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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10643
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HALLWOOD REALTY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
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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 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 REGISTRANT IS A LIMITED PARTNERSHIP AND ISSUES UNITS
REPRESENTING OWNERSHIP OF LIMITED PARTNER INTERESTS.
NUMBER OF UNITS OUTSTANDING AT MAY 2, 1997: 1,672,556 UNITS.
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Page 1
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HALLWOOD REALTY PARTNERS, L.P.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1 Financial Statements:
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations, Liquidity and Capital Resources 7
PART II - OTHER INFORMATION
Items 1 to 6 Other Information 9
Signatures 10
Page 2
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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
MARCH 31, December 31,
1997 1996
--------- ---------
(Unaudited)
ASSETS
Real estate:
Land $ 56,820 $ 56,820
Buildings and improvements 258,068 257,913
Tenant improvements 18,975 18,578
--------- ---------
333,863 333,311
Accumulated depreciation (152,380) (150,434)
--------- ---------
Real estate, net 181,483 182,877
Cash and cash equivalents 3,020 3,556
Accounts receivable 1,774 1,606
Deferred lease commissions, net 7,036 6,959
Lease concessions 2,350 2,354
Loan reserves and escrows 7,382 7,739
Loan costs, net 3,552 3,691
Prepaid expenses and other assets, net 1,767 1,432
--------- ---------
Total assets $ 208,364 $ 210,214
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 159,957 $ 160,732
Unamortized mortgage payable forgiveness 10,038 10,456
Accounts payable and accrued expenses 4,758 4,834
Prepaid rent and security deposits 1,951 2,600
Payable to affiliates 908 908
--------- ---------
Total liabilities 177,612 179,530
--------- ---------
Partners' capital:
Limited partners - 1,672,556 units outstanding 30,444 30,377
General partner 308 307
--------- ---------
Total partners' capital 30,752 30,684
--------- ---------
Total liabilities and partners' capital $ 208,364 $ 210,214
========= =========
See notes to consolidated financial statements.
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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
-------- --------
REVENUES:
Property operations $ 12,773 $ 12,192
Interest 135 240
-------- --------
Total revenues 12,908 12,432
-------- --------
EXPENSES:
Property operations 5,821 5,882
Depreciation and amortization 2,985 4,713
Interest 3,217 3,532
General and administrative 817 825
-------- --------
Total expenses 12,840 14,952
-------- --------
NET INCOME (LOSS) $ 68 $ (2,520)
======== ========
ALLOCATION OF NET INCOME (LOSS):
Limited partners $ 67 $ (2,495)
General partner 1 (25)
-------- --------
Total $ 68 $ (2,520)
======== ========
NET INCOME (LOSS) PER UNIT AND EQUIVALENT UNIT:
Primary $ .04 $ (1.43)
======== ========
Assuming full dilution $ .04 $ (1.43)
======== ========
WEIGHTED AVERAGE UNITS USED IN COMPUTING NET INCOME
(LOSS) PER UNIT AND EQUIVALENT UNIT:
Primary 1,673 1,748
======== ========
Assuming full dilution 1,710 1,748
======== ========
See notes to consolidated financial statements.
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HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 68 $ (2,520)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,985 4,713
Amortization of mortgage principal forgiveness (418) (337)
Lease concessions 4 198
Changes in assets and liabilities:
Receivables (168) 157
Deferred lease commissions (578) (835)
Prepaid expenses and other assets, net 5 188
Accounts payable and other liabilities (727) 1,253
-------- --------
Net cash provided by operating activities 1,171 2,817
-------- --------
INVESTING ACTIVITIES:
Property and tenant improvements (1,080) (1,222)
Tenant improvement escrow 125 --
Property acquisition -- (1,699)
Mortgage receivable principal payments 23 20
-------- --------
Net cash used for investing activities (932) (2,901)
-------- --------
FINANCING ACTIVITIES:
Mortgage principal payments (775) (660)
Loan reserves -- --
Loan fees -- (54)
-------- --------
Net cash used for financing activities (775) (714)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (536) (798)
BEGINNING CASH AND CASH EQUIVALENTS 3,556 14,302
-------- --------
ENDING CASH AND CASH EQUIVALENTS $ 3,020 $ 13,504
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash during the period $ 3,503 $ 3,905
======== ========
See notes to consolidated financial statements.
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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1 ORGANIZATION AND ACCOUNTING POLICIES
Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware limited
partnership, is engaged in diversified real estate activities, including the
acquisition, ownership and operation of commercial office and industrial
real estate and other real estate related assets. The limited partners'
interests are traded on the American Stock Exchange under the symbol "HRY".
As of March 31, 1997, there were 1,672,556 units outstanding.
Hallwood Realty Corporation ("HRC"), a Delaware corporation and wholly-owned
subsidiary of The Hallwood Group Incorporated ("Hallwood"), is HRP's general
partner and is responsible for asset management of the partnership and its
real estate properties. Hallwood Commercial Real Estate, Inc. ("HCRE"),
another wholly-owned subsidiary of Hallwood, provides property management
services for HRP's real estate properties.
The consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
disclosures required by generally accepted accounting principles, although,
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 Form 10-K for the year ended
December 31, 1996. Certain reclassifications have been made to prior period
amounts to conform to the classifications used in the current period. The
reclassifications had no effect on the previously reported net loss.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
specifies new computation, presentation and disclosure requirements. The
statement will be effective for both interim and annual periods ending after
December 15, 1997. Management believes that the adoption of this statement
will not have any impact on the earnings per unit presented.
2 TRANSACTIONS WITH RELATED PARTIES
HRC and HCRE are compensated for services provided to HRP and its real
estate properties and are set forth in the following table for the periods
presented (in thousands):
Entity Three Months
Paid or Ended
REIMBURSED March 31,
---------- ---------------------
1997 1996
--------- ---------
Asset management fee HRC $ 103 $ 111
Property management fee HCRE 344 353
Lease commissions HCRE 345 400
Construction fees HCRE 69 44
Acquisition fee HRC -- 17
Reimbursements of costs (a) HRC 645 585
(a) These costs are mostly recorded as general and administrative
expenses and represent reimbursement to HRC, at cost, for
partnership level salaries, employee and director insurance, and
certain overhead costs. HRP pays, on a monthly basis, the
balance of its account with HRC.
3 DEPRECIATION OF REAL ESTATE ASSETS
During, 1997, HRP completed a review of its real estate asset lives. In
light of recent improvements and actions taken to increase its preventative
maintenance programs, the estimated economic lives for HRP's buildings were
found to be generally longer than the useful lives being used for
depreciation purposes. Accordingly, effective January 1, 1997, HRP extended
the depreciable lives of certain building costs. The effect of this change
in estimate reduced depreciation and amortization expense and the net income
(loss) for the three months ended March 31, 1997 by approximately $1,800,000
($1.07 per unit).
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HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
RESULTS OF OPERATIONS
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
REVENUE FROM PROPERTY OPERATIONS increased $581,000, or 4.8%, for the first
quarter of 1997, compared to the 1996 first quarter. The following table
illustrates the components of the change, in thousands:
Rental income, net $ 528
Expense recoveries 75
Other property income (22)
-----
Net increase $ 581
=====
Rental income increased primarily as the result of a rise in average occupancy
between the comparable periods from 83.9% to 92.0%. As of March 31, 1997, HRP
had leases executed and in place for 94.2% of the portfolio's net rentable
square feet.
INTEREST INCOME fell $105,000 as a result of decreased earnings on overnight
investments due to lower average cash balances available for investment between
the periods.
PROPERTY OPERATING EXPENSES decreased $61,000, or 1.0%, for the first quarter
of 1997, compared to the same period in 1996. The following table illustrates
the components of the change, in thousands:
Administrative costs $ 59
Management fees (17)
Marketing and leasing (22)
Utilities (22)
Services, including janitorial 121
Repairs and maintenance (108)
Real estate taxes (28)
Insurance (44)
-----
Net decrease $ (61)
=====
Administrative costs grew due to increases in salary costs and certain
professional fees. Service costs expanded due to increases in security patrol,
snow removal and cleaning costs. Repairs and maintenance declined primarily
due to maintenance costs performed on heating and air duct systems in the 1996
period.
INTEREST EXPENSE diminished $315,000, or 8.9%, principally due to loan
modifications/renewals for First Maryland Building and Executive Park in 1996.
First Maryland's costs dropped $176,000 and is comprised of a $96,000 reduction
in cash interest paid to the lender and $80,000 increase in amortization of
mortgage principal forgiveness. Executive Park's costs decreased $86,000 due
to the reduction in its interest rate by more than 1%. All other interest
costs fell $53,000 due to a reduction in debt levels between the periods.
DEPRECIATION AND AMORTIZATION EXPENSE decreased $1,728,000 primarily due to an
extension of depreciable lives of certain building costs effective January 1,
1997 (see Note 3 to the Consolidated Financial Statements).
GENERAL AND ADMINISTRATIVE EXPENSES were comparable between the two periods.
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HALLWOOD REALTY PARTNERS, L.P.
LIQUIDITY AND CAPITAL RESOURCES
HRP is engaged in diversified real estate activities, including the
acquisition, ownership and operation of commercial office and industrial real
estate and other real estate related assets. While it is HRC's primary
intention to operate HRP's existing real estate investments and to acquire and
operate additional real estate investments, HRC also continually evaluates each
of HRP's real estate investments in light of current economic trends and
operations to determine if any should be considered for disposal.
As of March 31, 1997, HRP owned twelve real estate properties located in six
states. Seven are commercial office building properties and five are
industrial park properties containing approximately 2,610,000 and 2,557,000 net
rentable square feet, respectively. 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.
As of March 31, 1997, HRP had cash and cash equivalents of $3,020,000 as
compared to $3,556,000 as of December 31, 1996. Therefore, HRP's cash position
decreased $536,000 during the first three months of 1997. The sources of cash
during the period were $1,171,000 of cash provided by operating activities and
$148,000 of miscellaneous reimbursements from investing activities. Uses of
cash during the period were $1,080,000 of property and tenant improvements and
$775,000 of mortgage principal payments.
Substantially all of the buildings in eleven of HRP's properties were
encumbered by and pledged as collateral under non- recourse mortgages as of
March 31, 1997. Based upon loan maturities currently in effect, in the
aggregate, HRP is required to pay about $2,309,000 of principal payments for
the remainder of 1997. HRP doesn't have any mortgage loans maturing or
requiring balloon principal payments until the year 2000.
HRC anticipates tenant improvements and lease commissions for 1997 to decrease
as compared to the higher than usual level incurred during the year 1996.
Based on current estimates and budgets as of March 31, 1997, HRP anticipates
construction spending for tenant and capital improvements of about $3,500,000
and lease commission payments of about $700,000 for the remainder of 1997.
For the foreseeable future, management anticipates that mortgage principal
payments, tenant improvements and capital expenditures, and lease commissions
will be funded by the cash flow provided by operations. The primary source of
capital to fund acquisitions will be proceeds from the sale or financing of one
or more of its properties.
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HALLWOOD REALTY PARTNERS, L.P.
PART II - OTHER INFORMATION
Item
1 Legal Proceedings None.
2 Changes in Securities None.
3 Defaults upon Senior Securities None.
4 Submission of Matters to a Vote of Security Holders None.
5 Other Information None.
6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule Page 11
(b) Reports on Form 8-K None.
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HALLWOOD REALTY PARTNERS, L.P.
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 thereunto duly authorized.
HALLWOOD REALTY PARTNERS, L.P.
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(Registrant)
By: HALLWOOD REALTY CORPORATION
General Partner
Date: May 7, 1997 By: /s/ WILLIAM L. GUZZETTI
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William L. Guzzetti
President
(Chief Operating Officer)
Date: May 7, 1997 By: /s/ JEFFREY D. GENT
----------- --------------------------------
Jeffrey D. Gent
Vice President - Finance
(Principal Financial and Accounting
Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 - Financial Data Schedule