FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
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 June 30, 1996
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) (Zip Code)
Issuer's telephone number (864) 239-1000
Check whether the issuer (1) 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 .
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, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 1,482
Restricted--tenant security deposits 136
Accounts receivable 103
Escrow for taxes 325
Other assets 9
Investment properties:
Land $ 1,121
Buildings and related personal property 13,147
14,268
Less accumulated depreciation (3,949) 10,319
$12,374
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 65
Tenant security deposits 133
Accrued taxes 443
Other liabilities 51
Partners' Capital (Deficit)
General partners $ (45)
Limited partners (15,698 units
issued and outstanding) 11,727 11,682
$12,374
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,
1996 1995 1996 1995
Revenues:
Rental income $ 688 $ 683 $ 1,504 $ 1,498
Other income 52 48 84 77
Total revenues 740 731 1,588 1,575
Expenses:
Operating 281 312 509 549
General and administrative 73 90 149 172
Maintenance 140 147 234 215
Depreciation 136 143 270 283
Property taxes 98 81 197 183
Total expenses 728 773 1,359 1,402
Casualty loss -- -- -- (25)
Net income (loss) $ 12 $ (42) $ 229 $ 148
Net income (loss) allocated
to general partners (2%) $ 1 $ (1) $ 5 $ 3
Net income (loss) allocated
to limited partners (98%) 11 (41) 224 145
$ 12 $ (42) $ 229 $ 148
Net income (loss) per limited
partnership unit $ .72 $ (2.63) $ 14.27 $ 9.26
<FN>
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 and original contributions)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 15,698 $ 200 $15,698,000 $15,698,200
Partners' (deficit) capital
at December 31, 1995 15,698 $ (50) $ 11,503 $ 11,453
Net income for the six
months ended June 30, 1996 5 224 229
Partners' (deficit) capital
at June 30, 1996 15,698 $ (45) $ 11,727 $ 11,682
<FN>
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,
1996 1995
Cash flows from operating activities:
Net income $ 229 $ 148
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 270 283
Amortization of leasing commissions 2 2
Casualty loss -- 25
Change in accounts:
Restricted cash 37 35
Accounts receivable 47 --
Escrows for taxes (206) (217)
Other assets 1 49
Accounts payable (63) (3)
Tenant security deposit liabilities (37) (35)
Accrued taxes 197 171
Other liabilities (59) (46)
Net cash provided by operating 418 412
Cash flows from investing activities:
Property improvements and replacements (49) (168)
Net insurance proceeds from property damage -- 173
Net cash (used in) provided by
(49) 5
Net increase in cash 369 417
Cash and cash equivalents at beginning of period 1,113 846
Cash and cash equivalents at end of period $1,482 $1,263
<FN>
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(in thousands)
Supplemental Disclosure of Non-Cash Activity
Other assets and accounts payable were adjusted by $181,000 and $22,000,
respectively, at June 30, 1995, for non-cash amounts in connection with ice
damage to the roofs and interiors of two buildings at Lewis Park Apartments.
Investment property and accumulated depreciation were also adjusted by $276,000
and $91,000, respectively. The property damage resulted in a loss of $25,000,
arising from proceeds receivable from the insurance carrier of $181,000 which
were less than the basis of the property plus expenses to replace the roofs and
interiors damaged.
e) HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements 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.
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 six month period ended June 30, 1996,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1996. 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, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 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 payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Balances and other transactions with
Insignia Financial Group, Inc. and affiliates in 1996 and 1995 are as follows:
Six Months Ended
June 30,
1996 1995
(in thousands)
Property management fees $ 88 $ 88
Asset management fees 68 91
Reimbursement for services of affiliates 59 60
The Partnership insures its properties under a master policy through an agency
and 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 current year's master policy. The current agent assumed
the financial obligations to the affiliate of the Managing General Partner who
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
Managing General Partner by virtue of the agent's obligations is not
significant.
Note C - Casualty
During the first quarter of 1995, the Partnership recorded a casualty loss
resulting from ice damage at Lewis Park Apartments to the roofs and interiors of
two buildings. Although the damage was covered by insurance, the damage
resulted in a loss of $25,000, arising from proceeds received from the insurance
carrier of $181,000 which were less than the basis of the property plus expenses
to replace the roofs and interiors damaged.
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 six months ended June 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Lewis Park Apartments
Carbondale, Illinois 81% 77%
Highland Professional Tower
Kansas City, Missouri 86% 95%
The Managing General Partner attributes the increase in occupancy at Lewis Park
to aggressive leasing and marketing efforts and the increase of units available
to rent due to improvements and repairs. The decrease in occupancy at Highland
Professional Tower is attributable to tenants not renewing their leases due to
deferred maintenance that needs to be performed at the property. The Managing
General Partner plans to start renovating and repairing Highland Professional
Tower's common areas in the third quarter of 1996 and will continue throughout
the year ending December 31, 1997.
The Partnership's net income for the six months ended June 30, 1996, was
approximately $229,000 with the second quarter having net income of
approximately $12,000. The Partnership reported net income of approximately
$148,000 and a net loss of approximately $42,000 for the corresponding periods
of 1995. The increase in net income is primarily attributable to a decrease in
general and administrative expense and a decrease in casualty loss for the six
months ended June 30, 1996. General and administrative expense decreased for
the three and six months ended June 30, 1996, due to a reduction in asset
management fees charged by the General Partner. The Partnership recorded a
casualty loss at Lewis Park Apartments of approximately $25,000 resulting from
ice damage to the roofs and interiors of two buildings during the first six
months of 1995. Operating expense also decreased for three months ended June
30, 1996, as a result of converting damaged units and units which had been used
for storage to leasable units. Partially offsetting the increase in net income
was an increase in maintenance expense at Lewis Park for the six months ended
June 30, 1996, which resulted from management's efforts to prepare vacant units
for occupancy.
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 Partnership from increases in expense. 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.
At June 30, 1996, the Partnership had unrestricted cash of approximately
$1,482,000 compared to approximately $1,263,000 at June 30, 1995. Net cash
provided by operating activities increased primarily as a result of an increased
net income as discussed above. Net cash used in investing activities increased
as a result of insurance proceeds being received in 1995. Property improvements
decreased in 1996 as the Partnership incurred a casualty loss at Lewis Park
during the first six months of 1995.
The Managing General Partner is currently addressing the deferred maintenance
issues at Highlands Professional Tower. The plan includes common area
renovations and repairs during the third quarter and will continue throughout
the year ending December 31, 1997. The Partnership currently has no other
material capital programs scheduled to be performed in 1996, although certain
routine capital expenditures and maintenance expenses have been budgeted. These
capital expenditures and maintenance expenses will be incurred only if cash is
available from operations or is received from the capital reserve account.
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. Future cash
distributions will depend on the levels of net cash generated from operations,
capital expenditure requirements, property sales, financings, and the
availability of cash reserves. No cash distributions were made during the first
six months of 1996 or 1995.
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, 1996.
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
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: August 5, 1996