FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended July 31, 1994
Commission File Number 1-6309
HRE PROPERTIES
(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
04-245-8042
(I.R.S. Employer
Identification Number)
530 FIFTH AVENUE, 21ST FLOOR, NEW YORK, NY
(Address of principal executive offices)
10036
(Zip Code)
Registrant's telephone number, including area code:
(212) 642-4800
The number of shares of Registrant's common shares outstanding as of the close
of period covered by this report: 5,337,054
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 / /
THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 10 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 10 INCLUSIVE, OF WHICH THIS PAGE IS 1.
INDEX
HRE PROPERTIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income--Three months ended July 31, 1994 and
1993, Nine months ended July 31, 1994 and 1993.
Consolidated Balance Sheets--July 31, 1994 and October 31, 1993.
Consolidated Statements of Cash Flows--Nine months ended July 31, 1994
and 1993.
Consolidated Statements of Shareholders' Equity--Nine months ended July
31, 1994 and 1993.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Page 2 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31 JULY 31
----------------------- ------------------------
1994 1993 1994 1993
------- -------- ---------- --------
REVENUES:
Operating leases $12,232 $10,567 $4,217 $2,949
Financing leases 1,055 1,150 343 375
Interest 779 848 259 265
Interest from and equity in losses
of unconsolidated joint ventures -- (243) -- (92)
--------- ------- -------- --------
14,066 12,322 4,819 3,497
--------- ------- -------- --------
EXPENSES:
Real estate operations 5,473 4,829 1,835 1,409
Interest 2,678 2,036 965 433
Depreciation and amortization 3,001 3,093 1,061 815
General and administrative 1,091 1,443 336 471
Trustees' fees and expenses 123 105 38 32
Consulting fee -- 145 -- --
Write-down in carrying value of
investments -- 8,285 -- 4,985
--------- ------- -------- --------
12,366 19,936 4,235 8,145
--------- ------- -------- --------
INCOME (LOSS) BEFORE GAINS ON SALES OF
PROPERTIES 1,700 (7,614) 584 (4,648)
GAINS ON SALES OF PROPERTIES 82 2,330 -- --
--------- ------- -------- --------
NET INCOME (LOSS) $1,782 $(5,284) $ 584 $(4,648)
========= ========= ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before gains on sales of properties $ .32 $ (1.44) $ .11 $ (.88)
Gains on sales of properties .02 .44 -- --
--------- ------- -------- --------
Net Income (Loss) $ .34 $ (1.00) $ .11 $ (.88)
========= ========= ======== ========
Weighted Average Number of Common Shares
Outstanding 5,326 5,293 5,333 5,297
========= ========= ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 3 of 10
HRE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
July 31, 1994 October 31, 1993
------------- ----------------
(UNAUDITED)
ASSETS
Real Estate Investments:
Properties owned--at cost, net of accumulated
depreciation and recoveries of $36,898 at
July 31, 1994 and $33,384 at October 31, 1993 $121,712 $ 99,279
Investment in unconsolidated joint venture -- 250
Mortgage notes receivable 8,866 8,917
-------- ---------
130,578 108,446
Cash and cash equivalents 3,593 7,061
Interest and rent receivable 1,965 1,304
Deferred charges, net of accumulated amortization 2,167 1,796
Other assets 1,303 723
-------- ---------
$139,606 $119,330
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank note payable $ 5,000 $ --
Mortgage notes payable 41,970 24,227
Accounts payable and accrued expenses 1,075 847
Deferred trustees' fees 635 602
Other liabilities 580 958
-------- --------
49,260 26,634
-------- --------
Shareholders' Equity:
Preferred shares, without par value;
2,000,000 shares authorized; none issued -- --
Common shares, without par value; unlimited
shares authorized; 5,515,402 and
5,498,454 issued on July 31, 1994
and October 31, 1993 123,440 123,205
Less 178,348 common shares held in treasury,
at cost (2,861) (2,861)
Distributions in excess of accumulated net income (30,233) (27,648)
--------- ---------
90,346 92,696
--------- ---------
$139,606 $119,330
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Page 4 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended July 31
-------------------------
1994 1993
-------- ---------
Operating Activities:
Net income (loss) $1,782 $(5,284)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,058 3,152
Recovery of investment in properties owned
subject to financing leases 1,092 997
Equity in losses of unconsolidated joint venture -- 269
Minority interests in net losses of consolidated
joint ventures (13) (20)
Gains on sales of properties (82) (2,330)
Write-down in carrying value of investments -- 8,285
------ -------
5,837 5,069
Changes in operating assets and liabilities:
Increase in interest and rent receivable (661) (405)
(Increase) decrease in accounts payable and accrued expenses 261 (60)
(Increase) decrease in other assets and other liabilities, net (1,035) 124
------- -------
Net Cash Provided by Operating Activities 4,402 4,728
------- -------
Investing Activities:
Acquisition of properties owned (25,816) --
Improvements to existing properties owned and deferred
charges -- net (1,451) (1,289)
Additional capital contributed to unconsolidated
joint venture -- (100)
Proceeds from sales of properties and investment in
unconsolidated joint venture 705 3,230
Payments received on mortgage notes receivable 50 45
Miscellaneous 31 69
-------- --------
Net Cash Provided By (Used In) Investing Activities (26,481) 1,955
-------- --------
Financing Activities:
Proceeds from mortgage notes and bank note 23,000 --
Dividends paid (4,367) (4,287)
Proceeds from sales of additional common shares 235 178
Payments on mortgage notes payable
and other liability (257) (812)
------- -------
Net Cash Used In Financing Activities 18,611 (4,921)
------- -------
Net Increase (Decrease) In Cash and Cash Equivalents (3,468) 1,762
Cash and Cash Equivalents at Beginning of Period 7,061 4,458
------- -------
Cash and Cash Equivalents at End of Period $ 3,593 $ 6,220
======= ========
The accompanying notes to consolidated financial Statements are an integral part
of these statements.
Page 5 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except shares and per share data)
Common Shares (Distributions
Treasury In Excess
Outstanding Issued Shares, Accumulated
Number Amount at Cost Net Income) Total
--------- --------- ------- ----------- ------
Balances-October 31, 1992 5,296,109 $122,590 $(2,705) $(16,967) $102,918
Net (loss) -- -- -- (5,284) (5,284)
Cash dividends declared ($.81
per share) -- -- -- (4,287) (4,287)
Sale of additional common shares
under dividend reinvestment plan 13,212 178 -- -- 178
Common shares acquired in cancel-
lation of stock option plan (8,250) 156 (156) -- --
---------- --------- -------- --------- ---------
Balances--July 31, 1993 5,301,071 $122,924 $(2,861) $(26,538) $ 93,525
========== ======== ======== ========= =========
Balances-October 31, 1993 5,320,106 $123,205 $(2,861) $(27,648) $ 92,696
Net income -- -- -- 1,782 1,782
Cash dividends declared ($.82
per share) -- -- -- (4,367) (4,367)
Sale of additional common shares
under dividend reinvestment plan
and stock option plan 16,948 235 -- -- 235
---------- --------- -------- ---------- --------
Balances--July 31, 1994 5,337,054 $123,440 $(2,861) $(30,233) $90,346
=========== ======== ======== ========== ========
Page 6 of 10
HRE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying unaudited consolidated financial statements include the
accounts of HRE Properties ("the Trust"), its wholly-owned subsidiary, and
certain joint ventures where the Trust has the ability to control the
affairs of the venture. All significant intercompany transactions and
balances have been eliminated. The financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Results of operations for the three-month and nine-
month periods ended July 31, 1994 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1994. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Trust's annual
report for the fiscal year ended October 31, 1993.
2. The Trust accounts for its leases of real property in accordance with the
provisions of Financial Accounting Standards Board Statement No. 13,
"Accounting for Leases." This statement sets forth specific criteria for
determining whether a lease should be accounted for as an operating lease
or a financing lease. In general, the financing lease method applies
where property is under long-term lease to a credit worthy tenant and the
present value of the minimum required lease payments is at least 90% of
the value of the property. Other leases are accounted for as operating
leases.
3. In December 1993, the Trust acquired a 296,000 square foot retail shopping
center located in Meriden, Connecticut for a purchase price of $25
million. The property was acquired subject to a nonrecourse first
mortgage loan of $15 million. The mortgage loan bears interest at an
annual rate of 7.5% for a five-year term with interest only due monthly
for the first two years and monthly installments of principal and interest
until maturity. In connection with this acquisition, the Trust used the
proceeds of its $5 million line of credit arrangement to complete the
purchase. The Trust currently pays interest at an annual rate of LIBOR
plus 2.75% on oustanding borrowings.
Page 7 of 10
PART I - FINANCIAL INFORMATION (continued)
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources:
The Trust believes that the financial resources currently available to it
are sufficient to meet all of its known obligations and commitments and to make
additional real estate investments when appropriate opportunities arise. At
July 31, 1994, the Trust had $3.6 million in cash and cash equivalents and
current liabilities of approximately $1.0 million. Long-term debt consists of
mortgage loans totaling $42.1 million, of which approximately $350,000 in
principal payments are due in fiscal 1994. The Trust also has $15 million in
unsecured lines of credit with two commercial banks. As of July 31, 1994, the
Trust has drawn $5 million under one of the lines of credit. The lines of
credit expire at periods to April, 1995 and it is anticipated that outstanding
borrowings, if any, under the lines of credit will be repaid from proceeds of a
mortgage loan financing, sales of property or may be extended by the lenders.
During fiscal 1994 the Trust also obtained $18 million from two nonrecourse
first mortgage loan financings. The loans are collateralized by two of the
Trust's properties.
In June 1994, the Trust obtained a $4.5 million nonrecourse first mortgage
loan commitment from a major commercial mortgage fund. The loan will be secured
by one of the Trust's properties. The mortgage loan closed in September 1994
and proceeds from the loan may be used to make new real estate investments.
The Trust expects to make new real estate investments periodically. The
funds for such investments may come from existing liquid assets, lines of
credit, proceeds from property sales, financing of acquired or existing
properties or the sale of mortgage notes receivable. In the first quarter of
fiscal 1994, the Trust acquired a 296,000 square foot shopping center in
Meriden, Connecticut. The total purchase price was $25 million consisting of
$10 million cash (including $5 million drawn from the Trust's line of credit
arrangement) and first mortgage financing of $15 million. The first mortgage
bears interest at 7.5% per annum and matures in five years. In May 1994, the
Trust also acquired an office building located in Greenwich Connecticut. The
10,000 square foot property was acquired at a purchase price of $550,000, all
cash. The Trust also invests in its existing properties and during the first
nine-months of fiscal 1994, spent approximately $1,451,000 on its properties for
capital improvement and leasing costs.
The Trust sold its distribution property located in Memphis, Tennessee and
net leased to the tenant at a net sale price of $450,000, all cash. The
transaction closed during the Trust's second quarter and the Trust realized a
gain on the sale of $82,000.
Results of Operations:
"Funds from operations" (net income before gains on sales of properties
and non-recurring items, adjusted for non-cash charges and credits, recoveries
of investment in properties owned subject to financing leases and cash
distributions received from investments in unconsolidated joint ventures) is an
important financial measure of the Trust's operating performance. Funds from
operations for the three-month and nine-month periods ended July 31, 1994
increased to $2,026,000 and $5,837,000 from $1,592,000 ans $5,069,000
respectively in the year ago periods. Net income for the three-month and nine-
month periods ended July 31, 1994 was $584,000 or $.11 per share and $1,782,000
or $.34 per share compared to a net loss of $(4,648,000) or $(.88) per share and
$(5,284,000) or $(1.00) per share, respectively for the comparable periods in
1993.
Page 8 of 10
PART I - FINANCIAL INFORMATION (continued)
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
The three-month and nine-month periods in fiscal 1993 included non cash
charges aggregating $8,285,000 and $4,985,000 respectively to writedown the
carrying values of certain of the Trust's former office building investments to
their estimated net realizable values at that time. The investments were
subsequently disposed of during fiscal 1993.
Revenues:
Operating lease income from retail properties increased by approximately
$2.9 million in the first nine-months of fiscal 1994 compared to the prior
year's period primarily from the added rental revenues of the Trust's retail
properties located in Farmingdale, New York and Meriden, Connecticut. These
properties were recently acquired by the Trust. Operating lease income from
office properties declined by $1.2 million reflecting the disposition of the
Trust's office building investment in Portland, Oregon in the second quarter of
fiscal 1993 and lower occupancy at the Trust's Denver, Colorado office building.
The Trust recently signed leases totaling 22,400 square feet of space at the
Denver property.
Expenses:
General and administrative expenses decreased in the three-month and nine-
month periods from the amount of costs allocated to property operating real
estate expenses as a result of the Trust's strategic decision to assume the
direct property management responsibilities at most of its retail properties.
These retail properties were previously managed by third-party management firms
pursuant to fee arrangements.
The decrease in consulting fee expense resulted from the termination of a
consulting arrangement with a trustee in 1993's first quarter.
The increase in interest expense in the three-month and nine-month periods
is due to interest expense on additional mortgage notes payable in the principal
amount of $24.6 million obtained in fiscal 1993 and the first quarter of fiscal
1994. The mortgage notes bear interest at an average annual rate of
approximately 7.7%.
The Trust recorded gains on sales of properties of $82,000 or $.01 per
share and $2,330,000 or $.44 per share during the first nine months of fiscal
1994 and 1993, respectively in connection with sales of single tenant net leased
properties. There were no sales of properties during the three-month periods
ended July 31, 1994 and 1993.
Page 9 of 10
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the three-month
period ended July 31, 1994.
S I G N A T U R E S
Pursuant to the requirements 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.
HRE PROPERTIES
(Registrant)
By:_____________/s/_________________
James R. Moore
Senior Vice President/
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
By:_____________/s/_________________
Charles J. Urstadt
Chairman, President and
Chief Executive Officer
Page 10 of 10