SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 22, 1993 HRE Properties (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation) 1-6309 04-2458402 (Commission File Number) (IRS Employer Identification No.) 321 Railroad Avenue, Greenwich, Connecticut 06830 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 203/863-8200 530 Fifth Avenue, New York, New York (Former name or former address, if changed since last report) ITEM 2 Acquisition or Disposition of Assets On December 22, 1993, the Registrant purchased the Townline Square Shopping Center ("Property") from The Aetna Life Insurance Company ("Seller"). The purchase price was $25,000,000 exclusive of the closing costs, fees and other expenses of approximately $ 150,000. The Property was acquired pursuant to a Purchase and Sale Agreement dated December 22, 1993 by and between The Aetna Life Insurance Company and the Registrant. There is no relationship between any Trustee or Officer of the Registrant and Seller. Registrant funded the purchase with cash of $10,000,000 including $5,000,000 borrowed under one of the Registrant's bank lines of credit, and through a first mortgage loan of $15,000,000 from the Seller. The mortgage note bears interest at 7.5% per annum, payable in monthly installments of interest only until November 1, 1995 and thereafter in monthly installments of principal and interest of $120,840. The scheduled maturity date is December 22, 1998, at which time the entire outstanding unpaid principal balance is due. Material Factors Considered By the Registrant: Market and Competition: Prior to acquiring the Property the Registrant considered general regional and local economic conditions and the Property's competitive posture within these markets. The Property acquired is located in New Haven County, Connecticut, contains 295,915 square feet of rentable space and is situated on 29.2 acres of land. The Property contains approximately 20 tenants whose principal businesses are the sale of various retail products and merchandise. The Property was developed in 1989 and is located in a densely populated area on Route 5 in the town of Meriden, County of New Haven, Connecticut. Meriden is a white-collar, bedroom community with a population of approximately 101,000. The primary competitive market, includes the towns of Meriden and Wallingford, Connecticut. There are two competing shopping centers within a two-mile radius of the Property and eight shopping centers within a three-mile radius. There is a vacancy rate in the direct competing area of approximately 15% of leasable area. Tenants: Tenants comprising more than 10% of the rentable square footage of the Property are: Bradlee's, a national chain of discount department stores, occupying 85,900 square feet of rentable space; The Wiz, a regional chain of electronic and audio equipment stores, occupying 50,000 square feet of rentable space and; ShopRite, a regional supermarket chain, occupying 45,000 square feet of rentable space. The Property is currently 95% occupied. All of the leases with tenants are for terms longer than one year and generally provide for additional rental amounts based on each tenant's share of the cost of maintaining common areas and certain operating expenses, including insurance, of the property. The average effective annual rental rate per square foot at the date of acquisition was $9.21. The following is a schedule of lease expirations of the Property by year: Number of Tenants Minimum whose leases Total Square Annual Per- Year Expire Footage Rentals Centage 1994 2 2,580 $ 53,760 2.0% 1995 3 9,885 176,955 6.5 1996 1 2,700 43,200 1.6 1997 1 2,842 30,012 1.1 1998 1 3,889 35,000 1.3 1999 3 22,560 303,765 11.1 2000 1 9,000 135,000 5.0 2001 - -- -- -- 2002 1 2,543 18,894 0.7 2003 2 3,115 31,464 1.1 Thereafter 5 222,020 1,896,486 69.6 281,134 $2,724,536 100.0 Vacant 14,781 295,915 Building and Capital Improvements: The federal tax basis of the Property (including land) is $25,000,000. The building component will be depreciated over its estimated useful life (40.0 years) on a straight line basis. The Registrant anticipates spending an additional $200,000 in the next twelve months for tenant improvements, leasing costs and property improvements. Property Taxes: The estimated annual realty taxes of the Property are $350,000. Property Management: The Registrant expects to manage the Property directly. After reasonable inquiry, the Registrant is not aware of any material factors relating to the Property, other than those set forth above, that would cause the reported financial information not to be necessarily indicative of future operating results. Item 7 Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements (b) Pro Forma Financial Information (c) Exhibits Purchase and Sale Agreement between Registrant and The Aetna Life Insurance Company, dated December 22, 1993, is hereby incorporated by reference from the Registrant's Form 10-K dated January 26, 1995. SIGNATURES 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 hereunto duly authorized. HRE PROPERTIES (Registrant) Date August 11, 1995 By \s\ Charles J. Urstadt Charles J. Urstadt President and Chief Executive Officer TOWNLINE SQUARE SHOPPING CENTER HRE PROPERTIES TABLE OF CONTENTS Item 7 Financial Statements, Pro Forma Financial Information (a) Financial Statements Page Independent Auditors' Report .....................................6 Statement of Revenue and Certain Expenses of Townline Square Shopping Center For the Year Ended December 31, 1993.............7 Note to Statement of Revenues and Certain Expenses of Townline Square Shopping Center For the Year Ended December 31, 1993...........................8 Pro Forma Estimate of Taxable Income and Funds Generated From Townline Square Shopping Center For the Year Ended December 31, 1993 (Unaudited).............9 Notes and Management's Assumptions to Pro Forma Estimate of Taxable Income and Funds Generated From Townline Square Shopping Center For the Year Ended December 31, 1993 (Unaudited)...........10 (b) Pro Forma Financial Information Pro Forma Consolidated Balance Sheet as of October 31, 1993 (Unaudited)............................12 Pro Forma Consolidated Statement of Income For the Year Ended October 31, 1993 (Unaudited)...............13 Notes and Management's Assumptions to Pro Forma Consolidated Financial Statements For the Year Ended October 31, 1993 (Unaudited)..............14 Pro Forma Consolidated Statement of Income For the Three Months Ended January 31, 1994 (Unaudited).......16 Notes and Management's Assumptions to Pro Forma Consolidated Statement of Income For the Three Months Ended January 31, 1994 (Unaudited)......17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of HRE Properties: We have audited the accompanying statement of revenues and certain expenses of Townline Square Shopping Center ("Townline Square") for the year ended December 31, 1993. This financial statement is the responsibility of Townline Square's management. Our responsibility is to express an opinion on this financial statement 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 statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. 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. As described in Note 1, the accompanying statement of revenues and certain expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and is not intended to be a complete presentation of Townline Square's revenues and expenses. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and certain expenses of Townline Square for the year ended December 31, 1993, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP New York, New York July 19, 1995 TOWNLINE SQUARE SHOPPING CENTER STATEMENT OF REVENUES AND CERTAIN EXPENSES (Note 1) FOR THE YEAR ENDED DECEMBER 31, 1993 REVENUES: Rental income $ 3,453,809 CERTAIN EXPENSES: Real estate taxes 301,840 Repairs and maintenance 178,152 Property management and administration 185,591 Insurance 31,467 Utilities 87,638 Total Certain Expenses 784,688 REVENUES IN EXCESS OF CERTAIN EXPENSES $ 2,669,121 The accompanying note is an integral part of this statement. TOWNLINE SQUARE SHOPPING CENTER NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1993 1. BASIS OF PRESENTATION: The accompanying statement of revenues and certain expenses (the "financial statement") reflects the operations of Townline Square Shopping Center (the "Property"), a 295,915 square foot retail property located in Meriden, Connecticut. The Property was acquired by HRE Properties (the "Trust") from an unaffiliated party on December 22, 1993. The accompanying financial statement was prepared in accordance with certain rules and regulations of the Securities and Exchange Commission and excludes certain expenses such as interest, depreciation and amortization, and other costs not directly related to the future operations of the Property. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to those rules and regulations, although the Trust believes that the disclosures made are adequate to make the information presented not misleading. PRO FORMA ESTIMATE OF TAXABLE INCOME AND FUNDS GENERATED FROM THE TOWNLINE SQUARE SHOPPING CENTER FOR THE YEAR ENDED DECEMBER 31, 1993 (UNAUDITED) The following presents unaudited proforma estimates of taxable income and funds generated from the Townline Square Shopping Center for the year ended December 31, 1993. These estimates do not purport to represent actual or expected results of operations of the shopping center for any period in the future. The estimates were prepared on the basis described in the accompanying notes, which should be read in conjunction herewith. REVENUES: Rental income $ 3,453,809 CERTAIN EXPENSES: Real estate taxes 301,840 Repairs and maintenance 178,152 Property management and administration 185,591 Insurance 31,467 Utilities 87,638 Total Certain Expenses 784,688 REVENUES IN EXCESS OF CERTAIN EXPENSES 2,669,121 Pro Forma Adjustments: Less: Depreciation 500,000 Mortgage interest 1,125,000 Line of Credit Interest 350,000 1,975,000 Pro Forma Estimate of Taxable Income 694,121 Add: Depreciation 500,000 Pro Forma Estimate of Funds Generated $1,194,121 The accompanying notes and management's assumptions are an integral part of this statement. NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA ESTIMATE OF TAXABLE INCOME AND FUNDS GENERATED FROM THE TOWNLINE SQUARE SHOPPING CENTER FOR THE YEAR ENDED DECEMBER 31, 1993 (UNAUDITED) 1. The historical operating income of Townline Square Shopping Center ("the Property") is derived from the Statement of Revenues and Certain Expenses of Townline Square Shopping Center for the year ended December 31, 1993 contained elsewhere in this filing. The Property was purchased by the Registrant on December 22, 1993. 2. The computation of depreciation is based upon the cost of the Property's building and improvements ($20,000,000) depreciated on a straight-line basis over a 40-year useful life. 3. Mortgage interest is applicable to the mortgage note payable of $15,000,000 computed at 7.5% per annum as if the mortgage loan had been outstanding for the entire period. The mortgage loan is payable with interest only for two years and thereafter in monthly installments of principal and interest of $120,840. The outstanding unpaid principal balance is due on December 31, 1998. 4. Line of credit interest is applicable to short-term borrowings of $5,000,000. Interest is computed at prime +1% (weighted average interest of 7% during the period). The short-term borrowings were used to supplement the financing of the acquisition of the Property. 5. The Registrant qualifies as a real estate investment trust (REIT) under the Internal Revenue Code. Accordingly, the Registrant will not be subject to federal income tax so long as it continues to qualify as a real estate investment trust and distributes substantially all of its federal taxable income. Item 7(b) PRO FORMA FINANCIAL INFORMATION The following Pro Forma Consolidated Balance Sheet as of October 31, 1993, and the Pro Forma Consolidated Statement of Income for the year ended October 31, 1993, and three months ended January 31, 1994 have been prepared to reflect the acquisition transaction and the adjustments described in the accompanying notes. The pro forma financial information is based on the historical financial statements of HRE Properties and should be read in conjunction with the notes and management's assumptions thereto. The Pro Forma Consolidated Balance Sheet was prepared as if the acquisition transaction occurred on October 31, 1993. The pro forma consolidated statements of income for the year ended October 31, 1993 and for the three months ended January 31, 1994 were prepared assuming the transaction occurred on the first day of the period presented. The pro forma financial information is unaudited and not necessarily indicative of the consolidated results which actually would have occurred if the acquisition transaction had been consummated at the beginning of the period presented, nor does it purport to represent the future financial position and results of operations for future periods. HRE PROPERTIES PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands, except share data) October 31, 1993 ASSETS HRE Pro forma HRE Historical Adjustments Pro forma Real Estate Investments: Properties owned at cost, net of accumulated depreciation and recoveries $ 99,279 $ 25,150 (a) $124,429 Investment in unconsolidated joint venture 250 250 Mortgage notes receivable 8,917 8,917 108,446 133,596 Cash and cash equivalents 7,061 (5,150) (b) 1,911 Interest and rent receivable 1,304 1,304 Deferred charges, net of accumulated amortization 1,796 1,796 Other assets 723 723 $ 119,330 $139,330 LIABILITIES AND SHAREHOLDERS EQUITY Liabilities: Bank loan $ $ 5,000 (a) $ 5,000 Mortgage notes payable 24,227 15,000 (a) 39,227 Accounts payable and accrued expenses 847 847 Deferred trustees fees 602 602 Other liabilities 958 958 26,634 46,634 Shareholders Equity: Preferred shares Common shares 123,205 123,205 Less common shares held in treasury, at cost (2,861) (2,861) Distributions in excess of accumulated net income (27,648) (27,648) 92,696 92,696 $ 119,330 $ 139,330 The accompanying notes and management's assumptions are an integral part of this statement. HRE PROPERTIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share data) Year Ended October 31, 1993 HRE Pro forma HRE Historical Adjustments Pro forma Revenues: Operating leases $13,763 $ 3,454 (a) $17,217 Financing leases 1,520 1,520 Interest 1,122 (138) (d) 984 Interest from and equity in losses of unconsolidated joint venture ( 243) ( 243 16,162 19,478 Operating Expenses: Property expenses 6,311 785 (a) 7,096 Interest 2,494 1,475 (b) 3,969 Depreciation and amortization 4,363 500 (c) 4,863 General and administrative expenses 1,723 1,723 Trustees fees and expenses 294 294 Write-down in carrying value of investments 8,285 8,285 23,470 26,230 Operating Loss Before Minority Interests (7,308) (6,752) Minority Interests in Results of Consolidated Joint Venture 15 15 Operating Loss (7,293) (6,737) Gain on Sale of Properties 2,330 2,330 Net Loss $(4,963) $(4,407) Net Loss Per Common Share: Operating Loss $(1.38) $(1.27 Gain on sale of properties .44 .44 Net Loss $(.94) $(.83 Weighted Average Number of Common Shares Outstanding 5,296 5,296 The accompanying notes and management's assumptions are an integral part of this statement. HRE PROPERTIES NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 1993 (UNAUDITED) 1. BASIS OF PRESENTATION: HRE Properties ("the Trust") acquired Townline Square Shopping Center ("the Property"), a 295,915 square foot retail property located in Meriden, Connecticut, for a total cost of $25,150,000, which included closing and other costs of approximately $150,000. The Trust acquired the Property subject to a $15,000,000 first mortgage loan obtained from the seller of the property. The accompanying unaudited pro forma consolidated balance sheet is presented as if the acquisition transaction occurred on October 31, 1993. The accompanying unaudited pro forma consolidated statement of income is presented as if the acquisition transaction had been made as of November 1, 1992. These pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of the Trust as of October 31, 1993. In management's opinion, all material adjustments necessary to reflect the effects of the acquisition of the Property by the Trust have been made. The unaudited pro forma consolidated financial statements are not necessarily indicative of the actual financial position of the Trust as of October 31, 1993, or what the actual results of operations of the Trust would have been assuming the acquisition of the Property had been completed as of November 1, 1992, nor are they necessarily indicative of the results of operations for future periods. 2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET: (a) To reflect the pro forma acquisition of the Property for approximately $25,150,000, the related $15,000,000 mortgage note payable and $5,000,000 of short-term borrowings as if the Property was purchased on October 31, 1993. (b) To reflect pro forma cash and cash equivalents as if the cash investment in the Property had been made as of October 31, 1993. HRE PROPERTIES NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 1993 (UNAUDITED) (CONTINUED) 3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME (a) To reflect rental income and operating expenses as reported by the Property for the period November 1, 1992 to October 31, 1993. (b) To reflect interest expense of: i) $1,125,000 related to the $15,000,000 mortgage note payable at 7.5% per annum for the acquisition of the Property as if the mortgage note has been outstanding for the entire period, and ii) $350,000 related to short-term borrowings of $5,000,000 with interest at prime +1%, (weighted average interest rate during the period was 7%). The short-term borrowings were drawn from one of the Trust's bank lines of credit for the acquisition of the Property and such borrowings are assumed to be outstanding for the entire period. (c) To reflect depreciation expense for the Property's building and improvements computed on a straight-line basis over a 40-year useful life using a cost basis of $20,000,000 as if the Property was purchased on November 1, 1992. (d) To reflect a reduction in interest income as if the cash investment ($5,150,000) had been made at the beginning of the period, using an interest rate of 2.676% which was HRE's actual yield for the fiscal year ended October 31, 1993. HRE PROPERTIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share data) Three Months Ended January 31, 1994 Pro forma Historical Adjustments Pro forma Revenues: Operating leases $3,740 $ 529 (a) $ 4,269 Financing leases 360 360 Interest 262 (20) (d) 242 4,362 4,871 Operating Expenses: Property expenses 1,702 118 (a) 1,820 Interest 754 203 (b) 957 Depreciation and amortization 927 71 (c) 998 General and administrative expenses 397 397 Trustees fees and expenses 36 36 3,816 4,208 Net Income $ 546 $ 663 Net Income Per Common Share: Net Income $ .10 $.12 Weighted Average Number of Common Shares Outstanding 5,320 5,320 The accompanying note is an integral part of this statement. HRE PROPERTIES NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JANUARY 31, 1994 (UNAUDITED) 1. BASIS OF PRESENTATION: The accompanying unaudited pro forma consolidated statement of income is presented as if the Trust's acquisition of Townline Square Shopping Center had been made as of November 1, 1992. The pro forma financial statement should be read in conjunction with the historical financial statements and notes thereto of the Registrant as of January 31, 1994. In management's opinion, all material adjustments necessary to reflect the effects of the acquisition of the Property by the Registrant have been made. The unaudited pro forma financial statement is not necessarily indicative of what the actual results of operations of the Registrant would have been assuming the acquisition of the Property had been completed as of November 1, 1992, nor are they necessarily indicative of the results of operations for future periods. The unaudited pro forma consolidated balance sheet as of January 31, 1994 is not presented herein as such balance sheet has been filed as part of the Registrant's Form 10-Q report for the three month period ended January 31, 1994 and is hereby incorporated by reference. 2. ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME (a) To reflect rental income and operating expenses as reported by the Property as if the Trust owned the Property for the entire period November 1, 1993 to January 31, 1994. (b) To reflect an increase in interest expense of: i) $153,000 related to the $15,000,000 mortgage note payable at 7.5% and ii) $50,000 related to short-term borrowings of $5,000,000 at prime +1% as if such mortgage note and short-term borrowings have been outstanding for the entire period. (c) To reflect an increase in depreciation expense for the Property's building and improvements computed on a straight-line basis over a 40-year life using a cost basis of $20,000,000 as if the Property had been owned for the entire period. (d) To reflect pro forma adjustments to interest income as if the cash investment ($5,150,000) had been made prior to this period, using an interest rate of 2.8%, which was the Registrant's actual yield for the three month period ended January 31, 1994.