FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14578
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP (Exact name
of small business issuer as specified in its charter)
Massachusetts 04-2825863
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
Assets
Cash and cash equivalents $ 976
Receivables and deposits 153
Other assets 52
Investment property:
Land $ 621
Buildings and related personal property 9,740
10,361
Less accumulated depreciation (4,897) 5,464
$ 6,645
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 25
Tenant security deposit liabilities 126
Accrued property taxes 322
Other liabilities 79
Partners' (Deficit) Capital
General partner $ (121)
Limited partners (15,698 units issued and
outstanding) 6,214 6,093
$ 6,645
See Accompanying Notes to Financial Statements
b)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
Revenues:
Rental income $ 462 $ 432
Other income 36 38
Total revenues 498 470
Expenses:
Operating 121 127
General and administrative 66 71
Depreciation 138 110
Property taxes 67 68
Total expenses 392 376
Income from continuing operation 106 94
Income (loss) from discontinued operation 13 (45)
Net income $ 119 $ 49
Net loss allocated to general partner (2%) $ 2 $ 1
Net loss allocated to limited partners (98%) 117 48
$ 119 $ 49
Per limited partnership unit:
Income from continuing operation $ 6.62 $ 5.86
Income (loss) from discontinued operation 0.83 (2.80)
Net income $ 7.45 $ 3.06
Distribution per limited partnership unit $107.47 $ --
See Accompanying Notes to Financial Statements
c)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 15,698 $ -- $15,698 $15,698
Partners' (deficit) capital at
December 31, 1999 15,698 $ (110) $ 7,784 $ 7,674
Distributions paid to partners -- (13) (1,687) (1,700)
Net income for the three months
ended March 31, 2000 -- 2 117 119
Partners' (deficit) capital
at March 31, 2000 15,698 $ (121) $ 6,214 $ 6,093
See Accompanying Notes to Financial Statements
d)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
Net income $ 119 $ 49
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 138 180
Change in accounts:
Receivables and deposits 293 33
Other assets (27) (15)
Accounts payable (72) (26)
Tenant security deposit liabilities 7 7
Accrued property taxes 67 (44)
Other liabilities (36) 15
Net cash provided by operating activities 489 199
Cash flows used in investing activities:
Property improvements and replacements (9) (72)
Cash flows used in financing activities:
Distributions to partners (1,700) (400)
Net decrease in cash and cash equivalents (1,220) (273)
Cash and cash equivalents at beginning of period 2,196 1,354
Cash and cash equivalents at end of period $ 976 $ 1,081
See Accompanying Notes to Financial Statements
e)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of HCW Pension Real Estate Fund
Limited Partnership (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The General Partner of the Partnership is HCW General
Partner Ltd., whose sole general partner is IH, Inc. (the "Managing General
Partner"). In the opinion of the Managing General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2000, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2000. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1999.
Certain reclassifications have been made to the 1999 information to conform to
the 2000 presentation.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership. The following transactions
with the Managing General Partner and/or its affiliates were incurred during the
three months ended March 31, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 25 $ 23
Asset management fees (included in general and
administrative expenses) 36 34
Reimbursement for services of affiliates (included in
general and administrative expenses) 12 20
During the three months ended March 31, 2000 and 1999, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential property for providing property management services.
The Registrant paid to such affiliates approximately $25,000 and $23,000 for the
three months ended March 31, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursement of asset
management fees amounting to approximately $36,000 and $34,000 for the three
months ended March 31, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $12,000 and
$20,000 for the three months ended March 31, 2000 and 1999, respectively.
AIMCO and its affiliates currently own 4,135 limited partnership units in the
Partnership representing 26.341% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by AIMCO or its affiliates.
It is possible that AIMCO or its affiliates will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the Managing General Partner because of their
affiliation with the Managing General Partner.
Note D - Discontinued Operation
Highland Professional Tower was the last commercial property in the commercial
segment of the Partnership. Due to the sale of this property in December 1999,
the results of this property has been classified as "Income (loss) from
discontinued operation" for the three months ended March 31, 2000 and 1999.
Revenues of this property were approximately $19,000 and $216,000 for the three
months ended March 31, 2000 and 1999, respectively. Income from operations of
this property was approximately $13,000 for the three months ended March 31,
2000 and there was a loss of approximately $45,000 for the three months ended
March 31, 1999.
Note E - Distributions
During the three months ended March 31, 2000, the Partnership declared and paid
a distribution of approximately $1,700,000 ($107.47 per limited partnership
unit) consisting of $627,000 of cash from operations and $1,073,000 from the
sale of Highland Professional Tower. The limited partners received approximately
$1,687,000 and the general partner received approximately $13,000. A
distribution payable from operations of $400,000 ($24.97 per limited partnership
unit) was recorded on December 31, 1998 and was paid on January 20, 1999. The
limited partners received approximately $392,000 and the general partner
received approximately $8,000.
Note F - Segment Information
The Partnership had two reportable segments: residential property and commercial
property. The Partnership's residential property segment consists of one
apartment complex in Carbondale, Illinois. The Partnership rents apartment units
to tenants for terms that are typically twelve months or less. The commercial
property segment consisted of a professional office building located in Kansas
City, Missouri. On December 30, 1999, the commercial property, held by the
Partnership, was sold to an unrelated party. Therefore, the commercial segment
is reflected as discontinued operations (see "Note D - Discontinued Operation"
for further discussion).
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segments are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
The Partnership's reportable segments consist of investment properties that
offer different products and services. The reportable segments are each managed
separately as they provide services with different types of products and
customers.
Segment information for the three months ended March 31, 2000 and 1999 is shown
in the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
2000 Residential Commercial Other Totals
(discontinued)
Rental income $ 462 $ -- $ -- $ 462
Other income 27 -- 9 36
Depreciation 138 -- -- 138
General and administrative
expense -- -- 66 66
Income from discontinued
operation -- 13 -- 13
Segment profit (loss) 163 13 (57) 119
Total assets 6,233 -- 412 6,645
Capital expenditures 9 -- -- 9
1999 Residential Commercial Other Totals
(discontinued)
Rental income $ 432 $ -- $ -- $ 432
Other income 29 -- 9 38
Depreciation 110 -- -- 110
General and administrative
expense -- -- 71 71
Loss from discontinued
operation -- (45) -- (45)
Segment profit (loss) 156 (45) (62) 49
Total assets 6,099 4,948 697 11,744
Capital expenditures 69 3 -- 72
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment property consists of one apartment complex located
in Carbondale, Illinois. The average occupancy of the property for the three
months ended March 31, 2000 and 1999 was 89% and 83%, respectively. The Managing
General Partner attributes the increase in occupancy at Lewis Park Apartments to
increased marketing efforts and to increased enrollment at the local university.
Results of Operations
The Partnership realized net income of approximately $119,000 for the three
months ended March 31, 2000 compared to net income of approximately $49,000 for
the three months ended March 31, 1999. The increase in net income is primarily
attributable to the sale of the Partnership's last commercial property, Highland
Professional Tower in December 1999 as discussed below.
Excluding the results of the discontinued operation, the Partnership had income
from continuing operations of approximately $106,000 for the three months ended
March 31, 2000, compared to approximately $94,000 for the three months ended
March 31, 1999. The increase in income from continuing operations is primarily
due to an increase in total revenues partially offset by an increase in total
expenses.
Total revenues increased due to an increase in rental income. Rental income
increased due to an increase in occupancy and decreased concessions which was
partially offset by decreased average rental rates at Lewis Park Apartments.
Total expenses increased due to an increase in depreciation expense which was
partially offset by decreases in operating expenses and general and
administrative expenses. Depreciation expense increased due to capital
improvements completed during the past twelve months that are now being
depreciated. Operating expenses decreased primarily due to a decrease in
expenses associated with the rental of employee apartments at Lewis Park
Apartments. General and administrative expenses decreased due to reduced
management reimbursements. Included in general and administrative expense at
both March 31, 2000 and 1999 are management reimbursements to the Managing
General Partner allowed under the Partnership Agreement. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
Highland Professional Tower was the last commercial property in the commercial
segment of the Partnership. Due to the sale of this property in December 1999,
the results of this property has been classified as "Income (loss) from
discontinued operation" for the three months ended March 31, 2000 and 1999.
Revenues of this property were approximately $19,000 and $216,000 for the three
months ended March 31, 2000 and 1999, respectively. Income from operations of
this property was approximately $13,000 for the three months ended March 31,
2000 and there was a loss of approximately $45,000 for the three months ended
March 31, 1999.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Registrant from increases in expenses. As part of this
plan, the Managing General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $976,000 as compared to approximately $1,081,000 at March 31,
1999. Cash and cash equivalents decreased approximately $1,220,000 from the
Partnership's year ended December 31, 1999, due to approximately $1,700,000 of
cash used in financing activities and approximately $9,000 of cash used in
investing activities, partially offset by approximately $489,000 of cash
provided by operating activities. Cash used in financing activities consisted of
distributions paid to the partners. Cash used in investing activities consisted
of property improvements and replacements. The Partnership invests its working
capital reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership and to comply with Federal, state,
and local legal and regulatory requirements. Capital improvements planned for
the Partnership's property are detailed below.
Lewis Park Apartments
During the three months ended March 31, 2000, the Partnership completed
approximately $9,000 of capital improvements at Lewis Park, consisting primarily
of cabinet replacements and carpet and vinyl replacement. These improvements
were funded from operating cash flow. The Partnership evaluated the capital
improvement needs of the property for the year. The amount budgeted is
approximately $81,000, consisting primarily of air conditioning unit
replacements, cabinet replacements, appliance replacements, and carpet and vinyl
replacement. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership.
During the three months ended March 31, 2000, the Partnership declared and paid
a distribution of approximately $1,700,000 ($107.47 per limited partnership
unit) consisting of $627,000 of cash from operations and $1,073,000 from the
sale of Highland Professional Tower. The limited partners received approximately
$1,687,000 and the general partner received approximately $13,000. A
distribution payable from operations of $400,000 ($24.97 per limited partnership
unit) was recorded on December 31, 1998 and was paid on January 20, 1999. The
limited partners received approximately $392,000 and the general partner
received approximately $8,000. The Partnership's distribution policy is reviewed
on an annual basis. Future cash distributions will depend on the levels of net
cash generated from operations, the availability of cash reserves, and the
timing of debt financing and/or a property sale. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after planned capital improvement expenditures, to permit any additional
distributions to its partners during the remainder of 2000 or subsequent
periods.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K filed during the first quarter of 2000:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
By: HCW General Partner, Ltd.,
the General Partner
By: IH, Inc.,
the Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date: