UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10643
------------------------------
HALLWOOD REALTY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
------------------------------
DELAWARE 75-2313955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3710 RAWLINS
SUITE 1500
DALLAS, TEXAS 75219-4298
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 528-5588
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 twelve (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
ninety (90) days: Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act): Yes X No
------ ------
THE REGISTRANT IS A LIMITED PARTNERSHIP AND ISSUES UNITS REPRESENTING OWNERSHIP
OF LIMITED PARTNER INTERESTS.
NUMBER OF UNITS OUTSTANDING AT NOVEMBER 7, 2003: 1,593,948
Page 1
HALLWOOD REALTY PARTNERS, L.P.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of
September 30, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2003 and 2002 4
Condensed Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended September 30, 2003 and 2002 5
Condensed Consolidated Statement of Partners' Capital for the
Nine Months Ended September 30, 2003 6
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2003 and 2002 7
Notes to Condensed Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations, Liquidity and Capital Resources 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 18
Item 4 Controls and Procedures 18
PART II - OTHER INFORMATION
Items 1 to 6 Other Information 19
Signature 20
Page 2
HALLWOOD REALTY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, December 31,
2003 2002
--------- ---------
ASSETS
Real estate:
Land $ 59,015 $ 59,015
Buildings and improvements 306,952 310,154
Tenant improvements 26,502 23,504
Construction in progress 3,623 836
--------- ---------
396,092 393,509
Accumulated depreciation and amortization (186,949) (183,671)
--------- ---------
Real estate, net 209,143 209,838
Cash and cash equivalents 46,582 32,363
Accounts receivable 3,079 2,315
Receivable from affiliates, net 1,422 --
Escrow deposits held by lenders 9,986 8,918
Effective rent receivable 5,897 4,729
Lease commissions, net 11,205 11,390
Loan costs, net 2,566 2,677
Prepaid expenses and other assets 1,358 2,190
--------- ---------
Total assets $ 291,238 $ 274,420
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 210,451 $ 197,552
Accounts payable and accrued expenses 8,956 5,743
Prepaid rent, security deposits and other 2,559 3,533
Payable to affiliates -- 512
Deferred litigation proceeds 10,201 6,405
--------- ---------
Total liabilities 232,167 213,745
--------- ---------
Commitments and contingencies
Partners' capital:
Limited partners - 1,593,948 and 1,589,948
units outstanding, respectively 57,769 59,152
General partner 584 597
Accumulated other comprehensive income 718 926
--------- ---------
Total partners' capital 59,071 60,675
--------- ---------
Total liabilities and partners' capital $ 291,238 $ 274,420
========= =========
See notes to condensed consolidated financial statements.
Page 3
HALLWOOD REALTY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
2003 2002 2003 2002
------- ------- -------- -------
REVENUES:
Property operations $17,366 $16,788 $ 51,081 $50,379
Parking, construction and tenant services 1,489 993 3,316 4,622
------- ------- -------- -------
Total revenues 18,855 17,781 54,397 55,001
------- ------- -------- -------
EXPENSES:
Property operations 7,152 7,036 20,990 20,330
Parking, construction and tenant services 957 504 1,852 2,967
Interest 3,930 3,827 11,461 11,244
Depreciation and amortization 3,951 3,604 11,475 11,133
General and administrative 1,432 1,047 3,729 3,065
Litigation costs 1,173 106 6,669 471
------- ------- -------- -------
Total expenses 18,595 16,124 56,176 49,210
------- ------- -------- -------
INCOME (LOSS) BEFORE INTEREST INCOME 260 1,657 (1,779) 5,791
Interest income 134 186 335 468
------- ------- -------- -------
NET INCOME (LOSS) $ 394 $ 1,843 $ (1,444) $ 6,259
======= ======= ======== =======
ALLOCATION OF NET INCOME (LOSS):
Limited partners $ 390 $ 1,824 $ (1,430) $ 6,196
General partner 4 19 (14) 63
------- ------- -------- -------
Total $ 394 $ 1,843 $ (1,444) $ 6,259
======= ======= ======== =======
NET INCOME (LOSS) PER UNIT
AND POTENTIAL UNIT:
Basic $ 0.24 $ 1.15 $ (0.90) $ 3.90
======= ======= ======== =======
Assuming dilution $ 0.24 $ 1.11 $ (0.90) $ 3.76
======= ======= ======== =======
WEIGHTED AVERAGE UNITS USED IN
COMPUTING NET INCOME (LOSS) PER UNIT
AND POTENTIAL UNIT:
Basic 1,594 1,590 1,593 1,590
======= ======= ======== =======
Assuming dilution 1,652 1,647 1,593 1,647
======= ======= ======== =======
See notes to condensed consolidated financial statements.
Page 4
HALLWOOD REALTY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
2003 2002 2003 2002
----- ------- ------- -------
NET INCOME (LOSS) $ 394 $ 1,843 $(1,444) $ 6,259
Amortization of deferred gain
from sale of interest rate swap (69) (69) (208) (208)
----- ------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ 325 $ 1,774 $(1,652) $ 6,051
===== ======= ======= =======
See notes to condensed consolidated financial statements.
Page 5
HALLWOOD REALTY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
(UNAUDITED)
Accumulated Limited
Other Partnership
General Limited Comprehensive Units
Partner Partners Income Total Outstanding
-------- -------- ------------- -------- -----------
PARTNERS' CAPITAL,
JANUARY 1, 2003 $ 597 $ 59,152 $ 926 $ 60,675 1,589,948
Issuance of units upon exercise of options 1 47 -- 48 4,000
Amortization of deferred gain from
sale of interest rate swap -- -- (208) (208) --
Net loss (14) (1,430) -- (1,444) --
----- -------- ----- -------- ---------
PARTNERS' CAPITAL,
SEPTEMBER 30, 2003 $ 584 $ 57,769 $ 718 $ 59,071 1,593,948
===== ======== ===== ======== =========
See notes to condensed consolidated financial statements.
Page 6
HALLWOOD REALTY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net income (loss) $ (1,444) $ 6,259
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 11,475 11,133
Effective rent adjustments (1,145) (249)
Changes in assets and liabilities:
Accounts receivable (2,560) 523
Lease commission payments (2,279) (1,588)
Prepaid expenses, escrow deposits and other assets 191 1,660
Accounts payable and other liabilities 4,077 (1,298)
-------- --------
Net cash provided by operating activities 8,315 16,440
-------- --------
INVESTING ACTIVITIES:
Property and tenant improvements (8,704) (4,374)
Property development cost -- (1,964)
-------- --------
Net cash used in investing activities (8,704) (6,338)
-------- --------
FINANCING ACTIVITIES:
Mortgage principal payments (3,101) (2,845)
Mortgage principal proceeds 16,000 --
Loan fees (339) (10)
Exercise of unit options 48 --
Deferred litigation proceeds, net 2,000 --
-------- --------
Net cash provided by (used in) financing activities 14,608 (2,855)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 14,219 7,247
BEGINNING CASH AND CASH EQUIVALENTS 32,363 24,913
-------- --------
ENDING CASH AND CASH EQUIVALENTS $ 46,582 $ 32,160
======== ========
See notes to condensed consolidated financial statements.
Page 7
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended
September 30, 2003 and 2002
(unaudited)
1 ORGANIZATION AND ACCOUNTING POLICIES
Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware
limited partnership, operates in the commercial real estate industry.
HRP's activities include the acquisition, ownership and operation of
its commercial real estate assets. Units representing limited
partnership interests are traded on the American Stock Exchange under
the symbol "HRY". As of September 30, 2003 there were 1,593,948 units
outstanding.
Hallwood Realty, LLC ("Realty" or the "General Partner"), a Delaware
limited liability company and indirectly wholly-owned subsidiary of The
Hallwood Group Incorporated ("Hallwood"), is HRP's general partner and
is responsible for asset management of HRP and its real estate
properties, including decision-making responsibility for financing,
refinancing, acquiring and disposing of properties. In addition, Realty
provides general operating and administrative services to HRP. Hallwood
Commercial Real Estate, LLC ("HCRE"), another indirectly wholly-owned
subsidiary of Hallwood, provides property management, leasing and
construction supervision services for HRP's real estate properties.
The accompanying unaudited condensed consolidated financial statements
of HRP have been prepared in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnote disclosures required by accounting
principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with
the audited consolidated financial statements and related disclosures
thereto included in HRP's Form 10-K for the year ended December 31,
2002.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of certain assets, liabilities, revenues, and expenses as of
and for the reporting periods. Actual results may differ from these
estimates. Operating results for the three months and/or nine months
ended September 30, 2003 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2003.
2 STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information -
Cash interest payments were $11,378,000 and $11,345,000 (net
of capitalized interest of $256,000) in the nine months ended
September 30, 2003 and 2002, respectively.
Page 8
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended
September 30, 2003 and 2002
(unaudited)
3 COMPUTATION OF NET INCOME (LOSS) PER UNIT
Basic earnings per unit is computed by dividing results attributable
to the limited partners' interests by the weighted average number of
units outstanding. Earnings per unit assuming dilution is computed by
dividing results attributable to the limited partners' interests by
the weighted average number of units and potential units outstanding.
Options to acquire units were issued during 1995 and are considered to
be potential units. The number of potential units is computed using
the treasury stock method, which assumes that the increase in the
number of units is reduced by the number of units which could have
been repurchased by HRP with the proceeds from the exercise of these
options. The options are considered antidilutive in the nine months
ended September 30, 2003 and therefore are not taken into
consideration in the computation of earnings per unit assuming
dilution for that period. The following table illustrates the amounts
used to calculate the weighted average number of units outstanding (in
thousands):
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2003 2002 2003 2002
------ ------ ------ ------
Weighted average units outstanding - basic 1,594 1,590 1,593 1,590
Potential weighted average units issued from options 65 69 66 69
Potential repurchase of units from unit option proceeds (7) (12) (8) (12)
------ ------ ------ ------
Potential weighted average units outstanding - assuming dilution 1,652 1,647 1,651 1,647
====== ====== ====== ======
4 TRANSACTIONS WITH RELATED PARTIES
Realty and HCRE are compensated for services provided to HRP and its
real estate properties and are reimbursed, at cost, for certain costs
and expenses. In particular, since HRP does not directly employ any
individuals, the compensation and other costs related to approximately
90 employees rendering services on behalf of HRP and its properties are
reimbursed by HRP to Realty and HCRE. HRP pays or settles its account
balances with Realty and HCRE on a monthly basis. The following table
sets forth such compensation and reimbursements paid by HRP (in
thousands):
THREE MONTHS NINE MONTHS
ENDED ENDED
ENTITY PAID SEPTEMBER 30, SEPTEMBER 30,
OR ----------------- ------------------
REIMBURSED 2003 2002 2003 2002
----------- ---- ---- ---- ----
Asset management fee Realty $ 153 $ 155 $ 456 $ 464
Reimbursement of costs (a) Realty 800 758 2,434 2,251
Property management fee HCRE 502 504 1,500 1,515
Lease commissions HCRE 373 714 1,063 1,405
Construction fees HCRE 143 68 440 453
Reimbursement of costs (b) HCRE 955 896 2,817 2,797
(a) These costs are recorded as general and
administrative expenses and represent reimbursement
to Realty for administrative level employee and
director compensation, officer and director liability
insurance, and allocated overhead costs.
(b) These costs are recorded as property operating
expenses and represent reimbursement to HCRE for
property-level employee compensation and related
expenses.
As of September 30, 2003, $1,796,000 of judgment and interest due from
Hallwood was unpaid and reflected on HRP's balance sheet in receivable
from affiliates, net (see Note 7 for more information).
Page 9
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended
September 30, 2003 and 2002
(unaudited)
5 MORTGAGES PAYABLE
In July 2003, HRP obtained a $16,000,000 loan secured by the
newly-completed five-story office building within Executive Park in
Atlanta, Georgia. The ten year loan calls for interest-only payments
for the first two years, followed by principal and interest payments
during the remaining term, amortized over 28 years. The interest rate
is 5.76% and the maturity date is August 10, 2013. The loan proceeds
were for general working capital purposes and replenished the cash
previously expended for building construction and tenant improvements.
A seven-year lease for the entire building, with an option for five
additional years, was executed in September 2002 and commenced after
the completion of tenant improvements in May 2003.
6 PARTNERS' CAPITAL
In 1995, HRP issued options totaling 86,000 units to certain executives
of Realty and HCRE with an exercise price of $11.875 per unit. The
options vested over a three year period ending in 1997 and they expire
on February 27, 2005. In February 2003, options for 4,000 units were
exercised by the estate of a deceased HCRE executive. As of September
30, 2003, a total of 21,200 options had been exercised, none have been
canceled and 64,800 options remained exercisable. No options have been
granted since 1995. As the only options of HRP fully vested in 1997,
there is no difference between the historical operations and pro forma
operations for the periods presented herein had the expense provisions
of Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" been adopted.
On May 1, 2003, High River Limited Partnership, an affiliate of Carl C.
Icahn, announced its unsolicited tender offer for any and all of the
outstanding limited partnership units of HRP at $100 per unit. In May
2003, the board of directors of Realty evaluated the offer and advised
unitholders to reject the offer as inadequate. On July 29, 2003, and in
a subsequent letter addressed to the board of directors of Realty, Mr.
Icahn announced a purported proposal to purchase HRP in a merger
transaction for an aggregate purchase price of $222 million, subject to
existing debt. On August 1, 2003, at the direction of its board of
directors, Realty sent a letter to Mr. Icahn stating that HRP had
engaged Morgan Stanley & Co. Incorporated to initiate discussions with
parties interested in participating in a transaction with HRP and
stating that if Mr. Icahn were interested in participating in that
process, he should contact Morgan Stanley. On August 19, 2003, High
River announced an increase in the purchase price in its tender offer
to $120 per unit, subject to a variety of conditions, including High
River achieving ownership of 66 2/3% of the outstanding units.
Thereafter, the board of directors of Realty evaluated the revised
offer and advised unitholders to reject the offer as inadequate. Prior
to the tender offer, High River owned 235,000 units and as of October
17, 2003, 60,986 units had been tendered to High River. The offer has
been extended several times and currently expires November 18, 2003.
At the board's direction, Morgan Stanley is actively engaged in a
process of identifying alternatives that may be in the best interests
of the unitholders, focusing primarily on discussions with prospective
parties interested in participating in a transaction with HRP at prices
and on terms which the board believes would be in the best interest of
all partners of HRP, including an extraordinary transaction, such as a
merger, reorganization or liquidation, involving HRP or any of its
subsidiaries or a purchase, sale or transfer of a material amount of
assets by HRP or any of its subsidiaries. Although HRP is working with
Morgan Stanley and these interested parties, there can be no assurance
that a transaction with respect to HRP will result from those
discussions. HRP has adopted an Executive Incentive and Retention
Program under which, after completion of a transaction involving HRP,
certain officers and management employees of the General Partner and
HCRE will be eligible to receive a bonus equal to their current annual
salary and bonuses and commissions paid with respect to 2002. The plan
is designed to encourage management to continue employment through the
completion of any transaction involving HRP. Since payments will only
be payable upon a change in control, no accrual for them has been made
in these financial statements.
Additionally, subject to availability at prices deemed favorable and in
accordance with applicable laws and regulations, HRP may acquire units
from time to time in open market transactions, privately negotiated
transactions or otherwise. There can be no assurance that HRP will
engage in any such acquisitions or the prices at which such
acquisitions may occur.
Page 10
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended
September 30, 2003 and 2002
(unaudited)
7 LITIGATION
On June 20, 1997, an action was filed against HRP, the General Partner,
its directors, and Hallwood by Gotham Partners, L.P. in the Court of
Chancery of the State of Delaware, styled Gotham Partners, L.P. v.
Hallwood Realty Partners, L.P., et al. (C.A. No. 15754). As filed, the
action alleged claims of breach of fiduciary duties, breach of HRP's
partnership agreement, and fraud in connection with certain
transactions involving HRP's units in the mid 1990's. Hallwood was
alleged to have aided and abetted the alleged breaches. On June 21,
2000, after completing fact discovery, all parties moved for summary
judgment on several issues. In September and October 2000, the Delaware
court issued three separate written opinions resolving the summary
judgment motions. In the opinions, the court ruled that trial would be
required as to all issues, except that (i) Gotham was found to have
standing to pursue its derivative claims; (ii) defendants were entitled
to judgment dismissing the fraud claim; (iii) the General Partner was
entitled to judgment dismissing the breach of fiduciary duty claims
brought against it; and (iv) the General Partner's outside directors
were entitled to judgment dismissing all claims brought against them.
A five-day trial was held in January 2001. On July 18, 2001, the
Delaware Court of Chancery rendered its opinion. In its decision, the
court determined that an option plan and a sale of units to Hallwood in
connection with a reverse split of units implemented by HRP in 1995
were in compliance with HRP's partnership agreement. The court also
found that the sale of units to Hallwood in connection with a 1995
odd-lot offer by HRP did not comply with certain procedures required by
the HRP partnership agreement. The court ruled that the defendants
other than HRP pay a judgment to HRP in the amount of $3,417,423, plus
pre-judgment interest from August 1995. The judgment amount represents
what the court determined was an underpayment by Hallwood. In August
2001, plaintiff and certain defendants appealed the Court of Chancery's
judgment to the Delaware Supreme Court. In October 2001, HRP received
the $3,417,423 judgment together with $2,987,576 of interest. HRP
recorded the judgment and interest as "Deferred Litigation Proceeds" on
its balance sheet, until the case's final outcome is determined. On
August 29, 2002, the Supreme Court affirmed the judgment of the trial
court that the remaining defendants other than HRP are jointly and
severally liable to HRP. The Supreme Court reversed the trial court's
determination of damages, and remanded the case to the trial court to
fashion appropriate relief.
On July 8, 2003, the Delaware Court of Chancery issued its decision
after remand. In the decision, the Court of Chancery determined that
defendants were required to pay to HRP the difference between the price
paid for 293,539 units of HRP purchased by Hallwood in 1995 of $14.20
per unit and the value of those units, including a control premium for
those units, as determined by the court in its decision, of $36.02 per
unit, plus pre-judgment interest. The court also denied plaintiff's
requests for rescission, rescissory damages or other forms of relief.
In its earlier decision before remand, the trial court had determined
that the value of the units was $25.84 per unit and, as mentioned
above, Hallwood paid the judgment amount plus interest in October 2001.
Under the trial court's decision on remand, Hallwood was required to
pay an additional amount of approximately $2,988,000, plus pre-judgment
interest of approximately $3,762,000. On July 25, 2003, the trial court
entered its final order and judgment on remand which provided, among
other things, that HRP pay plaintiff $3,000,000 in attorneys' fees,
cost and expenses, which was funded by HRP to plaintiff in August 2003.
On July 28, 2003, the plaintiff appealed the final order and judgment
on remand to the Delaware Supreme Court. In August 2003, Hallwood paid
$5,000,000 of the judgment. As of September 30, 2003, $1,796,000,
including interest, remained unpaid and is reflected on HRP's balance
sheet as receivable from affiliates, net. The balance due bears simple
interest at the statutory rate of 7% until paid.
On April 23, 2003, an action was filed against the General Partner, its
directors and HRP as nominal defendant by High River Limited
Partnership, which is indirectly wholly owned by Carl C. Icahn, in the
Court of Chancery of the State of Delaware, styled High River Limited
Partnership v. Hallwood Realty, LLC, et al. (C.A. No. 20276). The
action, as filed initially, challenged the unit purchase rights
agreement dated November 30, 1990, between HRP and Equiserve Trust
Company, N.A., as rights agent, as amended (the "Rights Plan"). High
River claimed in the suit that defendants have wrongfully utilized the
Rights Plan to prevent High River and other third parties from
purchasing 15 percent or more of the units of the Partnership, while at
the same time exempting the General Partner and its affiliates and
subsidiaries from the provisions of the Rights Plan. High River asserts
that if defendants make additional purchases of units, they could
render removal of the General Partner pursuant to the two-thirds
removal
Page 11
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended
September 30, 2003 and 2002
(unaudited)
7 LITIGATION (CONTINUED)
provision of the partnership agreement impossible, thereby impeding or
preventing the High River tender offer. High River also claims that
defendants wrongfully refused to redeem the rights and thereby
frustrated High River's tender offer. The complaint, as amended, seeks
as relief an order redeeming the rights, preventing defendants from
treating the General Partner as exempt from or otherwise not subject to
the definition of Acquiring Person under the Rights Agreement, or,
alternatively, preventing defendants from treating High River as an
Acquiring Person under the Rights Agreement or applying the Rights
Agreement to the High River tender offer.
On April 28, 2003, a putative class action lawsuit was filed against
the General Partner, its directors and HRP as nominal defendant by
three purported unitholders of HRP in the Court of Chancery of the
State of Delaware, styled I.G. Holdings, Inc., et al. v. Hallwood
Realty LLC, et al. (C.A. No. 20283). The action asserts that in
allegedly refusing to consider the High River tender offer, the
defendants are not acting in good faith and are deriving an improper
personal benefit in impeding a potential removal of the General Partner
or a sale of control of HRP, in breach of their fiduciary duties under
the partnership agreement. The action further asserts that HRP's
Schedule 14D-9 issued in response to the High River tender offer fails
to disclose material information relating to the General Partner's
recommendation regarding the offer. The complaint seeks as relief an
order requiring the General Partner to consider the High River tender
offer, an order preventing the General Partner or its affiliates from
acquiring units or otherwise improperly entrenching the General Partner
or impeding a transaction that would maximize value for the public
unitholders, an order directing the defendants to use the Rights Plan
fairly and disclose all material information in connection with the
tender offer and the General Partner's recommendations and conclusions
with respect thereto, and damages. This matter was coordinated with the
High River action (discussed above) for discovery and trial purposes.
On October 7-8, 2003, a trial in the two coordinated actions discussed
above was held in the Delaware Court of Chancery. Subsequently, the
court scheduled a status conference for December 3, 2003 at which the
court would determine what further proceedings, if any, were
appropriate in the actions.
HRP is from time to time involved in various other legal proceedings
and claims which arise in the ordinary course of business. These
matters are generally covered by insurance. Management believes that
the resolution of these matters will not have a material adverse effect
on HRP's financial position, cash flows or operations.
Page 12
HALLWOOD REALTY PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
RESULTS OF OPERATIONS
THIRD QUARTER OF 2003 COMPARED TO THE THIRD QUARTER OF 2002
REVENUE FROM PROPERTY OPERATIONS for the third quarter of 2003 increased
$578,000, or 3.4%, compared to the 2002 third quarter. The following table
illustrates the components of the change, in thousands:
Rental income, net $ 282
Other property income 296
----
Net increase $ 578
====
Net rental income increased primarily due to the addition of the
newly-constructed five-story office building within Executive Park in Atlanta,
Georgia (see "Liquidity and Capital Resources - Property Development and Loan
Proceeds"). Net rental income was also affected by a slight decline in average
occupancy between periods from 86.6% to 86.4%. As of September 30, 2003, HRP had
leases executed and in place for 87.7% of the portfolio's net rentable square
feet. The change in other property income includes lease termination fees in the
2003 period.
REVENUE FROM PARKING, CONSTRUCTION AND TENANT SERVICES for the third quarter of
2003 increased $496,000, or 49.9%, primarily as a result of more construction
service projects completed in the 2003 period compared to the 2002 period. By
their nature, the demand for and size of construction service projects can vary
significantly from time to time.
PROPERTY OPERATING EXPENSES for the third quarter of 2003 increased $116,000, or
1.6%, compared to the same period in 2002, of which none of the costs are
individually significant.
PARKING, CONSTRUCTION AND TENANT SERVICES EXPENSE for the third quarter of 2003
increased $453,000, or 89.9%, primarily as a result of more construction service
projects completed in the 2003 period compared to the 2002 period. By their
nature, the demand for and size of construction service projects can vary
significantly from time to time.
INTEREST EXPENSE for the third quarter of 2003 increased $103,000, or 2.7%,
compared to the same period in 2002, primarily due to mortgage interest from a
$16,000,000 loan obtained in July 2003 (see "Liquidity and Capital Resources -
Property Development and Loan Proceeds"), partially offset by reduced interest
as a result of normally scheduled debt reduction and reduced interest for HRP's
only variable rate mortgage.
DEPRECIATION AND AMORTIZATION EXPENSE increased $347,000, or 9.6%, primarily due
to building depreciation and tenant improvement amortization for the
newly-completed building at Executive Park.
GENERAL AND ADMINISTRATIVE EXPENSES for the third quarter of 2003 increased
$385,000, or 36.8%, compared to the same period in 2002, due to increases in
certain professional fees, director and officer liability insurance, and
overhead costs.
LITIGATION COSTS were $1,173,000 and $106,000 for the third quarter of 2003 and
2002, respectively, and are related to the lawsuits described in Note 7 and the
tender offer described in Note 6 to the condensed consolidated financial
statements.
INTEREST INCOME decreased by $52,000, or 28.0%, as a result of decreased
earnings on overnight cash investments, due to significantly lower interest
rates available between the periods.
Page 13
HALLWOOD REALTY PARTNERS, L.P.
RESULTS OF OPERATIONS (CONTINUED)
FIRST NINE MONTHS OF 2003 COMPARED TO THE FIRST NINE MONTHS OF 2002
REVENUE FROM PROPERTY OPERATIONS for the first nine months of 2003 increased
$702,000, or 1.4%, compared to the first nine months of 2002. The following
table illustrates the components of the change, in thousands:
Rental income, net $ 246
Other property income 456
----
Net increase $ 702
====
Net rental income increased primarily due to the addition of the
newly-constructed five-story office building within Executive Park in Atlanta,
Georgia (see "Liquidity and Capital Resources - Property Development and Loan
Proceeds"). Net rental income was also affected by a slight increase in overall
rental rates of 1.5% and a decline in average occupancy between periods from
87.6% to 86.3%. As of September 30, 2003, HRP had leases executed and in place
for 87.7% of the portfolio's net rentable square feet. The change in other
property income includes increased tenant expense recoveries.
REVENUE FROM PARKING, CONSTRUCTION AND TENANT SERVICES for the first nine months
of 2003 decreased $1,306,000, or 28.3%, primarily as a result of fewer
construction service projects completed in the 2003 period compared to the 2002
period. By their nature, the demand for and size of construction service
projects can vary significantly from time to time.
PROPERTY OPERATING EXPENSES for the first nine months of 2003 increased
$660,000, or 3.2%, compared to the same period in 2002. Utilities increased
$239,000, primarily due to higher heating costs due to a colder winter in the
2003 period, compared to the 2002 period. Real estate taxes increased $141,000,
primarily due to higher tax rates, and partially due to higher valuations for
properties located in Michigan. Property liability and damage insurance
increased $136,000 due to overall higher premiums. Combined, all other operating
costs increased $144,000, or about 0.7%, between the periods.
PARKING, CONSTRUCTION AND TENANT SERVICES EXPENSE for the first nine months of
2003 decreased $1,115,000, or 37.6%, primarily as a result of fewer construction
service projects completed in the 2003 period compared to the 2002 period. By
their nature, the demand for and size of construction service projects can vary
significantly from time to time.
INTEREST EXPENSE for the first nine months of 2003 increased $217,000, or 1.9%,
compared to the same period in 2002, primarily due to capitalization of $256,000
of construction interest in the 2002 period. The change in interest expense also
includes a decrease in mortgage interest of $153,000 and an increase in other
interest costs of $114,000. The change in the mortgage interest component is due
to reduced interest as a result of normally scheduled debt reduction and reduced
interest for HRP's only variable rate mortgage, partially offset by interest for
a $16,000,000 loan obtained in July 2003 (see "Liquidity and Capital Resources -
Property Development and Loan Proceeds").
DEPRECIATION AND AMORTIZATION EXPENSE increased $342,000, or 3.1%, primarily due
to building depreciation and tenant improvement amortization for the
newly-completed building at Executive Park.
GENERAL AND ADMINISTRATIVE EXPENSES for the first nine months of 2003 increased
$664,000, or 21.7%, compared to the same period in 2002, due to increases in
certain professional fees, director and officer liability insurance, and
overhead costs.
LITIGATION COSTS were $6,669,000 and $471,000 for the first nine months of 2003
and 2002, respectively, and are related to the lawsuits described in Note 7 and
the tender offer described in Note 6 to the condensed consolidated financial
statements. The 2003 amount includes a $3,000,000 financial advisory fee to
Morgan Stanley in conjunction with HRP's response to the High River tender
offer.
INTEREST INCOME decreased by $133,000, or 28.4%, as a result of decreased
earnings on overnight cash investments, due to significantly lower interest
rates available between the periods.
Page 14
HALLWOOD REALTY PARTNERS, L.P.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL INFORMATION -
HRP operates in the commercial real estate industry. HRP's activities include
the acquisition, ownership and operation of its commercial real estate assets.
While it is the General Partner's intention to operate HRP's existing real
estate investments and to acquire and operate additional real estate
investments, Realty also continually evaluates each of HRP's real estate
investments in light of current economic trends, operations, and other factors
to determine if any should be considered for disposition.
As of September 30, 2003, HRP owned 14 real estate assets, located in six states
and containing 5,206,000 net rentable square feet. HRP seeks to maximize the
value of its real estate by making capital and tenant improvements, by executing
marketing programs to attract and retain tenants, and by controlling or
reducing, where possible, operating expenses.
This Form 10-Q should be read in conjunction with the audited consolidated
financial statements and related disclosures thereto included in HRP's Form 10-K
for the year ended December 31, 2002. There have been no changes to critical
accounting policies identified and set forth in HRP's Form 10-K for the year
ended December 31, 2002.
CASH SOURCES, CASH USES AND COMMITMENTS -
HRP's cash position increased $14,219,000 during the first nine months of 2003
to $46,582,000 as of September 30, 2003. The sources of cash during the period
were $8,315,000 of cash provided by operating activities, $16,000,000 of
mortgage principal proceeds, $2,000,000 of net litigation judgment and interest
proceeds (see Note 7 to the condensed consolidated financial statements), and
$48,000 from the exercise and issuance of unit options. The uses of cash were
$8,704,000 for property and tenant improvements, $3,101,000 for scheduled
mortgage principal payments, and $339,000 for loan fees.
For the foreseeable future, HRP anticipates that mortgage principal payments,
tenant and capital improvements, lease commissions and litigation costs will be
funded by net cash from operations. We believe that there will be sufficient
cash from operations to meet these needs because HRP had leases in place as of
December 31, 2002 to provide $54,963,000 of minimum rental payments during 2003.
For the prior year of 2002, HRP had leases in place to provide $55,261,000 of
minimum rental payments (based on leases in place as of December 31, 2001),
however the actual rental payments recorded for 2002 were $61,481,000. Actual
rental payment results for 2002 were greater than the minimum rental payment
amount, primarily due to our ability to attract and retain tenants. For the nine
months ended September 30, 2003 and 2002, HRP's actual rental payments were
$45,519,000 and $46,169,000, respectively. Our ability to fund operations in the
future will depend upon continued success in maintaining current occupancy
levels by retaining current tenants and attracting new tenants, as well as
sustaining or increasing rental rates.
The primary sources of capital to fund any future acquisitions or developments
will be proceeds from the sale, financing or refinancing of one or more of our
properties. For 2003, HRP estimated and budgeted tenant and capital improvements
of $15,631,000 and lease commissions of $2,851,000. For the first nine months of
2003, HRP incurred $8,704,000 of tenant and capital improvements and $2,279,000
of lease commissions of these estimates. Currently, HRP estimates that it will
incur between $4,000,000 and $5,000,000 of tenant and capital improvements and
lease commissions in the fourth quarter of 2003. Each quarter Realty reviews
HRP's capacity to make cash distributions. HRP has not made any cash
distributions since February 1992.
LITIGATION & JUDGMENT -
On July 18, 2001, the Delaware Court of Chancery rendered its opinion for the
action styled Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., et al.
(C.A. No. 15754). (For more information about this litigation, see Note 7 to the
condensed consolidated financial statements.) The court ruled that the
defendants other than HRP pay a judgment to HRP in the amount of $3,417,423,
plus pre-judgment interest from August 1995. The judgment amount represents what
the court determined was an underpayment by Hallwood. In August 2001, plaintiff
and certain defendants appealed the Court of Chancery's judgment to the Delaware
Supreme Court. In October 2001, HRP received the $3,417,423 judgment together
with $2,987,576 of interest. HRP recorded the judgment and interest as "Deferred
Litigation Proceeds" on its balance sheet, until the case's final outcome is
determined. On August 29, 2002, the Supreme Court affirmed the judgment of the
trial court that the remaining defendants
Page 15
HALLWOOD REALTY PARTNERS, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
LITIGATION & JUDGMENT (CONTINUED) -
other than HRP are jointly and severally liable to HRP. The Supreme Court
reversed the trial court's determination of damages, and remanded the case to
the trial court to fashion appropriate relief.
On July 8, 2003, the Delaware Court of Chancery issued its decision after
remand. In the decision, the Court of Chancery determined that defendants were
required to pay to HRP the difference between the price paid for 293,539 units
of HRP purchased by Hallwood in 1995 of $14.20 per unit and the value of those
units, including a control premium for those units, as determined by the court
in its decision, of $36.02 per unit, plus pre-judgment interest. The court also
denied plaintiff's requests for rescission, rescissory damages or other forms of
relief. In its earlier decision before remand, the trial court had determined
that the value of the units was $25.84 per unit and, as mentioned above,
Hallwood paid the judgment amount plus interest in October 2001. Under the trial
court's decision on remand, Hallwood was required to pay an additional amount of
approximately $2,988,000, plus pre-judgment interest of approximately
$3,762,000. On July 25, 2003, the trial court entered its final order and
judgment on remand which provided, among other things, that HRP pay plaintiff
$3,000,000 in attorneys' fees, cost and expenses, which was funded by HRP to
plaintiff in August 2003. On July 28, 2003, the plaintiff appealed the final
order and judgment on remand to the Delaware Supreme Court. In August 2003,
Hallwood paid $5,000,000 of the judgment. As of September 30, 2003, $1,796,000,
including interest, remained unpaid and is reflected on HRP's balance sheet as
receivable from affiliates, net. The balance due bears simple interest at the
statutory rate of 7% until paid.
On April 23, 2003, an action was filed against the General Partner, its
directors and HRP as nominal defendant by High River Limited Partnership, which
is indirectly wholly owned by Carl C. Icahn, in the Court of Chancery of the
State of Delaware, styled High River Limited Partnership v. Hallwood Realty,
LLC, et al. (C.A. No. 20276). The action, as filed initially, challenged the
unit purchase rights agreement dated November 30, 1990, between HRP and
Equiserve Trust Company, N.A., as rights agent, as amended (the "Rights Plan").
High River claimed in the suit that defendants have wrongfully utilized the
Rights Plan to prevent High River and other third parties from purchasing 15
percent or more of the units of the Partnership, while at the same time
exempting the General Partner and its affiliates and subsidiaries from the
provisions of the Rights Plan. High River asserts that if defendants make
additional purchases of units, they could render removal of the General Partner
pursuant to the two-thirds removal provision of the partnership agreement
impossible, thereby impeding or preventing the High River tender offer. High
River also claims that defendants wrongfully refused to redeem the rights and
thereby frustrated High River's tender offer. The complaint, as amended, seeks
as relief an order redeeming the rights, preventing defendants from treating the
General Partner as exempt from or otherwise not subject to the definition of
Acquiring Person under the Rights Agreement, or, alternatively, preventing
defendants from treating High River as an Acquiring Person under the Rights
Agreement or applying the Rights Agreement to the High River tender offer.
On April 28, 2003, a putative class action lawsuit was filed against the General
Partner, its directors and HRP as nominal defendant by three purported
unitholders of HRP in the Court of Chancery of the State of Delaware, styled
I.G. Holdings, Inc., et al. v. Hallwood Realty LLC, et al. (C.A. No. 20283). The
action asserts that in allegedly refusing to consider the High River tender
offer, the defendants are not acting in good faith and are deriving an improper
personal benefit in impeding a potential removal of the General Partner or a
sale of control of HRP, in breach of their fiduciary duties under the
partnership agreement. The action further asserts that HRP's Schedule 14D-9
issued in response to the High River tender offer fails to disclose material
information relating to the General Partner's recommendation regarding the
offer. The complaint seeks as relief an order requiring the General Partner to
consider the High River tender offer, an order preventing the General Partner or
its affiliates from acquiring units or otherwise improperly entrenching the
General Partner or impeding a transaction that would maximize value for the
public unitholders, an order directing the defendants to use the Rights Plan
fairly and disclose all material information in connection with the tender offer
and the General Partner's recommendations and conclusions with respect thereto,
and damages. This matter was coordinated with the High River action (discussed
above) for discovery and trial purposes.
On October 7-8, 2003, a trial in the two coordinated actions discussed above was
held in the Delaware Court of Chancery. Subsequently, the court scheduled a
status conference for December 3, 2003 at which the court would determine what
further proceedings, if any, were appropriate in the actions.
Page 16
HALLWOOD REALTY PARTNERS, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
PROPERTY DEVELOPMENT AND LOAN PROCEEDS -
In February 2001, HRP began constructing a five-story office building within
Executive Park in Atlanta, Georgia, containing 128,000 net rentable square feet
on a site formerly occupied by an 18,000 square foot building. The building and
its parking garage, excluding tenant finish-out, was completed in April 2002. A
seven-year lease for the entire building, with an option for five additional
years, was executed with the General Services Administration in September 2002
and commenced after the completion of tenant improvements in May 2003.
Ultimately, HRP incurred and capitalized $16,032,000 of building construction
costs, which included its parking garage, but excluded the existing land costs.
The lease commissions incurred were $774,000, while the tenant improvements were
$3,159,000.
All these costs were paid from cash funds on hand; however, in July 2003, HRP
obtained a $16,000,000 loan secured by the office building. The ten year loan
calls for interest-only payments for the first two years, followed by principal
and interest payments during the remaining term, amortized over 28 years. The
interest rate is 5.76% and the maturity date is August 10, 2013. The loan
proceeds were for general working capital purposes and replenished the cash
previously expended for building construction and tenant improvements.
MORTGAGE LOANS -
Substantially all of the buildings in HRP's real estate properties were
encumbered and pledged as collateral by non-recourse mortgage loans aggregating
$210,451,000 as of September 30, 2003. These mortgage loans have interest rates
varying from 2.42% to 8.70% (with an effective average interest rate of 7.35%)
and mature between 2005 and 2020. Other than Allfirst Building's mortgage
($25,000,000), all mortgages have fixed interest rates. Most of the mortgage
loans require monthly principal payments with balloon payments due at maturity.
Based upon loan amortizations in effect, HRP is required to pay approximately
$897,000 of principal payments during the remainder of 2003.
Since August 2000, HRP has had available a $2,000,000 revolving line of credit,
which matures on July 29, 2004. The line of credit has a variable interest rate
of either prime plus 0.50% or LIBOR plus 3.0% and requires monthly interest
payments, but no principal amortization. HRP has not borrowed against this
facility.
TRANSACTIONS WITH RELATED PARTIES -
For information about transactions with related parties, see Note 4 to the
condensed consolidated financial statements.
INFLATION -
Inflation did not have a significant impact on HRP during 2002 or for the nine
months ended September 30, 2003. Additionally, inflation is not anticipated to
have a material impact on HRP for the rest of 2003.
FORWARD-LOOKING STATEMENTS -
In the interest of providing investors with certain information regarding HRP's
future plans and operations, certain statements set forth in this Form 10-Q
relate to management's future plans, objectives and expectations. Such
statements are forward-looking statements. Although any forward-looking
statements contained in this Form 10-Q or otherwise expressed by or on behalf of
HRP are, to the knowledge and in the judgment of the officers and directors of
the General Partner, expected to prove true and come to pass, management is not
able to predict the future with absolute certainty. Although HRP believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements will prove to be accurate.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause HRP's actual performance and financial results in future periods
to differ materially from any projection, estimate or forecasted result. These
risks and uncertainties include the risks identified in Item 1 - Business -
"Risks, Competition and Other Factors" contained in HRP's Form 10-K for the year
ended December 31, 2002.
Page 17
HALLWOOD REALTY PARTNERS, L.P.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On July 27, 2000, HRP sold its interest rate swap agreement for $1,597,000. HRP
had entered into the interest rate swap agreement in 1998 to reduce its exposure
to changes in interest rates for the loan secured by Allfirst Building. This
interest rate swap agreement effectively fixed the loan's cash interest rate at
6.78%, as opposed to the mortgage loan interest rate of LIBOR plus 1.30% (or
7.94% at the time of the swap agreement sale). The proceeds from the sale were
designated for general working capital purposes. For financial reporting
purposes, the proceeds are being amortized over the life of the loan as a
reduction to interest expense. During 2001, as the result of the adoption of
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" HRP
reclassified the remaining unamortized gain from liabilities to accumulated
other comprehensive income. The proceeds will continue to be amortized over the
life of Allfirst Building's mortgage payable as a reduction to interest expense.
As of September 30, 2003 and December 31, 2002, the unamortized balance,
included on the balance sheet as "Accumulated other comprehensive income", was
$718,000 and $926,000, respectively.
Also on July 27, 2000 and in connection with the sale of the swap agreement, HRP
purchased an interest rate cap for Allfirst Building's mortgage loan for
$288,000, which limits HRP's exposure to changing interest rates to a maximum of
10%. This interest rate cap, which has a notional amount of $25,000,000, has
terms consistent with Allfirst Building's mortgage loan. Allfirst Building's
cash interest rate was 2.42% and 2.68% as of September 30, 2003 and December 31,
2002, respectively. The interest rate cap is a derivative and designated as a
cash flow hedge. Hedge effectiveness is measured based on using the intrinsic
value of the interest rate cap. All changes in the fair value of the cap are
recorded directly to earnings. With the January 1, 2001 adoption of SFAS No.
133, HRP recorded the cumulative effect of the adoption as a reduction to income
of $192,000, or the amount of the difference between the carrying value as of
January 1, 2001 of $267,000 and the then estimated fair value of $75,000, all of
which represented change in time value. Thereafter, on a quarterly basis, HRP
has recorded changes in the estimated fair value of the cap in interest expense.
As of September 30, 2003 and December 31, 2002, the estimated fair value of the
interest rate cap was $22,000 and $55,000, respectively.
Other than Allfirst Building's mortgage ($25,000,000), all mortgages have fixed
interest rates. Accordingly, changes in LIBOR or the prime rate do not
significantly impact the amount of interest paid by HRP. Assuming a 100 basis
point, or 1%, change in LIBOR, interest paid by HRP would increase or decrease
by $250,000 on an annual basis.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. It is the conclusion of
the registrant's principal executive officer and principal financial
officer that the registrant's disclosure controls (as defined in Exchange
Act rules 13a-14 and 15d-14), based on their evaluation of these controls
and procedures as of the end of the period covered by this report, are
effective.
(b) Changes in internal controls. There were no significant changes in the
registrant's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
Page 18
HALLWOOD REALTY PARTNERS, L.P.
PART II - OTHER INFORMATION
Item
1 Legal Proceedings
Reference is made to Note 7 to the condensed consolidated financial
statements contained in this Form 10-Q.
2 Changes in Securities and Use of Proceeds
On March 28, 2003, HRP and EquiServe Trust Company, N.A. amended the Unit
Purchase Agreement (the "Rights Agreement"), which describes the terms and
conditions of the limited partner unit purchase rights (the "Rights") that
were distributed in 1990. The Rights currently trade automatically with
HRP's units representing limited partner interests, are not evidenced by
separate certificates and are not exercisable until the occurrence of
events specified in the Rights Agreement. The Rights Agreement was amended
to extend the expiration date of the Rights Agreement to March 31, 2008,
to reflect the automatic adjustment that occurred to the initial exercise
price from $50 to $250 as a result of the 1-for-5 reverse unit split
effected by HRP in 1995 and otherwise to update the Rights Agreement.
In connection with the announcement of an intent to conduct a tender offer
discussed in Item 5 of this Form 10-Q, on April 29, 2003, the board of
directors of the General Partner deferred the Distribution Date of the
Rights (as each is defined in the Rights Agreement) until the close of
business on the tenth day after the date of the filing of a tender offer
statement on Schedule TO with the Securities and Exchange Commission. Such
a filing was made on May 1, 2003, and the board of directors of the
General Partner subsequently deferred the Distribution Date until a later
date the General Partner may determine. The action of the General Partner
does not foreclose its ability to, or indicate any intention not to,
determine another Distribution Date, in its sole discretion, and does not
alter or affect the provisions of the Rights Agreement with respect to any
Distribution Date that may occur upon an Unit Acquisition Date (as defined
in the Rights Agreement) or the provisions of the Rights Agreement with
respect to any tender or exchange offer other than the tender offer
announced on May 1, 2003.
3 Defaults upon Senior Securities None.
4 Submission of Matters to a Vote of Security Holders None.
5 Other Information
Reference is made to Note 6 to the condensed consolidated financial
statements contained in this Form 10-Q.
6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.6 Executive Incentive and Retention Program
31.1 Certification of the Chief Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002
32.1 Certifications of the Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
A report on Form 8-K was furnished on August 5, 2003 containing a
press release, dated August 4, 2003, setting forth its second
quarter 2003 results (such press release is not incorporated by
reference herein or deemed "filed" within the meaning of Section 18
of the Securities Act of 1933, as amended).
Page 19
HALLWOOD REALTY PARTNERS, L.P.
SIGNATURE
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.
HALLWOOD REALTY PARTNERS, L.P.
------------------------------
(Registrant)
By: HALLWOOD REALTY, LLC
General Partner
Date: November 11, 2003 By: /s/ JEFFREY D. GENT
----------------- -------------------
Jeffrey D. Gent
Vice President - Finance
(Principal Financial and Accounting Officer)
Page 20
INDEX TO EXHIBITS
10.6 Executive Incentive and Retention Program
31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002
32.1 Certifications of the Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002