FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(d)
(As last amended by 34-31905, eff. 4/26/93)
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-14578
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
(Name of small business issuer 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
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $3,071,477
State the aggregate market value of the voting partnership interests by non-
affiliates computed by reference to the price at which the partnership interests
were sold, or the average bid and asked prices of such partnership interests, as
of a specified date within the past 60 days. Market value information for the
Registrant is not available. Should a trading market develop for these
interests, it is management's belief that such trading would not exceed
$25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
HCW Pension Real Estate Fund Limited Partnership (the "Partnership" or
"Registrant") is a publicly-held limited partnership organized on April 30,
1984, under the Uniform Limited Partnership Act of the Commonwealth of
Massachusetts. The General Partner of the Partnership is HCW General Partner
Ltd., (the "General Partner"). HCW General Partner Ltd. is a Texas limited
partnership whose sole general partner is IH, Inc.
On April 20, 1994, Hampton Realty Partners, L.P. ("Hampton Partners"), the
owner of all of the limited partner interest in the General Partner, and the
shareholders of Hampton UREF Acquisition Corp. ("Hampton Corp."), the general
partner of the General Partner and Hampton UREF Management, Ltd. ("UREF
Management", an affiliate of Hampton Corp.), entered into a Purchase Agreement
(the "Purchase Agreement") with Insignia Financial Group, Inc. ("Insignia") and
several of its affiliates whereby affiliates of Insignia would purchase all of
the limited partner interest in the General Partner and UREF Management, all of
the outstanding stock of Hampton Corp. and certain assets related to three other
limited partnerships. During the term of the Purchase Agreement, affiliates of
Insignia provided property management and partnership administration services to
the Partnership pursuant to subcontracts between Insignia and UREF Management,
the holder of the contracts to provide property management and portfolio
services to the Partnership.
On August 8, 1994, Hampton Realty Partners, L.P. assigned its ownership
interests in HCW General Partner, Ltd., formerly known as Hampton HCW General
Partner Ltd., to IH, Inc., an affiliate of Insignia and Metropolitan Asset
Enhancement, L.P. As a result, IH, Inc. now possesses the sole authority to
direct and manage HCW General Partner, Ltd., which is the sole general partner
of the Partnership. HCW General Partner, Ltd. is the successor general partner
to First HCW Pension Real Estate, Inc., a wholly-owned subsidiary of North
American Mortgage Investors, Inc. and WBK Associates Two Limited Partnership, a
Massachusetts limited partnership, the general partner of which is Southmark
Investment Group, Inc. A special meeting of the limited Partners of HCW
Pension Real Estate Fund Limited Partnership was held on November 19, 1993,
pursuant to a call by First HCW Pension Real Estate, Inc. for the purpose of
considering a proposal in which Hampton HCW General Partner, Ltd. would
substitute as the new general partner of the Partnership. On motion made and
carried by the affirmative vote of 10,172 units in favor of the proposal, the
proposal was adopted. Hampton HCW General Partner, Ltd. officially became the
General Partner on December 16, 1993. The address of the General Partner is
One Insignia Financial Plaza, P.O. Box 1089, Greenville, South Carolina 29602.
Prior to December 14, 1992, the Managing General Partner, First HCW
Pension Real Estate, Inc., authorized the business of the Partnership to be
managed by McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of
Robert A. McNeil ("McNeil"). On December 14, 1992, SHL Properties Realty
Advisors, Inc. ("SHL") began managing the day-to-day operations of the
Partnership. In August 1993, SHL changed its name to Hampton Realty Advisors,
Inc. ("Hampton').
On August 17, 1984, the Partnership registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 0-14578)
and commenced a public offering for sale of $25,000,000 of Limited Partnership
Units. The Limited Partnership Units represent equity interests in the
Partnership and entitle the holders thereof to participate in certain
allocations and distributions of the Partnership. The sale of Limited
Partnership Units closed on March 14, 1986, with 15,698 units sold at $1,000
each, or gross proceeds of $15,698,000 to the Partnership.
Pursuant to the purchase agreement dated August 8, 1994, affiliates of IH,
Inc. acquired certain assets from Hampton Realty Partners, L.P. and its
affiliates, service contract rights to all partnerships affiliated with Hampton
Realty, L.P. and receivables from partnerships other than the Partnership. In
addition, an affiliate of Metropolitan Asset Enhancement, L.P. acquired the
limited partnership interest in HCW General Partner, Ltd. on August 8, 1994.
As previously reported, affiliates of Insignia commenced providing
property management and administrative services to the Partnership on April 21,
1994. Such services continued to be performed by the Insignia affiliates on the
same terms after August 8, 1994.
A further description of the Partnership's business is included in
Management's Discussion and Analysis or Plan of Operation included in "Item 6"
of this Form 10-KSB.
The Registrant has no employees. Management and administrative services
are performed by HCW General Partner, Ltd., the General Partner, and by Insignia
Management Group, L.P., an affiliate of Insignia Financial Group, Inc.
("Insignia"). Pursuant to a management agreement between them, Insignia
affiliates provide property management services to the Registrant.
The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
The Registrant's properties are subject to competition from similar properties
in the vicinities in which they are located. In addition, various limited
partnerships have been formed by related parties to engage in business which may
be competitive with the Registrant.
Item 2. Description of Properties
The following table sets forth the Registrant's investments in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Lewis Park Apartments 11/86 Fee ownership Apartment
Carbondale, Illinois 269 units
Highland Professional Tower 10/92 Fee ownership Office Bldg.
Kansas City, Missouri 104,312 sq.ft.
</TABLE>
Schedule of Properties:
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
<S> <C> <C> <C> <C> <C>
Lewis Park Apartments $ 9,006,339 $3,021,878 5-40 S/L $3,506,010
Highland Professional
Tower 5,212,536 657,778 5-25 S/L 4,054,939
$14,218,875 $3,679,656 $7,560,949
</TABLE>
See "Note A" to financial statements in "Item 7" for descriptions of the
Partnership's depreciation policy.
Average annual rental rate and occupancy for 1995 and 1994 for each
property:
<TABLE>
<CAPTION>
Average Annual Average Annual
Rental Rates Occupancy
Property 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Lewis Park Apartments $7,595/unit $7,339/unit 78% 64%
Highland Professional Tower 13.13/sq.ft. 13.28/sq.ft. 94% 95%
</TABLE>
The General Partner attributes the increase in occupancy at Lewis Park
to an aggressive leasing campaign for the 1995 Fall Semester. Due to this
campaign, occupancy at December 31, 1995, was 95%.
As noted under "Item 1. Description of Business," the real estate
industry is highly competitive. All of the properties of the Partnership are
subject to competition from other residential apartment complexes and commercial
buildings in the area. The General Partner believes that all of the properties
are adequately insured. The multi-family residential tenants' lease terms are
for one year or less. No residential or commercial tenants lease 10% or more of
the available rental space.
Schedule of Lease Expirations:
The following is a schedule of the commercial lease expirations for the
years 1996 and thereafter:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
1996 12 22,916 324,267 24.62%
1997 3 18,237 228,248 17.33%
1998 8 13,111 170,793 12.97%
1999 1 1,090 16,982 1.29%
2000 4 4,583 65,514 4.97%
2001 1 2,200 6,996 .53%
Thereafter 0 0 0 0
The principal businesses of the tenants located at Highland Professional
Tower are medical practices.
Real estate taxes and rates in 1995 for each property were:
1995 1995
Billing Rate
Lewis Park Apartments $234,672 9.60%
Highland Professional Tower 139,757 9.19%
Item 3. Legal Proceedings
The Registrant is unaware of any pending or outstanding litigation that is
not of a routine nature. The General Partner of the Registrant believes that
all such matters are adequately covered by insurance and will be resolved
without a material adverse effect upon the Partnership's financial condition,
results of operations, or liquidity. (See "Note D" of financial statements.)
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1995, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
As of December 31, 1995, there was minimal trading of the Units in the
secondary market establishing a value of $200 per unit as quoted in the January
1996 Stanger Report. There are 1,626 holders of record owning an aggregate of
15,698 Units. No public trading market has developed for the Units, and it is
not anticipated that such a market will develop in the future. Distributions of
$459,976 were made in 1995 of which $450,776 were made to the Limited Partners
and $9,200 were made to the General partner. No cash distributions were paid in
1994. The distributions consisted of cash from operations and reserves.
Cumulative distributions through December 31, 1995, were $9,235,933 to the
Limited Partners and $188,735 to the General Partner. Future distributions
will depend on the levels of cash generated from operations, financings,
property sales and the availability of cash reserves.
Item 6. Management's Discussion and Analysis or Plan of Operation
This item should be read in conjunction with the financial statements and
other items contained elsewhere in this report.
Results of Operations
The Partnership's net income as shown in the financial statements for the
year ended December 31, 1995, was $371,057 versus $242,717 for the year ended
December 31, 1994, (see "Note B" of the financial statements for a
reconciliation of these amounts to the Partnership's federal taxable income).
The increase in net income is primarily attributable to increased rental revenue
and other income due to the significant increase in occupancy at Lewis Park
Apartments as previously noted. Other income also increased due to management's
aggressive collection of late fees and cancellation fees. Partially offsetting
these increases were increases in general and administrative expense, property
management fees and maintenance expense, and a decrease in tenant
reimbursements. General and administrative expense increased due to increased
asset management fees which are calculated as a percentage of the tangible asset
value of the Partnership. Property management fees increased as a result of
increased rental revenue at Lewis Park. Tenant reimbursements decreased due to
decreased occupancy at Highlands Professional Tower. Maintenance expense
increased at Lewis Park due to interior painting and other interior upgrades
combined with increased lawn maintenance and landscaping costs incurred to
increase the property's curb appeal. In addition, the Partnership recognized a
loss on disposal of property in 1995 as a result of the replacement of the roof
at Highlands Professional Park.
During the first quarter of 1995, the Partnership recorded a casualty loss
resulting from ice damage to the roofs and interiors of two buildings at Lewis
Park Apartments. Although the damage was covered by insurance, the damage
resulted in a loss of $18,441, arising from proceeds received of $181,040 which
were less than the basis of the property plus expenses to replace the roofs and
interiors damaged.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each 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 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
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At December 31, 1995, the Partnership had unrestricted cash of $1,109,687
compared to $342,956 at December 31, 1994. Net cash provided by operating
activities increased primarily as a result of increased net income as discussed
above. Accounts payable increased in 1995 as a result of the timing of payments
to vendors. Net cash provided by investing activities increased as a result of
maturing short-term investments in 1995 which were not reinvested and the
receipt of insurance proceeds as discussed above. Property improvements also
increased during 1995 due to efforts at Lewis Park to increase occupancy and to
replace damaged units as a result of the casualty as disclosed. Net cash used
in financing activities increased due to partners being paid distributions
during 1995.
The Partnership has no 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.
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 various properties 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.
Cash distributions of $459,976 were paid during the year ended December 31,
1995. Future cash distributions will depend on the levels of net cash generated
from operations, financings, property sales and the availability of cash
reserves.
Item 7. Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet - December 31, 1995
Statements of Operations - Years ended December 31, 1995 and 1994
Statements of Changes in Partner's Capital (Deficit) - Years ended
December 31, 1995 and 1994
Statements of Cash Flows - Years ended December 31, 1995 and 1994
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
The Partners
HCW Pension Real Estate Fund Limited Partnership
We have audited the accompanying balance sheet of HCW Pension Real Estate Fund
Limited Partnership ("the Partnership") as of December 31, 1995, and the related
statements of operations, changes in partners' capital (deficit), and cash flows
for each of the two years in the period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1995, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 21, 1996
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
BALANCE SHEET
December 31, 1995
Assets
Cash:
Unrestricted $ 1,109,687
Restricted--tenant security deposits 172,712
Accounts receivable 153,159
Escrows for taxes 119,665
Other assets 12,047
Investment properties (Note F):
Land $ 1,120,655
Buildings and related personal 13,098,220
14,218,875
Less accumulated depreciation (3,679,656) 10,539,219
$12,106,489
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 127,571
Tenant security deposits 169,959
Accrued taxes 246,095
Other liabilities 109,588
Partners' Capital (Deficit)
General partner $ (50,784)
Limited partners (15,698 units
issued and outstanding) 11,504,060 11,453,276
$12,106,489
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31,
1995 1994
Revenues:
Rental income $2,929,259 $2,593,223
Other income 142,218 71,786
Total revenues 3,071,477 2,665,009
Expenses:
Operating 800,513 845,448
General and administrative 290,371 260,817
Property management fees 164,733 140,906
Maintenance 548,132 394,487
Depreciation 581,215 565,107
Property taxes 372,690 386,411
Tenant reimbursements (135,839) (162,397)
Total expenses 2,621,815 2,430,779
Loss on disposal of property (60,164) --
Casualty (loss) gain (Note E) (18,441) 8,487
Net income (Note B) $ 371,057 $ 242,717
Net income allocated to general
partner (2%) $ 7,421 $ 4,854
Net income allocated to limited
partners (98%) 363,636 237,863
$ 371,057 $ 242,717
Net income per limited partnership unit $ 23.16 $ 15.15
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 15,698 -- 15,698,000 15,698,000
Partners' capital (deficit) at
December 31, 1993 15,698 $(53,859) $11,353,337 $11,299,478
Net income for the year ended
December 31, 1994 -- 4,854 237,863 242,717
Partners' capital (deficit) at
December 31, 1994 15,698 (49,005) 11,591,200 11,542,195
Distributions paid to partners -- (9,200) (450,776) (459,976)
Net income for the year ended
December 31, 1995 -- 7,421 363,636 371,057
Partners' capital (deficit) at
at December 31, 1995 15,698 $(50,784) $11,504,060 $11,453,276
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994
Cash flows from operating activities:
Net income $ 371,057 $ 242,717
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 581,215 565,107
Amortization of leasing commissions 3,704 8,154
Casualty loss (gain) 18,441 (8,487)
Loss on disposal of property 60,164 --
Change in accounts:
Restricted cash (6,359) (45,614)
Accounts receivable (3,666) (138,869)
Escrows for taxes (65,409) (54,256)
Other assets 65,819 148,892
Accounts payable 55,639 23,545
Tenant security deposit liabilities 5,370 48,509
Accrued taxes (2,052) 11,083
Other liabilities (19,293) (5,253)
Net cash provided by operating activities 1,064,630 795,528
Cash flows from investing activities:
Property improvements and replacements (500,169) (62,907)
Cash invested in short-term investments (610,716) (502,970)
Cash received from matured investments 1,113,686 --
Net insurance proceeds from property damage 159,276 --
Net cash provided by (used in)
investing activities 162,077 (565,877)
Cash flows from financing activities:
Partners' distributions (459,976) --
Net cash used in financing activities (459,976) --
Net increase in cash 766,731 229,651
Cash at beginning of year 342,956 113,305
Cash at end of year $ 1,109,687 $ 342,956
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995
Note A - Organization and Summary of Significant Accounting Policies
Organization: HCW Pension Real Estate Fund Limited Partnership (the
"Partnership") is a limited partnership organized pursuant to the laws of the
Commonwealth of Massachusetts on April 30, 1984. On August 17, 1984, a
registration statement was declared effective by the Securities and Exchange
Commission. The Partnership commenced operations on June 5, 1985. The
Partnership operates an apartment property and a commercial property located in
the Midwest.
On August 8, 1994, Hampton Realty Partners, L.P., the owner of all of the
limited partner interests in the Managing General Partner, assigned its general
partnership interest in Hampton HCW General Partner, Ltd. to IH, Inc., an
affiliate of Insignia Financial Group, Inc. ("Insignia") and Metropolitan Asset
Enhancement, L.P. Also effective August 8, 1994, Hampton HCW General Partner,
Ltd. changed its name to HCW General Partner, Ltd. As a result, IH, Inc. now
possesses the sole authority to direct and manage HCW General Partner, Ltd.,
which is the sole general partner of the Partnership.
Pursuant to the purchase agreement dated August 8, 1994, affiliates of IH, Inc.
acquired certain assets from Hampton Realty Partners, L.P. and its affiliates,
including the general partnership interest assigned to IH, Inc., service
contract rights to all partnerships affiliated with Hampton Realty, L.P. and
receivables from partnerships other than the Partnership. In addition, an
affiliate of Metropolitan Asset Enhancement, L.P. acquired the limited
partnership interest in HCW General Partner, Ltd. from the termination of an
escrow, which occurred on December 31, 1994.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Allocation of Cash Distributions: Distributions to the partners are paid from
operations of the Partnership's properties, from sales or refinancing of
properties, or from working capital reserves. Distributions from operations are
distributed 98% to the Limited Partners and 2% to the General Partner.
Distributions of cash from sales and refinancings or from working capital
reserves are made in the following order:
(a) First to the Limited Partners in an amount equal to their adjusted capital
contributions; then,
(b) to the Limited Partners in an amount equal to a 12% cumulative
noncompounded annual return on their average adjusted capital contribution
for Partners who invested on or before March 1, 1985, and 10% to all
others; then,
(c) 90% to the Limited Partners and 10% to the General Partner until the
Limited Partners have received, in addition to amounts received pursuant
to (a) and (b), an amount equal to 2% cumulative, noncompounded annual
return on their average adjusted capital contributions; then,
(d) thereafter, 85% to the Limited Partners and 15% to the General Partner.
During 1995, the Partnership distributed cash of $450,776 to the Limited
Partners and $9,200 to the General Partner. During 1994, no distributions were
made.
Allocation of Profits, Gains and Losses: The Partnership Agreement provides for
net income or loss arising from Partnership operations other than sales,
financings or refinancings to be allocated 98% to the Limited Partners and 2% to
the General Partner.
Net income arising from a sale, financing or refinancing is to be allocated as
follows: (i) to those partners who have negative balances in their capital
accounts in proportion to and to the extent of such negative balances, (ii) to
the Limited Partners in an amount equal to their adjusted capital contributions,
(iii) to the Limited Partners in an amount equal to a 12% cumulative,
noncompounded annual return on their average adjusted capital contributions for
Limited Partners who invested prior to March 1, 1985, and 10% to all others,
(iv) 90% to the Limited Partners and 10% to the General Partner until the
Limited Partners have received an amount equal to a 2% cumulative, noncompounded
annual return on their average adjusted capital contributions, and (v)
thereafter, 85% to the Limited Partners and 15% to the General Partner.
Net losses from a sale, financing or refinancing are to be allocated as follows:
(i) to any partners having positive capital account balances in proportion to
and to the extent of such positive balances, and (ii) thereafter, 98% to the
Limited Partners and 2% to the General Partner.
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and Treasury Regulation Sections establish
criteria for allocations of Partnership deductions attributable to nonrecourse
debt. The Partnership's allocations for 1995 and 1994 have been made in
accordance with these provisions.
Escrows for Taxes: These escrows are held by the Partnership and are designated
for the payment of real estate taxes.
Depreciation: Depreciation for financial statement purposes is determined using
the straight-line method over the estimated lives of the apartment properties
and related personal property.
For Federal income tax purposes, the accelerated cost recovery method is used
(1) for real property over 18 years for additions after March 15, 1984, and
before May 9, 1985, and 19 years for additions after May 8, 1985, and before
January 1, 1987, and (2) for personal property over 5 years for additions prior
to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions
after December 31, 1986, the modified accelerated cost recovery method is used
for depreciation of (1) real property additions over 27 1/2 years, and (2)
personal property additions over 7 years.
Note A - Organization and Summary of Significant Accounting Policies (Continued)
Effective generally for property placed in service on or after May 13, 1993, the
Deficit Reduction Act of 1993 increases the depreciation period from 31.5 to 39
years, although transition rules apply to property placed in service before
1994.
Amortization: Lease commissions are being amortized over the terms of the
respective leases using the straight-line method.
Cash and Cash Equivalents: The Partnership considers unrestricted cash and
certificates of deposit to be cash. At certain times, the amount of cash
deposited at a bank may exceed the limit on insured deposits.
Restricted Cash--Tenant Security Deposits: The Partnership requires security
deposits from all residential and some commercial lessees for the duration of
the lease and considers them restricted cash. Deposits are refunded when the
tenant vacates if there has been no damage and no rents due.
Leases: The Partnership generally leases its residential property for twelve
month terms or less. Rental income is recognized over the terms of the leases as
it is earned. The Partnership leases its commercial property under
noncancelable operating leases that expire over the next five years. Some
leases provide concessions and periods of escalating or free rent. Rental
income is recognized on a straight-line basis over the life of the lease. Any
excess of rental income recognized over the contractual rental payments due is
recorded as accrued rent receivable. As of December 31, 1995, this balance was
approximately $36,000.
Investment Properties: During the fourth quarter of 1995, the Partnership
adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The impairment loss
is measured by comparing the fair value of the asset to its carrying amount.
The adoption of FASB No. 121 had no effect on the Partnership's financial
statements.
Reclassifications: Certain reclassifications have been made to the 1994
information to conform to the 1995 presentation.
Fair Value: In 1995, the Partnership implemented Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
carrying amount of the Partnership's cash and investments approximates fair
value due to short-term maturities.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was $20,994 and $15,286 for
the years ended December 31, 1995 and 1994, respectively.
Note B - Income Taxes
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Note B - Income Taxes (Continued)
The following is a reconciliation of reported net income and Federal taxable
income:
1995 1994
Financial statement net income $371,057 $ 242,717
Add:
Excess of book loss over tax gain on
disposal of property 127,112 --
Excess of book over tax depreciation 182,661 186,176
Unearned rents, recognized for tax
purposes as received 9,748 49,391
Other tax adjustments (51,036) 23,175
Taxable income $639,542 $501,459
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities:
Net assets as reported $11,453,276
Investment properties
at cost 216,650
Accumulated depreciation 763,023
Syndication costs 1,707,780
Other 44,337
Net assets - tax basis $14,185,066
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The partnership agreement provides for payments to affiliates for services
(based on a percentage of revenue) and the reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership. Balances and other
transactions with Insignia Financial Group, Inc. and affiliates in 1995 and 1994
are as follows:
For the Year Ended December 31,
1995 1994
Property management fees $164,733 $95,397
Asset management fees 154,924 75,801
Reimbursement for services
of affiliates 116,272 112,814
Note C - Transactions with Affiliated Parties (Continued)
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the General Partner. An affiliate of the 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 General Partner, who receives
payment 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.
The following payments were made to Hampton Realty Partners, L.P. and its
affiliates for the year ended December 31, 1994:
For the Year Ended
December 31, 1994
Property management fees $ 45,509
Asset management fees 27,045
Reimbursement for services of affiliates 26,043
Note D - Contingencies
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner of the Partnership believes that all
such matters are adequately covered by insurance and will be resolved without a
material adverse effect upon the Partnership's financial condition, results of
operation, or liquidity.
Note E - Casualty Loss
During 1995, the Partnership recorded a casualty loss resulting from ice damage
to the roofs and interiors of two buildings at Lewis Park Apartments. Although
the damage was covered by insurance, the damage resulted in a loss of $18,441,
arising from proceeds received from the insurance carrier of $181,040 which were
less than the basis of the property plus expenses to replace the roofs and
interiors damaged.
During 1994, the Partnership recorded a casualty gain resulting from storm
damage at Lewis Park Apartments to the roof and interiors of four units. The
damage resulted in a gain of $8,487 arising from proceeds received from the
insurance carrier of $56,100 which exceeded the basis of the property plus
expenses to replace the roof and interiors.
Note F - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Land Property Acquisition
<S> <C> <C> <C>
Lewis Park Apartments $ 620,655 $ 7,840,267 $ 545,417
Highland Professional
Tower 500,000 4,647,871 64,665
Totals $1,120,655 $12,488,138 $ 610,082
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1995
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis Park $ 620,655 $ 8,385,684 $ 9,006,339 $3,021,878 1972 11/86 5-40
Highland 500,000 4,712,536 5,212,536 657,778 1973 10/92 5-25
Total $1,120,655 $13,098,220 $14,218,875 $3,679,656
</TABLE>
Note F - Real Estate and Accumulated Depreciation (Continued)
Reconciliation of Real Estate and Accumulated Depreciation :
Years Ended December 31,
1995 1994
Real Estate
Balance at beginning of year $14,085,894 $14,076,851
Property improvements 500,169 74,007
Disposal of property (367,188) (64,964)
Balance at End of Year $14,218,875 $14,085,894
Accumulated Depreciation
Balance at beginning of year $ 3,220,865 $ 2,677,970
Additions charged to 581,215 565,107
Disposal of property (122,424) (22,212)
Balance at End of Year $ 3,679,656 $ 3,220,865
The aggregate cost of the real estate for Federal income tax purposes at
December 1, 1995 and 1994, is $14,435,525 and $14,150,858. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1995 and
1994, is $2,916,633 and $2,518,079.
Note G - Revenues
The Partnership leases Highland Professional Tower, its only commercial
property, under noncancelable operating lease agreements. Future minimum rental
payments to be received under operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1995, are as
follows:
1996 $ 717,157
1997 449,886
1998 188,363
1999 84,160
2000 47,561
Thereafter 2,792
$1,489,919
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The Registrant has no officers or directors. The name of the directors and
executive officers of IH, Inc. (the "Managing General Partner"), the General
Partner of the Partnership's General Partner, HCW General Partners, Limited
Partnership, and a subsidiary of Metropolitan Asset Enhancement, L.P. as of
December 31, 1994, their age and the nature of all positions with IH, Inc.
presently held by them are as follows:
Name Age Position
Carroll D. Vinson 55 President
Robert D. Long, Jr. 28 Controller and Principal
Accounting Officer
William H. Jarrard, Jr. 49 Vice President
John K. Lines 36 Secretary
Kelley M. Buechler 38 Assistant Secretary
Carroll D. Vinson has been President of the Managing General Partner and
President of the MAE subsidiaries since August 1994. Prior to that, during 1993
to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA
firm) and engaged in various other investment and consulting activities.
Briefly, in early 1993, Mr. Vinson served as President and Chief Executive
Officer of Angeles Corporation, a real estate investment firm. From 1991 to
1993, Mr. Vinson was employed by Insignia in various capacities including
Managing Director-President during 1991. From 1986 to 1990, Mr. Vinson was
President and a Director of U.S. Shelter Corporation, a real estate services
company, which sold substantially all of its assets to Insignia in December
1990.
Robert D. Long, Jr. has been Controller and Principal Accounting Officer of
the Managing General Partner since August 1994 and Controller and Principal
Accounting Officer of the MAE subsidiaries since February 1994. Prior to
joining Metropolitan Asset Enhancement, L.P., and subsidiaries, he was an
auditor for the State of Tennessee and was associated with the accounting firm
of Harshman Lewis and Associates. He is a graduate of The University of
Memphis.
William H. Jarrard, Jr. has been Vice President of Managing General Partner
since August 1994 and Managing Director - Partnership Administration of Insignia
Financial Group, Inc. ("Insignia") since 1991. During the five years prior to
joining Insignia in 1991, he served in a similar capacity for U.S. Shelter. Mr.
Jarrard is a graduate of the University of South Carolina and a certified public
accountant.
John K. Lines has been Assistant Secretary of Managing General Partner since
August 1994 and Assistant Secretary of Insignia since January 1991. From May
1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice
President of Ocwen Financial Corporation in West Palm Beach, Florida. From
October 1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One
Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was
employed as an Associate Attorney with Squire Sanders & Dempsey in Columbus,
Ohio.
Kelley M. Buechler has been Assistant Secretary of Managing General Partner
since August 1994 and Assistant Secretary of Insignia since January 1991.
During the five years prior to joining Insignia in 1991, she served in a similar
capacity for U.S. Shelter. Ms. Buechler is a graduate of the University of
North Carolina.
Item 10. Executive Compensation
The General Partner nor any of the directors and officers of the Managing
General Partner received any remuneration from the Registrant.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1995, no person was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant.
No director or officer of the Managing General Partner owns any Units. The
Managing General Partner does not own any of the Limited Partnership Units.
Item 12. Certain Relationships and Related Transactions
The General Partner received no cash distributions from operations as
General or Limited Partners during or with respect to, the fiscal year ended
December 31, 1995. For a description of the share of cash distributions from
operations, if any, to which the general partners are entitled, reference is
made to the material contained in the Prospectus under the heading PROFITS AND
LOSSES AND CASH DISTRIBUTIONS.
The Registrant has a property management agreement with Insignia Management
Group, L.P. pursuant to which Insignia Management Group, L.P. has assumed direct
responsibility for day-to-day management of the Partnership's properties. This
service includes the supervision of leasing, rent collection, maintenance,
budgeting, employment of personnel, payment of operating expenses, etc.
Insignia Management Group, L.P. receives a property management fee equal to 5%
of apartment revenues and Insignia Commercial Group, Inc. receives a property
management fee equal to 6% of commercial revenues. During the fiscal year ended
December 31, 1995, Insignia Management Group, L.P. and Insignia Commercial
Group, Inc. received $164,733, collectively, in fees for property management and
$154,924 in fees for asset management.
For a more detailed description of the management fee that Insignia
Management Group, L.P. and Insignia Commercial Group, Inc. are entitled to
receive, see the material contained in the Prospectus under the heading
CONFLICTS OF INTEREST - Property Management Services.
For a further description of payments made by the Registrant to affiliates
for services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Registrant, see "Note C" of the financial statements included as
part of this report.
Item 13. 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 in the fourth quarter of fiscal year 1995:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly 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.
General Partner
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
Date: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities and on the dates indicated below.
IH, Inc.
BY: /s/ Carroll D. Vinson
Carroll D. Vinson
President
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Chief
Accounting Officer
EXHIBIT INDEX
Exhibit
3. & 4. Limited Partnership Agreement (Incorporated by reference to
Registration Statement No. 2-91006 on Form S-11 filed by
Registrant).
10.1 Property Management Agreement
19. Asset Purchase Agreement among Southmark Corporation and Robert
A. McNeil dated October 12, 1990, between various affiliates of
Southmark Corporation and Robert A. McNeil. Incorporated by
reference to the Annual Report of McNeil Real Estate Fund IV,
Ltd., (Commission file number 0-7894) on Form 10-K for the period
ended December 31, 1991, as filed with the Securities and
Exchange Commission on March 24, 1992.
19.3 Agreed order approving Compromise, Settlement and Mutual Release
Agreement between Southmark Corporation and the Southmark
Affiliated Limited Partnership. Incorporated by reference to the
Annual Report of McNeil Real Estate Fund IV, Ltd., (Commission
file number 0-7894) on Form 10-K for the period ended
December 31, 1991, as filed with the Securities and Exchange
Commission on March 24, 1992.
19.1 Asset Purchase Agreement among Southmark Corporation and Robert
A. McNeil dated October 12, 1990, as amended by the First
Amendment to the Asset Purchase Agreement dated February 14,
1991. Incorporated by reference to the Annual Report of McNeil
Real Estate Fund IV, Ltd., (Commission file number 0-7894) on
Form 10-K for the period ended December 31, 1991, as filed with
the Securities and Exchange Commission on March 24, 1992.
19.2 Asset Purchase Agreement among Southmark Corporation and Robert
A. McNeil, dated October 12, 1990 as amended by the Second
Amendment to Asset Purchase Agreement dated February 25, 1992.
Incorporated by reference to the Annual Report of McNeil Real
Estate Fund IV, Ltd., (Commission file number 0-7894) on Form 10-
K for the period ended December 31, 1991, as filed with the
Securities and Exchange Commission on March 24, 1992.
19.3 Asset Purchase Agreement among Southmark Corporation and its
affiliates and SHL Acquisition Corp. III dated March 9, 1993 as
amended by the First Amendment to Asset Purchase Agreement dated
April 22, 1993.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HCW Pension
Real Estate Fund Limited Partnership 1995 Year-End 10-KSB and is qualified in
its entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000745538
<NAME> HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,109,687
<SECURITIES> 0
<RECEIVABLES> 153,159
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,218,875
<DEPRECIATION> 3,679,656
<TOTAL-ASSETS> 12,106,489
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,453,276
<TOTAL-LIABILITY-AND-EQUITY> 12,106,489
<SALES> 0
<TOTAL-REVENUES> 3,071,477
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,621,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371,057
<EPS-PRIMARY> 23.16
<EPS-DILUTED> 0
<FN>
<F1>The Partnership has an unclassified balance sheet.
</FN>
</TABLE>
