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
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] 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.)
One Insignia Financial Plaza, 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, 1998
Assets
Cash and cash equivalents $ 1,192
Receivables and deposits (net of allowance 381
of $16 for doubtful accounts)
Other assets 68
Investment properties:
Land $ 1,121
Buildings and related personal property 14,323
15,444
Less accumulated depreciation (5,070) 10,374
$12,015
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 48
Tenant security deposit liabilities 114
Accrued property taxes 367
Other liabilities 99
Partners' Capital (Deficit)
General partner $ (52)
Limited partners (15,698 units
issued and outstanding) 11,439 11,387
$12,015
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,
1998 1997
Revenues:
Rental income $ 712 $ 763
Other income 37 39
Total revenues 749 802
Expenses:
Operating 392 297
General and administrative 67 69
Depreciation 178 157
Property taxes 108 102
Total expenses 745 625
Net income $ 4 $ 177
Net income allocated to general partner (2%) $ -- $ 3
Net income allocated to limited partners (98%) 4 174
$ 4 $ 177
Net income per limited partnership unit $ .25 $11.07
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, 1997 15,698 $ (52) $ 11,435 $ 11,383
Net income for the three months
ended March 31, 1998 -- -- 4 4
Partners' (deficit) capital
at March 31, 1998 15,698 $ (52) $ 11,439 $ 11,387
<FN>
See Accompanying Notes to Financial Statements
</FN>
d)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 4 $ 177
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 178 157
Amortization of leasing commissions 1 1
Change in accounts:
Receivables and deposits (71) 43
Other assets 9 (2)
Accounts payable (3) (30)
Tenant security deposit liabilities 2 (7)
Accrued property taxes 107 102
Other liabilities (21) (10)
Net cash provided by operating activities 206 431
Cash flows from investing activities:
Property improvements and replacements (53) (233)
Net cash used in investing activities (53) (233)
Cash flows from financing activities:
Distributions to partners (300) --
Net cash used in investing activities (300) --
Net (decrease) increase in cash and cash equivalents (147) 198
Cash and cash equivalents at beginning of period 1,339 1,392
Cash and cash equivalents at end of period $1,192 $1,590
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") 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 Partners 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, 1998, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. 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, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 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 Managing General Partner is a wholly-owned
subsidiary of Insignia Properties Trust ("IPT"), an affiliate of Insignia
Financial Group, Inc. ("Insignia"). The Partnership paid property management
fees for property management services as noted below for the three months ended
March 31, 1998 and 1997, respectively. The Partnership Agreement ("Agreement")
provides that the Managing General Partner and its affiliates be paid asset
management fees based on "tangible asset value" as defined in the Agreement.
The Agreement also provides for reimbursement to the Managing General Partner
and its affiliates for costs incurred in connection with the administration of
Partnership activities. The Managing General Partner and its affiliates
received reimbursements and fees as reflected in the following table:
Three Months Ended
March 31,
1998 1997
(in thousands)
Property management fees (included in
operating expenses) $ 41 $ 42
Asset management fees (included in general
and administrative expenses) 34 34
Reimbursement for services of affiliates
(included in operating, general and
administrative and investment properties) (1) 23 36
(1) Included in "reimbursements for services of affiliates" for the three
months ended March 31, 1997, is approximately $10,000 in reimbursements
for construction oversight costs.
For the period January 1, 1997 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the Managing
General Partner with an insurer unaffiliated with the Managing General Partner.
An affiliate of the Managing General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the master policy. The agent assumed the
financial obligations to the affiliate of the Managing General Partner, which
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control both the General Partner and the
Managing General Partner of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 three months ended March 31, 1998 and 1997:
Property 1998 1997
Lewis Park Apartments
Carbondale, Illinois 90% 91%
Highland Professional Tower
Kansas City, Missouri 67% 77%
The Managing General Partner attributes the decrease in occupancy at Highland
Professional Tower to tenants not renewing their leases due to deferred
maintenance that needed to be performed at the property. The Managing General
Partner renovated and repaired Highland Professional Tower's common areas during
the year ending December 31, 1997 in an attempt to attract and retain tenants;
however the trend has continued through March 1998 that as tenant leases expire
the tenants are only agreeing to month to month leases.
Results of Operations
The Partnership's net income for the three months ended March 31, 1998, was
approximately $4,000 versus approximately $177,000 for the three months ended
March 31, 1997. The decrease in net income is primarily attributable to a
decrease in rental income, and increases in operating and depreciation expenses.
Rental income decreased due to the decrease in occupancy at Highland
Professional Tower as discussed above. Operating expenses increased due to an
increase in maintenance expense as a result of parking lot and heating and air
conditioning repairs at Highland Professional Park. Depreciation expense
increased due to fixed asset additions related to the renovation project at
Highland Professional Park as discussed above.
Included in operating expenses at March 31, 1998 is approximately $82,000 of
major repairs and maintenance comprised primarily of parking lot repairs at
Highland Professional Tower. Included in operating expenses at March 31, 1997
is approximately $7,000 of major repairs and maintenance comprised of exterior
building repairs.
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 March 31, 1998, the Partnership had cash and cash equivalents of
approximately $1,192,000 compared to approximately $1,590,000 for the three
months ended March 31, 1997. The net (decrease) increase in cash and cash
equivalents for the three months ended March 31, 1998 and 1997 is ($147,000) and
$198,000, respectively. Net cash provided by operating activities decreased due
to the decrease in net income as discussed above and an increase in receivables
and deposits as a result of an increase in required tax escrow accounts. Net
cash used in investing activities decreased due to a decrease in property
improvements and replacements in 1998 as compared to 1997 as a result of the
1997 renovation project at Highland Professional Tower. Net cash used in
financing activities increased due to the payment in January 1998 of
distributions to partners declared and accrued December 1997.
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. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The Partnership
paid accrued cash distributions of $6,000 to the General Partner and $294,000 to
the limited partners during the three months ended March 31, 1998. No cash
distributions were made during the three months ended March 31, 1997. Future
cash distributions will depend on the levels of net cash generated from
operations, capital expenditure requirements, property sales, financing, and the
availability of cash reserves.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements expressed or implied by such forward-looking statements. Such
forward-looking statements speak only as of the date of this quarterly report.
The Partnership expressly disclaims any obligation or undertaking to release
publicly any updates of revisions to any forward-looking statements contained
herein to reflect any change in the Partnership's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
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 March 31, 1998.
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 General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President and Director
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President and Chief Accounting
Officer
Date: May 12, 1998