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 January 31, 1996 Commission File Number 1-6309
HRE PROPERTIES
(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS 04-245-8042
(State or other jurisdiction of (I.R.S.Employer)
incorporation or organization) Identification Number)
321 Railroad Avenue, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 863-8200
The number of shares of Registrant's common shares outstanding as
of the close of period covered by this report: 5,372,073
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
January 31, 1996 and 1995.
Consolidated Balance Sheets--January 31, 1996 and October
31, 1995.
Consolidated Statements of Cash Flows--Three months ended
January 31, 1996 and 1995.
Consolidated Statements of Shareholders' Equity--Three
months ended January 31, 1996 and 1995.
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 BALANCE SHEETS
(In thousands, except share data)
January 31, October 31,
1996 1995
ASSETS
Real Estate Investments:
Properties owned - at cost, net of accumulated
depreciation and recoveries $ 87,050 $ 85,966
Properties available for sale - at cost, net of
accumulated depreciation and recoveries 44,691 46,212
Mortgage notes receivable 3,916 3,937
135,657 136,115
Cash and cash equivalents 4,632 7,097
Deposit held in trust 7,000 -
Interest and rent receivable 2,962 2,691
Deferred charges, net of accumulated amortization 2,132 1,913
Other assets 1,159 1,283
$ 153,542 $149,099
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank loans $ 6,750 $ 2,500
Mortgage notes payable 51,825 57,212
Accounts payable and accrued expenses 949 1,014
Deferred trustees' fees 445 436
Other liabilities 1,452 1,355
61,421 62,517
Shareholders' Equity:
Preferred shares, without par value; 2,000,000 shares
authorized; none issued - -
Common shares, without par value; unlimited shares
authorized; 5,550,421 and 5,545,574 issued on
January 31, 1996 and October 31, 1995, respectively 123,910 123,844
Less 178,348 common shares held in treasury, at cost (2,861) (2,861)
Distributions in excess of accumulated net income (28,928) (34,401)
92,121 86,582
$153,542 $149,099
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended January 31,
1996 1995
Revenues:
Operating leases $5,747 $4,579
Financing leases 200 326
Interest 207 264
6,154 5,169
Operating Expenses:
Property expenses 2,243 1,855
Interest 1,329 1,148
Depreciation and amortization 1,258 1,127
General and administrative expenses 503 405
Trustees' fees and expenses 44 59
5,377 4,594
Operating Income 777 575
Gain on Sales of Properties 6,252 -
Net Income $ 7,029 $ 575
Net Income Per Common Share: $ 1.31 $ .11
Weighted Average Number of Common
Shares Outstanding 5,367 5,342
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 4 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended January 31,
1996 1995
Operating Activities:
Net income $7,029 $ 575
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,258 1,144
Recovery of investment in properties owned
subject to financing leases 257 389
Gain on sales of properties (6,252) -
(Increase) in interest and rent receivable (271) (133)
(Decrease) in accounts payable and accrued expenses (56) (121)
(Increase) decrease in other assets and other
liabilities, net 219 156
Net Cash Provided by Operating Activities 2,184 2,010
Investing Activities:
Acquisitions of properties owned - (19,366)
Improvements to properties owned and
deferred charges (2,118) (983)
Proceeds from sale of mortgage note receivable - 3,750
Payments received on mortgage notes receivable 21 17
Miscellaneous 75 -
Net Cash (Used in) Investing Activities (2,022) (16,582)
Financing Activities:
Proceeds from bank loan 5,250 -
Proceeds from mortgage notes 6,000 11,250
Dividends paid (1,556) (1,495)
Proceeds from sales of additional common shares 66 65
Payments on mortgage notes and bank loans (12,387) (102)
Net Cash Provided by (Used in) Financing Activities (2,627) 9,718
Net (Decrease) In Cash and Cash Equivalents (2,465) (4,854)
Cash and Cash Equivalents at Beginning of Period 7,097 8,738
Cash and Cash Equivalents at End of Period $ 4,632 $ 3,884
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
(In thousands, except shares and per share data)
Common Shares
(Distributions
Treasury In Excess of
Outstanding Issued Shares, Accumulated
Number Amount at Cost Net Income) Total
Balances- October 31, 1994 5,341,696 $123,507 $(2,861) $(32,165) $88,481
Net Income - - - 575 575
Cash dividends declared ($.28 per share) - - - (1,495) (1,495)
Sale of additional common shares under
dividend reinvestment plan 4,833 65 - - 65
Balances- January 31, 1995 5,346,529 $123,572 $(2,861) $(33,085) $87,626
Balances- October 31, 1995 5,367,226 $123,844 $(2,861) $(34,401) $86,582
Net income - - - 7,029 7,029
Cash dividends declared ($.29 per share) - - - ( 1,556) (1,556)
Sale of additional common shares under
dividend reinvestment plan 4,847 66 - - 66
Balances- January 31, 1996 5,372,073 $123,910 $(2,861) $(28,928) $92,121
The accompanying notes to consolidated financial statements are an
integral part of these statements.
Page 6 of 10
HRE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
The accompanying unaudited consolidated financial statements
include the accounts of HRE Properties ("the Trust"), its wholly-
owned subsidiary, and a joint venture in which 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 and with the instructions to Form 10-Q and Article 10
of Regulation S-X. 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 period ended January 31, 1996 are not necessarily
indicative of the results that may be expected for the year
ending October 31, 1996. 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, 1995.
Sale of Property
In January 1996, the Trust sold a net leased retail property for
$7,075,000 resulting in a gain on the sale of the property for
financial accounting purposes of $6,252,000. The sale was
structured as a tax-deferred exchange under Section 1031 of the
Internal Revenue Code and the proceeds from the sale are being
held on deposit. The proceeds are expected to be used to
complete the purchase of one or more replacement properties
within six months of the sale closing date. In the event that
the Trust does not complete the exchange of properties within the
prescribed period, the proceeds will be paid to the Trust and the
gain on sale will be included in the Trust's taxable income for
fiscal 1996.
Mortgage Notes Payable and Bank Lines of Credit
In December 1995, a 9.5% mortgage note payable in the principal
amount of $11,250,000, due in 2000, was refinanced from proceeds
of a mortgage note in the principal amount of $6,000,000, due in
2002, with interest tied to the prime rate or LIBOR (7.87% at
January 31, 1996) and borrowings under one of the Trust's
existing unsecured lines of credit.
Commitments
The Trust has contracted for the sale of one of its office
building investments having a net carrying amount of $3,200,000
at January 31, 1996 for a cash price of $3,750,000.
The Trust has a remaining commitment to fund $2.5 million towards
the construction of a tenant's retail store at one of the Trust's
properties. The Trust has an outstanding letter of credit in the
amount of $2.5 million to secure its commitment.
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's liquidity and capital resources include its
cash and cash equivalents, funds available from bank borrowings
and long-term mortgage debt and sales of real estate investments.
The Trust meets its liquidity requirements primarily by
generating funds from the operations of its properties and
collection of principal and interest on its mortgage notes
receivable. Payments of expenses related to real estate
operations, capital improvement programs, debt service, and
dividend requirements place demands on the Trust's liquidity.
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 January 31,
1996, the Trust had cash and cash equivalents of $4.6 million
compared to $7.1 million at October 31, 1995. The Trust also has
$15 million in unsecured revolving lines of credit with two major
commercial banks of which $5.75 million is available at January
31, 1996. The credit lines are available to finance the
acquisition, management or development of commercial real estate
and for working capital purposes. The revolving credit lines
expire at various periods in 1996 and outstanding borrowings, if
any, may be repaid from proceeds of debt refinancings or sales of
properties. The Trust may also request that the time for
repayment be extended by the banks. It is the Trust's intent to
renew these credit lines as they expire in 1996. Long-term debt
consists of mortgage notes payable totalling $51.8 million, of
which $765,000 in principal payments are due in fiscal 1996. The
mortgage loans bear interest at fixed rates that range from 7.5%
to 9.75%.
In December, 1995, the Trust repaid a 9.5% mortgage note payable
in the principal amount of $11,250,000 due in 2000, from proceeds
of a $6,000,000 mortgage note and $5,250,000 of borrowings from
one of the Trust's credit lines.
In fiscal 1995, the Board of Trustees expanded and refined the
strategic objectives of the Trust to refocus the real estate
portfolio into one of self-managed retail properties located in
the Northeast and authorized a plan to sell the non-core
properties of the Trust in the normal course of business over the
next several years. The Trust believes that economic conditions
in the real estate markets where the Trust's non-core properties
are located have improved and that opportunities to sell those
properties over the next several years have also improved. In
January, 1996, the Trust sold a non-core retail property for
$7,075,000 realizing a gain on sale of the property of
$6,252,000. The Trust has also entered into a contract to sell
an office property for a cash price of $3.75 million. At January
31, 1996, the non-core properties totalled ten properties, having
an aggregate net book value of $44,691,000 and comprise all of
the Trust's office (with the exception of the Trust's
headquarters), distribution and service facilities, and certain
retail properties located outside of the Northeast region of the
United States.
Funds from Operations
Funds from Operations is defined as net income (computed in
accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of
properties, plus depreciation and amortization The Trust
believes the level of Funds from Operations to be an appropriate
supplemental financial measure of its operating performance.
Page 8 of 10
Funds from Operations does not represent cash flows from
operations as defined by generally accepted accounting
principles, is not indicative that cash flows are adequate to
fund all cash needs and is not considered to be an alternative to
net income as defined by generally accepted accounting
principles. The Trust considers recoveries of investment in
properties owned subject to financing leases to be analogous to
amortization for purposes of calculating Funds from Operations.
In the three-month period ended January 31, 1996, Funds from
Operations increased 8.8% to $2,292,000 from $2,106,000 in the
year ago period. The improvement is primarily the result of the
positive effect of the Trust's new retail property investments in
fiscal 1995 and late 1994.
Results of Operations
Revenues
Total revenues increased 19% to $6,154,000 in the first
three months of fiscal 1996, compared to $5,169,000 a year ago.
Operating lease revenues increased by $1,168,000 or 25.5% in the
first three-months of fiscal 1996 compared to the prior year's
period primarily from the additional rents of two recently
acquired retail properties located in Danbury, Connecticut and
Carmel, New York. The Danbury property, known as Danbury Square,
was acquired by the Trust in January 1995 and the Carmel property
was acquired in October 1995. Operating lease income from office
properties increased 4% from the year ago period reflecting
higher occupancy at the office buildings.
Expenses
Total expenses amounted to $5,377,000 in the Trust's first
quarter of fiscal 1996 compared to $4,594,000 for the same period
last year. The largest expense category is property expenses of
the Trust's real estate operating properties. Property expenses
totalled $2,243,000 for the first three months of fiscal 1996,
compared to $1,855,000 for the same period in 1995. For
properties owned during both 1996 and 1995 expenses in fiscal
1996 increased principally from higher snow removal costs and
other maintenance costs. Property expenses for the Trust's new
retail properties added expenses of $245,000 in fiscal 1996.
Interest expense increased by $181,000 to $1,329,000 for
the first three months of fiscal 1996 principally due to the
addition of a $11,250,000 mortgage note payable obtained in
connection with the acquisition of real property in fiscal 1995.
Page 9 of 10
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the three month period ended January 31,
1996.
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
Dated : March 13, 1996
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