Item 1. Business. --------
New England Life Pension Properties IV; A Real Estate Limited Partnership (the "Partnership") was organized under the Uniform Limited Partnership Act of the Commonwealth of Massachusetts on October 16, 1985, to invest primarily in newly constructed and existing income-producing real properties.
The Partnership was initially capitalized with contributions of $2,000 in the aggregate from Fourth Copley Corp. (the "Managing General Partner") and CCOP Associates Limited Partnership (the "Associate General Partner") (collectively, the "General Partners") and $10,000 from Copley Real Estate Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a Registration Statement on Form S-11 (the "Registration Statement") with the Securities and Exchange Commission on November 12, 1985, with respect to a public offering of 60,000 units of limited partnership interest at a purchase price of $1,000 per unit (the "Units") with an option to sell up to an additional 60,000 Units (an aggregate of $120,000,000). The Registration Statement was declared effective on January 3, 1986.
The first sale of Units occurred on May 29, 1986, at which time the Initial Limited Partner withdrew its contribution from the Partnership. Investors were admitted to the Partnership thereafter at monthly closings; the offering terminated and the last group of subscription agreements was accepted by the Partnership on December 31, 1986. As of January 31, 1987, a total of 94,997 Units had been sold, a total of 17,207 investors had been admitted as limited partners (the "Limited Partners") and a total of $94,348,550 had been contributed to the capital of the Partnership. The remaining 25,003 Units were de-registered on February 23, 1987.
As of December 31, 1996, the Partnership had investments in the five real properties described below. In December 1988, the Partnership sold one of its investments and received sale proceeds of $10,577,476 which were substantially reinvested. The three other investments have been sold. One investment in Atlanta, Georgia was sold on August 6, 1993, resulting in sale proceeds of $7,917,000. Capital was distributed to the Limited Partners in October 1993, in the amount of $82.00 per Unit . A second investment in Rancho Cucamonga, California was sold on December 30, 1994, resulting in sale proceeds of $5,261,275. On January 26, 1995, capital of $5,224,835 ($55 per Unit) was distributed to the Limited Partners. Finally, a third investment located in Decatur, Georgia was sold on October 10, 1996, resulting in sales proceeds of $9,333,325. On October 24, 1996, capital of $9,214,709 ($97 per unit) was distributed to the Limited Partners.
The Partnership has no current plan to renovate, improve or further develop any of its real property. In the opinion of the Managing General Partner of the Partnership, the properties are adequately covered by insurance. The Partnership has no employees. Services are performed for the Partnership by the Managing General Partner and affiliates of the Managing General Partner.
A. Apartment Complex in Fort Myers, Florida ("Reflections"). --------------------------------------------------------
On August 1, 1986, the Partnership acquired a 60% interest in Lee Partners (the "Joint Venture"), a joint venture formed with Lee-Oxford Limited Partnership, a Maryland limited partnership ("Lee-Oxford"). As of December 31, 1996, the Partnership had contributed $8,190,145 to the capital of the Joint Venture out of a maximum commitment of $8,685,000. The joint venture agreement entitles the Partnership to receive 60% of all cash flow from operations, refinancing proceeds and net sale proceeds.
The Partnership also committed to make a loan for investment in the joint venture of up to $5,790,000 to Lee-Oxford, of which $5,460,097 had been funded as of December 31, 1996. Interest only on the loan is payable monthly at the rate of 10.5% per annum. The entire outstanding principal balance of the loan matures in December, 1999 or will be due on the sale of all or substantially all of the assets of the Joint Venture or the sale of Lee-Oxford's interest in the Joint Venture. Lee-Oxford must apply any cash flow received from operations of the Joint Venture to interest payments on the loan and must apply proceeds of financings or sales received from the Joint Venture to payment of the interest on and principal of the loan. The Partnership agreed, effective January 1, 1988, that to the extent that Lee-Oxford's 40% share of the cash flow is not sufficient to pay interest currently due, interest due on the loan shall accrue and compound at a rate of 10.5%. The Partnership agreed, effective May 1, 1992, to extend the maturity date of the loan from August, 1996 to December, 1999, and the borrower agreed to pay interest, currently, at a minimum of 7% with the remainder accruing at 10.5% per annum compounded monthly. The loan is secured by Lee-Oxford's interest in the Joint Venture and by a guarantee of Oxford Development Corporation, an affiliate of Lee-Oxford.
The joint venture was restructured in the second quarter of 1996, whereby Lee-Oxford became an indirect limited partner. The Partnership thereby obtained control over management and operating decisions. The ownership
restructuring was accomplished with the establishment of a new partnership entity in which the Partnership is the general partner and Lee-Oxford is the limited partner. The new entity holds a 42% interest in the Joint Venture, representing all of Lee-Oxford's prior direct ownership interest and 2% of the Partnership's prior direct interest. The Partnership also agreed to release the guarantee from Oxford Development Corporation upon payment to the Partnership of a total of $650,000 of which $136,437 remains unpaid at December 31, 1996.
The joint venture owns approximately 12.63 acres of land located in Fort Myers, Florida and has constructed a 282-unit apartment complex, consisting of 12 2- and 3-story buildings, thereon. The complex was approximately 88% occupied as of December 31, 1996.
B. Office/Industrial Buildings in Phoenix, Arizona ("Metro Business ---------------------------------------------------------------- Center"). ------
On September 15, 1986, the Partnership acquired a 60% interest in Copley/Hewson Northwest Associates, a joint venture formed with an affiliate of The Hewson Company (the "Developer"). Effective January 1, 1990, as a result of operating deficits, the joint venture agreement was amended to reflect an increase of the Partnership's interest in the joint venture to 80% and a decrease in the Developer's interest to 20%. As of December 31, 1996, the Partnership had contributed $5,302,193 to the capital of the joint venture out of a maximum obligation of $5,580,000.
The Partnership also committed to make a loan for investment in the joint venture of up to $3,988,000 to the Developer, of which $3,534,796 had been funded as of December 31, 1996. Interest only on the loan is payable monthly at the rate of 10.5% per annum. The loan has a ten-year term and is not prepayable. The Developer must apply any cash flow received from operations of the joint venture to interest payments on the loan and must apply proceeds of refinancings or sales received from the joint venture to payments of interest on and principal of the loan. The loan is secured by the borrower's interest in the joint venture.
The joint venture agreement entitled the Partnership to receive 80% of net cash flow, refinancing proceeds and sale proceeds once the loan and accrued interest are repaid in full.
On January 1, 1996 a letter agreement was executed which modified certain terms of the Joint Venture Agreement. The letter agreement, which constituted an amendment to the Joint Venture Agreement, granted the Partnership full control over management decisions. Control over the decision to sell the property, however, became effective on July 1, 1996.
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. The property interest distributed to the Developer is encumbered by the aforementioned loan. The note was amended to mature on February 1, 1997 and is secured by a recorded deed-of- trust. The maturity date is in the process of being extended. In connection with the transaction, the Partnership obtained the option to purchase the tenancy-in-common interest of the Hewson affiliate at its fair market value beginning February 1, 1997.
The tenants-in-common own approximately seven acres of land located in Phoenix, Arizona, improved with four one-story warehouse buildings containing approximately 109,930 square feet of space. The buildings were 98% leased as of December 31, 1996.
C. Office, Industrial and Retail Buildings in Las Vegas, ----------------------------------------------------- Nevada ("Palms Business Centers"). ---------------------------------
On December 29, 1986, the Partnership acquired a 60% interest in Rancho Road Associates, a joint venture formed with an affiliate of Commerce Centre Partners. In the first quarter of 1990, the Partnership committed to increase its maximum commitment from $13,400,000 to $15,300,000. On October 2, 1991, the Partnership committed to increase its maximum commitment from $15,300,000 to $15,840,000. As of December 31, 1996, the Partnership had contributed $15,840,000 of capital to the joint venture. The additional funds were used to pay for higher than anticipated tenant finish costs and the costs of re-leasing the space vacated by tenants when leases expired. The joint venture agreement entitles the Partnership to receive a preferred cumulative compounded return of 11% per annum on its capital contribution, of which 9.5% per annum is due currently and up to 1.5% per annum may be accrued if sufficient cash is not available therefor. The entire unpaid accrued preferred return was due and payable at the end of the tenth year of the joint venture's operations. The joint venture agreement also entitled the Partnership to receive 60% of net cash flow and 60% of sale and refinancing proceeds following the return of the Partnership's equity capital.
As of January 1, 1995, the joint venture agreement was amended and restated granting the Partnership control over management and operating decisions. Additionally, the venture partner will receive 40% of the excess cash flow
above a specified level until its cash investment of $360,000 is repaid in full, at which time the Partnership will be entitled to all cash flow. Unpaid preferred returns of $2,936,919 were added to the Partnership's capital account. Future preferred return payments are to be made monthly in the amount of $121,125. Monthly payments shall be made to the extent operating revenues or extraordinary cash flows are available. To the extent such payments cannot be made from such sources when due, payments may accrue at a rate of 9.5% per annum, compounded monthly, until paid.
The joint venture owns approximately 14.1 acres of land in Las Vegas, Nevada improved with 15 one-story buildings suitable for office, industrial and retail use and containing approximately 224,474 square feet of space. At December 31, 1996, approximately 98% of the available leasable area was leased.
On November 16, 1990, the joint venture filed a complaint against a tenant for failure to pay rent and fraud, totaling approximately $500,000. A judgment in the amount of $911,200 was legally recorded in 1995. The Partnership has not collected on or recognized the judgment as of December 31, 1996.
On October 26, 1994, the joint venture filed a complaint against Han Lee, Inc. for failure to pay rent totaling $69,171, including late charges. In August, 1995, a Judgment by Default in the amount of $83,856 was legally recorded. The Partnership has determined that the claim is not collectible at this time.
D. Office/Research and Development Buildings in Columbia, Maryland --------------------------------------------------------------- ("Columbia Gateway Corporate Park"). ----------------------------------
On December 21, 1987, the Partnership acquired a 17% interest in a joint venture formed with an affiliate of the Partnership (the "Affiliate"), which had a 33% interest, and M.O.R. Gateway 51 Associates Limited Partnership.
As of April 20, 1989, the joint venture agreement was amended and restated reflecting an increase in the Partnership's interest in the joint venture to 34.75% and a decrease in the Affiliate's interest in the joint venture to 15.25%. In addition, the amended and restated joint venture agreement increased the Partnership's maximum commitment to contribute capital to the joint venture and reallocated the capital contributed to the joint venture between the Partnership and the Affiliate. As of December 31, 1996, the Partnership had contributed $14,086,147 to the capital of the joint venture out of a maximum commitment of $14,598,000.
The joint venture agreement entitles the Partnership and the Affiliate to receive a preferred return on the their respective invested capital at the rate of 10.5% per annum. Such preferred return will be payable currently until the Partnership and the Affiliate have received an aggregate of $8,865,000; thereafter, if sufficient cash flow is not available therefor, the preferred return will accrue and bear interest at the rate of 10.5% per annum, compounded monthly. The joint venture agreement also entitles the Partnership to receive 34.75% of cash flow following payment of the preferred return and 34.75% of the net proceeds of sales and refinancings following return of the Partnership's and the Affiliate's equity.
The joint venture owns approximately 20.85 acres of land in the Columbia Gateway Corporate Park in Columbia, Maryland. The intended development plan for this land was for a two-stage development of seven office and research and development buildings. The first phase of this development was completed by 1992 and included the construction of four, one-story buildings containing 142,545 square feet. The second phase of this development commenced in the spring of 1994 in which two buildings totaling 46,000 square feet were constructed and leased to a single tenant for a term of ten years. As of December 31, 1996, the project was 94% leased.
E. Office/Research and Development Buildings in Frederick, Maryland ---------------------------------------------------------------- ("270 Technology Center"). -------------------------
On December 22, 1987, the Partnership acquired a 50% interest in a joint venture formed with MORF Associates VI Limited Partnership. As of December 31, 1996, the Partnership had contributed $4,857,000 to the capital of the joint venture out of a maximum commitment of $5,150,000. The joint venture agreement entitles the Partnership to receive a preferred return on its invested capital at the rate of 10% per annum. Such preferred return was payable currently through September 30, 1988; presently, and until the termination of the joint venture's operations, to the extent that sufficient cash flow is not available therefor, the preferred return will accrue and bear interest at the rate of 10% per annum, compounded monthly. The joint venture agreement entitles the Partnership to receive 50% of the net proceeds of sales and financings after return of its equity and preferred return.
As of July 3, 1990, the joint venture sold approximately 3.9 acres of land to an unrelated third party. In return, the joint venture received approximately $500,000 and a parcel of land consisting of approximately 4 acres. The joint
venture currently owns approximately 8 acres of land in the 270 Technology Center in Frederick, Maryland, together with two one-story research and development/office buildings, containing approximately 73,360 square feet of space, located thereon. As of December 31, 1996, the buildings were approximately 89% leased.
Item 2.
Item 2. Properties. ----------
The following table sets forth the annual realty taxes for the Partnership' s properties and information regarding tenants who occupy 10% or more of gross leasable area (GLA) in the Partnership's properties.
The following tables sets forth for each of the last five years the gross leasable area, occupancy rates, rental revenue and net effective rent for the Partnership's properties
* Net Effective Rent calculation is based on average occupancy during the respective year.
Following is a schedule of lease expirations for each of the next ten years for the Partnership's properties based on the annual contract rent in effect at December 31, 1996:
Note: N/A denotes that the disclosure is not applicable based on the nature of the property.
The following table sets forth for each of the Partnership's properties the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect to each property or component thereof for purposes of depreciation:
SL= Straight Line DB= Declining Balance
Following is information regarding the competitive market conditions for each of the Partnership's properties. This information has been gathered from sources deemed reliable. However, the Partnership has not independently verified the information and, as such, cannot guarantee its accuracy or completeness.
Apartment Complex in Fort Myers, Florida - ----------------------------------------
Reflections is located in the City of Fort Myers in Lee County. Reflections competes directly with ten other apartment complexes comprising 3,443 units. Reported occupancy among the property's primary competitors ranged from 82% to 97% and averaged approximately 91%. This is down slightly from the 93% level of a year ago. The Ft. Meyers multi-family market remains seasonal with greatest demand during the winter months.
Office/Industrial Buildings in Phoenix, Arizona - -----------------------------------------------
This property is located in the metropolitan Phoenix market which has an inventory of approximately 149 million square feet of industrial space, of which 7.4% was vacant as of third quarter 1996, compared to the 6.6% and 7.1% vacancy rates as of December 31, 1995 and 1994, respectively. More specifically, the property is located within the Northwest industrial market, which consists of 18.8 million square feet, or 13% of the total Phoenix industrial market. As of September 30, 1996, the Northwest industrial vacancy rate was approximately 11.5%. Approximately 4.4 million square feet was under construction at September 30, 1996 in Phoenix, of which 426,000 square feet or 10% was in the Northwest market.
Office/Industrial/Retail Buildings in Las Vegas, Nevada - -------------------------------------------------------
This property is located within the greater Las Vegas industrial market. As of December 31, 1996, the total industrial inventory was 43 million square feet, up from approximately 38 million square feet a year ago. Overall vacant space totaled approximately 4.2 million square feet or 6.4% of the industrial inventory. The Las Vegas market absorbed 4.3 million square feet in 1996, down slightly from the 4.6 million absorbed in 1995 and the 5.7 million square feet absorbed in 1994. Given the continued strong demand for industrial space, rental rates are expected to increase in 1997.
Office, Research and Development Buildings in Columbia, Maryland - ----------------------------------------------------------------
The property is located within the Howard County R&D market which contains approximately 8.8 million square feet in a total of 179 buildings. As of September 30, 1996, the Howard County market exhibited a vacancy rate of approximately 5.6%, which represents an improvement from 1995, 1994 and 1993 when overall vacancy was 8.7%, 12% and 18%, respectively. The Columbia R&D submarket contains a total of approximately 6.9 million square feet and, at September 30, 1996, had a vacancy rate of approximately 5.3%. The market has strengthened to the point where speculative R&D construction is now underway in Howard County and in the Columbia market.
Office, Research and Development Buildings in Frederick, Maryland - -----------------------------------------------------------------
The property is located in the Frederick County office/flex market. There are a total of 119 office/flex buildings in this market containing approximately 4.9 million square feet of space. Year end 1996 vacancy was approximately 12%, up from approximately 9% a year ago. The increase principally reflects new construction activity in the market. Two large distribution facilites are under construction for Georgia Pacific and Toy 'R' Us totaling 1.5 million square feet. In addition, Chevy Chase Bank and State Farm completed new office facilities in 1996 totaling 630,000 square feet.
Item 3.
Item 3.
Legal Proceedings - -----------------
The Partnership is not a party to, nor are any of its properties subject to, any material pending legal proceedings. A joint venture in which the Partnership holds an interest has received judgments against two former tenants for defaults under leases. See Item 1.C.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II - -------
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. ---------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is sporadic and occurs solely through private transactions.
As of December 31, 1996, there were 17,385 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership dated May 29, 1986, as amended to date (the "Partnership Agreement"), requires that any Distributable Cash (as defined therein) be distributed quarterly to the Partners in specified proportions and priorities. There are no restrictions on the Partnership's present or future ability to make distributions of Distributable Cash. For the year ended December 31, 1996, cash distributions paid in 1996 or distributed after year end with respect to 1996 to the Limited Partners as a group totaled $14,032,008, including $9,214,709 ($97 per Limited Partnership Unit) from the proceeds of a property sale. For the year ended December 31, 1995, cash distributions paid in 1995 or distributed after year end with respect to 1995 to the Limited Partners as a group totaled $5,711,220.
Cash distributions exceeded net income in 1996 and 1995 and, therefore, resulted in a reduction of partners' capital. Reference is made to the Partnership's Statement of Changes in Partner's Capital (Deficit) and Statement of Cash Flows in Item 8 hereof.
Item 6.
Item 6. Selected Financial Data. -----------------------
(1) Net income includes a gain on the sale of a joint venture investment of $1,055,591. Cash distributions include a return of capital of $97.00 per Limited Partnership Unit.
(2) Cash distributions include $8.09 per Limited Partnership Unit that is attributable to a discretionary reduction of cash reserves, which had been previously accumulated through operating activities.
(3) Net income includes a gain on the sale of a joint venture investment of $399,865. Cash distributions include a return of capital of $55.00 per Limited Partnership Unit.
(4) The Partnership recorded investment valuation allowances totaling $2,760,784 ($28.77 per Limited Partnership Unit) during 1993. Cash distributions include a return of capital of $82.00 per Limited Partnership Unit.
Item 7.
Item 7. - -------
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; the five currently owned are described in Item 1 hereof. One investment was sold in each of 1988, 1993, 1994 and 1996. As a result of the sales, capital of $22,229,298 has been returned to the limited partners through December 31, 1996.
On December 30, 1994, the Rancho Cucamonga joint venture sold its property and the Partnership received net sale proceeds of $5,261,275. On January 26, 1995, the Partnership made a capital distribution of $55 per limited partnership unit ($5,224,835) from the proceeds of the sale. The adjusted capital contribution after this distribution was $863 per unit.
On October 10, 1996, the Decatur TownCenter II joint venture sold its property and the Partnership received net sale proceeds of $9,333,325. On October 24, 1996, the Partnership made a capital distribution of $97 per limited partnership unit ($9,214,709) from the proceeds of the sale. The adjusted capital contribution after this sale is $766.
At December 31, 1996, the Partnership had $7,772,496 in cash, cash equivalents and short-term investments, which was partially used for cash distributions of $1,138,045 to partners on January 30, 1997. 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 short-term investments and proceeds from the sale of such investments. Quarterly distributions of cash from operations relating to 1996 were made at the annualized rate of 6% on the weighted average adjusted capital contribution. Quarterly distributions of cash from operations relating to 1995 were also made at the annualized rate of 6% on the weighted average adjusted capital contribution. In addition, for the first quarter of 1995, a special distribution totaling $776,289 ($8.09 per limited partnership unit) was made which was attributable to a discretionary reduction of cash reserves which had previously accumulated from operating activities. Since the total quarterly distribution exceeded the rate of 2%, previously deferred management fees to the advisor were paid in the amount of $175,374 or 50% of the excess distribution. The Managing General Partner will continue to evaluate reserve levels in the context of the Partnership's investment objectives.
The carrying value of real estate investments in the financial statements at December 31, 1996 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 December 31, 1996, the appraised values of certain investments exceeded the related carrying values by an aggregate of $10,000,000 and the appraised values of the remaining investments were less than the related carrying values by an aggregate of $1,200,000. 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 Partnership's advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace.
RESULTS OF OPERATIONS - ---------------------
FORM OF REAL ESTATE INVESTMENTS
At December 31, 1996 two of the portfolio investments are structured as joint ventures with real estate development/management firms, and in one case, with an affiliate of the Partnership. Effective January 1, 1995, the Palms Business Center joint venture was restructured to grant the Partnership
control over management decisions and the investment has been accounted for as a wholly-owned property since that date. Effective April 1, 1996 the Reflections joint venture was restructured whereby the Partnership's venture partner became an indirect limited partner and the investment has been accounted for as a wholly-owned property since that date. Effective July 1, 1996, the Metro Business Center joint venture was restructured to grant the Partnership control over all management decisions and the investment has been accounted for as a wholly-owned property since that date. The Rancho Cucamonga and Decatur TownCenter II properties, which were sold in December 1994 and October 1996, respectively, were owned by joint ventures.
OPERATING FACTORS
Overall occupancy at the Columbia Gateway Corporate Park was 94% at December 31, 1996, an increase from 92% at the two preceding year ends. Construction of a 46,000 square foot build-to-suit facility was completed during the third quarter of 1994 and the tenant assumed occupancy on September 1, 1994.
Occupancy at Reflections Apartments ended 1996 at 88%; it ranged from 92% to 96% during 1995 and 1994. Although the Fort Myers apartment market remains competitive, rental rates have increased.
Occupancy at Metro Business Center at December 31, 1996 was 92%, up slightly from 91% a year ago and down from 100% at December 31, 1994. This area of Phoenix has been experiencing slow leasing activity, although most of the space whose tenants vacated in 1996 was re-leased.
Occupancy at Palms Business Centers was 98% at December 31, 1996, an increase from 96% one year ago and 91% in 1994. However, leases for 44% of the space expire in 1997. Rental rates have increased over the past year.
Leasing at 270 Technology Center was 89% at December 31, 1996, down from 98% at December 31, 1995 and 100% at December 31, 1994. Furthermore, leases for 50% of the space expire in 1997, and two significant tenants are not expected to renew.
SIGNIFICANT TRANSACTIONS
On December 30, 1994, the Rancho Cucamonga joint venture sold its property and the Partnership recognized a gain of $399,865. On October 10, 1996, the Decatur TownCenter II joint venture sold its property and the Partnership recognized a gain of $1,055,591.
INVESTMENT RESULTS
Interest on short-term investments and cash equivalents decreased in 1996 compared to 1995 due to the temporary investment of proceeds from the Rancho Cucamonga sale in 1995 and to lower average yields. In 1995, interest on short- term investments and cash equivalents increased compared to 1994 as a result of larger invested balances (again due to the investment of proceeds from the 1994 Rancho Cucamonga sale) and an increase in interest rates.
1996 COMPARED TO 1995
Exclusive of the operating results from Decatur TownCenter II ($220,428 in 1996 and $680,012 in 1995), total real estate operating activity was $3,558,278 for 1996 and $3,722,962 for 1995. The decrease is primarily attributable to a decline in operating income at Reflections ($270,000) due to a decrease in occupancy and higher maintenance expenses. Operating results at the other properties were relatively unchanged between 1996 and 1995, except for the receipt of $90,000 by 270 Technology Center from a former tenant in bankruptcy.
Operating cash flow in 1996 includes $250,000 received pursuant to a loan guarantee from one of the Partnership's joint venture partners, relating to previously accrued investment income. Operating cash flow in 1995 was reduced by the payment of previously deferred management fees of $175,374. Exclusive of these items, operating cash flow decreased $913,331 between 1996 and 1995. The change primarily stems from the change in Partnership operating results, together with the timing of cash distributions from certain joint ventures.
1995 COMPARED TO 1994
Exclusive of the operating results from Rancho Cucamonga in 1994 ($309,969), real estate operating activity was $4,402,974 for 1995 and $3,490,615 for 1994. This 26% increase was due to improved operating results at all of the Partnership's investments, primarily at Columbia Gateway Corporate Park, where results increased by approximately $289,000 due to improvements in rental income, and at Palms Business Center, where improved occupancy and rental rates resulted in an increase of approximately $272,000 in net operating income. In addition, net operating income at Decatur TownCenter II increased by approximately $203,000 as a result of a lease termination fee.
Notwithstanding the improved operating results and excluding $488,772 in cash flow from Rancho Cucamonga in 1994, cash flow from operations decreased $24,657. The change primarily stems from discretionary adjustments to cash reserve levels made by joint ventures. Both 270 Technology Park and Columbia Gateway Corporate Park reduced cash reserves held at the property level in 1994 and, therefore, increased the Partnership's cash flow in 1994. Metro Business Center reduced cash reserves at the property level and increased Partnership cash flow in 1995. Operating cash flow from the remainder of the Partnership's investments was consistent with the change in operating results. The decrease in operating cash flow was also due to the payment of previously accrued, but deferred management fees to the advisor of $175,374.
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.
1996 COMPARED TO 1995
The management fee decreased from 1995 to 1996 due to a decrease in distributable cash flow from operations. This decrease is primarily attributable to the discretionary reduction in the Partnership's cash reserves in 1995 noted previously. General and administrative expenses decreased by approximately $18,000 as a result of lower legal expenses.
1995 COMPARED TO 1994
The Partnership management fee increased due to an increase in distributable cash flow from operations. General and administrative expenses increased approximately 10% or $32,000 primarily due to legal fees associated with the various investment restructurings.
INFLATION - ---------
By their nature, real estate investments tend not to be adversely affected by inflation. Inflation may tend to result in appreciation in the value of the Partnership's real estate investments over time if rental rates and replacement costs increase. Declines in real property values during the period of the Partnership operations, due to market and economic conditions, have overshadowed the overall positive effect inflation may have on the value of the Partnership's investments.
Item 8.
Item 8. Financial Statements and Supplementary Data. - ------- -------------------------------------------
See the Financial Statements of the Partnership included as a part of this Annual Report on Form 10-K.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure. --------------------
The Partnership has had no disagreements with its accountants on any matters of accounting principles or practices or financial statement disclosure.
PART III --------
Item 10.
Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers. --------------------------------------------------
The following table sets forth the names of the directors and executive officers of the Managing General Partner and the age and position held by each of them as of December 31, 1996.
(1) Through January 24, 1997 only (2) As of January 25, 1997
Mr. O'Connor and Mr. Coughlin have served in an executive capacity since the organization of the Managing General Partner on October 16, 1985. Mr. Gardiner and Mr. Twining have served in their capacities since June 1994, and Mr. Mackowiak has served in his capacity since January 1, 1996. All of these individuals will continue to serve in such capacities until their successors are elected and qualified.
(c) Identification of Certain Significant Employees. -----------------------------------------------
None.
(d) Family Relationships. --------------------
None.
(e) Business Experience. -------------------
The Managing General Partner was incorporated in Massachusetts on October 16, 1985. The background and experience of the executive officers and directors of the Managing General Partner are as follows:
Joseph W. O'Connor has been President, Chief Executive Officer and a Director of AEW Real Estate Advisors, Inc. ("AEW"), formerly known as Copley Real Estate Advisors, Inc., since January, 1982. He was a Principal of AEW from 1985 to 1987 and has been a Managing Director of AEW since January 1, 1988. He has been active in real estate for 28 years. From June, 1967, until December, 1981, he was employed by New England Mutual Life Insurance Company ("The New England"), which has been merged with and into Metropolitan Life Insurance Company, most recently as a Vice President in which position he was responsible for The New England's real estate portfolio. He received a B.A. from Holy Cross College and an M.B.A. from Harvard Business School.
Daniel J. Coughlin was a Principal of AEW from 1985 to 1987 and has been a Managing Director of AEW since January 1, 1988 and a Director of AEW since July 1994. Mr. Coughlin has been active in financial management and control for 22 years. From June, 1974 to December, 1981, he was a Real Estate Administration Officer in the Investment Real Estate Department at The New England. Since January, 1982, he has been in charge
of the asset management division of AEW. Mr. Coughlin is a Certified Property Manager and a licensed real estate broker. He received a B.A. from Stonehill College and an M.B.A. from Boston University.
Peter P. Twining was a Managing Director and General Counsel of AEW until January 24, 1997 when he resigned from all offices and directorships. As such, he was responsible for general legal oversight and policy with respect to AEW and its investment portfolios. Before being promoted to this position in January 1994, he was a Vice President/Principal and senior lawyer responsible for assisting in the oversight and management of AEW's legal operations. Before joining AEW in 1987, he was a senior member of the Law Department at The New England and was associated with the Boston law firm, Ropes and Gray. Mr. Twining is a graduate of Harvard College and received his J.D. in 1979 from Northeastern University.
Wesley M. Gardiner, Jr. joined AEW in 1990 and has been a Vice President at AEW since January, 1994. From 1982 to 1990, he was employed by Metric Realty, a nationally-known real estate investment advisor and syndication firm, as a portfolio manager responsible for several public and private limited partnerships. His career at AEW has included asset management responsibility for the company's Georgia and Texas holdings. Presently, as a Vice President and Team Leader, Mr. Gardiner has overall responsibility for all the partnerships advised by AEW whose securities are registered under the Securities and Exchange Act of 1934. He received a B.A. in Economics from the University of California at San Diego.
Daniel C. Mackowiak has been a Vice President of AEW since January 1989 and has been a Vice President and the Principal Financial and Accounting Officer of the Managing General Partner since January 1996. Mr. Mackowiak previously held the offices of Chief Accounting Officer of AEW from January 1989 through April 1994 and Vice President and Principal Financial and Accounting Officer of the Managing General Partner between January 1989 and May 1994. From 1975 until joining AEW, he was employed by the public accounting firm of Price Waterhouse, most recently as a Senior Audit Manager. He is a certified public accountant and has been active in the field of accounting his entire business career. He received a B.S. from Nichols College and an M.B.A. from Cornell University.
James J. Finnegan is the Assistant General Counsel of AEW Capital Management, L.P. ("AEW Capital Management") and has succeeded Peter Twining as Managing Director, General Counsel and Director of AEW, a subsidiary of AEW Capital Management. Mr. Finnegan served as Vice President and Assistant General Counsel of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr. Finnegan has over ten years of experience in real estate law, including seven years of experience in private practice with major New York City and Boston law firms. Mr. Finnegan also serves as the firm's securities and regulatory compliance officer. Mr. Finnegan is a graduate of the University of Vermont (B.A.) and Fordham University School of law (J.D.).
Mr. O'Connor is a director of Evans Withycombe Residential, Inc., a Maryland corporation organized as a real estate investment trust which is listed for trading on the New York Stock Exchange. None of the other directors of the Managing General Partner is a director of a company with a class of securities registered pursuant to Section 12 of the Securities Exchange of 1934. All of the directors and officers of the Managing General Partner also serve as directors and officers of one or more corporations which serve as general partners of publicly-traded real estate limited partnerships which are affiliated with the Managing General Partner.
(f) Involvement in Certain Legal Proceedings. ----------------------------------------
None.
Item 11.
Item 11. Executive Compensation. ----------------------
Under the Partnership Agreement, the General Partners and their affiliates are entitled to receive various fees, commissions, cash distributions, allocations of taxable income or loss and expense reimbursements from the Partnership. See Notes 1, 2 and 6 to Notes to Financial Statements.
The following table sets forth the amounts of the fees and cash distributions and reimbursements of out-of-pocket expenses which the Partnership paid to or accrued for the account of the General Partners and their affiliates for the year ended December 31, 1996.
For the year ended December 31, 1996 the Partnership allocated $52,432 of taxable income to the General Partners.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners -----------------------------------------------
No person or group is known by the Partnership to be the beneficial owner of more than 5% of the outstanding Units at December 31, 1996. Under the Partnership Agreement, the voting rights of the Limited Partners are limited and, in some circumstances, are subject to the prior receipt of certain opinions of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the right to manage the business of the Partnership is vested exclusively in the Managing General Partner.
(b) Security Ownership of Management. --------------------------------
An affiliate of the Managing General Partner of the Partnership owned 1,613 Units as of December 31, 1996.
(c) Changes in Control. ------------------
There exists no arrangement known to the Partnership the operation of which may at a subsequent date result in a change in control of the Partnership.
Item 13.
Item 13. Certain Relationships and Related Transactions. ----------------------------------------------
The Partnership has no relationships or transactions to report other than as reported in Item 11 above.
PART IV -------
Item 14.
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K. -------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements--The Financial Statements listed on the accompanying Index to Financial Statements and Schedule and Financial Statement Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedule--The Financial Statement Schedule listed on the accompanying Index to Financial Statements and Schedule is filed as part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report and incorporated in this Annual Report as set forth in said Index.
(b) Reports on Form 8-K. During the last quarter of the year ended December 31, 1996, the Partnership filed no Current Report on Form 8-K.
New England Life Pension Properties IV;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1996
NEW ENGLAND LIFE PENSION PROPERTIES IV; -------------------------------------- A REAL ESTATE LIMITED PARTNERSHIP ---------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE ------------------------------------------
Report of Independent Accountants ---------------------------------
To the Partners
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
In our opinion, based upon our audits and the reports of other auditors, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of New England Life Pension Properties IV; a Real Estate Limited Partnership (the "Partnership") at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Fourth Copley Corp., the Managing General Partner of the Partnership; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Partnership's Decatur TownCenter II joint venture investee for the year ended December 31, 1995, which results of operations are recorded using the equity method of accounting in the Partnership's financial statements. Equity in joint venture income for this venture was $680,012 for the year ended December 31, 1995. We also did not audit the financial statements of the Partnership's Columbia Gateway Corporate Park and 270 Technology Center joint venture investees for the years ended December 31, 1996, 1995 and 1994, which results of operations are recorded using the equity method of accounting in the Partnership's financial statements. Equity in joint venture income for these ventures aggregated $1,415,605, $1,371,477 and $1,006,828 for the years ended December 31, 1996, 1995 and 1994, respectively. We also did not audit the financial statements of the Partnership's investment in Reflections and Metro Business Center for the years ended December 31, 1996, 1995 and 1994. Operating income for these investments was $809,714 for the year ended December 31, 1996, and equity in joint venture income was $339,763, $1,045,307 and $979,625 for the years ended December 31, 1996, 1995 and 1994, respectively. We also did not audit the financial statements of the Partnership's investment in Palms Business Centers for the years ended December 31, 1996, 1995 and 1994. Operating income for this investment was $1,806,638 and $1,770,345 for the years ended December 31, 1996 and 1995, and equity in joint venture income was $1,053,707 for the year ended December 31, 1994. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amount included for the equity in joint venture income for Decatur TownCenter II for the year ended December 31, 1995, and for Columbia Gateway Corporate Park and 270 Technology Center for the years ended December 31, 1996, 1995 and 1994, and for the operating income and equity in joint venture income for Reflections, Metro Business Center and Palms Business Centers for the years ended December 31, 1996, 1995 and 1994 is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the Managing General Partner, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors for the years ended December 31, 1996, 1995 and 1994 provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse - ------------------- Boston, Massachusetts March 24, 1997
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEET
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
NON-CASH TRANSACTIONS:
Effective January 1, 1995, the Partnership's joint venture investment in Palms Business Center was converted to a wholly-owned property. The carrying value of this investment at conversion was $12,519,961. Effective April 1, 1996, the Partnership's joint venture investment in Reflections Apartments was converted to a wholly-owned property. The carrying value of this investment at conversion was $10,469,511. Effective July 1, 1996, the Partnership's joint venture investment in Metro Business Center was converted to a wholly-owned property. The carrying value of this investment at conversion was $5,889,261.
(See accompanying notes to financial statements)
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business - ----------------------------------
General
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 five real estate investments it currently owns prior to the end of 1987. It intends to dispose of its 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 Managing General Partner of the Partnership is Fourth Copley Corp., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general partner is CCOP Associates Limited Partnership, a Massachusetts limited partnership, the general partners of which are managing directors of AEW and/or officers of the Managing General Partner. Subject to the Managing General Partner's overall authority, the business of the Partnership is managed by AEW pursuant to an advisory contract.
On December 10, 1996, Copley's parent, New England Investment Companies, Limited Partnership ("NEIC"), a publicly traded master limited partnership, acquired certain assets subject to then existing liabilities from Aldrich, Eastman & Waltch, Inc. and its affiliates and principals (collectively "the AEW Operations"). Simultaneously, a new entity, AEW Capital Management, L.P., was formed into which NEIC contributed its interest in Copley and its affiliates. As a result, the AEW Operations were combined with Copley to form the business operations of AEW Capital Management, L.P. This transaction is not expected to have a material effect on the operations of the Partnership.
Prior to August 30, 1996, New England Mutual Life Insurance Company ("The New England") was NEIC's principal unit holder and owner of all of the outstanding stock of NEIC's general partner. On August 30, 1996, The New England merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life is the surviving entity and, therefore, through a wholly-owned subsidiary, became the owner of the units of partnership interest previously owned by The New England and of the stock of NEIC's general partner. This transaction is not expected to have a material effect on the operations of the Partnership.
At December 31, 1996 and 1995, an affiliate of the Managing General Partner owned 1,613 and 1,558 units of limited partnership interest, respectively, which were repurchased from certain qualified plans, within specified annual limitations provided for in the Partnership Agreement.
Management
AEW, as advisor, is entitled to receive stipulated fees from the Partnership in consideration of services performed in connection with the management of the Partnership and the acquisition and disposition of Partnership investments in real property. Partnership management fees are 9% of distributable cash flow from operations, as defined, before deducting such fees. Payment of 50% of management fees incurred is deferred until cash distributions to limited partners exceed a specified rate. Cash distributions for the first quarter of 1995 exceeded the stipulated minimum, which resulted in a payment to AEW of previously deferred management fees totaling $175,374. Deferred management fees were $2,334,875 and $2,094,251 at December 31, 1996 and 1995, respectively. AEW is also reimbursed for expenses incurred in connection with administering the Partnership ($15,146 in 1996, $13,874 in 1995 and $21,155 in 1994). Acquisition fees paid were based on 2% of the gross proceeds from the offering. Disposition fees are generally 3% of the selling price of the property, but are subject to the prior receipt by the limited partners of their capital contributions plus a stipulated return thereon. Deferred disposition fees were $998,879 and $712,653 at December 31, 1996 and 1995, respectively.
New England Securities Corporation, an indirect subsidiary of Met Life, is engaged by the Partnership to act as its unit holder servicing agent. Fees and out-of-pocket expenses for such services totaled $24,040, $21,543, and $30,526 in 1996, 1995 and 1994, respectively.
Note 2 - Summary of Significant Accounting Policies - ---------------------------------------------------
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the Managing General Partner to make estimates affecting the reported amounts of assets and liabilities, and of revenues and expenses. In the Partnership's business, certain estimates require an assessment of factors not within management's control, such as the ability of tenants to perform under long-term leases and the ability of the properties to sustain their occupancies in changing markets. Actual results, therefore, could differ from those estimates.
Real Estate Joint Ventures
Investments in joint ventures, including loans made to venture partners, which are in substance real estate investments, are stated at cost plus (minus) equity in undistributed joint venture income (losses). Allocations of joint venture income (losses) were made to the Partnership's venture partners as long as they had substantial economic equity in the project. Economic equity is measured by the excess of the appraised value of the property over the Partnership's total cash investment plus accrued preferential returns and interest thereon. Currently, the Partnership records an amount equal to 100% of the operating results of each joint venture, after the elimination of all inter- entity transactions, except for the one venture jointly owned by an affiliate of the Partnership, which has substantial economic equity in the project. Joint ventures are consolidated with the accounts of the Partnership if, and when, the venture partner no longer shares in the control of the business.
Property
Property includes land and buildings and improvements, which are stated at cost less accumulated depreciation, plus other operating net assets (liabilities). The Partnership's initial carrying value of a property previously owned by a joint venture equals the Partnership's carrying value of the predecessor investment on the conversion date.
Capitalized Costs, Depreciation and Amortization
Maintenance and repair costs are expensed as incurred. Significant improvements and renewals are capitalized. Depreciation is computed using the straight-line method based on estimated useful lives of the buildings and improvements. Leasing costs are also capitalized and amortized over the related lease terms.
Acquisition fees have been capitalized as part of the cost of real estate investments. Amounts not related to land are being amortized using the straight-line method over the estimated useful lives of the underlying property.
Certain tenant leases provide for rental increases over the respective lease terms. Rental revenue is being recognized on a straight-line basis over the lease terms.
Realizability of Real Estate Investments
The Partnership considers a real estate investment to be impaired when it determines the carrying value of the investment is not recoverable through expected undiscounted cash flows generated from the operations and disposal of the property. The impairment loss is based on the excess of the investment's carrying value over its estimated fair market value. For investments being held for sale, the impairment loss also includes estimated costs of sale. Property held for sale is not depreciated during the holding period. Prior to the adoption of Statement of Financial Accounting Standards No. 121 effective January 1, 1995, the impairment loss was measured based on the excess of the investment's carrying value over its net realizable value.
The carrying value of an investment may be more or less than its current appraised value. At December 31, 1996 and 1995, the appraised values of certain investments exceeded the related carrying values by an aggregate of $10,000,000 and $9,400,000, respectively; and the appraised values of the remaining investments were less than the related carrying values by an aggregate of $1,200,000 and $1,400,000, respectively.
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 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.
Cash Equivalents and Short-Term Investments
Cash equivalents are stated at cost, plus accrued interest. The Partnership considers all highly liquid debt instruments purchased with a maturity of ninety days or less to be cash equivalents; otherwise, they are classified as short-term investments.
The Partnership has the positive intent and ability to hold all short-term investments to maturity; therefore, short-term investments are carried at cost plus accrued interest, which approximates market value. At December 31, 1996 and 1995 all investments were in commercial paper with less than three months and seven months, respectively, remaining to maturity.
Deferred Disposition Fees
Disposition fees due to AEW related to sales of investments are included in the determination of gains or losses resulting from such transactions. According to the terms of the advisory contract, payment of such fees has been deferred until the limited partners first receive their capital contributions, plus stipulated returns thereon.
Income Taxes
A partnership is not liable for income taxes and, therefore, no provision for income taxes is made in the financial statements of the Partnership. A proportionate share of the Partnership's income is reportable on each partner's tax return.
Per Unit Computations
Per unit computations are based on the number of units of limited partnership interest outstanding during the year. The actual per unit amount will vary by partner depending on the date of admission to, or withdrawal from, the Partnership.
Note 3 - Real Estate Joint Ventures - -----------------------------------
The Partnership had invested in seven real estate joint ventures, organized as general partnerships with a real estate management/development firm, and in one case, with an affiliate of the Partnership. One joint venture sold its property in 1994; another sold its property 1996. One joint venture investment was restructured into a wholly-owned property in 1995; and two joint venture investments were restructured into wholly-owned properties in 1996. The Partnership made capital contributions to the ventures, which are generally subject to preferential cash distributions at a specified rate and to priority distributions with respect to sale or refinancing proceeds. The Partnership also made loans to certain of its venture partners who, in turn, contributed the proceeds to the capital of the venture. The loans bear interest at a specified rate. The loans are in substance real estate investments and are accounted for accordingly. The joint venture agreements provide for the funding of cash flow deficits by the venture partners in proportion to their ownership interests, and for the dilution of their ownership share in the event a venture partner does not contribute proportionately.
The respective real estate management/development firms are responsible for day-to-day development and operating activities, although overall authority and responsibility for the business is
shared by the venturers. The real estate development/management firms or their affiliates also provide various services to the respective joint ventures for a fee.
The following is a summary of cash invested in joint ventures, net of returns of capital and excluding acquisition fees:
Reflections
On August 1, 1986, the Partnership entered into a joint venture with an affiliate of Oxford Development Corporation to construct and operate a multi- family apartment complex. The Partnership's commitment is for a total cash investment of $14,475,000, $5,790,000 of which is a loan to the venture partner. In May 1992, the Partnership agreed to extend the maturity of the loan from August, 1996 to December, 1999 and the venture partner agreed to pay interest at a minimum of 7% per annum with the unpaid amount subject to compounding at 10.5%. The loan is secured by the venture partner's interest in the joint venture, as well as a guarantee from an affiliate of the venture partner. In the second quarter of 1996, the joint venture agreement was amended, whereby the Partnership's venture partner became an indirect limited partner. Accordingly, this investment has been accounted for as a wholly-owned property since April 1, 1996. (See Note 4.)
In connection with the ownership restructuring, 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 first payment was accounted for as a reduction of previously accrued investment income. The second payment was accounted for as a reduction of the Partnership's investment in the property.
Metro Business Center
On September 15, 1986, the Partnership entered into a joint venture with an affiliate of Hewson Properties, Inc., to construct and operate four multi-tenant office/warehouse buildings. The Partnership committed to make a maximum cash investment of $9,568,000, $3,988,000 of which is a loan to the venture partner. The loan was to mature in October 1996 and was secured by the venture partner's interest in the joint venture. Effective January 1, 1996, the joint venture agreement was amended to grant the Partnership full control over management decisions, beginning July 1, 1996. As full control over the operation of this investment was not transferred until July 1, 1996, the Partnership accounted for this investment as a joint venture until that date.
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. The property interest distributed to the Hewson affiliate is encumbered by the aforementioned loan to the Hewson affiliate. The note was amended to mature on February 1, 1997 and
is secured by a recorded deed-of-trust which provides that the note is due upon the sale of the collateral. In connection with this transaction, the Partnership obtained the option to purchase the tenancy-in-common interest of the Hewson affiliate at its fair market value beginning February 1, 1997.
Columbia Gateway Corporate Park
On December 21, 1987, the Partnership entered into a joint venture with an affiliate of the Partnership and with an affiliate of the Manekin Corporation to construct and operate seven research and development/office buildings, of which six have been constructed to date. The Partnership committed to make a $14,598,000 capital contribution. The Partnership and its affiliate collectively have a 50% interest in the joint venture. The minimum future rentals due to the venture under non-cancelable operating leases are: $1,176,271 in 1997, $1,115,722 in 1998, $1,007,807 in 1999, $411,261 in 2000 and 2001, and $1,096,697 thereafter.
In 1993, the Managing General Partner determined that the carrying value of this investment should be reduced to its estimated net realizable value, which resulted in an investment valuation allowance of $1,050,000.
270 Technology Center
On December 22, 1987, the Partnership entered into a joint venture with an affiliate of the Manekin Corporation to construct and operate two research and development/office buildings. The Partnership committed to make a $5,150,000 capital contribution. The minimum future rentals due to the venture under non- cancelable operating leases are: $332,474 in 1997, $158,600 in 1998 and $68,325 in 1999.
Sale of Decatur TownCenter II
On December 31, 1987, the Partnership entered into a joint venture with an affiliate of Pope & Land Enterprises to construct and operate an office building. The Partnership contributed a total of $10,985,575 to the venture. On October 10, 1996, the joint venture sold its property for a total sales price of $9,540,860. In conjunction with this sale, the joint venture was also dissolved. After closing costs, the Partnership received proceeds of $9,333,325 and recognized a gain on the sale of $1,055,591 ($11 per limited partnership unit.) A disposition fee of $286,226 was accrued but not paid to AEW. A capital distribution to the limited partners was made on October 24, 1996 in the aggregate amount of $9,214,709 ($97 per limited partnership unit).
Sale of Rancho Cucamonga
On September 4, 1986, the Partnership entered into a joint venture with an affiliate of Vance Charles Mape III to construct and operate a warehouse facility in Rancho Cucamonga, California. The Partnership made a contribution of $5,273,545. On December 30, 1994, the joint venture sold the property for a total sales price of $5,472,000. After closing costs, the Partnership received proceeds of $5,261,275 and recognized a gain on the sale of $399,865 ($4.17 per limited partnership unit). A disposition fee of $164,160 was accrued but not paid to AEW. A capital distribution to the limited partners was made on January 26, 1996 in the aggregate amount of $5,224,835 ($55.00 per limited partnership unit).
Summarized Financial Information - --------------------------------
The following summarized financial information is presented in the aggregate for the joint ventures (two in 1996 and five in 1995):
Assets and Liabilities ----------------------
Results of Operations ---------------------
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.
The Rancho Cucamonga investment was sold on December 30, 1994 and the Decatur TownCenter II investment was sold on October 10, 1996. The Palms Business Center, Reflections and Metro Business Center investments were converted to wholly-owned properties on January 1, 1995, April 1, 1996 and July 1, 1996, respectively. The above amounts include results of operations through those dates.
Note 4 - Property - -----------------
Palms Business Center
Effective January 1, 1995, the Palms Business Center joint venture was restructured, giving the Partnership control over management decisions. Since that date, the investment has been accounted for as a wholly-owned property. The carrying value of the joint venture investment at conversion ($12,519,961) was allocated to land, building and improvements, amount payable to venture partner and other net operating liabilities. The venture partner will receive 40% of the excess cash flow above a specified level until the initial obligation of $360,000 is repaid in full. As of December 31, 1996, $130,000 of the initial obligation remains unpaid.
The buildings and improvements (fifteen office/industrial buildings in Las Vegas, Nevada) are being depreciated over 25 years, beginning January 1, 1995.
Reflections
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 ($10,469,511) was allocated to land, building and improvements and other net operating assets.
The buildings and improvements (a multi-family apartment complex in Fort Meyers, Florida) are being depreciated over 25 years, beginning April 1, 1996.
Metro Business Center
Effective July 1, 1996, the Partnership obtained control over all management decisions related to the properties owned by the Metro Business Center joint venture (and subsequently by the tenants-in common). (See Note 3.) Since that date, the investment has been accounted for as a wholly-owned property. The carrying value of the joint venture investment at conversion ($5,889,261) was allocated to land, buildings and improvements, and other net operating assets.
The buildings and improvements (four office/warehouse buildings in Phoenix, Arizona) are being depreciated over 25 years, beginning July 1, 1996.
The following is a summary of the Partnership's investment in properties (three in 1996 and one in 1995):
Tenant leases provide for minimum rents, subject to periodic adjustments. Tenants are also generally obligated to reimburse their pro-rata share of operating expenses. The minimum rents due under non-cancelable operating leases at all of the Partnership's properties are as follows: $2,209,687 in 1997; $1,080,306 in 1998; $415,545 in 1999; $149,560 in 2000, and $65,480 thereafter.
Note 5 - Income Taxes - ---------------------
The Partnership's income for federal income tax purposes differs from that reported in the accompanying statement of operations as follows:
Note 6 - Partners' Capital - --------------------------
Allocation of net income (losses) from operations and distributions of distributable cash from operations, as defined, are in the ratio of 99% to the limited partners and 1% to the general partners. Cash distributions are made quarterly.
Net sale proceeds and financing proceeds are allocated first to limited partners to the extent of their contributed capital plus a stipulated return thereon, as defined, second to pay disposition fees, and then 85% to the limited partners and 15% to the general partners. As a result of returns of capital from sales transactions, the adjusted capital contribution per limited partnership unit was reduced from $1,000 to $918 in 1993, to $863 in 1995 and to $766 in 1996. No capital distributions have been made to the general partners. Income from a sale is allocated in proportion to the distribution of related proceeds, provided that the general partners are allocated at least 1%. Income or losses from a sale, if there are no residual proceeds after the repayment of the related debt, will be allocated 99% to the limited partners and 1% to the general partners.
Note 7 - Subsequent Event - -------------------------
Distributions of cash from operations relating to the quarter ended December 31, 1996 were made on January 30, 1997 in the aggregate amount of $1,138,045 ($11.86 per limited partnership unit).
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1996
NEW ENGLAND PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III NOTE A AT DECEMBER 31, 1996
NEW ENGLAND LIFE PENSION PROPERTIES IV; A REAL ESTATE LIMITED PARTNERSHIP
Schedule III NOTE B AT DECEMBER 31, 1996
FINANCIAL STATEMENTS INDEX NO. 2
AUDITOR'S REPORT AND FINANCIAL STATEMENTS
OF GATEWAY 51 PARTNERSHIP
GATEWAY 51 PARTNERSHIP (A MARYLAND GENERAL PARTNERSHIP)
FINANCIAL REPORT
DECEMBER 31, 1996
[LETTERHEAD OF WOLPOFF & COMPANY, LLP APPEARS HERE]
To the Partners Gateway 51 Partnership (A Maryland General Partnership) Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS ----------------------------------------------------
We have audited the balance sheet of Gateway 51 Partnership (A Maryland General Partnership) as of December 31, 1996 and 1995, and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gateway 51 Partnership (A Maryland General Partnership) as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles.
/s/ WOLPOFF & COMPANY, LLP WOLPOFF & COMPANY, LLP
Baltimore, Maryland January 25, 1997
GATEWAY 51 PARTNERSHIP (A MARYLAND GENERAL PARTNERSHIP) ------------------------------
BALANCE SHEET -------------
ASSETS ------
_______________
The notes to financial statements are an integral part of this statement.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
BALANCE SHEET -------------
LIABILITIES AND PARTNERS' CAPITAL ---------------------------------
____________
The notes to financial statements are an integral part of this statement.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
STATEMENT OF INCOME -------------------
_______________________
The notes to financial statements are an integral part of this statement.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
STATEMENT OF PARTNERS' CAPITAL ------------------------------
____________________
The notes to financial statements are an integral part of this statement.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
STATEMENT OF CASH FLOWS -----------------------
____________________
The notes to financial statements are an integral part of this statement.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
NOTES TO FINANCIAL STATEMENTS -----------------------------
DECEMBER 31, 1996 -----------------
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization ------------ Gateway 51 Partnership (A Maryland General Partnership) (the Partnership) was formed on December 21, 1987, under the Maryland Uniform Partnership Act. The agreement was amended and restated in 1989 to reflect changes in partner ownership percentages.
Property -------- The Partnership owns 21 acres of land in Howard County, Maryland. The property has been developed with six office/research type buildings, with two placed into service in August 1994. Plans call for a seventh building with approximately 15,000 square feet of space.
All property is recorded at cost. Information regarding the buildings is as follows:
Carrying costs, operating expenses and depreciation begin as a charge against operations on the date the buildings are placed into service.
Initial Rental Operations -------------------------
As buildings became substantially complete, the Partnership recognized related revenues and expenses (including depreciation and interest) pertaining to that space. Buildings were considered substantially complete upon the earlier of the completion of substantial tenant improvements or 1 year from the completion of the building shell. Incidental rental revenue and expenses incurred prior to substantial completion were included in building costs.
Use of Estimates ----------------
The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions by management regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
NOTES TO FINANCIAL STATEMENTS -----------------------------
DECEMBER 31, 1996 -----------------
Note 1 - Cash and Cash Equivalents ------------------------- (Cont.) The Partnership considers all highly liquid debt instruments purchased with a maturity of 3 months or less to be cash equivalents.
The majority of the Partnership's cash is held in financial institutions with insurance provided by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. Periodically during the year, the balance may have exceeded the FDIC limitation.
Depreciation ------------ Building costs and tenant improvements are being depreciated using the straight-line method over the estimated useful lives of 50 years.
Rental Income -------------
Rental income for major leases is being recognized on a straight-line basis over the terms of the leases. The excess of the rental income recognized over the amount stipulated in the lease is shown as deferred rent receivable.
Amortization ------------ Deferred costs are amortized as follows:
Income Taxes ------------ Partnerships, as such, are not subject to income taxes. The individual partners are required to report their respective shares of partnership income or loss and other tax items on their individual income tax returns (see Note 5).
Capital Placement Fee --------------------- Costs incurred for arranging the Partnership's equity have been treated as a reduction of partners' capital (see Note 2).
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
NOTES TO FINANCIAL STATEMENTS -----------------------------
DECEMBER 31, 1996 -----------------
Note 2 - PARTNERS' CAPITAL
Capital Investment ------------------ New England Life Pension Properties IV (NELPP IV) and New England Pension Properties V (NEPP V) have agreed to provide equity of $14,598,000 and $6,402,000, respectively, totaling $21,000,000. During 1994, NELPP IV and NEPP V made capital contributions of $1,753,550 and $769,543, respectively, to fund the construction and completion of Buildings D and E. As of December 31, 1996, 1995 and 1994, total capital contributions amounted to $20,267,826.
Cumulative Priority Return -------------------------- NELPP IV and NEPP V are entitled to cumulative priority returns of 10.5%, compounded monthly on capital invested. The Partnership paid priority returns totaling $1,100,000, $1,200,000 and $1,205,000 during 1996, 1995 and 1994, respectively. As of December 31, 1996, 1995 and 1994, unpaid priority returns amounted to $6,888,115, $5,427,949 and $3,832,711, respectively.
Capital Placement Fee ---------------------
The Partnership incurred fees of $202,678 with Paine Webber Mortgage Finance, Inc. with respect to capital raised by the Partnership. This amount has been charged against partners' capital.
Note 3 - TENANT IMPROVEMENT LOANS RECEIVABLE
The Partnership has made several tenant improvement loans to tenants. These loans require monthly principal and interest payments. Pertinent terms are as follows:
Note 4 - RELATED PARTY TRANSACTIONS
Management Fees --------------- The Partnership has entered into an agreement with Manekin Corporation, a related entity, to act as management agent for the property. The management agreement provided for a management fee equal to 3.5% of rent and tenant expense billings during 1994. The agreement was modified to adjust the fee to 3% effective January 1, 1995.
Leasing Commissions ------------------- Leasing commissions in the amount of $80,786, $74,448 and $73,056 were paid to related parties during 1996, 1995 and 1994, respectively.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED -----------------------------------------
DECEMBER 31, 1996 -----------------
Note 5 - TAX ACCOUNTING
Tax accounting differs from financial accounting as follows:
Note 6 - LEASES
The following is a schedule of future minimum lease payments to be received under noncancelable operating leases at December 31, 1996:
To the Partners Gateway 51 Partnership (A Maryland General Partnership) Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION ---------------------------------------------------------
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information contained on pages 12 and 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the basic financial statements, and accordingly, we express no opinion on it.
/s/ WOLPOFF & COMPANY, LLP WOLPOFF & COMPANY, LLP
Baltimore, Maryland January 25, 1997
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
SCHEDULE OF PARTNERS' CAPITAL -----------------------------
DECEMBER 31, 1996 -----------------
_______________
See Independent Auditor's Report on Supplementary Information.
GATEWAY 51 PARTNERSHIP ---------------------- (A MARYLAND GENERAL PARTNERSHIP) --------------------------------
SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS -----------------------------------------------------------
DECEMBER 31, 1996 -----------------
_______________
See Independent Auditor's Report on Supplementary Information.
EXHIBIT INDEX - -------------
EXHIBIT INDEX -------------
EXHIBIT INDEX -------------
EXHIBIT INDEX -------------
___________________________________________________________ *Previously filed and incorporated herein by reference
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 31, 1997 By: /s/ Joseph W. O'Connor ---------------------- Joseph W. O'Connor President of the Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----
President, Principal Executive Officer and Director of the /s/ Joseph W. O'Connor Managing General Partner March 31, 1997 - ----------------------- Joseph W. O'Connor
Principal Financial and Accounting Officer of the /s/ Daniel C. Mackowiak Managing General Partner March 31, 1997 - ------------------------ Daniel C. Mackowiak
Director of the /s/ Daniel J. Coughlin Managing General Partner March 31, 1997 - ----------------------- Daniel J. Coughlin
Director of the /s/ James J. Finnnegan Managing General Partner March 31, 1997 - ----------------------- James J. Finnegan