-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qyow7I+2yZ8raXrp3+kYt8VYffARz1YORqhVxqIA2S2P9pRm6ITT2RnrSNvViifv mKTYh9VHrfKr6SQ1m7x6+g== 0000927016-00-001036.txt : 20000411 0000927016-00-001036.hdr.sgml : 20000411 ACCESSION NUMBER: 0000927016-00-001036 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COPLEY PENSION PROPERTIES VI CENTRAL INDEX KEY: 0000824209 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042988542 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17807 FILM NUMBER: 582069 BUSINESS ADDRESS: STREET 1: 255 FRANKLIN STREET CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6175781200 MAIL ADDRESS: STREET 1: 399 BOYLSTON STREET CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: NEW ENGLAND PENSION PROPERTIES VI DATE OF NAME CHANGE: 19880113 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission File No. 0-17807 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2988542 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 225 Franklin Street, 25th FL. Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 261-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] No voting stock is held by nonaffiliates of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE None Part I 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. As of December 31, 1999 the Partnership is invested in the two real property investments described below. During 1990, a joint venture in which the Partnership was a partner sold its interest in a third real estate investment located in Chino Hills, California. The Partnership made a distribution to the Limited Partners in the amount of $48.17 per Unit. During 1994, a joint venture in which the Partnership was a partner sold its interest in a fourth investment located in Phoenix, Arizona. The Partnership made a distribution to the Limited Partners of $182.85 per Unit. In 1997, the Partnership sold a fifth investment located in Farmers Branch, Texas. The Partnership made a distribution to the Limited Partners of $88.84 per Unit. During 1998, two joint ventures in which the Partnership was a partner sold their respective interests in a sixth and a seventh investment located in Petaluma, California and Frederick, Maryland, respectively. The Partnership made distribution to the Limited Partners of $87.72 and $334.29 per Unit, respectively. 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. 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, 2 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, 1999, 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. As of December 31, 1999, the Partnership had contributed $2,418,312 to the capital of the joint venture, of which $63,563 had been returned to the Partnership. Of the capital contributed and not returned, $1,602,186 is characterized as Senior Capital and $690,000 is characterized as Junior Capital. The joint venture agreement entitles the Partnership to receive a preferred compounded monthly return of 11% per annum of which the return on Senior Capital will be payable currently and the return on Junior Capital 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. 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, 1999, the building was vacant. The Partnership is currently negotiating a long term lease with a single tenant. 3 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:
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Estimated Tenants Annual 2000 with 10% Contract Line of Annual or Square Rent Business Realty More of Names (s) of Feet of per Lease Renewal of Principal Property Taxes GLA Tenant(s) Each Tenant Sq. Ft. Expiration Options Tenants - ------------------------------------------------------------------------------------------------------------------------------------ Industrial Building in $69,925 4 Practical Packaging 57,183 $5.04 Mar, 2001 N/A Packaging Carson, CA Del Monte 26,545 $5.42 Dec, 1999 Two 5 year Fruit and Fruit Products Continental Wire 11,682 $4.49 Dec, 1999 N/A Wire Fabrication Haagen-Dazs 12,000 $6.48 June, 2001 N/A Ice Cream Industrial Building, $74,605 0 N/A 70,535 -- N/A Itasca, IL - ------------------------------------------------------------------------------------------------------------------------------------
4 The following table sets forth for each of the last five years the gross leasable area, occupancy rates, rental revenue, and net effective rent for the Partnership's properties:
- ----------------------------------------------------------------------------------------------------------- Rental PROPERTY Gross Leasable Year-End Revenue Net Effective Area Occupancy Recognized Rent ($/sf/yr)* - ----------------------------------------------------------------------------------------------------------- Industrial Building in Carson, CA 1995 115,732 89% $620,300 $6.58 1996 115,732 100% $709,199 $7.08 1997 115,732 100% $752,941 $6.51 1998 115,732 100% $726,314 $6.28 1999 115,732 100% $761,603 $6.58 Industrial Building, Itasca, IL 1995 70,535 100% $479,000 $6.79 1996 70,535 100% $492,000 $6.98 1997 70,535 100% $462,000 $6.55 1998 70,535 100% $468,095 $6.64 1999 70,535 0% $367,942 $6.96 - ------------------------------------------------------------------------------------------------------------
* Net effective rent calculation is based on average occupancy during the respective years. 5 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, 1999:
- -------------------------------------------------------------------------------------------------------------- TENANT AGING REPORT Property # of Lease Total Total Percentage of Expirations Square Feet Annual Rental Gross Annual Rental* - -------------------------------------------------------------------------------------------------------------- Industrial Building in Carson, CA 2000 0 0 $0 0% 2001 3 77,475 $412,729 100% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 0 0 $0 0% 2005 0 0 $0 0% 2006 0 0 $0 0% 2007 0 0 $0 0% 2008 0 0 $0 0% 2009 0 0 $0 0% Industrial Building, Itasca, IL 2000 0 0 $0 0% 2001 0 0 $0 0% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 0 0 $0 0% 2005 0 0 $0 0% 2006 0 0 $0 0% 2007 0 0 $0 0% 2008 0 0 $0 0% 2009 0 0 $0 0% - -----------------------------------------------------------------------------------------------------------------
o Does not include expenses paid by tenants. 6 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.
- -------------------------------------------------------------------------------------------------------------------- Rate of Life Accumulated Entity / Property Tax Basis Depreciation Method in years Depreciation - -------------------------------------------------------------------------------------------------------------------- Industrial Building in Carson, CA Building & Improvements $3,733,428 2.50% SL 40 $927,100 ----------- ---------- Total Depreciable Assets $3,733,428 $927,100 Industrial Building in Itasca, IL Building $ 2,121,478 2.50% SL 40 $439,154 ----------- ---------- Total Depreciable Assets $2,121,478 $439,154 Total Depreciable Assets $5,854,906 $1,366,254 =========== ========== - --------------------------------------------------------------------------------------------------------------------
SL = Straight Line 7 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 property is located in the South Bay sub-market, within the greater Los Angeles industrial market. The South Bay sub-market, with 3,972 industrial buildings totaling approximately 204 million square feet, represents approximately 24% of the total Los Angeles industrial market. Leasing activity in 1999 in the South Bay industrial market totaled 11 million square feet, approximately 8% lower than in 1998, and the vacancy rate dipped to 4.7% at year-end, compared to 5.5% in 1998. Industrial Building in Itasca, Illinois The Metropolitan Chicago Industrial Market contains approximately 933 million square feet of inventory with a year-end 1999 vacancy rate of 8.0%, an increase from the 6.9% vacancy at year-end 1998. Currently, there is more than 3.2 million square feet of inventory under construction and an additional 8.5 million square feet proposed. Due to the scarcity of land located close to our property, new construction has moved out, mainly west and south along the I-55 and I-80 corridors. The availability of new competitively priced product will limit the growth of rental rates, but more so in the outlying markets with ample land available for development. The 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 Elgin-O'Hare Expressway. 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. 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. 8 PART II 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, 1999, there were 6,308 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 are no restrictions on the Partnership's present or future ability to make distributions of Distributable Cash. 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. For the year ended December 31, 1998, cash distributions paid in 1998 or distributed after year end with respect to 1998 to the Limited Partners as a group totaled $22,855,715, including $20,589,024 of returned capital from the proceeds of joint venture sales and $491,783 of returned capital from original working capital reserves. Cash distributions exceeded net income in 1999 and 1998 and therefore resulted in a reduction of partners' capital. Cash distributions in 1999 and 1998 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. 9 Item 6. Selected Financial Data.
For Year For Year For Year For Year For Year Ended or Ended or Ended or Ended or Ended or as of : as of : as of : as of : as of : 12/31/99 12/31/98 (1) 12/31/97 (2) 12/31/96 12/31/95 (3) -------------------------------------------------------------------------------------------------- Revenues $ 992,399 $ 9,098,258 $ 2,688,336 $ 2,250,424 $ 2,662,452 Net Income (Loss) $ 365,739 $ 8,384,390 $ 1,588,309 $ 1,186,133 $ (206,204) Net Income (Loss) per Limited Partnership Unit $ 7.42 $ 170.13 $ 32.23 $ 24.07 $ (4.18) Total Assets $ 7,962,054 $ 8,497,702 $ 22,706,302 $ 29,099,680 $ 30,094,908 Total Cash Distributions per Limited Partnership Unit, including amounts distributed after year end with respect to such year $ 16.65 $ 468.47 $ 166.26 $ 42.28 $ 50.00
(1) Revenues and net income in 1998 include a gain $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. (3) Net loss in 1995 includes a provision of $1,500,000 to recognize the impairment of a real estate investment. 10 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. The Partnership currently holds 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, 1999, 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. On August 7, 1998, the Waterford Apartments, in Frederick, Maryland, which was owned by the Partnership (75%) and an affiliate (25%), was sold to an institutional buyer which is unaffiliated with the Partnership. The Partnership received its share of the net proceeds totaling $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 AEW Real Estate Advisors, Inc. (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. On July 14, 1998, a joint venture in which the Partnership held a 50% interest sold the White Phonic property in Petaluma, Cafifornia, 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 ($27.06 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. At December 31, 1999, the Partnership had $2,305,383 in cash and cash equivalents, of which $138,479 was used for cash distributions to partners on January 27, 2000; the remainder 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. 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%. Distributions of cash from operations relating to the first and second quarters of 1998 were made at an annualized rate of 6.25% on the adjusted capital contribution. Distributions of cash from operations relating to the third and fourth quarters of 1998 were made at an annualized rate of 6.25% on the weighted average adjusted capital contribution, which was adjusted due to the mid-quarter sales of White Phonic and Waterford Apartments as well as a distribution of original working capital during the fourth quarter of 1998. Also during the fourth quarter of 1998, a distribution of $4.76 per Limited Partnership Unit was made from operational cash previously held in reserves. The carrying value of real estate investments in the financial statements at December 31, 1999 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. 11 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, 1999, the appraised value of each of the Partnership's real estate investments exceeded their related carrying value by an aggregate of approximately $2,446,000. The current appraised value of real estate investments has been estimated by the Managing General Partner and is generally based on a combination of traditional appraisal approaches performed by the Advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Results of Operations Form of Real Estate Investments The Wilmington Industrial investment is a wholly-owned property and 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, 1999 and December 31, 1998, respectively, whereas the other industrial property, Prentiss Copystar, was vacant at December 31, 1999 and 100% leased at December 31, 1998. The Partnership is currently negotiating a long term lease with a single tenant. As discussed above, the White Phonic industrial property was sold on July 14, 1998, and the Partnership recognized a gain of $1,335,808. At the time of the sale, White Phonic was 100% leased to a single tenant, as it had been since September 30, 1997. In addition, the Waterford Apartments was sold on August 7, 1998, and the Partnership recognized a gain of $6,227,526. At the time of the sale, the Waterford Apartments was 96% leased. At December 31, 1997 it was 93% leased. Investment Activity 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. Interest income on cash equivalents and short-term investments decreased in 1998 by approximately $56,000 compared to 1997 due primarily to lower average investment balances as a result of the sale of investments. 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. The decrease in operating cash flow of approximately $1,166,000 between 1998 and 1999 is primarily due to the decrease in distributions from joint ventures as a result of sales, which is offset by a decrease in working capital. 12 1998 Compared to 1997 Exclusive of net losses from operations from Stemmons Industrial of ($172,798) in 1997, total real estate operations for 1998 was $962,716, a decrease from $1,698,187 for the comparable period of 1997. The decrease of approximately $735,000 or 43% is primarily due to lower joint venture earnings as a result of the sale of White Phonic and Waterford Apartments. The decrease in operating cash flow of approximately $330,000 between 1997 and 1998 is primarily due to the decrease in distributions from joint ventures as a result of sales and increases in working capital. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the managing general partner. General and administrative expenses consist primarily of real estate appraisal, printing, legal, accounting and investor servicing fees. 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 6% primarily due to a decrease in legal fees incurred in 1998. 1998 Compared to 1997 The Partnership management fee decreased approximately $103,000 between 1998 and 1997 due to less operational cash available for distributions as a result of the sale of Stemmons Industrial in 1997, and the sales of White Phonic and Waterford Apartments in 1998. General and administrative expenses increased approximately $3,500 or 2% primarily due to an increase in investor servicing fees in 1998. 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. 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, 1999. The Partnership's only other financial instruments (as defined by Financial Accounting Standards Board Statement No. 107) are its cash and cash equivalents for which cost approximates market value. 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 19. 13 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. 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, 1999.
Name Position(s) with the Managing General Partner Age - ---- --------------------------------------------- --- Alison Husid Cutler President, Chief Executive Officer and Director 37 Pamela J. Herbst Vice President and Director 44 J. Grant Monahon Vice President 54 James J. Finnegan Vice President 39 Karin J. Lagerlund Treasurer and Principal Financial and Accounting Officer 35
(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 Husid Cutler is a Portfolio Manager in AEW Institutional Real Estate Services, with responsibility for several real estate equity portfolios representing approximately $800 million in client capital. She has over 12 years of experience in real estate finance and investment management. Ms. Cutler joined the predecessor of AEW Capital Management, L.P. ("AEW Capital Management") 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, Ms. Cutler 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 directs AEW Capital Management, L.P.'s ("AEW Capital Management") Institutional Real Estate Services, with oversight responsibility for the direct equity investing and asset and portfolio management of existing core and core-plus commingled funds and separate accounts. Ms. Herbst is a member of AEW Capital Management's Investment Policy Group and Operating Committee. She came to AEW Capital Management in December 1996 as a result of the firm's merger with Copley Real Estate 14 Advisors, Inc. where she held various senior level positions in asset and portfolio management, acquisitions and corporate operations since 1982. Ms. Herbst is a graduate of the University of Massachusetts (B.A.) and Boston University (M.B.A.). J. Grant Monahon is AEW Capital Management's Chief Operating Officer and a member of the firm's Management Committee and Investment Policy Group. He has over 25 years of experience in real estate law and investments. Prior to joining the predecessor of AEW Capital Management in 1987, Mr. Monahon 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. Mr. Monahon is a graduate of Dartmouth College (B.A.) and Georgetown University Law Center (J.D.). James J. Finnegan is the General Counsel 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 AEW'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.). Karin J. Lagerlund directs the Institutional Real Estate Services Portfolio Accounting Group at AEW Capital Management, overseeing portfolio accounting, performance measurement and client financial reporting for AEW's private equity investment portfolios. Ms. Lagerlund is a Certified Public Accountant and has over ten years experience in real estate consulting and accounting. Prior to joining AEW Capital Management in 1994, she was an Audit Manager at EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington State University (B.A.). (f) Involvement in Certain Legal Proceedings. None. 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 cash distributions 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, 1999:
Amount of Compensation and Receiving Entity Type of Compensation Reimbursement - ---------------- -------------------- ------------- General Partners Share of Distributable Cash $5,884 AEW Real Estate Advisors, Inc. Management Fees and 75,195 Expense Reimbursements New England Securities Corporation Servicing Fees and 11,187 --------- Expense Reimbursement TOTAL: $ 92,266 =========
15 For the year ended December 31, 1999, the Partnership allocated $4,624 of taxable income to the General Partners. 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, 1999. 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, 1999. (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. Certain Relationships and Related Transactions. The Partnership has no relationships or transactions to report other than as reported in Item 11, above. 16 PART IV 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, 1999, the Partnership filed no Current Report on Form 8-K. 17 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP Financial Statements * * * * * * * * * * * * December 31, 1999 18 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, 1999 and 1998 Statements of Operations - Years ended December 31, 1999, 1998 and 1997 Statements of Partners' Capital (Deficit) - Years ended December 31, 1999, 1998 and 1997 Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997 Notes to Financial Statements Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation at December 31, 1999 All other schedules are omitted because they are not applicable 19 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. 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, 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 the opinion expressed above. /s/ PricewaterhouseCoopers LLP - ------------------------------ Boston, Massachusetts March 21, 2000 20 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEETS
December 31, ------------------------ 1999 1998 ---------- ---------- Assets Real estate investments: Joint ventures $1,595,569 $1,649,433 Property, net 4,061,102 4,242,783 ---------- ---------- 5,656,671 5,892,216 Cash and cash equivalents 2,305,383 2,605,486 ---------- ---------- $7,962,054 $8,497,702 ========== ========== Liabilities and Partners' Capital Accounts payable $ 75,335 $ 115,195 Accrued management fee 13,696 17,595 Deferred disposition fees 1,369,577 1,369,577 ---------- ---------- Total liabilities 1,458,608 1,502,367 ---------- ---------- Partners' capital: Limited partners ($224.87 and $228.20 per Unit, respectively; 160,000 units authorized; 48,788 units issued and outstanding) 6,492,235 6,981,503 General partners 11,211 13,832 ---------- ---------- Total partners' capital 6,503,446 6,995,335 ---------- ---------- $7,962,054 $8,497,702 ========== ==========
(See accompanying notes to financial statements) 21 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS
Year ended December 31, ---------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Investment Activity Property rentals $ 726,612 $ 729,877 $ 813,691 Property operating expenses (268,902) (216,377) (374,736) Depreciation and amortization (128,053) (136,912) (264,913) ----------- ----------- ----------- 329,657 376,588 174,042 Joint venture earnings 127,505 586,128 1,351,347 ----------- ----------- ----------- Total real estate operations 457,162 962,716 1,525,389 Gain on sales of property -- 7,563,334 248,172 ----------- ----------- ----------- Total real estate activity 457,162 8,526,050 1,773,561 Interest on cash equivalents and short-term investments 138,282 218,919 275,126 ----------- ----------- ----------- Total investment activity 595,444 8,744,969 2,048,687 ----------- ----------- ----------- Portfolio Expenses Management fee 58,195 177,313 280,592 General and administrative 171,510 183,266 179,786 ----------- ----------- ----------- 229,705 360,579 460,378 ----------- ----------- ----------- Net Income $ 365,739 $ 8,384,390 $ 1,588,309 =========== =========== =========== Net income per limited partnership unit $ 7.42 $ 170.13 $ 32.23 =========== =========== =========== Cash distributions per limited partnership unit $ 17.45 $ 475.74 $ 165.95 =========== =========== =========== Number of limited partnership units outstanding during the year 48,788 48,788 48,788 =========== =========== ===========
(See accompanying notes to financial statements) 22 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
Year ended December 31, --------------------------------------------------------------------------------------------- 1999 1998 1997 ----------------------------- ----------------------------- ----------------------------- General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners ------------- ------------ ------------ ------------ ------------ ------------ Balance at beginning of year $ 13,832 $ 6,981,503 $ (48,500) $ 21,891,360 $ (36,164) $ 28,415,303 Cash distributions (6,278) (851,350) (21,512) (23,210,403) (28,219) (8,096,369) Net income 3,657 362,082 83,844 8,300,546 15,883 1,572,426 ------------ ------------ ------------ ------------ ------------ ------------- Balance at end of year $ 11,211 $ 6,492,235 $ 13,832 $ 6,981,503 $ (48,500) $ 21,891,360 ============ ============ ============ ============ ============ =============
(See accompanying notes to financial statements) 23 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
Year ended December 31, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 365,739 $ 8,384,390 $ 1,588,309 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 128,053 136,912 264,913 Equity in joint venture income (127,505) (586,128) (1,351,347) Cash distributions from joint ventures 184,210 1,511,850 1,849,700 Gain on sales of joint ventures -- (7,563,334) (248,172) Increase in property deferred leasing costs and other assets (4,860) (8,577) (556) (Increase) decrease in investment income receivable -- 27,032 (1,152) Increase in property working capital 58,488 (162,397) (52,369) Increase (decrease) in operating liabilities (43,759) (12,975) 7,903 ------------ ------------ ------------ Net cash provided by operating activities 560,366 1,726,773 2,057,229 ------------ ------------ ------------ Cash flows from investing activities: Investment in joint venture (2,841) -- -- Net proceeds from sale of investment -- 19,947,381 4,199,193 Deferred disposition fee -- 651,900 135,000 Decrease in short-term investments, net -- 1,405,619 762,791 ------------ ------------ ------------ Net cash provided (used) by investing activities (2,841) 22,004,900 5,096,984 ------------ ------------ ------------ Cash flows from financing activity: Distributions to partners (857,628) (23,231,915) (8,124,588) ------------ ------------ ------------ Net cash used in financing activity (857,628) (23,231,915) (8,124,588) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (300,103) 499,758 (970,375) Cash and cash equivalents: Beginning of year 2,605,486 2,105,728 3,076,103 ------------ ------------ ------------ End of year $ 2,305,383 $ 2,605,486 $ 2,105,728 ============ ============ ============
(See accompanying notes to financial statements) 24 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. ("AEW"), 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 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. At year end 1997, NEIC completed a restructuring plan under which it contributed all of its operations to a newly formed private partnership, NEIC Operating Partnership, L.P., in exchange for a general partnership interest in the newly formed entity. Accordingly, at December 31, 1997, AEW Capital Management, L.P. was wholly owned by NEIC Operating Partnership, L.P. AEW is a subsidiary of AEW Capital Management, L.P. Effective April 1, 1998, NEIC changed its name to Nvest, L.P. and NEIC Operating Partnership, L.P. changed its name to Nvest Companies, L.P. 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. 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 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 1999, $17,000 in 1998, and $17,026 in 1997). 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, 1999 and 1998. New England Securities Corporation ("NESC"), 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 $11,187, $10,287 and $9,669 in 1999, 1998 and 1997, respectively. Fees to Back Bay Advisors, L.P., a wholly-owned subsidiary of Nvest Companies, L.P., for short-term investment advisory services totaled $0, $0 and $5,200, for the same annual periods. 25 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. 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 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 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. 26 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 joint ventures, net of returns of capital and excluding acquisition fees:
Preferential Investment/ Rate of Ownership December 31, Location Return Interest 1999 1998 -------- ------ -------- ----------- ----------- Prentiss Copystar Itasca, IL 11.0% 51.75% $ 2,292,186 $ 2,232,848
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 AEW Real Estate Advisors, Inc. 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. 27 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 AEW Real Estate Advisors, Inc. 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 collectively have a 75% interest in the joint venture. The Partnership committed to make a maximum capital contribution of $2,300,000. 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, 1999, the property is vacant. The Partnership is currently negotiating a long term lease with a single tenant. Summarized Financial Information The following summarized financial information is presented in the aggregate for the joint ventures: Assets and Liabilities
December 31, ---------------------------- 1999 1998 ---------- ----------- Assets Real property, at cost less accumulated depreciation of $423,431 and $832,160 at December 31, 1999 and 1998, respectively $2,355,436 $2,421,223 Other 11,877 30,891 ---------- ---------- 2,367,313 2,452,114 Liabilities 73,813 88,618 ---------- ---------- Net assets $2,293,500 $2,363,496 ========== ==========
28 Results of Operations
Year ended December 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Revenue: Rental income $ 367,942 $2,353,857 $3,883,758 Interest and other income -- 11,666 6,410 ---------- ---------- ---------- 367,942 2,365,523 3,890,168 ---------- ---------- ---------- Expenses: Operating expenses 109,644 1,018,966 1,395,823 Depreciation and amortization 65,787 419,451 766,748 ---------- ---------- ---------- 175,431 1,438,417 2,162,571 ---------- ---------- ---------- Net income $ 192,511 $ 927,106 $1,727,597 ========== ========== ==========
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. 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%. On December 7, 1988, the Partnership entered into a joint venture with an affiliate of The Trammell Crow Company to acquire, rehabilitate and operate an industrial building known as Stemmons Industrial in Farmers Branch, Texas. The Partnership made a capital contribution of $5,307,504. Effective July 1, 1994, this joint venture was dissolved and the venture partner's interest was assigned to the Partnership. Accordingly, since this date, the investment has been accounted for as a wholly-owned property. On September 29, 1997, the Partnership sold the Stemmons Industrial property for a gross sales price of $4,500,000. The Partnership received net proceeds of $4,334,193, after closing costs, and recognized a gain of $248,172 ($5.04 per Limited Partnership Unit). A disposition fee of $135,000 was accrued but not paid to AEW. On October 30, 1997, the Partnership made a capital distribution of $4,334,326 ($88.84 per Limited Partnership Unit) from the proceeds of the sale. The following is a summary of the Partnership's remaining investment in property:
December 31, ------------------------------ 1999 1998 ----------- ----------- Land $ 2,770,056 $ 2,770,056 Buildings, improvements and other capitalized costs 4,908,078 4,903,218 Impairment provision (1,500,000) (1,500,000) Accumulated depreciation and amortization (2,176,751) (2,048,698) Net operating assets (liabilities) 59,719 118,207 ----------- ----------- $ 4,061,102 $ 4,242,783 =========== ===========
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: $412,729 in 2000 and $155,748 in 2001. 29 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:
Year ended December 31, -------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Net income per financial statements $ 365,739 $ 8,384,391 $ 1,588,309 Timing differences: Joint venture earnings (1,666) (2,393,561) 33,639 Property rentals 71,247 595,319 12,550 Depreciation 27,078 15,276 49,547 Expenses -- 7,166 14,332 Gain on sale -- 1,911,966 99,284 ----------- ----------- ----------- Taxable income $ 462,398 $ 8,520,557 $ 1,797,661 =========== =========== ===========
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. 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 224.87 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 Distributions of cash from operations relating to the quarter ended December 31, 1999 were made on January 27, 2000 in the aggregate amount of $138,479 ($2.81 per Limited Partnership Unit). 30 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP Schedule III REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1999
Initial Cost to the Partnership Costs Subsequent to Acquisition ------------------------------------- ------------------------------------- Buildings, improvements, Change in and other Other Capitalized Other Valuation Description Land Capital Costs Net Assets Improvements Net Assets Allowance - ---------------------------------- ---------- ------------- ---------- ------------ ---------- --------- CARSON, CA. (See Note A) - - Industrial bldg. $2,770,056 $4,380,463 $8,285 $527,606 $51,431 ($1,500,000) DALLAS, TX (See Note A) $638,147 $3,966,791 $46,661 $8,581 ($46,672) -- - -Idustrial bldg. ---------- ------------- ---------- ------------ ---------- --------- Total wholly-owned property $3,408,203 $8,347,254 $54,946 $536,187 $4,759 ($1,500,000) ========== ============= ========== ============ ========== ========= ITASCA, IL. - - 51.75% interest in Prentiss Copley/Itasca Assoc. J/V - - Develop and operate ---------- See Note B ---------- ------------ ---------- --------- an industrial building FREDERICK, MD. - - 48.75% interest in Frederick Partners Joint Venture ---------- See Note B ---------- ------------ ---------- --------- - - Develop and operate an apartment complex PETALUMA, CA. - - 50% interest in White Phonic Associates Joint Venture ---------- See Note B ---------- ------------ ---------- --------- - - Develop and operate an industrial building ---------- ------------- ---------- ------------ ---------- --------- Total joint venture investments: ========== ============= ========== ============ ========== ========= Gross Amount at which Carried at Close of Period -------------------------------------- Buildings, improvements, and other Disposal Accum. Depr. Description Land Capital Costs Net Assets of Asset Total & Amort. - ---------------------------------- ---------- -------------- ---------- ------------ ---------- ------------ CARSON, CA. (See Note A) - - Industrial bldg. $2,770,056 $3,408,069 $59,716 0 $6,237,841 ($2,176,739) DALLAS, TX (See Note A) $638,147 $3,975,372 ($11) ($4,613,508) $0 $0 - -Idustrial bldg. ---------- -------------- ---------- ------------ ---------- ------------ Total wholly-owned property $3,408,203 $7,383,441 $59,705 ($4,613,508) $6,237,841 ($2,176,739) ========== ============== ========== ============ ========== ============ ITASCA, IL. - - 51.75% interest in Prentiss Copley/Itasca Assoc. J/V - - Develop and operate ---------- -------------- ---------- 1,595,569 N/A Completed an industrial building 1991 FREDERICK, MD. - - 48.75% interest in Frederick Partners Joint Venture ---------- -------------- ---------- 0 N/A Completed - - Develop and operate Ph I - 1990 an apartment complex Ph I - 1991 PETALUMA, CA. - - 50% interest in White Phonic Associates Joint Venture ---------- -------------- ---------- 0 N/A Completed - - Develop and operate 1991 an industrial building ---------- -------------- ---------- ------------ ---------- ------------ Total joint venture investments: $1,595,569 ========== ============== ========== ============ ========== ============ Status of Date Depreciable Description Construction Acquired Life - ---------------------------------- ------------ --------- ---------- CARSON, CA. (See Note A) - - Industrial bldg. Completed 7/18/88 30 years 1990 DALLAS, TX (See Note A) - -Idustrial bldg. Completed 12/7/88 40 Years 1989 Total wholly-owned property ITASCA, IL. - - 51.75% interest in Prentiss Copley/Itasca Assoc. J/V - - Develop and operate 5/20/91 35 Years an industrial building FREDERICK, MD. - - 48.75% interest in Frederick Partners Joint Venture 03/20/89 27.5 Years - - Develop and operate an apartment complex PETALUMA, CA. - - 50% interest in White Phonic Associates Joint Venture 04/30/90 40 Years - - Develop and operate an industrial building Total joint venture investments:
31 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY SCHEDULE III NOTE A AT DECEMBER 31, 1999
Balance Conversion to Additions to as of Wholly-Owned Lease Additions to Description 01/01/97 Property Commissions Property - ----------------------------------------------------------------------------------------------------------------------------------- Stemmons 4,511,917 0 0 0 Hewson/Wilmington 6,169,161 0 556 0 ---------------------------------------------------------------------------------------- Total Wholly-Owned Property 10,681,078 0 556 0 ======================================================================================== Balance Conversion to Additions to as of Wholly-Owned Lease Additions to Description 01/01/98 Property Commissions Property - ----------------------------------------------------------------------------------------------------------------------------------- Hewson/Wilmington 6,120,495 0 8,577 0 ---------------------------------------------------------------------------------------- Total Wholly-Owned Property 6,120,495 0 8,577 0 ======================================================================================== Balance Conversion to Additions to as of Wholly-Owned Lease Additions to Description 01/01/1999 Property Commissions Property - ----------------------------------------------------------------------------------------------------------------------------------- Hewson/Wilmington 6,291,469 0 4,860 0 ---------------------------------------------------------------------------------------- Total Wholly-Owned Property 6,291,469 0 4,860 0 ======================================================================================== Change in Balance Write down Property Working Disposal as of Description of Property Capital of Asset 12/31/1997 - ---------------------------------------------------------------------------------------------------------------------------------- Stemmons 0 101,591 (4,613,508) 0 Hewson/Wilmington (49,222) 0 6,120,495 --------------------------------------------------------------------------------------- Total Wholly-Owned Property 0 52,369 6,120,495 ======================================================================================= Change in Balance Write down Property Working Disposal as of Description of Property Capital of Asset 12/31/1998 - ---------------------------------------------------------------------------------------------------------------------------------- Hewson/Wilmington 162,397 0 6,291,469 --------------------------------------------------------------------------------------- Total Wholly-Owned Property 0 162,397 6,291,469 ======================================================================================= Change in Balance Write down Property Working Disposal as of Description of Property Capital of Asset 12/31/1999 - ---------------------------------------------------------------------------------------------------------------------------------- Hewson/Wilmington 58,488 0 6,354,817 --------------------------------------------------------------------------------------- Total Wholly-Owned Property 0 58,488 6,354,817 ======================================================================================= 12/31/1996 1997 12/31/97 1997 Accumulated Depreciation Accumulated Disposal Balance per Description Depreciation Amort/Expense Depreciation of Asset G/L @ 12/31/1997 - ----------------------------------------------------------------------------------------------------------------------------------- Stemmons 548,158 (114,312) 662,470 (662,470) 0 Hewson/Wilmington 1,782,688 (136,254) 1,918,942 0 4,201,553 -------------------------------------------------------------------------------------- Total Wholly-Owned Property 2,330,846 (250,566) 2,581,412 4,201,553 ====================================================================================== 12/31/1997 1998 12/31/1998 1998 Accumulated Depreciation Accumulated Disposal Balance per Description Depreciation Amort/Expense Depreciation of Asset G/L @ 12/31/1998 - ------------------------------------------------------------------------------------------------------------------------------------ Hewson/Wilmington 1,918,942 (129,744) 2,048,686 0 4,242,783 -------------------------------------------------------------------------------------- Total Wholly-Owned Property 1,918,942 (129,744) 2,048,686 4,242,783 ====================================================================================== 12/31/1998 1999 12/31/1999 1999 Accumulated Depreciation Accumulated Disposal Balance per Description Depreciation Amort/Expense Depreciation of Asset G/L @ 12/31/1999 - --------------------------------------------------------------------------------------------------------------------------------- Hewson/Wilmington 2,048,686 (128,053) 2,176,739 0 4,178,078 -------------------------------------------------------------------------------------- Total Wholly-Owned Property 2,048,686 (128,053) 2,176,739 4,178,078 ======================================================================================
32 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE III NOTE B - JOINT VENTURES AT DECEMBER 31, 1999
BALANCE AS OF EQUITY IN PERCENT OF DECEMBER 31, INVESTMENT IN INCOME/ DESCRIPTION OWNERSHIP 1996 J/V (LOSS) - ----------------------------------------------------------------------------------------------------------------------------------- Prentiss Copystar 51.75% 1,765,281 0 191,536 Waterford Apartments 48.75% 10,559,789 0 865,614 White Phonic 50% 3,153,986 0 294,197 ----------------------------------------------------------- Investments in Joint Ventures at December 31, 1997: $15,479,056 $1,351,347 =========================================================== BALANCE AS OF EQUITY IN PERCENT OF DECEMBER 31, INVESTMENT IN INCOME/ DESCRIPTION OWNERSHIP 1997 J/V (LOSS) - ------------------------------------------------------------------------------------------------------------------------------------ Prentiss Copystar 51.75% 1,711,204 0 183,843 Waterford Apartments 48.75% 10,163,029 0 517,650 White Phonic 50% 3,092,137 0 (115,365) ------------------------------------------------------------ Investments in Joint Ventures at December 31, 1998: $14,966,370 $586,128 ============================================================ BALANCE AS OF EQUITY IN PERCENT OF DECEMBER 31, INVESTMENT IN INCOME/ DESCRIPTION OWNERSHIP 1998 J/V (LOSS) - ------------------------------------------------------------------------------------------------------------------------------------ Prentiss Copystar 51.75% 1,649,433 2,841 127,505 ------------------------------------------------------------ Investments in Joint Ventures at December 31, 1999: $1,649,433 $2,841 $127,505 ============================================================ BALANCE 1997 AMORTIZATION CASH AS OF OF DEFERRED DISTRIBUTED DECEMBER 31, DESCRIPTION ACQUISITION FEES FROM J/V 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Prentiss Copystar - (245,613) 1,711,204 Waterford Apartments (10,273) (1,252,101) 10,163,029 White Phonic (4,060) (351,986) 3,092,137 ------------------------------------------------------------------------------- Investments in Joint Ventures at December 31, 1997: ($14,333) ($1,849,700) $14,966,370 =============================================================================== BALANCE 1998 AMORTIZATION CASH DISPOSALS AS OF OF DEFERRED DISTRIBUTED 1998 DECEMBER 31, DESCRIPTION ACQUISITION FEES FROM J/V 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Prentiss Copystar -- (245,614) 1,649,433 Waterford Apartments (5,136) (1,054,818) (9,620,725) 0 White Phonic (2,030) (211,419) (2,763,324) 0 ------------------------------------------------------------------------------- Investments in Joint Ventures at December 31, 1998: ($7,166) ($1,511,851) ($12,384,049) $1,649,433 =============================================================================== BALANCE 1999 AMORTIZATION CASH DISPOSALS AS OF DEFERRED DISTRIBUTED 1999 DECEMBER 31, DESCRIPTION ACQUISITION FEES FROM J/V 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Prentiss Copystar -- (184,210) 1,595,569 ------------------------------------------------------------------------------- Investments in Joint Ventures at December 31, 1999: $0 ($184,210) $ 0 $1,595,569 ===============================================================================
33 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, 1999 and 1998 Statements of Operations - For the Years ended December 31, 1999, 1998 and 1997 Statements of Partners' Equity - For the Years ended December 31, 1999, 1998 and 1997 Statements of Cash Flows - For the Years ended December31, 1999, 1998 and 1997 Notes to Financial Statements 34 PRENTISS/COPLEY ITASCA ASSOCIATES FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 35 [LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP] Report of Independent Accountants February 4, 2000 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 at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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, 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 the opinion expressed above. /s/ PricewaterhouseCoopers LLP 36 PRENTISS/COPLEY ITASCA ASSOCIATES BALANCE SHEETS DECEMBER 31, 1999 AND 1998 - --------------------------------------------------------------------------------
1999 1998 ------ ------ (thousands of dollars) Assets Income-producing property $2,387 $2,453 Accruable rental income -- 9 Accrued receivables -- 1 Cash and cash equivalents 12 21 ------ ------ Total assets $2,399 $2,484 ====== ====== Liabilities Accounts payable and other liabilities $ 74 $ 87 Amounts due to affiliates 37 30 ------ ------ Total liabilities 111 117 ------ ------ Partners' equity 2,288 2,367 ------ ------ Total liabilities and partners' equity $2,399 $2,484 ====== ======
The accompanying notes are an integral part of the financial statements. 37 PRENTISS/COPLEY ITASCA ASSOCIATES STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 ----- ----- ----- (thousands of dollars) Rental operations Rental income $ 368 $ 468 $ 462 Property operating expenses 110 126 115 ----- ----- ----- 258 342 347 Interest expense 356 355 355 Depreciation 52 53 53 Amortization 14 18 18 ----- ----- ----- Net loss $(164) $ (84) $ (79) ===== ===== =====
The accompanying notes are an integral part of the financial statements. 38 PRENTISS/COPLEY ITASCA ASSOCIATES STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
Developer CPP 6 CPP 7 Total --------- ------- ------- ------- (thousands of dollars) Partners' equity (deficit), December 31, 1996 $ (175) $ 1,868 $ 837 $ 2,530 Net loss (20) (41) (18) (79) ------- ------- ------- ------- Partners equity (deficit), December 31, 1997 (195) 1,827 819 2,451 Net loss (21) (43) (20) (84) ------- ------- ------- ------- Partners' equity (deficit), December 31, 1998 (216) 1,784 799 2,367 Contributions -- 59 26 85 Net loss (41) (85) (38) (164) ------- ------- ------- ------- Partners equity (deficit), December 31, 1999 $ (257) $ 1,758 $ 787 $ 2,288 ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements. 39 PRENTISS/COPLEY ITASCA ASSOCIATES STATEMENTS OF CASH FLOWS FOR ThE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - --------------------------------------------------------------------------------
1999 1998 1997 ----- ----- ----- (thousands of dollars) Cash flows from operating activities: Net loss $(164) $ (84) $ (79) Adjustment to reconcile net loss to cash used in operating activities: Depreciation and amortization 66 71 71 Non-cash interest 85 -- -- Changes in assets and liabilities: Accruable rental income 9 2 (8) Accrued receivables 1 4 (5) Accounts payable and other liabilities (13) -- 16 Amounts due to affiliates 7 (5) 4 ----- ----- ----- Net cash used in operating activities (9) (12) (1) ----- ----- ----- Net change in cash and cash equivalents (9) (12) (1) Cash and cash equivalents, beginning of year 21 33 34 ----- ----- ----- Cash and cash equivalents, end of year $ 12 $ 21 $ 33 ===== ===== ===== Supplemental information: Interest paid $ 264 $ 355 $ 355 ===== ===== =====
The accompanying notes are an integral part of the financial statements. 40 PRENTISS/COPLEY ITASCA ASSOCIATES NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 ("CPP 7") (23.25%), for the purpose of owning, constructing and operating an industrial building in Itasca, Illinois. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income-producing property The income-producing property, which became operational in September 1991, is recorded at cost. Depreciation on the building and improvements is provided under the straight-line method over an estimated useful life of 35 years. Management of the Partnership reviews the carrying value of the property to determine if circumstances exist indicating an impairment in the carrying value of the investment in income-producing property 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 income-producing property 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. 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. Leasing charges are deferred and amortized over the term of the lease. 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. 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 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. Assets held for leasing purposes are classified as income-producing property. 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. 41 PRENTISS/COPLEY ITASCA ASSOCIATES NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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. INCOME-PRODUCING PROPERTY
1999 1998 ---------- ---------- (thousands of dollars) Land $ 983 $ 983 Building and improvements 1,837 1,837 Deferred leasing charges -- 474 ---------- ---------- 2,820 3,294 Acceumlated depreciation and amortization 433 841 ---------- ---------- $ 2,387 $ 2,453 ========== ==========
4. LEASING ACTIVITES A manufacturer and distributor of high-tech office equipment was the sole lessee of the income-producing property. The tenant vacated the entire building upon expiration of their lease on September 30, 1999. The Partnership is actively seeking to relet the property but has no binding commitments at this time. 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, 1999 and 1998, totaled $8,000 and $11,000, 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 a rate of 11% per annum. The partnership agreement provides for a senior and a junior priority return. In the event of reduced cash flow the senior priority return must be paid and, if necessary, funded from deficit contributions. During 1999, deficit contributions of approximately $85,000 were recorded to satisfy the senior priority return obligations. The junior priority return may accrue and has been accrued by the partnership since September 1999. Amounts due to affiliates at December 31, 1999 consist of the accrued junior priority return. As a result of vacancy in the building, the Partnership's ability to service its obligations has been impaired. The partners are, however, obligated by the partnership agreement to fund all other Partnership obligations, including the preferred returns discussed above, in the event of insufficient cash flow from operations. 42 FINANCIAL STATEMENTS INDEX NO.3 Auditor's Report and Financial Statements of Frederick Partners Report of Independent Auditors from Reznick Fedder & Silverman Balance Sheets - August 6, 1998 and December 31,1997 Statements of Operations - For the Period ended January 1, 1998 through August 6, 1998, and the years ended December 31, 1997 and 1996 Statements of Partners' Capital - For the Period ended January 1, 1998 through August 6, 1998, and the years ended December 3l, 1997 and 1996 Statements of Cash Flows - For the Period ended January 1,1998 through August 6, 1998, and the years ended December 31, 1997 and 1996 Notes to Financial Statements 43 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FREDERICK PARTNERS AUGUST 6, 1998 AND DECEMBER 31, 1997 44 Frederick Partners TABLE OF CONTENTS
PAGE INDEPENDENT AUDITORS' REPORT 3 FINANCIAL STATEMENTS BALANCE SHEETS 4 STATEMENTS OF OPERATIONS 5 STATEMENTS OF PARTNERS' EQUITY 6 STATEMENTS OF CASH FLOWS 7 NOTES TO FINANCIAL STATEMENTS 8
45 [LOGO] Reznick Fedder & Silverman Certified Public Accountants o A Professional Corporation Two Hopkins Plaza o Suite 2100 o Baltimore, Maryland 21201-2911 o Phone (410) 783-4900 o Fax (410) 727-0460 INDEPENDENT AUDITORS' REPORT To the Partners Frederick Partners We have audited the accompanying balance sheets of Frederick Partners as of August 6, 1998 and December 31, 1997, and the related statements of operations, partners' equity and cash flows for the period January 1, 1998 through August 6, 1998, and for the years ended December 31, 1997 and 1996. 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 Frederick Partners as of August 6, 1998 and December 31, 1997, and the results of its operations, changes in partners' equity and its cash flows for the period January 1, 1998 through August 6, 1998, and for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles. /s/ Reznick Fedder & Silverman Baltimore, Maryland January 5, 1999 4520 East West Highway 212 S. Tryon Street Suite 300 Suite 1180 Bethesda, MD 20814-3319 Charlotte, NC 28281-8100 Phone (301) 652-9100 Phone (704) 332-9100 745 Atlantic Avenue Two Premier Plaza, Suite 500 Suite 800 5605 Glenridge Drive Boston, MA 02111-2735 Atlanta, GA 31150-1298 Phone (617) 423-5855 Phone (770) 844-0644 46 Frederick Partners BALANCE SHEETS August 6, 1998 and December 31, 1997
1998 1997 ----------- ----------- ASSETS INVESTMENT IN REAL ESTATE Land $ 3,099,120 $ 3,099,120 Building and improvements 12,919,662 12,919,662 Personal property 1,601,830 1,601,830 ----------- ----------- 17,620,612 17,620,612 Less accumulated depreciation 6,013,592 5,695,652 ----------- ----------- 11,607,020 11,924,960 Cash -- 341,988 Tenant receivables -- 2,120 Tenants' security deposits -- 55,241 Prepaid expenses 259,422 149,521 ----------- ----------- $11,866,442 $12,473,830 =========== =========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES Accounts payable $ 72,705 $ 6,047 Accrued expenses 35,139 -- Deferred rental income 225,630 154,323 Accrued distributions 2,787,044 2,709,187 Accrued guaranteed payments 1,500,717 1,458,793 Tenants' security deposits payable 56,019 55,241 Due to affiliates -- 18,197 ----------- ----------- 4,677,254 4,401,788 PARTNERS' EQUITY 7,189,188 8,072,042 ----------- ----------- $11,866,442 $12,473,830 =========== ===========
See notes to financial statements 47 Frederick Partners STATEMENTS OF OPERATIONS For the period ended January 1, 1998 through August 6, 1998 and the years ended December 31, 1997 and 1996
1998 1997 1996 ---------- ---------- ---------- Revenue Rent $1,759,025 $2,794,683 $2,629,810 Other lease related income 64,493 118,158 96,688 Interest 6,399 5,796 7,153 ---------- ---------- ---------- Total revenue 1,829,917 2,918,637 2,733,651 ---------- ---------- ---------- Expenses Operating expenses Advertising and promotion 28,787 53,690 63,263 Salaries 189,487 303,412 262,844 Administrative 54,813 57,442 61,019 Management fee 63,789 102,152 95,681 Maintenance 145,964 251,807 270,429 Utilities 73,378 93,679 91,077 Real estate taxes 166,778 275,285 247,279 Insurance 13,707 24,686 27,764 Depreciation 317,868 613,371 675,378 Guaranteed payments 486,236 797,252 776,988 ---------- ---------- ---------- Total operating expenses 1,540,807 2,572,776 2,571,722 ---------- ---------- ---------- EXCESS OF REVENUE OVER EXPENSES $ 289,110 $ 345,861 $ 161,929 ========== ========== ==========
See notes to financial statements 48 Frederick Partners STATEMENTS OF PARTNERS' EQUITY For the period ended January 1, 1998 through August 6, 1998 and the years ended December 31, 1997 and 1996
Frederick Frederick Copley Bonuto Bozzuto Two Copley Pension Limited Limited Pension Properties Total Partnership Partnership Properties VI VII Equity ------------ ------------ ------------- ------------ ------------ Partners' equity, (deficit), December 31, 1995 $ (110,796) $ (63,178) $ 7,996,457 $ 2,665,472 $ 10,487,955 Distributions -- -- (1,082,233) (360,745) (1,442,978) Excess of revenue over expenses -- -- 121,477 40,482 161,929 ------------ ------------ ------------ ------------ ------------ Partners' equity (deficit) December 31, 1996 (110,796) (63,178) 7,035,671 2,345,209 9,206,906 Distributions -- -- (1,110,542) (370,183) (1,480,725) Excess of revenue over expenses -- -- 259,396 86,465 345,861 ------------ ------------ ------------ ------------ ------------ Partners' equity (deficit), December 31, 1997 (110,796) (63,178) 6,184,525 2,061,491 8,072,042 Distributions -- -- (878,973) (292,991) (1,171,964) Excess of revenue over expenses -- -- 219,724 69,386 289,110 ------------ ------------ ------------ ------------ ------------ Partners' equity (deficit), December 31, 1998 $ (110,796) $ (63,178) $ 5,525,276 $ 1,837,886 $ 7,189,188 ============ ============ ============ ============ ============
See notes to financial statements 49 Frederick Partners STATEMENTS OF CASH FLOWS For the period ended January 1, 1998 through August 6, 1998 and the years ended December 31, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- Cash flows from operating activities Excess of revenue over expenses $ 289,110 $ 345,861 $ 161,929 Adjustments to reconcile excess of revenue over expenses to net cash provided by operating activities Depreciation 317,868 613,371 675,378 Changes in assets and liabilities Decrease in tenant receivables 2,120 2,217 1,792 (Increase) decrease in prepaid expenses (109,901) 930 (25,860) Increase (decrease) in deferred rental income 71,307 84,943 (45,542) Increase (decrease) in accounts payable 66,730 5,218 (25,124) Net security deposits received 56,019 -- 4,239 Increase in accrued guaranteed payments 41,924 211,821 204,391 Increase in accrued expenses 35,139 -- -- Increase (decrease) in due to affiliates (18,197) 3,676 (36,734) ----------- ----------- ----------- Net cash provided by operating activities 752,119 1,268,037 914,469 ----------- ----------- ----------- Cash flows from investing activities: Capital additions -- (13,600) -- ----------- ----------- ----------- Net cash used in investing activities -- (13,600) -- ----------- ----------- ----------- Cash flows from financing activities Capital distributions paid (1,094,107) (1,087,342) (1,063,396) ----------- ----------- ----------- Net cash used in financing activities (1,094,107) (1,087,342) (1,063,396) ----------- ----------- ----------- NET (DECREASE) INCREASE IN CASH (341,988) 167,095 (148,927) Cash, beginning 341,988 174,893 323,820 ----------- ----------- ----------- Cash, ending $ -- $ 341,988 $ 174,893 =========== =========== =========== Supplemental disclosure of cash flow information Cash paid during the year for guaranteed payments $ 444,312 $ 585,431 $ 572,597 =========== =========== ===========
See notes to financial statements 50 Frederick Partners NOTES TO FINANCIAL STATEMENTS August 6, 1998 and December 31, 1997 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Frederick Partners (the Partnership) was formed as a general partnership under the laws of the State of Maryland on March 20, 1989, for the purpose of constructing, owning and operating a rental housing project. The project consists of 314 units located in Frederick County, Maryland, and is operating as Crystal Park. During 1990, the construction of the first phase (Phase I) was completed and rental operations commenced. During 1991,construction of a second phase of the project (Phase II) was completed and rental operations commenced. On August 6,1998, Copley Pension Properties VI and VII (CPPVI and VII), sold their entire interest in the partnership and Frederick Bozzuto Limited Partnership (FBLP) and Frederick Bozzuto Two Limited Partnership (FBLP Two) sold 34% of their 35% interest in the Partnership and distributed the remaining 1% to an affiliate. Prior to such sale, all leases between the Partnership and tenants of the property were operating leases. 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 mounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Investment in Real Estate Investment in real estate is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using accelerated methods. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. Income Taxes No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. 51 Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED August 6, 1998 and December 31, 1997 NOTE B - SALE OF PARTNERSHIP INTEREST At the close of business on August 6, 1998, CPP VI and VII, sold their entire interest in the Partnership and FBLP and FBLP Two sold 34% of their 35% interest in the Partnership and distributed the remaining 1% to an affiliate. The contract sales price for this transactions was $21,800,000. Property and equipment transferred had a net book value of $11,607,020. In addition, assets totaling $259,422 and liabilities totaling $389,493, which includes tenant security deposits of $56,019, were transferred in the sale to the new partners. The additional liabilities of $4,287,761 were assumed by the selling partners. NOTE C - RELATED PARTY TRANSACTIONS Expenses Incurred and Reimbursed to Affiliates The Partnership reimbursed payroll and other costs incurred by Bozzuto & Associates, Inc., an affiliate of Frederick Bozzuto Limited Partnership and Frederick Bozzuto Two Limited Partnership, general partners, for various administrative and operating services relating to the project and performed by their employees. During 1998, 1997 and 1996, $189,922, $345,675, and $299,261 were incurred, respectively. At December 31, 1997, $9,489 remained unpaid. Management Fees The Partnership is required to pay an annual property management fee to Bozzuto Management Company, an affiliate of Frederick Bozzuto Limited Partnership and Frederick Bozzuto Two Limited Partnership, general partners, in an mount equal to 3.5% of gross receipts collected. Management fees of $63,789, $102,152 and $95,681 were expensed in 1998, 1997 and 1996, respectively. At December 31, 1997, $8,708 remained unpaid. NOTE D - PARTNERS' EQUITY The acquisition and development of Phase I was funded by capital contributions from Copley Pension Properties VI and VII, (CPP VI and VII), general partners, in the amounts of $9,000,000 and $3,000,000, respectively. The amended and restated Partnership agreement (the Agreement) provides for capital contributions to be characterized as senior and junior capital. CPP VI capital consists of $6,750,000 of senior capital and $2,250,000 of junior capital. CPP VII capital consists of $2,250,000 of senior capital and $750,000 of junior capital. Capital contributed by both CPP VI and CPP VII has been contributed pro rata, whereby 75% has been characterized as Phase I senior capital and 25% as Phase I junior capital. 52 Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED August 6, 1998 and December 31, 1997 NOTE D - PARTNERS' EQUITY (Continued) The Agreement provided for both a "Senior and Junior Priority Return," on a monthly basis, which was calculated at the rate of 10.09% per annum on the outstanding capital. The Phase I Priority Returns were payable monthly from Operating Cash Flow as defined in the Agreement; however, (a) to the extent Senior Priority Returns are required to be paid currently, they will be funded, if necessary, Out of the proceeds of Deficit Contributions and Default Capital Contributions as defined in the Agreement, and (b) to the extent the full amount of the Junior Priority Return cannot be made from such sources on a monthly basis, the amount of the Junior Priority Return will accrue with interest compounded monthly. At August 6, 1998 and December 31, 1997, the Phase I Junior Priority Return (including accrued interest of $1,179,935 and $1,015,108, respectively) and Senior Priority Returns (including accrued interest at $2,928 and $5,775, respectively) payable totaled $2,798,099 (of which $2,111,528 was due to CPP VI and $686,571 was due to CPP VII), and $2,827,913 (of which $2,132,315 was due to CPP VI and $695,598 was due to CPP VII), respectively. The acquisition and development of Phase II was funded by capital contributions from CPP VI and CPP VII in the amounts of $5,100,000 and $1,700,000, respectively. The Agreement provides for capital contributions to be characterized as senior and junior capital. CPP VI capital consists of $3,825,000 of senior capital and $1,275,000 of junior capital. CPP VII capital consists of $1,275,000 of senior capital and $425,000 of junior capital. Capital contributed by both CPP VI and CPP VII has been contributed pro rata, whereby 75% has been characterized as Phase II senior capital and 25% as Phase II junior capital. The Agreement provided for both a Senior and Junior Priority Return, on a monthly basis, which was calculated at the rate of 10.09% per annum on their outstanding capital. The Phase II Priority Returns were payable monthly from Operating Cash Flow as defined in the Agreement, but, (a) to the extent Senior Priority Returns were required to be paid currently, they will be funded, if necessary, out of the proceeds of Deficit Contributions and Default Capital Contributions as defined in the Agreement, and (b) to the extent the full amount of the Junior Priority Return was not made from such sources on a monthly basis, the amount of the Junior Priority Return accrued with interest compounded monthly. 53 Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED August 6, l998 and December 3l, 1997 NOTE D - PARTNERS' EQUITY (Continued) At August 6,1998 and December 31, 1997, the Phase II Junior Priority Return (including accrued interest of $448,808 and $368,415, respectively) and Senior Priority Returns payable totaled $1,489,662 (of which $1,114,564 was due to CPP VI and $375,098 was due to CPP VII), and $1,340,067 (of which $1,000,804 was due to CPP VI and $339,263 was due to CPP VII). Effective August 7,1998, the Partnership is no longer subject to this agreement. Subsequent to the financial statement date and in connection with the August 6, 1998 sale of its partnership interests, CPP VI and VII received $21,669,858 out of the sale proceeds and applied it to the repayment of the following accounts: Accrued distributions $ 2,787,044 Accrued guaranteed payments 1,500,717 Return of initial capital contribution 17,382,097 ----------- $21,669,858 ===========
Additionally, the Partnership distributed the remaining operating proceeds in the amount of $268,955 to CPP VI and VII. NOTE E - RECONCILIATION OF FINANCIAL STATEMENTS TO TAX RETURN The following is a reconciliation of the excess of revenue over expenses and partners' equity per the financial statements to the tax basis excess of revenue over expenses and partners' equity for the period ended August 6, 1998, and the year ended December 31, 1997 and 1996.
1998 1997 1996 --------- --------- --------- Excess of revenue over expenses (financial statement basis) $ 289,110 $ 345,861 $ 161,929 Deferred rental income (154,322) 84,943 (45,542) Real estate taxes deductible under IRS Code Section 461 138,097 (908) (27,098) --------- --------- --------- Tax basis excess of revenue over expenses $ 272,885 $ 429,896 $ 89,289 ========= ========= =========
54 Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED August 6, 1998 and December 31, 1997 NOTE B-RECONCILIATION OF FINANCIAL STATEMENTS TO TAX RETURN (Continued)
1998 1997 1996 ----------- ----------- ----------- Partners' equity (financial statement basis) $ 7,189,188 $ 8,072,042 $ 9,206,906 Deferred rental income -- 154,323 69,380 Real estate taxes deductible under IRS Code Section 46l -- (138,097) (137,189) Net adjustment for technical termination (7,189,188) -- -- ----------- ----------- ----------- Tax basis $ -- $ 8,088,268 $ 9,139,097 =========== =========== ===========
55 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. 56 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 29, 2000 By: /s/ Alison Husid Cutler ------------------------ Alison Husid Cutler 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, Chief Executive Officer and /s/ Alison Husid Cutler Director of the Managing March 29, 2000 - -------------------------- Alison Husid Cutler General Partner Vice President and /s/ Pamela J. Herbst Director of the Managing March 29, 2000 - -------------------------- Pamela J. Herbst General Partner Vice President and /s/ J. Grant Monahon Director of the Managing March 29, 2000 - -------------------------- J. Grant Monahon General Partner /s/ James J. Finnegan Vice President of the Managing March 29, 2000 - -------------------------- James J. Finnegan General Partner Treasurer and Principal Financial /s/ Karin J. Lagerlund and Accounting Officer of the March 29, 2000 - -------------------------- Karin J. Lagerlund Managing General Partner 57 EX-27 2 FINANCIAL DATA SCHEDULE
5 12-mos Dec-31-1999 Dec-31-1999 2,305,383 0 0 0 0 2,305,383 5,656,671 0 7,962,054 89,031 1,369,577 0 0 0 6,503,446 7,962,054 854,117 992,399 268,902 268,902 357,758 0 0 365,739 0 365,739 0 0 0 365,739 7.42 7.42 -----END PRIVACY-ENHANCED MESSAGE-----