FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
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, 1997
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
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 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, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 1,402
Restricted--tenant security deposits 106
Accounts receivable 28
Escrow for taxes 351
Other assets 87
Investment properties:
Land $ 1,121
Buildings and related personal property 13,774
14,895
Less accumulated depreciation (4,590) 10,305
$12,279
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 32
Tenant security deposits 106
Accrued taxes 450
Other liabilities 44
Partners' Capital (Deficit)
General partners $ (47)
Limited partners (15,698 units
issued and outstanding) 11,694 11,647
$12,279
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,
1997 1996 1997 1996
Revenues:
Rental income $ 612 $ 688 $ 1,373 $ 1,504
Interest income 19 16 37 31
Other income 29 36 52 53
Total revenues 660 740 1,462 1,588
Expenses:
Operating 282 281 515 509
General and administrative 73 73 142 149
Maintenance 100 140 164 234
Depreciation 163 136 320 270
Property taxes 101 98 203 197
Total expenses 719 728 1,344 1,359
Net (loss) income $ (59) $ 12 $ 118 $ 229
Net (loss) income allocated
to general partners (2%) $ (1) $ 1 $ 2 $ 5
Net (loss) income allocated
to limited partners (98%) (58) 11 116 224
$ (59) $ 12 $ 118 $ 229
Net (loss) income per limited
partnership unit $ (3.70) $ .72 $ 7.37 $ 14.27
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, 1996 15,698 $ (49) $ 11,578 $ 11,529
Net income for the six
months ended June 30, 1997 -- 2 116 118
Partners' (deficit) capital
at June 30, 1997 15,698 $ (47) $ 11,694 $ 11,647
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,
1997 1996
Cash flows from operating activities:
Net income $ 118 $ 229
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 320 270
Amortization of leasing commissions 2 2
Change in accounts:
Restricted cash 59 37
Accounts receivable 60 47
Escrows for taxes (93) (206)
Other assets (27) 1
Accounts payable (43) (63)
Tenant security deposit liabilities (56) (37)
Accrued taxes 203 197
Other liabilities (15) (59)
Net cash provided by operating activities 528 418
Cash flows from investing activities:
Property improvements and replacements (518) (49)
Net cash used in investing activities (518) (49)
Net increase in cash and cash equivalents 10 369
Cash and cash equivalents at beginning of period 1,392 1,113
Cash and cash equivalents at end of period $ 1,402 $1,482
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.
In the opinion of IH, Inc. (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, 1997, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1997. 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,
1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 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 paid property management fees for the
property management services as noted below for the six months ended June 30,
1997 and 1996 respectively. Such fees are included in operating expenses in the
statements of operations and are reflected in the following table. 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 reflected in the following
table:
Six Months Ended
June 30,
1997 1996
(in thousands)
Property management fees $ 82 $ 88
Asset management fees 68 68
Reimbursement for services of affiliates 51 59
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 second quarter of 1997, a storm damaged the roofs at Lewis Park
Apartments. The Partnership is currently negotiating a settlement with the
insurance company. The Partnership does not anticipate this casualty to result
in a material loss to 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 six months ended June 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Lewis Park Apartments
Carbondale, Illinois 80% 81%
Highland Professional Tower
Kansas City, Missouri 76% 86%
The Managing General Partner attributes the decrease in occupancy at Highland
Professional Tower to tenants not renewing their leases due to deferred
maintenance at the property. The Managing General Partner is currently working
on a project to renovate the common areas of Highland Professional Tower. The
common area renovation project should be completed by the end of the third
quarter of 1997. The Managing General Partner believes that the project will
attract and retain tenants when completed.
Results of Operations
The Partnership's net income for the six months ended June 30, 1997, was
approximately $118,000 versus approximately $229,000 for the corresponding
period in 1996. The Partnership's net loss for the three months ended June 30,
1997, was approximately $59,000 versus net income of approximately $12,000 for
the corresponding period in 1996. The increase in net loss and the decrease in
net income for the three and six months ended June 30, 1997, respectively, is
primarily attributable to a decrease in rental income and an increase in
depreciation expenses. Rental income decreased as a result of the decrease in
occupancy at Highland Professional Tower as noted above. Depreciation expense
increased due to the fixed asset additions related to the ongoing renovation
project at Highland Professional Tower. These items were partially offset by a
decrease in maintenance expense. The decrease in maintenance expense is
primarily due to interior repair work performed at Lewis Park during the six
months ended June 30, 1996.
As part of the ongoing business plan of the Partnership, the 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 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 June 30, 1997, the Partnership had unrestricted cash of approximately
$1,402,000 compared to approximately $1,482,000 at June 30, 1996. Net cash
provided by operating activities increased primarily due to a decrease in
deposits to tax escrows. Net cash used in investing activities increased due to
the increase in property improvements and replacements.
The Managing General Partner is currently addressing the deferred maintenance
issues at Highland Professional Tower. The plan to address the deferred
maintenance issues includes the replacement of glass in the entry way, the
replacement of flooring and wallcoverings, restroom and elevator renovations,
and the installation of fire alarm and security systems. These renovations will
be paid from cash from operations. The Partnership has no other material
capital programs scheduled to be performed in 1997, 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 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. No cash
distributions were made during the six months ended June 30, 1997 or 1996,
respectively. 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.
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, 1997.
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 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HCW Pension
Real Estate Fund Ltd. Partnership 1997 Second Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000745538
<NAME> HCW PENSION REAL ESTATE FUND LTD. PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,402
<SECURITIES> 0
<RECEIVABLES> 28
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 14,895
<DEPRECIATION> (4,590)
<TOTAL-ASSETS> 12,279
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,647
<TOTAL-LIABILITY-AND-EQUITY> 12,279
<SALES> 0
<TOTAL-REVENUES> 1,462
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118
<EPS-PRIMARY> 7.37<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
