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 September 30, 2001
[ ] 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 per unit data)
September 30, 2001
Assets
Cash and cash equivalents $ 242
Receivables and deposits 140
Other assets 102
Investment property:
Land $ 621
Buildings and related personal property 9,904
10,525
Less accumulated depreciation (5,709) 4,816
$ 5,300
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 21
Tenant security deposit liabilities 126
Accrued property taxes 317
Other liabilities 114
Mortgage note payable 5,385
Partners' Deficit
General partner $ (147)
Limited partners (15,698 units issued and
outstanding) (516) (663)
$ 5,300
See Accompanying Notes to Financial Statements
b)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $ 342 $ 400 $ 1,168 $ 1,248
Other income 58 46 168 141
Total revenues 400 446 1,336 1,389
Expenses:
Operating 232 177 523 455
General and administrative 39 82 154 233
Depreciation 132 133 403 412
Interest 110 40 332 40
Property taxes 53 67 173 201
Total expenses 566 499 1,585 1,341
Net (loss) income $ (166) $ (53) $ (249) $ 48
Net (loss) income allocated
to general partner (2%) $ (3) $ (1) $ (5) $ 1
Net (loss) income allocated
to limited partners (98%) (163) (52) (244) 47
$ (166) $ (53) $ (249) $ 48
Net (loss) income per limited
partnership unit $(10.38) $ (3.31) $(15.54) $ 2.99
Distributions per limited
partnership unit $ -- $337.88 $ 44.40 $479.68
See Accompanying Notes to Financial Statements
c)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(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, 2000 15,698 $ (139) $ 425 $ 286
Distributions paid to partners -- (3) (697) (700)
Net loss for the nine months
ended September 30, 2001 -- (5) (244) (249)
Partners' deficit at
September 30, 2001 15,698 $ (147) $ (516) $ (663)
See Accompanying Notes to Financial Statements
d)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net (loss) income $ (249) $ 48
Adjustments to reconcile net (loss) income to net cash
(used in )provided by operating activities:
Depreciation 403 412
Amortization of loan costs 3 1
Change in accounts:
Receivables and deposits (1) 191
Other assets (4) (43)
Due from affiliate 57 --
Accounts payable 16 (93)
Tenant security deposit liabilities 2 5
Accrued property taxes (194) 202
Other liabilities (86) 28
Net cash (used in) provided by operating activities (53) 751
Cash flows used in investing activities:
Property improvements and replacements (70) (79)
Cash flows from financing activities:
Loan costs paid -- (85)
Proceeds from mortgage note payable -- 5,500
Distributions to partners (700) (7,562)
Payments on mortgage note payable (87) --
Net cash used in financing activities (787) (2,147)
Net decrease in cash and cash equivalents (910) (1,475)
Cash and cash equivalents at beginning of period 1,152 2,196
Cash and cash equivalents at end of period $ 242 $ 721
Supplemental disclosure of cash flow information:
Cash paid for interest $ 329 $ --
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 and nine month
periods ended September 30, 2001, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2001. 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, 2000. The Managing General Partner is an affiliate of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also established standards for related disclosures about products and services,
geographic areas, and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. The Managing General Partner
believes that segment-based disclosures will not result in a more meaningful
presentation than the financial statements as currently presented.
Reclassifications
Certain of the 2000 balances have been reclassified to conform to the 2001
presentation.
Note B - 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
nine months ended September 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 69 $ 70
Asset management fees (included in general and
administrative expenses) 65 107
Reimbursement for services of affiliates (included in
general and administrative expenses) 61 48
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Registrant's property for providing property management
services. The Registrant paid to such affiliates approximately $69,000 and
$70,000 for the nine months ended September 30, 2001 and 2000, respectively.
An affiliate of the Managing General Partner received payment of asset
management fees amounting to approximately $65,000 and $107,000 for the nine
months ended September 30, 2001 and 2000, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $61,000 and
$48,000 for the nine months ended September 30, 2001 and 2000, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 5,202 limited partnership units (the
"Units") in the Partnership representing 33.14% of the outstanding units as of
September 30, 2001. 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. In this regard, on August 29, 2001, AIMCO
Properties, LP, commenced a tender offer to acquire any and all of the Units not
owned by affiliates of AIMCO for a purchase price of $82 per Unit. Pursuant to
this offer AIMCO acquired 150 Units during the quarter ended September 30, 2001.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters, which would
include without limitation, voting on certain amendments to the Partnership
Agreement and voting to remove the Managing General Partner. 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 its
affiliation with the Managing General Partner.
Note C - Distributions
During the nine months ended September 30, 2001, the Partnership declared and
paid distributions of approximately $700,000 (approximately $697,000 to the
limited partners or $44.40 per limited partnership unit) consisting of
approximately $153,000 of cash from operations (approximately $150,000 to the
limited partners or $9.56 per limited partnership unit) and approximately
$547,000 to the limited partners from the remaining undistributed proceeds of
the financing of Lewis Park Apartments in August 2000 ($34.84 per limited
partnership unit).
During the nine months ended September 30, 2000, the Partnership declared and
paid distributions of approximately $7,562,000 (approximately $7,530,000 to the
limited partners or $479.68 per limited partnership unit) consisting of
approximately $1,622,000 of cash from operations (approximately $1,590,000 to
the limited partners or $101.29 per limited partnership unit), approximately
$1,073,000 to the limited partners from the sale of Highland Professional Tower
in December 1999 ($68.35 per limited partnership unit) and approximately
$4,867,000 to the limited partners from the proceeds of the financing of Lewis
Park Apartments in August 2000 ($310.04 per limited partnership unit).
Note D - Financing
On August 30, 2000, the Partnership financed Lewis Park Apartments with a
mortgage of $5,500,000. The interest rate on the mortgage is 8.08% with monthly
payments of approximately $46,000. The mortgage matures on September 1, 2020 at
which time the debt will be fully amortized. Capitalized loan costs incurred for
the financing were approximately $85,000.
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 nine
months ended September 30, 2001 and 2000 was 74% and 79%, respectively. The
Managing General Partner attributes the decrease in occupancy to the
restructuring of the property's leases and the cyclical and unpredictable nature
of student housing during the summer months.
Results of Operations
The Partnership recognized a net loss of approximately $249,000 for the nine
months ended September 30, 2001 compared to net income of approximately $48,000
for the nine months ended September 30, 2000. The Partnership recognized a net
loss of approximately $166,000 and $53,000 for the three months ended September
30, 2001 and 2000, respectively. The decrease in net income was attributable to
a decrease in total revenues and an increase in total expenses.
Total revenues decreased due to a decrease in rental income primarily due to a
decrease in occupancy at the Partnership's investment property offset by an
increase in the average rental rate. This decrease was partially offset by an
increase in other income due to increases in cable and student housing income.
Total expenses increased due to increases in operating and interest expenses
offset by a decrease in property tax and general and administrative expenses.
Operating expenses increased due to an increase in advertising expenses,
employee related costs at the Partnership's investment property and the
collection of receivables in 2000 that were previously deemed uncollectible at
Highlands Professional Park which was sold in December 1999. Interest expense
increased due to the financing of Lewis Park Apartments in August 2000. Property
tax expense decreased due to the timing of the receipt of the property tax bills
from the taxing authorities.
General and administrative expenses decreased due to a decrease in asset
management fees paid to the Managing General Partner pursuant to the Partnership
Agreement. Included in general and administrative expenses at both September 30,
2001 and 2000 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.
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 September 30, 2001, the Partnership had cash and cash equivalents of
approximately $242,000 as compared to approximately $721,000 at September 30,
2000. Cash and cash equivalents decreased approximately $910,000 from December
31, 2000, due to approximately $787,000, $70,000 and $53,000 of cash used in
financing, investing and operating activities, respectively. Cash used in
financing activities consisted of distributions paid to the partners and, to a
lesser extent, principal payments on the mortgage encumbering Lewis Park
Apartments. Cash used in investing activities consisted of property improvements
and replacements. The Partnership invests its working capital reserves in
interest bearing 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.
During the nine months ended September 30, 2001, the Partnership completed
approximately $70,000 of capital improvements at Lewis Park Apartments,
consisting primarily of flooring, appliance and air conditioning unit
replacements. These improvements were funded from operating cash flow. The
Partnership budgeted approximately $74,000 of capital improvements for 2001,
consisting primarily of air conditioning unit, cabinet, appliance, and flooring
replacements. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
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 Registrant's current assets are thought to be sufficient for any short term
needs exclusive of capital improvements of the Partnership. The mortgage
indebtedness of approximately $5,385,000 is being amortized over 20 years with a
maturity date of September 1, 2020 at which time the debt will be fully
amortized.
During the nine months ended September 30, 2001, the Partnership declared and
paid distributions of approximately $700,000 (approximately $697,000 to the
limited partners or $44.40 per limited partnership unit) consisting of
approximately $153,000 of cash from operations (approximately $150,000 to the
limited partners or $9.56 per limited partnership unit) and approximately
$547,000 to the limited partners from the remaining undistributed proceeds of
the financing of Lewis Park Apartments in August 2000 ($34.84 per limited
partnership unit). During the nine months ended September 30, 2000, the
Partnership declared and paid distributions of approximately $7,562,000
(approximately $7,530,000 to the limited partners or $479.68 per limited
partnership unit) consisting of approximately $1,622,000 of cash from operations
(approximately $1,590,000 to the limited partners or $101.29 per limited
partnership unit), approximately $1,073,000 to the limited partners from the
sale of Highland Professional Tower in December 1999 ($68.35 per limited
partnership unit) and approximately $4,867,000 to the limited partners from the
proceeds of the financing of Lewis Park Apartments in August 2000 ($310.04 per
limited partnership unit). The Partnership's distribution policy is reviewed on
a monthly basis. Future cash distributions will depend on the levels of net cash
generated from operations, the availability of cash reserves, and the timing of
the debt maturity, refinancing and/or sale of the property. There can be no
assurance 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 2001 or subsequent
periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 5,202 limited partnership units (the
"Units") in the Partnership representing 33.14% of the outstanding units as of
September 30, 2001. 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. In this regard, on August 29, 2001, AIMCO
Properties, LP, commenced a tender offer to acquire any and all of the Units not
owned by affiliates of AIMCO for a purchase price of $82 per Unit. Pursuant to
this offer AIMCO acquired 150 Units during the quarter ended September 30, 2001.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters, which would
include without limitation, voting on certain amendments to the Partnership
Agreement and voting to remove the Managing General Partner. 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 its
affiliation with the Managing General Partner.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K filed during the quarter ended September
30, 2001:
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.,
General Partner
By: IH, Inc.,
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: