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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 April 30, 1994 Commission File Number 1-6309
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HRE PROPERTIES
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(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS 04-245-8042
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 FIFTH AVENUE, 21ST FLOOR, NEW YORK, NY 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 642-4800
The number of shares of Registrant's common shares outstanding as of the close
ofperiod covered by this report: 5,331,895
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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
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THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 10 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 10 INCLUSIVE, OF WHICH THIS PAGE IS 1.
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INDEX
HRE PROPERTIES
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income--Three months ended April 30, 1994 and
1993, Six months ended April 30, 1994 and 1993.
Consolidated Balance Sheets--April 30, 1994 and October 31, 1993.
Consolidated Statements of Cash Flows--Six months ended April 30, 1994 and
1993.
Consolidated Statements of Shareholders' Equity--Six months ended April 30,
1994 and 1993.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Six Months Ended Three Months Ended
April 30 April 30
----------------- ------------------
1994 1993 1994 1993
---- ---- ---- -----
REVENUES:
Operating leases $8,014 $7,618 $4,274 $3,845
Financing leases 713 775 353 383
Interest 520 582 258 300
Interest from and equity in losses
of unconsolidated joint ventures -- (152) -- (87)
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9,247 8,823 4,885 4,441
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EXPENSES:
Real estate operations 3,638 3,427 1,936 1,790
Interest 1,713 1,603 959 796
Depreciation and amortization 1,940 2,278 1,013 1,131
General and administrative 754 971 357 455
Trustees' fees and expenses 84 73 48 34
Consulting fee -- 145 -- --
Write-down in carrying value of
investments -- 3,300 -- 3,300
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8,129 11,797 4,313 7,506
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INCOME (LOSS) BEFORE GAINS ON SALES OF
PROPERTIES 1,118 (2,966) 572 (3,060)
GAINS ON SALES OF PROPERTIES 82 2,330 82 2,330
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NET INCOME (LOSS) $1,200 $(636) $ 654 $(730)
====== ====== ====== ======
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before gains on sales of properties $ .21 $(.56) $ .11 $ (.58)
Gains on sales of properties .01 44 .01 44
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Net Income (Loss) $ .22 $(.12) $ .12 $ (.14)
Weighted Average Number of Common Shares ====== ====== ====== ======
Outstanding 5,323 5,290 5,326 5,293
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The accompanying notes to consolidated financial statements are an integral part of these statements.
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HRE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
April 30, 1994 October 31, 1993
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(UNAUDITED)
ASSETS
Real Estate Investments:
Properties owned--at cost, net of accumulated
depreciation and recoveries of $35,649 at
April 30, 1994 and $33,384 at October 31, 1993 $122,088 $ 99,279
Investment in unconsolidated joint venture -- 250
Mortgage notes receivable 8,883 8,917
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130,971 108,446
Cash and cash equivalents 4,385 7,061
Interest and rent receivable 1,895 1,304
Deferred charges, net of accumulated amortization 2,248 1,796
Other assets 1,051 723
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$140,550 $119,330
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank note payable $ 5,000 $ --
Mortgage notes payable 42,077 24,227
Accounts payable and accrued expenses 899 847
Deferred trustees' fees 624 602
Other liabilities 763 958
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49,363 26,634
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Shareholders' Equity:
Preferred shares, without par value;
2,000,000 shares authorized; none issued -- --
Common shares, without par value; unlimited
shares authorized; 5,510,243 and
5,498,454 issued on April 30, 1994
and October 31, 1993 123,372 123,205
Less 178,348 common shares held in treasury,
at cost (2,861) (2,861)
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Distributions in excess of accumulated net income (29,324) (27,648)
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91,187 92,696
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$140,550 $119,330
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The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended April 30
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1994 1993
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Operating Activities:
Net income (loss) $1,200 $(636)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,978 2,319
Recovery of investment in properties owned
subject to financing leases 722 655
Equity in losses of unconsolidated joint venture -- 177
Minority interests in net losses of consolidated
joint ventures (7) (8)
Gains on sales of properties (82) (2,330)
Write-down in carrying value of investments -- 3,300
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3,811 3,477
Changes in operating assets and liabilities:
Increase in interest and rent receivable (591) (299)
Increase in accounts payable and accrued expenses 52 290
(Increase) decrease in other assets and
other liabilities, net (561) 19
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Net Cash Provided by Operating Activities 2,711 3,487
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Investing Activities:
Acquisition of properties owned (25,158) --
Improvements to existing properties owned and deferred
charges -- net (1,134) (1,024)
Additional capital contributed to unconsolidated
joint venture -- (100)
Proceeds from sales of properties and investment in
unconsolidated joint venture 705 3,230
Payments received on mortgage notes receivable 34 30
Miscellaneous 25 (33)
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Net Cash Provided By (Used In) Investing Activities (25,528) 2,103
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Financing Activities:
Proceeds from mortgage notes and bank note 23,000 --
Dividends paid (2,876) (2,857)
Proceeds from sales of additional common shares 167 119
Payments on mortgage notes payable
and other liability (150) (807)
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Net Cash Used In Financing Activities 20,141 (3,545)
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Net Increase (Decrease) In Cash and Cash Equivalents (2,676) 2,045
Cash and Cash Equivalents at Beginning of Period 7,061 4,458
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Cash and Cash Equivalents at End of Period $ 4,385 $ 6,503
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The accompanying notes to consolidated financial Statements are an integral part of these statements.
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except shares and per share data)
Common Shares (Distributions
Treasury In Excess
Outstanding Issued Shares, Accumulated
Number Amount at Cost Net Income) Total
------------ ------ ------- ----------- -----------
Balances-October 31, 1992 5,296,109 $122,590 $(2,705) $(16,967) $102,918
Net (loss) -- -- -- (636) (636)
Cash dividends declared ($.54
per share) -- -- -- (2,857) (2,857)
Sale of additional common shares
under dividend reinvestment plan 9,093 119 -- -- 119
Common shares acquired in cancel-
lation of stock option plan (8,250) 156 (156) -- --
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Balances--April 30, 1993 5,296,952 $122,865 $(2,861) $(20,460) $ 99,544
========== ========== ========== ========== ==========
Balances-October 31, 1993 5,320,106 $123,205 $(2,861) $(27,648) $ 92,696
Net income -- -- -- 1,200 1,200
Cash dividends declared ($.54
per share) -- -- -- (2,876) (2,876)
Sale of additional common shares
under dividend reinvestment plan
and stock option plan 11,789 167 -- -- 167
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Balances--April 30, 1994 5,331,895 $123,372 $(2,861) ($29,324) $91,187
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The accompanying notes to consolidated financial statements are an integral part of these statements.
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HRE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying unaudited consolidated financial statements include the
accounts of HRE Properties ("the Trust"), its wholly-owned subsidiary, and
certain joint ventures where the Trust has the ability to control the
affairs of the venture. All significant intercompany transactions and
balances have been eliminated. The financial statements have been prepared
in accordance
with generally accepted accounting principles for interim financial
information. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Results of operations for the
three-month period ended April 30, 1994 are not necessarily indicative of
the
results that may be expected for the year ending October 31, 1994. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Trust's annual report
for the fiscal year ended October 31, 1993.
2. The Trust accounts for its leases of real property in accordance with the
provisions of Financial Accounting Standards Board Statement No. 13,
"Accounting for Leases." This statement sets forth specific criteria for
determining whether a lease should be accounted for as an operating lease or
a financing lease. In general, the financing lease method applies where
property is under long-term lease to a credit worthy tenant and the present
value of the minimum required lease payments is at least 90% of the value of
the property. Other leases are accounted for as operating leases.
3. In December 1993, the Trust acquired a 296,000 square foot retail shopping
center located in Meriden, Connecticut for a purchase price of $25 million.
The property was acquired subject to a nonrecourse first mortgage loan of
$15 million. The mortgage loan bears interest at an annual rate of 7.5%
for a five-year term with interest only due monthly for the first two years
and monthly installments of principal and interest until maturity.
In connection with this acquisition, the Trust used the proceeds of its
$5 million line of credit arrangement to complete the purchase.
The Trust currently pays interest at an annual rate of LIBOR plus 2.75%
on oustanding borrowings.
4. The Trust has entered into a contract to purchase a 10,000 square foot
office property located in Greenwhich, Connecticut at a purchase price of
$550,000 all cash. The transaction closed in May, 1994.
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PART I - FINANCIAL INFORMATION (continued)
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
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Liquidity and Capital Resources:
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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 April 30, 1994, the Trust had $4.4 million in cash and cash equivalents and
current liabilities of approximately $.9 million. Long-term debt consists of
mortgage loans totaling $42.1 million, of which approximately $350,000 in
principal payments are due in fiscal 1994. During fiscal 1994 the Trust
obtained proceeds of $18 million from nonrecourse first mortgage loan
financings. The loans are collateralized by two of the Trust's properties.
The Trust also has a $5 million unsecured line of credit with a major
commercial bank. In connection with the acquisition of the Trust's Townline
shopping center, Meriden Connecticut, the Trust has fully drawn on the line
of credit. The line of credit expires on September 1, 1994 and it is
anticipated that the line of credit will be repaid from proceed
a mortgage loan financing, sales of property or may be extended by the Lender.
The Trust expects to make new real estate investments periodically. The
funds for such investments may come from existing liquid assets, lines of
credit, proceeds from property sales, financing of acquired or existing
properties or the sale of mortgage notes receivable. In the first quarter
of fiscal 1994, the Trust acquired a 296,000 square foot shopping center in
Meriden, Connecticut. The total purchase price was $25 million consisting
of $10 million cash (including $5 million drawn from the Trust's line of
credit arrangement) and first mortgage financing of $15 million. The first
mortgage bears interest at 7.5% per annum and matures in five years.
In May 1994, the Trust also acquired an office building located
Greenwich Connecticut. The 10,000 square foot property was acquired at a
purchase price of $550,000, all cash. The Trust also invests in its existing
properties and during the first half of fiscal 1994, spent approximately
$1,134,000 on its properties for capital improvement and leasing costs.
The Trust sold its distribution property located in Memphis, Tennessee
and net leased to the tenant at a net sale price of $450,000, all cash. The
transaction closed during the Trust's second quarter and the Trust realized
a gain on the sale of $82,000.
Results of Operations:
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"Funds from operations" (net income before gains on sales of properties and
non-recurring items, adjusted for non-cash charges and credits, recoveries of
investment in properties owned subject to financing leases and cash
distributions received from investments in unconsolidated joint ventures) is
an important financial measure of the Trust's operating performance. Funds
from operations for the three-months ended April 30, 1994 increased to
$1,962,000 from $1,802,000 in the second quarter a year ago. Net income for
the second quarter of fiscal 1994 was $654,000 or $.12 per share compared to
a net loss of $730,000 or $.14 per share for the comparable period in 1993.
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For the first six months of fiscal 1994, net income was $1,200,000 or $.22
per share compared to a net loss of $636,000 or $.12 per share in the year ago
period. Fiscal 1993 results include non cash charges aggregating $3.3 million
to writedown the carrying values of two of the Trust's office building
investments to their respective net realizable values. The investments were
subsequently disposed of during fiscal 1993.
Revenues:
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Operating lease income from retail properties increased by $1,767,000 or 47%
in the first half of fiscal 1994 compared to the prior year's period primarily
from the added rental revenues of the Trust's retail property acquisitions in
Farmingdale, New York and Meriden, Connecticut. Operating lease income from
office properties declined by $1,356,000 principally from the disposition of
the Trust's office building investment in Portland, Oregon during fiscal 1993
and lower occupancy at the Trust's Denver, Colorado office building. The
Trust recently signed leases totaling 22,400 square feet of space at that
property.
Expenses:
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General and administrative expenses decreased to $754,000 in the first six-
month period of fiscal 1994 from $971,000 in the comparable period last year. A
portion of the decrease is attributable to the amount of administrative costs
allocated to specific property operating costs as a result of the Trust's
assumption of direct property management responsibilities at its retail
properties. These properties were previously managed by third-party management
firms under fee arrangements.
The decrease in consulting fee expense resulted from the termination last
year of a consulting arrangement with a Trustee in consideration of a lump sum
payment which was paid in 1993's first quarter.
The increase in interest expense is attributable to the addition of $24.6
million of mortgage notes payable obtained in fiscal 1993 and in the first
quarter of fiscal 1994. The mortgage notes bear interest at an average annual
rate of approximately 7.7%.
The Trust recorded gains on sales of properties of $82,000 or $.01 per share
and $2,330,000 or $.44 per share during the six month period ended April 30,
1994 and 1993, respectively. The gains were recorded in connection with the
sales of single tenant net leased properties.
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PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
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No reports on Form 8-K have been filed by the Registrant during the
three-month period ended April 30, 1994.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HRE PROPERTIES
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(Registrant)
By:___________________________
James R. Moore
Senior Vice President/
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
By:_____________________________
Charles J. Urstadt
Chairman, President and
Chief Executive Officer
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