Item 1. Business. --------
Copley Pension Properties VI; A Real Estate Limited Partnership (the "Partnership") (formerly New England Pension Properties VI; A Real Estate Limited Partnership) was organized under the Uniform Limited Partnership Act of the Commonwealth of Massachusetts on October 16, 1987, 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 Sixth Copley Corp. (the "Managing General Partner") and GCOP 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 October 26, 1987, with respect to a public offering of 80,000 units of limited partnership interest at a price of $1,000 per unit (the "Units") with an option to sell up to an additional 80,000 Units (an aggregate of $160,000,000). The Registration Statement was declared effective on January 20, 1988.
The first sale of Units occurred on July 28, 1988, 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, 1988. At the termination of the offering, a total of 48,788 Units had been sold, a total of 6,396 investors had been admitted as limited partners (the "Limited Partners") and a total of $48,511,620 net of discounts had been contributed to the capital of the Partnership. The remaining 111,212 Units were de-registered on February 10, 1989.
The Partnership has no current plans to renovate, improve or further develop any of its real property investments. 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.
As of December 31, 2000 the Partnership is invested in the two real property investments described below. Additionally, the Partnership sold five other real estate investments between 1990 and 2000. The principal terms of these sales are set forth in the following table:
A. Industrial Building in Carson, California ("Wilmington ------------------------------------------------------ Industrial"). ------------
On July 18, 1988, the Partnership acquired a 60% interest in a joint venture with an affiliate of The Hewson Company. On November 15, 1989, the Partnership agreed to increase its maximum commitment from $6,685,000 to $7,285,000. On February 1, 1991, the Partnership agreed to further increase its maximum commitment to $8,085,000. The Partnership made capital contributions totaling $7,774,402. As of December 31, 1991, because of the developer partner's inability to fund its share of capital contributions, the Partnership assumed 100% ownership of the joint venture's assets, which consisted primarily of approximately 5.77 acres of land in Carson, California and an approximately 115,732 square foot multi-tenant industrial building located thereon. As of December 31, 2000, the building was 100% leased.
B. Industrial Building in Itasca, Illinois ("Prentiss -------------------------------------------------- Copystar"). ----------
On May 23, 1991, the Partnership acquired a 51.75% interest in a joint venture formed with Copley Pension Properties VII; A Real Estate Limited Partnership, an affiliate of the Partnership (the "Affiliate") with a 23.25% interest, and with an affiliate of Prentiss Properties, Ltd (the "Developer"). As of December 31, 2000, the Partnership had contributed $2,739,013 to the capital of the joint venture, which includes default contributions made on behalf of the Developer, of which $63,563 had been returned to the Partnership. Of the capital contributed and not returned, $1,542,848 is characterized as Senior Capital, $690,000 is characterized as Junior Capital and $442,602 is characterized as Deficit and Default Contributions. The joint venture agreement entitles the Partnership to receive a preferred compounded monthly return of 11% per annum on capital contributed. The return on Senior Capital will be payable currently, the return on Junior Capital, Deficit and Default Contributions may accrue and compound monthly if sufficient cash flow is not available therefor. If the Senior Capital is repaid prior to the termination of the joint venture, the Partnership will be entitled to receive a return on the Senior Capital at the lesser of 11% per annum or the interest rate for treasury bonds having a maturity date coinciding with the termination of the joint venture, plus 75 basis points. The joint venture agreement also entitles the Partnership to receive 51.75% of the net proceeds of sales and financings after return of its capital and 51.75% of cash flow remaining after payment of the preferred return, both of which have been adjusted to 61.64% as a result of its Default Contributions, in accordance with the joint venture agreement.
The joint venture owns approximately 3.75 acres of land in Itasca, Illinois and during 1991 completed construction thereon of an approximately 70,535 square foot single-story industrial building. At December 31, 2000, the building was 100% leased.
On January 24, 2001, the Partnership, its Affiliate and the Developer executed a Purchase and Sale Agreement to sell the Prentiss Copystar investment. This sale was concluded on February 26, 2001 at which time the Partnership recognized approximately $1,133,000 of its share of the gain from sale of this investment.
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 table 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 years.
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, 2000:
TENANT AGING REPORT
* Does not include expenses paid by tenants.
(1) Remaining lease does not expire within 10 years.
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 for purposes of depreciation, and (v) accumulated depreciation.
SL = Straight Line
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.
Industrial Building in Carson, California - -----------------------------------------
The Los Angeles South Bay's industrial market, totaling approximately 229-million-square-feet, spans six submarkets in an area bordered by LAX to the North, the 605 Freeway to the East, Orange County to the South, and the Pacific Ocean to the West. The South Bay is part of the over 800-million-square-foot Southern California Industrial Market.
Within the overall Southern California market, the strength of the South Bay market is evident by its central location, regional transportation infrastructure, port and airport resources, preferred residential housing and entertainment amenities, and dominant position in the international trade area. These strengths have attracted and retained local entrepreneurial, telecommunications, computer related, manufacturing, and entertainment companies that are seeking state-of-the-art quality industrial space.
The combination of low vacancy and rising rental rates have resulted in speculative construction. Developers have constructed approximately 3.8-million-square-feet of new industrial buildings in 2000. As of the fourth quarter 2000, approximately 2-million-square-feet of this new product was either pre-leased or immediately absorbed, with the remainder just completed at year's end.
The South Bay continues to be a focal point of industrial real estate optimism as a result of a dramatic decline in vacancy and simultaneous increase in rental rates. Investors are drawn to the market because of its diverse economy, major transportation hubs within its borders, and a strong labor market.
Industrial Building in Itasca, Illinois - ---------------------------------------
The metropolitan Chicago Industrial market contains in excess of 900-million-square-feet of inventory with a year-end 2000 vacancy rate of 6.9%, a decrease from the 8.0% vacancy rate at year-end 1999. Both speculative construction and build-to-suit activity was strong in 2000, adding 6.3-million-square-feet and 3.9-million-square-feet, respectively. The market with the highest concentration of development is in the I-55 corridor, located south of the Itasca building. With the scarcity of land in the DuPage and O'Hare markets, users are moving farther south into the I-55 corridor and beyond. The Partnership's property is located in the North DuPage County submarket. Most tenants in this submarket rely on close proximity to the O'Hare International Airport and to convenient access to Interstates 355, 290, 90, and the O'Hare Expressway.
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.
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, 2000, there were 6,127 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership dated July 28, 1988, 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 were no cash distributions paid that related to the year ended December 31, 2000 due to insufficient cash flows from the properties. Distributions will resume when practical. For the year ended December 31, 1999, cash distributions paid in 1999 or distributed after year end with respect to 1999 to the Limited Partners as a group totaled $821,319.
There were no cash distributions paid in 2000 that relate to the year ended December 31, 2000. Net income in 2000 resulted in an increase in partners' capital, while cash distributions exceeded net income in 1999 and therefore resulted in a reduction of partners' capital. Cash distributions in 1999 exceeded cash provided by operating activities. Reference is made to the Partnership's Statements of Partners' Capital (Deficit) and Statements of Cash Flows in Item 8 hereof.
Item 6.
Item 6. Selected Financial Data. -----------------------
(1) Revenues and net income in 1998 include a gain of $7,563,334 on the sales of the White Phonic and Waterford Apartments investments.
(2) Revenues and net income in 1997 include a gain of $248,172 on the sale of the Stemmons Industrial property.
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 1988 and a total of 48,788 units were sold. The Partnership received proceeds of $43,472,858, net of selling commissions and other offering costs, which have been used for investment in real estate, for the payment of related acquisition costs or retained as working capital reserves. As of December 31, 2000, the Partnership held the two investments described in A. and B. of Item 1 hereof. In addition, one investment was sold in each of 1990, 1994 and 1997 and two investments were sold in 1998. Through December 31, 2000, capital of $37,884,369 ($776.51 per Limited Partnership Unit) has been returned to the limited partners: $36,194,353 as a result of sales and $1,690,016 as a result of a discretionary reduction of original working capital previously held in reserves.
At December 31, 2000, the Partnership had $2,053,663 in cash and cash equivalents which is being retained as working capital reserves. The source of future liquidity and cash distributions to partners will be primarily cash generated by the Partnership's cash and cash equivalents and real estate investments. There were no cash distributions paid in 2000 that relate to the year ended December 31, 2000 due to insufficient cash flow from the properties. One property has just become fully occupied during the third quarter of 2000 and the other remaining property has reduced its cash flow to the Partnership due to payments of capital expenditures. Based on an adjusted capital contribution of $228.20 per Limited Partnership Unit, distributions of cash from operations relating to the first and second quarters of 1999 were made at the annualized rate of 5.5%, while operating distributions related to the third and fourth quarters of 1999 were made at the annualized rate of 5.0% on the adjusted capital contribution of $228.20 and on the weighted average adjusted capital contribution of $224.87, respectively. At the time of the operating distribution related to the third quarter of 1999, the Partnership also elected to make a capital distribution of original working capital previously held in reserves in the amount of $4.71 per Limited Partnership Unit.
The carrying value of real estate investments in the financial statements at December 31, 2000 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, 2000, the appraised value of the Partnership's real estate investments exceeded their related carrying value by an aggregate of approximately $4,000,000. 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 AEW Real Estate Advisors, Inc. (the "Advisor") and independent appraisers, and for one of the investments, is based on the amount negotiated in the Purchase and Sale Agreement. Because of the subjectivity inherent in the valuation process, the estimated current appraised value of the other remaining investment 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
The Wilmington Industrial investment is a wholly-owned property and the Prentiss Copystar investment is a joint venture.
OPERATING FACTORS
One of the Partnership's two industrial properties, Wilmington Industrial, was 100% leased at December 31, 2000 and December 31, 1999, respectively, whereas the other industrial property, Prentiss Copystar, was 100% leased at December 31, 2000 and was vacant at December 31, 1999.
On January 24, 2001, a Purchase and Sale agreement was executed by the Partnership, its Affiliate and the Developer to sell the Prentiss Copystar investment. The sale was concluded on February 26, 2001.
INVESTMENT ACTIVITY
Interest income on cash equivalents in 2000 decreased by approximately $14,000 or 10% compared to 1999 due primarily due to lower average investment balances as a result of the joint venture's property being vacant for eight months of 2000 versus three months of vacancy in 1999. Interest income on cash equivalents and short-term investments in 1999 decreased by approximately $81,000 or 37% compared to 1998 due primarily to lower average investment balances as a result of the sale of investments.
2000 COMPARED TO 1999
Total real estate operations for 2000 was $425,789, a decrease from $457,162 for the comparable period of 1999. The decrease of approximately $30,000, or 7%, is due to lower joint venture earnings due to Prentiss Copystar being vacant for eight months of 2000 versus three months of vacancy in 1999 offset by an overall increase in Wilmington Industrial's operations. The increase in Wilmington Industrial's operations is due to an increase in occupancy and lower operating expenses offset by an increase in depreciation and amortization expenses.
1999 COMPARED TO 1998
Total real estate operations for 1999 was $457,162, a decrease from $962,716 for the comparable period of 1998. The decrease of approximately $500,000 or 53% is primarily due to lower joint venture earnings as a result of the sale of White Phonic and Waterford Apartments in 1998 and the vacancy at Prentiss Copystar during the last three months of 1999.
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 consist primarily of real estate appraisal, printing, legal, accounting and investor servicing fees.
2000 COMPARED TO 1999
The Partnership did not incur management fees during the year ended December 31, 2000 due to the suspension of cash distributions as a result of the joint venture's property being vacant during the first eight months of 2000 and the other remaining property having reduced its cash flow to the Partnership due to payments of capital expenditures. General and administrative expenses in 2000 remained relatively stable in comparison to 1999.
1999 COMPARED TO 1998
The Partnership management fee decreased approximately $119,000 between 1999 and 1998 due to less operational cash available for distributions as a result of the sales of White Phonic and Waterford Apartments in 1998. General and administrative expenses decreased approximately $12,000 or 7% primarily due to a decrease in legal fees incurred in 1999.
INFLATION - ---------
By their nature, real estate investments tend not to be adversely affected by inflation. Inflation may result in appreciation in the value of real estate investments over time if rental rates and replacement costs increase. Declines in property values during the period of Partnership operations, due to market and economic conditions, have overshadowed the positive affect inflation may have on the value of the Partnership's investments.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ----------------------------------------------------------
The Partnership was not party to derivative financial instruments or derivative commodity instruments at or during the year ended December 31, 2000.
Item 8.
Item 8. Financial Statements and Supplementary Data. --------------------------------------------
The independent auditor's reports, financial statements and financial statement schedule listed in the accompanying index are filed as part of this report. See Index to the Financial Statements and Financial Statement Schedules on page 17.
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, 2000.
(c) Identification of Certain Significant Employees. -----------------------------------------------
None.
(d) Family Relationships. --------------------
None.
(e) Business Experience. -------------------
The Managing General Partner was incorporated in Massachusetts on October 13, 1987. The background and experience of the executive officers and directors of the Managing General Partner are as follows:
Alison L. Husid is a Portfolio Manager in the Direct Investments group of AEW Capital Management, L.P. ("AEW"), with responsibility for several real estate equity portfolios representing approximately $700 million in client capital. She has over 15 years of experience in real estate finance and investment management. Alison joined AEW in 1987 as Controller for a portfolio management team responsible for the acquisition, management, restructuring and disposition of client assets in New England and the western U.S. She later served as Asset Manager for a portfolio of assets in Arizona and the West Coast. Prior to joining AEW, Alison worked for several years as a Senior Auditor with Peat Marwick, Main & Co. She is a Certified Public Accountant and a graduate of the University of Massachusetts (B.A.).
Pamela J. Herbst is Head of AEW's Direct Investments group, with oversight responsibility for approximately $4 billion of client assets. With over 20 years of direct real estate experience, Pam is a Principal of AEW, and a member of AEW'S Management Committee, Investment Committee and Investment Policy Group. Since joining AEW's predecessor in 1982, Pam has held various senior level positions in investment management, acquisitions and corporate operations. In addition to holding a number of industry certifications, she is a member of various real estate industry trade organizations, and sits on the Board of Directors of the National Association of Real Estate Investment Managers (NAREIM). Pam is a graduate of the University of Massachusetts (B.A.) and Boston University (M.B.A.).
J. Grant Monahon is AEW's Chief Operating Officer and a member of its Management Committee, Investment Committee and Investment Policy Group. He has over 25 years of experience in real estate law and investments and formerly served as AEW's General Counsel. Prior to joining AEW in 1987, Grant was a partner with a major Boston law firm. As the head of that firm's real estate finance department, he represented a wide variety of institutional clients, both domestic and international, in complex equity and debt transactions. He is the former Chairman of the General Counsel section of the National Association of Real Estate Investment Managers. Grant is a graduate of Dartmouth College (B.A.) and Georgetown University Law Center (J.D.).
James J. Finnegan is AEW's General Counsel. He has over fifteen years of experience in real estate, including seven years in private practice with major New York City and Boston law firms. Jay has extensive experience in creating and implementing real estate investment and portfolio management strategies for institutional investors. Jay joined AEW in 1992 and has been actively involved in various aspects of AEW's investment activities, including public and private debt and equity investments. He also serves as AEW's securities and regulatory compliance officer, and is the Principal of AEW Securities, L.P., AEW's affiliated broker/dealer. Jay is a member of the General Counsel section of the National Association of Real Estate Investment Managers. He is a graduate of the University of Vermont (B.A.) and Fordham University School of Law (J.D.).
Dana C. Spires is a Controller in AEW's Direct Investment group, with responsibility for overseeing the accounting and financial reporting for several direct investment clients. Prior to joining AEW in 2000, he worked as a Controller for both Finard & Company, LLC and Leggat McCall Retirement Properties LLC. Mr. Spires has over twelve years of financial experience in the real estate field. He is a graduate of Thiel College.
(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 of Notes to Financial Statements.
The following table sets forth the amounts of the fees and reimbursements for 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, 2000:
For the year ended December 31, 2000, the Partnership allocated $4,032 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, 2000. 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. ---------------------------------
The General Partners of the Partnership owned no Units at December 31, 2000.
(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 Statements Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedules--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, 2000, the Partnership filed no Current Report on Form 8-K.
COPLEY PENSION PROPERTIES VI;
A REAL ESTATE LIMITED PARTNERSHIP
Financial Statements
* * * * * * * * * * * *
December 31, 2000
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets - December 31, 2000 and 1999
Statements of Operations - Years ended December 31, 2000, 1999 and 1998
Statements of Partners' Capital (Deficit) - Years ended December 31, 2000, 1999 and 1998
Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998
Notes to Financial Statements
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2000
All other schedules are omitted because they are not applicable
Report of Independent Accountants
To the Partners of Copley Pension Properties VI; A Real Estate Limited Partnership:
In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Copley Pension Properties VI; A Real Estate Limited Partnership (the "Partnership") at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and the financial statement schedule are the responsibility of Sixth Copley Corp., the Managing General Partner of the Partnership (the "Managing General Partner"); our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP Boston, MA March 21, 2001
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(See accompanying notes to financial statements)
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS - ----------------------------------
General -------
Copley Pension Properties VI; 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 July 1988 and acquired the two real estate investments it currently owns prior to the end of 1991. It intends to dispose of its investments within eight to twelve years of their acquisition and then liquidate.
The Managing General Partner of the Partnership is Sixth Copley Corp., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. (the "Advisor"), formerly known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general partner is GCOP Associates Limited Partnership, a Massachusetts limited partnership. Subject to the Managing General Partner's overall authority, the business of the Partnership is managed by the Advisor pursuant to an advisory contract.
The Advisor is a wholly-owned subsidiary of AEW Capital Management, L.P., a wholly-owned subsidiary of Nvest Companies, L.P. (the "Company"). On October 30, 2000, Paris-based CDC IXIS Asset Management ("CDCIAM") acquired the Company and its affiliated partnership, Nvest, L.P. (the "Acquisition"). Subsequently, the Company's name was changed to CDC IXIS Asset Management North America, LP. CDCIAM is the investment management arm of France's CDC IXIS, a subsidiary of Caisse des Depots Group ("CDC").
The Acquisition was accomplished through CDCIAM's wholly owned subsidiary, CDC IXIS Asset Management US Corporation ("CDCIAM US Corp."), which has a 99% direct limited partnership interest in the Company and is the sole owner of the Company's 1% general partner, CDC IXIS Asset Management US, LLC.
Prior to the Acquisition, the Company was owned by Nvest, L.P. ("Nvest"), a publicly traded limited partnership with an approximate 15 percent interest, and by private unitholders. The general partner of Nvest and the managing general partner of the Company was a wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife"). In total, MetLife owned approximately 48% of the partnership units of the Company at October 30, 2000 (including those owned indirectly through ownership of Nvest units). Upon the consummation of the Acquisition on October 30, 2000, all unitholders received cash in exchange for each unit owned. Nvest, whose primary asset was its ownership of Nvest Companies' units, was merged with and into the Company on December 31, 2000, with the Company as the surviving entity.
Management ----------
The 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 from operations, as defined, before deducting such fees. The deferred management fees of $112,441 incurred through 1990 were paid to AEW in September 1994 with a portion of the proceeds from the sale of Lakewood Apartments. AEW is also reimbursed for expenses incurred in connection with administering the Partnership ($17,000 in 2000, 1999, and 1998 respectively). Acquisition fees were paid in an amount equal to 2% of the gross proceeds from the offering, at the time commitments were initially funded. Disposition fees are limited to the lesser of 3% of the selling price of the property, or 50% of the standard real estate commission customarily charged by an independent real estate broker. Payments of disposition fees are subject to the prior receipt by the limited partners of their capital contributions plus a stipulated return thereon. Deferred disposition fees were $1,369,577 at December 31, 2000 and 1999.
New England Securities Corporation ("NESC"), an indirect subsidiary of Met Life, was engaged by the Partnership to act as its unitholder servicing agent. Fees and out-of-pocket expenses for such services totaled $11,376, $11,187 and $10,287 in 2000, 1999 and 1998, 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, (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 thereon. The Partnership recorded an amount equal to 100% of the operating results of each joint venture, after the elimination of all inter-entity transactions, except for the venture which includes an affiliate of the Partnership, which has substantial economic equity in its project.
Property --------
Property includes land and buildings, which are stated at cost less accumulated depreciation, and 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 prior 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 term.
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.
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 disposition 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 held for sale, the impairment loss also includes estimated costs of sale. Property held for sale is not depreciated during the holding period. Investments are considered to be held for disposition at the time management commits the Partnership to a plan to dispose of the investment.
Cash Equivalents ----------------
Cash equivalents are stated at cost, plus accrued interest. The Partnership considers all highly liquid instruments purchased with a maturity of ninety days or less to be cash equivalents; otherwise, they are classified as short-term investments.
Deferred Disposition Fees -------------------------
Disposition fees due to the Advisor 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.
Segment Data ------------
Effective January 1, 1998, the Partnership adopted Financial Accounting Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise and Related Information" (FAS 131). Based on the criteria established in FAS 131, the Managing General Partner has determined that the Partnership operates in one operating segment: investing in real estate properties which are domiciled in the United States of America.
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 three cases, with an affiliate of the Partnership. One joint venture sold its property in 1990; another joint venture investment was restructured into a wholly-owned property in 1991. During 1994, the Lakewood joint venture sold its property and the Stemmons Industrial investment was converted to a wholly-owned property; the latter property was subsequently sold in 1997. In 1998, the White Phonic and Waterford Apartments joint ventures sold their properties in July and August, respectively. The Partnership committed to make capital contributions to the ventures, which are or were generally subject to preferential cash distributions at a specified rate and to priority distributions with respect to sale or refinancing proceeds. The joint venture agreements provide or provided, as the case may be, for the funding of cash flow deficits by the venture partners in proportion to 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 firm is 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 management/development firm, or its affiliates, also provides or provided, as the case may be, various services to the respective joint venture for a fee.
The following is a summary of cash invested in the remaining joint venture, net of returns of capital and excluding acquisition fees:
Waterford Apartments --------------------
On March 20, 1989, the Partnership entered into a joint venture with an affiliate of Bozzuto and Associates, and with an affiliate of the Partnership, to develop and operate a garden-style apartment complex. The Partnership and its affiliate collectively had a 65% ownership interest in the joint venture. The Partnership committed to contribute up to $14,100,000 to the capital of the joint venture. The preferential return related to $3,525,000 was payable currently only to the extent of available cash flow. In the event of a sale or refinancing prior to the tenth anniversary of the joint venture agreement, 25% of the Partnership's contribution would be repaid without premium. The remaining 75% would be entitled to a premium designed to preserve the stipulated rate of return through the ninth anniversary of the joint venture agreement.
On August 7, 1998, the joint venture sold the Waterford Apartments to an institutional buyer which is unaffiliated with the Partnership. The total gross sale price was $21,800,000. The Partnership received its share of the net proceeds in the amount of $16,338,750, after closing costs, and recognized a gain of $6,227,526 ($126.37 per Limited Partnership Unit). A disposition fee of $490,500 was accrued but not paid to the Advisor. On August 26, 1998, the Partnership made a capital distribution of $16,309,341 ($334.29 per Limited Partnership Unit) from the proceeds of the sale.
White Phonic ------------
On April 30, 1990, the Partnership entered into a joint venture with an affiliate of William C. White and George Vila to develop and operate an office/industrial building. The Partnership committed to make a maximum capital contribution of $3,450,000. During the first ten years, up to 1% of the preferential return could be deferred to the extent payments could not be made from operating and extraordinary cash flow.
On July 14, 1998, the joint venture, in which the Partnership held a 50% interest, sold the White Phonic property in Petaluma, California, to an unaffiliated third party for a total gross sale price of $5,380,000. The Partnership received its share of the net proceeds of $4,279,751 after closing costs, representing a return of capital and accrued interest plus its participation in net sales proceeds of $965,671 and recognized a gain of $1,335,808 ($27.11 per Limited Partnership Unit). A disposition fee of $161,400 was accrued but not paid to the Advisor. On July 30, 1998, the Partnership made a capital distribution of $4,279,683 ($87.72 per Limited Partnership Unit) from the proceeds of the sale.
Prentiss Copystar -----------------
On May 23, 1991, the Partnership entered into a joint venture with an affiliate of Prentiss Properties, Ltd., and an affiliate of the Partnership, to develop and operate an industrial facility. The Partnership and its Affiliate initially had a collective 75% interest in the joint venture. The Partnership committed to make a maximum capital contribution of $2,300,000 but has subsequently made additional contributions classified as deficit contributions as well as contributions on behalf of the affiliate of Prentiss Properties, classified as Default Contributions. The Default Contributions subsequently increased the Partnership and its Affiliate's collective interest to 89.34% as of December 31, 2000. The preferential return related to $690,000 is payable currently only to the extent of available cash flow. If $1,610,000, or any portion thereof, is returned to the Partnership between the second and tenth anniversary of the joint venture agreement, the return will be increased by an amount sufficient to preserve the stipulated rate of return through the tenth anniversary. As of December 31, 2000, the property was 100% leased.
Summarized Financial Information - --------------------------------
The following summarized financial information is presented in the aggregate for the joint venture:
ASSETS AND LIABILITIES ----------------------
RESULTS OF OPERATIONS ---------------------
Liabilities and expenses exclude amounts owed and attributable to the Partnership and its affiliates on behalf of their various financing arrangements with the joint ventures.
On January 24, 2001, the Partnership, its Affiliate and the Developer executed a Purchase and Sale Agreement to sell the Prentiss Copystar investment. On February 26, 2001, this investment was sold and the Partnership recognized its share of the gain of approximately $1,133,000.
This investment is classified as Joint Venture held for disposition on the Balance Sheet at December 31, 2000. During the years ended December 31, 2000 and 1999, the Partnership recognized $40,932 and $127,505 in net income from this investment, respectively.
NOTE 4 - PROPERTY - -----------------
On July 18, 1988, the Partnership entered into a joint venture with an affiliate of The Hewson Company to acquire and operate an industrial building known as Wilmington Industrial in Carson, California. The Partnership made capital contributions totaling $7,774,402. In 1991, when the venture partner did not fund its proportionate share of the cash flow deficit, the Partnership's ownership interest increased to 100%.
The following is a summary of the Partnership's remaining investment in property:
The Wilmington Industrial building is being depreciated over 30 years and capitalized improvements are being depreciated over seven years. The $1,500,000 impairment provision was recorded in 1995.
Tenant leases provide for minimum rents, subject to adjustment as stated in each lease. Tenants are also obligated to reimburse their pro-rata share of operating expenses. The minimum rents due under non-cancelable operating leases at Wilmington Industrial are as follows: $541,105 in 2001, $450,753 in 2002, $372,146 in 2003, $321,146 in 2004, $137,166 in 2005 and $137,166 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 have been made quarterly through the fourth quarter of 1999. The partnership will resume quarterly distributions when practical.
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. The adjusted capital contribution per limited partnership unit was reduced from $1,000 to $951.83 during 1990, from $951.83 to $768.98 during 1994, from $768.98 to $660.29 during 1997, from $660.29 to $228.20 during 1998, and from $228.20 to $223.49 during 1999. Income from a sale is allocated in proportion to the distribution of related proceeds, provided that the general partners are allocated at least 1%. Losses from a sale, and income 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 - -------------------------
See Note 3 for discussion of sale of investment on February 26, 2001.
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 2000
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY SCHEDULE III NOTE A AT DECEMBER 31, 2000
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE III NOTE B - JOINT VENTURES AT DECEMBER 31, 2000
FINANCIAL STATEMENTS INDEX NO. 2
AUDITOR'S REPORT AND FINANCIAL STATEMENTS
OF PRENTISS/COPLEY ITASCA ASSOCIATES
Report of Independent Accountants from PricewaterhouseCoopers LLP
Balance Sheets - December 31, 2000 and 1999
Statements of Operations - For the Years ended December 31, 2000, 1999 and
Statements of Partners' Equity - For the Years ended December 31, 2000, 1999 and 1998
Statements of Cash Flows - For the Years ended December 31, 2000, 1999 and
Notes to Financial Statements
PRENTISS/COPLEY ITASCA ASSOCIATES
FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Prentiss/Copley Itasca Associates:
In our opinion, the accompanying balance sheets and the related statements of operations, of partners' equity and of cash flows present fairly, in all material respects, the financial position of Prentiss/Copley Itasca Associates (the "Partnership") at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, 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 management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP March 21, 2001
PRENTISS/COPLEY ITASCA ASSOCIATES
BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (dollars in thousands) - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
PRENTISS/COPLEY ITASCA ASSOCIATES
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (dollars in thousands) - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
PRENTISS/COPLEY ITASCA ASSOCIATES
STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (dollars in thousands) - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
PRENTISS/COPLEY ITASCA ASSOCIATES
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (dollars in thousands) - --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
PRENTISS/COPLEY ITASCA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (dollars in thousands) - --------------------------------------------------------------------------------
1. ORGANIZATION
Prentiss/Copley Itasca Associates (the "Partnership") was formed effective May 20, 1991, pursuant to a general partnership agreement between Prentiss Properties Itasca, L.P. (the "Developer") (25%), as managing partner; Copley Pension Properties VI, a Real Estate Limited Partnership ("CPP 6") (51.75%); and Copley Pension Properties VII, a Real Estate Limited Partnership ("CCP 7") (23.25%), for the purpose of owning, constructing and operating an industrial building in Itasca, Illinois. The interests of each partner change as default capital contributions are made. See Note 5 for further discussion of default capital contributions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE
Real estate is carried at the lower of depreciated cost or net realizable value. Management of the Partnership periodically reviews the carrying value of the property to determine if circumstances exist indicating an impairment in the carrying value of the investment in real estate or that depreciation periods should be modified. If facts or circumstances support the possibility of impairment, management of the Partnership will prepare a projection of the undiscounted future cash flows, without interest charges, of the property and determine if the investment in real estate is recoverable based on the undiscounted future cash flows. Management of the Partnership does not believe that there are any factors or circumstances indicating impairment of the property. Depreciation on the building and improvements is provided under the straight-line method over an estimated useful life of 35 years.
Maintenance and repairs are charged to operations as incurred; major renewals and betterments are capitalized. Upon the sale or disposition of a fixed asset, the asset and the related accumulated depreciation are removed from the accounts and the gain or loss is included in operations.
DEFERRED CHARGES
Tenant improvements and leasing charges are deferred and amortized on a straight-line basis over the term of the related lease. Accumulated amortization was $10 at December 31, 2000.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents consists of cash on hand and investments with maturities of three months or less when purchased.
LEASES
The Partnership, as a lessor, has retained substantially all of the risks and benefits of ownership and accounts for the lease as an operating lease. Rental income is recognized on a straight-line basis over the term of the lease as it is earned. Accruable rental income represents rental income earned in excess of rent payments received pursuant to the terms of the lease agreement.
PRENTISS/COPLEY ITASCA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (dollars in thousands) - --------------------------------------------------------------------------------
INCOME TAXES
No provision for income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to income tax and the tax effect of its activities accrues to the individual partners.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. REAL ESTATE
Real estate is comprised of the following at December 31:
4. LEASING ACTIVITIES
In August 2000, a single tenant commenced a 15-year lease for 100% of the building. The future minimum lease payments to be received by the Partnership under the noncancelable lease are as follows:
PRENTISS/COPLEY ITASCA ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (dollars in thousands) - --------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
The operations of the Partnership are managed by an affiliate of the Developer in accordance with a management agreement. Management fees charged to the Partnership during the years ended December 31, 2000 and 1999, totaled approximately $4 and $8, respectively.
The partnership agreement provides for a priority return, which has been reflected in the financial statements as a payment of interest, on the capital contributions made by CPP 6 and CPP 7; interest is charged at the rate of 11% per annum. The partnership agreement provides for a senior and a junior priority return. As prescribed by the partnership agreement the senior priority return is paid annually and, if necessary, funded from deficit contributions while the junior return may accrue. The junior priority return has been accrued by the Partnership since September 1999 and is reflected in amounts due to affiliates at December 31, 2000 and 1999 as shown in the table below.
If a partner fails to make a deficit contribution within the time specified, the remaining partners may contribute the funds necessary to meet the Partnership's obligations. Such contributions are referred to as default capital contributions. If default capital contributions are made, the interest of each partner is recalculated in accordance with the partnership agreement.
During 2000 and 1999, CPP 6 and CPP 7 contributed a total of $555 and $85, respectively, which are being treated as deficit and default capital contributions. Per the partnership agreement, the deficit and default capital contributions earn an 11% return which may accrue should the property not have enough cash flow to pay the return. At December 31, 2000, CPP 6 and CPP 7 earned approximately $32 on these contributions. This amount is reflected in amounts due to affiliates as shown below.
Amounts due to affiliates is comprised of the following at December 31:
6. SUBSEQUENT EVENT
The property was sold to an unrelated party for a sales price of $4.58 million on February 26, 2001.
EXHIBIT INDEX ------------- EXHIBIT PAGE NUMBER EXHIBIT NUMBER - ------ ------- ------
10H. First Amendment to Hewson Wilmington Associates *
General Partnership Agreement dated as of December 31, 1989 by and between Hewson/Wilmington, L.P., a California limited partnership and the Registrant.
27. Financial Data Schedule
* 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.
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP
Date: March 28, 2001 By: /s/ Alison L. Husid ---------------------------- Alison L. Husid 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.