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, 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 SEPTEMBER 30, 1999 PART I FINANCIAL INFORMATION --------------------- NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEETS September 30, 1999 December 31, 1998 (Unaudited) (Audited) ------------------- ------------------ ASSETS Real estate investments: Joint ventures $ 4,301,103 $15,666,643 Property, net - 9,106,457 ----------- ----------- 4,301,103 24,773,100 Joint venture, held for disposition 11,506,397 - Other net assets 146,489 - Cash and cash equivalents 18,656,254 5,932,931 ----------- ----------- $34,610,243 $30,706,031 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 155,839 $ 145,103 Accrued management fee 146,719 32,314 Deferred management and disposition fees 4,680,003 4,229,398 ----------- ----------- Total liabilities 4,982,561 4,406,815 ----------- ----------- Partners' capital (deficit): Limited partners ($422 per unit; 120,000 units authorized, 94,997 units issued and outstanding) 29,637,112 26,341,929 General partners (9,430) (42,713) ----------- ----------- Total partners' capital 29,627,682 26,299,216 ----------- ----------- $34,610,243 $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 Nine Months Ended Three Months Ended Nine Months Ended September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998 ------------------ ------------------ ------------------ ------------------ INVESTMENT ACTIVITY Property rentals $ 453,427 $1,480,349 $ 818,051 $ 2,470,616 Property operating expenses (336,881) (889,448) (353,870) (1,056,101) Depreciation and amortization - (83,830) (156,619) (465,430) ---------- ---------- ---------- ----------- 116,546 507,071 307,562 949,085 Joint venture earnings 610,712 1,430,398 421,516 1,148,145 Amortization (1,327) (3,981) (1,327) (3,981) ---------- ---------- ---------- ----------- Total real estate operations 725,931 1,933,488 727,751 2,093,249 Gain on sale of Property 3,474,005 3,474,005 3,756,918 3,756,918 ---------- ---------- ---------- ----------- Total real estate activity 4,199,936 5,407,493 4,484,669 5,850,167 Interest on cash equivalents and short term investments 80,065 220,374 99,913 274,662 ---------- ---------- ---------- ----------- Total investment activity 4,280,001 5,627,867 4,584,582 6,124,829 ---------- ---------- ---------- ----------- Portfolio Expenses Management fee 146,719 261,930 132,294 269,143 General and administrative 72,468 219,092 74,594 245,817 ---------- ---------- ---------- ----------- 219,187 481,022 206,888 514,960 ---------- ---------- ---------- ----------- Net Income $4,060,814 $5,146,845 $4,377,694 $ 5,609,869 ========== ========== ========== =========== Net income per limited partnership unit $ 42.32 $ 53.64 $ 45.62 $ 58.46 ========== ========== ========== =========== Cash distributions per limited partnership unit $ 6.07 $ 18.95 $ 7.21 $ 22.82 ========== ========== ========== =========== 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 STATEMENTS OF PARTNERS' CAPITAL (Deficit) (Unaudited) Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998 ----------------------- -------------------------- ------------------------ ----------------------- General Limited General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners Partners Partners -------- -------- -------- -------- -------- -------- -------- -------- Balance at beginning of period $(44,213) $26,193,538 $(42,713) $26,341,929 $ (69,984) $33,331,839 $(67,328) $33,594,888 Cash distributions (5,825) (576,632) (18,185) (1,800,194) (6,918) (684,928) (21,896) (2,167,830) Net income 40,608 4,020,206 51,468 5,095,377 43,777 4,333,917 56,099 5,553,770 -------- ----------- -------- ----------- -------- ----------- -------- ----------- Balance at end of period $ (9,430) $29,637,112 $ (9,430) $29,637,112 $(33,125) $36,980,828 $(33,125) $36,980,828 ======== =========== ======== =========== ======== =========== ======== =========== (See accompanying notes to unaudited financial statements) NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP SUMMARIZED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, -------------------------------- 1999 1998 -------------------------------- Net cash provided by operating activities $ 1,768,650 $ 2,263,754 ----------- ----------- Cash flows from investing activities: Net proceeds from sale of investment 12,380,052 9,433,100 Deferred disposition fee 393,000 297,000 Loan repayment by joint venture partner -- 136,437 Investment in property -- (64,811) Decrease in short-term investments, net -- 2,838,711 ----------- ----------- Net cash provided by investing activities 12,773,052 12,640,437 ----------- ----------- Cash flows from financing activity: Distributions to partners (1,818,379) (2,189,726) ----------- ----------- Net increase in cash and cash equivalents 12,723,323 12,714,465 Cash and cash equivalents: Beginning of period 5,932,931 4,017,473 ----------- ----------- End of period 18,656,254 16,731,938 =========== =========== (See accompanying notes to unaudited financial statements) NEW ENGLAND LIFE PENSION PROPERTIES IV; 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, 1999 and December 31, 1998 and the results of its operations, its cash flows and partners' capital (deficit) for the three and nine months ended September 30, 1999 and 1998. These adjustments are of a normal recurring nature. See notes to audited 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 two real estate investments it currently owns prior to the end of 1987. The Partnership intended to dispose of the investments within eight to twelve years of their acquisition, and then liquidate; however, the managing general partner has extended the investment period, having determined it 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 ---------------------- September 30, 1999 December 31, 1998 ------------------ ----------------- Assets Real property, at cost less accumulated depreciation of $1,001,601 and $2,743,676, respectively $ 3,925,065 $19,830,637 Joint venture held for disposition 16,674,900 -- Other 50,123 888,075 ----------- ----------- 20,650,088 20,718,712 Liabilities 29,638 339,188 ----------- ----------- Net Assets $20,620,450 $20,379,524 =========== =========== NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP Results of Operations --------------------- Nine Months ended September 30, ------------------------------- 1999 1998 --------------- -------------- Revenue Rental income $2,558,706 $2,179,072 Other income 74,655 16,652 ---------- ---------- 2,633,361 2,195,724 ---------- ---------- Expenses Operating expenses 518,458 461,612 Depreciation and amortization 280,977 280,977 ---------- ---------- 799,435 742,589 ---------- ---------- Net income $1,833,926 $1,453,135 ========== ========== 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. In November 1999, a Purchase and Sale agreement was executed to sell the Columbia Gateway Corporate Park. Although there can be no assurance that this sale will occur, it is expected to be concluded during the first quarter of 2000. This investment has been classified as Joint Venture Held for Disposition at September 30, 1999. Earnings recognized by the Partnership from this joint venture for the three and nine month periods ended September 30, 1999 were $420,592 and $919,514, respectively. 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. On September 23, 1999, the Reflections Apartments in Fort Myers, Florida was sold to a third party which is unaffiliated with the Partnership. The gross sale price was $13,100,000. The Partnership received net proceeds totaling $12,773,052, after closing costs and recognized a gain of $3,474,005 ($36.20 per limited partnership unit). A disposition fee of $393,000 was accrued but not paid to the Advisor. On October 28, 1999, the Partnership NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP made a capital distribution of $12,522,505 ($131.82 per limited partnership unit) from the proceeds of the sale. The following is a summary of the Partnership's wholly-owned investment: September 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 assets - 116,580 ------ ---------- $ - $9,106,457 ====== ========== NOTE 4 - SUBSEQUENT EVENT - ------------------------- Distributions of cash from operations relating to the quarter ended September 30, 1999 were made on October 28, 1999 in the aggregate amount of $632,354 ($6.59 per limited partnership unit). In addition, a special operating distribution was made on October 28, 1999 funded from operating reserves totaling $851,135 ($8.87 per limited partnership unit). In accordance with the Partnership Agreement, the Partnership also paid previously accrued but deferred management fees to the Advisor in the amount of $682,100, funded from operating cash flow reserves. As discussed above, the Partnership also made a capital distribution of $12,522,505 ($131.82 per limited partnership unit) from the proceeds of the Reflections Apartments sale. 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. Seven investments have been sold: one each in 1988, 1993, 1994, 1996, 1997, 1998 and 1999. As a result of the sales, capital of $54,908,266 ($578 per limited partnership unit) has been returned to the limited partners through September 30, 1999. At September 30, 1999, the Partnership had $18,656,254 in cash and cash equivalents, of which $14,005,994 was used for cash distributions to partners on October 28, 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 for the third quarter of 1999 were made at the annualized rate of 6.25% 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. Distributions of cash from operations for the third quarter of 1998 were made at the annualized rate of 6% on the adjusted capital contribution of $524 per limited partnership unit. The fluctuation in distribution rates are a result of both the sales of the Partnership's real estate investments and the timing of cash flow from the Partnership's real estate investments held at the time of the distributions. 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 September 30, 1999, appraised values exceeded the related carrying values by an aggregate of approximately $2,200,000. 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 the Advisor, 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. . AEW Capital Management successfully participated in industry-wide testing in August 1999. . AEW Capital Management believes it is ready for Year 2000. AEW Capital Management has advised the Partnership that being ready means that AEW Capital Management has tested its internal mission critical systems and software applications, and based upon testing conducted, AEW Capital Management believes that such systems and applications are prepared to process dates correctly through the Year 2000. Based upon these assurances, the Partnership has determined that it is not necessary for it to develop a Year 2000 contingency plan. 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 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 September 30, 1999, the two investments in the portfolio are structured as joint ventures, one with a real estate development/management firm, the other with an affiliate of the Partnership. Reflections Apartments, which was sold in September 1999, was a wholly-owned property. Operating Factors In November 1999, a Purchase and Sale Agreement was executed by the Partnership to sell the Columbia Gateway Corporate Park. Although there can be no assurance that this sale will occur, it is anticipated to be concluded during the first quarter of 2000. Columbia Gateway Corporate Park was 100% occupied at September 30, 1999 and September 30, 1998. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP Occupancy at 270 Technology Center was 100% at September 30, 1999 and September 30, 1998. At the time of the sale, occupancy at Reflections Apartments was 94%, up from 92% at September 30, 1998. As discussed above, the Reflections Apartments was sold on September 23, 1999, and the Partnership recognized a gain of $3,474,005. 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. Investment Activity Interest on cash equivalents and short-term investments for the three and nine months ended September 30, 1999, was $80,065 and $220,374, respectively, compared to $99,913 and $274,662 for the same periods in 1998. The decreases of approximately $20,000 and $54,000, or 20%, for the comparative three and nine 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 nine months ended September 30, 1999, operating results from real estate operations were $725,931 and $1,933,488, respectively, compared to $727,751 and $2,093,249 for the comparable periods in 1998. The decreases of $1,820 and $159,761 for the comparative three and nine month periods are primarily due to the sale of Metro Business Center in September 1998. These decreases are partially offset by an increase in operating performance at Columbia Gateway attributable to decreases in rent concessions and the recovery of the prior year write off of bad debt. Operating performance at 270 Technology Center improved as well due to fewer rent concessions in 1999 and higher occupancy. Operating cash flow decreased $495,104 between the nine months ended September 30, 1998 and September 30, 1999 primarily as a result of the sale of Metro Business Center in September 1998. 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, 1999, management fees were $146,719 and $261,930, respectively, compared to $132,294 and $269,143 for the comparable periods in 1998. The increase of approximately $14,000 for the respective three month periods is due to a special distribution from operating reserves for the three months ended September 30, 1999. Management fees decreased during the respective nine month periods due to lower overall cash distributions. General and administrative expenses for the three and nine months ended September 30, 1999 were $72,468 and $219,092, respectively, compared to $74,594 and $245,817 for the same periods in 1998. Expenses for the comparable three month periods remained relatively unchanged. The decrease of approximately $27,000, or 11%, for the comparable nine month periods is primarily due to decreases in legal, printing and appraisal fees. NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 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 September 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) November 12, 1999 /s/ Alison Husid Cutler ------------------------------------------- Alison Husid Cutler President, Chief Executive Officer and Director of the Managing General Partner, Fourth Copley Corp. November 12, 1999 /s/ Karin J. Lagerlund ------------------------------------------- Karin J. Lagerlund Principal Financial and Accounting Officer of Managing General Partner, Fourth Copley Corp.