-----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, Ixv/mQJPPJFPuA1ewwXBwehY+Vpcgnpx5YwmIbHsbwsOVV1MrgVo7IuN0zr56z8O DNE72KxvATGHRcOk9evjwQ== 0000927016-98-001286.txt : 19980401 0000927016-98-001286.hdr.sgml : 19980401 ACCESSION NUMBER: 0000927016-98-001286 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE 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-K405 SEC ACT: SEC FILE NUMBER: 000-17807 FILM NUMBER: 98581090 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-K405 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, 1997 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, 1997 the Partnership is invested in the four real property investments described below. During 1990, a joint venture in which the Partnership was a partner sold its interest in a fifth 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 sixth investment located in Phoenix, Arizona. The Partnership made a distribution to the Limited Partners of $182.85 per Unit. During 1997, the Partnership sold a seventh investment located in Farmers Branch, Texas. The Partnership made a capital distribution to the Limited Partners of $88.84 per unit. 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 increase its maximum commitment to $8,085,000. The Partnership made capital contributions totaling $7,774,402. As of December 31, 1991, because of the developer partner's inability to fund its share of capital contributions, the Partnership assumed 100% ownership of the joint venture's assets, which consist primarily of approximately 5.77 acres of land in Carson, California and a 115,732 square foot multi-tenant industrial building located thereon. As of December 31, 1997, the building was 100% leased. B. Apartment Complex in Frederick, Maryland ("Waterford ---------------------------------------------------- Apartments"). ------------- On March 20, 1989 the Partnership acquired a 48.75% 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 16.25% interest, and Frederick Bozzuto Limited Partnership. On October 23, 1990 the Partnership agreed to increase its maximum commitment from $9,000,000 to $14,100,000 of which $10,575,000 is considered Senior Capital and $3,525,000 is considered Junior Capital. As of December 31, 1997, the Partnership had contributed $14,099,978 to the capital of the joint venture. The joint venture agreement entitles the Partnership and the Affiliate to receive a preferred return on their respective invested capital at the rate of 10.09% per annum. Such preferred return will be payable currently until the Partnership and the Affiliate have received an aggregate of $687,471; thereafter, the preferred return on the Senior Capital will be payable currently and the preferred return on the Junior Capital will accrue and bear interest at the rate of 10.09% per annum, compounded monthly, if sufficient cash flow is not available therefor. In the event of a sale or refinancing prior to the tenth anniversary of the joint venture agreement, the Partnership would be entitled to have 25% of its contribution repaid without premium and to have the remaining 75% repaid subject to a premium designed to preserve the stipulated rate of return through the ninth anniversary of the joint venture agreement. The joint venture agreement also entitles the Partnership to receive 48.75% of remaining cash flow and 48.75% of sale and refinancing proceeds following the return of the Partnership's and the Affiliate's equity. On February 11, 1998, Frederick Bozzuto Limited Partnership filed a declaratory judgment action in the Circuit Court for Baltimore County. The Partnership and the Affiliate had declared that an impasse under the joint venture agreement existed because of a disagreement between the Partnership and the Affiliate, on the one hand, and Frederick Bozzuto Limited Partnership, on the other hand, with respect to the contents of the business plan to be adopted by the joint venture for 1998. The Partnership and the Affiliate had sought to effect the dissolution of the joint venture pursuant to the terms of the joint venture agreement. The declaratory judgment action asks the Court to hold that no impasse (and, hence, no right to dissolve the joint venture) can exist with respect to a disagreement over the contents of the annual business plan of the joint venture. The joint venture owns approximately 16.35 acres of land improved with a 295,074 square foot, 314-unit apartment complex, which was developed in two phases between 1989 and 1991. As of December 31, 1997, this complex was approximately 93% leased. C. Industrial Building in Petaluma, California ("White --------------------------------------------------- Phonic"). --------- On April 30, 1990, the Partnership acquired a 50% interest in a joint venture with a partnership whose principals are William White and George Vila. As of December 31, 1997, the Partnership had contributed $3,294,860 to the capital of the joint venture. The maximum commitment is $3,450,000. The joint venture agreement entitles the Partnership to receive monthly preferred return payments at the rate of 10% per annum, of which a minimum of 9% is payable currently. If sufficient cash flow is not available therefor, up to 1% per annum may accrue and bear interest at the rate of 10% per annum for up to ten years. The joint venture agreement also entitles the Partnership to receive 50% of the remaining cash flow and 50% of sale and refinancing proceeds following the return of the Partnership's equity. The joint venture owns approximately 2.91 acres of land and has completed construction thereon of a single-story light industrial building containing approximately 35,100 square feet. As of December 31, 1997, the building was 100% leased to a single tenant. D. 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, 1997, the Partnership had contributed $2,296,411 to the capital of the joint venture, of which $63,563 had been returned to the Partnership. Of the capital contributed and not returned, $1,542,848 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 treasury 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. As of December 31, 1997, the building was 100% leased to a single tenant for a term which expires in 1999. The tenant has an option that commenced in September, 1995 to purchase the facility at fair market value. As of December 31, 1997, the tenant has not expressed any interest in exercising the option. 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 1998 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 $75,876 6 Practical Packaging 26,647 $4.20 Jun, 1998 N/A Packaging Carson, CA Continental Logistics 12,283 $5.16 Feb, 1998 M-T-M Distribution O-Super Express 18,253 $4.80 Jun, 2000 N/A Distribution Del Monte 26,545 $5.40 Dec, 1999 Two 5 year Fruit and Fruit Products Continental Wire 11,682 $4.44 Dec, 1999 N/A Wire Fabrication Haggen Dazs 12,000 $6.48 Dec, 1998 N/A Ice Cream Apartment Complex in $276,192 N/A N/A N/A N/A N/A N/A N/A Frederick, MD Industrial Building, $42,120 1 Phonic Ear 35,100 $12.88 May, 2008 Yes Hearing Products Petaluma, CA Industrial Building, $69,975 1 Mita Copystar of America, 70,535 $5.19 Sept, 1999 None Photocopier Itasca, IL Inc. Distributor - ------------------------------------------------------------------------------------------------------------------------------------
The following table sets forth for each of the last five years the gross leasable area, occupancy rates, rental revenue, and net effective rent for the Partnership's properties: - -------------------------------------------------------------------------------- Gross Rental PROPERTY Leasable Year-End Revenue Net Effective Area Occupancy Recognized Rent ($/sf/yr)* - -------------------------------------------------------------------------------- Industrial Building in Carson, CA - ---------------------------------- 1993 115,732 100% $639,297 $5.52 1994 115,732 100% $641,008 $5.54 1995 115,732 89% $620,300 $6.58 1996 115,732 100% $709,199 $7.08 1997 115,732 100% $752,941 $6.51 Apartment Complex in Frederick, MD - ---------------------------------- 1993 295,074 91% $2,487,586 $9.16 1994 295,074 96% $2,551,410 $9.25 1995 295,074 94% $2,661,022 $9.57 1996 295,074 97% $2,726,498 $9.70 1997 295,074 93% $2,912,841 $10.50 Industrial Building, Petaluma, CA - --------------------------------- 1993 35,100 100% $416,146 $11.86 1994 35,100 100% $416,146 $11.86 1995 35,100 100% $416,146 $11.86 1996 35,100 100% $416,146 $11.86 1997 35,100 100% $429,242 $12.23 Industrial Building, Itasca, IL - ------------------------------- 1993 70,535 100% $467,000 $6.62 1994 70,535 100% $475,000 $6.73 1995 70,535 100% $479,000 $6.79 1996 70,535 100% $492,000 $6.98 1997 70,535 100% $462,000 $6.55 - -------------------------------------------------------------------------------- * Net effective rent calculation is based on average occupancy during the respective years. Following is a schedule of lease expirations for each of the next ten years for the Partnership's properties based on the annual contract rent in effect at December 31, 1997:
- ----------------------------------------------------------------------------------------------------------------- TENANT AGING REPORT Property # of Lease Total Total Percentage of Expirations Square Feet Annual Rental Gross Annual Rental* - ----------------------------------------------------------------------------------------------------------------- Industrial Building in Carson, CA - ---------------------------------- 1998 4 59,222 $300,204 51% 1999 2 38,227 $196,411 34% 2000 1 18,253 $88,709 15% 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% Apartment Complex in Frederick, MD - ---------------------------------- 1998 N/A N/A N/A N/A 1999 N/A N/A N/A N/A 2000 N/A N/A N/A N/A 2001 N/A N/A N/A N/A 2002 N/A N/A N/A N/A 2003 N/A N/A N/A N/A 2004 N/A N/A N/A N/A 2005 N/A N/A N/A N/A 2006 N/A N/A N/A N/A 2007 N/A N/A N/A N/A Industrial Building, Petaluma, CA - --------------------------------- 1998 0 0 $0 0% 1999 0 0 $0 0% 2000 0 0 $0 0% 2001 0 0 $0 0% 2002 1 35,100 $450,333 100% 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% Industrial Building, Itasca, IL - ------------------------------- 1998 0 0 $0 0% 1999 1 70,535 $374,160 100% 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% - -----------------------------------------------------------------------------------------------------------------
* Does not include expenses paid by tenants. 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 - --------------------------------------------------------------------------------------------------------------------- Apartment Complex in Frederick, MD - ---------------------------------- Building & Improvements $ 2,680,594 N/A 150% DB 15 $1,436,726 Building & Improvements 10,239,068 3.64% SL 27.5 2,668,709 ---------- --------- Total Depreciable Assets $12,919,662 $4,105,435 Industrial Building in Petaluma, CA - ----------------------------------- Building & Improvements $2,141,214 3.18% SL 31.5 $444,477 Building Improvements 295,617 6.67% SL 15 128,122 -------- -------- Total Depreciable Assets $2,436,831 $572,599 Industrial Building in Carson, CA - --------------------------------- Building $3,727,028 2.50% SL 40 $752,815 ---------- -------- Total Depreciable Assets $3,727,028 $752,815 Industrial Building in Itasca, IL - --------------------------------- Building $2,121,478 2.50% SL 40 $333,084 ----------- -------- Total Depreciable Assets $2,121,478 $333,084 Total Depreciable Assets $21,204,999 $5,763,933 =========== ========== - ---------------------------------------------------------------------------------------------------------------------
SL = Straight Line DB = Declining Balance Following is information regarding the competitive market conditions for each of the Partnership's properties. This information has been gathered from sources deemed reliable. However, the Partnership has not independently verified the information and, as such, cannot guarantee its accuracy or completeness: Industrial Building in Carson, California - ----------------------------------------- The property is located within the greater Los Angeles industrial market. During 1997, the supply and demand balance in the Los Angeles industrial market remained in equilibrium, while the years of supply grew from 2.2 years in 1996 to 2.7 years in 1997. Net absorption in the Los Angeles County metropolitan area during 1997 was 1.8%, a decrease from the 3.1% recorded in 1996. The 1997 industrial vacancy rate at year-end 1997 was 6.7%, an improvement from the 8.2% rate recorded at the close of 1996. Also indicative of the metro area's improving economy is a falling jobless rate, which recently fell to 6.3%. Industrial Building, Itasca, Illinois. - ------------------------------------- This industrial building is located in the metropolitan Chicago industrial market, where employment is approximately 1.7% higher than in 1996. The jobless rate at year-end 1997 stood at approximately 4.6%, and labor force growth continues to accelerate. Over the past year, years of supply in the metropolitan Chicago industrial market fell from 6.4 years to 4.3 years. The year-end 1997 industrial vacancy rate is expected to be 10.6%, up from 10.1% recorded at the close of 1996. Available space in the property's submarket, DuPage County, climbed over 400,000 square feet in 1996 to approximately 5.9 million square feet. Apartment Complex in Frederick, Maryland. - ---------------------------------------- This apartment complex is located in the southwestern section of the city of Frederick, Maryland, which is approximately 50 miles from both Washington, D.C. and Baltimore, Maryland. Demand for office space is shifting from northern Virginia toward suburban Maryland, which is prompting office construction in the area. This could have a positive effect on the Frederick apartment market. Average rental rates in the Frederick market increased by approximately 5% - 7% between 1996 and 1997, as businesses continue to move up the I-270 corridor, positively impacting the Frederick market. Industrial Building, Petaluma, California - ----------------------------------------- The property is located in the Sonoma County industrial market, approximately 40 miles north of San Francisco. Demand for R&D/flex properties continues to be strong in the Sonoma County area. As of September 1997, the Sonoma County industrial market was 4.6% vacant, while Petaluma, the leading submarket, was 2.4% vacant. This rate was a decrease from the 4.0% recorded at year-end 1996. Most of the area's growth has been fueled by growth in telecommunications, software, computer hardware and related service firms. However, over the last year, vacancy rates in the market fell from 9.15% at the end of 1996 to approximately 8.4% at year-end 1997. Furthermore, sales activity in Northeast DuPage County during the first half of 1997 was 33% greater than sales activity during the second half of 1996. Item 3. Legal Proceedings. ----------------- A partner in a joint venture in which the Partnership holds an interest has filed a declaratory judgment action with respect to certain provisions of the joint ventrure agreement. See Item 1.A. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. PART II ------- Item 5. 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, 1997, there were 6,482 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, 1997, cash distributions paid in 1997 or distributed after year end with respect to 1997 to the Limited Partners as a group totaled $8,111,492, including $4,334,326 of returned capital from the proceeds of a property sale and $968,442 of returned capital from original working capital reserves. For the year ended December 31, 1996, cash distributions paid in 1996 or distributed after year end with respect to 1996 to the Limited Partners as a group totaled $2,062,756. Cash distributions exceeded net income in 1997 and 1996 and therefore resulted in a reduction of partners' capital. Cash distributions in 1997 exceeded cash provided by operating activities. Cash distributions in 1996 approximated cash provided by operating activities. Reference is made to the Partnership's Statement of Partners' Capital (Deficit) and Statement of Cash Flows in Item 8 hereof. 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 12/31/97(1) 12/31/96 12/31/95(2) 12/31/94(3) 12/31/93 ----------------------------------------------------------------------------------------------------- Revenues $2,688,336 $2,250,424 $2,662,452 $5,885,003 $2,674,282 Net Income (Loss) $1,588,309 $1,186,133 $(206,204) $4,677,407 $1,778,797 Net Income (Loss) per Limited Partnership Unit $ 32.23 $ 24.07 $ (4.18) $ 94.91 $ 36.10 Total Assets $22,706,302 $29,099,680 $30,094,908 $32,766,653 $39,603,994 Total Cash Distributions per Limited Partnership Unit, including amounts distributed after year end with respect to such year $ 166.26 $ 42.28 $ 50.00 $ 237.73 $ 54.74
(1) Revenues and net income in 1997 include a gain of $248,172 on the sale of the Stemmons Industrial property. (2) Net loss in 1995 includes a provision of $1,500,000 to recognize the impairment of a real estate investment. (3) Revenues and net income in 1994 include a gain of $2,869,376 on the sale of the Lakewood property. 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 four investments described in Item 1 hereof. In addition, one investment was sold in each of 1990, 1994 and 1997. Through December 31, 1997, capital of $16,573,771 ($339.71 per limited partnership unit) has been returned to the limited partners; $15,605,329 as a result of sales and $968,442 in 1997, as a result of a discretionary reduction of original working capital previously held in reserves. On September 29, 1997, Stemmons Industrial located in Farmers Branch, Texas was sold to an institutional buyer unaffiliated with the Partnership for $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 29, 1997, the Partnership made a capital distribution of $4,334,326 ($88.84 per limited partnership unit) from the proceeds of the sale. Simultaneously, an additional capital distribution of $968,442 ($19.85 per limited partnership unit) was made from original working capital previously held in reserves. At December 31, 1997, the Partnership had $3,538,379 in cash, cash equivalents and short-term investments, of which $536,175 was used for cash distributions to partners on January 29, 1998; 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 short-term and real estate investments. Distributions of cash from operations relating to the first three quarters of 1997 were made at the annualized rate of 5.5% on the adjusted capital contribution. The fourth quarter distribution of cash from operations was made at the annualized rate of 6.25% on the weighted average capital contribution. Also during the fourth quarter of 1997, a distribution of $14.98 per limited partnership unit was made from operational cash previously held in reserves. During 1996, quarterly distributions of cash from operations were made at the annualized rate of 5.5% on the adjusted capital contribution. The carrying value of real estate investments in the financial statements at December 31, 1997 is at depreciated cost, or if the investment's carrying value is determined not to be recoverable through expected undiscounted future cash flows, the carrying value is reduced to estimated fair market value. The fair market value of such investments is further reduced by the estimated cost of sale for properties held for sale. Carrying value may be greater or less than current appraised value. At December 31, 1997, the appraised value of each of the Partnership's real estate investments exceeded their related carrying value by an aggregate of approximately $8,558,000. The current appraised value of real estate investments has been estimated by the Managing General Partner and is generally based on a combination of traditional appraisal approaches performed by the Partnership's advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the 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. The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Partnership's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions or engage in normal business operations. The Managing General Partner and its affiliates are assessing the modifications or replacements of its software that may be necessary for its computer systems to function properly with respect to the dates in the year 2000 and thereafter. The general partner and its affiliates do not believe that the cost of either modifying existing software or converting to new software will be significant or that the Year 2000 Issue will pose significant operational problems. Results of Operations - --------------------- Form of Real Estate Investments The Wilmington Industrial investment is a wholly-owned property. Effective July 1, 1994, the Stemmons Industrial joint venture investment was converted to a wholly-owned property and subsequently sold in September 1997. The remaining investments in the portfolio are joint ventures. Operating Factors The Partnership's three industrial properties (Prentiss Copystar, Wilmington and White Phonic) were 100% leased at December 31, 1997 and December 31, 1996. As discussed above, the Partnership sold its Stemmons Industrial investment on September 29, 1997, and recognized a gain of $248,172. Stemmons Industrial was vacant at the time of sale, as it had been since February 1996, with the expiration of a short term lease for 82% of the space. During the second quarter of 1995, the Managing General Partner determined the Partnership would likely not recover the carrying value of its investment in the Wilmington Industrial property over the projected holding period. Accordingly, the carrying value was reduced to estimated net fair market value, with a charge to operations of $1,500,000. Occupancy at Waterford Apartments, the Partnership's multi-family residential property, was at 93% occupancy at December 31, 1997, down from 97% at December 31, 1996. Investment Activity Interest income on cash equivalents and short-term investments increased by approximately $7,000 compared to 1996 due primarily to higher average investment balances as a result of the temporary investment of the receipt of the Stemmons Industrial sales proceeds. Interest income on short-term investments and cash equivalents decreased between 1996 and 1995, due primarily to lower average investment balances and lower average yields. 1997 Compared to 1996 Exclusive of net losses from operations from Stemmons Industrial of ($172,798) in 1997 and ($242,558) in 1996, total real estate operations for 1997 was $1,698,187, an increase from $1,567,860 for the comparable period of 1996. Operating results at Waterford Apartments increased by $142,000 primarily due to higher rental rates combined with a decrease in depreciation expense related to personal property that became fully depreciated. These improvements in operating results were partially offset by an increase in property operating expenses primarily due to increases in salary expense and real estate taxes. Operating results at Prentiss also improved, by approximately $29,000, due to a reduction in real estate taxes combined with a decrease in amortization expense related to leasing commissions that became fully amortized. Conversely, operating income at Wilmington decreased approximately $55,000, primarily due to higher legal expenses and an allowance for bad debt associated with long outstanding tenant receivables. Depreciation expense also increased due to the addition of tenant improvements in the second half of 1996. Cash flow from operations did not change significantly between the two periods ended December 31, 1997 and December 31, 1996. 1996 Compared to 1995 Total real estate operations for 1996 was $1,325,302, a decrease from $1,432,144 for 1995, exclusive of the investment valuation allowance in 1995. Operating income at Stemmons Industrial decreased $491,000 due to lower rental revenue and higher expenses as a result of the property being vacant for the majority of 1996. This decrease was partially offset by an increase in operating income of $364,000 from Wilmington Industrial due to the increase in occupancy, combined with lower depreciation and amortization expense since certain assets had been fully depreciated. Cash flow from operations decreased by $523,000 from 1995 to 1996. This decrease was largely consistent with the investment results discussed above, combined with changes in property working capital. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the Managing General Partner. General and administrative expenses consist primarily of real estate appraisal, printing, legal, accounting and investor servicing fees. 1997 Compared to 1996 The Partnership management fee increased approximately $75,000 between 1997 and 1996 due to management fees incurred due to a special distribution of previously undistributed operating reserves, and to the increase in the fourth quarter 1997 distribution rate. General and administrative expenses decreased approximately $22,000 primarily due to a decrease in professional fees for 1997 which was the result of a reduction in accounting, legal and appraisal fees. 1996 Compared to 1995 The Partnership management fee decreased approximately $38,000 between 1996 and 1995 due to a decrease in distributable cash flow. General and administrative expenses did not change significantly between the two years. Inflation - --------- By their nature, real estate investments tend not to be adversely affected by inflation. Inflation may result in appreciation in the value of the Partnership's 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 8. Financial Statements and Supplementary Data. ------------------------------------------- See the Financial Statements of the Partnership included as a part of this Annual Report on Form 10-K. Item 9. 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, 1997.
Name Position(s) with the Managing General Partner Age - ---- --------------------------------------------- --- Wesley M. Gardiner, Jr. President, Chief Executive Officer and Director 39 Pamela J. Herbst Vice President and Director 42 J. Grant Monahon Vice President 52 James J. Finnegan Vice President 37 Karin J. Lagerlund Treasurer and Principal Financial and Accounting Officer 33
(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, 1997. The background and experience of the executive officers and directors of the Managing General Partner are as follows: Wesley M. Gardiner, Jr. joined AEW Real Estate Advisors, Inc. ("AEW") , formerly known as Copley Real Estate Advisors, Inc., in 1990 and has been a Vice President at AEW since January, 1994. AEW is a subsidiary of AEW Capital Management, L.P. ("AEW Capital Management"). From 1982 to 1990, he was employed by Metric Realty, a nationally-known real estate investment advisor and syndication firm, as a portfolio manager responsible for several public and private limited partnerships. His career at AEW has included asset management responsibility for the company's Georgia and Texas holdings. Presently, Mr. Gardiner has overall responsibility for all the partnerships advised by AEW whose securities are registered under the Securities and Exchange Act of 1934. He received a B.A. in Economics from the University of California at San Diego. Pamela J. Herbst directs AEW Capital Management's Portfolio Advisory Services, with oversight responsibility for the asset and portfolio management areas. Ms. Herbst is a member of AEW Capital Management's Investment Policy Group and Management Committee. She came to AEW Capital Management in December 1996 as a result of the firm's merger with Copley Real Estate 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 General Counsel 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 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 Assistant 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 Advisory 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, 1997:
Amount of Compensation and Receiving Entity Type of Compensation Reimbursement - ---------------- -------------------- ------------- General Partners Share of Distributable Cash $ 28,371 AEW Real Estate Advisors, Inc. Management Fees and 297,618 Expense Reimbursements New England Securities Corporation Servicing Fees and 9,669 Expense Reimbursement Back Bay Advisors, L.P. Short-term Investment 5,200 Advisory Services --------- TOTAL: $ 340,858 =========
For the year ended December 31, 1997, the Partnership allocated $17,977 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, 1997. 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, 1997. (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. 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 ending December 31, 1997, the Partnership filed one Current Report on Form 8- K dated October 8, 1997, reporting on Items No. 2 (Acquisition or Disposition of Assets) and No. 7 (Financial Statements and Exhibits), relating in both cases to the Stemmons Industrial property sale. (c) Reports on Form 8-K/A. The partnership filed one Current Report on Form 8-K/A dated November 26, 1997 reporting on Items No. 2 (Acquisition or Disposition of Assets) and No. 7 (Financial Statements and Exhibits), relating in both cases to the Stemmons Industrial property sale. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP Financial Statements * * * * * * * * * * * * December 31, 1997 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, 1997 and 1996 Statements of Operations - Years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital (Deficit) - Years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation at December 31, 1997, 1996 and 1995 Report of Independent Accountants --------------------------------- To the Partners Copley Pension Properties VI; A Real Estate Limited Partnership In our opinion, based upon our audits and the reports of other auditors for the years ended December 31, 1977, 1996 and 1995, 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Sixth Copley Corp., the Managing General Partner of the Partnership; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Partnership's Waterford Apartments and White Phonic joint venture investees (collectively, the "Ventures") for the years ended December 31, 1996 and 1995, which results of operations are recorded using the equity method of accounting in the Partnership's financial statements. Equity in joint venture income for the Ventures aggregated $1,002,020 and $1,021,252 for the years ended December 31, 1996 and 1995, respectively. We also did not audit the financial statements of the Partnership's Prentiss/Copley Itasca Associates joint venture investee for the year ended December 31, 1995, which results of operations are recorded using the equity method of accounting in the Partnership's financial statements. Equity in joint venture income for Prentiss/Copley Itasca Associates aggregated $143,434 for the year ended December 31, 1995. We also did not audit the financial statements of 21136 Wilmington Avenue, a wholly-owned property, for the years ended December 31, 1996 and 1995, which statements reflect total revenues of $746,004 and $625,282, for the years ended December 31, 1996 and 1995, respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the equity in joint venture income for the Ventures for the years ended December 31, 1995 and 1994, for equity in joint venture income for Prentiss/Copley Itasca Associates for the year ended December 31, 1995, and for the amounts for 21136 Wilmington Avenue for the years ended December 31, 1996 and 1995, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the Managing General Partner, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors for the years ended December 31, 1997, 1996 and 1995 provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------- Boston, Massachusetts March 22, 1998 COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEETS December 31, ---------------------------- 1997 1996 ------------- ------------- Assets Real estate investments: Joint ventures $ 14,966,370 $ 15,479,056 Property, net 4,201,553 8,350,231 ------------- ------------- 19,167,923 23,829,287 Cash and cash equivalents 2,105,728 3,076,103 Short-term investments 1,432,651 2,194,290 ------------- ------------- $ 22,706,302 $ 29,099,680 ============= ============= Liabilities and Partners' Capital Accounts payable $ 92,737 $ 86,347 Accrued management fee 53,028 51,517 Deferred disposition fees 717,677 582,677 ------------- ------------- Total liabilities 863,442 720,541 ------------- ------------- Partners' capital (deficit): Limited partners ($660.29 and $768.98 per Unit, respectively; 160,000 units authorized; 48,788 units issued and outstanding) 21,891,360 28,415,303 General partners (48,500) (36,164) ------------- ------------- Total partners' capital 21,842,860 28,379,139 ------------- ------------- $ 22,706,302 $ 29,099,680 (See accompanying notes to financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS Year ended December 31, ---------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Investment Activity Property rentals $ 813,691 $ 818,078 $ 1,187,128 Property operating expenses (374,736) (369,959) (399,757) Depreciation and amortization (264,913) (286,940) (533,107) ----------- ----------- ----------- 174,042 161,179 254,264 Joint venture earnings 1,351,347 1,164,123 1,164,686 Investment valuation allowance -- -- (1,500,000) ----------- ----------- ----------- Total real estate operations 1,525,389 1,325,302 (81,050) Gain on sales of property 248,172 -- 13,194 ----------- ----------- ----------- Total real estate activity 1,773,561 1,325,302 (67,856) Interest on cash equivalents and short-term investments 275,126 268,223 297,444 ----------- ----------- ----------- Total investment activity 2,048,687 1,593,525 229,588 ----------- ----------- ----------- Portfolio Expenses Management fee 280,592 206,070 243,696 General and administrative 179,786 201,322 192,096 ----------- ----------- ----------- 460,378 407,392 435,792 ----------- ----------- ----------- Net Income (Loss) $ 1,588,309 $ 1,186,133 $ (206,204) =========== =========== =========== Net income (loss) per limited partnership unit $ 32.23 $ 24.07 $ (4.18) =========== =========== =========== Cash distributions per limited partnership unit $ 165.95 $ 44.21 $ 50.00 =========== =========== =========== Number of limited partnership units outstanding during the year 48,788 48,788 48,788 =========== =========== =========== (See accompanying notes to financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
Year ended December 31, ----------------------------------------------------------------------------------------- 1997 1996 1995 ----------------- ----------------- --------------------- General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners -------- -------- -------- -------- -------- -------- Balance at beginning of year $ (36,164) $28,415,303 $ (26,238) $ 29,397,948 $ 464 $32,041,490 Cash distributions (28,219) (8,096,369) (21,787) (2,156,917) (24,640) (2,439,400) Net income (loss) 15,883 1,572,426 11,861 1,174,272 (2,062) (204,142) ------------ -------------- ----------- ------------ --------- ----------- Balance at end of year $ (48,500) $ 21,891,360 $ (36,164) $ 28,415,303 $ (26,238) $29,397,948 ============ ============== =========== ============ ========= ===========
(See accompanying notes to financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS
Year ended December 31, -------------------------------------------------------------------- 1997 1996 1995 ------------------ ----------------- ----------------- Cash flows from operating activities: Net income (loss) $ 1,588,309 $ 1,186,133 $(206,204) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 264,913 286,940 533,107 Equity in joint venture income (1,351,347) (1,164,123) (1,164,686) Cash distributions from joint ventures 1,849,700 1,871,702 1,841,184 Gain on sales of property (248,172) - (13,194) Investment valuation allowance - - 1,500,000 Increase in deferred leasing costs and other assets (556) (34,104) (11,731) (Increase) decrease in investment income receivable (1,152) (16,876) 1,244 (Increase) decrease in property working capital (52,369) (84,903) 86,916 Increase (decrease) in operating liabilities 7,903 (2,657) (1,501) ----------------- ---------------- ----------------- Net cash provided by operating activities 2,057,229 2,042,112 2,565,135 ----------------- ---------------- ----------------- Cash flows from investing activities: Investment in property - (132,458) (12,014) Net proceeds from sale of investment 4,199,193 - 13,194 Deferred disposition fee 135,000 - - Decrease (increase) in short-term investments, net 762,791 347,219 (1,757,244) ----------------- ---------------- ----------------- Net cash provided by (used in) investing activities 5,096,984 214,761 (1,756,064) ----------------- ---------------- ----------------- Cash flows from financing activity: Distributions to partners (8,124,588) (2,178,704) (2,464,040) ------------------ ---------------- ----------------- Net cash used in financing activity (8,124,588) (2,178,704) (2,464,040) ------------------ ---------------- ----------------- Net increase (decrease) in cash and cash equivalents (970,375) 78,169 (1,654,969) Cash and cash equivalents: Beginning of year 3,076,103 2,997,934 4,652,903 ----------------- ---------------- ----------------- End of year $ 2,105,728 $ 3,076,103 $2,997,934
(See accompanying notes to financial statements) COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and Business - ---------------------------------- General ------- Copley Pension Properties VI; A Real Estate Limited Partnership (the "Partnership") is a Massachusetts limited partnership organized for the purpose of investing primarily in newly constructed and existing income-producing real properties. It primarily serves as an investment for qualified pension and profit sharing plans and other organizations intended to be exempt from federal income tax. The Partnership commenced operations in July 1988, and acquired the four 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. As such, at December 31, 1997, AEW Capital Management, L.P. is wholly owned by NEIC Operating Partnership, L.P. AEW is a subsidiary of AEW Capital Management, 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 the advisor 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 ($17,026 in 1997, $21,352 in 1996, and $23,012 in 1995). 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 $717,677 and $582,677 at December 31, 1997 and 1996, respectively. 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 $9,669, $9,211 and $8,493 in 1997, 1996 and 1995, respectively. Fees to Back Bay Advisors, L.P., a wholly-owned subsidiary of NEIC, for short-term investment advisory services totaled $5,200, $6,278 and $5,047, for the same annual periods. 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. Currently, the Partnership records an amount equal to 100% of the operating results of each joint venture, after the elimination of all inter-entity transactions, except for the two ventures which include an affiliate of the Partnership, which has substantial economic equity in the respective projects. 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. Carrying value may be greater or less than current appraised value. At December 31, 1997, the appraised values of investments exceeded the related carrying value by an aggregate of approximately $8,558,000. At December 31, 1996, the carrying value of one investment exceeded its appraised value by $260,000. The remaining investments had appraised values which exceeded the related carrying values by an aggregate of $5,700,000. The current appraised value of real estate investments has been estimated by the Managing General Partner and is generally based on a combination of traditional appraisal approaches performed by AEW and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Cash Equivalents and Short-Term Investments ------------------------------------------- Cash equivalents are stated at cost, plus accrued interest. The Partnership considers all highly liquid debt instruments purchased with a maturity of ninety days or less to be cash equivalents; otherwise, they are classified as short-term investments. The Partnership has the positive intent and ability to hold all investments to maturity; therefore, short-term investments are carried at cost, plus accrued interest which approximates market value. At December 31, 1997 and 1996, all investments were in commercial paper with less than seven and five months, respectively, remaining to maturity. Organization Costs ------------------ Costs incurred in connection with organizing the Partnership were capitalized and have been amortized using the straight-line method over five years. Deferred Disposition Fees ------------------------- Disposition fees due to AEW related to sales of investments are included in the determination of gains or losses resulting from such transactions. According to the terms of the advisory contract, payment of such fees has been deferred until the limited partners first receive their capital contributions, plus stipulated returns thereon. Income Taxes ------------ A partnership is not liable for income taxes and, therefore, no provision for income taxes is made in the financial statements of the Partnership. A proportionate share of the Partnership's income is reportable on each partner's tax return. Per Unit Computations --------------------- Per unit computations are based on the number of units of limited partnership interest outstanding during the year. The actual per unit amount will vary by partner depending on the date of admission to, or withdrawal from, the Partnership. Effective January 1, 1998, the Partnership adopted FAS 128 "Earnings per Share," which simplifies the standards of reporting earnings per share (EPS) previously found in APB No. 15. It provides guidance on the computation and disclosure of basic and diluted EPS and requires restatement of prior periods for comparative purposes. The adoption of FAS 128 did not have a material impact on the Partnership's financial statements. Reclassifications ----------------- Certain amounts in prior year financial statements have been reclassified to conform with the current year presentation. 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 and subsequently sold in 1997. The Partnership has committed to make capital contributions to the ventures, which are generally subject to preferential cash distributions at a specified rate and to priority distributions with respect to sale or refinancing proceeds. The joint venture agreements provide 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 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 1997 1996 -------- ------ -------- ------ ----- Waterford Apartments Frederick, MD 10.09% 48.75% $ 14,099,978 $ 14,099,978 White Phonic Petaluma, CA 10.0% 50% $ 3,281,963 $ 3,281,963 Prentiss Copystar Itasca, IL 11.0% 51.75% $ 2,232,848 $ 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 have 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 is 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 first be repaid unconditionally. The remaining 75% would be repaid subject to a premium designed to preserve the stipulated rate of return through the ninth anniversary of the joint venture agreement. 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 may be deferred to the extent payments cannot be made from operating and extraordinary cash flow. Future minimum rents due to the venture under non-cancelable operating leases are: $450,333 in 1998; $459,108 in 1999; $468,936 in 2000; $475,956 in 2001 and $488,241 in 2002. 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. Future minimum rents due to the venture under a non-cancelable operating lease are: $366,000 in 1998; and $281,000 in 1999. Sale of Lakewood ---------------- On August 12, 1988, the Partnership entered into a joint venture with an affiliate of Evans Withycombe Company, and an affiliate of the Partnership, to develop and operate an apartment complex. The Partnership and its affiliate collectively had a 65% interest in the joint venture. The Partnership made capital contributions totaling $6,731,182. On August 17, 1994, the joint venture sold its property. After closing costs, the Partnership received its share of the sale proceeds of $9,131,207 and recognized a gain of $2,869,376 ($58.23 per limited partnership unit). At that time, the Partnership also received a preferential return payment of $237,880. A disposition fee of $318,677 was accrued but not paid to AEW. On September 15, 1994, the Partnership made a capital distribution of $8,920,886 ($182.85 per limited partnership unit) from the proceeds of this sale. An additional $13,194 was received in 1995 in final settlement of this sale. Summarized Financial Information - -------------------------------- The following summarized financial information is presented in the aggregate for the joint ventures: Assets and Liabilities ----------------------
December 31, -------------------------------------------------- 1997 1996 --------------- --------------- Assets Real property, at cost less accumulated depreciation of $6,910,873 and $6,158,575, respectively $ 16,461,895 $ 17,199,404 Other 1,029,387 739,700 ------------------- ------------------- 17,491,282 17,939,104 Liabilities 379,809 235,655 ------------------- ------------------- Net assets $ 17,111,473 $ 17,703,449 =================== ===================
Results of Operations ---------------------
Year ended December 31, ---------------------------------------------------------- 1997 1996 1995 ----------------- ----------------- ----------------- Revenue: Rental income $ 3,883,758 $ 3,720,730 $ 3,622,286 Interest and other income 6,410 7,842 7,098 ----------------- ----------------- ----------------- 3,890,168 3,728,572 3,629,384 ----------------- ----------------- ----------------- Expenses: Operating expenses 1,395,823 1,367,708 1,217,644 Depreciation and amortization 766,748 878,016 907,276 ----------------- ----------------- ----------------- 2,162,571 2,245,724 2,124,920 ----------------- ----------------- ----------------- Net income $ 1,727,597 $ 1,482,848 $ 1,504,464 ================= ================= =================
Liabilities and expenses exclude amounts owed and attributable to the Partnership and (with respect to three investments) 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. During 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, as of 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 investment in property (one at December 31, 1997 and two at December 31, 1996): December 31, ------------------------------------------ 1997 1996 --------------- --------------- Land $ 2,770,056 $ 3,408,203 Buildings, improvements and other capitalized costs 4,894,641 8,869,433 Impairment provision (1,500,000) (1,500,000) Accumulated depreciation and amortization (1,918,953) (2,330,843) Net operating liabilities (44,191) (96,562) --------------- --------------- $ 4,201,553 $ 8,350,231 =============== =============== The Wilmington Industrial building is being depreciated over 30 years and capitalized improvements are being depreciated over seven years. The building and improvements at Stemmons Industrial were depreciated over 25 years, beginning July 1, 1994. 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: $469,000 in 1998; $285,000 in 1999; $47,000 in 2000. 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, ---------------------------------------------- 1997 1996 1995 ------------- -------------- ------------- Net income (loss) per financial statements $1,588,309 $1,186,133 $ (206,204) Timing differences: Joint venture earnings 33,639 288,647 276,972 Property rentals 12,550 (15,318) (24,245) Depreciation 49,547 (28,769) 131,752 Expenses 14,332 10,749 14,332 Gain on sale 99,284 - - Valuation allowance - - 1,500,000 ------------- -------------- ------------- Taxable income $1,797,661 $1,441,442 $1,692,607 ============= ============== ============= 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, and from $768.98 to $660.29 during 1997. 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 - Litigation - ------------------------- On February 11, 1998, Frederick Bozzuto Limited Partnership filed a declaratory judgment action in the Circuit Court for Baltimore County. The Partnership and Affiliate had declared that an impasse under the joint venture agreement existed because of a disagreement between the Partnership and the Affiliate, on the one hand, and Frederick Bozzuto Limited Partnership, on the other hand, with respect to the contents of the business plan to be adopted by the joint venture for 1998. The Partnership and the Affiliate had sought to effect the dissolution of the joint venture pursuant to the terms of the joint venture agreement. The declaratory judgment action asks the Court to hold that no impasse (and, hence, no right to dissolve the joint venture) can exist with respect to a disagreement over the contents of the annual business plan of the joint venture. Note 8 - Subsequent Event - ------------------------- Distributions of cash from operations relating to the quarter ended December 31, 1997 were made on January 29, 1998 in the aggregate amount of $536,175 ($10.88 per limited partnership unit). COPLEY PENSION PROPERTIES VI, A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1997
GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF INITIAL COST TO THE PARTNERSHIP COSTS SUBSEQUENT TO ACQUISITION PERIOD ------------------------------- ----------------------------------- ------------------------ BUILDINGS, IMPROVEMENTS BUILDINGS, AND OTHER OTHER CHANGE IN IMPROVEMENTS, OTHER CAPITAL NET CAPITALIZED OTHER NET VALUATION AND OTHER NET DESCRIPTION LAND COSTS ASSETS IMPROVEMENTS ASSETS ALLOWANCE LAND CAPITAL COSTS ASSETS ----------- ---------- ------------ ------- ------------ --------- ----------- ---------- ------------- -------- CARSON, CA (See Note A) Industrial bldg............ $2,770,056 $4,380,463 $ 8,285 $514,169 $(52,478) $(1,500,000) $2,770,056 $3,394,632 $(44,193) DALLAS, TX (See Note A) Industrial bldg............ $ 638,147 $3,966,791 $46,661 $ 8,581 $(46,672) -- $ 638,147 $3,975,372 $ (11) ---------- ---------- ------- -------- -------- ----------- ---------- ---------- -------- Total wholly- owned property.. $3,408,203 $8,347,254 $54,946 $522,750 $(99,150) $(1,500,000) $3,408,203 $7,370,004 $(44,204) ========== ========== ======= ======== ======== =========== ========== ========== ======== ITASCA, IL 51.75% interest in Prentiss Copley/Itasca Assoc. J/V...... ................................................ See Note B ................................................ Develop and operate 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:.... ========== ========== ======= ======== ======== =========== ========== ========== ======== DISPOSAL OF ACCUM. DEPR. STATUS OF DATE DEPRECIABLE DESCRIPTION ASSET TOTAL & AMORT. CONSTRUCTION ACQUIRED LIFE ----------- ------------ ----------- ------------- ------------ -------- ----------- CARSON, CA (See Note A) Industrial bldg............ $ 6,120,495 $ (1,918,942) Completed 7/18/88 30 Years 1990 DALLAS, TX (See Note A) Industrial bldg............ $(4,613,508) $ 0 $ 0 Completed 12/7/88 40 Years ------------ ----------- ------------ 1989 Total wholly- owned property.. $(4,613,508) $ 6,120,495 $ (1,918,942) ============ =========== ============ ITASCA, IL 51.75% interest in Prentiss Copley/Itasca Assoc. J/V...... 1,711,204 N/A Completed 05/20/91 35 Years Develop and 1991 operate an industrial building FREDERICK, MD 48.75% interest in Frederick Partners Joint Venture......... 10,163,029 N/A Completed 03/20/89 27.5 Years Develop and Ph I - 1990 operate an Ph I - 1991 apartment complex PETALUMA, CA 50% interest in White Phonic Associates Joint Venture......... 3,092,137 N/A Completed 04/30/90 40 Years Develop and 1991 operate an industrial building ------------ ----------- TOTAL JOINT VENTURE INVESTMENTS:.... $14,966,370 ============ ===========
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY SCHEDULE III NOTE A AT DECEMBER 31, 1997
Balance Conversion to Additions to Change in as of Wholly-Owned Lease Additions to Write Down Property Working Description 1/1/95 Property Commissions Property of Property Capital - ------------------------------------------------------------------------------------------------------------------------------------ Stemmons 4,558,688 0 7,791 0 0 (113,055) Hewson/Wilmington 7,434,096 0 3,940 12,014 (1,500,000) 26,139 ----------------------------------------------------------------------------------------------------- Total Wholly-Owned Property 11,992,784 0 11,731 12,014 (1,500,000) (86,916) ===================================================================================================== Balance Conversion to Additions to Change in as of Wholly-Owned Lease Additions to Write Down Property Working Description 1/1/96 Property Commissions Property of Property Capital - ------------------------------------------------------------------------------------------------------------------------------------ Stemmons 4,453,424 0 0 0 0 58,493 Hewson/Wilmington 5,976,189 0 34,103 132,459 0 26,410 ----------------------------------------------------------------------------------------------------- Total Wholly-Owned Property 10,429,613 0 34,103 132,459 0 84,903 ===================================================================================================== Balance Conversion to Additions to Change in as of Wholly-Owned Lease Additions to Write Down Property Working Description 1/1/97 Property Commissions Property of Property Capital - ------------------------------------------------------------------------------------------------------------------------------------ Stemmons 4,511,917 0 0 0 0 101,591 Hewson/Wilmington 6,169,161 0 556 0 (49,222) ----------------------------------------------------------------------------------------------------- Total Wholly-Owned Property 10,681,078 0 556 0 0 52,369 =====================================================================================================
Balance 12/31/94 1995 12/31/95 1995 Disposal as of Accumulated Depreciation Accumulated Disposal Balance per Description of Asset 12/31/95 Depreciation Expense Depreciation of Asset G/L @ 12/31/95 - ------------------------------------------------------------------------------------------------------------------------------------ Stemmons 0 4,453,424 209,315 (186,427) 395,742 0 4,057,682 Hewson/Wilmington 0 5,976,189 1,330,148 (332,348) 1,662,496 0 4,313,693 ------------------------------------------------------------------------------------------------------ Total Wholly-Owned Property 0 10,429,613 1,539,463 (518,775) 2,058,238 0 8,371,375 ====================================================================================================== Balance 12/31/95 1996 12/31/96 1996 Disposal as of Accumulated Depreciation Accumulated Disposal Balance per Description of Asset 12/31/96 Depreciation Expense Depreciation of Asset G/L @ 12/31/96 - --------------------------- ------------------------------------------------------------------------------------------------------ Stemmons 0 4,511,917 395,742 (152,416) 548,158 0 3,963,759 Hewson/Wilmington 0 6,169,161 1,662,496 (120,192) 1,782,688 0 4,386,473 ------------------------------------------------------------------------------------------------------ Total Wholly-Owned Property 0 10,681,078 2,058,238 (272,608) 2,330,846 0 8,350,232 ====================================================================================================== Balance 12/31/96 1997 12/31/97 1997 Disposal as of Accumulated Depreciation Accumulated Disposal Balance per Description of Asset 12/31/97 Depreciation Amort/Expense Depreciation of Asset G/L @ 12/31/97 - ------------------------------------------------------------------------------------------------------------------------------------ Stemmons (4,613,508) 0 548,158 (114,312) 662,470 (662,470) 0 Hewson/Wilmington 0 6,120,495 1,782,688 (136,254) 1,918,942 0 4,201,553 ------------------------------------------------------------------------------------------------------- Total Wholly-Owned Property (4,613,508) 6,120,495 2,330,846 (250,566) 2,581,412 (662,470) 4,201,553 =======================================================================================================
COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE III NOTE B - JOINT VENTURES AT DECEMBER 31, 1997
BALANCE BALANCE AS OF EQUITY IN 1995 AMORTIZATION CASH AS OF PERCENT OF DECEMBER 31, INCOME/ OF DEFERRED DISTRIBUTED DECEMBER 31, DESCRIPTION OWNERSHIP 1994 (LOSS) ACQUISITION FEES FROM J/V 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Prentiss Copystar 51.75% 1,950,970 143,434 - (245,613) 1,848,791 Waterford Apartments 48.75% 11,615,204 749,851 (10,272) (1,249,086) 11,105,697 White Phonic 50% 3,325,623 271,401 (4,060) (346,485) 3,246,479 --------------------------------------------------------------------------------- Investments in Joint Ventures at December 31, 1995: $16,891,797 $1,164,686 ($14,332) ($1,841,184) $16,200,967 ================================================================================= BALANCE BALANCE AS OF EQUITY IN 1996 AMORTIZATION CASH AS OF PERCENT OF DECEMBER 31, INCOME/ OF DEFERRED DISTRIBUTED DECEMBER 31, DESCRIPTION OWNERSHIP 1995 (LOSS) ACQUISITION FEES FROM J/V 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Prentiss Copystar 51.75% 1,848,791 162,103 - (245,613) 1,765,281 Waterford Apartments 48.75% 11,105,697 712,467 (10,272) (1,248,103) 10,559,789 White Phonic 50% 3,246,479 289,553 (4,060) (377,986) 3,153,986 --------------------------------------------------------------------------------- Investments in Joint Ventures at December 31, 1996: $16,200,967 $1,164,123 ($14,332) ($1,871,702) $15,479,056 ================================================================================= BALANCE BALANCE AS OF EQUITY IN 1997 AMORTIZATION CASH AS OF PERCENT OF DECEMBER 31, INCOME/ OF DEFERRED DISTRIBUTED DECEMBER 31, DESCRIPTION OWNERSHIP 1996 (LOSS) ACQUISITION FEES FROM J/V 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Prentiss Copystar 51.75% 1,765,281 191,536 - (245,613) 1,711,204 Waterford Apartments 48.75% 10,559,789 865,614 (10,273) (1,252,101) 10,163,029 White Phonic 50% 3,153,986 294,197 (4,060) (351,986) 3,092,137 -------------------------------------------------------------------------------- Investments in Joint Ventures at December 31, 1997: $15,479,056 $1,351,347 ($14,333) ($1,849,700) $14,966,370 =================================================================================
FINANCIAL STATEMENTS INDEX NO. 2 Auditor's Report and Financial Statements of Frederick Partners (referred to elsewhere as Waterford Apartments) Independent Auditor's Report of Reznick, Fedder & Silverman, P.C. Balance Sheets - December 31, 1997 and 1996 Statements of Operations - For the Years Ended December 31, 1997, 1996 and 1995 Statements of Partners' Equity - For the Years Ended December 31, 1997, 1996 and 1995 Statements of Cash Flows - For the Years Ended December 31, 1997, 1996 and 1995 Notes to Financial Statements FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FREDERICK PARTNERS DECEMBER 31, 1997 AND 1996 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 [LETTERHEAD OF REZNICK FEDDER & SILVERMAN APPEARS HERE] INDEPENDENT AUDITORS' REPORT To the Partners Frederick Partners We have audited the accompanying balance sheets of Frederick Partners as of December 31, 1997 and 1996 and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 December 31, 1997 and 1996 and the results of its operations, changes in partners' equity and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Reznick Fedder & Silverman Baltimore, Maryland January 21, 1998 - 3 - Frederick Partners BALANCE SHEETS December 31, 1997 and 1996 1997 1996 ---------------- -------------- ASSETS INVESTMENT IN REAL ESTATE Land $ 3,099,120 $ 3,099,120 Building and improvements 12,919,662 12,906,062 Personal property 1,601,830 1,601,830 ----------- ----------- 17,620,612 17,607,012 Less accumulated depreciation 5,695,652 5,082,280 ----------- ----------- 11,924,960 12,524,732 Cash 341,988 174,893 Tenant receivables 2,120 4,337 Tenants' security deposits 55,241 44,276 Prepaid expenses 149,521 150,451 ----------- ----------- $12,473,830 $12,898,689 =========== =========== LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 6,047 $ 830 Deferred rental income 154,323 69,380 Accrued distributions 2,709,187 2,315,804 Accrued guaranteed payments 1,458,793 1,246,972 Tenants' security deposits payable 55,241 44,276 Due to affiliates 18,197 14,521 ----------- ----------- 4,401,788 3,691,783 PARTNERS' EQUITY 8,072,042 9,206,906 ----------- ----------- $12,473,830 $12,898,689 =========== =========== See notes to financial statements - 4 - Frederick Partners STATEMENTS OF OPERATIONS Years ended December 31, 1997, 1996 and 1995 1997 1996 1995 ----------- -------------- --------- Revenue Rent $2,794,683 $2,629,810 $2,572,890 Other lease related income 118,158 96,688 88,132 Interest 5,796 7,153 6,198 ---------- ---------- ---------- Total revenue 2,918,637 2,733,651 2,667,220 ---------- ---------- ---------- Expenses Operating expenses Advertising and promotion 53,690 63,263 45,491 Salaries 303,412 262,844 256,226 Administrative 57,442 61,019 50,708 Management fee 102,152 95,681 93,354 Maintenance 251,807 270,429 177,913 Utilities 93,679 91,077 86,482 Real estate taxes 275,285 247,279 252,920 Insurance 24,686 27,764 28,057 Depreciation 613,371 675,378 687,307 Guaranteed payments 797,252 776,988 758,097 ---------- ---------- ---------- Total operating expenses 2,572,776 2,571,722 2,436,555 ---------- ---------- ---------- EXCESS OF REVENUE OVER EXPENSES $ 345,861 $ 161,929 $ 230,665 ========== ========== ========== See notes to financial statements - 5 - Frederick Partners STATEMENTS OF PARTNERS' EQUITY Years ended December 31, 1997, 1996, and 1995
Frederick Frederick Copley Bozzuto Bozzuto Two Copley Pension Limited Limited Pension Properties Total Partnership Partnership Properties VI VII Equity ----------------- ----------------------------------- --------------- ------------------- Partners' equity, (deficit), December 31, 1994 $ (110,796) $ (63,178) $ 8,879,379 $ 2,959,780 $ 11,665,185 Distributions - - (1,055,921) (351,974) (1,407,895) Excess of revenue over expenses - - 172,999 57,666 230,665 --------------- --------------- ---------------- ------------- ---------------- 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 - - 121,447 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 =============== =============== ================ ============= ================
See notes to financial statements - 6 - Frederick Partners STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995
1997 1996 1995 ----------------- ------------------ ----------------- Cash flows from operating activities Excess of revenue over expenses $ 345,861 $ 161,929 $ 230,665 Adjustments to reconcile excess of revenue over expenses to net cash provided by operating activities Depreciation 613,371 675,378 687,307 Changes in assets and liabilities Decrease (increase) in tenant receivables 2,217 1,792 (4,784) Decrease (increase) in prepaid expenses 930 (25,860) 31,595 Increase (decrease) in deferred rental income 84,943 (45,542) (53,570) Increase (decrease) in accounts payable 5,218 (25,124) 15,240 Net security deposits (paid) received - 4,239 (4,240) Increase in accrued guaranteed payments 211,821 204,391 174,570 Increase (decrease) in due to affiliates 3,676 (36,734) 35,831 -------------- --------------- -------------- Net cash provided by operating activities 1,268,037 914,469 1,112,614 -------------- --------------- -------------- 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 (1,087,342) (1,063,396) (1,083,694) -------------- --------------- -------------- Net cash used in financing activities (1,087,342) (1,063,396) (1,083,694) -------------- --------------- -------------- NET INCREASE (DECREASE) IN CASH 167,095 (148,927) 28,920 Cash, beginning 174,893 323,820 294,900 -------------- --------------- -------------- Cash, ending $ 341,988 $ 174,893 $ 323,820 ============== =============== ============== Supplemental disclosure of cash flow information Cash paid during the year for guaranteed payments $ 585,431 $ 572,597 $ 583,527 ============== =============== ==============
See notes to financial statements - 7 - Frederick Partners NOTES TO FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 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. All leases between the Partnership and tenants of the property are 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 amounts 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. Management does not believe that there are any current facts or circumstances that would indicate impairment of the rental property in accordance with Statement of Financial Accounting Standards (SFAS) No. 121. 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. - 8 - Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1997, 1996 and 1995 NOTE B - RELATED PARTY TRANSACTIONS Expenses Incurred and Reimbursed to Affiliates ---------------------------------------------- The Partnership reimburses 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 1997, 1996 and 1995, $345,675, $299,261, and $284,283 were incurred, respectively. At December 31, 1997, $18,197 remains unpaid, while $14,521 was unpaid as of December 31, 1996. 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 amount equal to 3.5% of gross receipts collected. Management fees of $102,152, $95,681and $93,354 were expensed in 1997, 1996 and 1995, respectively. At December 31, 1997, $8,708 remains unpaid, while $8,314 was unpaid as of December 31, 1996. NOTE C - 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. The Agreement provides for both a "Senior and Junior Priority Return," on a monthly basis, which is calculated at the rate of 10.09% per annum on the outstanding capital. The Phase I Priority Returns are 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 - 9 - Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1997, 1996 and 1995 NOTE C - PARTNERS' EQUITY (Continued) 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 December 31, 1997 and 1996, the Phase I Junior Priority Return (including accrued interest of $1,015,108, $753,984, respectively) and Senior Priority Returns (including accrued interest at $5,775 and $5,916, respectively) payable totaled $2,827,913 (of which $2,132,315 was due to CPP VI and $695,598 was due to CPP VII) and $2,509,334, (of which $1,892,117 was due to CPP VI and $617,217 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 provides for both a "Senior and Junior Priority Return," on a monthly basis, which is calculated at the rate of 10.09% per annum on their outstanding capital. The Phase II Priority Returns are payable monthly from Operating Cash Flow as defined in the Agreement, but, (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 December 31, 1997 and 1996, the Phase II Junior Priority Return (including accrued interest of $368,415 and $253,360 respectively) and Senior Priority Returns payable totaled $1,340,067 (of which $1,000,804 was due to CPP VI and $339,263 was due to CPP VII) and $1,053,442 (of which $786,282 was due to CPP VI and $267,160 was due to CPP VII), respectively. - 10 - Frederick Partners NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1997, 1996 and 1995 NOTE D - 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 (deficiency) of revenue over expenses and partners' equity for the years ended December 31, 1997, 1996, and 1995.
1997 1996 1995 ----------------- ------------------ ------------------ Excess of revenue over expenses (financial statement basis) $ 345,861 $ 161,929 $ 230,665 Deferred rental income 84,943 (45,542) (53,570) Real estate taxes deductible under IRS Code Section 461 (908) (27,098) 32,738 -------------- --------------- --------------- Tax basis excess of revenue over expenses $ 429,896 $ 89,289 $ 209,833 ============== =============== =============== Partners' equity (financial statement basis) $ 8,072,042 $ 9,206,906 $ 10,487,955 Deferred rental income 154,323 69,380 114,922 Real estate taxes deductible under IRS Code Section 461 (138,097) (137,189) (110,091) -------------- --------------- --------------- Tax basis $ 8,088,268 $ 9,139,097 $ 10,492,786 ============== =============== ===============
NOTE E - CONCENTRATION OF CREDIT RISK The Partnership maintains its cash balances in two banks. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. As of December 31, 1997, the uninsured portion of the cash balances held at one of the banks was, $180,396. - 11 - EXHIBIT INDEX ------------- Exhibit Page Number Exhibit - ------ ------- 10A. Lakewood Associates General Partnership * Agreement dated August, 1988 between EW Lakewood Limited Partnership, New England Pension properties V; A Real Estate Limited Partnership and the Registrant. 10B. Hewson Wilmington Associates General * Partnership Agreement dated July 18, 1988 between Hewson/Wilmington, L.P. and the Registrant. 10C. Farmers Branch Associates General Partnership * Agreement dated December 7, 1988 between North Dallas Division #81, Ltd. and the Registrant. 10D. Payne Ranch Centre Associates General * Partnership Agreement dated January 4, 1989 between Payne Ranch Investors 88 and the Registrant. 10E. Development Agreement dated December 28, * 1988 by and between Payne Ranch Centre Associates and Albertson's, Inc. 10F. Contract of Sale dated December 28, 1988 by * and between Payne Ranch Centre Associates and Albertson's, Inc. 10G. Frederick Partners General Partnership * Agreement dated as of March 20, 1989 between Frederick Bozzuto Limited Partnership, Copley Pension Properties VII; A Real Estate Limited Partnership and the Registrant. 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. - ------------------------------------------------------------------- * Previously filed and incorporated herein by reference. 10I. White Phonic Associates General Partnership * Agreement dated as of April 30, 1990 between White/Vila Associates II, a California general partnership and the Registrant. 10J. Purchase and Sale Agreement and Escrow * Instructions dated as of June 12, 1990 by and between Payne Ranch Centre Associates, a Colorado general partnership and Super Enterprises, Inc., a California corporation. 10K. Purchase and Sale Agreement and Escrow Instructions * (Jiffy Lube Parcel) by and between Payne Ranch Centre Associates and Super Enterprises, Inc. dated as of July 26, 1990. 10L. Purchase and Sale Agreement and Escrow Instructions * (Wells Fargo Parcel) by and between Payne Ranch Associates and Super Enterprises, Inc. dated as of August 31, 1990. 10M. Second Amendment to Farmers Branch Associates General Partnership Agreement by and between * North Dallas Division #81, Ltd. and the Registrant effective as of October 18, 1989. 10N. General Partnership Agreement of * Prentiss/Copley Itasca Associates dated as of May 20, 1991 between Prentiss Properties Itasca, L.P., a Texas limited partnership and the Registrant. 10O. Agreement of Dissolution of Partnership and * Cancellation of Farmers Branch Associates General Partnership Agreement dated July 1, 1994 by and between North Dallas Division #81, Ltd., a Texas limited partnership, and Registrant. 10P. Asset Contribution Agreement by and among Evans * Withycombe Residential, Inc., a Maryland Corporation, and Evans Withycombe Residential, L.P., a Delaware limited partnership, as Purchasers and Lakewood Associates, an Arizona limited Partnership composed of Registrant, New England Pension Properties V and EW Lakewood L.P., as Sellers, dated June 9, 1994. 27. Financial Data Schedule -------------------------------------------------------------- * Previously filed and incorporated herein by reference. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COPLEY PENSION PROPERTIES VI; A REAL ESTATE LIMITED PARTNERSHIP Date: March 31, 1998 By: /s/ Wesley M. Gardiner, Jr. --------------------------- Wesley M. Gardiner, Jr. 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/ Wesley M. Gardiner, Jr. Director March 31, 1998 - -------------------------------- Wesley M. Gardiner, Jr. Vice President and /s/ Pamela J. Herbst Director March 31, 1998 - -------------------------------- Pamela J. Herbst Vice President and /s/ J. Grant Monahon Director March 31, 1998 - -------------------------------- J. Grant Monahon /s/ James J. Finnegan Vice President March 31, 1998 - -------------------------------- James J. Finnegan Treasurer and Principal /s/ Karin J. Lagerlund Financial and - -------------------------------- Accounting Officer March 31, 1998 Karin J. Lagerlund EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 DEC-31-1997 2,105,728 1,432,651 0 0 0 3,538,379 19,167,923 0 22,706,302 145,765 717,677 0 0 0 21,842,860 22,706,302 2,165,038 2,688,336 374,736 374,736 725,291 0 0 1,588,309 0 1,588,309 0 0 0 1,588,309 32.23 32.23
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