FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from.........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. $2,999,000
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 the Managing General Partner's belief that the aggregate market
value of the voting partnership interests 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. ("Managing General Partner").
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 the 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.
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 Corp. 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 the 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.
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. Prior to
February 25, 1998, the Managing General Partner was a wholly-owned subsidiary of
MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged
into Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus
the Managing General Partner is now a wholly-owned subsidiary of IPT. On March
17, 1998, Insignia entered into an agreement to merge its national residential
property management operations, and its controlling interest in Insignia
Properties Trust, 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 the General Partner of the
Partnership.
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 April 21,
1994 affiliates of Insignia commenced providing property management and
administrative services to the Partnership. 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
Residential Group, L.P., an affiliate of 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:
Date of
Property Purchase Type of Ownership Use
Lewis Park Apartments 11/86 Fee ownership Apartment
Carbondale, Illinois 269 units
Highland Professional Tower 10/92 Fee ownership Office Bldg.
Kansas City, Missouri approximately
102,000 sq.ft.
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
<S> <C> <C> <C> <C> <C>
Lewis Park Apartments $ 9,320 $3,801 5-40 S/L $ 6,419
Highland Professional
Tower 6,071 1,091 5-25 S/L 5,413
$15,391 $4,892 $11,832
<FN>
See "Note A" to financial statements in "Item 7" for descriptions of the
Partnership's depreciation policy.
</FN>
</TABLE>
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average Annual
Rental Rates Occupancy
Property 1997 1996 1997 1996
Lewis Park Apartments $7,751/unit $7,548/unit 84% 84%
Highland Professional Tower 13.80/sq.ft. 13.16/sq.ft. 74% 85%
The Managing General Partner attributes the decrease in occupancy at Highland
Professional Tower to tenants not renewing their leases due to deferred
maintenance that needs 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.
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 Managing 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 tenant leases 10% or more of the available
rental space.
SCHEDULE OF LEASE EXPIRATIONS:
The following is a schedule of the commercial lease expirations for Highland
Professional Tower for the years 1998 and thereafter (dollar amounts in
thousands):
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
1998 7 13,111 $174 29.85%
1999 3 2,929 47 8.10%
2000 6 2,963 63 10.75%
2001 1 2,468 32 5.50%
2002 4 3,857 69 11.74%
2003 2 11,581 183 31.30%
2004 1 1,151 16 2.76%
The principal businesses of the tenants located at Highland Professional Tower
are medical practices.
The following schedule presents information on tenants leasing 10% or more of
the leasable square footage for Highlands Professional Tower:
Square Footage Annual Rent Per Lease
Nature of Business Leased Square Foot Expiration
Radiologist 11,581 13.44 11/31/03
SCHEDULE OF REAL ESTATE TAXES AND RATES:
(Dollar amounts in thousands)
1997 1997
Billing Rate
Lewis Park Apartments $247 9.83%
Highland Professional Tower 150 9.28%
ITEM 3. LEGAL PROCEEDINGS
The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The Managing 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 1997, no matter was submitted to a
vote of security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED
PARTNER MATTERS
There is no established market for the Units and it is not anticipated that any
will occur in the foreseeable future. As of December 31, 1997, there were 1,799
holders of record owning an aggregate of 15,698 units. A distribution of
$300,000 was recorded on December 31, 1997 and was paid on January 6, 1998. A
distribution of approximately $294,000 was made to the limited partners in 1996.
Additionally, a distribution of approximately $6,000 was made to the General
Partner in 1996. Future distributions will depend on the levels of cash
generated from operations, refinancings, 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, 1997 was approximately $154,000 versus approximately $376,000
for the year ended December 31, 1996. The decrease in net income is primarily
attributable to the decrease in rental income and increases in property taxes
and depreciation expense. Rental income decreased due to the decrease in average
annual occupancy at Highland Professional Tower from 85% in 1996 to 74% in 1997.
This decrease is attributable to tenants not renewing their leases due to
deferred maintenance that needed to be performed at the property. The common
areas were renovated and repaired during 1997. Depreciation increased due to the
fixed asset additions related to the ongoing renovation project at Highland
Professional Tower. Also contributing to the decrease in net income was an
increase in property taxes. Property taxes increased as a result of the
increase in assessed values at both investment properties.
Included in operating expense for the year ended December 31, 1997 is
approximately $40,000 of major repairs and maintenance comprised primarily of
exterior building improvements, major landscaping and construction oversight
reimbursements. Included in operating expense for the year ended December 31,
1996 is approximately $83,000 of major repairs and maintenance comprised
primarily of interior and exterior building improvements and swimming pool
repairs.
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of
approximately $1,339,000 as compared to approximately $1,392,000 at December 31,
1996. The net (decrease) increase in cash and cash equivalents for the years
ended December 31, 1997 and 1996 is $(53,000) and $282,000 respectively. Net
cash provided by operating activities increased primarily due to the decrease in
receivables and deposits. Receivables and deposits decreased as a result of a
decrease in escrow for taxes. Partially offsetting the decrease in receivables
and deposits was a decrease in net income discussed above. Net cash used in
investing activities increased primarily as a result of an increase in property
improvements and replacements related to the renovation project at Highland
Professional Tower. Net cash used in financing activities decreased due to the
timing of actual payments of partners' distributions. The 1997 distribution
declared in December was not paid until January 1998.
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.
Future cash distributions will depend on the levels of net cash generated from
operations, capital expenditure requirements, financings, property sales and the
availability of cash reserves.
Year 2000
The Partnership is dependent upon the 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 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 annual 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 of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this annual 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.
ITEM 7. FINANCIAL STATEMENTS
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet - December 31, 1997
Statements of Operations - Years ended December 31, 1997 and 1996
Statements of Changes in Partners' Capital (Deficit) - Years ended December 31,
1997 and 1996
Statements of Cash Flows - Years ended December 31, 1997 and 1996
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, 1997, 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, 1997. 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 at December 31, 1997, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 17, 1998
(except for Note G, as to which the date is
March 17, 1998)
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
BALANCE SHEET
(in thousands, except unit data)
December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,339
Receivable and deposits (net of
$21 for doubtful accounts) 310
Other assets 78
Investment properties:
Land $ 1,121
Buildings and related personal property 14,270
15,391
Less accumulated depreciation (4,892) 10,499
$12,226
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 51
Tenant security deposit liabilities 112
Accrued property taxes 260
Other liabilities 120
Distribution payable 300
Partners' Capital (Deficit)
General partner $ (52)
Limited partners (15,698 units
issued and outstanding) 11,435 11,383
$12,226
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Revenues:
Rental income $2,818 $2,981
Other income 181 162
Total revenues 2,999 3,143
Expenses:
Operating 1,484 1,485
General and administrative 290 294
Depreciation 661 611
Property taxes 410 377
Total expenses 2,845 2,767
Net income $ 154 $ 376
Net income allocated to general
partner (2%) $ 3 $ 8
Net income allocated to limited
partners (98%) 151 368
$ 154 $ 376
Net income per limited partnership unit $ 9.62 $23.44
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 15,698 $ -- $15,698 $15,698
Partners' (deficit) capital at
December 31, 1995 15,698 $ (51) $11,504 $11,453
Distributions paid to partners -- (6) (294) (300)
Net income for the year ended
December 31, 1996 -- 8 368 376
Partners' (deficit) capital at
December 31, 1996 15,698 (49) 11,578 11,529
Distributions declared to partners -- (6) (294) (300)
Net income for the year ended
December 31, 1997 -- 3 151 154
Partners' (deficit) capital at
December 31, 1997 15,698 $ (52) $11,435 $11,383
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 154 $ 376
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 661 611
Amortization of leasing commissions 4 4
Casualty (gain) loss (1) 31
Change in accounts:
Receivables and deposits 201 (102)
Other assets (20) (18)
Accounts payable (24) (53)
Tenant security deposit liabilities (50) (8)
Accrued taxes 13 1
Other liabilities 62 (51)
Net cash provided by operating activities 1,000 791
Cash flows from investing activities:
Property improvements and replacements (1,104) (209)
Net insurance proceeds 51 --
Net cash used in investing activities (1,053) (209)
Cash flows from financing activities:
Partners' distributions -- (300)
Net cash used in financing activities -- (300)
Net (decrease) increase in cash and cash equivalents (53) 282
Cash and cash equivalents at beginning of year 1,392 1,110
Cash and cash equivalents at end of year $ 1,339 $1,392
Supplemental disclosure of non-cash activity:
Distribution payable $ 300 $ --
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997
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 Corp. 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. Prior to February 25, 1998 the
Managing General Partner was a wholly-owned subsidiary of MAE GP Corporation
("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia
Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the Managing
General Partner is now a wholly-owned subsidiary of IPT.
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.
At December 31, 1997, $300,000 was recorded as a distribution payable and was
paid January 6, 1998. The Partnership distributed cash of approximately
$294,000 to the Limited Partners during the year ended December 31, 1996. The
Partnership also distributed approximately $6,000 to the General Partner during
the year ended December 31, 1996.
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 1997 and 1996 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. These funds totaled approximately
$159,000 at December 31, 1997 and are included in receivables and deposits.
Depreciation: Depreciation for financial statement purposes is determined using
the straight-line method over the estimated lives of the 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.
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 of approximately $20,000 less accumulated
amortization of approximately $17,000 are included in other assets and are being
amortized over the terms of the respective leases using the straight-line
method.
Cash and Cash Equivalents: Includes cash on hand and in banks, money market
investments and certificates of deposits with original maturities less than 90
days. At certain times, the amount of cash deposited at a bank may exceed the
limit on insured deposits.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. The security deposits are refunded when the tenant
vacates, provided the tenant has not damaged the unit and is current on rental
payments.
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 which will expire at various dates through 2004.
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 in other assets. As of December 31, 1997, this balance was
approximately $59,000.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. For the years ended December 31, 1997 and 1996, no
adjustments for impairment of value were recorded.
Fair Value of Financial Instruments: The Partnership believes that the carrying
amount of its financial instruments approximates their fair value due to the
short term maturity of these instruments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was approximately $53,000
and approximately $25,000 for the years ended December 31, 1997 and 1996,
respectively.
Reclassifications: Certain reclassifications have been made to the 1996
information to conform to the 1997 presentation.
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.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands):
1997 1996
Financial statement net income $154 $376
Add:
Excess of tax loss over book loss
on disposal of property -- (2)
Excess of book depreciation
over tax depreciation 204 189
Unearned rents, recognized for tax
purposes as received (6) (42)
Other tax adjustments 14 3
Taxable income $366 $524
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net assets as reported $11,383
Difference in basis of assets and liabilities:
Investment properties at cost 218
Accumulated depreciation 1,114
Syndication costs 1,708
Other 14
Net assets - tax basis $14,437
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 paid property management fees for
property management services as noted below for the years ended December 31,
1997 and 1996, respectively. The Partnership Agreement ("Agreement") provides
that the Managing General Partner and its affiliates be paid asset management
fees based on the "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:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996
(in thousands)
<S> <C> <C>
Property management fees included in operating expenses $160 $171
Asset management fees included in general and
administrative expenses 136 136
Reimbursement for services of affiliates included in
operating, general and administrative expenses and
investment properties (includes approximately $30,000
and $8,000, respectively, in reimbursements
for construction oversight cost) 144 120
</TABLE>
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
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 master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who received 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 were not significant.
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 - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(dollar amounts in thousands)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Land Property Acquisition
Lewis Park Apartments $ 621 $ 7,840 $ 859
Highland Professional Tower 500 4,648 923
Totals $1,121 $12,488 $1,782
<TABLE>
<CAPTION>
Gross Amount At Which Carried
at December 31 1997
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 $ 621 $ 8,699 $ 9,320 $3,801 1972 11/86 5-40
Highland 500 5,571 6,071 1,091 1973 10/92 5-25
Total $1,121 $14,270 $15,391 $4,892
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation" (in thousands):
Years Ended December 31,
1997 1996
Real Estate
Balance at beginning of year $14,377 $14,219
Property improvements 1,104 209
Disposal of property (90) (51)
Balance at end of year $15,391 $14,377
Accumulated Depreciation
Balance at beginning of year $ 4,271 $ 3,680
Additions charged to expense 661 611
Disposal of property (40) (20)
Balance at end of year $ 4,892 $ 4,271
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996, is approximately $15,610,000 and approximately
$14,582,000, respectively. The accumulated depreciation taken for Federal
income tax purposes at December 31, 1997 and 1996, is approximately $3,778,000
and approximately $3,321,000, respectively.
NOTE F - 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, 1997, are as
follows (in thousands):
1998 $ 493
1999 387
2000 351
2001 303
2002 267
Thereafter 57
$1,858
NOTE G - SUBSEQUENT EVENT
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, 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 the General
Partner of the Partnership.
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., their
ages and the nature of all positions with IH, Inc. presently held by them are as
follows:
Name Age Position
Carroll D. Vinson 57 President and Director
Robert D. Long, Jr. 30 Vice President and Chief
Accounting Officer
William H. Jarrard, Jr. 51 Vice President
Daniel M. LeBey 32 Secretary
Kelley M. Buechler 40 Assistant Secretary
Prior to February 25, 1998 the Managing General Partner was a wholly-owned
subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE
GP was merged into Insignia Properties Trust ("IPT"), which is an affiliate of
Insignia. Thus the Managing General Partner is now a wholly-owned subsidiary of
IPT.
Carroll D. Vinson has been President and Director of the Managing General
Partner and President of Metropolitan Asset Enhancement L.P., and subsidiaries
since August of 1994. He has acted as Chief Operating officer of IPT, an
affiliate of the Managing General Partner, since May 1997. 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 which
included portfolio acquisitions, asset dispositions, debt restructurings and
financial reporting. 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.
Robert D. Long, Jr. has been Vice President of the Managing General Partner
since August 1994. Mr. Long joined Metropolitan Asset Enhancement, L.P.
("MAE"), an affiliate of Insignia, in September 1993. Since 1994 he has acted
as Vice President and Chief Accounting Officer of the MAE subsidiaries. Mr.
Long was an accountant for Insignia until joining MAE in 1993. Prior to joining
Insignia, Mr. Long was an auditor for the State of Tennessee and was associated
with the accounting firm of Harsman Lewis and Associates.
William H. Jarrard has been Vice President of the Managing General Partner since
August 1994. He has acted as Senior Vice President of IPT, an affiliate of the
Managing General Partner since May 1997. Mr. Jarrard previously acted as
Managing Director - Partnership Administration of Insignia from January 1991
through September 1992 and served as Managing Director - Partnership
Administration and Asset Management of Insignia from July 1994 until January
1996.
Daniel M. LeBey has been Secretary of the Managing General Partner since January
29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since July
1996 he has also served as Insignia's Associate General Counsel. From September
1992 until June 1996, Mr. LeBey was an attorney with the law firm of Alston &
Bird LLP, Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
since August 1994 and Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
Neither 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, 1997, 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.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, 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 the General
Partner of the Partnership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner received cash distributions from operations of approximately
$6,000 during the year ended December 31, 1996. A distribution to the General
Partner of $6,000 was recorded on December 31, 1997 and paid on January 6, 1998.
For a description of the share of cash distributions from operations, if any, to
which the general partner is entitled, reference is made to the material
contained in the Prospectus under the heading PROFITS AND LOSSES AND CASH
DISTRIBUTIONS.
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
property management services as noted below for the years ended December 31,
1997 and 1996, respectively. The Partnership Agreement ("Agreement") provides
that the Managing General Partner and its affiliates be paid asset management
fees based on the "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:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996
(in thousands)
<S> <C> <C>
Property management fees $160 $171
Asset management fees 136 136
Reimbursement for services of affiliates
included in (includes approximately $30,000 and
$8,000, respectively, in reimbursements
for construction oversight cost) 144 120
</TABLE>
For a more detailed description of the management fee that Insignia Residential
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 the period of January 1, 1996 to August 31, 1997, the Partnership insured
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 master policy. The
agent assumed the financial obligations to the affiliate of the General Partner,
who received 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 were not significant.
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 1997:
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 and Director
Date: March 26, 1998
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 and Director
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President 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 1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,339
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,391
<DEPRECIATION> (4,892)
<TOTAL-ASSETS> 12,226
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,383
<TOTAL-LIABILITY-AND-EQUITY> 12,226
<SALES> 0
<TOTAL-REVENUES> 2,999
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154
<EPS-PRIMARY> 9.62<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
