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 July 31, 1995 Commission File Number 1-6309
HRE PROPERTIES
(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS 04-2458042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
321 Railroad Avenue, Greenwich, CT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 863-8200
The number of shares of Registrant's common shares outstanding as of the close
of period covered by this report: 5,362,451
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing
requirements for the past 90 days.
Yes X No
THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 12 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 12 INCLUSIVE,
OF WHICH THIS PAGE IS 1.
INDEX
HRE PROPERTIES
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Consolidated Statements of Income--Three months ended July 31, 1995 and
1994,
Nine months ended July 31, 1995 and 1994.
Consolidated Balance Sheets--July 31, 1995 and October 31, 1994.
Consolidated Statements of Cash Flows--Nine months ended July 31, 1995 and 1994.
Consolidated Statements of Shareholders' Equity--Nine months ended
July 31, 1995 and 1994.
Notes to Consolidated Financial Statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K
SIGNATURES
Page 2 of 12
HRE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
July 31, October 31,
1995 1994
ASSETS
Real Estate Investments:
Properties at cost, net of accumulated
depreciation and recoveries $ 77,519 $ 114,197
Properties available for sale 48,488 6,434
Mortgage notes receivable 3,971 7,763
129,978 128,394
Cash and cash equivalents 4,325 8,738
Deposits held in trust 9,961 --
Interest and rent receivable 2,219 2,343
Deferred charges, net of
accumulated amortization 2,210 2,108
Other assets 1,106 976
$149,799 $142,559
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities:
Bank loan $ 5,000 $ 5,000
Mortgage notes payable 57,315 46,386
Accounts payable and accrued expenses 1,193 1,024
Deferred trustees fees 429 521
Other liabilities 1,205 1,147
65,142 54,078
Shareholders Equity:
Preferred shares, without par value;
2,000,000 shares authorized;
none issued
Common shares, without par value;
unlimited shares authorized;
5,540,799 and 5,520,044 issued on
July 31, 1995 and October 31, 1994,
respectively 123,733 123,507
Less 178,348 common shares held in
treasury, at cost (2,861) (2,861)
Distributions in excess of
accumulated net income (36,215) (32,165)
84,657 88,481
$149,799 $142,559
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
Page 3 of 12
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Nine Months Ended Three Months Ended
July 31 July 31
1995 1994 1995 1994
Revenues:
Operating leases $14,746$12,232 $5,160$4,217
Financing leases 963 1,055 319 343
Interest and other 882 779 337 259
16,591 14,066 5,816 4,819
Operating Expenses:
Property expenses 5,803 5,473 1,948 1,835
Interest 3,887 2,678 1,375 965
Depreciation and amortization 3,532 3,001 1,203 1,061
General and administrative expenses 1,247 1,091 502 336
Trustees fees and expenses 130 123 40 38
Writedown in carrying value
of investments 7,000 7,000
21,599 12,366 12,068 4,235
Income (Loss) before
Gains on Sales of Properties (5,008) 1,700 (6,252) 584
Gains on Sales of Properties 5,502 82 -- --
Net Income (Loss) $ 494 $1,782$(6,252)$ 584
Net Income (Loss) per Common Share $ .09 $ .34$ (1.17)$ .11
Weighted Average Number of
Common Shares Outstanding 5,348 5,326 5,353 5,333
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Page 4 of 12
<TABLE>
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<S> <C> <C>
Nine Months Ended July 31,
1995 1994
Operating Activities:
Net income $ 494 $ 1,782
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,620 3,058
Recovery of investment in properties owned
subject to financing leases 1,106 1,092
Minority interest in results of
consolidated joint venture 42 (13)
Gains on sales of properties (5,502) (82)
Writedown in carrying
value of investments 7,000
Changes in operating assets and liabilities:
(Increase) decrease in interest
and rent receivable 124 (661)
Increase (decrease) in accounts payable
and accrued expenses 77 261
(Increase) decrease in other assets
and other liabilities, net (191) (1,035)
Net Cash Provided by
Operating Activities 6,770 4,402
Investing Activities:
Acquisitions of properties owned (19,476) (25,816)
Improvements to existing properties
owned and deferred charges ( 1,760) (1,451)
Proceeds from sale of
mortgage note receivable 3,400__
Proceeds from sales of properties
and investment in
unconsolidated joint venture __ 705
Payments received on mortgage
notes receivable 42 50
Miscellaneous 31
Net Cash Used in Investing Activities(17,794)(26,481)
Financing Activities:
Proceeds from bank loan -- 5,000
Proceeds from mortgage notes 11,250 18,000
Dividends paid (4,544) (4,367)
Proceeds from sales of
additional common shares 226 235
Payments on mortgage notes payable (321) (257)
Net Cash Provided by
Financing Activities 6,611 18,611
Net (Decrease) In Cash
and Cash Equivalents (4,413) (3,468)
Cash and Cash Equivalents
at Beginning of Period 8,738 7,061
Cash and Cash Equivalents
at End of Period $ 4,325$ 3,593
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Page 5 of 12
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)
(In thousands, except shares and per share data)
(Distributions
Common Shares Treasury In Excess of
Outstanding Issued Shares, Accumulated
Number Amount at Cost Net Income) Total
Balances October 31, 1993 5,320,106 $123,205 $(2,861) $(27,648) $92,696
Net Income 1,782 1,782
Cash dividends paid
($.82 per share) (4,367) (4,367)
Sale of additional common
shares under dividend
reinvestment plan 13,406 194 194
Common shares issued upon
exercise of stock options 3,542 41 41
Balances July 31, 1994 5,337,054 $123,440 $(2,861) $(30,233) $90,346
Balances October 31, 1994 5,341,696 $123,507 $(2,861) $(32,165) $88,481
Net income 494 494
Cash dividends paid
($.85 per share) (4,544) (4,544)
Sale of additional common
shares under dividend
reinvestment plan 14,087 194 194
Common shares issued
upon exercise of
stock options 6,668 32 32
Balances July 31, 1995 5,362,451 $123,733 $(2,861) $(36,215)$ 84,657
The accompanying notes to consolidated financial statements are an integral
part of these statements.
Page 6 of 12
HRE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of HRE Properties ("the Trust"), its wholly-owned
subsidiary, and a joint venture in which the Trust has the ability
to control the affairs of the venture.
All significant intercompany transactions and balances have been
eliminated. The financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Results of operations for the three-month and nine-month periods
ended July 31, 1995 are not necessarily indicative of the results that
may be expected for the year ending October 31,1995.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included
n the Trust's annual report for the fiscal year ended
October 31, 1994.
Properties Available for Sale
Properties available for sale are carried at the lower of cost or net
realizable value less estimated costs of disposal. A property is classified
as available for sale upon determination by the Trustees that the property
is to be marketed for sale in the normal course of business over the
next several years.
In September 1995, the Trustees authorized a plan to sell non-core properties
of the Trust over the next several years. The non-core properties total
eleven properties and consist of all of the Trust's office and
distribution and service properties and certain retail properties located
outside of the Northeast region of the U.S. These properties, having a net
carrying amount of $48,488,000, have been classified as Properties available
for sale in the accompanying Consolidated Balance Sheet at July 31, 1995.
As a result of this change in investment strategy
with respect to the non-core properties, the Trust recorded a charge in the
accompanying 1995 consolidated statement of income of $7,000,000 to
adjust the carrying value of properties available for sale to the
lower of cost or net realizable value.
Page 7 of 12
HRE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) - CONTINUED
Properties
In January 1995, the Trust acquired a 193,000 square foot retail shopping
center located in Danbury, Connecticut for a purchase price of
$19.25 million. The property was acquired subject to
a nonrecourse first mortgage loan of $11.25 million. The mortgage loan
bears interest at an annual rate of 9.5% for a five-year term with interest
only due monthly.
Sales of Properties
In April, 1995, the Trust sold three industrial properties net leased
to a single tenant for net cash proceeds of $9,827,000 resulting in gains
on sales of the properties for financial
accounting purposes of $5,502,000. The sales were structured as tax-deferred
exchanges under Section 1031 of the Internal Revenue Code and as a result,
the proceeds from the sales are being held on deposit.
The proceeds are expected to be used to complete the purchase of one or more
replacement properties within six months of the sale transaction closing
dates. In the event that the Trust does not complete the exchange
of properties within the prescribed period the proceeds
will be paid to the Trust and the gains on sales will be included in the Trust's
taxable income for fiscal year 1995.
The Trust has signed a contract to sell a retail property having a net
carrying amount of $850,000 for a cash price of approximately $7.1 million.
Bank Line of Credit
In June 1995, the Trust renewed one of its unsecured lines of credit with a
commercial bank, for a period of one year. The line of credit in the
amount of $10 million was amended to provide for the
issuance of letters of credit, as part of the total line of credit, up to
a maximum of $4,300,000. Borrowings under the line of credit are at
a rate of prime plus 1/2% per annum. There were no amounts outstanding
under this line of credit at July 31, 1995.
Commitment
In August 1995, the Trust signed a contract to purchase a 126,000 square foot
retail shopping center located in Carmel, New York. The property is to be
acquired at a purchase price of $7,350,000. The transaction is scheduled
to be completed in fiscal 1995 and is expected to be funded from the
proceeds of a tax-deferred exchange of properties.
Page 8 of 12
PART I - FINANCIAL INFORMATION (continued)
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources:
The Trust meets its liquidity requirements primarily by generating cash 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 July 31, 1995, the Trust had $4.3 million in cash and cash
equivalents. Current liabilities, including current installments of
principal payments of mortgage notes payable and short-term
borrowings under unsecured bank lines of credit, were approximately
$6.1 million. The bank lines of credit are available to finance the
acquisition, management or development of commercial real estate and
a portion of such credit lines is available for working
capital purposes. The credit lines totalling $17 million will expire at
various periods in 1996. One line of credit for $10 million was amended
to provide for the issuance of letters of credit up to
$4.3 million. Outstanding borrowings, if any, may be repaid from proceeds of
additional debt financings or sales of properties.
The Trust may also request that the time for
repayment be extended by the banks. It is the Trust's intent to renew
these credit lines as they expire. At July 31, 1995 outstanding borrowings
under one of the credit line facilities amounted to $5,000,000.
Long-term debt consisted of nine mortgage notes payable totalling $57.3 million,
of which $91,000 in principal payments are due in fiscal 1995.
In September 1995, the Board of Trustees of the Trust authorized a plan to
sell non-core properties of the Trust in the normal course of business over the
next several years. The non-core properties total eleven properties, having
an aggregate net carrying amount of $48,488,000,
and comprise all of the Trust's office, distribution and service facilities,
and certain retail properties located outside of the Northeast region
of the United States. As a result of this change in investment strategy,
with respect to the non-core properties, the Trust recorded a
charge in the statement of income of $7,000,000 to write down the
carrying value of two of the non-core properties to their estimated
net realizable values.
Page 9 of 12
The Trustees have refined and expanded the Trust's strategic objective to
refocus the real estate portfolio into one of self-managed retail
properties located in the Northeast. During the last four years, the Trust
has selectively sold or disposed of properties which the Trust
determined no longer fit into its strategic plan and redeployed the proceeds
of sale and new mortgage debt into primarily retail properties.
Since fiscal 1992, the Trust has acquired nearly $66 million of retail
properties in the Northeast.
The Trust believes that economic conditions in the real estate markets where
the Trust's non-core properties are located have improved and that
opportunities to sell those properties over the next several years
have also improved. In this connection, the Trust has received a
letter of intent from a purchaser to sell one of its distribution and
service properties with a net carrying amount of $1.2 million for a
cash price of approximately $3.22 million. The Trust has also
contracted to sell a retail property with a net carrying amount of $850,000
for a sale price of $7.1 million. The transactions are expected to close
in fiscal 1995 or shortly thereafter. The proceeds from such sales may be
used to make additional real estate investments and/or reduce outstanding
mortgage loan indebtedness or meet dividend distribution requirements.
In April, 1995, the Trust sold three industrial properties net leased to a
single tenant for net cash proceeds of $9,827,000 resulting in gains on
sales of the properties of $5,502,000. The sales were structured
as tax-deferred exchanges under Section 1031 of the Internal Revenue
and as a result, the proceeds from the sales are being held on deposit.
The proceeds are expected to be used to complete the
purchase of one or more replacement properties within six months of
the sale transaction closing dates. In the event that the Trust does not
complete the exchange of properties within the prescribed period
the proceeds will be paid to the Trust and the gains on sales will be
included in the Trust's taxable income for fiscal year 1995.
The Trust also expects to make additional real estate
investments periodically. 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 August 1995, the Trust entered into a contract to
purchase a 126,000 sf shopping
center located in Carmel, New York at a purchase price of $7,350,000.
The Trust expects to use
the proceeds from the tax-deferred exchanges referred to above
to fund the acquisition costs. In
January 1995, the Trust also acquired a 193,000 square foot
shopping center located in Danbury,
Connecticut. The property was acquired at a purchase price of
$19.25 million and funded through a
first mortgage loan of $11.25 million and available cash. The first
mortgage bears interest at 9.5%
per annum and matures in five years. The Trust also invests in its
existing properties and, during
the first nine months of fiscal 1995, spent approximately $1.7 million on
its properties for capital
improvements and leasing costs.
Page 10 of 12
Results of Operations
Revenues
Total revenues for the three-month and nine-month periods
ended July 31, 1995 were $5,816,000
and $16,591,000 compared to $4,819,000 and $14,066,000 for
the similar periods in fiscal 1994.
Operating lease revenues increased by $2,514,000 or 20.5%
in the first nine-months of fiscal
1995 compared to the prior year's period primarily from the additional
rents of the Trust's retail
properties located in Danbury,
Connecticut and Meriden, Connecticut. The Danbury, Connecticut
property known as Danbury Square Shopping Center
was acquired by the Trust in January, 1995 and
the Meriden, Connecticut property known as Townline
Shopping Center was acquired in December,
1993. Rents from all retail properties increased 25.2%
to $10,647,000 in the first nine-months of
fiscal 1995. Gross rents from office properties increased
by $386,000 or 10.6% to $4,017,000 in
the first nine-months of fiscal 1995 from the year ago
period principally due to higher occupancy
at the Trust's Denver Colorado office building where the
Trust signed leases with new tenants
totaling more than 60,000 square feet of space last year.
Operating Expenses
Total expenses were $21,599,000 in the first nine months of fiscal 1995
compared to $12,366,000 for the same period last year. In connection
with a change in investment strategy, the Trust
recorded a charge of $7,000,000 in fiscal 1995 to reflect the carrying
amounts of two non-core properties at their estimated
net realizable values. (See Liquidity and Capital Resources for
further discussion). The largest expense category is property
operating expenses of the Trust's properties. Property expenses
totalled $5,803,000 for the first nine months of fiscal 1995,
compared to $5,473,000 for the same period in 1994. Expenses for properties
owned in both fiscal 1995 and 1994 were virtually unchanged,
while expenses for the Danbury property acquired earlier
this year contributed additional expenses of $327,000 for the first nine
months of fiscal 1995.
Interest expense rose to $3,887,000 for the first nine months of
fiscal 1995 from the addition of three mortgage notes payable
totaling $30.7 million obtained in fiscal 1994 and early fiscal
1995. The mortgage notes are at annual fixed interest rates ranging
from 7.5% to 9.75%. Interest on outstanding borrowings under
the Trust's lines of credit are tied to the prime rate or LIBOR and
increased to 8.4375% at April 30, 1995 from 6 3/8% the year ago period.
At July 31, 1995 the Trust had outstanding borrowings of $5,000,000
under such lines of credit.
Depreciation and amortization increased to $3,532,000 in the first nine
months of fiscal 1995 from $3,001,000 for the same
period in fiscal 1994 principally from the acquisition of three
properties at an aggregate cost of $45.2 million in fiscal
1994 and 1995 and capital expenditures
for tenant improvements and deferred charges of $3.1 million
during the same periods.
Page 11 of 12
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
The Registrant filed with the Commission a Current Report on Form 8K dated
May 11, 1995. Such report referred under Item 2 therein
to the acquisition of real property by the Registrant.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
HRE PROPERTIES
(Registrant)
By: /s/
James R. Moore
Senior Vice President/
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
By: /s/
Charles J. Urstadt
Chairman, President and
Chief Executive Officer
Dated : September 14, 1995
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 4325000
<SECURITIES> 0
<RECEIVABLES> 2219000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 159032000<F1>
<DEPRECIATION> 29054000
<TOTAL-ASSETS> 149799000
<CURRENT-LIABILITIES> 6193000
<BONDS> 57315000
<COMMON> 123733000
0
0
<OTHER-SE> (39076000)
<TOTAL-LIABILITY-AND-EQUITY> 149799000
<SALES> 0
<TOTAL-REVENUES> 16591000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10712000
<LOSS-PROVISION> 7000000<F3>
<INTEREST-EXPENSE> 3887000
<INCOME-PRETAX> (5008000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5008000)
<DISCONTINUED> 0
<EXTRAORDINARY> 5502000<F2>
<CHANGES> 0
<NET-INCOME> 494000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>This item consists of Real Estate Investments Owned
<F2>This item consists of Gains on Sales of Properties
<F3>This item consists of Writedown in carrying value of
investmentS
</FN>
</TABLE>
