SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1993
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No. 1-6309
HRE PROPERTIES
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-245-8042
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 FIFTH AVENUE
NEW YORK, NEW YORK 10036
----------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 642-4800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------- ---------------------
Common Shares, without par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant ($54,394,514.00 as of January 14, 1994).
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: 5,320,106 Common
Shares, without par value, as of January 14, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held on March
3, 1994 (certain parts as indicated herein) (Part III).<PAGE>
<PAGE>
PART I
ITEM I.. BUSINESS.
General Development
HRE Properties (the "Trust") was organized on July 7, 1969 as an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts pursuant to a Declaration of Trust dated July 7, 1969, as
amended. The Trust's headquarters are located in New York, New York.
The Trust has qualified and has elected to be taxed as a real estate
investment trust under Sections 856-858 of the Internal Revenue Code of
1986, as amended (the "Code"). Pursuant to such provisions of the Code, a
trust which distributes at least 95% of its real estate investment trust
taxable income to its shareholders each year and which meets certain other
conditions will not be taxed on that portion of its taxable income which is
distributed to its shareholders. The Trust intends to continue to qualify
as a real estate investment trust for federal income tax purposes.
The Trust was formed with the intention of providing its shareholders
with a means of participating in the ownership of income-producing
properties. The Trust owns and manages a portfolio of retail properties,
office buildings, and industrial properties. The Trust also seeks to
identify desirable properties for acquisitions which it makes in the normal
course of business. In addition, the Trust regularly reviews its portfolio
and from time to time considers and makes the sale of certain properties.
At October 31, 1993, the Trust owned or had an equity interest in
twenty-two properties comprised of office buildings, shopping centers,
single tenant retail stores, and service and distribution facilities located
in sixteen states throughout the United States, containing a total of
3,075,000 square feet of gross leasable space. The Trust also holds one
participating mortgage of $4,836,000 secured by an office building
containing 62,000 square feet of gross leasable space.
For the five year period ended October 31, 1993, the Trust acquired
four real estate properties totalling 198,000 square feet of gross leasable
space at an aggregate purchase price of $21.8 million. The properties were
acquired with proceeds of $12.2 million of non-recourse first mortgage loan
financing and available cash. In addition, the Trust has also spent nearly
$19 million to expand, renovate, improve and lease its properties. Such
activities were financed primarily through available liquid assets. During
this same period, the Trust sold four net leased properties totalling
359,000 square feet of gross leasable space for gross sales proceeds
aggregating $14.1 million. The Trust also disposed of three other
properties owned in joint ventures in which it held interests (see Recent
Developments).
At October 31, 1993, of the twenty-two properties in the Trust's
portfolio, nine were retail properties (including five shopping centers),
containing in the aggregate 1,089,000 square feet of gross leasable space.
The Trust's retail properties collectively had approximately 128 tenants
providing a wide range of retail products and services. Major tenants
include supermarkets, national discount department stores and a movie
theater. At October 31, 1993, the Trust's overall occupancy rate in its
retail properties was 87.4%. In December, 1993, the Trust acquired a
296,000 square foot shopping center located in Meriden, Connecticut at a
purchase price of $25 million. The acquisition was financed with a $15
million first mortgage and cash.
<PAGE>
Four properties in the Trust's portfolio are office buildings,
totalling approximately 411,000 square feet of gross leasable space. The
office properties collectively have more than 50 tenants which offer a wide
range of services and include insurance companies, a major engineering firm
and government agencies. At October 31, 1993, the Trust's overall occupancy
rate in its office properties was 82.7%. The Trust also holds one
participating mortgage loan in the amount of $4,836,000 secured by an office
building containing 62,000 square feet of gross leasable space.
Nine properties in the Trust's portfolio are service and distribution
facilities totalling 1,575,000 square feet of gross leasable space,
consisting of six automobile and truck parts distribution warehouses leased
to Chrysler Corporation, two truck sales and service centers and one
automobile tire distribution facility. The service and distribution
facilities are net leased under long-term lease arrangements whereby the
tenant pays all taxes, insurance, maintenance and other operating costs of
the property during the term of the lease. Rents paid by Chrysler
Corporation to the Trust exceed 10% of the Trust's gross rental revenues.
At October 31, 1993, the Trust also owned a portfolio of mortgage notes
receivable consisting of fixed rate mortgages aggregating $4,081,000
(excluding the participating mortgage described above). The fixed rate
mortgages are secured by retail properties sold by the Trust in prior years.
Property Management
The Trust actively manages and supervises the operations and leasing at
six of its retail property locations. Eleven of the Trust's properties are
net leased to single tenants under long-term lease arrangements, in which
case, management is provided by the tenants. The Trust's remaining
properties are managed by independent third party management firms retained
by the Trust. The Trust closely supervises the management firms it engages
to manage its properties.
Recent Developments
During fiscal 1993, the Trust acquired two properties at an aggregate
purchase price of $6.2 million. The Trust also spent $1.5 million for
leasing costs and capital improvements to properties it already owns. The
Trust expects to spend similar amounts in fiscal 1994 for its properties.
Substantially all such capital improvements were incurred in connection with
the Trust's office and retail leasing activities. During the 1993 fiscal
year, the Trust leased over 130,000 square feet of gross leasable space,
compared to 157,000 square feet in the prior year. The square footage
leased in fiscal 1993 comprised nearly 9% of the total gross leasable space
of the Trust's retail and office building properties.
In light of continuing adverse office market conditions in fiscal 1993,
the Trust disposed of its interests in three office building properties
totaling 525,000 square feet having an aggregate net book value of
approximately $8.4 million. The properties were owned in various joint
ventures and were subject to nonrecourse mortgage debt. Two of the
properties were foreclosed upon by the respective mortgage lenders after the
joint ventures elected not to make required debt service payments. The
Trust agreed to sell its 50% interest in the joint venture owning the third
office property for $250,000. For additional information, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes to the Consolidated Financial Statements of the Trust.
<PAGE>
The Trust intends to continue to invest substantially all of its assets
in income producing real estate, with a primary emphasis on shopping
centers, although the Trust will retain the flexibility to invest in other
types of real property. While the Trust is not limited to any geographical
location, the Trust's current strategy is to invest in properties located in
the Northeastern United States.
Competition
The real estate investment business is highly competitive. The Trust
competes for real estate investments with investors of all types, including
domestic and foreign corporations, financial institutions, other real estate
investment trusts and individuals. In addition, the Trust's properties are
subject to local competitors from the surrounding areas.
The Trust's office buildings compete for tenants principally with
office buildings throughout the respective areas in which they are located.
In most areas where the Trust's office buildings are located, competition
for tenants is intense. Leasing space to prospective tenants is generally
determined on the basis of, among other things, rental rates, location,
physical quality of the property and availability of space. The shopping
centers compete for tenants with other regional, community or neighborhood
shopping centers in the respective areas where Trust retail properties are
located.
Since the Trust's industrial properties are all net leased under long-
term lease arrangements which are not due to expire in the near future, the
Trust does not currently face any competitive pressures with respect to such
properties.
Employees
The Trust has 15 employees, six of whom oversee the management of the
Trust's real estate portfolio, analyze potential acquisition properties and
determine which properties, if any, to sell. The Trust's remaining
employees serve in various professional, executive and administrative
capacities.
<PAGE>
ITEM II.. PROPERTIES.
Retail Properties
The following table sets forth information concerning each retail
property in which the Trust owned an equity interest at October 31, 1993.
All retail properties are 100% owned in fee by the Trust.
<TABLE>
<CAPTION>
Gross Leasable Number
Year Year Square of
Location Completed Acquired Feet Acres Tenants Occupancy Principal Tenant
<S> <C> <C> <C> <C> <C> <C> <C>
Mesa, Arizona 1971 1971 92,000 7.6 1 100% Mervyn's (Dayton Hudson)
Tempe, Arizona 1970 1970 86,000 8.6 1 100% Mervyn's (Dayton Hudson)
Clearwater,
Florida 1983 1985 231,000 21.5 46 88% Albertson's
Springfield,
Massachusetts 1970 1970 284,000 26.0 16 76% Caldor
Newington,
New Hampshire 1975 1979 102,000 14.3 6 80% Sears Roebuck Home Life Store
Wayne,
New Jersey 1959 1992 99,000 9.0 34 83% Great Atlantic & Pacific Tea
Co.
Farmingdale,
New York 1981 1993 70,000 5.6 12 96% King Kullen
Somers,
New York 1989 1992 19,000 4.9 11 95% Putnam County Savings Bank
Manassas,
Virginia 1971 1972 106,000 14.1 1 100% The Hecht Company (May Department
Stores)
</TABLE>
<PAGE>
Office Properties
The following table sets forth information concerning each office
property in which the Trust owned an equity interest at October 31, 1993.
Except as otherwise noted, office properties are 100% owned in fee by the
Trust.
<TABLE>
<CAPTION>
Rentable
Year Year Square Number
Location Completed Acquired Feet Acres of Tenants Occupancy Principal Tenant
<S> <C> <C> <C> <C> <C> <C> <C>
Denver,
Colorado 1983 1983 122,000 9.1 9 50% Kemper Insurance Company
Greenwich,
Connecticut 1983 1993 10,000 .2 3 100% Multivision Cable TV
Southfield,
Michigan(1) 1973 1983 183,000 7.8 6 100% Giffels Associates
Houston,
Texas 1972 1975 96,000 3.1 35 93% Houston Title Company
<FN>
(1) The Trust owns an 85% partnership interest in this property.
</TABLE>
<PAGE>
Distribution and Service Properties
The following table sets forth information concerning each distribution
and service property in which the Trust owned an equity interest at October
31, 1993. Distribution and service properties are 100% owned in fee by the
Trust.
<TABLE>
<CAPTION>
Rentable Number
Year Year Square of
Location Completed Acquired Feet Acres Tenants Occupancy Principal Tenant
<S> <C> <C> <C> <C> <C> <C> <C> Rentable
Dallas,
Texas 1970 1970 253,000 14.5 1 100% Chrysler Corporation
Denver,
Colorado 1970 1970 127,000 11.2 1 100% Chrysler Corporation
Memphis,
Tennessee 1970 1970 175,000 13.7 1 100% Chrysler Corporation
Orlando,
Florida 1970 1970 175,000 23.8 1 100% Chrysler Corporation
Beaverton,
Oregon 1970 1970 149,000 11.4 1 100% Chrysler Corporation
St. Louis,
Missouri 1970 1970 163,000 16.0 1 100% Chrysler Corporation
Syracuse,
New York 1973 1973 29,000 10.0 1 100% Navistar International
Memphis,
Tennessee 1973 1973 28,000 7.1 1 100% Navistar International
Albany,
Georgia 1972 1972 476,000 51.3 1 100% Firestone
</TABLE>
<PAGE>
ITEM III.. LEGAL PROCEEDINGS.
No legal proceedings are required to be reported under this Item.
ITEM IV.. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended October 31, 1993.
PART II
ITEM V.. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Price Range of Common Shares
The Common Shares of the Trust are traded on the New York Stock Exchange
under the symbol "HRE". The following table sets forth the high and low
closing sales prices for the Trust's Common Shares during the fiscal years
ended October 31, 1993 and October 31, 1992, as reported on the New York
Stock Exchange:
Fiscal Year Fiscal Year
Ended Ended
October 31, 1993 October 31, 1992
---------------- ----------------
High Low High Low
----- ---- ---- ---
Fourth Quarter $15-7/8 - 14-1/4 $13 - $11
Third Quarter 15-5/8 - 13-3/4 13-5/8 - 11-5/8
Second Quarter 16-3/8 - 12-1/4 14-7/8 - 11-7/8
First Quarter 12-3/8 - 11-1/8 14-7/8 - 10-1/2
(b) Approximate Number of Equity Security Holders
At December 31, 1993, there were 3,245 shareholders of record of the
Trust's Common Shares.
<PAGE>
(c) Dividend Declared on Common Shares
The following table sets forth the dividends declared per Common Share
during the fiscal years ended October 31, 1993 and October 31, 1992:
Fiscal Year Fiscal Year
Ended Ended
October 31, 1993 October 31, 1992
---------------- ----------------
Fourth Quarter $ .27 $ .27
Third Quarter .27 .27
Second Quarter .27 .27
First Quarter .27 .35
----- -----
$1.08 $1.16
===== =====
The Trust made distributions to shareholders aggregating $1.08 per Common
Share during the fiscal year ended October 31, 1993. The Trust has paid
quarterly dividends on its Common Shares since it commenced operations as a
real estate investment trust in 1969.
Although the Trust intends to continue to declare quarterly dividends on
its Common Shares, no assurances can be made as to the amounts of any future
dividends. The declaration of any future dividends by the Trust is within
the discretion of the Board of Trustees, and will be dependent upon, among
other things, the earnings, financial condition and capital requirements of
the Trust, as well as any other factors deemed relevant by the Board of
Trustees. Two principal factors in determining the amounts of dividends are
(i) the requirement of the Code that a real estate investment trust
distribute to shareholders at least 95% of its real estate investment trust
taxable income, and (ii) the amount of the Trust's funds from operations.
The Trust has a Dividend Reinvestment and Share Purchase Plan which allows
shareholders to acquire additional shares by automatically reinvesting
dividends. Shares are acquired pursuant to the Plan at a price equal to the
higher of 95% of the market price of such shares on the dividend payment
date or 100% of the average of the daily high and low sales prices for the
five trading days ending on the day of purchase without payment of any
brokerage commission or service charge. Approximately 16% of the Trust's
eligible shareholders currently participate in the Plan.
<PAGE>
ITEM VI.. SELECTED FINANCIAL DATA.
(In thousands, except per share data)
Year Ended October 31, 1993 1992 1991 1990 1989
------ ------- --------- ------- --------
Total Assets $119,330 $137,855 $130,727 $135,342 $149,698
Mortgage Notes and
Other Long-term
Obligations $ 24,227 $ 31,226 $ 20,534 $ 20,711 $ 14,874
Revenues $ 16,162 $ 16,942 $ 17,136 $ 17,902 $ 18,387
Operating (Loss)
Income $(7,293) $ 1,588 $ 892 $ 2,247 $ 4,072
Gains on Sales of
Properties 2,330 -- 2,205 1,622 5,341
Net (Loss) Income $(4,963) $ 1,588 $ 3,097 $ 3,869 $ 9,413
Funds From Operations* $ 7,036 $ 6,902 $ 7,841 $ 8,998 $ 9,868
Per Share Data:
Net (Loss) Income $(.94) $.30 $.58 $.70 $1.57
Cash Dividends $1.08 $1.16 $1.40 $1.60 $1.80
*Defined as net income, before gains on sales of properties and non-
recurring items, adjusted for noncash charges and credits, recoveries of
investment in properties owned subject to financing leases and cash
distributions received from investments in unconsolidated joint
ventures.(1992's funds from operations excludes a one-time lease assignment
payment of $960,000.)
<PAGE>
ITEM VII..MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Trust meets its liquidity requirements primarily by generating funds
from the operations of its properties, sale of real estate investments and
collection of principal and interest on its mortgage notes receivable.
Payments of expenses related to real estate operations, capital improvement
programs, debt service, management and professional fees, and dividend
requirements place demands on the Trust's liquidity.
The Trust believes that the financial resources currently available to it
are sufficient to meet all of its known obligations and commitments and to
make additional real estate investments when appropriate opportunities
arise. At October 31, 1993, the Trust had $7.1 million in available cash
and cash equivalents. Long-term debt consisted of five mortgage notes
payable totalling $24.2 million, of which $226,000 in principal payments are
due in fiscal 1994. Current liabilities including current installments of
principal payments of mortgage notes payable were approximately $1.1
million. During fiscal 1993, the Trust obtained proceeds of $6.6 million in
connection with first mortgage loan financing. The loans are collateralized
by two of the Trust's properties. The Trust also renewed its $5 million
unsecured line of credit arrangement with a major commercial bank on terms
and conditions similar to the expiring arrangement. No amounts were
outstanding under the line of credit arrangement at October 31, 1993. In
November 1993, the Trust obtained a $3 million nonrecourse first mortgage
loan commitment from a major commercial bank which will be secured by one of
the Trust's properties. The proceeds are expected to be used in future
property acquisitions.
During fiscal 1993, the Trust acquired two properties at an aggregate
purchase price of $6.2 million. Funds for the acquisitions were provided
principally from available cash and cash equivalents and $600,000 in first
mortgage loan proceeds. The Trust expects to make additional real estate
investments in the future. The funds for such investments may come from
existing liquid assets, line of credit arrangements, proceeds from property
sales, financing of acquired or existing properties or the sale of mortgage
notes receivable. In December 1993, 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 under
the 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. The Trust also invests in its existing properties and during fiscal
1993, spent approximately $1.5 million on its properties for capital
improvement and leasing costs. The Trust expects to invest similar amounts
in the next fiscal year.
<PAGE>
RESULTS OF OPERATIONS
The Trust defines "funds from operations" as net income, before gains on
sales of properties and non-recurring items, adjusted for noncash charges
and credits, recoveries of investment in properties owned subject to
financing leases, and cash distributions received from unconsolidated joint
ventures. The Trust believes the level of funds from operations to be an
important financial measure of its operating performance. For the fiscal
years ended October 31, 1993, 1992 and 1991, funds from operations were
$7,036,000, $6,902,000 and $7,841,000, respectively.
FISCAL 1993 VS. FISCAL 1992
REVENUES
Gross revenues in 1993 were $16.2 million compared to $16.9 million in 1992.
Net loss in 1993 was $4,963,000 or $.94 per share compared to net income of
$1,588,000 or $.30 per share in 1992. 1993's net loss includes $8,285,000
of noncash charges to write down the book values of three office building
investments which were disposed of. The Trust also reported gains on sales
of properties of $2,330,000. There were no gains on sales of properties in
1992.
Operating lease income declined 4.9% in fiscal 1993 compared to fiscal 1992
primarily as a result of the disposition of the Trust's Portland office
building. The Trust discontinued recording the revenues and expenses of the
property after a receiver was appointed for the property in connection with
a foreclosure proceeding. Rents from other office building investments
reflect lower occupancy especially at the Trust's office building located in
Denver, Colorado where a tenant occupying 34,000 square feet of space failed
to renew its lease upon expiration in April 1993. Revenues from retail
properties increased by approximately 14.7% reflecting the income earned
from shopping centers acquired by the Trust in fiscal 1992 and 1993 and
improved occupancy at the Trust's Newington, New Hampshire property. 1992's
revenues included a one-time payment of $960,000 earned by the Trust for
consenting to a lease assignment at its Los Angeles shopping center.
Interest income decreased principally from lower rates of return on short-
term investments and lower levels of cash and cash equivalents available for
short-term investment. Interest earned from a loan to unconsolidated joint
venture decreased when the loan in the principal amount of $800,000 became
non-performing and was subsequently written off during the year.
<PAGE>
EXPENSES
Real estate operating expenses in fiscal 1993 include the effect of shopping
centers acquired by the Trust and the disposition of the Portland building.
The increase in interest expense reflects two nonrecourse mortgage loans
totaling $11.65 million with interest rates of 9 5/8% and 8.5% obtained in
fiscal 1992 and the satisfaction of a nonrecourse mortgage loan with an
outstanding balance of $13.5 million pursuant to foreclosure proceedings.
In light of continuing adverse office market conditions including excess
supply of available space, weak tenant demand, declining rents, significant
capital requirements and debt service obligations, the Trust determined in
fiscal 1993 that the additional funds required to meet these obligations was
not justified by the near-term prospects for two of the Trust's office
building investments. In this connection, the Trust had discussions with
the first mortgagees for two of its office buildings located in Portland,
Oregon and Charlotte, North Carolina, seeking among other things, certain
modifications to the mortgage loan terms to more closely reflect current
market conditions. The office buildings were owned by joint ventures in
which the Trust is a 50% or more partner. The outstanding balances of the
two nonrecourse mortgages totaled $19.1 million. Subsequently, the joint
ventures elected not to make debt service payments on the first mortgage
loan obligations and as a result, the mortgagees filed actions seeking
foreclosure of the properties. The mortgagees obtained foreclosure
judgments and the properties were sold. As a result of these developments,
the Trust recorded a charge of $2.6 million and $800,000 in the accompanying
1993 consolidated statement of income to reflect the Portland property's
carrying value at its estimated fair value and to write off the Trust's net
investment of $800,000 in a second mortgage loan to the joint venture in
Charlotte.
For similar reasons discussed above, the Trust also reached an agreement in
principle to sell its 50% interest in another unconsolidated joint venture
to its partner for $250,000. The joint venture owns an office building
located in Santa Ana, California. During fiscal 1993, the Trust recorded a
charge of $4.9 million to reflect its investment in the unconsolidated joint
venture at net realizable value.
The Trust recorded a gain on sale of properties of $2.3 million or $.44 per
share in connection with a sale in February, 1993 of the Trust's 62,000
square foot retail property located in Los Angeles, California.
<PAGE>
FISCAL 1992 VS. FISCAL 1991
REVENUES:
Operating lease revenue increased by 6.4% in fiscal 1992 compared to the
prior year. The increase in revenues included rents of $960,000 earned by
the Trust for consenting to a lease assignment at its Los Angeles shopping
center. 1992's revenues also included rents of $328,000 earned from
properties acquired during the year. Revenues earned from the Trust's
office building investments declined as combined occupancy at the office
properties fell to 81% by the end of fiscal 1992. Occupancy at the Trust's
retail properties improved from the prior year with much of the improvement
occurring at the Trust's Newington, New Hampshire property, where leasing in
fiscal 1992 raised occupancy levels from 48% at the end of fiscal 1991 to
70% at year end, 1992.
Interest income and interest from loans to unconsolidated joint ventures
declined in the aggregate by $827,000 principally from repayments in fiscal
1991 of mortgage notes receivable and the subsequent investment of those
proceeds into shorter-term instruments yielding lower rates of return.
Interest yields on short-term investments were lower in fiscal 1992 compared
to the prior year.
EXPENSES:
Real estate operating and general and administrative expenses were lower in
fiscal 1992 as a result of the Trust's efforts to contain these components
of expense. Depreciation and amortization was lower in fiscal 1992 as a
result of the write-off of unamortized tenant improvement costs of $215,000
in fiscal 1991, which related to the bankruptcy of a retail tenant in that
year.
The increase in interest expense was attributable to the addition of a
nonrecourse mortgage note payable in the principal amount of $2.55 million
with interest at 8.5% per annum.
ITEM VIII..
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements required by this Item, together
with the report of the Trust's independent public accountants thereon and
the supplementary financial information required by this Item are included
under Item 14 of this Annual Report.
ITEM IX.. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
No information is required to be reported under this Item.
<PAGE>
PART III
ITEM X.. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Trust has filed with the Securities and Exchange Commission its
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
on March 3, 1994. The additional information required by this Item is
included under the caption "Election of Trustees" of such Proxy Statement
and is incorporated herein by reference.
Executive Officers of the Registrant.
The following sets forth certain information regarding the executive
officers of the Trust:
<TABLE>
<CAPTION>
Name Age Offices Held
- ---- --- ------------
<S> <C> <C>
Charles J. Urstadt 65 Chairman; President and Chief Executive Officer
(since September 1989)
James R. Moore 45 Senior Vice President and Chief Financial Officer
(since September 1989); Secretary (since April 1987)
and Treasurer (since December 1987); Vice President-
Finance and Administration (April 1987 to September
1989); prior to April 1987, Senior Manager, Ernst &
Young
Raymond P. Argila 45 Senior Vice President and Chief Legal Officer (since
June 1990); formerly Senior Counsel, Cushman &
Wakefield, Inc., September 1987 to May 1990 and
associated with Finley, Kumble, Wagner, Heine,
Underberg, Manley, Myerson & Casey from March to June
1987; Vice President and Chief Legal Officer, Pearce,
Urstadt, Mayer & Greer Realty Corp. from January 1984
to March 1987
<PAGE>
Bryant Young 45 Senior Vice President-Asset Management (since
December, 1992); Vice President (June 1986 to
December 1992); Assistant Vice President (February
1986 to June 1986); Associate, Merrill Lynch Hubbard
Co. (May 1985 to January, 1986)
</TABLE>
Trustees are elected annually by the shareholders. Officers of the
Trust are elected annually by the Trustees.
Mr. Urstadt has been the Chairman of the Trustees since 1986, and a
Trustee since 1975. Mr. Urstadt also serves as the President of Urstadt
Property Company, Inc. (formerly Pearce, Urstadt, Mayer & Greer Inc.) and
has served in such capacity for more than five years.
ITEM XI.. EXECUTIVE COMPENSATION.
The Trust has filed with the Securities and Exchange Commission its
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
on March 3, 1994. The information required by this Item is included under
the caption "Compensation and Transactions with Management and Others" of
such Proxy Statement and is incorporated herein by reference.
ITEM XII. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The Trust has filed with the Securities and Exchange Commission its
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
on March 3, 1994. The information required by this Item is included under
the caption "Security Ownership of Certain Beneficial Owners and Management"
of such Proxy Statement and is incorporated herein by reference.
ITEM XIII.. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Trust has filed with the Securities and Exchange Commission its
definitive Proxy Statement for its Annual Meeting of Shareholders to be held
on March 3, 1994. The information required by this Item is included under
the caption "Compensation and Transactions with Management and Others" of
such Proxy Statement and is incorporated herein by reference.
<PAGE>
PART IV
ITEM XIV.. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K.
A. Financial Statements and Financial Statement Schedules
1. Financial Statements --
The consolidated financial statements listed in the
accompanying index to financial statements on Page 20 are
filed as part of this Annual Report.
2. Financial Statement Schedules --
The financial statement schedules required by this Item are
filed with this report and are listed in the accompanying
index to financial statements on Page 20. All other
financial statement schedules are inapplicable.
B. Reports on Form 8-K
None
C. Exhibits.
Listed below are all Exhibits filed as part of this report.
Certain Exhibits are incorporated by reference from documents
previously filed by the Trust with the Securities and Exchange
Commission pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended.
Exhibit
- -------
(3) Articles of Incorporation and By-laws.
-------------------------------------
3.1 Fourth Amended and Restated Declaration of Trust of the Trust, as
amended (incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-8 (No. 33-41408)).
3.2 By-laws of the Trust, as amended (incorporated by reference to
Exhibit 4.2 of the Registrant's Registration Statement on Form S-8
(No. 33-41408)).
<PAGE>
(4) Instruments Defining the Rights of
Security Holders, Including Indentures:
--------------------------------------
4.1 Common Shares: See Exhibit 3.1 hereto.
4.2 Preferred Shares: See Exhibit 3.1 hereto.
4.3 Preferred Share Purchase Rights: See Exhibits 3.1 and 10.4
hereto.
(10) Material Contracts.
------------------
10.1 Form of Indemnification Agreement entered into between the
Registrant and each of its Trustees and for future use with
Trustees and officers of the Trust (incorporated herein by
reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1989).*
10.2 Amended and Restated Change of Control Agreement between the
Registrant and James R. Moore dated November 15, 1990
(incorporated herein by reference to Exhibit 10.3 of the
Registrant's Annual Report on Form 10-K for the year ended October
31, 1990).*
10.3 Rights Agreement between the Trust and The First National Bank of
Boston, as Rights Agent, dated as of October 28, 1988
(incorporated herein by reference to Exhibit 1 of the Registrant's
Current Report on Form 8-K dated October 28, 1988).
10.4 Change of Control Agreement dated as of June 12, 1990 between the
Registrant and Raymond P. Argila (incorporated herein by reference
to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1990).*
10.4.1 Agreement dated December 19, 1991 between the Registrant and
Raymond P. Argila amending the Change of Control Agreement
dated as of June 12, 1990 between the Registrant and Raymond
P. Argila (incorporated herein by reference to Exhibit 10.6.1
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1991).*
<PAGE>
10.5 Change of Control Agreement dated as of December 20, 1990 between
the Registrant and Charles J. Urstadt (incorporated herein by
reference to Exhibit 10.8 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1990).*
10.6 Amended and Restated HRE Properties Stock Option Plan
(incorporated herein by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended October
31, 1991).*
10.7 Letter Agreement dated November 17, 1992 between the Registrant
and Stephen C. Hagen (incorporated herein by reference to Exhibit
10.9 of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1992).*
10.8 Letter Agreement dated December 30, 1992 between the Registrant
and William F. Murdoch, Jr. (incorporated herein by reference to
Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1992).*
(13) Annual Report to Security Holders.
---------------------------------
13.1 The Annual Report to Shareholders for the fiscal year ended
October 31, 1993 is not required to be filed herewith.
(21) Subsidiaries.
------------
21.1 List of Trust's subsidiaries (incorporated by reference to Exhibit
22.1 of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1988).
(23) Consents of Experts and Counsel.
-------------------------------
23.1 The consent of Arthur Andersen & Co. to the incorporation by
reference of their reports included or incorporated by reference
herein in the Registrant's Registration Statements on Form S-3 (2-
77495), Form S-8 (No. 2-93146) and Form S-8 (No. 33-41408) is
filed herewith as part of this report.
*Management contract, compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
<PAGE>
HRE PROPERTIES
Item 14a. INDEX TO FINANCIAL STATEMENT AND
- --------- --------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
Page
Consolidated Balance Sheets at October 31, 1993 and 1992 21
Consolidated Statements of Income for each of the
three years ended October 31, 1993 22
Consolidated Statements of Cash Flows for each of the
three years ended October 31, 1993 23
Consolidated Statements of Shareholders' Equity
for each of the three years ended October 31, 1993 24
Notes to Consolidated Financial Statements 25-32
Report of Independent Public Accountants 33
Schedule
- --------
II Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees
Other Than Related Parties - for the
three years ended October 31, 1993 34
X Supplementary Income Statement Information
for the three years ended October 31, 1993
1993 35
XI Real Estate and Accumulated Depreciation
October 31, 1993 36-39
XII Mortgage Loans on Real Estate - October 31,
1993 40-41
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31,
-------------------
ASSETS 1993 1992
---- -----
Real Estate Investments:
Properties owned - at cost, net
of accumulated depreciation and recoveries $ 99,279 $113,951
Investments in and loans to unconsolidated joint
ventures 250 6,105
Mortgage notes receivable 8,917 8,978
-------- --------
108,446 129,034
Cash and cash equivalents 7,061 4,458
Interest and rent receivable 1,304 1,018
Deferred charges, net of accumulated amortization 1,796 2,232
Other assets 723 1,113
-------- ---------
$119,330 $137,855
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 24,227 $ 31,226
Accounts payable and accrued expenses 847 1,516
Deferred trustees' fees 602 555
Other liabilities 958 1,626
--------- ---------
26,634 34,923
--------- ---------
Minority Interest in Equity of
Consolidated Joint Venture - 14
--------- ---------
Shareholders' Equity:
Preferred shares, without par value;
2,000,000 shares authorized; none issued - -
Common shares, without par value;
unlimited shares authorized; 5,498,454
and 5,466,207 issued in 1993 and 1992,
respectively 123,205 122,590
Less 178,348 and 170,098 common shares held
in treasury, at cost (2,861) (2,705)
Distributions in excess of accumulated net income (27,648) (16,967)
--------- --------
92,696 102,918
--------- --------
$119,330 $137,855
========= ========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------
1993 1992 1991
------ ------ -------
<S> <C> <C> <C>
REVENUES:
Operating leases $13,763 $14,477 $13,612
Financing leases 1,520 1,638 1,744
Interest 1,122 1,232 1,498
Interest from and equity in
losses of unconsolidated
joint ventures (243) (405) 282
------- ------- -------
16,162 16,942 17,136
------- ------- -------
OPERATING EXPENSES:
Real estate operations 6,311 6,426 6,546
Interest 2,494 2,318 2,165
Depreciation and amortization 4,363 4,481 4,738
General and administrative expenses 1,723 1,885 1,966
Trustees' fees and expenses 149 131 122
Consulting fee 145 138 138
Write-down in carrying value of investments 8,285 -- --
----- ----- -----
23,470 15,379 15,675
------ ------ ------
OPERATING (LOSS)INCOME BEFORE
MINORITY INTERESTS (7,308) 1,563 1,461
MINORITY INTERESTS IN RESULTS
OF CONSOLIDATED JOINT VENTURES 15 25 (569)
------- ------- -------
OPERATING (LOSS) INCOME (7,293) 1,588 892
GAINS ON SALES OF PROPERTIES 2,330 -- 2,205
-------- ------- -------
NET (LOSS)INCOME $(4,963) $1,588 $ 3,097
======== ======= =======
NET (LOSS)INCOME PER COMMON SHARE:
Operating (loss) income $ (1.38) $ .30 $ .17
Gains on sales of properties .44 -- .41
-------- ------- ------
Net (Loss)Income $ (.94) $ .30 $ .58
======== ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,296 5,285 5,305
===== ======= ======
The accompanying notes to consolidated financial statements are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended October 31,
-------------------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $(4,963) $ 1,588 $ 3,097
Adjustments to reconcile net (loss)
income to net cash provided
by operating activities:
Depreciation and amortization 4,448 4,568 4,831
Recovery of investment in properties owned
subject to financing leases 1,342 1,225 1,119
Equity in losses of unconsolidated
joint venture 269 506 380
Minority interests in results of
consolidated joint ventures (15) (25) 569
Cash distributions received from
unconsolidated joint venture -- -- 50
Gains on sales of properties (2,330) -- (2,205)
Write-down in carrying value of investments 8,285 -- --
------- ------- --------
7,036 7,862 7,841
Changes in operating assets and liabilities:
(Increase) decrease in interest and
rent receivable (286) 142 70
Increase (decrease) in accounts payable
and accrued expenses (463) 114 (67)
(Increase) decrease in other assets and
other liabilities, net 253 (236) 57
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,540 7,882 7,901
------- ------- --------
INVESTING ACTIVITIES:
Acquisition of properties owned (6,197) (15,881) -
Improvements to existing properties
owned and deferred charges (1,521) (1,564) (2,879)
Investments in and loans to unconsolidated
joint ventures (100) (1,624) (190)
Payment received on loan to unconsolidated
joint venture -- -- 5,445
Proceeds from sales of properties and
mortgage notes receivable 3,231 -- 3,081
Payments received on mortgage notes
receivable 61 53 1,701
Miscellaneous 66 (204) 415
------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,460) (19,220) 7,573
------- -------- --------
FINANCING ACTIVITIES:
Proceeds from mortgage notes 6,600 11,650 -
Dividends paid (5,718) (6,129) (7,418)
Proceeds from sales of additional
common shares and other 459 245 406
Purchases of common shares for treasury -- -- (1,140)
Payments on mortgage notes and other
liability (818) (199) (179)
------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 523 5,567 (8,331)
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,603 (5,771) 7,143
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4,458 10,229 3,086
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,061 $ 4,458 $10,229
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares and per share data)
<TABLE>
<CAPTION>
Common Shares
(Distributions
In Excess of
Treasury Accumulated
Outstanding Issued Shares, Net
Number Amount at Cost Income) Total
<S> <C> <C> <C> <C> <C>
BALANCES - OCTOBER 31, 1990 5,325,821 $121,939 $(1,565) $(8,105) $112,269
Net income - - - 3,097 3,097
Cash dividends declared ($1.40 per share) - - - (7,418) (7,418)
Sale of additional common shares under
dividend reinvestment plan and other 22,506 406 - - 406
Redemption of common shares, held
in treasury (52,000) - (800) - (800)
Purchase of common shares, held
in treasury (19,758) - (340) - (340)
--------- -------- -------- ------- --------
BALANCES - OCTOBER 31, 1991 5,276,569 122,345 (2,705) (12,426) 107,214
Net income - - - 1,588 1,588
Cash dividends declared ($1.16 per share) - - - (6,129) (6,129)
Sale of additional common shares under
dividend reinvestment plan 19,540 245 - - 245
--------- -------- -------- ------- --------
BALANCES - OCTOBER 31, 1992 5,296,109 122,590 (2,705) (16,967) 102,918
Net (loss) - - - (4,963) ( 4,963)
Cash dividends declared ($1.08 per share) - - - (5,718) (5,718)
Sale of additional common shares under
dividend reinvestment plan 32,247 459 - - 459
Common shares acquired in cancellation
of stock option loan (8,250) 156 (156) - -
--------- -------- -------- --------- ---------
BALANCES - OCTOBER 31, 1993 5,320,106 $123,205 $(2,861) $(27,648) $92,696
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 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. Other joint
ventures are accounted for by the equity method of accounting. Under the
equity method, only the Trust's net investment and proportionate share of
income or loss of the joint ventures are reflected in the financial state-
ments. All significant intercompany transactions and balances have been
eliminated in consolidation and in the application of the equity method of
accounting.
ACCOUNTING FOR LEASES
The Trust accounts for its leases of real property in accordance with the
provisions of Financial Accounting Standards Statement No. 13, Accounting
for Leases, as amended. This Statement sets forth specific criteria for
determining whether a lease should be accounted for as an operating lease or
a direct financing lease. In general, the financing lease method applies
where property is under long-term lease to a creditworthy tenant and the
present value of the minimum required lease payments at the inception of a
lease is at least 90% of the market value of the property leased. Other
leases are accounted for as operating leases.
FEDERAL INCOME TAXES
The Trust believes it qualifies and intends to continue to qualify as a real
estate investment trust under the Internal Revenue Code. The Trust has
distributed all of its taxable income for the fiscal years through 1993.
Accordingly, no provision has been made for Federal income taxes in the
accompanying consolidated financial statements.
Taxable income of the Trust prior to the dividends paid deduction for the
years ended October 31, 1993, 1992 and 1991 was approximately $3,900,000,
$2,000,000 and $3,600,000, respectively. The difference between net income
for financial reporting purposes and taxable income results from, among
other things, different methods of accounting for leases, depreciable lives
related to the properties owned, installment gains and accounting differenc-
es related to the Trust's investments in joint ventures.
DEPRECIATION AND AMORTIZATION
The Trust uses the straight-line method for depreciation and amortization.
Acquisition costs and general improvement costs are depreciated over the
estimated useful lives of the properties, which range from 30 to 45 years.
Furniture and equipment are depreciated over their estimated useful lives,
which range from 3 to 20 years. Tenant improvements, deferred leasing costs
and leasehold improvements are amortized over the life of the related
leases. All other deferred charges are amortized over the terms of the
agreements to which they relate.
CAPITALIZATION
The Trust capitalizes all direct costs relating to the acquisition of real
estate investments and costs relating to improvements to properties.
Interest costs and the Trust's direct supervisory costs relating to signifi-
cant improvements are capitalized during the period of construction.
Capitalized interest and direct supervisory costs were not significant in
each of the three years ended October 31, 1993. The Trust also capitalizes
all direct costs relating to its successful leasing activities.
INCOME RECOGNITION
Rental income is generally recognized based on the terms of leases entered
into with tenants. Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Additional rents
which are provided for in leases, are recognized as income when earned and
their amounts can be reasonably estimated. Interest income is recognized as
it is earned. Gains on sales of properties are recorded when the criteria
for recognizing such gains under generally accepted accounting principles
have been met.
<PAGE>
STATEMENTS OF CASH FLOWS
The Trust considers short-term investments with maturities of 90 days or
less to be cash equivalents.
ALLOWANCE FOR POSSIBLE INVESTMENT LOSSES
The Trust periodically reviews its portfolio for other than temporary
declines in values below the amounts at which the investments are recorded
for financial accounting purposes.(See Notes 3 and 4.)
NET INCOME PER COMMON SHARE
Computations of net income per common share are based on the weighted
average number of common shares outstanding during the respective periods.
The additional shares issuable upon exercise of stock options (see Note 7)
have not been included in the computations since their effect is immaterial.
(2) REAL ESTATE INVESTMENTS
The Trust's investments in real estate were composed of the following at
October 31, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
Investments in
and Loans to Mortgage
Properties Unconsolidated Notes 1993 1992
Owned Joint Ventures Receivable Totals Totals
<S> <C> <C> <C> <C> <C>
Retail $ 57,779 $ - $ 4,081 $ 61,860 $ 58,722
Office 22,776 250 4,836 27,862 50,225
Distribution and Service 17,220 - - 17,220 18,583
Undeveloped Land 1,504 - - 1,504 1,504
-------- -------- ------- --------- --------
$ 99,279 $ 250 $ 8,917 $ 108,446 $129,034
======== ======= ======= ========= ========
</TABLE>
The Trust's investments at October 31, 1993, consisted of equity interests
in 22 properties which are located in various regions throughout the United
States and mortgage notes. The following is a summary of the geographic
locations of the Trust's investments at October 31, 1993 and 1992 (in thou-
sands):
1993 1992
-------- --------
Northeast $43,953 $36,935
Southeast 23,225 28,781
Midwest 14,321 12,863
Rocky Mountain 11,954 12,292
Southwest 11,295 11,667
Pacific Coast 2,369 8,380
Pacific Northwest 1,329 18,116
-------- ---------
$108,446 $129,034
======== =========
(3) PROPERTIES OWNED
Space at properties owned by the Trust is generally leased to various
individual tenants under short-and intermediate-term leases which are
accounted for as operating leases. Certain properties have been leased on a
long-term basis to a single tenant; these leases are generally accounted for
as direct financing leases.
<PAGE>
The Trust had a 92% joint venture interest in an office building located in
Portland Oregon, which property was subject to a nonrecourse first mortgage
loan with an outstanding principal balance of $13,540,000. During fiscal
1993, the joint venture elected not to make required debt service payments
in an attempt to renegotiate the mortgage loan with the lender. However,
the first mortgage lender refused to negotiate the terms of the mortgage
loan and commenced foreclosure proceedings against the property. The Trust
wrote down the carrying amount in this property to its estimated fair value
which approximated the related mortgage note payable balance at the time of
foreclosure. This write-down amounted to approximately $2.6 million and is
included in "Write-down in carrying value of investments" in the accompany-
ing consolidated statements of income. The property was sold by judicial
sale in September, 1993, at which time the Trust wrote off both its invest-
ment and the related nonrecourse mortgage note payable. The foreclosure of
the property and the satisfaction of the mortgage note payable represent a
noncash financing activity and therefore is not included in the accompanying
consolidated statement of cash flows for the year ending October 31, 1993.
In 1993, the Trust acquired two properties for an aggregate purchase price
of $6.2 million. The acquisitions were financed principally from available
cash and cash equivalents and a $600,000 nonrecourse first mortgage loan.
At October 31, 1993 and 1992, properties owned consisted of the following
(in thousands):
1993 1992
Properties owned subject to operating leases $ 83,089 $ 96,419
Properties owned subject to direct financing
leases 16,190 17,532
---------- ---------
$ 99,279 $ 113,951
========== ==========
OPERATING LEASES
The components of properties owned subject to operating leases were as
follows (in thousands):
1993 1992
Land $ 16,085 $ 16,621
Buildings and improvements 89,841 107,783
--------- --------
105,926 124,404
Accumulated depreciation (22,837) (27,985)
$ 83,089 $ 96,419
========= =========
Minimum rental payments on noncancellable operating leases become due as
follows: 1994 - $10,047,000; 1995 - $9,477,000; 1996 - $8,658,000; 1997 -
$7,692,000; 1998 - $6,256,000; and thereafter - $23,252,000.
In addition to minimum rental payments, certain tenants are required to pay
additional rental amounts based on increases in property operating expenses
and/or their share of the costs of maintaining common areas. Certain of the
Trust's leases provide for the payment of additional rent based on a per-
centage of the tenant's revenues. Such additional rents are included in
rental income and aggregated approximately $559,000, $529,000 and $587,000
in 1993, 1992 and 1991, respectively.
<PAGE>
DIRECT FINANCING LEASES
The components of properties owned subject to direct financing leases were
as follows (in thousands):
1993 1992
Total remaining minimum lease payments
to be received $14,328 $17,194
Assumed residual values of leased property 6,675 6,675
Unearned income (4,813) (6,337)
------- --------
Investment in property subject to financing
leases $16,190 $17,532
======= =======
Original cost of property subject to financing
leases $26,737 $26,737
======= =======
Assumed residual values are based upon a depreciated cost concept using
estimated useful lives and thus do not contain an element of appreciation
which may result by reason of inflation or other factors.
Minimum lease payments receivable on direct financing leases become due at a
rate of $2,866,000 in 1994, $2,810,000 in 1995, $2,454,000 in 1996,
$1,734,000 in 1997, $1,468,000 in 1998 and $2,996,000 thereafter.
Annual rental payments of approximately $2.5 million are received from one
tenant which leases distribution space under direct financing lease arrange-
ments.
(4) INVESTMENTS IN AND LOANS TO UNCONSOLIDATED JOINT VENTURES
The Trust's investments in and loans to unconsolidated joint ventures at
October 31, 1993 and 1992 were as follows (in thousands):
1993 1992
------ ------
Investment $ 250 $5,305
Loans -- 800
------- ------
$ 250 $6,105
======= ======
In 1993, the Trust agreed to sell its 50% interest in an unconsolidated
joint venture to its partner for $250,000. The joint venture owns an office
building in Santa Ana, California. In this connection, the Trust recorded a
charge of $4,885,000 to reflect the Trust's investment in the unconsolidated
joint venture at its net realizable value which charge is included in
"Write-down in carrying value of investments" in the accompanying consoli-
dated statements of income.
The Trust also wrote off the $800,000 loan to unconsolidated joint venture
which became non-performing as to principal and interest during 1993.
Subsequent to fiscal 1993, the joint venture was liquidated following the
foreclosure actions taken by the first mortgage lender.
<PAGE>
The following presents summarized information about the Trust's interest
from and equity in net losses of unconsolidated joint ventures for the years
ended October 31, 1993, 1992 and 1991 (in thousands):
1993 1992 1991
Years Ended October 31, ----- ----- -----
Revenues:
Rental income $3,660 $4,066 $4,444
Other income 1 5 11
------ ------- -------
Total combined revenues 3,661 4,071 4,455
Expenses:
Mortgage interest (1,361) (1,826) (1,973)
Real estate operating (2,161) (2,228) (2,289)
Depreciation and amortization (1,347) (1,395) (1,387)
------- -------- ---------
Total combined expenses (4,869) (5,449) (5,649)
------- -------- ---------
Combined net losses $ (1,208) $(1,378) $(1,194)
========= ======== =========
Trust's share of net losses of
unconsolidated joint ventures,
net of suspended losses of $335,
$183 and $217, respectively $ (269) $ (506) $ (380)
Interest from unconsolidated joint venture 26 101 662
------- -------- --------
Interest from and equity in net losses of
unconsolidated joint ventures $ (243) $ (405) $ (282)
======== ========= ========
(5) MORTGAGE NOTES RECEIVABLE
The Trust's portfolio of mortgage notes receivable consists of fixed rate
mortgages and one participating mortgage. The participating mortgage
($4,836,000 at October 31, 1993 and 1992) entitles the Trust to a fixed rate
of interest plus a participation in increases in the property's income and
market value. The components of the mortgage notes receivable at October 31,
1993 and 1992 were as follows (in thousands):
1993 1992
Remaining principal balance $10,066 $10,176
Unamortized discounts to reflect market
interest rates at time of acceptance of notes (1,149) (1,198)
------- -------
$ 8,917 $ 8,978
======= =======
Principal payments on mortgage notes receivable become due as follows:
1994 - $121,000; 1995 - $132,000; 1996 - $144,000; 1997 - $158,000; 1998 -
$172,000; thereafter - $ 9,339,000.
At October 31, 1993, the remaining principal balance was due from four
borrowers. The amount due from the largest individual borrower at October
31, 1993 was $4,836,000.
The contractual interest rates on mortgage notes receivable range from 9% to
14%, and the weighted average interest rate of all such mortgages was 12% at
October 31, 1993 and 1992.
<PAGE>
(6) MORTGAGE NOTES PAYABLE AND BANK Line of Credit
Mortgage notes payable consisted of the following at October 31, 1993 and
1992 (in thousands):
1993 1992
10 3/4 % note with installments of principal and
interest of $133,000 due monthly
until maturity in 2002.(See Note 3.) $ -- $13,579
8 1/4% note with installments of principal and
interest of $4,731 due monthly until
maturity in 1998. 599 --
9% note with interest only due monthly; the
principal is due at maturity in 1997. 9,100 9,100
8 1/2% note with installments of principal and
interest of $19,607 due monthly
until maturity in 1997. 2,527 2,547
9% note with interest only due monthly;
the principal is due at maturity
in 1997. 6,000 6,000
Variable rate note with principal installments
of $16,419 plus interest at prime minus
1/4% due monthly until maturity in 2000.(See below). 6,000 --
------- --------
$24,226 $31,226
Mortgage notes payable are collateralized by various real estate investments
having a net carrying value of $39,902,000 as of October 31, 1993. All
mortgage notes payable are nonrecourse except the variable rate note in the
amount of $6 million for which the Trust has guaranteed the repayment of
$1.5 million of principal and all unpaid and accrued interest thereon. In
connection with the variable rate note, the Trust has entered into an
interest rate swap agreement in the notional amount of $6 million. Under
the terms of the swap agreement, the Trust has agreed to pay interest at an
annual rate of 7.55% on the notional amount in exchange for interest at
prime minus 1/4% on the notional amount. This agreement which matures in
2000, effectively fixes the interest rate at 7.55% for the term of the note.
Scheduled principal payments during the next five years are as follows:
1994 - $226,000; 1995 - $228,000; 1996 - $232,000; 1997 - $17,764,000;
1998 - $760,000; and thereafter - $5,016,000.
The Trust has available a $5 million unsecured line of credit with a
commercial bank, which expires on September 1, 1994. In connection with
this arrangement, the Trust has agreed to maintain certain deposit account
balances with the bank. Loans bear interest at rates tied to the prime
rate. The Trust pays a fee of 1/4% per annum of the unused portion of a $5
million line of credit commitment. No amounts were outstanding at October
31, 1993 and 1992.
Interest paid for the years ended October 31, 1993, 1992 and 1991 was,2,4-
94,000, $2,318,000 and $2,165,000 respectively.
<PAGE>
(7) STOCK OPTIONS AND SHAREHOLDER RIGHTS PLAN
At October 31, 1993, 463,875 shares of the Trust's authorized but unissued
stock were reserved for issuance to key employees of the Trust and certain
non-employee trustees under the Trust's stock option plan. Options are
granted at fair market value on the date of the grant and are generally
exercisable in installments over a maximum period of four years from the
date of grant. A summary of stock options at October 31, 1993 and 1992 is as
follows:
Number Option Price
of Shares Per Share
Outstanding at October 31,
1993 270,917 $11.38-$27.00
1992 330,192 $11.38-$27.00
Exercisable at October 31, 1993 106,084 $11.38-$27.00
No accounting recognition is given to stock options until they are exer-
cised, at which time the proceeds
are credited to shareholders' equity. During the years ended October 31,
1993 and 1992, no options were exercised.
Stock appreciation rights may be issued in tandem with the stock options, in
which case, either the option or the right can be exercised. Such rights
entitle the grantee to payment in cash or a combination of common shares and
cash equal to the increase in the value of the shares covered by the option
to which the stock appreciation right is related. The plan limits the value
of the stock appreciation rights to 150% of the option price for the related
shares. The excess of the market price of the shares over the exercise price
of vested options is charged to expense. For the years ended October 31,
1993, l992 and 1991, there were no amounts charged to expense.
The Board of Trustees adopted a Preferred Share Purchase Rights Plan in
1988. In this connection, the Board of Trustees declared a dividend distri-
bution of one preferred share purchase right for each outstanding common
share. The rights, which expire on November 13, 1998, are not currently
exercisable. When they are exercisable, the holder will be entitled to
purchase from the Trust one one-hundredth of a share of a newly-established
Series A Participating Preferred Stock at a price of $65 per one one-hundre-
dth of a preferred share, subject to certain adjustments. The rights will
become exercisable 10 days after a person or group either acquires 20%
(acquiring person) or more of the Trust's shares, or announces an offer the
consummation of which would result in such person or group owning 30% or
more of the shares. Following any such 20% acquisition, shareholders other
than the acquiring person will be entitled to use the rights to purchase
common shares of the Trust at 50% of market value.
If the Trust is involved in a merger or other business combination at any
time after the rights become exercisable, the rights will be modified to
entitle a holder other than the acquiring person to purchase a number of
shares of common stock of the acquiring company having a market value of
twice the exercise price of each right.
(8) SALES OF PROPERTIES
In February 1993, the Trust sold a retail property net leased to a single
tenant for a cash price of $3,250,000 resulting in a gain on sale of
property of $2,330,000.
In October 1991, the Trust sold a mortgage note receivable for a cash price
of $3.1 million, which approximated its carrying value. The mortgage note
was secured by retail property which was sold by the Trust in 1986. This
transaction resulted in the recognition of the remaining deferred gain on
the sale of the property of approximately $1,800,000 and is included in
gains on sales of properties in the accompanying financial statements.
<PAGE>
(9) COMMITMENTS, CONTINGENCY AND OTHER MATTERS
In November 1993, the Trust obtained a commitment from a major commercial
bank for a seven-year $3 million non-recourse first mortgage loan at an
annual interest rate of 7.56%. The loan will be secured by retail property
having a book value of approximately $5 million.
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.
The Trust leases its executive office space under an agreement which expires
in 1995. Annual base rents are subject to escalation as provided for in the
lease. Minimum annual rentals are $292,700 through the end of the lease.
Rent expense for the fiscal years ended October 31, 1993, 1992 and 1991 was
$401,000, $384,000, and $343,000, respectively.
Consulting fees were paid to a trustee (and former officer) pursuant to an
employment and consulting agreement between the trustee and the Trust which
agreement expires in November 1993. Certain trustees have elected to defer
payment of fees earned as trustees until their termination as a trustee or
revocation of their election. Deferred fees earn interest at rates set
annually by the Board of Trustees, currently 7.5% per annum.
(10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
The unaudited quarterly results of operations for the years ended October 31, 1993 and 1992 are as
follows
(in thousands, except per share data):
<CAPTION>
Year Ended October 31, 1993 Year Ended October 31, 1992
Quarter Ended Quarter Ended
Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31
------ ------ ------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 4,382 $ 4,441 $ 3,497 $3,841 $3,986 $3,934 $4,139 $4,884
======= ======== ======== ====== ====== ====== ====== ======
Income (loss)
before gains
on sales of
properties $ 94 $(3,060) $(4,648) $ 322 $ 142 $ 150 $ 291 $ 1,005
Gains on sales
of properties - 2,330 - - - - - -
Net Income (loss) $ 94 $ (730) $(4,648) $ 322 $ 142 $ 150 $ 291 $ 1,005
======= ======= ======== ====== ======= ======= ======= =======
Per share:
Income (loss) before
gains on sales of
properties $ .02 $ (.58) $ (.88) $ .06 $ .03 $ .03 $ .06 $ .18
Gains on sales of
properties - .44 - - - - - -
--------- -------- -------- ------- -------- --------- --------- ----------
Net Income (loss) $ .02 $ (.14) $ (.88) $ .06 $ .03 $ .03 $ .06 $ .18
======== ======== ======== ======= ======== ======== ======== ==========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of HRE Properties:
We have audited the accompanying consolidated balance sheets of
HRE Properties (the Trust), a Massachusetts voluntary association, and
subsidiary as of October 31, 1993 and 1992, and the related consolidated
statements of income, cash flows and shareholders' equity for each of the
three years in the period ended October 31, 1993. These financial statements
and the schedules referred to below are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evi-
dence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HRE Properties and
subsidiary as of October 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended October 31, 1993 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the accompa-
nying index to financial statements are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN & CO.
New York, New York
December 22, 1993
<PAGE>
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
HRE PROPERTIES
Three Years Ended October 31, 1993
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Col.A Col.B Col.C Col.D Col.E
- ----------------------------------------------------------------------------------------------------
Balance at
Balance at DEDUCTIONS End of Period (c)
Beginning of Amounts Amounts Not
Name of Debtor Period Additions Collected Written off CurrentCurrent
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1991:
William F. Murdoch Jr. (a) $104 $0 $104 $0 $0 $0
Stephen Co. Hagen (a) (b) 156 0 0 0 0 156
$260 $0 $104 $0 $0 $156
YEAR ENDED OCTOBER 31, 1992:
Stephen C. Hagen (a) (b) $156 $0 $0 $0 $156 $0
YEAR ENDED OCTOBER 31, 1993:
Stephen C. Hagen (a) (b) $156 $0 $156 $0 $0 $0
NOTES:
(a) The amounts receivable are notes that bear interest at a rate equal to the base rate to the First
National Bank of Boston. The interest rate is adjusted quarterly. Interest is payable each March 31
and September 30.
(b) The notes, as amended in 1990, were nonrecourse, were due in December, 1992 and were secured by
an aggregate of 8,250 shares of the Trust's common shares, issued under the Trust's stock option
plan. In December 1992, pursuant to an arrangement with Mr. Hagen, the notes were cancelled in
consideration for the transfer of such 8,250 common shares to the Trust.
(c) Amounts receivable at end of periods have been deducted from shareholders' equity in the Trust's
consolidated balance sheets.
</TABLE>
<PAGE>
SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION
HRE PROPERTIES
Three Years Ended October 31, 1993
(In thousands)
- ----------------------------------------------------------------------------
COL. A COL. B
- ----------------------------------------------------------------------------
Item Charged to
Costs and Expenses
- ----------------------------------------------------------------------------
Year Ended October, 31
---------------------------
1993 1992 1991
------ ------ ------
1. Maintenance and repairs $ 619 $ 470 $ 547
2. Amortization of deferred charges $ 866 $ 725 $ 790
3. Real estate taxes $1,735 $1,636 $1,569
4. Royalties None None None
5. Advertising costs (a) (a) (a)
- -------------------------------------
(a) Amounts for advertising are not presented as such amounts are less than
1% of total revenues.
<PAGE>
HRE PROPERTIES
OCTOBER 31, 1993
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
Cost Capitalized Subsequent
Initial Cost to Trust to Acquisition
--------------------- ---------------------------
Building & Carrying Building &
Description and Location Encumbrances Land Improvements Costs Improvements
- ------------------------ ------------ ---- ------------ --------- -------------
REAL ESTATE SUBJECT TO OPERATING
LEASES (Note (a)):
- --------------------------------
OFFICE BUILDINGS:
<S> <C> <C> <C> <C> <C>
Denver, Colorado $0 $1,155 $10,257 $0 $1,017
Houston, Texas 0 900 2,758 0 1,971
Greenwich, Connecticut 600 199 795 0 0
Southfield, Michigan 0 1,000 10,280 0 675
---- ------ -------- -- -------
600 3,254 24,090 0 3,663
SHOPPING CENTERS:
Clearwater, Florida 6,000 3,689 17,273 0 2,633
Springfield,
Massachusetts 0 1,372 3,656 0 7,410
Farmingdale, New York 0 1,029 4,176 0 0
Somers, New York 2,527 821 2,600 0 2
Wayne, New Jersey 9,100 2,492 9,966 0 56
----- ------- ------ --- -------
17,627 9,403 37,671 0 10,101
DEPARTMENT STORES:
Tempe, Arizona 0 378 1,518 0 970
Mesa, Arizona 0 440 1,631 0 989
Manassas, Virginia 0 283 1,723 0 42
------ ----- ------ ---- -------
0 1,101 4,872 0 2,001
INDUSTRIAL SERVICE
CENTERS:
Syracuse, New York 0 253 530 0 0
Memphis, Tennessee 0 149 297 0 0
---- ---- ----- ---- ---
0 402 827 0 0
MIXED USE FACILITY:
RETAIL/OFFICE:
Newington,
New Hampshire 0 421 1,997 0 4,619
---- ---- ------ --- ------
LAND:
Newington,
New Hampshire 0 305 0 0 0
Denver, Colorado 0 1,199 0 0 0
---- ------ --- ---- -----
0 1,504 0 0 0
TOTAL REAL ESTATE
SUBJECT TO -------- -------- ------- ----- ---------
OPERATING LEASES $18,227 $16,085 $69,457 $0 $20,384
-------- -------- -------- ----- ---------
HRE PROPERTIES
OCTOBER 31, 1993
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
(In thousands)
COL. E COL. F COL. G/H COL. I
------------------------------------------------------------------
Life on which-
depreciation for
Amount at which Carried buildings and
at Close of Period improvements
--------------------- Accumulated Date in latest income
Building & Depreciation Constructed statements is
Description and Location Land Improvements Total (Note (b)) or Acquired computed (note (d))
- ------------------------ ------ ----------- ------- ---------- ------------ -------------------
REAL ESTATE SUBJECT TO
OPERATING
LEASES (Note (a)):
- ----------------------
OFFICE BUILDINGS:
<S> <C> <C> <C> <C> <C> <C>
Denver, Colorado $1,155 $11,274 $12,429 $2,764 1983 45
Houston, Texas 900 4,729 5,629 2,380 1975 40
Greenwich, Connecticut 199 795 994 4 1993 31.5
Southfield, Michigan 1,000 10,955 11,955 3,083 1983 35
------ ------- ------- -------
3,254 27,753 31,007 8,231
SHOPPING CENTERS:
Clearwater, Florida 3,689 19,906 23,595 4,557 1985 40
Springfield, Massachusetts 1,372 11,066 12,438 4,184 1970 40
Farmingdale, New York 1,029 4,176 5,205 16 1993 31.5
Somers, New York 821 2,602 3,423 109 1992 31
Wayne, New Jersey 2,492 10,022 12,514 255 1992 31
------ ------- ------- -------
9,403 47,772 57,175 9,121
------ ------- ------- -------
DEPARTMENT STORES:
Tempe, Arizona 378 2,488 2,866 1,185 1970 40
Mesa, Arizona 440 2,620 3,060 1,245 1971 40
Manassas, Virginia 283 1,765 2,048 1,088 1972 40
----- ------ ------ ------
1,101 6,873 7,974 3,518
INDUSTRIAL SERVICE
CENTERS:
Syracuse, New York 253 530 783 128 1973/1985 40
Memphis, Tennessee 149 297 446 71 1973/1985 40
---- ---- ---- ----
402 827 1,229 199
MIXED USE FACILITY:
RETAIL/OFFICE:
Newington, New Hampshire 421 6,616 7,037 1,768 1979 40
LAND:
Newington, New Hampshire 305 0 305 0 1981
Denver, Colorado 1,199 0 1,199 0 1988
------ ------ ------ -------
1,504 0 1,504 0
------ ------ ------ -------
TOTAL REAL ESTATE
SUBJECT TO
OPERATING LEASES $16,085 $89,841 $105,926 $22,837
-------- -------- --------- --------
</TABLE>
<PAGE>
HRE PROPERTIES
OCTOBER 31, 1993
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
- ------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
- -------------------------------------------------------------------------------
Cost Capitalized Subsequent
Initial Cost to Trust To Acquisition
------------------------------------ -------------------------
Building & Carrying Building &
Description and Location Encumbrances Land Improvements Costs Improvements
- ------------------------------------------- ----- ------------ --------- ------------
REAL ESTATE SUBJECT TO FINANCING
LEASES (Notes (c) and (e)):
- --------------------------------
INDUSTRIAL DISTRIBUTION CENTERS:
(Leased to Chrysler Corporation)
<S> <C> <C> <C> <C> <C>
Orlando, Florida $0 $717 $2,206 $0 $0
St. Louis, Missouri 0 523 2,253 0 2,363
Memphis, Tennessee 0 265 2,426 0 0
Dallas, Texas 6,000 193 2,266 0 4,195
Denver, Colorado 0 174 1,783 0 0
Beaverton, Oregon 0 168 2,263 0 0
Deferred Lease
Renewal Rights 0 0 0 0 764
------- -------- ------- ---- -----
6,000 2,040 13,197 0 7,322
------- -------- ------ ---- ------
INDUSTRIAL DISTRIBUTION
CENTER:
(Leased to Firestone Tire
and Rubber Company):
Albany, Georgia 0 835 3,343 0 0
------- ------ ------- --- -------
TOTAL REAL ESTATE SUBJECT TO
FINANCING LEASES $6,000 $2,875 $16,540 $0 $7,322
------- ------ ------- --- -------
HRE PROPERTIES
OCTOBER 31, 1993
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (continued)
- ------------------------------------------------------------------
COL. E COL. F COL. G/H
------------------------------------------------------
Amount at Which Carried
at Close of Period Net Investment
Remaining in Properties
Minimum Subject to Date
Lease Residual Unearned Financing Constructed
Payments Value Income Leases or Acquired
-------- ------- ------- ------- ------------
- --------------------------------
REAL ESTATE SUBJECT TO FINANCING
LEASES (Notes (c) and (e)):
INDUSTRIAL DISTRIBUTION CENTERS:
(Leased to Chrysler Corporation)
<S> <C> <C> <C> <C> <C>
Orlando, Florida $845 $1,348 $ (411) $1,782 1970
St. Louis, Missouri 3,261 1,116 (1,104) 3,323 1970
Memphis, Tennessee 891 959 (377) 1,473 1970
Dallas, Texas 4,982 841 (1,523) 4,300 1970
Denver, Colorado 595 863 (248) 1,030 1970
Beaverton, Oregon 740 814 (298) 1,256 1970
Deferred Lease Renewal Rights 0 764 0 764 1981
------- ------ ------- -------
11,314 6,575 (3,961) 13,928
------- ------ ------- ------
INDUSTRIAL DISTRIBUTION
CENTER:
(Leased to Firestone Tire
and Rubber Company):
Albany, Georgia 3,014 100 (852) 2,262 1972
------ ---- ----- ------
TOTAL REAL ESTATE SUBJECT TO
FINANCING LEASES $14,328 $6,675 ($4,813) $16,190
------- ------ --------- -------
</TABLE>
<PAGE>
HRE PROPERTIES
OCTOBER 31, 1993
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION(Continued)
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES: 1993 1992 1991
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
(a) RECONCILIATION OF PROPERTIES
OWNED SUBJECT TO OPERATING
LEASES
Balance at beginning of year $124,404 $108,168 $106,879
Property improvements during
the year 1,091 1,210 1,470
Property acquired during the
year 6,198 15,881 -
HRE PROPERTIES
OCTOBER 31, 1993
SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION(Continued)
- ----------------------------------------------------------------
NOTES: 1993 1992 1991
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
(a) RECONCILIATION OF PROPERTIES
OWNED SUBJECT TO OPERATING
LEASES
Balance at beginning of year $124,404 $108,168 $106,879
Property improvements during
the year 1,091 1,210 1,470
Property acquired during the
year 6,198 15,881 -
Reclassification of property
subject to financing leases to
property subject to operating
leases - - 435
Property sold or disposed of
during the year (25,767) (855) (616)
-------- --------- ---------
Balance at end of year $105,926 $124,404 $108,168
======== ======== =========
(b) RECONCILIATION OF ACCUMULATED
DEPRECIATION
Balance at the beginning of year $27,985 $25,170 $21,846
Provision during the year charged
to income 3,497 3,670 3,940
Property sold or
disposed of during the year (8,645) (855) (616)
-------- -------- --------
Balance at end of year $22,837 $27,985 $25,170
======= ======= ========
(c) RECONCILATION OF PROPERTIES
OWNED SUBJECT TO FINANCING
LEASES-
Balance at beginning of year $17,532 $18,758 $20,312
Recovery of investment in
property owned subject to
financing leases (1,342) (1,226) (1,119)
Reclassification of property
subject to financing leases
to property subject to
operating leases (435)
--------- --------- ---------
Balance at end of year $16,190 $17,532 $18,758
======= ======= =======
(d) Tenant improvement costs are depreciated over the life of the related leases, which range from 3
to 25 years.
(e) The difference between the initial costs to the Trust and costs capitalized subsequent to
acquisition and the amount at which carried at close of period represents accumulated depreciation
for the period prior to classification of these assets as financing leases and accumulated recoveries
for the period thereafter.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 31, 1993
SCHEDULE XII- MORTGAGE LOANS ON REAL ESTATE
- --------------------------------------------------------------------------- ------------------
COL. A COL. B COL. C COL.D COL. E COL. F
- --------------------------------------------------------------------------- ------------------
Face Amount Carrying Amount
Final of Mortgages of Mortgages
Interest Rate Maturity Periodic (Note (b) ) (Note (a) )
Description Coupon Effective Date Payment Terms (In Thousands) (In Thousands)
- -----------------------------------------------------------------------------------------------
I. FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (NOTE (c) and (d):
<S> <C> <C> <C> <C> <C> <C>
Department Store:
Clayton County, Georgia 9% 9% 10-30-1999 Principal payable $143 $143
In full at maturity.
Retail Store: Interest paid currently.
Fall River,
Massachusetts 9% 14% 04-01-2013 Payable in monthly 1,490 953
installments of $11,920.
Retail Store:
Erie, Pennsylvania 9% 14% 07-01-2013 Payable in monthly 1,351 866
installments of $10,787.
Department Store:
Riverside, California 9% 12% 01-15-2013 Payable in quarterly 2,307 1,714
installments of $54,313.
Office Building:
Syracuse, New York 10.5% 10.5% 04-01-2010 Principal payable 4,836 4,836
In full at maturity.
Interest is payable
monthly at 8%; an
additional 2.5% is due
monthly under certain
circumstances.
------ -----
Total First Mortgage Loans 10,127 8,512
------ -----
II. SECOND MORTGAGE LOAN ON BUSINESS PROPERTY (Notes (c) and (e) ):
Retail Store:
Riverside, California 9% 12% 01-15-2001 Payable in quarterly
installments of $21,135. 750 405
-------- ----
TOTAL MORTGAGE LOANS ON REAL ESTATE $10,877 $8,917
</TABLE>
<PAGE>
<TABLE>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (continued)
NOTES TO SCHEDULE XII
<CAPTION>
Year Ended October 31,
------------------------------------------
Reconciliation of Mortgage
Loans on Real Estate
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
(a) Balance at beginning of
period: $8,978 $9,031 $11,608
Additions during current period:
Recognition of deferred gains
on sales of properties --- --- 2,295
Deductions during current period:
Collections of principal and
amortization of discounts (61) (53) (1,701)
Sales of mortgage note receivable --- --- (3,171)
------------ ----------- -------------
Balance at close of period: $8,917 $8,978 $9,031
============ ============ =============
(b) The aggregate cost basis for Federal income tax purposes is equal to the face amount of the
mortgages.
(c) At October 31,1993 no mortgage loans were delinquent in payment of currently due principal or
interest.
(d) There are no prior liens for any of the First Mortgage Loans on Real Estate.
(e) The First Mortgage Loan on this property is held by the Trust.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /S/ CHARLES J. URSTADT
-----------------------
Charles J. Urstadt
Chairman and President
Dated: January 28, 1994
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ CHARLES J. URSTADT January 28, 1994
Charles J. Urstadt
President and Trustee
(Principal Executive Officer)
/s/ JAMES R. MOORE January 28, 1994
James R. Moore
Senior Vice President - Chief
Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
/s/ E. VIRGIL CONWAY January 28, 1994
E. Virgil Conway
Trustee
/s/ ROBERT R. DOUGLASS January 28, 1994
Robert R. Douglass
Trustee
/s/ PETER HERRICK January 28, 1994
Peter Herrick
Trustee
/s/ GEORGE H. C. LAWRENCE January 28, 1994
George H. C. Lawrence
Trustee
/s/ WILLIAM F. MURDOCH, JR. January 28, 1994
William F. Murdoch, Jr.
Trustee
/s/ PAUL D. PAGANUCCI January 28, 1994
Paul D. Paganucci
Trustee
<PAGE>
/s/ JAMES O. YORK January 28, 1994
James O. York
Trustee
<PAGE>
INDEX TO EXHIBITS
Exhibit
(3) Articles of Incorporation and By-laws.
3.1 Fourth Amended and Restated Declaration of Trust of the Trust, as
amended (incorporated by reference to Exhibit 4.1 of the Regist-
rant's Registration Statement on Form S-8 (No. 33-41408)).
3.2 By-laws of the Trust, as amended (incorporated by reference to
Exhibit 4.2 of the Registrant's Registration Statement on Form S-
8 (No. 33-41408)).
(4) Instruments Defining the Rights of
Security Holders, Including Indentures:
4.1 Common Shares: See Exhibit 3.1 hereto.
4.2 Preferred Shares: See Exhibit 3.1 hereto.
4.3 Preferred Share Purchase Rights: See Exhibits 3.1 and 10.5 here-
to.
(10) Material Contracts.
10.1 Form of Indemnification Agreement entered into between the Regis-
trant and each of its Trustees and for future use with Trustees
and officers of the Trust (incorporated herein by reference to
Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1989).*
10.2 Amended and Restated Change of Control Agreement between the
Registrant and James R. Moore dated November 15, 1990 (incorpo-
rated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the year ended October 31, 1990).*
10.3 Rights Agreement between the Trust and The First National Bank of
Boston, as Rights Agent, dated as of October 28, 1988 (incorpo-
rated herein by reference to Exhibit 1 of the Registrant's
Current Report on Form 8-K dated October 28, 1988).
10.4 Change of Control Agreement dated as of June 12, 1990 between the
Registrant and Raymond P. Argila (incorporated herein by refer-
ence to Exhibit 10.7 of the Registrant's Annual Report on Form
10-K for the year ended October 31, 1990).*
10.4.1 Agreement dated December 19, 1991 between the Registrant and
Raymond P. Argila amending the Change of Control Agreement dated
as of June 12, 1990 between the Registrant and Raymond P. Argila
(incorporated herein by reference to Exhibit 10.6.1 of the
Registrant's Annual Report on Form 10-K for the year ended Octo-
ber 31, 1991).*
10.5 Change of Control Agreement dated as of December 20, 1990 between
the Registrant and Charles J. Urstadt (incorporated herein by
reference to Exhibit 10.8 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1990).*
10.6 Amended and Restated HRE Properties Stock Option Plan (incorpo-
rated herein by reference to Exhibit 10.8 of the Registrant's
Annual Report on Form 10-K for the year ended October 31, 1991).*
<PAGE>
10.7 Letter Agreement dated November 17, 1992 between the Registrant
and Stephen C. Hagen (incorporated herein by reference to Exhibit
10.9 of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1992).*
10.8 Letter Agreement dated December 30, 1992 between the Registrant
and William F. Murdoch, Jr. (incorporated herein by reference to
Exhibit 10.10 of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1992).*
(13) Annual Report to Security Holders.
13.1 The Annual Report to Shareholders for the fiscal year ended
October 31, 1993 is not required to be filed herewith.
(21) Subsidiaries.
21.1 List of Trust's subsidiaries (incorporated by reference to
Exhibit 22.1 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1988).
(23) Consents of Experts and Counsel.
23.1 The consent of Arthur Andersen & Co. to the incorporation by
reference of their reports included or incorporated by reference
herein in the Registrant's Registration Statements on Form S-3
(2-77495), Form S-8 (No. 2-93146) and Form S-8 (No. 33-41408) is
filed herewith as part of this report.
*Management contract, compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this annual report on Form 10-K for the year ended
October 31, 1993 of HRE Properties, in its previously filed Registration
Statement on Form S-3 (2-77495) and its previously filed Registration
Statements on Form S-8 (No. 2-93146 and No. 33-41408), and to the reference
to our Firm under the caption "Experts" in each of said Registration
Statements.
ARTHUR ANDERSEN & CO.
New York, New York
January 26, 1994
