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 June 30, 1999
[ ] 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)
June 30, 1999
Assets
Cash and cash equivalents $ 1,135
Receivables and deposits (net of allowance
of $45 for doubtful accounts) 505
Other assets 83
Investment properties:
Land $ 1,121
Buildings and related personal property 14,913
16,034
Less accumulated depreciation (5,985) 10,049
$11,772
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 57
Tenant security deposit liabilities 134
Accrued property taxes 474
Other liabilities 87
Partners' Capital (Deficit)
General partner $ (59)
Limited partners (15,698 units
issued and outstanding) 11,079 11,020
$11,772
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 577 $ 591 $ 1,220 $ 1,303
Other income 47 55 89 92
Total revenues 624 646 1,309 1,395
Expenses:
Operating 307 315 584 707
General and administrative 82 69 153 136
Depreciation 192 177 372 355
Property taxes 107 109 215 217
Casualty loss -- 22 -- 22
Total expenses 688 692 1,324 1,437
Net loss $ (64) $ (46) $ (15) $ (42)
Net loss allocated
to general partners (2%) $ (1) $ (1) $ -- $ (1)
Net loss allocated
to limited partners (98%) (63) (45) (15) (41)
$ (64) $ (46) $ (15) $ (42)
Net loss per limited
partnership unit $ (4.01) $ (2.87) $ (.96) $ (2.61)
See Accompanying Notes to Financial Statements
c)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (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, 1998 15,698 $ (59) $ 11,094 $ 11,035
Net loss for the six months
ended June 30, 1999 -- -- (15) (15)
Partners' (deficit) capital
at June 30, 1999 15,698 $ (59) $ 11,079 $ 11,020
See Accompanying Notes to Financial Statements
d)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net loss $ (15) $ (42)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 372 355
Amortization of leasing commissions -- 2
Casualty loss -- 22
Change in accounts:
Receivables and deposits (20) (174)
Other assets (11) (1)
Accounts payable (4) (34)
Tenant security deposit liabilities (5) (7)
Accrued property taxes 64 217
Other liabilities (11) (42)
Net cash provided by operating activities 370 296
Cash flows from investing activities:
Property improvements and replacements (189) (197)
Net cash used in investing activities (189) (197)
Cash flows from financing activities:
Distributions to partners (400) (300)
Net cash used in financing activities (400) (300)
Net decrease in cash and cash equivalents (219) (201)
Cash and cash equivalents at beginning of period 1,354 1,339
Cash and cash equivalents at end of period $ 1,135 $ 1,138
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 Article 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 six month
periods ended June 30, 1999, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1999. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the year ended December 31,
1998.
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 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 certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were paid or
accrued to the Managing General Partner and its affiliates during the six months
ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 47 $ 79
Asset management fees (included in general
and administrative expenses) 71 67
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses) 24 44
During the six months ended June 30, 1999 and 1998, 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 $45,000 and $48,000 for the
six months ended June 30, 1999 and 1998, respectively. For the six months ended
June 30, 1998 affiliates of the Managing General Partner were entitled to
receive varying percentages of gross receipts from the Registrant's commercial
property for providing property management services. The Registrant paid to such
affiliates approximately $2,000 and $31,000 for the six months ended June 30,
1999 and 1998. Effective October 1, 1998 (the effective date of the Insignia
Merger) the majority of these services for the commercial property were provided
by an unrelated party.
An affiliate of the General Partner received reimbursement of asset management
fees amounting to approximately $71,000 and $67,000 for the six months ended
June 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $24,000 and $44,000 for the
six months ended June 30, 1999 and 1998, respectively. Included in these
expenses for the six months ended June 30, 1998, is approximately $3,000 in
reimbursements for construction oversight costs. There were no such costs
incurred for the six months ended June 30, 1999.
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 5,872.96 (37.41% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $475 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 745.00 units.
As a result, AIMCO and its affiliates currently own 3,412.00 units of limited
partnership interest in the Partnership representing 21.74% of the total
outstanding units. It is possible that AIMCO or its affiliate 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.
NOTE D - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has 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 consists of a professional office building located
in Kansas City, Missouri. This property leases space to medical offices at terms
ranging from twelve months to six years.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. 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, 1998.
Factors management used to identify the enterprise's reportable segment:
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 distinct services with different types of products
and customers.
Segment information for the six months ended June 30, 1999 and 1998 is shown in
the tables below. The "Other" column includes partnership administration
related items and income and expense not allocated to the reportable segments.
1999 RESIDENTIAL COMMERCIAL OTHER TOTALS
Rental income $ 801 $ 419 $ -- $ 1,220
Other income 63 10 16 89
Depreciation 230 142 -- 372
General and administrative expense -- -- 153 153
Segment profit (loss) 221 (99) (137) (15)
Total assets 6,199 4,939 634 11,772
Capital expenditures 173 16 -- 189
1998 RESIDENTIAL COMMERCIAL OTHER TOTALS
Rental income $ 792 $ 511 $ -- $ 1,303
Other income 65 3 24 92
Depreciation 220 135 -- 355
General and administrative expense -- -- 136 136
Casualty loss 22 -- -- 22
Segment profit (loss) 173 (103) (112) (42)
Total assets 5,864 5,089 1,065 12,018
Capital expenditures 167 30 -- 197
NOTE E - CASUALTY LOSS
During the six months ended June 30, 1998, the Partnership recorded a casualty
loss resulting from a storm that damaged the roofs at Lewis Park Apartments
during 1997. The damage resulted in a loss of approximately $22,000 arising from
the write-off of the basis of the property which was replaced.
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 discussions 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 operations. 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 properties consist of one apartment complex and one
office building. The following table sets forth the average occupancy of the
properties for the six months ended June 30, 1999 and 1998:
Property 1999 1998
Lewis Park Apartments
Carbondale, Illinois 79% 82%
Highland Professional Tower
Kansas City, Missouri 62% 66%
The Managing General Partner attributes the decrease in occupancy at Lewis Park
Apartments to a significant decrease in the student population at the university
located near the property. The Managing General Partner renovated and repaired
Highland Professional Tower's common areas during the year ended December 31,
1997 in an effort to attract additional tenants. Although all renovations were
substantially complete at the beginning of 1998, the property has continued to
see a decline in its tenant base through June 30, 1999. Occupancy for the six
months ended June 30, 1999 has remained steady with the average occupancy at
December 31, 1998.
Results of Operations
The Partnership realized a net loss of approximately $64,000 and $15,000 for the
three and six months ended June 30, 1999 as compared to a net loss of
approximately $46,000 and $42,000 for the three and six months ended June 30,
1998. The decrease in net loss for the six month period ended June 30, 1999 is
due primarily to a decrease in total expenses partially offset by a decrease in
total revenue. Total revenue decreased due to a decrease in rental income as a
result of a decrease in occupancy at both of the investment properties as
discussed above. Total expenses decreased primarily due to a decrease in
operating expenses and, to a lesser extent, the casualty loss recognized in
1998. Operating expense decreased primarily due to a decrease in maintenance
expense as a result of the completion during the six months ended June 30, 1998
of major parking lot repairs performed at Highland Professional Tower.
Operating expense also decreased due to a decrease in insurance expense at both
of the Partnership properties due to a change in the hazard insurance policy
carrier which resulted in lower premiums. The increase in net loss for the
three months ended June 30, 1999 is attributable to a decrease in rental income
as discussed above. The decrease in total expenses for the three and six months
ended June 30, 1999 was partially offset by an increase in depreciation and
general and administrative expenses. Depreciation expense increased due to
fixed asset additions at both of the Partnership's investment properties during
the last twelve months.
General and administrative expense increased as a result of an increase in legal
costs. Legal costs increased as a result of the settlement of an outstanding
litigation case in the first quarter of 1999. These costs did not have a
material effect on the overall operations of the Partnership. Also included in
general and administrative expense at both June 30, 1999 and 1998 are management
reimbursements to the 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 properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership 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 June 30, 1999, the Partnership had cash and cash equivalents of approximately
$1,135,000 as compared to approximately $1,138,000 at June 30, 1998. Cash and
cash equivalents decreased approximately $219,000 for the six months ended June
30, 1999 from the Partnership's year end, primarily due to approximately
$400,000 of cash used in financing activities and approximately $189,000 of cash
used in investing activities, which was partially offset by approximately
$370,000 of cash provided by operating activities. Cash used in financing
activities consisted of a distribution paid to the partners which was accrued at
December 31, 1998. 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
each of the Partnership's properties are detailed below.
Lewis Park Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $526,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, approximately $726,000 of
capital improvements planned for 1999 which include certain of the required
improvements and consist of maintenance equipment, roof and floor covering
replacements. As of June 30, 1999 approximately $173,000 has been incurred
consisting primarily of maintenance equipment, floor covering replacement, and
roof repairs.
Highland Professional Tower
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $495,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, approximately $476,000 of
capital improvements for 1999 which include certain of the required improvements
and consist of asbestos control and tenant improvements. As of June 30, 1999
approximately $16,000 has been incurred consisting of tenant improvements.
The additional capital improvement 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.
A distribution 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 $392,000 and the General Partner received $8,000. A
distribution from operations of $300,000 ($18.73 per limited partnership unit)
was recorded on December 31, 1997 and was paid on January 6, 1998. The limited
partners received $294,000 and the General Partner received $6,000. The
Partnership's distribution policy is reviewed on a quarterly basis. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of cash reserves, debt financing, and/or property sales. 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 in 1999 or subsequent periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 5,872.96 (37.41% of the
total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $475 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 745.00 units.
As a result, AIMCO and its affiliates currently own 3,412.00 units of limited
partnership interest in the Partnership representing 21.74% of the total
outstanding units. It is possible that AIMCO or its affiliate 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.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips 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,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
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:
None filed during the quarter ended June 30, 1999.
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/Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date: August 6, 1999