<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10643
_____________________
HALLWOOD REALTY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
_______________________
DELAWARE 75-2313955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3710 RAWLINS
SUITE 1500
DALLAS, TEXAS 75219-4298
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 528-5588
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 REGISTRANT IS A LIMITED PARTNERSHIP AND ISSUES UNITS REPRESENTING
OWNERSHIP OF LIMITED PARTNER INTERESTS.
NUMBER OF UNITS OUTSTANDING AT JULY 22, 1996: 1,673,005 UNITS.
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<PAGE> 2
HALLWOOD REALTY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PART I - FINANCIAL INFORMATION PAGE
- ---- ------------------------------ ----
<S> <C> <C>
1 Financial Statements:
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
2 Results of Operations and Management's Discussion
and Analysis of Financial Condition 7
PART II - OTHER INFORMATION
---------------------------
1-6 Other Information 10
Signatures 11
</TABLE>
Page 2
<PAGE> 3
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Real estate:
Land $ 56,820 $ 56,461
Buildings and improvements 258,596 257,706
Tenant improvements 16,891 16,311
--------- ---------
332,307 330,478
Accumulated depreciation and amortization (144,001) (138,212)
--------- ---------
Real estate, net 188,306 192,266
Cash and cash equivalents 9,197 14,302
Accounts receivable 586 1,080
Prepaid lease commissions, net 5,089 4,518
Lease concessions 2,165 2,498
Loan reserves and escrows 5,886 4,966
Loan costs, net 3,742 3,905
Other assets, net 689 1,824
--------- ---------
Total assets $ 215,660 $ 225,359
========= =========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Liabilities:
Mortgages payable $ 173,368 $ 175,587
Accounts payable and accrued expenses 4,451 4,475
Prepaid rent and security deposits 2,016 2,685
Litigation costs payable 545 695
--------- ---------
Total liabilities 180,380 183,442
--------- ---------
Partners' capital:
Limited partners -1,673,005 and 1,747,765
units outstanding, respectively 34,927 41,498
General partner 353 419
--------- ---------
Total partners' capital 35,280 41,917
--------- ---------
Total liabilities and partners' capital $ 215,660 $ 225,359
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 4
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Property operations $ 12,036 $ 12,183 $ 24,228 $ 24,887
Interest 222 113 462 218
-------- -------- -------- --------
Total revenues 12,258 12,296 24,690 25,105
-------- -------- -------- --------
EXPENSES:
Property operations 6,123 5,901 12,424 11,717
Interest 3,513 4,010 7,045 8,039
Depreciation and amortization 4,263 4,360 8,549 8,728
General and administrative 683 679 1,516 1,460
-------- -------- -------- --------
Total expenses 14,582 14,950 29,534 29,944
-------- -------- -------- --------
NET LOSS $ (2,324) $ (2,654) $ (4,844) $ (4,839)
======== ======== ======== ========
ALLOCATION OF NET LOSS:
Limited partners $ (2,300) $ (2,628) $ (4,795) $ (4,791)
General partner (24) (26) (49) (48)
-------- -------- -------- --------
Total $ (2,324) $ (2,654) $ (4,844) $ (4,839)
======== ======== ======== ========
NET LOSS PER UNIT $ ( 1.35) $ (1.50) $ ( 2.78) $ (2.75)
======== ======== ======== ========
WEIGHTED AVERAGE UNITS
OUTSTANDING 1,699 1,748 1,724 1,742
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 5
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,844) $ (4,839)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 8,549 8,728
Amortization of contingent debt forgiveness (670) -
Lease concessions 333 351
Changes in assets and liabilities:
Receivables 494 (336)
Prepaid lease commissions, net (571) (666)
Other assets 390 1,010
Litigation costs payable (150) (1,300)
Other liabilities (693) 1,136
--------- --------
Net cash provided by operating activities 2,838 4,084
--------- --------
INVESTING ACTIVITIES:
Property and tenant improvements (2,890) (2,297)
Property acquisition (1,699) -
Mortgage receivable principal payments 42 38
--------- --------
Net cash used for investing activities (4,547) (2,259)
--------- --------
FINANCING ACTIVITIES:
Mortgage principal payments (1,549) (1,263)
Loan fees (54) (14)
Purchase of Units (1,793) -
Sale of Units to General Partner - 360
Purchase of fractional Units - (176)
--------- --------
Net cash used for financing activities (3,396) (1,093)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,105) 732
BEGINNING CASH AND CASH EQUIVALENTS 14,302 7,786
--------- --------
ENDING CASH AND CASH EQUIVALENTS $ 9,197 $ 8,518
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash during the period $ 7,763 $ 8,069
========= ========
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 6
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1 ORGANIZATION AND ACCOUNTING POLICIES
Hallwood Realty Partners, L.P. ("HRP" or the "Partnership"), a publicly
traded Delaware limited partnership, is engaged in diversified real estate
activities, including the acquisition, ownership and operation of commercial
office, industrial real estate and other real estate related assets. Units
of limited partners' interest in the Partnership ("Units") are traded on the
American Stock Exchange.
Hallwood Realty Corporation ("HRC" or "General Partner"), a Delaware
corporation and wholly owned subsidiary of The Hallwood Group Incorporated
("Hallwood") is responsible for asset management of the Partnership and its
Properties. Hallwood Commercial Real Estate, Inc. ("HCRE"), formerly named
Hallwood Management Company, another wholly-owned subsidiary of Hallwood,
provides property management services to the Partnership's Properties.
The consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
disclosures required by generally accepted accounting principles, although,
in the opinion of management, all adjustments considered necessary for a
fair presentation have been included. These financial statements should be
read in conjunction with the audited consolidated financial statements and
related disclosures thereto included in Form 10-K for the year ended
December 31, 1995. Certain reclassifications have been made to the prior
period amounts to conform to the classifications used in the current period.
The reclassifications had no effect on the previously reported net loss.
2 TRANSACTIONS WITH RELATED PARTIES
HRC and HCRE are compensated for services provided to HRP and its
Properties. The following table sets forth such compensation and
reimbursements of costs paid by HRP for the periods presented (in
thousands):
<TABLE>
<CAPTION>
ENTITY THREE MONTHS SIX MONTHS
PAID OR ENDED ENDED
REIMBURSED JUNE 30, JUNE 30,
---------- ------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Asset management fees HRC $ 114 $ 110 $ 225 $ 218
Property management fees HCRE 370 357 723 729
Lease commissions HCRE 384 529 784 726
Construction fees HCRE 110 110 154 144
Acquisition fee HRC - - 17 -
Reimbursements of costs (a) HRC 536 479 1,121 1,001
</TABLE>
(a) These costs are mostly recorded as general and administrative
expenses and represent reimbursement, at cost, for salaries,
employee and director insurance and certain overhead. HRP pays
the balance of its account with HRC monthly.
3 PARTNERS' CAPITAL
In May 1996, HRP purchased, in a private transaction, 74,760 limited partner
Units for $1,776,000. In addition, the General Partner's capital account was
adjusted by $17,000 in order to maintain its 1% general partner interest, in
accordance with HRP's Partnership Agreement. Accordingly, HRP's outstanding
Units decreased from 1,747,765 Units to 1,673,005 Units.
Page 6
<PAGE> 7
HALLWOOD REALTY PARTNER'S, L.P.
3 PARTNERS' CAPITAL - CONTINUED
The following table illustrates the changes to Partners' Capital for the six
months ended June 30, 1996 (in thousands except Unit amounts):
<TABLE>
<CAPTION>
Limited
Partner
General Limited Units
Partner Partners Total Outstanding
------- -------- --------- -----------
<S> <C> <C> <C> <C>
Partners' Capital, January 1, 1996 $ 419 $ 41,498 $ 41,917 1,747,765
Purchase and retirement of Units (17) (1,776) (1,793) (74,760)
Net loss for the first six months of 1996 (49) (4,795) (4,844) -
----- -------- -------- ---------
Partners' Capital, June 30, 1996 $ 353 $ 34,927 $ 35,280 1,673,005
===== ======== ======== =========
</TABLE>
ITEM 2. RESULTS OF OPERATIONS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
REVENUE FROM PROPERTY OPERATIONS decreased $147,000, or 1.2%, for the second
quarter of 1996, as compared to the 1995 second quarter. The following table
illustrates the components of the change, in thousands:
<TABLE>
<S> <C>
Rental income, net $ (132)
Expense recoveries (68)
Other property income 53
------
Net decrease $ (147)
=======
</TABLE>
Overall rental occupancies and rates remained fairly consistent with the prior
period. The decrease in rental income is primarily due to a reduction in rental
rates at First Maryland Building, partially offset by a rise in occupancy at
Executive Park and the addition of the Joy Road property in February 1996.
INTEREST increased $109,000 as a result of an increase in HRP's average cash
position between periods and therefore increased available funds for
investment.
PROPERTY OPERATING EXPENSES increased $222,000, or 3.8%, for the second quarter
of 1996, as compared to the same period in 1995, primarily due to higher
utility costs and leasing commission amortization, partially offset by one-time
costs for certain professional fees incurred in the 1995 period. The following
table illustrates the components of the change, in thousands:
<TABLE>
<S> <C>
Administrative costs $ (78)
Management fees 17
Marketing and leasing 51
Utilities 143
Janitorial and other services 26
Repairs and maintenance 40
Real estate taxes 30
Insurance (7)
-----
Net increase $ 222
=====
</TABLE>
Page 7
<PAGE> 8
HALLWOOD REALTY PARTNER'S L.P.
RESULTS OF OPERATIONS - CONTINUED
INTEREST EXPENSE decreased $497,000 due to $333,000 of amortization of First
Maryland's debt forgiveness in the 1996 period, a reduction in loan cost
amortization of $39,000, lower litigation cost interest of $67,000, and $58,000
of other net decreases in interest costs. In October 1995, HRP began
amortizing $9,250,000 of debt forgiveness associated with the First Maryland
Building against the carrying value of the debt over the life of the loan.
DEPRECIATION AND AMORTIZATION EXPENSE decreased $97,000 primarily due to
reduced building improvement depreciation.
GENERAL AND ADMINISTRATIVE EXPENSES remained consistent between the periods,
increasing $4,000.
FIRST SIX MONTHS OF 1996 COMPARED TO FIRST SIX MONTHS OF 1995
REVENUE FROM PROPERTY OPERATIONS decreased $659,000, or 2.6%, during the first
six months of 1996, as compared to the first six months of 1995. The following
table illustrates the components of the change, in thousands:
<TABLE>
<S> <C>
Rental income, net $ 176
Expense recoveries (815)
Other property income (20)
------
Net decrease $(659)
======
</TABLE>
Overall rental occupancies and rates remained fairly consistent with the prior
period. The increase in rental income is primarily due to a rise in occupancy
at Executive Park and the addition of the Joy Road property in February 1996,
partially offset by a reduction in rental rates at First Maryland Building.
During the first quarter of 1995, expense recoveries were abnormally high due
to adjustments made to the amount of real estate tax recoveries from tenants in
the state of Michigan for the two years prior to 1995. Accordingly, expense
recoveries for the 1996 period decreased from the prior year period.
INTEREST increased $244,000 as a result of an increase in HRP's average cash
position between periods and therefore increased available funds for
investment.
PROPERTY OPERATING EXPENSES increased $707,000, or 6.0%, for the first six
months of 1996, as compared to the same period in 1995, primarily due to higher
utility costs, leasing commission amortization and repairs to heating and air
duct systems, partially offset by one-time costs for certain professional fees
incurred in the 1995 period. The following table illustrates the components of
the change, in thousands:
<TABLE>
<S> <C>
Administrative costs $ (77)
Management fees 1
Marketing and leasing 150
Utilities 289
Janitorial and other services 82
Repairs and maintenance 202
Real estate taxes 51
Insurance 9
-----
Net increase $ 707
=====
</TABLE>
INTEREST EXPENSE decreased $994,000 due to $670,000 of amortization of First
Maryland's debt forgiveness in the 1996 period, a reduction in loan cost
amortization of $85,000, lower litigation cost interest of $144,000, and
$95,000 of other net decreases in interest costs. In October 1995, HRP began
amortizing $9,250,000 of debt forgiveness associated with the First Maryland
Building against the carrying value of the debt over the life of the loan.
DEPRECIATION AND AMORTIZATION EXPENSE decreased $179,000 primarily due to
reduced building improvement depreciation.
GENERAL AND ADMINISTRATIVE EXPENSES increased $56,000 in the first six months
of 1996, as compared to the corresponding period of 1995, primarily due to
increased personnel costs and business/franchise taxes.
Page 8
<PAGE> 9
HALLWOOD REALTY PARTNER'S L.P.
LIQUIDITY AND CAPITAL RESOURCES
HRP is engaged in diversified real estate activities, including the
acquisition, ownership and operation of commercial office, industrial real
estate and other real estate related assets. While it is the General Partner's
primary intention to operate HRP's existing real estate investments and to
acquire and operate additional real estate investments, HRC also continually
evaluates each of HRP's real estate investments in light of current economic
trends and operations to determine if any should be considered for disposal.
At this time, there are no plans to dispose of any of HRP's real estate
properties.
As of June 30, 1996, HRP owned twelve properties (the "Properties), of which
seven are office building properties and five are industrial park properties
containing approximately 2,609,000 and 2,563,000 net rentable square feet,
respectively. The Properties are located in six states. The Partnership seeks
to maximize the value of the Properties by making capital and tenant
improvements, by executing marketing programs to attract and retain tenants and
by reducing operating expenses where possible.
Substantially all of the buildings in eleven of HRP's twelve Properties were
encumbered by non-recourse mortgages as of June 30, 1996. Based upon loan
maturities currently in effect, in the aggregate, HRP is required to pay about
$1,240,000 of principal payments and $30,228,000 of balloon mortgage payments
for the remainder of 1996. The balloon mortgage payment has been extended to
September 1, 1996 from June 16, 1996 and is secured by a first position in
Executive Park. The Partnership is in negotiations with the existing lender
and anticipates that the loan will be refinanced, however no assurances can be
given that the refinancing will be completed.
As of June 30, 1996, HRP had cash and cash equivalents of $9,197,000 as
compared to a balance of $14,302,000 as of December 31, 1995. Therefore, HRP's
cash position decreased $5,105,000 during the first six months of 1996. The
sources of cash during the period were $2,838,000 of cash provided by operating
activities and $42,000 of payments from a mortgage receivable. Uses of cash
during the period were $2,890,000 of property and tenant improvements,
$1,699,000 to purchase the Joy Road property in February 1996, $1,549,000 of
mortgage principal payments, $1,793,000 to purchase 74,760 limited partner
Units in a private transaction, and $54,000 of loan fees.
In May 1996, HRP purchased, in a private transaction, 74,760 limited partner
Units for $1,776,000. In addition, the General Partner's capital account was
adjusted by $17,000 in order to maintain its 1% general partner interest, in
accordance with HRP's Partnership Agreement. Accordingly, HRP's outstanding
Units decreased from 1,747,765 Units to 1,673,005 Units.
During 1996, HRP anticipates increased leasing commissions and tenant
improvement costs over the levels incurred in the past few years due to
expected vacancies from expiring leases. Management anticipates that these
capital expenditures will be funded with cash on hand.
For the foreseeable future, the Partnership anticipates that mortgage and note
principal payments (excluding balloon mortgage payments), tenant improvements
and capital expenditures will be funded by net cash from operations. The
primary sources of capital to fund future Partnership acquisitions and balloon
mortgage payments will be proceeds from the sale, financing, or refinancing of
its Properties.
Each quarter HRC, as General Partner, reviews the Partnership's capacity to
make cash distributions. No such cash distributions are anticipated for the
immediate future.
Page 9
<PAGE> 10
HALLWOOD REALTY PARTNERS, L.P.
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item
- ----
1 Legal Proceedings None.
-----------------
2 Changes in Securities None.
---------------------
3 Defaults upon Senior Securities None.
-------------------------------
4 Submission of Matters to a Vote of Security Holders None.
---------------------------------------------------
5 Other Information None.
-----------------
6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(I) 27 - Financial Data Schedule Page 12
(b) Reports on Form 8-K None.
</TABLE>
Page 10
<PAGE> 11
HALLWOOD REALTY PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Quarterly Report of Form 10-Q for the quarter ended June 30, 1996 has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
HALLWOOD REALTY PARTNERS, L.P.
---------------------------------------
(Registrant)
By: HALLWOOD REALTY
General Partner
Date: July 29,1996 By: WILLIAM L. GUZZETTI
------------ -----------------------------------
William L. Guzzetti
President
(Chief Operating Officer)
Date: July 29, 1996 By: JEFFREY D. GENT
------------ -----------------------------------
Jeffrey D. Gent
Vice President - Finance
(Principal Financial and
Accounting Officer)
Page 11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27(a) - Financial Data Schedule
27(b) - Reports on Form 8-K
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR QUARTERLY REPORT FORM 10-Q
THREE MONTHS ENDED JUNE 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,197
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 332,307
<DEPRECIATION> 144,001
<TOTAL-ASSETS> 215,660
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 34,927
0
0
<OTHER-SE> 353
<TOTAL-LIABILITY-AND-EQUITY> 215,660
<SALES> 0
<TOTAL-REVENUES> 12,258
<CGS> 0
<TOTAL-COSTS> 11,069
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,513
<INCOME-PRETAX> (2,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,324)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
