Item 1. 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 Managing General Partner is an indirect wholly-owned subsidiary of Apartment Investment and Management Company ("AIMCO") which is a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on October 31, 2024 unless terminated prior to such date.
The Partnership is engaged in the business of operating and holding real estate properties for investment. From 1984 through 1986, during its acquisition phase, the Partnership acquired one existing apartment complex and one existing commercial property. At December 31, 2008, the Partnership continues to operate the apartment complex (see "Item 2.
Item 2. Property
The following table sets forth the Partnership's investment in property:
Date of
Property
Purchase
Type of Ownership
Use
Lewis Park Apartments
11/86
Fee ownership, subject
Apartment
Carbondale, Illinois
to a first mortgage
units
Schedule of Property
Set forth below for the Partnership's property is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
See "Item 8. Financial Statements and Supplementary Data, Note A" for a description of the Partnership's capitalization and depreciation policies.
Schedule of Property Indebtedness
The following table sets forth certain information relating to the fixed rate loan encumbering the Partnership’s property.
Principal
Principal
Balance At
Stated
Balance
December 31,
Interest
Period
Maturity
Due At
Property
Rate
Amortized
Date
Maturity(1)
(in thousands)
(in thousands)
Lewis Park
Apartments
1st mortgage
$4,205
8.08%
yrs
09/20
$ --
(1) See "Item 8. Financial Statements and Supplementary Data - Note E - Mortgage Note Payable" for information with respect to the Partnership's ability to prepay this loan and other specific details about the loan.
Schedule of Rental Rates and Occupancy
Average annual rental rate and occupancy for 2008 and 2007 for the property:
(1) The Managing General Partner attributes the decrease in occupancy at Lewis Park Apartments to increased competition due to the addition of several new communities in the area and decreased enrollment at the local university. The Managing General Partner has implemented an aggressive marketing plan for 2009 in an effort to attract new tenants, primarily through offering additional amenities to the residents, including free internet, cable, water and trash. The Managing General Partner is also implementing a resident referral program, increasing advertising and holding an open house to promote the property improvements to the public and help increase renewals for the new school year.
As noted under "Item 1. 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 Rate
Real estate taxes and rate in 2008 for the property were:
Billing
Rate
(in thousands)
Lewis Park Apartments (1)
$
8.09%
(1) Tax billings are for the fiscal year ended December 31, 2007 paid during 2008.
Capital Improvements
The Partnership completed approximately $1,208,000 of capital expenditures at Lewis Park Apartments during the year ended December 31, 2008, consisting primarily of floor covering replacements, fire safety upgrades, exterior door replacements, kitchen and bath upgrades and clubhouse renovations. These improvements were funded from operating cash flow and advances from AIMCO Properties, L. P., an affiliate of the Managing General Partner. The Partnership committed approximately $1,144,000 of funds to completing bathroom and tub replacements, entry door replacements, lighting replacements and student lounge improvements at Lewis Park Apartments, all of which was incurred during 2008 and is included above. The Partnership funded the improvements with advances from AIMCO Properties, L. P. although AIMCO Properties, L. P. does not have a commitment to fund advances to the Partnership. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements certain routine capital expenditures are anticipated during 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Item 3.
Item 3. Legal Proceedings
As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked. The Partnership was not required to pay any settlement amounts. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2008, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters and Issuer Purchases of Equity Securities
The Partnership, a publicly-held limited partnership, offered and sold 15,698 limited partnership units (the “Units”) aggregating $15,698,000. The Partnership currently has 796 holders of record owning an aggregate of 15,693 Units. Affiliates of the Managing General Partner owned 6,227 units or 39.68% at December 31, 2008. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future.
The Partnership distributed the following amounts during the years ended December 31, 2008 and 2007 (in thousands, except per unit data):
Per Limited
Per Limited
Year Ended
Partnership
Year Ended
Partnership
December 31,
Unit
December 31,
Unit
Operations
$ --
$ --
$
$14.97
Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturity, property sale and/or refinancing. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates at December 31, 2008, it is unlikely that the Partnership will generate sufficient funds from operations, after capital improvement expenditures and repayment of amounts accrued and payable to affiliates, to permit additional distributions to its partners during 2009 or subsequent periods. See “Item 2. Property” for information related to anticipated capital expenditures at the Partnership’s property.
In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 6,227 Units in the Partnership representing 39.68% of the outstanding Units as of December 31, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This item should be read in conjunction with the financial statements and other items contained elsewhere in this report.
The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in 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, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership, such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.
Results of Operations
The Partnership recognized a net loss of approximately $520,000 for the year ended December 31, 2008 compared to net income of approximately $66,000 for the year ended December 31, 2007. The increase in net loss for the year ending December 31, 2008 was due to a decrease in total revenues and an increase in total expenses.
Total revenues decreased due to a decrease in rental income partially offset by an increase in other income. Rental income decreased due to a decrease in occupancy, an increase in bad debt expense and a slight decrease in the average rental rate at Lewis Park Apartments. The Managing General Partner has implemented a marketing plan for 2009 to help increase occupancy and rental income. The plan includes increased advertising, open houses, and referral programs to attract new residents and also includes offering additional amenities to residents including internet, cable, water and trash. Other income increased due to an increase in late fees and lease cancellation fees charged to tenants partially offset by a decrease in interest income.
Total expenses increased for the year ended December 31, 2008 due to increases in operating, depreciation and interest expenses partially offset by decreases in general and administrative and property tax expenses. Operating expenses increased due to increases in property, maintenance and insurance expense, partially offset by a decrease in management fee expense. Property expense increased due to increases in maintenance salaries, utilities and leasing and recreational payroll costs. Maintenance expense increased primarily due to costs related to a minor fire loss. In August 2008, Lewis Park Apartments suffered fire damage to one of its rental units. The Partnership incurred approximately $25,000 of costs to repair the fire damage which is included in operating costs. The Partnership received insurance proceeds of approximately $15,000 during January 2009 which is included in receivables and deposits and as a reduction of operating expenses at December 31, 2008. The Partnership does not anticipate receiving any additional proceeds related to this casualty. Insurance expense increased due to an increase in hazard insurance premiums for Lewis Park Apartments. Management fee expense decreased due to a decrease in rental income on which the fee is based. Depreciation expense increased due to property improvements and replacements being placed into service during the year ended December 31, 2008. Interest expense increased due to advances received from AIMCO Properties, L. P., an affiliate of the Managing General Partner, during the year ending December 31, 2008. General and administrative expense decreased due to decreases in asset management fees partially offset by an increase in audit costs and legal costs associated with normal partnership operations. Property tax expense decreased as a result of a decrease in the tax rate.
Included in general and administrative expense is the asset management fee, which is calculated based on a percentage of the tangible asset value of the Partnership as defined in the Partnership Agreement. The percentage as stipulated in the Partnership Agreement was 0.50% for both 2008 and 2007. 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 in general and administrative expenses as well as reimbursements to the Managing General Partner as allowed under the Partnership Agreement.
Liquidity and Capital Resources
At December 31, 2008, the Partnership had cash and cash equivalents of approximately $208,000 compared to approximately $309,000 at December 31, 2007. Cash and cash equivalents decreased approximately $101,000 from December 31, 2007. The decrease is due to approximately $1,208,000 of cash used in investing activities, which was partially offset by approximately $1,045,000 and $62,000 of cash provided by financing and operating activities, respectively. Cash used in investing activities consisted of property improvements and replacements. Cash provided by financing activities consisted of advances received from an affiliate of the Managing General Partner partially offset by principal payments made on the mortgage encumbering Lewis Park Apartments. The Partnership invests its working capital reserves in interest-bearing 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 Managing General Partner monitors developments in the area of legal and regulatory compliance. During the year ended December 31, 2008 the Partnership completed approximately $1,208,000 of capital expenditures at Lewis Park Apartments consisting primarily of floor covering replacements, fire safety upgrades, exterior door replacements, kitchen and bath upgrades and clubhouse renovations. These improvements were funded from operating cash flow and advances from AIMCO Properties, L.P., an affiliate of the Managing General Partner. The Partnership committed approximately $1,144,000 of funds to completing bathroom and tub replacements, entry door replacements, lighting replacements and student lounge improvements at Lewis Park Apartments, all of which was incurred during 2008 and is included above. The Partnership funded the improvements with advances from AIMCO Properties, L.P. although AIMCO Properties, L.P. does not have a commitment to fund advances to the Partnership. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine expenditures are anticipated during 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner advanced the Partnership approximately $1,251,000 during the year ended December 31, 2008 to assist with the payment of capital improvements at Lewis Park Apartments and partnership operations. At December 31, 2008, the total advances and accrued interest due to AIMCO Properties, L.P. was approximately $1,290,000. During the year ended December 31, 2007, AIMCO Properties, L. P., an affiliate of the Managing General Partner advanced the Partnership approximately $139,000 to assist with the payment of real estate taxes and operations for Lewis Park Apartments. During the year ended December 31, 2007, the Partnership repaid approximately $143,000 of outstanding advances and accrued interest. There were no payments made during the year ended December 31, 2008. Interest on advances was charged at the market rate which was 10.33% at December 31, 2008. Interest expense was approximately $39,000 and $4,000 for the years ended December 31, 2008 and 2007, respectively. There were no advances or accrued interest outstanding at December 31, 2007. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheets, please see its reports filed with the Securities and Exchange Commission. Subsequent to December 31, 2008, the Partnership received additional advances from AIMCO Properties, L.P., of approximately $20,000 to fund operating expenses.
The Partnership's assets are thought to be sufficient for any short-term needs (exclusive of capital improvements and repayment of amounts accrued and payable to affiliates) of the Partnership. The mortgage indebtedness encumbering Lewis Park Apartments of approximately $4,205,000 is amortized over 20 years with a maturity date of September 1, 2020, at which time the loan is scheduled to be fully amortized.
The Partnership distributed the following amounts during the years ended December 31, 2008 and 2007 (in thousands, except per unit data):
Per Limited
Per Limited
Year Ended
Partnership
Year Ended
Partnership
December 31,
Unit
December 31,
Unit
Operations
$ --
$ --
$
$14.97
Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturity, property sale and/or refinancing. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates at December 31, 2008, it is unlikely that the Partnership will generate sufficient funds from operations, after capital improvement expenditures and repayment of amounts accrued and payable to affiliates, to permit additional distributions to its partners during 2009 or subsequent periods. See “Item 2. Property” for information related to anticipated capital expenditures at the Partnership’s property.
Other
In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 6,227 limited partnership units (the "Units") in the Partnership representing 39.68% of the outstanding Units as of December 31, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
A summary of the Partnership’s significant accounting policies is included in “Note A - Organization and Summary of Significant Accounting Policies” which is included in the financial statements in “Item 8.
Item 8. Financial Statements and Supplementary Data
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets - December 31, 2008 and 2007
Statements of Operations - Years ended December 31, 2008 and 2007
Statements of Changes in Partners' Deficit - Years ended
December 31, 2008 and
Statements of Cash Flows - Years ended December 31, 2008 and 2007
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
The Partners
HCW Pension Real Estate Fund Limited Partnership
We have audited the accompanying balance sheets of HCW Pension Real Estate Fund Limited Partnership as of December 31, 2008 and 2007, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide 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 HCW Pension Real Estate Fund Limited Partnership at December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
/s/Ernst & Young LLP
Greenville, South Carolina
March 19,
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
BALANCE SHEETS
(in thousands, except unit data)
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership
General
Limited
Units
Partner
Partners
Total
Original capital contributions
15,698
$ --
$15,698
$15,698
Partners' deficit at
December 31,
15,693
$ (169)
$(1,577)
$(1,746)
Distributions paid to partners
--
(5)
(235)
(240)
Net income for the year ended
December 31,
--
Partners' deficit at
December 31,
15,693
(173)
(1,747)
(1,920)
Net loss for the year ended
December 31,
--
(10)
(510)
(520)
Partners' deficit at
December 31,
15,693
$ (183)
$(2,257)
$(2,440)
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands)
See Accompanying Notes to Financial Statements
HCW PENSION REAL ESTATE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
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 located in Illinois. The Partnership Agreement provides that the Partnership is to terminate on October 31, 2024 unless terminated prior to such date.
The Partnership's general partner is HCW General Partner, Ltd. (the "General Partner"). Its sole general partner is IH, Inc., (the "Managing General Partner"), which is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.
Reclassifications: Certain reclassifications have been made to the 2007 balances to conform to the 2008 presentation.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 refinancing 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 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;
(b) Second, to the Limited Partners in an amount equal to a 12% cumulative simple annual return on their average adjusted capital contribution for Partners who invested on or before March 1, 1985, and 10% to all others;
(c) Third, 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 a 2% cumulative, noncompounded annual return on their average adjusted capital contributions; and,
(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.
Income arising from a sale 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.
Losses from a sale 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 2008 and 2007 have been made in accordance with these provisions.
Depreciation: Depreciation is provided by the straight-line method over the estimated life of the property and related personal property. For Federal income tax purposes, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27.5 years, and (2) personal property additions over 5 years, and (3) land improvements over 15 years.
Cash and Cash Equivalents: Includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances included approximately $155,000 and $239,000 at December 31, 2008 and 2007, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts.
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 the space and is current on rental payments.
Deferred Costs: At both December 31, 2008 and 2007, loan costs of approximately $86,000 are included in other assets in the accompanying balance sheets and are being amortized over the term of the related loan agreement. Amortization expense is included in interest expense. Amortization expense for the years ended December 31, 2008 and 2007 was approximately $4,000. Accumulated amortization of approximately $36,000 and $32,000 at December 31, 2008 and 2007, respectively, is included in other assets. Amortization expense is expected to be approximately $4,000 for each of the years 2009 through 2013.
Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses.
Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.
Investment Property: Investment property consists of one apartment complex and is stated at cost. The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects, other tangible property improvements and replacements of existing property components. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 34 “Capitalization of Interest Costs” and SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties.” Costs incurred in connection with capital projects are capitalized where the costs of the project exceed $250. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. The Partnership did not capitalize any costs related to interest, property taxes and operating costs during the year ended December 31, 2008. The Partnership capitalized approximately $9,000, $4,000 and $1,000 of costs related to construction period interest, property taxes and operating costs, respectively, during the year ended December 31, 2007. Capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred.
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate 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. No adjustments for impairment of value were necessary for the years ending December 31, 2008 and 2007.
Fair Value of Financial Instruments: 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 (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The Partnership estimates the fair value of its long term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, fully amortizing long-term debt. The fair value of the Partnership's long term debt at the Partnership’s incremental borrowing rate is approximately $4,600,000.
Advertising: The Partnership expenses the costs of advertising as incurred. Advertising costs for the investment property of approximately $36,000 and $33,000 for the years ended December 31, 2008 and 2007, respectively, were charged to operating expense as incurred.
Segment Reporting: SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” established standards for the way 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. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment.
Recent Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS No. 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS No. 157 requires fair value measurements to be disclosed by level within the fair value hierarchy. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157”, which deferred the effective date of SFAS 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. The provisions of SFAS No. 157 are applicable to recurring fair value measurements of financial assets and liabilities for fiscal years beginning after November 15, 2007, which for the Partnership is generally limited to annual disclosures required by SFAS No. 107. The Partnership adopted the provisions of SFAS No. 157 effective January 1, 2008, and at that time determined no transition adjustment was required.
Note B - 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 Federal 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, except per unit data):
Net (loss) income as reported
$ (520)
$
Add (deduct)
Depreciation differences
Other
(17)
Unearned income
(35)
Federal taxable (loss) income
$ (414)
$
Federal taxable (loss) income
per limited partnership unit
$(11.32)
$20.31
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands):
Net liabilities as reported
$(2,440)
$(1,920)
Investment property at cost
Accumulated depreciation
1,686
1,551
Syndication
1,708
1,708
Other
Net assets - tax basis
$ 1,306
$ 1,720
Note C - Transactions with Affiliated Parties
The Partnership has no employees and depends 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.
Affiliates of the Managing General Partner receive 5% of gross receipts from the Partnership's sole property as compensation for providing property management services. The Partnership paid to such affiliates approximately $85,000 and $105,000 for the years ended December 31, 2008 and 2007, respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received asset management fees amounting to approximately $22,000 and $47,000 for the years ended December 31, 2008 and 2007, respectively, which is included in general and administrative expenses. The asset management fees are calculated based on a percentage of the tangible asset value of the Partnership as defined in the Partnership Agreement. The percentage as stipulated in the Partnership Agreement was 0.50% for both 2008 and 2007. At December 31, 2008 the Partnership had prepaid approximately $2,000 of asset management fees which is included in due to affiliates. At December 31, 2007 the Partnership had prepaid approximately $9,000 of asset management fees which is included in receivables and deposits.
Affiliates of the Managing General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $63,000 for both of the years ended December 31, 2008 and 2007, respectively, which is included in general and administrative expenses. At December 31, 2008, the Partnership owed approximately $35,000 of accountable administrative expenses which is included in due to affiliates. There were no such amounts owed at December 31, 2007.
In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner advanced the Partnership approximately $1,251,000 during the year ended December 31, 2008 to assist with the payment of capital improvements at Lewis Park Apartments and partnership operations. At December 31, 2008, the total advances and accrued interest due to AIMCO Properties, L.P. was approximately $1,290,000. During the year ended December 31, 2007, AIMCO Properties, L.P. advanced the Partnership approximately $139,000 to assist with the payment of real estate taxes and operations for Lewis Park Apartments. During the year ended December 31, 2007, the Partnership repaid approximately $143,000 of outstanding advances and accrued interest. There were no payments made during the year ended December 31, 2008. Interest on advances was charged at the market rate which was 10.33% at December 31, 2008. Interest expense was approximately $39,000 and $4,000 for the years ended December 31, 2008 and 2007, respectively. There were no advances or accrued interest outstanding at December 31, 2007. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheets, please see its reports filed with the Securities and Exchange Commission. Subsequent to December 31, 2008, the Partnership received additional advances from AIMCO Properties, L.P., of approximately $20,000 to fund operating expenses.
The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2008 and 2007, the Partnership was charged by AIMCO and its affiliates approximately $62,000 and $39,000, respectively, for insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 6,227 limited partnership units (the "Units") in the Partnership representing 39.68% of the outstanding Units as of December 31, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.
Note D - Investment Property and Accumulated Depreciation
Reconciliation of "Investment Property and Accumulated Depreciation":
The aggregate cost of the real estate for Federal income tax purposes at December 31, 2008 and 2007 is approximately $12,705,000 and $11,498,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2008 and 2007 is approximately $7,564,000 and $7,154,000, respectively.
Note E - Mortgage Note Payable
The terms of the mortgage note payable are as follows:
The mortgage note payable is a fixed rate mortgage that is non-recourse and is secured by a pledge of the Partnership's rental property and by pledge of revenues from the rental property. The mortgage note payable includes a prepayment penalty if repaid prior to maturity. Further, the property may not be sold subject to existing indebtedness.
Scheduled principal payments of the mortgage note payable subsequent to December 31, 2008, are as follows (in thousands):
$
Thereafter
2,882
Total
$4,205
Note F - Casualty Events
In August 2008, Lewis Park Apartments suffered fire damage to one of its rental units. The Partnership incurred approximately $25,000 of costs to repair the fire damage which is included in operating costs. The Partnership received insurance proceeds of approximately $15,000 during January 2009 which is included in receivables and deposits and as a reduction of operating expenses at December 31, 2008. The Partnership does not anticipate receiving any additional proceeds related to this casualty.
In December 2008, Lewis Park Apartments suffered water damage to three of its rental units due to a water pipe break. The estimated cost to repair the units is approximately $28,000. As of December 31, 2008, no costs had been incurred to repair the units. Subsequent to December 31, 2008, approximately $17,000 in insurance proceeds were received related to this casualty.
Note G - Contingencies
As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed. During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked. The Partnership was not required to pay any settlement amounts. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The Managing General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.
The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A(T).
Item 9A(T). Controls and Procedures
(a) Disclosure Controls and Procedures
The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
The Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the principal executive and principal financial officers of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, and effected by the Partnership’s management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;
· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Partnership’s management; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Partnership’s management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2008. In making this assessment, the Partnership’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on their assessment, the Partnership’s management concluded that, as of December 31, 2008, the Partnership’s internal control over financial reporting is effective.
This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.
(b) Changes in Internal Control Over Financial Reporting.
There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2008 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
HCW Pension Real Estate Fund Limited Partnership (the “Partnership” or the “Registrant”) has no officers or directors. IH, Inc. (the “Managing General Partner”) manages and controls substantially all of the Partnership’s affairs and has general responsibility in all matters affecting its business.
The names and ages of, as well as the positions and offices held by, the present directors and officers of the Managing General Partner are set forth below. There are no family relationships between or among any officers or directors.
Name
Age
Position
Steven D. Cordes
Director and Senior Vice President
Harry G. Alcock
Director and Executive Vice President
Timothy J. Beaudin
President and Chief Operating Officer
David R. Robertson
President and Chief Financial Officer
Lisa R. Cohn
Executive Vice President, General Counsel and Secretary
Patti K. Fielding
Executive Vice President - Securities and Debt; Treasurer
Paul Beldin
Senior Vice President and Chief Accounting Officer
Stephen B. Waters
Vice President
Steven D. Cordes was appointed as a Director of the Managing General Partner effective March 2, 2009. Mr. Cordes has been a Senior Vice President of the Managing General Partner and AIMCO since May 2007. Mr. Cordes was appointed Senior Vice President - Structured Equity in May 2007. Mr. Cordes joined AIMCO in 2001 as a Vice President of Capital Markets with responsibility for AIMCO’s joint ventures and equity capital markets activity. Prior to joining AIMCO, Mr. Cordes was a manager in the financial consulting practice of PricewaterhouseCoopers. Effective March 2009, Mr. Cordes was appointed to serve as the equivalent of the chief executive officer of the Partnership.
Harry G. Alcock was appointed as a Director of the Managing General Partner in October 2004 and was appointed Executive Vice President of the Managing General Partner in February 2004 and has been Executive Vice President of AIMCO since October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994, serving as Vice President from July 1996 to October 1997 and as Senior Vice President from October 1997 to October 1999. Mr. Alcock focuses on transactions related to AIMCO’s portfolio of properties in the western portion of the United States.
Timothy J. Beaudin was appointed Executive Vice President and Chief Development Officer of the Managing General Partner and AIMCO in October 2005 and was appointed Executive Vice President and Chief Property Operating Officer of the Managing General Partner and AIMCO in October 2008. Mr. Beaudin was promoted to President and Chief Operating Officer of AIMCO in February 2009. Mr. Beaudin oversees conventional and affordable property operations and information technology, in addition to redevelopment and construction services. He is also responsible for asset management for conventional properties. Prior to joining AIMCO and beginning in 1995, Mr. Beaudin was with Catellus Development Corporation, a San Francisco, California-based real estate investment trust. During his last five years at Catellus, Mr. Beaudin served as Executive Vice President, with management responsibility for development, construction and asset management.
Lisa R. Cohn was appointed Executive Vice President, General Counsel and Secretary of the Managing General Partner and AIMCO in December 2007. From January 2004 to December 2007, Ms. Cohn served as Senior Vice President and Assistant General Counsel of AIMCO. Ms. Cohn joined AIMCO in July 2002 as Vice President and Assistant General Counsel. Prior to joining AIMCO, Ms. Cohn was in private practice with the law firm of Hogan and Hartson LLP.
Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the Managing General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding was appointed Treasurer of AIMCO and the Managing General Partner in January 2005. Ms. Fielding is responsible for debt financing and the treasury department. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding joined AIMCO in February 1997 as a Vice President.
David R. Robertson was appointed President and Chief Investment Officer of AIMCO in February 2009, and on March 1, 2009, he also became Chief Financial Officer of AIMCO and the Managing General Partner. Mr. Robertson joined AIMCO as Executive Vice President in February 2002 and has served as Chief Investment Officer since March 2007. In addition to serving as AIMCO’s chief financial officer, Mr. Robertson is responsible for portfolio strategy, capital allocation, investments, joint ventures, asset management and transaction activities. Since February 1996, Mr. Robertson has served as Chairman of Robeks Corporation, a 150-unit privately held chain of specialty food stores that he founded.
Paul Beldin was appointed Senior Vice President and Chief Accounting Officer of AIMCO and the Managing General Partner in May 2008. Mr. Beldin joined AIMCO in May 2008. Prior to that, Mr. Beldin served as controller and then as chief financial officer of America First Apartment Investors, Inc., a publicly traded multifamily real estate investment trust, from May 2005 to September 2007 when the company was acquired by Sentinel Real Estate Corporation. Prior to joining America First Apartment Investors, Inc., Mr. Beldin was a senior manager at Deloitte and Touche LLP, where he was employed from August 1996 to May 2005, including two years as an audit manager in SEC services at Deloitte’s national office.
Stephen B. Waters was appointed Vice President of the Managing General Partner and AIMCO in April 2004. Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999. Mr. Waters has responsibility for partnership accounting with AIMCO and serves as the principal financial officer of the Managing General Partner.
One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act.
The board of directors of the Managing General Partner does not have a separate audit committee. As such, the board of directors of the Managing General Partner fulfills the functions of an audit committee. The board of directors has determined that Steven D. Cordes meets the requirement of an "audit committee financial expert".
The directors and officers of the Managing General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing.
Item 11.
Item 11. Executive Compensation
Neither the directors nor any of the officers of the Managing General Partner received any remuneration from the Registrant, during the years ended December 31, 2008 and 2007.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except as noted below, 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, 2007.
Entity
Number of Units
Percentage
CooperRiverProperties, LLC
(an affiliate of AIMCO)
1,741
11.09%
AIMCO Properties, L.P.
(an affiliate of AIMCO)
4,409
28.10%
AIMCO IPLP, L.P.
(an affiliate of AIMCO)
0.46%
Liquidity Assistance, LLC
(an affiliate of AIMCO)
0.03%
Cooper River Properties, LLC, AIMCO IPLP, L.P. and Liquidity Assistance, LLC are all indirectly ultimately owned by AIMCO. Their business addresses are 55 Beattie Place, Greenville, SC 29602.
AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Partnership has no employees and depends 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.
Affiliates of the Managing General Partner receive 5% of gross receipts from the Partnership's sole property as compensation for providing property management services. The Partnership paid to such affiliates approximately $85,000 and $105,000 for the years ended December 31, 2008 and 2007, respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received asset management fees amounting to approximately $22,000 and $47,000 for the years ended December 31, 2008 and 2007, respectively, which is included in general and administrative expenses. The asset management fees are calculated based on a percentage of the tangible asset value of the Partnership as defined in the Partnership Agreement. The percentage as stipulated in the Partnership Agreement was 0.50% for both 2008 and 2007. At December 31, 2008 the Partnership had prepaid approximately $2,000 of asset management fees which is included in due to affiliates. At December 31, 2007 the Partnership had prepaid approximately $9,000 of asset management fees which is included in receivables and deposits.
Affiliates of the Managing General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $63,000 for both of the years ended December 31, 2008 and 2007, respectively, which is included in general and administrative expenses. At December 31, 2008, the Partnership owed approximately $35,000 of accountable administrative expenses which is included in due to affiliates. There were no such amounts owed at December 31, 2007.
In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner advanced the Partnership approximately $1,251,000 during the year ended December 31, 2008 to assist with the payment of capital improvements at Lewis Park Apartments and partnership operations. At December 31, 2008, the total advances and accrued interest due to AIMCO Properties, L.P. was approximately $1,290,000. During the year ended December 31, 2007, AIMCO Properties, L.P. advanced the Partnership approximately $139,000 to assist with the payment of real estate taxes and operations for Lewis Park Apartments. During the year ended December 31, 2007, the Partnership repaid approximately $143,000 of outstanding advances and accrued interest. There were no payments made during the year ended December 31, 2008. Interest on advances was charged at the market rate which was 10.33% at December 31, 2008. Interest expense was approximately $39,000 and $4,000 for the years ended December 31, 2008 and 2007, respectively. There were no advances or accrued interest outstanding at December 31, 2007. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheets, please see its reports filed with the Securities and Exchange Commission. Subsequent to December 31, 2008, the Partnership received additional advances from AIMCO Properties, L.P., of approximately $20,000 to fund operating expenses.
The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2008 and 2007, the Partnership was charged by AIMCO and its affiliates approximately $62,000 and $39,000, respectively, for insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 6,227 limited partnership units (the "Units") in the Partnership representing 39.68% of the outstanding Units as of December 31, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder.
Neither of the Managing General Partner’s directors is independent under the independence standards established for New York Stock Exchange listed companies as both directors are employed by the parent of the Managing General Partner.
Item 14.
Item 14. Principal Accounting Fees and Services
The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2009. The aggregate fees billed for services rendered by Ernst & Young LLP for 2008 and 2007 are described below.
Audit Fees. Fees for audit services totaled approximately $42,000 and $35,000 for 2008 and 2007, respectively. Fees for audit services also include fees for the reviews of the Partnership’s Quarterly Reports on Form 10-Q.
Tax Fees. Fees for tax services totaled approximately $6,000 and $7,000 for 2008 and 2007, respectively.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) The following financial statements of the Partnership are included in Item 8:
Balance Sheets at December 31, 2008 and 2007.
Statements of Operations for the years ended December 31, 2008 and 2007.
Statements of Changes in Partners' Deficit for the years ended December 31, 2008 and 2007.
Statements of Cash Flows for the years ended December 31, 2008 and 2007.
Notes to Financial Statements
Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
(b) Exhibits:
See Exhibit index
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.,
Managing General Partner
By: /s/Steven D. Cordes
Steven D. Cordes
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: March 25,
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 and in the capacities and on the dates indicated.
/s/Harry G. Alcock
Director and Executive
Date: March 25,
Harry G. Alcock
Vice President
/s/Steven D. Cordes
Director and Senior
Date: March 25,
Steven D. Cordes
Vice President
/s/Stephen B. Waters
Vice President
Date: March 25,
Stephen B. Waters
HCW Pension Real Estate Limited Partnership
EXHIBIT INDEX
Exhibit
3 & Limited Partnership Agreement (Incorporated by reference to Registration Statement No. 2-91006 on Form S-11 filed by Registrant).
10.4 Multifamily Note dated August 28, 2000, by and between the Partnership and GMAC Commercial Mortgage Corporation, a California Corporation incorporated by reference to Exhibit 10.4 to the Partnership's Quarterly Report on Form 10-QSB for the period ended September 30, 2000.
31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.