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 January 31, 1995 Commission File Number 1-6309
HRE PROPERTIES
(Exact Name of Registrant as Specified in Charter)
MASSACHUSETTS 04-245-8042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 Fifth Avenue, 21st Floor, New York, NY 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 642-4800
The number of shares of Registrant's common shares outstanding as of the
close of period covered by this report: 5,346,529
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 10 PAGES, NUMBERED
CONSECUTIVELY FROM 1 TO 10 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
January 31, 1995 and 1994.
Consolidated Balance Sheets--January 31, 1995 and October 31, 1994.
Consolidated Statements of Cash Flows--Three months ended
January 31, 1995 and 1994.
Consolidated Statements of Shareholders' Equity--Three months
ended January 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 10
HRE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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January 31, October 31,
1995 1994
ASSETS (Unaudited)
Real Estate Investments:
Properties owned at cost, net of accumulated depreciation and
recoveries $ 139,222 $ 120,631
Mortgage notes receivable 3,996 7,763
143,218 128,394
Cash and cash equivalents 3,884 8,738
Interest and rent receivable 2,476 2,343
Deferred charges, net of accumulated amortization 2,350 2,108
Other assets 908 976
$ 152,836 $142,559
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities:
Mortgage notes payable and bank loan $ 62,534 $ 51,386
Accounts payable and accrued expenses 1,012 1,024
Deferred trustees fees 414 521
Other liabilities 1,250 1,147
65,210 54,078
Shareholders Equity:
Preferred shares, without par value; 2,000,000 shares authorized;
none issued
Common shares, without par value; unlimited shares authorized;
5,524,877 and 5,520,044 issued on January 31, 1995 and
October 31, 1994, respectively 123,572 123,507
Less 178,348 common shares held in treasury, at cost (2,861) (2,861)
Distributions in excess of accumulated net income (33,085) (32,165)
87,626 88,481
$152,836 $142,559
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
Page 3 of 10
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended January 31,
1995 1994
Revenues:
Operating leases $4,579 $3,740
Financing leases 326 360
Interest 264 262
5,169 4,362
Operating Expenses:
Real estate operations 1,855 1,702
Interest 1,148 754
Depreciation and amortization 1,127 927
General and administrative expenses 405 397
Trustees fees and expenses 59 36
4,594 3,816
Net Income $ 575 $ 546
Net Income Per Common Share: $ .11 $ .10
Weighted Average Number of Common Shares Outstanding 5,342 5,320
The accompanying notes to consolidated financial statements are an integral part of these statements.
Page 4 of 10
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended January 31,
1995 1994
Operating Activities:
Net income $ 575 $ 546
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,144 945
Recovery of investment in properties owned
subject to financing leases 389 358
Minority interest in net loss of consolidated joint venture (2) (2)
2,106 1,847
Changes in operating assets and liabilities:
(Increase) in interest and rent receivable (133) (340)
Increase (decrease) in accounts payable and accrued expenses (119) 377
(Increase) decrease in other assets and other liabilities, net 156 (253)
Net Cash Provided by Operating Activities 2,010 1,631
Investing Activities:
Acquisitions of properties owned (19,366) (25,158)
Improvements to existing properties owned and deferred charges (983) (502)
Proceeds from sale of mortgage note receivable and interest in
unconsolidated joint venture 3,750 250
Payments received on mortgage notes receivable 17 17
Miscellaneous -- (18)
Net Cash Used in Investing Activities (16,582) (25,411)
Financing Activities:
Proceeds from mortgage notes and bank loan 11,250 23,000
Dividends paid (1,495) (1,436)
Proceeds from sales of additional common shares 65 79
Payments on mortgage notes (102) (57)
Net Cash Provided by Financing Activities 9,718 21,586
Net (Decrease) In Cash and Cash Equivalents (4,854) (2,194)
Cash and Cash Equivalents at Beginning of Year 8,738 7,061
Cash and Cash Equivalents at End of Year $ 3,884 $ 4,867
The accompanying notes to consolidated financial statements are an integral part of these statements.
Page 5 of 10
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HRE PROPERTIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except shares and per share data)
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Common Shares
(Distributions
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) $92,696
Net Income 546 546
Cash dividends declared ($.27 per share) (1,436) (1,436)
Sale of additional common shares under
dividend reinvestment plan 5,499 79 79
Balances January 31, 1994 5,325,605 $123,284 $(2,861) $(28,538) $91,885
Balances October 31, 1994 5,341,696 $123,507 $(2,861) $(32,165) $88,481
Net income 575 575
Cash dividends declared ($.28 per share) (1,495) (1,495)
Sale of additional common shares under
dividend reinvestment plan 4,833 65 65
Balances January 31, 1995 5,346,529 $123,572 $(2,861) $(33,085) $87,626
The accompanying notes to consolidated financial statements are an integral part of these statements.
Page 6 of 10
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HRE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying unaudited consolidated financial statements
include the accounts of HRE Properties ("the Trust"),
its wholly-owned subsidiary, and certain joint ventures
where the Trust has the ability to control the affairs of the
venture. All significant intercompany transactions and balances
have been eliminated. The financial statements have been prepared
in accordance with generally accepted accounting
principles for interim financial information. Certain information
and footnote disclosures normally included in
financial statements prepared in accordance with
generally accepted accounting principles have been omitted.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for the
three-month ended January 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 in the Trust's annual report for the fiscal year
ended October 31, 1994.
2. The Trust accounts for its leases of real property in accordance
with the provisions of Financial Accounting Standards Board
Statement No. 13, "Accounting for Leases." This statement sets forth
specific criteria for determining whether a lease should be
accounted for as an operating lease or a financing lease.
In general, the financing lease method applies where property is
under long-term lease to a credit worthy tenant and the present
value of the minimum required lease payments is at least 90%
of the value of the property. Other leases are accounted for as
operating leases.
3. In 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.
4. In December 1994, the Trust sold a participating mortgage note
receivable for net proceeds of $3,750,000 which amount approximated
the Trust's net carrying value of the asset.
Page 7 of 10
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
funds from 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 fee 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 January 31, 1995, the Trust had $3.9
million in cash and cash equivalents. The Trust also has available $17
million in unsecured lines of credit with two major commercial banks.
Long-term debt consisted of nine mortgage notes payable totalling $57.5
million, of which $411,000 in principal payments are
due in fiscal 1995. Current liabilities, including current installments of
principal payments of mortgage notes payable and short-term
borrowings under credit lines, were approximately
$6.4 million. The credit lines 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 expire at various periods in 1995 and 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 in 1995.
During the Trust's first fiscal quarter, the Trust sold a
participating mortgage note receivable with a face amount of $4,836,000.
The mortgage note receivable was written down to its net realizable value of
$3,750,000 in fiscal 1994 and sold at such amount.
The Trust has entered into contracts to sell four of its
distribution and service properties with an aggregate carrying value of
$4.5 million to a single purchaser for an aggregate sale price of $13.5
million. The Trust has also contracted to sell a 106,000 square
foot retail property with a net carrying value of $.8 million for $7.5
million. The transactions are expected to close in fiscal 1995.
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.
The Trust 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 January 1995, the Trust acquired a 193,000
square foot shopping center 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 quarter of fiscal 1995, spent approximately $.9 million
on its properties for capital improvements and leasing costs.
Page 8 of 10
Results of Operations:
The Trust defines "funds from operations" as net income excluding
gains on sales of properties, 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
appropriate supplemental financial measure of the Trust's operating
performance. Funds from operations for the three-month period ended
January 31, 1995 increased 14% to $2,106,000 from the comparable period in
fiscal 1994. The improvement is primarily the result of the positive
effect of the Trust's new retail property investments in fiscal 1994.
Revenues:
Operating lease revenues increased by approximately $839,000
or 22.4% in the first three-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 was acquired
by the Trust in January 1995 and the Meriden property was acquired in
December 1993. Operating lease income from office properties increased
by $180,000 or 15% from the year ago period reflecting higher
occupancy at the Trust's Denver Colorado office building where the Trust
signed leases totaling more than 60,000 square feet of space last year.
Expenses:
Total expenses were $4,595,000 in the Trust's first quarter of
fiscal 1995 compared to $3,516,000 in the prior period. The largest
expense category is operating expenses of the Trust's real estate
operating properties. Operating expenses totalled $1,855,000 for the first
three months of fiscal 1995, compared to $1,704,000 for the same period in
1994. Expenses increased less than 3% for properties owned during
both 1994 and 1993. Operating expenses for the Trust's new retail properties
added expenses of $1,231,000 in fiscal 1995.
Interest expenses rose to $1,148,000 for the first three months of
fiscal 1995 due to the addition of several new mortgage notes payable
aggregating $33.7 million during fiscal 1994 and 1995. The mortgage notes
bear fixed interest at annual rates ranging from 7.5% to 9.75%.
Page 9 of 10
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
The Registrant filed with the Commission a Current Report on Form 8-K
dated November 7, 1994. Such report referred under Item 5 therein to a
contract to sell four(4) industrial properties owned by the Registrant.
The Registrant also filed with the Commission a Current Report on
Form 8-K dated January 6, 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 : March 15, 1995
Page 10 of 10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 3884000
<SECURITIES> 0
<RECEIVABLES> 2476000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 166142000<F1>
<DEPRECIATION> (26920000)
<TOTAL-ASSETS> 152836000
<CURRENT-LIABILITIES> 1012000
<BONDS> 62534000
<COMMON> 120711000
0
0
<OTHER-SE> (33085000)
<TOTAL-LIABILITY-AND-EQUITY> 152836000
<SALES> 0
<TOTAL-REVENUES> 5169000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2319000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1148000
<INCOME-PRETAX> 575000
<INCOME-TAX> 0
<INCOME-CONTINUING> 575000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<FN>
<F1>This item consists of Real Estate Investments:Properties Owned
</FN>
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