FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended April 30, 1996
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: 5,377,023
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 April
30, 1996 and 1995,
Six months ended April 30, 1996 and 1995.
Consolidated Balance Sheets-April 30, 1996 and October 31, 1995.
Consolidated Statements of Cash Flows-Six months ended
April 30, 1996 and 1995.
Consolidated Statements of Shareholders' Equity-Six months
ended April 30, 1996 and 1995.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Page 2 of 10
HRE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 30, October 31,
1996 1995
ASSETS
Real Estate Investments:
Properties owned - at cost, net of accumulated
depreciation and recoveries $ 88,665 $ 85,966
Properties available for sale - at cost, net of
accumulated depreciation and recoveries 44,090 46,212
Mortgage notes receivable 3,751 3,937
136,506 136,115
Cash and cash equivalents 2,483 7,097
Deposits held in trust 7,307 --
Interest and rent receivable 3,300 2,691
Deferred charges, net of accumulated amortization 2,102 1,913
Other assets 1,352 1,283
$ 153,050 $149,099
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank loans $ 6,750 $ 2,500
Mortgage notes payable 51,618 57,212
Accounts payable and accrued expenses 1,135 1,014
Deferred trustees' fees 453 436
Other liabilities 1,651 1,355
61,607 62,517
Shareholders' Equity:
Preferred shares, without par value;
2,000,000 shares authorized; none issued -- --
Common shares, without par value; unlimited shares
authorized;
5,555,371 and 5,550,421 issued on April 30, 1996
and October 31, 1995, respectively 123,982 123,844
Less 178,348 common shares held in treasury,
at cost (2,861) (2,861)
Distributions in excess of accumulated net income (29,678) (34,401)
91,443 86,582
$153,050 $149,099
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
Page 3 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Six Months Ended Three Months Ended
April 30 April 30
1996 1995 1996 1995
Revenues:
Operating leases $11,361 $9,586 $5,614 $5,007
Financing leases 342 644 142 318
Interest and other 528 545 321 281
12,231 10,775 6,077 5,606
Operating Expenses:
Property expenses 4,533 3,855 2,290 2,000
Interest 2,606 2,512 1,277 1,364
Depreciation and amortization 2,525 2,329 1,266 1,202
General and administrative expenses 788 745 286 340
Trustees' fees and expenses 86 90 42 31
10,538 9,531 5,161 4,937
Income before Gains on Sales
of Properties 1,693 1,244 916 669
Gains on Sales of Properties 6,252 5,502 -- 5,502
Net Income $ 7,945 $ 6,746 $ 916 $ 6,171
Net Income Per Common Share $ 1.48 $ 1.26 $ .17 $ 1.15
Weighted Average Number of
Common Shares Outstanding 5,370 5,344 5,372 5,347
The accompanying notes to consolidated financial statements are an
integral part of these statements.
Page 4 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended April 30,
1996 1995
Operating Activities:
Net income $ 7,945 $ 6,746
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,525 2,364
Recovery of investment in properties owned
subject to financing leases 481 788
Gains on sales of properties (6,252) (5,502)
(Increase) in interest and rent receivable (609) (297)
Increase in accounts payable and accrued expenses 138 503
Decrease in other assets and other
liabilities, net 224 253
Net Cash Provided by Operating Activities 4,452 4,855
Investing Activities:
Acquisitions of properties owned -- (19,366)
Improvements to properties owned and
deferred charges,net (4,594) (1,338)
Increase in contract deposits (230) --
Proceeds from sale of mortgage note receivable -- 3,533
Payments received on mortgage notes receivable 186 36
Miscellaneous -- 22
Net Cash (Used in) Investing Activities (4,638) (17,113)
Financing Activities:
Proceeds from bank loan 5,250 --
Proceeds from mortgage notes 6,000 11,250
Dividends paid (3,222) (2,993)
Proceeds from sales of additional common shares 138 129
Payments on mortgage notes payable and bank loan (12,594) (201)
Net Cash Provided by
(Used in) Financing Activities (4,428) 8,185
Net (Decrease) In Cash and Cash Equivalents (4,614) (4,073)
Cash and Cash Equivalents at Beginning of Period 7,097 8,738
Cash and Cash Equivalents at End of Period $ 2,483 $ 4,665
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 5 of 10
HRE PROPERTIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(In thousands, except shares and per share data)
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Shares
(Distributions
Treasury In Excess of
Outstanding Issued Shares, Accumulated
Number Amount at Cost Net Income) Total
Balances - October 31, 1994 5,341,696 $123,507 $(2,861) $(32,165) $88,481
Net Income -- -- -- 6,746 6,746
Cash dividends paid ($.56 per share) -- -- -- (2,993) (2,993)
Sale of additional common shares under
dividend reinvestment plan 9,434 129 -- -- 129
Balances - April 30, 1995 5,351,130 $123,636 $(2,861) $(28,412) $92,363
Balances - October 31, 1995 5,367,226 $123,844 $(2,861) $(34,401) $86,582
Net income -- -- -- 7,945 7,945
Cash dividends paid ($.60 per share) -- -- -- (3,222) (3,222)
Sale of additional common shares under
dividend reinvestment plan 9,797 138 -- -- 138
Balances - April 30, 1996 5,377,023 $123,982 $(2,861) $(29,678) $91,443
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
Page 6 of 10
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"), 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 six-month periods ended April 30, 1996 are not
necessarily indicative of the results that may be expected for
the year ending October 31, 1996. 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, 1995.
Sales of Property
In January 1996, the Trust sold a net leased retail property for
$7,075,000 resulting in a gain on the sale of the property for
financial accounting purposes of $6,252,000. The sale was
structured as a tax-deferred exchange under Section 1031 of the
Internal Revenue code and the proceeds from the sale are included
in the accompanying consolidated balance sheet in "Deposits held
in Trust". The proceeds are expected to be used to complete the
purchase of one or more replacement properties within six months
of the sale closing date. 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 gain on sale will
be included in the Trust's taxable income for fiscal 1996.
In May, 1996 the Trust sold an office building having a net
carrying amount of approximately $3,200,000 at April 30, 1996 for
net proceeds of $3,550,000.
Mortgage Notes Payable and Bank Lines of Credit
In December 1995, a 9.5% mortgage note payable in the principal
amount of $11,250,000, due in 2000, was refinanced from proceeds
of a mortgage note in the principal amount of $6,000,000, due in
2002, with interest tied to the prime rate of LIBOR (7.25% at
April 30, 1996) and borrowings under one of the Trust's existing
unsecured lines of credit.
Other Matter
In May, 1996, the Trust's Board of Trustees authorized a program
to purchase up to one million of the Trust's common shares over
the next two to three years. The Trust expects to use available
cash as well as proceeds from the sales of its non-core assets.
The repurchase program is subject to postponement or termination
at any time in light of prevailing market conditions and other factors.
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's liquidity and capital resources include its
cash and cash equivalents, funds available from bank borrowings
and long-term mortgage debt and sales of real estate investments.
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 April 30,
1996, the Trust had cash and cash equivalents of $2.5 million
compared to $7.1 million at October 31, 1995. The Trust also has
$15 million in unsecured revolving lines of credit with two major
commercial banks, of which $7.7 million is available at April 30,
1996. The credit lines are available to finance the acquisition,
management or development of commercial real estate, refinance of
indebtedness and for working capital purposes. The revolving
credit lines expire in 1996 and outstanding borrowings
($6,750,000 outstanding at April 30, 1996), may be repaid from
available cash, proceeds of debt refinancings or sales of properties.
The Trust may also request that the time for repayment be extended by
the banks. In June, 1996, the Trust repaid $1,500,000 of outstanding
borrowings from available cash. It is the Trust's intent to
renew its credit lines as they expire.
Long-term debt consists of mortgage notes payable totalling
$51.6 million. The mortgage loans bear interest at fixed rates
that range from 7.5% to 9.75%. In December, 1995, the Trust
repaid a 9.5 % mortgage note payable in the principal amount of
$11,250,000 due in 2000, from proceeds of a $6,000,000 mortgage
note due in 2002 and $5,250,000 of borrowings from one of the
Trust's credit lines.
The Trust also invests in its existing properties and, during
fiscal 1996, spent approximately $4.6 million for capital
improvements and leasing costs, including $3.3 million to
complete the construction of a tenant's retail store at one of
the Trust's properties.
In fiscal 1995, the Board of Trustees expanded and refined the
strategic objectives of the Trust to refocus the real estate
portfolio into one of self-managed retail properties located in
the Northeast and authorized a plan to sell the non-core
properties of the Trust in the normal course of business over the
next several years. 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
January, 1996, the Trust sold a non-core retail property for
$7,075,000 realizing a gain on sale of the property of
$6,252,000. At April 30, 1996, the non-core properties totalled
ten properties, having an aggregate net book value of
$44,090,000 and comprise all of the Trust's office (with
the exception of the Trust's headquarters), distribution and
Page 8 of 10
service facilities, and certain retail properties located
outside of the Northeast region of the United States. In May, 1996,
the Trust sold an office property,having a net carrying amount of
approximately $3.2 million, for net proceeds of $3.55 million.
In May, 1996, the Trust's Board of Trustees authorized a program
to purchase up to one million of the Trust's common shares over
the next two to three years. The Trust expects to use available
cash as well as proceeds from the sales of its non-core assets.
The repurchase program is subject to postponement or termination
at any time in light of prevailing market conditions and other
factors.
Funds from Operations
Funds from Operations is defined as net income (computed in
accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of
properties, plus depreciation and amortization The Trust
believes the level of Funds from Operations to be an appropriate
supplemental financial measure of its operating performance.
Funds from Operations does not represent cash flows from
operations as defined by generally accepted accounting
principles, is not indicative that cash flows are adequate to
fund all cash needs and is not considered to be an alternative to
net income as defined by generally accepted accounting
principles. The Trust considers recoveries of investment in
properties owned subject to financing leases to be analogous to
amortization for purposes of calculating Funds from Operations.
In the six-month period ended April 30, 1996, Funds from
Operations increased 6.4% to $4,570,000 from $4,296,000 in the
year ago period. The improvement is primarily the result of the
positive effect of the Trust's recent retail property investments
in fiscal 1995 and new leasing at several of the Trust's
properties.
Results of Operations
Revenues
Total revenues increased 13% to $12,231,000 in the first
six months of fiscal 1996, compared to $10,775,000 a year ago.
Operating lease revenues increased by $1,775,000 or 18% in the
first six-months of fiscal 1996 primarily from the additional
rents of two recently acquired retail properties located in
Danbury, Connecticut and Carmel, New York and new leasing at
several of the Trust's owned properties. The Danbury property,
known as Danbury Square, was acquired by the Trust in January
1995 and the Carmel property was acquired in October 1995.
Operating lease income from office properties increased 6% from
the year ago period reflecting higher occupancy at the office
buildings.
As of April 30, 1996, four discount retailers occupying space at
certain of the Trust's retail properties have filed for bankruptcy
protection. The Trust has reviewed each situation and has
developed responses to assist in containing any short-term losses
from these bankruptcies. In one instance, the lease is guaranteed by a
credit worthy guarantor and in another, the Trust purchased the property
fully anticipating a vacancy resulting from the tenant's bankruptcy. A
third tenant has historically reported good store sales and
currently pays a modest rent. In the last instance, the tenant
has filed for liquidation. While the Trust cannot predict the
ultimate outcomes, it will monitor events in fiscal 1996.
Page 9 of 10
Expenses
Total expenses amounted to $10,538,000 in the Trust's first
six-months of fiscal 1996 compared to $9,531,000 for the same
period last year. The largest expense category is property
expenses of the Trust's real estate operating properties.
Property expenses totalled $4,533,000 for the first six months of
fiscal 1996, compared to $3,855,000 for the same period in 1995.
For properties owned during both 1996 and 1995 expenses in
fiscal 1996 increased principally from higher snow removal costs
and other maintenance costs. Property expenses for the Trust's
properties acquired in fiscal 1995 increased expenses by $453,000
in fiscal 1996.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The date of the Annual Meeting was March 13, 1996.
(b) Shareholders voted on the following proposal:
"To act upon a Shareholder proposal to declassify the
Board of Trustees so that all directors are elected
annually".
1,377,070 common shares were voted in the affirmative; 2,364,147
common shares were voted against and; 144,606 common shares
abstained in vote.
Item 6 Exhibits and Reports on Form 8-K
Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the three-month period ended April 30, 1996.
Exhibits
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
James R. Moore
Executive Vice President/
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
By: /s/ CHARLES J. URSTADT
Charles J. Urstadt
Chairman, President and
Chief Executive Officer
Dated : June 13, 1996
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1996
<CASH> 2483000
<SECURITIES> 0
<RECEIVABLES> 3300000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 155940000<F1>
<DEPRECIATION> 30811000
<TOTAL-ASSETS> 153050000
<CURRENT-LIABILITIES> 7885000
<BONDS> 51618000
<COMMON> 123982000
0
0
<OTHER-SE> (32539000)
<TOTAL-LIABILITY-AND-EQUITY> 153050000
<SALES> 0
<TOTAL-REVENUES> 12231000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7932000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2606000
<INCOME-PRETAX> 1693000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1693000
<DISCONTINUED> 0
<EXTRAORDINARY> 6252000<F2>
<CHANGES> 0
<NET-INCOME> 7945000
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
<FN>
<F1>This item consists of Real Estate Investments Owned
<F2>This item consists of Gains on Sales of Properties
</FN>
</TABLE>
