of approximately $3,302,000. Regency
Court was 97% leased at the time of sale. At December 31, 1998 it was 96%
leased.
Investment Results
For the three and six months ended June 30, 1999, operating results
from real estate operations were $275,697 and $827,617, respectively, compared
to $554,371 and $1,138,477 for the comparable periods in 1998. The decreases of
$278,674 and $310,860 for the comparative three and six month periods are
primarily due to a decrease in joint venture earnings and property operations as
a result of the sales of Waterford Apartments on August 7, 1998 and Regency
Court Apartments on March 25, 1999.
Interest on cash equivalents and short-term investments for the three
and six months ended June 30, 1999, was $95,009 and $150,503, respectively,
compared to $58,227 and $115,705 for the same periods in 1998. The increases of
approximately $36,800 and $35,000 for the comparative three and six month
periods are primarily due to higher average investment balances in 1999, as a
result of the receipt of sale proceeds from Regency Court Apartments.
Operating cash flow decreased $584,480 between the six months ended
June 30, 1998 and June 30, 1999. The decrease is primarily due to the decrease
in distributions from joint ventures and a decrease in property 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.
13
COPLEY PENSION PROPERTIES VII;
A REAL ESTATE LIMITED PARTNERSHIP
For the three and six months ended June 30, 1999, management fees were
$30,055 and $76,838, respectively, compared to $65,026 and $130,053 for the
comparable periods in 1998. The decreases in management fees for the respective
three and six month periods are due to lower operational distributions as a
result of the sales of Waterford Apartments in 1998 and Regency Court Apartments
in 1999.
General and administrative expenses for the three and six months ended
June 30, 1999 were $34,602 and $89,130, respectively, compared to $37,540 and
$89,265 for the same periods in 1998. General and administrative expenses
remained relatively unchanged between the respective periods.
14
COPLEY PENSION PROPERTIES VII;
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: During the quarter ended June
30, 1999, one Current Report on Form 8-K was filed on
April 8, 1999 reporting on Item No. 2 (Acquisition or
Disposition of Assets) and Item No. 7 (Financial
statements and Exhibits), relating in both cases to
the March 25, 1999 sale of Regency Court Apartments.
15
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 VII;
A REAL ESTATE LIMITED PARTNERSHIP
(Registrant)
August 13, 1999
/s/ Alison Husid Cutler
-------------------------------
Alison Husid Cutler
President, Chief Executive Officer
And Director of Managing General
Partner, Seventh Copley Corp.
August 13, 1999
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Principal Financial and Accounting
Officer of Managing General Partner,
Seventh Copley Corp.
16