March 27, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: HCW Pension Real Estate Fund Limited Partnership
Form 10-KSB
File No. 0-14578
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Managing General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
FORM 10-KSB--Annual or Transitional Report Under
SECTION 13 OR 15(d)
Form 10-KSB
[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, 1999
[ ] 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.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
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. [ ]
State issuer's revenues for its most recent fiscal year. $1,824,000
State the aggregate market value of the voting partnership interests held 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 December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
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"). The General Partner is a Texas limited
partnership whose sole general partner is IH, Inc. ("Managing General Partner").
The Partnership Agreement provides that the Partnership is to terminate on
October 31, 2024 unless terminated prior to such date.
The Registrant is engaged in the business of operating and holding real estate
properties for investment. From 1984 through 1986, during its acquisition phase,
the Registrant acquired one existing apartment and one existing commercial
property. The commercial property was sold December 30, 1999. The Partnership
continues to operate the apartment complex (see "Item 2. Description of
Property").
Commencing on August 17, 1984, the Partnership offered, pursuant to a
Registration Statement filed with the Securities and Exchange Commission (the
"SEC"), 25,000 Units of Limited Partnership interest (the units) at a purchase
price of $1,000 per unit. The sale of Limited Partnership Units closed on March
14, 1986, with 15,698 units sold at $1,000 each, or gross proceeds of
approximately $15,698,000 to the Partnership. Since its initial offering, the
Registrant has not received, nor are limited partners required to make,
additional capital contributions.
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.
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 merged into
Insignia Properties Trust ("IPT"), which was merged into Apartment Investment
and Management Company ("AIMCO") effective February 26, 1999. Thus the Managing
General Partner is now a wholly-owned subsidiary of AIMCO.
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the Managing General
Partner. Property management services were performed at the Partnership's
apartment complex by an affiliate of the Managing General Partner. Property
management services were performed at the Partnership's commercial property by
an unaffiliated party.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant's property. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area, could have a material effect on the rental market
for the apartments at the Registrant's property and the rents that may be
charged for such apartments. While the Managing General Partner and its
affiliates own and/or control a significant number of apartment units in the
United States, such units represent an insignificant percentage of total
apartment units in the United States and competition for the apartments is
local.
Both the income and expenses of operating the property owned by the Partnership
are subject to factors outside of the Partnership's control, such as changes in
the supply and demand for similar properties resulting from various market
conditions, increases/decreases in unemployment or population shifts, changes in
the availability of permanent mortgage financing, changes in zoning laws, or
changes in patterns or needs of users. In addition, there are risks inherent in
owning and operating residential properties because such properties are
susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the property
owned by the Partnership.
The Partnership monitors its property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
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.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and IPT merged into AIMCO, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the
Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Item 2. Description of Property
The following table sets forth the Registrant's investment in property:
Date of
Property Purchase Type of Ownership Use
Lewis Park Apartments 11/86 Fee ownership Apartment
Carbondale, Illinois 269 units
Schedule of Property:
Set forth below for the Registrant's property is the gross carrying value,
accumulated depreciation, depreciable life, method of depreciation and federal
tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Lewis Park Apartments $10,352 $ 4,759 5-40 S/L $ 6,557
</TABLE>
See "Item 7. Financial Statements, Note A and Note J" for a description of the
Partnership's depreciation policy and change in accounting principle,
respectively.
Schedule of Rental Rates and Occupancy:
Average annual rental rate and occupancy for 1999 and 1998 for the property:
<TABLE>
<CAPTION>
Average Annual Average Annual
Rental Rate Occupancy
(per unit)
Property 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Lewis Park Apartments $7,734 $7,706 83% 85%
</TABLE>
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. The property is subject to competition from other
residential apartment complexes in the area. The Managing General Partner
believes that the property is adequately insured. The property is an apartment
complex which leases its units for terms of one year or less. No residential
tenant leases 10% or more of the available rental space. The property is in good
physical condition, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
Schedule of Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for the property were:
1999 1999
Billing Rate
(in thousands)
Lewis Park Apartments $ 243* 8.89%
* Amount represents billing for prior year received in second half of current
year.
Capital Improvements:
Lewis Park
During 1999, the Partnership completed approximately $714,000 of capital
improvements at Lewis Park, consisting primarily of roof replacements, parking
lot enhancements, major landscaping, electrical upgrades, exterior painting,
carpet and vinyl replacement, appliance replacements, and air conditioning
units. These improvements were funded from operating cash flow. The Partnership
is currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $80,700. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property. The capital improvements
planned for the year 2000 at the Partnership's property will be made only to the
extent of cash available from operations and Partnership reserves.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1999, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for Partnership's Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 15,698
limited partnership units aggregating $15,698,000. The Partnership currently has
1,160 holders of record owning an aggregate of 15,698 Units. Affiliates of the
Managing General Partner owned 4,127 units or approximately 26.29% at December
31, 1999. No public trading market has developed for the Units, and it is not
anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999 as well as the subsequent period through
February 18, 2000 (see "Item 6. Management's Discussion and Analysis or Plan of
Operation" for details on split to partners):
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/98 - 12/31/98 $ 400 (1) (2) $ 24.97
01/01/99 - 12/31/99 $ 25 (1) $ 1.53
01/01/00 - 02/18/00 $1,700 (3) $107.47
(1) Distribution was made from cash from operations.
(2) Distribution was accrued at December 31, 1998 and paid in January 1999.
(3) Consists of approximately $627,000 of cash from operations and
approximately $1,073,000 of cash from the sale of Highland Professional
Tower.
Future cash distributions will depend on the levels of net cash generated from
operations, the timing of debt financing, property sales, and the availability
of cash reserves. The Partnership's distribution policy is reviewed on an annual
basis. There can be no assurance, however, that the Partnership will generate
sufficient funds from operations, after required capital expenditures, to permit
further distributions to its partners in the year 2000 or subsequent periods.
See "Item 2. Description of Properties - Capital Improvements" for information
relating to anticipated capital expenditures at the property.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 4,127
units of limited partnership units in the Partnership representing 26.29% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-KSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Partnership realized a net loss of approximately $3,336,000 for the year
ended December 31, 1999, compared to net income of approximately $52,000 for the
year ended December 31, 1998. (See "Note C" of the financial statements for a
reconciliation of these amounts to the Registrant's federal taxable income.) The
decrease in net income is primarily attributable to the impairment loss on and
sale of discontinued operations from Highland Professional Tower in December
1999 as discussed below.
As a result of the sale of Highland Professional Tower in December 1999, as
discussed below, the results of operations of Highland were classified as "Loss
from discontinued operations" on the statements of operations. The increase in
net loss from discontinued operations is due primarily to increased bad debt
expense and reduced operating expense recoveries from the tenants at Highland
Professional Tower during 1999.
Excluding the results of the discontinued operations discussed above, the
Partnership had net income from continuing operations of approximately $184,000
for the year ended December 31, 1999, compared to approximately $191,000 for the
year ended December 31, 1998. The net income remained comparable over the two
year period primarily due to an increase in total revenues which was offset by
an increase in total expenses.
Total revenues increased due to an increase in rental income partially offset by
a decrease in other income. Rental income increased due to increased average
annual rental rates and decreased concessions which was partially offset by a
slight decrease in occupancy at Lewis Park Apartments. Other income decreased
due to reduced interest income due to lower cash balances in interest bearing
accounts and reduced tenant charges at Lewis Park Apartments.
Total expenses increased due to increases in general and administrative expense
and depreciation expense. These increases were offset by reduced operating
expenses and the casualty loss recognized in 1998. The increase in general and
administrative expenses was due to increased legal expenses due to a previously
disclosed settlement of a lawsuit. This increase was partially offset by reduced
management reimbursements. Included in general and administrative expense at
both December 31, 1999 and 1998 are management reimbursements to the Managing
General Partner allowed under the Partnership Agreement. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
Depreciation expense increased due to capital improvements completed during the
past twelve months that are now being depreciated. Operating expenses decreased
primarily due to a decrease in property insurance at Lewis Park Apartments due
to reduced rates received from a new insurance carrier. The casualty loss in
1998 resulted from a storm that damaged the roofs at Lewis Park Apartments
during 1997. The damage resulted in a loss arising from the write-off of the
basis of the property, which was replaced during 1998.
During the third quarter of 1999, the Partnership determined that the Highland
Professional Tower located in Kansas City, Missouri, with a carrying value of
approximately $4,637,000, was impaired and its value was written down by
approximately $2,387,000. The fair value was based upon current economic
conditions and projected future operational cash flows. In December 1999,
Highland Professional Tower was sold to an unaffiliated party for $1,500,000.
After payment of closing expenses, the net sales proceeds received by the
Partnership were approximately $1,322,000. For financial statement purposes, the
sale resulted in a loss of approximately $854,000.
Highland Professional Tower was the last commercial property owned by the
Partnership and represented one segment of the Partnership's operations. Due to
the sale of this property, the results of the commercial segment have been shown
as loss from discontinued operation and loss on sale of discontinued operation.
Revenues of this property were approximately $855,000 and $996,000 for 1999 and
1998, respectively. Loss from operations were approximately $184,000 and
$191,000 for 1999 and 1998, respectively.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase income by approximately $71,000 ($4.43 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Registrant from increases in expenses. As part of this
plan, the Managing General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At December 31, 1999, the Partnership had cash and cash equivalents of
approximately $2,196,000 as compared to approximately $1,354,000 at December 31,
1998. Cash and cash equivalents increased approximately $842,000 from the
Partnership's previous year ended December 31, 1998. The increase is due to
approximately $679,000 of cash provided by operating activities and
approximately $588,000 provided by investing activities, which was partially
offset by approximately $425,000 of cash used in financing activities. Cash
provided by investing activities consisted of proceeds from the sale of Highland
Professional Tower which was partially offset by property improvements and
replacements. Cash used in financing activities consisted of distributions paid
to the partners of which $400,000 was accrued at December 31, 1998. The
Partnership invests its working capital reserves in money market accounts.
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 and to comply with Federal, state,
and local legal and regulatory requirements. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $80,700.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property. The Partnership's current assets are thought to
be sufficient for any near-term needs (exclusive of capital improvements) of the
Partnership.
A distribution payable from operations of $400,000 ($24.97 per limited
partnership unit) was recorded on December 31, 1998 and was paid on January 20,
1999. The limited partners received $392,000 and the General Partner received
$8,000. A distribution from operations of $25,000 ($1.53 per limited partnership
unit) was paid on July 1, 1999. The limited partners received approximately
$24,000 and the General Partner received approximately $1,000. A distribution
from operations of $300,000 of which $294,000 was paid to the limited partners
($18.73 per limited partnership unit) was recorded on December 31, 1997 and was
paid on January 6, 1998. The limited partners received $294,000 and the General
Partner received $6,000. Subsequent to December 31, 1999, the Partnership
declared and paid a distribution of approximately $1,700,000 ($107.47 per
limited partnership unit) consisting of $627,000 of cash from operations and
$1,073,000 from the sale of Highland Professional Tower. The limited partners
received approximately $1,687,000 and the General Partner received approximately
$13,000. The Partnership's distribution policy is reviewed on an annual basis.
Future cash distributions will depend on the levels of net cash generated from
operations, the timing of debt financing, property sales, and the availability
of cash reserves. There can be no assurance, however, that the Partnership will
generate sufficient funds from operations, after planned capital improvement
expenditures, to permit any additional distributions to its partners in the year
2000 or subsequent periods.
Tender Offer
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 4,127
units of limited partnership units in the Partnership representing 26.29% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet - December 31, 1999
Statements of Operations - Years ended December 31, 1999 and 1998
Statements of Changes in Partners' (Deficit) Capital - Years ended December 31,
1999 and 1998
Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Financial Statements
<PAGE>
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, 1999, and the related
statements of operations, changes in partners' (deficit) capital, and cash flows
for each of the years in the two year period then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1999, and the results of its operations and its cash flows for each of the
years in the two year period then ended, in conformity with generally accepted
accounting principles.
As discussed in Note J to the financial statements, the Partnership changed its
method of accounting to capitalize the cost of exterior painting and major
landscaping effective January 1, 1999.
/s/KPMG LLP
Greenville, South Carolina
February 22, 2000
<PAGE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 2,196
Receivables and deposits 446
Other assets 25
Investment property (Note F):
Land $ 621
Buildings and related personal property 9,731
10,352
Less accumulated depreciation (4,759) 5,593
$ 8,260
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 97
Tenant security deposit liabilities 119
Accrued property taxes 255
Other liabilities 115
Partners' (Deficit) Capital
General partner $ (110)
Limited partners (15,698 units issued and
outstanding) 7,784 7,674
$ 8,260
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Revenues:
<S> <C> <C>
Rental income $ 1,694 $ 1,641
Other income 130 161
Total revenues 1,824 1,802
Expenses:
Operating 589 607
General and administrative 295 267
Depreciation 516 473
Property taxes 240 242
Casualty loss -- 22
Total expenses 1,640 1,611
Income before discontinued operation 184 191
Loss from discontinued operation (Note E) (279) (139)
Impairment loss on discontinued operation (Note E) (2,387) --
Loss on sale of discontinued operation (Note E) (854) --
Net (loss) income (Note C) $ (3,336) $ 52
Net (loss) income allocated to general partner (50) 1
Net (loss) income allocated to limited partners (3,286) 51
$ (3,336) $ 52
Per limited partnership unit:
Income before discontinued operations $ 11.47 $ 11.91
Loss from discontinued operation (17.40) (8.66)
Impairment loss on discontinued operation (149.00) --
Loss on sale of discontinued operation (54.40) --
Net (loss) income $(209.33) $ 3.25
Distributions per limited partnership unit $ 1.53 $24.97
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(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, 1997 15,698 $ (52) $11,435 $11,383
Distributions paid to partners -- (8) (392) (400)
Net income for the year ended
December 31, 1998 -- 1 51 52
Partners' (deficit) capital at
December 31, 1998 15,698 (59) 11,094 11,035
Distributions paid to partners -- (1) (24) (25)
Net loss for the year ended
December 31, 1999 -- (50) (3,286) (3,336)
Partners' (deficit) capital at
December 31, 1999 15,698 $ (110) $ 7,784 $ 7,674
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $(3,336) $ 52
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 810 752
Amortization of lease commissions 1 2
Casualty loss -- 22
Impairment loss on discontinued operation 2,387 --
Loss on sale of discontinued operation 854 --
Change in accounts:
Receivables and deposits 39 (175)
Other assets 46 4
Accounts payable 36 10
Tenant security deposit liabilities (20) 27
Accrued property taxes (155) 150
Other liabilities 17 (22)
Net cash provided by operating activities 679 822
Cash flows from investing activities:
Property improvements and replacements (734) (507)
Proceeds from sale of discontinued operation 1,322 --
Net cash provided by (used in) investing
activities 588 (507)
Cash flows used in financing activities:
Distributions to partners (425) (300)
Net increase in cash and cash equivalents 842 15
Cash and cash equivalents at beginning of year 1,354 1,339
Cash and cash equivalents at end of year $ 2,196 $ 1,354
Supplemental disclosure of non-cash financing activity:
Distribution payable $ -- $ 400
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1999
Note A - Organization and Summary of Significant Accounting Policies
Organization: HCW Pension Real Estate Fund Limited Partnership (the
"Partnership" or "Registrant") 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 located in Illinois. The Partnership
Agreement provides that the Partnership is to terminate on October 31, 2024
unless terminated prior to such date.
On August 8, 1994, Hampton Corp. assigned its general partnership interest in
Hampton HCW General Partner, Ltd. to IH, Inc., (the "Managing General Partner)
an affiliate of Apartment Investment and Management Company ("AIMCO") 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 merged into Insignia Properties
Trust ("IPT"), which was merged into AIMCO effective February 26, 1999. Thus the
Managing General Partner is now a wholly-owned subsidiary of AIMCO. See "Note B
- - Transfer of Control". The director and officers of the Managing General
Partner also serve as executive officers of AIMCO.
Uses 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.
Allocations of Cash Distributions: Distributions to the partners are paid from
operations of the Partnership's property, from the sale or financing of the
property, 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 financings 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.
Allocation of Profits, Gains, and Losses: The Partnership Agreement provides for
net income or loss arising from Partnership operations other than sales or
financings, to be allocated 98% to the Limited Partners and 2% to the General
Partner.
Net income arising from a sale or financing 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 or financing 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 1999 and 1998 have been made in
accordance with these provisions.
Escrows for Taxes: These escrows are designated for the payment of real estate
taxes. These funds totaled approximately $278,000 at December 31, 1999 and are
included in receivables and deposits.
Depreciation: Depreciation is provided by 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 15 years for additions prior to March 16, 1984, 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 5 years,
and (3) land improvements over 15 years.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (Note J).
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. 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. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on rental payments.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In addition,
the Managing General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged against rental income as
incurred.
Investment Property: Investment property consists of one apartment complex and
is stated at cost. Acquisition fees are capitalized as a cost of real estate. In
accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," 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. Costs of investment
properties that have been permanently impaired have been written down to
appraisal value. No adjustments for impairment of value were recorded in the
year ended December 31, 1998. During the three months ended September 30, 1999,
the Partnership determined that the Highland Professional Tower located in
Kansas City, Missouri, with a carrying value of approximately $4,637,000, was
impaired and its value was written down by approximately $2,387,000. The fair
value was based upon current economic conditions and projected future
operational cash flows. The property was sold on December 30, 1999 (see "Note E
- - Impairment Loss and Sale of Discontinued Operation").
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments approximates their fair value due to the short term
maturity of these instruments.
Segment Reporting: Statement of Financial Standards ("SFAS") No. 131, Disclosure
about Segments of an Enterprise and Related Information ("Statement 131")
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. See "Note I"
for required disclosure.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs for the apartment property of approximately $32,000 and
$36,000 for the years ended December 31, 1999 and 1998, respectively, were
charged to operating expense as incurred.
Reclassifications: Certain reclassifications have been made to the 1998
information to conform to the 1999 presentation.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership
interest in the Managing General Partner. The Managing General Partner does not
believe that this transaction has had or will have a material effect on the
affairs and operations of the Partnership.
Note C - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net (loss) income and Federal
taxable (loss) income (in thousands):
1999 1998
Net (loss) income as reported $ (3,336) $ 52
Add (deduct)
Depreciation differences (456) 103
Accounts receivable 77 --
Unearned income 2 (4)
Other tax adjustments 27 (9)
Federal taxable (loss) income $ (3,686) $ 142
Federal taxable (loss) income per
limited partnership unit $(230.09) $ 8.85
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 $ 7,674
Difference in basis of assets and liabilities:
Investment properties at cost 277
Accumulated depreciation 679
Syndication 1,708
Accounts receivable 93
Prepaids 29
Other 8
Net assets - tax basis $10,468
Note D - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership. The following transactions
with the Managing General Partner and/or its affiliates were incurred during the
years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses and loss from discontinued $ 90 $ 140
operation)
Asset management fees (included in general and
administrative expenses) 142 134
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses and investment
properties) 51 84
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential property for providing property management services.
The Registrant paid to such affiliates approximately $90,000 and $93,000 for the
years ended December 31, 1999 and 1998, respectively. For the nine months ended
September 30, 1998, affiliates of the Managing General Partner were entitled to
receive varying percentages of gross receipts from the Registrant's commercial
property for providing property management services. The Registrant paid to such
affiliates approximately $47,000 for the nine months ended September 30, 1998.
Effective October 1, 1998 (the effective date of the Insignia Merger), these
services for the commercial property were provided by an unrelated party.
An affiliate of the Managing General Partner received reimbursement of asset
management fees amounting to approximately $142,000 and $134,000 for the years
ended December 31, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $51,000 and
$84,000 for the years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 4,127
units of limited partnership units in the Partnership representing 26.29% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Note E - Impairment Loss and Sale of Discontinued Operation
During the three months ended September 30, 1999, the Partnership determined
that the Highland Professional Tower located in Kansas City, Missouri, with a
carrying value of approximately, $4,637,000, was impaired and its value was
written down by approximately $2,387,000. The fair value was based upon current
economic conditions and projected future operational cash flows.
In December 1999, Highland Professional Tower was sold to an unaffiliated party
for $1,500,000. After payment of closing expenses, the net sales proceeds
received by the Partnership were approximately $1,322,000. For financial
statement purposes, the sale resulted in a loss of approximately $854,000.
The following pro-forma information reflects the operations of the Partnership
for the years ended December 31, 1999 and 1998, as if Highland Professional
Tower had been sold January 1, 1998.
1999 1998
(in thousands, except per unit data)
Revenues $1,824 $1,802
Net income 184 191
Income per limited partnership unit 11.47 11.91
Highland Professional Tower was the last commercial property owned by the
Partnership and represented one segment of the Partnership's operations. Due to
the sale of this property, the results of the commercial segment have been shown
as loss from discontinued operation and loss on sale of discontinued operation.
Revenues of this property were approximately $855,000 and $996,000 for 1999 and
1998, respectively. Loss from operations was approximately $184,000 and $191,000
for 1999 and 1998, respectively.
Note F - Real Estate and Accumulated Depreciation
Investment Property
Initial Cost
To Partnership
(in thousands)
Buildings Net Cost
and Related Capitalized
Personal Subsequent to
Description Land Property Acquisition
(in thousands)
Lewis Park Apartments $ 621 $ 7,840 $ 1,891
<PAGE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis Park $ 621 $ 9,731 $10,352 $ 4,759 1972 11/86 5-40
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1999 1998
(in thousands)
Real Estate
Balance at beginning of year $15,845 $15,391
Property improvements 734 507
Disposal of property -- (53)
Impairment loss on discontinued operation (2,387) --
Sale of discontinued operation (3,840) --
Balance at end of year $10,352 $15,845
Accumulated Depreciation
Balance at beginning of year $ 5,613 $ 4,892
Additions charged to expense 810 752
Disposal of property -- (31)
Sale of discontinued operation (1,664) --
Balance at end of year $ 4,759 $ 5,613
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $10,629,000 and approximately
$16,116,000, respectively. The accumulated depreciation taken for Federal income
tax purposes at December 31, 1999 and 1998, is approximately $4,072,000 and
approximately $4,427,000, respectively.
Note G - Casualty Loss
During the year ended December 31, 1998, the Partnership recorded a casualty
loss resulting from a storm that damaged the roofs at Lewis Park Apartments
during 1997. The damage resulted in a loss of approximately $22,000 arising from
the write-off of the basis of the property which was replaced.
Note H - Distributions
A distribution payable from operations of $400,000 ($24.97 per limited
partnership unit) was recorded on December 31, 1998 and was paid on January 20,
1999. The limited partners received $392,000 and the general partner received
$8,000. A distribution from operations of $25,000 ($1.53 per limited partnership
unit) was paid on July 1, 1999. The limited partners received approximately
$24,000 and the general partner received approximately $1,000. A distribution
from operations of $300,000 ($18.73 per limited partnership unit) was recorded
on December 31, 1997 and was paid on January 6, 1998. The limited partners
received $294,000 and the general partner received $6,000. Subsequent to
December 31, 1999, the Partnership declared and paid a distribution of
approximately $1,700,000 ($107.47 per limited partnership unit) consisting of
$627,000 of cash from operations and $1,073,000 from the sale of Highland
Professional Tower. The limited partners received approximately $1,687,000 and
the general partner received approximately $13,000.
Note I - Segment Information
At December 31, 1999, the Partnership had one reportable segment: residential
property. The Partnership's residential property segment consists of one
apartment complex in Carbondale, Illinois. The Partnership rents apartment units
to tenants for terms that are typically twelve months or less. The commercial
property segment consisted of a professional office building located in Kansas
City, Missouri. On December 30, 1999, the commercial property held by the
Partnership was sold to an unrelated party. Therefore, the commercial segment is
reflected as discontinued operations (see "Note E - Impairment Loss and Sale of
Discontinued Operation" for further discussion regarding the commercial sale).
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
The Partnership's reportable segments consist of investment properties that
offer different products and services. The reportable segments are each managed
separately as they provide services with different types of products and
customers.
Segment information for the years ended December 31, 1999 and 1998 is shown in
the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
<TABLE>
<CAPTION>
1999 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,694 $ -- $ -- $ 1,694
Other income 104 -- 26 130
Depreciation 516 -- -- 516
General and administrative
expense -- -- 295 295
Loss from discontinued
operation -- (279) -- (279)
Impairment loss on property
held for investment -- (2,387) -- (2,387)
Loss on sale of discontinued
operation -- (854) -- (854)
Segment profit (loss) 453 (3,520) (269) (3,336)
Total assets 6,333 -- 1,927 8,260
Capital expenditures 714 20 -- 734
</TABLE>
<TABLE>
<CAPTION>
1998 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,641 $ -- $ -- $ 1,641
Other income 117 -- 44 161
Depreciation 473 -- -- 473
General and administrative -- -- 267 267
expense
Casualty loss 22 -- -- 22
Loss from discontinued
operation -- (139) -- (139)
Segment profit (loss) 414 (139) (223) 52
Total assets 5,814 5,149 1,180 12,143
Capital expenditures 370 137 -- 507
</TABLE>
Note J - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase income by approximately $71,000 ($4.43 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective September 30, 1998, the Registrant dismissed its prior Independent
Auditors, Deloitte & Touche, LLP ("Deloitte") and retained as its new
Independent Auditors, KPMG LLP. Deloitte's Independent Auditor's Report on the
Registrant's financial statements for the calendar year ended December 31, 1997
did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change Independent Auditors was approved by the Managing General
Partner's Director. During the calendar year ended 1997 and through September
30, 1998, there were no disagreements between the Registrant and Deloitte on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of Deloitte, would have caused it to make references to the subject
matter of the disagreements in connection with its reports.
Effective September 30, 1998, the Registrant engaged KPMG LLP as its Independent
Auditors. During the last two calendar years and through September 30, 1998, the
Registrant did not consult KPMG LLP regarding any of the matters or events set
forth in Item 304 (a)(2)(i) and (ii) of Regulation S-B.
During the calendar year ended December 31, 1999, there were no disagreements
between the Registrant and KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures.
<PAGE>
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 names and ages of, as well as
the position and offices held by the executive officers and directors of IH,
Inc. (the "Managing General Partner") the general partner of the Partnership's
general partner, HCW General Partner, Ltd. are set forth below. There are no
family relationships between or among any officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Managing
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO and its joint filers failed to timely file a Form 4 with respect to its
acquisition of Units.
Item 10. Executive Compensation
Neither the director nor any of the officers of the Managing General Partner
received any remuneration from the Registrant.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, as of December 31, 1999, no person or entity was known by
the Registrant to be the beneficial owner of more than 5% of the Limited
Partnership Units of the Registrant as of December 31, 1999.
Entity Number of Units Percentage
Cooper River Properties, LLC
(an affiliate of AIMCO) 1,741 11.09%
AIMCO Properties LP
(an affiliate of AIMCO) 2,309 14.71%
Insignia Properties LP
(an affiliate of AIMCO) 72 .46%
Liquidity Assistance, LLC
(an affiliate of AIMCO) 5 .03%
Cooper River Properties, LLC, Insignia Properties LP, and Liquidity Assistance,
LLC are all indirectly ultimately owned by AIMCO. The business address of Cooper
River Properties, LLC, Insignia Properties LP, and Liquidity Assistance, LLC is
55 Beattie Place, Greenville, SC 29602.
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. The business
address for AIMCO Properties LP is 2000 South Colorado Boulevard, Denver,
Colorado 80222.
Item 12. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership. The following transactions
with the Managing General Partner and/or its affiliates were incurred during the
years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees $ 90 $ 140
Asset management fees 142 134
Reimbursement for services of affiliates 51 84
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential property for providing property management services.
The Registrant paid to such affiliates approximately $90,000 and $93,000 for the
years ended December 31, 1999 and 1998, respectively. For the nine months ended
September 30, 1998, affiliates of the Managing General Partner were entitled to
receive varying percentages of gross receipts from the Registrant's commercial
property for providing property management services. The Registrant paid to such
affiliates approximately $47,000 for the nine months ended September 30, 1998.
Effective October 1, 1998 (the effective date of the Insignia Merger), these
services for the commercial property were provided by an unrelated party.
An affiliate of the Managing General Partner received reimbursement of asset
management fees amounting to approximately $142,000 and $134,000 for the years
ended December 31, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $51,000 and
$84,000 for the years ended December 31, 1999 and 1998, respectively
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these tender offers, AIMCO and its affiliates currently own 4,127
units of limited partnership units in the Partnership representing 26.29% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
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 calendar year
1999:
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.,
the General Partner
By: IH, Inc.,
the Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
Martha L. Long and Controller
<PAGE>
EXHIBIT INDEX
Exhibit
2.1 Agreement and Plan of Merger, dated as of October 1, 1998,
by and between AIMCO and IPT (incorporated by reference to
Exhibit 2.1 of IPT's Current Report on Form 8-K, File No.
1-14179, dated October 1, 1998).
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.
10.2 Purchase and Sale Contract between Registrant and Cadle's
Highland Professional Tower, an Ohio Limited Liability
Company, dated December 30, 1999.
10.3 Addendum to Purchase and Sale Contract between Registrant
and The Cadle Company, an Ohio Corporation, dated December
30, 1999.
18. Independent Accountants' Preferability Letter for Change in
Accounting Principle.
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.
<PAGE>
Exhibit 18
February 22, 2000
Mr. Patrick J. Foye
Executive Vice President
HCW General Partner, Ltd.
General Partner of HCW Pension Real Estate Fund Limited Partnership
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note J of Notes to the Financial Statements of HCW Pension Real Estate Fund
Limited Partnership included in its Form 10-KSB for the year ended December 31,
1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/KPMG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HCW PENSION
REAL ESTATE FUND LIMITED PARTNERSHIP 1999 Fourth Quarter 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-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 2196
<SECURITIES> 0
<RECEIVABLES> 446
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 10,352
<DEPRECIATION> (4,759)
<TOTAL-ASSETS> 8,260
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,674
<TOTAL-LIABILITY-AND-EQUITY> 8,260
<SALES> 0
<TOTAL-REVENUES> 1,824
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,336)
<EPS-BASIC> (209.33)<F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
