<PAGE> 1
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UNITED STATES
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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD - FROM TO
------------------- -----------------
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ------------------------
<S> <C>
UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS AMERICAN STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
-----
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 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]
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 aggregate market value of units held by nonaffiliates of the registrant as
of March 5, 1999 was $70,527,000.
CLASS: UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS.
OUTSTANDING AT MARCH 5, 1999: 1,672,556 UNITS.
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Page 1 of 38
<PAGE> 2
HALLWOOD REALTY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I ----
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
PART II
Item 5. Market for Registrant's units and Related
Security Holder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplemental Information 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 32
PART III
Item 10. Directors and Executive Officers of the
Registrant 33
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K. 37
</TABLE>
Page 2 of 38
<PAGE> 3
PART I
ITEM 1. BUSINESS
DESCRIPTION OF THE BUSINESS
Hallwood Realty Partners, L.P. ("HRP" or the "Partnership"), a publicly traded
Delaware limited partnership, is engaged in the acquisition, ownership and
operation of commercial real estate assets. The limited partners' interests, or
units, are traded on the American Stock Exchange under the symbol "HRY".
As of December 31, 1998, HRP owned twelve real estate properties (the
"Properties") located in six states (see Item 2 Properties) containing
5,150,000 net rentable square feet. HRP seeks to maximize the value of its real
estate by making capital and tenant improvements, by executing marketing
programs to attract and retain tenants, and by controlling or reducing, where
possible, operating expenses.
Hallwood Realty, LLC, formerly Hallwood Realty Corporation, ("Realty" or the
"General Partner"), a Delaware limited liability company and wholly-owned
subsidiary of The Hallwood Group Incorporated ("Hallwood") is HRP's general
partner and is responsible for asset management of HRP and its Properties,
including the decision making responsibility for financing, refinancing,
acquiring and disposing of properties. In addition, Realty provides general
operating and administrative services to HRP. Hallwood Commercial Real Estate,
LLC, formerly Hallwood Commercial Real Estate, Inc., ("HCRE"), another
wholly-owned subsidiary of Hallwood, provides property management services to
the Properties.
OCCUPANCY/MAJOR TENANT INFORMATION
In the aggregate, the Properties were 93% occupied at December 31, 1998. Set
forth below are the percentages of square feet represented by scheduled lease
expirations for each calendar year, assuming that none of the tenants exercise
early termination or renewal options:
<TABLE>
<S> <C>
1999 14%
2000 20%
2001 22%
2002 16%
2003 10%
Thereafter 18%
</TABLE>
During 1998, one tenant contributed more than 10% of the total revenues of the
Partnership. During 1997, two tenants leasing space each contributed more than
10% of the total revenues of the Partnership. Ford Motor Company and affiliates
("Ford") leases space in Parklane Towers and Fairlane Commerce Park and
contributed 13% and 15% of revenues in 1998 and 1997, respectively. The Centers
for Disease Control and Prevention ("CDC"), an agency of the U.S. Department of
Health and Human Services, leases space in Corporate Square and Executive Park
and contributed 9% and 10% of the revenues in 1998 and 1997, respectively.
As of December 31, 1998, Ford occupied 233,000 square feet of office space
under 9 separate leases at Parklane Towers and 255,000 square feet of office,
technical laboratory and industrial space under 9 separate leases at Fairlane
Commerce Park. These leases expire between 1999 and 2003 and most contain
renewal options, providing for one to ten year renewals. As of December 31,
1998, CDC occupied 218,000 square feet of office space at Executive Park under
5 leases which expire between 2001 and 2003 and 158,000 square feet of office
space at Corporate Square under a lease which expires in 2013.
The remaining tenants are not concentrated in any one industry, nor is HRP
otherwise dependent on any group of related tenants for 10% or more of its
revenues.
Page 3 of 38
<PAGE> 4
COMPETITION AND OTHER FACTORS
The Properties are subject to substantial competition from similar properties
in the vicinity in which they are located. In addition, there are numerous
other potential investors seeking to purchase improved real property and many
property holders seeking to dispose of real estate with which HRP will compete,
including companies substantially larger than HRP and with substantially
greater resources. Furthermore, current economic conditions in each property's
respective real estate market are competitive and as such, competition for
tenants will continue to affect rental rates and revenue.
The environmental laws of the federal government and of certain state and local
governments impose liability on current property owners for the cleanup of
hazardous and toxic substances discharged on such property. This liability may
be imposed without regard to the timing, cause or person responsible for the
release of such substances onto the property. HRP could be subject to
additional liability in the event that it owns properties having such
environmental problems. Parklane Towers, as well as certain other properties to
a lesser extent, are known to contain asbestos. Removal of asbestos at Parklane
Towers is estimated to cost approximately $1,700,000; however, it is not
required to be removed because it is not friable and HRP has an Operations and
Maintenance Program in place.
Realty and HCRE, on behalf of HRP, monitor compliance with the Americans with
Disabilities Act and are currently not aware of any material non-compliance
issues.
HRP does not directly employ any individuals. All 90 employees rendering
services on behalf of HRP and its Properties are employees of Realty and/or
HCRE.
The business of HRP involves only one industry segment. Accordingly, all
information required by Item 101(b) of Regulation S-K is included in the
Consolidated Financial Statements included in Item 8. HRP has no foreign
operations and its business is not seasonal.
ITEM 2. PROPERTIES
As of December 31, 1998, HRP owned twelve properties in six states with
5,150,000 net rentable square feet.
<TABLE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION OF THE PROPERTY
- ----------------- -----------------------------------
<S> <C>
Airport Plaza Fee simple interest in a 3-story office building constructed in
San Diego, California 1982 containing 48,853 net rentable square feet of space located
on 2 acres of land. The property was 94% occupied at December 31,
1998.
Bellevue Corporate Plaza Fee simple interest in a 10-story office building constructed in
Bellevue, Washington 1980 containing 234,880 net rentable square feet of space located
on 3.6 acres of land. The property was 99% occupied at December
31, 1998.
Bradshaw Business Parks Fee simple interest in 21 single-story buildings located at four
Sacramento and separate sites containing an aggregate of 452,838 net rentable
Rancho Cordova, California square feet of office/warehouse space on 31 acres of land and
constructed between 1973 and 1981. At December 31, 1998, the
property was 94% occupied.
Corporate Square Fee simple interest in an 8-building office complex ranging from
Atlanta, Georgia one to seven stories, constructed between 1968 and 1973,
containing an aggregate of 443,117 net rentable square feet of
space located on 32 acres of land. The property was 90% occupied
at December 31, 1998.
</TABLE>
Page 4 of 38
<PAGE> 5
<TABLE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION OF THE PROPERTY
- ----------------- -----------------------------------
<S> <C>
Executive Park Fee simple interest in 26 buildings ranging from one to six
Atlanta, Georgia stories, constructed between 1965 and 1972, containing a total of
908,445 net rentable square feet of space located on 70 acres of
land. The property was 92% occupied at December 31, 1998.
Fairlane Commerce Park Fee simple interest in a portion of an office/industrial park
Dearborn, Michigan consisting of 12 single-story buildings constructed between 1974
and 1990. The property consists of 417,922 net rentable square
feet of space on 35 acres of land. The property was 97% occupied
at December 31, 1998.
First Maryland Building Fee simple interest in a 22-story office building constructed in
Baltimore, Maryland 1972 containing 344,224 net rentable square feet of office space
on 0.6 acres of land. At December 31, 1998, the property was 96%
occupied.
Joy Road Distribution Center Fee simple interest in a 442,201 square foot warehouse situated
Detroit, Michigan on 21 acres and originally constructed in the early 1940's. The
property was 95% occupied at December 31, 1998.
Montrose Office Center Fee simple interest in a 10-story office building constructed in
Rockville, Maryland 1980 containing 147,658 net rentable square feet of space on 3
acres of land. The property was 99% occupied at December 31,
1998.
Parklane Towers
Dearborn, Michigan Fee simple interest in twin 15-story office buildings constructed
in 1973 containing 482,668 net rentable square feet of space on
31.8 acres of land. The property was 94% occupied at December 31,
1998.
Raintree Industrial Park Fee simple interest in an office/industrial complex constructed
Solon, Ohio between 1971 and 1978 containing 794,953 net rentable square feet
of space in 14 buildings on 49 acres of land. The property was
87% occupied at December 31, 1998.
Seattle Business Parks Fee simple interest in office/industrial parks located at two
Kent and Tukwila, Washington separate sites. The buildings were completed between 1972 and
1993 and contain an aggregate of 432,467 net rentable square feet
of space in 18 buildings on 27 acres of land. At December 31,
1998, the property was 97% occupied.
</TABLE>
For information regarding the encumbrances to which the properties are subject
and the status of the related mortgage loans, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" contained in Item 7 and Note 5 to the Consolidated Financial
Statements and Schedule III contained in Item 8.
Page 5 of 38
<PAGE> 6
ITEM 3. LEGAL PROCEEDINGS
On February 27, 1997, a lawsuit was filed in the Chancery Court for New Castle
County, Delaware, styled Gotham Partners, L.P. v. Hallwood Realty Partners,
L.P. and Hallwood Realty Corporation (C.A. No. 15578). The complaint sought
access to certain books and records of HRP, a list of the limited partners and
reimbursement of the plaintiff's expenses.
On June 20, 1997, Gotham Partners, L.P. filed a separate complaint in the
Chancery Court for New Castle County, Delaware, styled Gotham Partners, L.P. v.
Hallwood Realty Partners, L.P., et al. (C.A. No. 15754), against Hallwood, HRP,
Realty, and the directors of Realty, alleging claims of breach of fiduciary
duties, breach of HRP's partnership agreement, fraud, and as to Hallwood,
aiding and abetting these alleged breaches. At the same time as the filing of
this complaint, plaintiff filed a motion to amend its complaint in the earlier
action to allege the same facts and demand the same relief as plaintiff sought
in the separate complaint.
On June 27, 1997, the parties entered into a Stipulation and Order under which
HRP provided to plaintiff copies of certain of the documents requested. The
other claims in the two actions remain outstanding.
On August 27, 1997, defendants moved to dismiss the complaint in the separate
action for plaintiff's failure either to make a demand on the general partner
to bring suit or to allege adequately that such a demand was futile. On
February 6, 1998, the Court granted defendants' motion to dismiss but gave
plaintiff thirty days to file an amended complaint. Plaintiffs filed an amended
complaint on March 6, 1998, which defendants again moved to dismiss. This
motion was denied and the parties are proceeding with discovery.
HRP's management believes that the claims are without merit and intend to
defend the cases vigorously, but because of their early stages, cannot predict
the outcome of the claims or any possible effect an adverse outcome might have.
HRP is from time to time involved in various legal proceedings and claims which
arise in the ordinary course of business. These matters are generally covered
by insurance. Management believes that the resolution of these matters will not
have a material adverse effect on HRP's financial position, cash flow or
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of HRP during the
fourth quarter of 1998.
Page 6 of 38
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED SECURITY
HOLDER MATTERS
The Partnership's units are traded on the American Stock Exchange under the
symbol "HRY". As of March 5, 1999, there were approximately 31,100 unitholders
of record of the 1,672,556 units outstanding. HRP has not paid any cash
distributions since February, 1992. Each quarter Realty reviews HRP's capacity
to make cash distributions to its partners.
The following table shows the range of sales prices for the periods indicated,
as reported by the American Stock Exchange:
<TABLE>
<CAPTION>
Trading Ranges
------------------------
High Low
-------- -------
<S> <C> <C>
1997 -
1st Quarter $ 27.625 $ 24.50
2nd Quarter 29.75 24.50
3rd Quarter 55.50 29.50
4th Quarter 54.75 47.375
1998 -
1st Quarter $ 66.00 $ 46.00
2nd Quarter 70.00 64.25
3rd Quarter 70.00 53.50
4th Quarter 64.25 44.50
</TABLE>
Page 7 of 38
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
Partnership's results of operations and financial position as of the dates
indicated. This information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in Item 7 and the Consolidated Financial Statements and notes thereto
contained in Item 8.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---- ------ ------ ------ ------
(in thousands except per unit amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Total revenues $ 56,680 $ 53,899 $ 49,612 $ 50,829 $ 48,615
Income (loss) before extraordinary item 6,246 2,357 (9,428) (9,024) (18,161)
Net income (loss) 11,593 2,357 (9,428) (9,789) (18,161)
Income (loss) per unit and equivalent unit :
Basic -
Income (loss) before extraordinary item 3.70 1.40 (5.50) (5.55) (10.38) (a)
Net income (loss) 6.86 1.40 (5.50) (5.55) (10.38) (a)
Assuming dilution -
Income (loss) before extraordinary item 3.55 1.35 (5.50) (5.55) (10.38) (a)
Net income (loss) per unit 6.59 1.35 (5.50) (5.55) (10.38) (a)
BALANCE SHEETS:
Real estate, net (b) $ 175,779 $ 179,028 $ 182,877 $ 192,266 $ 205,212
Total assets 214,023 207,134 210,214 225,359 225,418
Mortgages payable 162,078 157,911 160,732 166,675 160,296
Partners' capital (c) 44,634 33,041 30,684 41,917 51,522
</TABLE>
Notes to Selected Financial Data:
(a) The per unit amounts for 1994 were adjusted to reflect the effect of
a 1-for-5 reverse split of the outstanding units effective as of the
close of business on March 3, 1995.
(b) Real estate assets declined in each of the years, primarily due to
depreciation and amortization exceeding the additions of tenant and
property improvements.
(c) Partners' capital is allocated 99% to the limited partners and 1% to
the general partner.
Page 8 of 38
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with Item 6 - Selected Financial
Data and Item 8 - Financial Statements and Supplemental Information.
RESULTS OF OPERATIONS:
1998 VERSUS 1997 -
REVENUE FROM PROPERTY OPERATIONS in 1998 increased $2,864,000, or 5.4%, as
compared to 1997. The following table illustrates the components of the change:
<TABLE>
<S> <C>
Rental income, net $ 2,771,000
Expense recoveries 30,000
Other property income 63,000
-----------
Net increase $ 2,864,000
===========
</TABLE>
Rental income increased largely due to rental rate increases at a number of
properties and to a lesser degree due to a rise in average occupancy to 93.5%
in 1998 from 93.1% in 1997. As of December 31, 1998, HRP had leases executed
and in place for 93.3% of the portfolio's net rentable square feet.
INTEREST INCOME increased $311,000 as a result of additional earnings on
overnight investments due to higher average cash balances available for
investment.
PROPERTY OPERATING EXPENSES for 1998 decreased $987,000, or 4.2%, compared to
1997. The decrease is comprised of the following components:
o Real estate taxes decreased $603,000 primarily due to tax refunds
received in 1998 for tax years 1993 to 1997 for Parklane Towers and
Raintree Industrial Park.
o Repairs and Maintenance Costs decreased $450,000 primarily due to
exterior window glazing costs performed in 1997 at Parklane Towers.
o Management fees rose $121,000 due to the increase in net rental
income and occupancy mentioned above.
o Janitorial costs increased $129,000 principally due to the increase
in occupancy.
o Combined, all other operating costs decreased $184,000, or 0.8%,
between the years.
INTEREST EXPENSE diminished $164,000, or 1.3%, due to lower principal balances
as a result of scheduled principal payments and due to lower interest rates
from the refinancing of loans secured by Executive Park and Seattle Business
Parks during 1998 (see Note 5 to the Consolidated Financial Statements for more
information about refinancing of loans).
DEPRECIATION AND AMORTIZATION EXPENSE increased $59,000 primarily due to an
increase in lease commission amortization of $131,000 as a result of new leases
executed during 1997 which have increased the portfolio's occupancy, partially
offset by a decrease in building cost depreciation.
GENERAL AND ADMINISTRATIVE EXPENSES decreased $16,000 for 1998 compared to
1997, due to lower insurance premiums for director and officer coverage and
lower investor mailing costs, partially offset by an increase in state
franchise taxes for the state of Michigan.
NET GAIN FROM EARLY EXTINGUISHMENTS OF DEBT of $5,347,000 in 1998 is comprised
of the following transactions and is further discussed in Note 5 to the
Consolidated Financial Statements:
o a gain of $7,223,000 from the early payoff of the loan secured by
First Maryland Building comprised of $7,441,000 of unamortized loan
forgiveness, net of a $200,000 prepayment penalty and $18,000 of
unamortized loan costs, all associated with the retired loan.
o a loss of $1,611,000 from the early payoff of the loan secured by
Executive Park comprised of a prepayment penalty of $1,465,000 and
the writeoff of $146,000 of unamortized loan costs associated with
the retired loan.
o a loss of $265,000 from the early payoff of the loan secured by
Seattle Business Park comprised of a prepayment penalty of $190,000
and the writeoff of $75,000 of unamortized loan costs associated
with the retired loan.
Page 9 of 38
<PAGE> 10
RESULTS OF OPERATIONS (CONTINUED) -
1997 VERSUS 1996 -
REVENUE FROM PROPERTY OPERATIONS in 1997 increased $4,099,000, or 8.4%,
compared to 1996. The following table illustrates the components of the change:
<TABLE>
<S> <C>
Rental income, net $ 3,651,000
Expense recoveries 145,000
Other property income 303,000
-----------
Net increase $ 4,099,000
===========
</TABLE>
Rental income increased primarily as the result of a rise in average occupancy
to 93.1% in 1997 from 87.8% in 1996. As of December 31, 1997, HRP had leases
executed and in place for 94.4% of the portfolio's net rentable square feet.
GAIN FROM PROPERTY SALE of $394,000 in 1997 represents the sale of one building
in Fairlane Commerce Park containing 3,500 net rentable square feet and
approximately 0.5 acres for $510,000 before expenses of $8,000.
INTEREST INCOME decreased $206,000 primarily as a result of decreased earnings
on overnight investments due to lower average cash balances.
PROPERTY OPERATING EXPENSES for 1997 increased $213,000, or 0.9%, compared to
1996. The increase is comprised of the following components:
o Janitorial costs increased $144,000 and security costs increased
$64,000 principally due to the increase in occupancy mentioned
above.
o Personnel costs increased $145,000, or 4.1%.
o Management fees were $100,000 more due to the increase in net rental
income and occupancy mentioned above.
o Property insurance costs decreased $119,000 due to lower premiums.
o Combined, all other operating costs decreased $121,000, or 0.05%,
between the years.
INTEREST EXPENSE decreased $577,000, or 4.3%, due to loan
modifications/renewals for First Maryland Building and Executive Park in 1996.
First Maryland's costs dropped $92,000 and is comprised of a $112,000 reduction
in cash interest paid to the lender and a $20,000 decrease in amortization of
mortgage principal forgiveness. Executive Park's costs decreased $313,000 due
to the reduction in its interest rate by slightly more than 1%. All other
interest costs fell $172,000 due to a reduction in debt levels as a result of
monthly principal amortization payments.
DEPRECIATION AND AMORTIZATION EXPENSE decreased $6,958,000 primarily due to an
extension of depreciable lives of certain building costs effective January 1,
1997 (see Note 2 to the Consolidated Financial Statements in Item 8).
GENERAL AND ADMINISTRATIVE EXPENSES in 1997 decreased $176,000, or 5.1%, as the
result of a net decrease in professional fees and services as compared to 1996,
including certain due diligence costs for a potential acquisition in 1996,
partially offset by an increase in legal costs in 1997 as a result of the legal
proceeding described in Note 9 to the Consolidated Financial Statements in Item
8.
Page 10 of 38
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
HRP is engaged in the acquisition, ownership and operation of commercial real
estate 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, Realty 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.
HRP's cash position increased $7,832,000 during 1998 from $6,665,000 as of
December 31, 1997 to $14,497,000 as of December 31, 1998. The sources of cash
for 1998 were $66,500,000 of mortgage principal proceeds and $14,078,000 of
cash provided by operating activities. Uses of cash for 1998 were $59,577,000
of mortgage principal repayments from refinancing proceeds, $6,603,000 of
property and tenant improvements, $1,855,000 of mortgage prepayment penalties,
$2,756,000 of scheduled mortgage principal payments, $1,405,000 of loan fees,
and $550,000 of net loan reserve requirements.
As of December 31, 1998, HRP had remaining commitments for current construction
projects of about $1,570,000. Additionally, HRP has estimated and budgeted for
1999 tenant and capital improvements (including the aforementioned commitments)
of $7,300,000 and lease commissions of about $2,130,000.
For the foreseeable future, HRP anticipates that mortgage principal payments,
tenant and capital improvements, and lease commissions will be funded by net
cash from operations. The primary sources of capital to fund any future
acquisitions will be proceeds from the sale or financing of one or more of its
Properties.
Each quarter Realty reviews HRP's capacity to make cash distributions. HRP has
not made any cash distributions since February, 1992.
MORTGAGES AND LOAN REFINANCING -
Substantially all of the buildings in eleven of HRP's Properties were
encumbered by and pledged as collateral under non-recourse mortgages as of
December 31, 1998. HRP has no mortgage loans maturing or requiring balloon
principal payments until the year 2003. Based upon loan amortization's in
effect, HRP is required to pay $2,470,000 of principal payments in 1999.
On November 16, 1998, HRP refinanced First Maryland Building's loan with a new
lender. The interest rate was reduced to LIBOR plus 1.30% from LIBOR plus 3.25%
and the maturity date was extended three years to April 30, 2006. The new loan
does not require any principal amortization. In connection with the
refinancing, HRP entered into an interest rate swap agreement to reduce its
exposure to changes in interest rates, which as been designated as a hedge
against HRP's variable interest exposure relating to the loan with a notional
amount of $25,000,000 terminating on April 30, 2006. This agreement, which is
settled monthly, effectively fixes the loan's interest rate at 6.78% compared
to the previous rate of 8.47% as of November 1998.
The loan proceeds of $25,000,000 plus $15,000 of cash were used (i) to pay the
outstanding principal balance of $24,531,000 with the former lender, (ii) to
pay transaction costs of $284,000, and (iii) to pay a prepayment penalty of
$200,000.
The remaining unamortized debt forgiveness of $7,441,000 less the prepayment
penalty of $200,000 and unamortized loan costs of $18,000, all associated with
the retired loan, resulted in a gain from early extinguishment of debt of
$7,223,000 included in the Statement of Operations as an extraordinary item.
NEW ACCOUNTING STANDARDS -
HRP has adopted Statements of Financial Accounting Standards ("SFAS") No. 130
"Reporting on Comprehensive Income" effective January 1, 1998. HRP had no items
of other comprehensive income in the years presented.
Page 11 of 38
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) -
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about a company's
operating segments. HRP has evaluated the guidance under SFAS No. 131 and
determined that it operates in only one segment.
SFAS No. 133 "Accounting of Derivative Instruments and Hedging Activities" was
issued in June 1998 and is effective for periods beginning after June 15, 1999.
It requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of the derivatives are recorded
each period in current earnings of other comprehensive income depending on
whether a derivative is designated as part of a hedge transaction, and if it
is, the type of hedge transaction. The impact on HRP's results of operation,
financial position, or cash flows will be dependent on the level and types of
derivative instruments that HRP will have entered into at the time SFAS No. 133
is implemented. HRP is currently not planning on early adoption of SFAS No. 133
and has not had an opportunity to evaluate the impact of the provisions of SFAS
No. 133 on its consolidated financial statements relating to future adoption.
Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-up
Activities" was issued in April 1998. SOP 98-5 concluded that costs of start-up
activities, including organization costs, should be expensed as incurred. HRP's
early adoption of this SOP did not have a significant effect on the financial
statements.
YEAR 2000 PLAN -
HRP realizes that many of the world's information systems and/or computer
programs currently do not have the ability to recognize four digit date code
fields and accordingly, they do not have the ability to distinguish a year that
begins with "20" instead of the familiar "19". If not corrected, many computer
applications could fail, become unstable, stop working altogether, or create
erroneous or incorrect results. Therefore, many companies and organizations are
spending considerable resources to update and modify their systems for Year
2000 compliance.
HRP developed a program to review and modify, where necessary, its computers,
computer programming and building systems to process transactions and/or
operate in the Year 2000 and beyond. HRP identified that its four primary
business systems, which are vulnerable to the Year 2000 issue, are: (1) General
Ledger/Accounts Payable/Accounts Receivable Systems - These systems were
modified by the vendor at no cost to HRP during the third quarter of 1998 and
are now Year 2000 compliant. (2) Commercial Lease Administration - The system
used by HRP is Year 2000 compliant. (3) K-1 Processing - HRP maintains data
used to process its partners Schedule K-1(s) for tax reporting purposes in an
environment that is not Year 2000 compliant. HRP has selected a tested and
compliant system which will be installed in 1999 at minimal cost. (4) Payroll -
The General Partner processed payroll in a non-compliant system through an
outside payroll vendor until Year 2000 compliant software was purchased and
installed in the fourth quarter of 1998 at minimal cost.
Additionally, HRP is surveying all of its significant service providers and
other external parties to determine their compliance with the Year 2000 issue
and what impact, if any, their efforts will have on HRP's business and
operations. This survey includes the identification of certain on-site,
non-information technology systems that may be Year 2000 sensitive. Once these
systems have been fully identified , we will determine, with the help of
outside vendors, whether these systems are vulnerable to the Year 2000 issue.
Potential non-information technology systems include, but are not limited to,
access gates, alarms, elevators, heating and air conditioning systems,
irrigation systems, security systems, thermostats, and utility meters and
switches. HRP anticipates finalizing its survey of service providers and
vendors during the second quarter of 1999.
HRP will utilize external and internal resources to reprogram, replace and test
its systems for Year 2000 modifications. HRP anticipates completing the Year
2000 project, which includes repairing or replacing any vulnerable systems, by
June 30, 1999. Total costs, including information and non-information
technology systems, are not expected to exceed $100,000. In the event that a
system will not be Year 2000 compliant, HRP will assess the potential risk and,
to the extent it is feasible, transfer its business to an alternate vendor.
Page 12 of 38
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) -
Although HRP believes that it will not have any detrimental effects on its
operations from Year 2000 compliance issues, there can be no assurance that the
systems of other companies, on which HRP's systems may rely, will be converted
timely, or converted in a manner that is compatible with HRP's systems, or that
any such failures by such other companies would not have a material adverse
effect or risk to HRP. HRP plans to devote all resources that would be required
to resolve any such issues in a timely manner that might arise from matters not
previously considered. In the event of a complete failure of our information
technology systems, HRP would be able to continue the affected functions either
manually or through the use of non-Year 2000 compliant systems. The primary
costs associated with such a necessity would probably include (1) increased
time delays associated with posting of information, and (2) increased personnel
to manually process the information. HRP does not currently have a contingency
plan in place and believes, based upon current knowledge, that one is not
needed.
The cost of Year 2000 compliance and the estimated date of completion of
necessary modifications are based on HRP's best estimates, which were derived
from various assumptions of future events, including the continued availability
of certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated.
FORWARD-LOOKING STATEMENTS -
In the interest of providing investors with certain information regarding HRP's
future plans and operations, certain statements set forth in this Form 10-K
relate to management's future plans and objectives. Such statements are
forward- looking statements. Although any forward-looking statements contained
in this Form 10-K or otherwise expressed by or on behalf of HRP are, to the
knowledge and in the judgment of the officers and directors of the General
Partner, expected to prove true and come to pass, management is not able to
predict the future with absolute certainty. Although HRP believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements will prove to be accurate.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause HRP's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted
result. These risks and uncertainties include, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which
are beyond the control of HRP; other risks and uncertainties may be described,
from time to time, in HRP's periodic reports and filings with the Securities
and Exchange Commission.
In addition, the dates for completion of HRP's Year 2000 plan are based on its
best estimates, which were derived using numerous assumptions of future events.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-parties and the
interconnection of computer systems, HRP cannot ensure its ability to timely
and cost-effectively resolve problems associated with the Year 2000 issue that
may affect its operations and business. Accordingly, partners and potential
investors are cautioned that certain events or circumstances could cause actual
results to differ materially from those projected, estimated or predicted.
Page 13 of 38
<PAGE> 14
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of HRP's financing activity, derivative securities are sometimes used to
achieve the desired mix of fixed versus floating rate debt. HRP does not hold or
issue derivative financial instruments for trading. HRP's derivative instrument,
which is matched directly against an outstanding borrowing is a "pay
fixed/receive variable" interest rate swap with highly rated counterparties in
which the interest payments are calculated on a notional amount. The notional
amount does not represent amounts exchanged by the parties and thus are not a
measure of exposure to HRP through its use of the derivative. HRP is exposed to
credit-related gains or losses in the event of non-performance by counterparties
to this financial instrument; however, HRP does not expect any counterparties to
fail to meet their obligations. The interest rate swap is described as follows
(in thousands):
<TABLE>
<CAPTION>
Variable Rate as of December 31, 1998
--------------------------------------------
Fair Value
Notional Amount Maturity Date Fixed Rate % % Based On of Swap (a)
- --------------- -------------- ------------ ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$25,000 April 30, 2006 6.78% 6.85% 30 day LIBOR $366
</TABLE>
(a) The estimated amount that HRP would have to pay to terminate the interest
rate swap agreement (used to hedge against exposure to interest rate
fluctuations) as of December 31, 1998 was based on a quote received from
the lender.
Page 14 of 38
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: Page
----
<S> <C>
Independent Auditors' Report 16
Consolidated Balance Sheets as of December 31, 1998 and 1997 17
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997 and 1996 18
Consolidated Statements of Partners' Capital for the years
ended December 31, 1998, 1997 and 1996 19
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 20
Notes to Consolidated Financial Statements 21
FINANCIAL STATEMENT SCHEDULE:
Schedule III - Real Estate and Accumulated Depreciation 31
All other schedules have been omitted because they are not applicable,
not required, or the required information is disclosed in the
consolidated financial statements or notes thereto.
</TABLE>
Page 15 of 38
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Partners of Hallwood Realty Partners, L.P.
We have audited the accompanying consolidated balance sheets of Hallwood Realty
Partners, L.P. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, partners' capital and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in the Index at Item 8.
These financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based upon 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, evidence
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Hallwood Realty Partners, L.P. and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 5, 1999
Page 16 of 38
<PAGE> 17
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Real estate:
Land $ 56,441 $ 56,441
Buildings and improvements 262,588 259,220
Tenant improvements 17,692 18,734
--------- ---------
336,721 334,395
Accumulated depreciation and amortization (160,942) (155,367)
--------- ---------
Real estate, net 175,779 179,028
Cash and cash equivalents 14,497 6,665
Accounts receivable 1,456 1,162
Prepaid lease commissions, net 7,186 7,049
Lease concessions 2,955 2,511
Loan reserves and escrows 6,986 6,215
Loan costs, net 3,923 3,213
Prepaid expenses and other assets, net 1,241 1,291
--------- ---------
Total assets $ 214,023 $ 207,134
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 162,078 $ 157,911
Unamortized mortgage payable forgiveness -- 8,926
Accounts payable and accrued expenses 4,435 4,157
Prepaid rent and security deposits 2,703 2,764
Payable to affiliates 173 335
--------- ---------
Total liabilities 169,389 174,093
--------- ---------
COMMITMENTS AND CONTINGENCIES
Partners' capital:
Limited partners - 1,672,556 units outstanding 44,188 32,711
General partner 446 330
--------- ---------
Total partners' capital 44,634 33,041
--------- ---------
Total liabilities and partners' capital $ 214,023 $ 207,134
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 17 of 38
<PAGE> 18
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Property operations $ 55,810 $ 52,946 $ 48,847
Gain from property sale -- 394 --
Interest and other 870 559 765
-------- -------- --------
Total revenues 56,680 53,899 49,612
-------- -------- --------
EXPENSES:
Property operations 22,261 23,248 23,035
Interest 12,781 12,945 13,522
Depreciation and amortization 12,114 12,055 19,013
General and administrative 3,278 3,294 3,470
-------- -------- --------
Total expenses 50,434 51,542 59,040
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 6,246 2,357 (9,428)
Extraordinary item -
Net gain on early extinguishments of debt 5,347 -- --
-------- -------- --------
NET INCOME (LOSS) $ 11,593 $ 2,357 $ (9,428)
======== ======== ========
ALLOCATION OF NET INCOME (LOSS):
Limited partners $ 11,477 $ 2,334 $ (9,334)
General partner 116 23 (94)
-------- -------- --------
Total $ 11,593 $ 2,357 $ (9,428)
======== ======== ========
INCOME (LOSS) PER UNIT AND EQUIVALENT UNIT:
Basic -
Income (loss) before extraordinary item $ 3.70 $ 1.40 $ (5.50)
Net gain on early extinguishments of debt 3.16 -- --
-------- -------- --------
Net income (loss) $ 6.86 $ 1.40 $ (5.50)
======== ======== ========
Assuming dilution -
Income (loss) before extraordinary item $ 3.55 $ 1.35 $ (5.50)
Net gain on early extinguishments of debt 3.04 -- --
-------- -------- --------
Net income (loss) $ 6.59 $ 1.35 $ (5.50)
======== ======== ========
WEIGHTED AVERAGE UNITS
USED IN COMPUTING NET INCOME
(LOSS) PER UNIT AND EQUIVALENT UNIT:
Basic 1,673 1,673 1,698
======== ======== ========
Assuming dilution 1,741 1,730 1,698
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 18 of 38
<PAGE> 19
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(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 of units (18) (1,787) (1,805) (75,209)
Net loss (94) (9,334) (9,428) --
---------- ---------- ---------- ----------
PARTNERS' CAPITAL, DECEMBER 31, 1996 307 30,377 30,684 1,672,556
Net income 23 2,334 2,357 --
---------- ---------- ---------- ----------
PARTNERS' CAPITAL, DECEMBER 31, 1997 330 32,711 33,041 1,672,556
Net income 116 11,477 11,593 --
---------- ---------- ---------- ----------
PARTNERS' CAPITAL, DECEMBER 31, 1998 $ 446 $ 44,188 $ 44,634 1,672,556
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 19 of 38
<PAGE> 20
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 11,593 $ 2,357 $ (9,428)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 12,114 12,055 19,013
Net gain on early extinguishments of debt (5,347) -- --
Amortization of mortgage principal forgiveness (1,485) (1,674) (1,693)
Gain from property sale -- (394) --
Lease concessions (444) (157) 144
Changes in assets and liabilities:
Receivables (294) 444 (526)
Prepaid lease commissions, net (2,369) (2,191) (4,338)
Prepaid expenses and other assets, net 255 510 (62)
Accounts payable and other liabilities 55 (1,086) 487
-------- -------- --------
Net cash provided by operating activities 14,078 9,864 3,597
-------- -------- --------
INVESTING ACTIVITIES:
Property and tenant improvements (6,603) (5,534) (5,998)
Tenant improvement escrow -- 1,532 (1,532)
Property acquisition -- (649) (1,699)
Cash proceeds from property sale, net of selling costs -- 502 --
Mortgage receivable principal payments -- 46 86
-------- -------- --------
Net cash used in investing activities (6,603) (4,103) (9,143)
-------- -------- --------
FINANCING ACTIVITIES:
Mortgage principal proceeds 66,500 549 --
Mortgage principal refinanced (59,577) -- --
Mortgage prepayment penalties (1,855) -- --
Mortgage principal payments (2,756) (3,226) (2,706)
Loan reserves (550) -- (450)
Purchase of units -- -- (1,805)
Loan fees (1,405) 25 (239)
-------- -------- --------
Net cash provided by (used in) financing activities 357 (2,652) (5,200)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,832 3,109 (10,746)
BEGINNING CASH AND CASH EQUIVALENTS 6,665 3,556 14,302
-------- -------- --------
ENDING CASH AND CASH EQUIVALENTS $ 14,497 $ 6,665 $ 3,556
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
Page 20 of 38
<PAGE> 21
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
1. ORGANIZATION
Hallwood Realty Partners, L.P. ("HRP" or the "Partnership"), a
publicly traded Delaware limited partnership, is engaged in the
acquisition, ownership and operation of commercial real estate assets.
The limited partners' interests, or units, are traded on the American
Stock Exchange under the symbol "HRY". As of December 31, 1998, there
were 1,672,556 units outstanding.
As of December 31, 1998, HRP owned twelve real estate assets (the
"Properties"), located in six states containing 5,150,000 net rentable
square feet. HRP seeks to maximize the value of its real estate by
making capital and tenant improvements, by executing marketing
programs to attract and retain tenants, and by controlling or
reducing, where possible, operating expenses.
Hallwood Realty, LLC, formerly Hallwood Realty Corporation, ("Realty"
or the "General Partner"), a Delaware limited liability company and
wholly-owned subsidiary of The Hallwood Group Incorporated
("Hallwood") is HRP's general partner and is responsible for asset
management of HRP and its Properties, including the decision making
responsibility for financing, refinancing, acquiring and disposing of
properties. In addition, Realty provides general operating and
administrative services to HRP. Hallwood Commercial Real Estate, LLC,
formerly Hallwood Commercial Real Estate, Inc., ("HCRE"), another
wholly-owned subsidiary of Hallwood, provides property management
services to the Properties.
2. ACCOUNTING POLICIES
CONSOLIDATION
HRP fully consolidates into its financial statements majority owned
entities and reflects a minority interest for those entities not fully
owned. For each of the three years in the period ended December 31,
1998, all entities and Properties were fully owned. All significant
intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
HRP considers highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents.
PROPERTY
Property is stated at cost. Renovations and improvements are
capitalized; maintenance and repairs are expensed. When an asset is
sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and any gain or any
previously unanticipated loss is recognized in the year of sale or
disposition. HRP's management routinely reviews its investments for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Depreciation of buildings is computed using the straight-line method
over estimated useful lives ranging from 15 to 43 years. Equipment and
other improvements are depreciated on the straight-line method over
estimated useful lives ranging from 3 to 23 years. Tenant improvements
are capitalized and amortized over the terms of the respective leases.
During 1997, HRP completed a review of its real estate lives. In light
of recent improvements and actions taken to increase its preventative
maintenance programs, the estimated economic lives for buildings were
found to be generally longer than the useful lives being used for
depreciation purposes. Accordingly, effective January 1, 1997, HRP
extended the depreciable lives of certain building costs. The effect
of this change in estimate reduced depreciation and amortization
expense and improved the net operating results by $7,200,000 ($4.26
per unit) for the year ended December 31, 1997.
Page 21 of 38
<PAGE> 22
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
2. ACCOUNTING POLICIES - (CONTINUED)
HRP accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of a
remedial feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when their
receipt is deemed probable. HRP's management is not aware of any
environmental remediation obligations which would materially affect
the operations, financial position or cash flows of HRP and therefore
has made no loss accruals.
OTHER ASSETS
Lease concessions and commissions are amortized over the terms of the
respective leases. Leases at the Properties expire from 1999 to 2013.
Loan costs are amortized over the terms of the respective loans. The
loans mature between 2003 and 2008. Amortization of lease concessions
income, included in property operations revenues, was $444,000 and
$157,000 in 1998 and 1997, respectively. Amortization of lease
concessions expense, included in property operations revenues, was
$144,000 in 1996. Amortization of lease commissions, included in
depreciation and amortization expense, was $2,232,000, $2,101,000, and
$1,897,000 in 1998, 1997 and 1996, respectively. Amortization of loan
costs, included in interest expense, was $456,000, $453,000, and
$453,000 in 1998, 1997 and 1996, respectively. The caption "Other
assets" on the Consolidated Balance Sheet includes prepaid real estate
taxes, prepaid insurance and other miscellaneous deposits and prepaid
expenses.
REVENUE RECOGNITION
Rental income is recognized as earned on a straight-line basis over
the terms of the respective leases.
INTEREST RATE AGREEMENTS
Interest rate swaps are entered into as a hedge against interest
exposure of variable rate debt. Differences between amounts to be paid
or received on these interest rate agreements designated as hedges are
included in interest expense as the payments are made or received. HRP
is exposed to credit-related gains or losses in the event of
non-performance by counterparties; however, HRP does not expect any
counterparties to fail to meet their obligations.
INCOME TAXES
Currently, HRP is a non-taxable entity. Federal and state income
taxes, if any, are the responsibility of the individual partners.
Accordingly, the Consolidated Financial Statements do not include a
provision for income taxes. However, certain business and franchise
taxes are the responsibility of HRP and subsidiary entities. These
business and franchise taxes, included in general and administrative
expenses, were $248,000, $117,000, and $206,000, in 1998, 1997, and
1996, respectively. HRP's tax returns are subject to examination by
federal and state taxing authorities. If HRP's amounts are ultimately
changed by the taxing authorities, the tax liability of the partners
could be changed accordingly. Additionally, no assurance can be given
that the federal or state governments will not pass legislation that
will characterize HRP as an association taxable as a corporation for
federal income tax purposes. Such classification may have an adverse
effect on HRP.
Page 22 of 38
<PAGE> 23
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
2. ACCOUNTING POLICIES - (CONTINUED)
COMPUTATION OF NET INCOME (LOSS) PER UNIT
Basic earnings per unit is computed by dividing net income
attributable to the limited partners' interests by the weighted
average number of units outstanding. Earnings per unit assuming
dilution is computed by dividing net income attributable to the
limited partners' interests by the weighted average number of units
and potential units outstanding. Options to acquire units were issued
during 1995 and are considered to be potential units. The number of
potential units is computed using the treasury stock method which
assumes that the increase in the number of units is reduced by the
number of units which could have been repurchased by HRP with the
proceeds from the exercise of these options. The options are
considered antidilutive in 1996 and therefore are not taken into
consideration in the computation of earnings per unit assuming
dilution. The following table illustrates the amounts used to
calculate the weighted average number of units outstanding:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Weighted average units outstanding - basic 1,673 1,673
Issuance of units from options 86 86
Repurchase of units from unit option proceeds (18) (29)
------ ------
Weighted average units outstanding - assuming dilution 1,741 1,730
====== ======
</TABLE>
FINANCIAL STATEMENTS AND OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets,
liabilities, revenues, and expenses as of and for the reporting
periods. Actual results may differ from these estimates.
HRP has adopted Statements of Financial Accounting Standards ("SFAS")
No. 130 "Reporting on Comprehensive Income" effective January 1, 1998.
HRP had no items of other comprehensive income in the years presented.
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" redefined how operating segments are determined and
requires disclosure of certain financial and descriptive information
about a company's operating segments. HRP has evaluated the guidance
under SFAS No. 131 and determined that it operates in only one
segment.
SFAS No. 133 "Accounting of Derivative Instruments and Hedging
Activities" was issued in June 1998 and is effective for periods
beginning after June 15, 1999. It requires that all derivative
instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period
in current earnings of other comprehensive income depending on whether
a derivative is designated as part of a hedge transaction, and if it
is, the type of hedge transaction. The impact on HRP's results of
operation, financial position, or cash flows will be dependent on the
level and types of derivative instruments that HRP will have entered
into at the time SFAS No. 133 is implemented. HRP is currently not
planning on early adoption of SFAS No. 133 and has not had an
opportunity to evaluate the impact of the provisions of SFAS No. 133
on its consolidated financial statements relating to future adoption.
Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-up
Activities" was issued in April 1998. SOP 98-5 concluded that costs of
start-up activities, including organization costs, should be expensed
as incurred. HRP's early adoption of this SOP did not have a
significant effect on the financial statements.
Page 23 of 38
<PAGE> 24
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
3. TRANSACTIONS WITH RELATED PARTIES
Realty receives certain fees in connection with the ongoing management
of HRP, including an asset management fee, acquisition fees and
incentive disposition fees. Specifically, Realty is entitled to
receive (i) an asset management fee equal to 1% of the net aggregate
base rents of the Properties, (ii) acquisition fees equal to 1% of the
purchase price of newly acquired properties, and (iii) incentive fees
for performing disposition services with respect to real estate
investments, other than the properties owned at the time of HRP's
formation on November 1, 1990, equal to 10% of the amount, by which
the sales price of a property disposed of exceeds the purchase price
of such property.
HCRE receives compensation in connection with the management of the
Properties, which includes a property management fee, lease
commissions and construction supervision fees. The management
contracts have been extended and expire June 30, 2004 and provide for
(i) basic compensation from a property management fee which is an
amount equal to 2.85% of cash receipts collected from the Properties'
tenants, (ii) lease commissions equal to the current market rate as
applied to the net aggregate rent, not to exceed 6% of the net
aggregate rent, and (iii) construction supervision fees for
administering all construction projects equal to 5% of the total
contracted costs of each capital expenditure or tenant improvement
project.
Realty and HCRE are compensated for services provided to HRP and its
Properties as described above. The following table sets forth such
compensation and reimbursement paid by HRP for the periods presented
(in thousands):
<TABLE>
<CAPTION>
Entity
Paid or
Reimbursed 1998 1997 1996
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Asset management fee Realty $ 495 $ 458 $ 450
Acquisition fee Realty -- 7 17
Reimbursement of costs (a) Realty 2,320 2,316 2,321
Property management fee HCRE 1,608 1,524 1,433
Lease commissions HCRE 1,964 1,425 2,888
Construction fees HCRE 314 353 382
</TABLE>
(a) These costs are mostly recorded as General and
Administrative Expenses and represent reimbursement to
Realty, at cost, for partnership level salaries, employee
and director insurance and certain overhead costs. HRP
pays, on a monthly basis, the balance of its account with
Realty.
4. PROPERTY ACQUISITION AND PROPERTY SALE
In May 1997, HRP acquired 6.2 acres of land at the Corporate Square
office complex of which about half is a parking lot and the other half
is wooded land for a purchase price of $725,000, plus about $25,000 of
miscellaneous costs. The purchase price consisted of a $75,000 cash
down payment and a $650,000 seven year, fully-amortizing non-recourse
mortgage note with 0% interest the first year; 4% interest in years
two and three; 6% interest in years four and five; and 8% interest in
years six and seven. For financial reporting purposes, the carrying
values of the mortgage note and land were reduced by $101,000 in order
to reflect an imputed market interest rate of 8% for the mortgage
note.
In October 1997, HRP sold one building in Fairlane Commerce Park
containing 3,500 net rentable square feet on approximately 0.5 acres
for $510,000 in cash before closing expenses of $8,000. HRP recorded a
$394,000 gain from the property sale.
Page 24 of 38
<PAGE> 25
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
5. MORTGAGES PAYABLE
Substantially all of the buildings in eleven of HRP's Properties were
encumbered and pledged as collateral by eight non-recourse mortgages
aggregating $162,078,000 as of December 31, 1998. These mortgages have
interest rates varying from 6.78% to 8.7% (with an effective average
interest rate of 8.1%) and mature between 2003 and 2008. Cash interest
payments were $13,934,000, $14,177,000, and $14,947,000, in 1998, 1997
and 1996, respectively.
Most of the mortgages require monthly principal payments with balloon
payments due at maturity. The following table shows for the periods
presented the principal and balloon payments that are required (in
thousands):
<TABLE>
<CAPTION>
Total
Principal Balloon Mortgage
Payments Payments Payments
-------- -------- --------
<S> <C> <C> <C>
1999 $ 2,470 $ -- $ 2,470
2000 2,669 -- 2,669
2001 2,930 -- 2,930
2002 3,183 -- 3,183
2003 3,430 4,900 8,330
Thereafter 8,021 134,475 142,496
-------- -------- --------
Total $ 22,703 $139,375 $162,078
======== ======== ========
</TABLE>
EXECUTIVE PARK -
On February 27, 1998, HRP entered into an agreement to refinance the
mortgage loan secured by Executive Park that became effective March
20, 1998. The new loan reduces the interest rate from 8.87% to an
effective interest rate of 7.32% and extends the amortization period
from fifteen years to twenty-seven years with a maturity date of April
11, 2008. The loan proceeds of $34,000,000 were used (i) to pay the
outstanding principal balance of $28,707,000 with the former lender,
(ii) to pay transaction costs of $901,000, (iii) to pay a prepayment
penalty of $1,465,000, (iv) to pay $550,000 of net loan reserves, and
(v) for general working capital. The prepayment penalty along with the
writeoff of $146,000 of unamortized loan costs associated with the
retired loan were expensed and are included in the Statement of
Operations as an extraordinary item.
SEATTLE BUSINESS PARKS -
On June 1, 1998, HRP refinanced the mortgage loan secured by Seattle
Business Parks into two new loans which reduced the interest rate from
9.25% to 6.97%. The new loans lengthen the amortization period from
twenty-two years to thirty years and the maturity date was extended by
seven years to June 7, 2008. The loan proceeds of $7,500,000 were used
(i) to pay the outstanding principal balance of $6,339,000 with the
former lender, (ii) to pay transaction costs of $220,000, (iii) to pay
a prepayment penalty of $190,000, and (iv) for general working
capital. The prepayment penalty along with the writeoff of $75,000 of
unamortized loan costs associated with the retired loan were expensed
and are included in the Statement of Operations as an extraordinary
item.
FIRST MARYLAND BUILDING -
Effective May 1, 1996, the lender for First Maryland Building extended
the loan to April 30, 2003 with an interest rate of LIBOR plus 3.25%
and forgave $3,237,000 of the principal balance in addition to the
$9,250,000 of forgiveness granted in September 1995. The extension
required 49.9% of the property's net cash flow to be used to amortize
the loan's principal balance. During 1997, an additional $144,000 of
forgiveness was recorded.
Page 25 of 38
<PAGE> 26
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
5. MORTGAGES PAYABLE - (CONTINUED)
For financial reporting purposes, the mortgage principal forgiveness
was treated as a troubled debt restructuring and accordingly, HRP did
not recognize a gain. Instead, the mortgage principal forgiveness
remained on the balance sheet and was being amortized over the life of
the loan. Interest expense was computed in such a way that a constant
effective interest rate (equal to approximately 1.19% as of November
1998) was applied to the carrying amount of the loan.
On November 16, 1998, HRP refinanced First Maryland Building's loan
with a new lender. The interest rate was reduced to LIBOR plus 1.30%
from LIBOR plus 3.25% and the maturity date was extended three years
to April 30, 2006. The new loan does not require any principal
amortization. In connection with the refinancing, HRP entered into an
interest rate swap agreement to reduce its exposure to changes in
interest rates, which as been designated as a hedge against HRP's
variable interest exposure relating to the loan with a notional amount
of $25,000,000 terminating on April 30, 2006. This agreement, which is
settled monthly, effectively fixes the loan's interest rate at 6.78%
compared to the previous loan's rate of 8.47% as of November 1998.
The loan proceeds of $25,000,000 plus $15,000 of cash were used (i) to
pay the outstanding principal balance of $24,531,000 with the former
lender, (ii) to pay transaction costs of $284,000, and (iii) to pay a
prepayment penalty of $200,000.
The remaining unamortized debt forgiveness of $7,441,000 less the
prepayment penalty of $200,000 and unamortized loan costs of $18,000,
all associated with the retired loan, resulted in a gain from early
extinguishment of debt of $7,223,000 included in the Statements of
Operations as an extraordinary item.
For federal income tax purposes, debt forgiveness of $12,487,000 was
reported as a 1996 gain to the partners of HRP.
6. LEASE AGREEMENTS
The lease provisions generally require tenants to pay fixed rental
amounts plus their proportionate share of certain building operating
costs and real property taxes. In addition, certain leases include
provisions for annual rental adjustments. Revenue from expense
recoveries, included in property operations, was $2,591,000,
$2,561,000, and $2,416,000 in 1998, 1997 and 1996, respectively. At
December 31, 1998, the Properties, in the aggregate, were 93% occupied
and minimum cash rental payments to be received under non-cancelable
leases with tenants were as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 46,154
2000 39,262
2001 29,097
2002 22,089
2003 14,259
Thereafter 39,355
---------
Total $ 190,216
=========
</TABLE>
During 1998, one tenant contributed more than 10% of the total
revenues of the Partnership. During 1997, two tenants leasing space
each contributed more than 10% of the total revenues of the
Partnership. Ford Motor Company and affiliates ("Ford") leases space
in Parklane Towers and Fairlane Commerce Park and contributed 13% and
15% of revenues in 1998 and 1997, respectively. The Centers for
Disease Control and Prevention ("CDC"), an agency of the U.S.
Department of Health and Human Services, leases space in Corporate
Square and Executive Park and contributed 9% and 10% of the revenues
in 1998 and 1997, respectively.
Page 26 of 38
<PAGE> 27
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
6. LEASE AGREEMENTS - (CONTINUED)
As of December 31, 1998, Ford occupied 233,000 square feet of office
space under 9 separate leases at Parklane Towers and 255,000 square
feet of office, technical laboratory and industrial space under 9
separate leases at Fairlane Commerce Park. These leases expire between
1999 and 2003 and most contain renewal options, providing for one to
ten year renewals. As of December 31, 1998, CDC occupied 218,000
square feet of office space at Executive Park under 5 leases which
expire between 2001 and 2003 and 158,000 square feet of office space
at Corporate Square under a lease which expires in 2013.
The remaining tenants are not concentrated in any one industry, nor is
HRP otherwise dependent on any group of related tenants for 10% or
more of its revenues.
7. PARTNERS' CAPITAL
HRP has adopted the disclosure-only provisions of SFAS No. 123 -
"Accounting for Stock Based Compensation". Accordingly, no
compensation cost has been recognized for the options. HRP issued
options in 1995, which were vested over a three year period ending in
1997, and accordingly had no effect to 1998. Had compensation costs
for the Options been determined based on the fair value at the grant
date for the awards in 1995 consistent with the provisions of SFAS No.
123, HRP's net loss and net loss per unit for 1997 and 1996 would have
been the pro forma amounts indicated below (in thousands except per
unit amounts):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income (loss) - as reported $ 2,357 $ (9,428)
Net income (loss) - pro forma 2,325 (9,623)
Net income (loss) per unit:
As reported -
Basic 1.40 (5.50)
Assuming dilution 1.35 (5.50)
Pro forma -
Basic 1.38 (5.61)
Assuming dilution 1.33 (5.61)
</TABLE>
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used: expected volatility of 57.8%, risk-free interest
rate of 7.1%, expected life of 5 years and no distribution yield.
UNIT PURCHASES - 1996
HRP purchased, in private transactions, 74,760 units for $1,775,000 in
May 1996 and 449 units for $12,000 in July 1996. Accordingly, HRP's
outstanding units decreased from 1,747,765 Units to 1,672,556 units.
In addition, the General Partner's capital account was adjusted by
$18,000 in order to maintain its 1% general partner interest, in
accordance with HRP's Partnership Agreement.
Page 27 of 38
<PAGE> 28
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value amounts of certain financial instruments have
been determined using available market information based upon
negotiations held by Realty with potential lenders or other
appropriate valuation methodologies that require considerable judgment
in interpreting market data and developing estimates. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Partnership could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The fair value of financial instruments that are short-term or
re-price frequently and have a history of negligible credit losses is
considered to approximate their carrying value. These include cash and
cash equivalents, short term receivables, accounts payable and other
liabilities. Real estate and other assets consist of nonfinancial
instruments.
Management has reviewed the carrying values of its mortgages payable
in connection with interest rates currently available to the
Partnership for borrowing with similar characteristics and maturities
(approximately 7.25% and 7.75% as of December 31, 1998 and 1997,
respectively) and has determined that they would equal approximately
$171,921,000 and $166,871,000 (excluding the unamortized mortgage
payable forgiveness at December 31, 1997 discussed in Note 4) of
estimated fair value as of December 31, 1998 and 1997, respectively.
The fair value of HRP's interest rate swap agreement (used to hedge
against exposure to interest rate fluctuations) is $366,000, the
estimated amount that HRP would have to pay to terminate the agreement
as of December 31, 1998. The amount was determined based on a quote
received from its lender.
As of December 31, 1998 and 1997, the fair value information presented
herein is based on pertinent information available to management.
Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since that date and, therefore current estimates of fair
value may differ significantly from the amounts presented herein.
9. COMMITMENTS AND CONTINGENCIES
LITIGATION
On February 27, 1997, a lawsuit was filed in the Chancery Court for
New Castle County, Delaware, styled Gotham Partners, L.P. v. Hallwood
Realty Partners, L.P. and Hallwood Realty Corporation (C.A. No.
15578). The complaint sought access to certain books and records of
HRP, a list of the limited partners and reimbursement of the
plaintiff's expenses.
On June 20, 1997, Gotham Partners, L.P. filed a separate complaint in
the Chancery Court for New Castle County, Delaware, styled Gotham
Partners, L.P. v. Hallwood Realty Partners, L.P., et al. (C.A. No.
15754), against Hallwood, HRP, Realty, and the directors of Realty,
alleging claims of breach of fiduciary duties, breach of HRP's
partnership agreement, fraud, and as to Hallwood, aiding and abetting
these alleged breaches. At the same time as the filing of this
complaint, plaintiff filed a motion to amend its complaint in the
earlier action to allege the same facts and demand the same relief as
plaintiff sought in the separate complaint.
On June 27, 1997, the parties entered into a Stipulation and Order
under which HRP provided to plaintiff copies of certain of the
documents requested. The other claims in the two actions remain
outstanding.
On August 27, 1997, defendants moved to dismiss the complaint in the
separate action for plaintiff's failure either to make a demand on the
general partner to bring suit or to allege adequately that such a
demand was futile. On February 6, 1998, the Court granted defendants'
motion to dismiss but gave plaintiff thirty days to file an amended
complaint. Plaintiffs filed an amended complaint on March 6, 1998,
which defendants again moved to dismiss. This motion was denied and
the parties are proceeding with discovery.
Page 28 of 38
<PAGE> 29
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
9. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
HRP's management believes that the claims are without merit and intend
to defend the cases vigorously, but because of their early stages,
cannot predict the outcome of the claims or any possible effect an
adverse outcome might have.
HRP is from time to time involved in various legal proceedings and
claims which arise in the ordinary course of business. These matters
are generally covered by insurance. Management believes that the
resolution of these matters will not have a material adverse effect on
HRP's financial position, cash flow or operations.
ASBESTOS
Parklane Towers, as well as certain other properties to a lesser
extent, are known to contain asbestos. Removal of the asbestos at
Parklane Towers is estimated to cost approximately $1,700,000;
however, it is not required to be removed since it is not friable and
the Partnership has an Operations and Maintenance Program in place.
Federal and state environmental legislation or regulations may have an
impact on the future operations of Parklane Towers or certain other
properties if such legislation or regulations require the immediate
expenditure of funds to comply with applicable restrictions or
requirements.
RIGHTS PLAN
HRP has a Unit Purchase Rights Agreement ("Rights Plan") that provides
for a distribution of one right for each unit of the Partnership to
holders of record at the close of business as of December 10, 1990.
The rights will become exercisable only in the event, with certain
exceptions, an acquiring party accumulates 15 percent or more of the
Partnership's units, or if a party commences or announces an intent to
commence a tender offer or exchange offer to acquire 30 percent or
more of such units. The rights will expire on November 30, 2000. Each
right will entitle the holder to buy one additional unit at a price of
$250. In addition, upon the occurrence of certain events, holders of
the rights will be entitled to purchase either Partnership units or
shares in an "acquiring entity" at half of market value. HRP will
generally be entitled to redeem the rights at $.01 per right at any
time on or prior to the tenth day following the acquisition of a 15
percent or greater interest in its units.
OTHER
As of December 31, 1998, HRP had remaining commitments for current
construction projects of about $1,570,000. Additionally, HRP has
estimated and budgeted for 1999 tenant and capital improvements
(including the aforementioned commitments) of $7,300,000 and lease
commissions of about $2,130,000.
Page 29 of 38
<PAGE> 30
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Set forth below is selected quarterly financial data for the years
ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Quarter Ending
---------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(in thousands except per unit amounts)
1998
----
<S> <C> <C> <C> <C>
Total revenues $ 13,823 $ 13,771 $ 14,515 $ 14,571
Property operations revenues less property
operations expenses and general
and administrative expenses 7,183 7,581 7,674 7,833
Net income (loss) (a) (542) 1,390 1,727 9,018
Net income (loss) per unit - basic (.32) .82 1.02 5.34
Net income (loss) per unit - assuming dilution (.31) .79 .98 5.13
1997
----
Total revenues (b) $ 12,908 $ 13,443 $ 13,533 $ 14,015
Property operations revenues less property
operations expenses and general
and administrative expenses 6,135 7,054 6,693 6,522
Net income 68 936 569 784
Net income per unit - basic .04 .55 .34 .47
Net income per unit - assuming dilution .04 .54 .33 .45
</TABLE>
(a) Net income (loss) for the first and second quarter of 1998
includes losses on early extinguishments of debt of
$1,611,000 and $265,000, respectively. Net income for the
fourth quarter of 1998 includes a gain on early
extinguishment of debt of $7,223,000. (See Note 5 to the
Consolidated Financial Statements for more information about
the refinancing of mortgage loans during 1998).
(b) Total revenues in the fourth quarter of 1997 include $394,000
of gain from the sale of a property.
Page 30 of 38
<PAGE> 31
HALLWOOD REALTY PARTNERS, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Costs
capitalized
subsequent to
Initial cost acquisition
--------------------- -------------
Buildings Buildings
and and
Description (A) Encumbrances Land improvements improvements
- --------------- ------------ ---- ------------ -------------
<S> <C> <C> <C> <C>
Airport Plaza $ 771 $ 300 $ 4,013 $ 309
Bellevue Corporate Plaza 15,421 7,428 17,617 2,673
Bradshaw Business Parks 6,152 5,018 15,563 4,418
Corporate Square 12,901 6,142 14,112 8,056
Executive Park 33,747 15,243 34,982 9,910
Fairlane Commerce Park 20,433 5,191 18,080 5,807
First Maryland Building 25,000 2,100 43,772 3,693
Joy Road Distribution Center -- 359 1,340 1,704
Montrose Office Center 6,265 5,096 15,754 3,645
Parklane Towers 23,131 3,420 37,592 4,543
Raintree Industrial Park 10,795 1,191 18,208 1,405
Seattle Business Parks 7,462 4,953 8,730 4,260
Corporate office equipment -- -- -- 94
-------- -------- -------- --------
TOTAL $162,078 $ 56,441 $229,763 $ 50,517
======== ======== ======== ========
<CAPTION>
Gross amount at which
carried at close of period
---------------------------------
Buildings Accumulated
and depreciation Date
Description (A) Land improvements Total (B) (B)(C) acquired
--------------- ---- ------------ --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Airport Plaza $ 300 $ 4,322 $ 4,622 $ 3,761 4/30/87
Bellevue Corporate Plaza 7,428 20,290 27,718 5,494 6/30/88
Bradshaw Business Parks 5,018 19,981 24,999 11,287 9/24/85
Corporate Square 6,142 22,168 28,310 14,221 8/2/85 & 10/1/92
Executive Park 15,243 44,892 60,135 32,668 12/19/85
Fairlane Commerce Park 5,191 23,887 29,078 10,841 12/30/86 & 7/1/87
First Maryland Building 2,100 47,465 49,565 26,943 6/29/84
Joy Road Distribution Center 359 3,044 3,403 416 2/14/96
Montrose Office Center 5,096 19,399 24,495 8,028 1/8/88
Parklane Towers 3,420 42,135 45,555 29,008 12/16/84
Raintree Industrial Park 1,191 19,613 20,804 10,439 7/17/86
Seattle Business Parks 4,953 12,990 17,943 7,796 4/24/86
Corporate office equipment -- 94 94 40 various
-------- -------- -------- --------
TOTAL $ 56,441 $280,280 $336,721 $160,942
======== ======== ======== ========
</TABLE>
See notes to Schedule III on following page.
Page 31 of 38
<PAGE> 32
HALLWOOD REALTY PARTNERS, L.P.
NOTES TO SCHEDULE III
DECEMBER 31, 1998
(IN THOUSANDS)
(A) PROPERTY LOCATIONS ARE AS FOLLOWS:
<TABLE>
<S> <C>
Airport Plaza San Diego, California
Bellevue Corporate Plaza Bellevue, Washington
Bradshaw Business Parks Sacramento and Rancho Cordova, California
Corporate Square Atlanta, Georgia
Executive Park Atlanta, Georgia
Fairlane Commerce Park Dearborn, Michigan
First Maryland Building Baltimore, Maryland
Joy Road Distribution Center Detroit, Michigan
Montrose Office Center Rockville, Maryland
Parklane Towers Dearborn, Michigan
Raintree Industrial Park Solon, Ohio
Seattle Business Parks Kent and Tukwila, Washington
</TABLE>
(B) RECONCILIATION OF CARRYING COSTS (in thousands):
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---- ------------
<S> <C> <C>
Balance, January 1, 1996 $ 330,478 $ 138,212
Additions 7,697 17,086
Retirements (5,784) (5,784)
--------- ---------
Balance, December 31, 1996 332,391 149,514
Additions 6,183 9,924
Retirements and disposition (4,179) (4,071)
--------- ---------
Balance, December 31, 1997 334,395 155,367
Additions 6,603 9,852
Retirements (4,277) (4,277)
--------- ---------
Balance, December 31, 1998 $ 336,721 $ 160,942
========= =========
</TABLE>
(C) COMPUTATION OF DEPRECIATION:
Depreciation of buildings is computed using the straight-line method over
estimated useful lives ranging from 15 to 43 years. Equipment and other
improvements are depreciated on the straight-line method over estimated
useful lives ranging from 3 to 23 years. Tenant improvements are
capitalized and amortized over the term of the respective leases.
Accumulated depreciation also includes loss reserves established for
anticipated losses on future dispositions.
During 1997, HRP completed a review of its real estate lives. In light of
recent improvements and actions taken to increase its preventative
maintenance programs, the estimated economic lives for buildings were found
to be generally longer than the useful lives being used for depreciation
purposes. Accordingly, effective January 1, 1997, HRP extended the
depreciable lives of certain building costs. The effect of this change in
estimate reduced depreciation and amortization expense by $7,200,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
Page 32 of 38
<PAGE> 33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no officers or directors. Realty, as general partner of
the Partnership, performs all functions ordinarily performed by officers and
directors. Realty was originally incorporated in Delaware in January 1990 and
became a limited liability company formed in Delaware in December 1998.
BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS OF REALTY -
ANTHONY J. GUMBINER, 54, CHAIRMAN OF THE BOARD AND DIRECTOR OF REALTY
Mr. Gumbiner has served as Chairman of the Board of Directors of
Hallwood since 1981 and as its Chief Executive Officer since April
1984. He has served as Chairman of the Board of Directors since May
1984 and Chief Executive Officer since February 1987 of the general
partner of Hallwood Energy Partners, L.P. ("HEP"). He has also served
as the managing director of Hallwood Holdings S.A. ("HHSA") since
March 1984; as a director of Realty since 1990; and as a director of
Hallwood Consolidated Resources Corporation ("HCRC") since 1992. Mr.
Gumbiner is also a Solicitor of the Supreme Court of Judicature of
England.
BRIAN M. TROUP, 51, DIRECTOR OF REALTY
Mr. Troup has served as a director of Hallwood since 1981 and as
President and Chief Operating Officer of Hallwood since April 1986.
Mr. Troup has served as a director of the general partner of HEP since
May 1984. He also has served as a director of HCRC since 1992; as a
director of HHSA since March 1984; and as a director of Realty since
1990. He is an associate of the Institute of Bankers in Scotland and a
member of the Society of Investment Analysts in the United Kingdom.
WILLIAM L. GUZZETTI, 55, PRESIDENT AND DIRECTOR OF REALTY
Mr. Guzzetti has been President and a director of Realty since January
1990. He has served as Executive-Vice President of Hallwood since
October 1989 and as President and a director of HCRC since 1992. Mr.
Guzzetti has been President and a director of the general partner of
HEP since February 1985.
JOHN G. TUTHILL, 55, EXECUTIVE VICE PRESIDENT AND SECRETARY
Mr. Tuthill has been an Executive Vice President and Secretary of
Realty since January 1990. Mr. Tuthill joined Hallwood in October 1989
to head all property management functions, having previously served as
President of Southmark Commercial Management since November 1986,
where he was responsible for a diversified real estate portfolio of
over 18,000,000 square feet.
UDO H. WALTHER, 50, EXECUTIVE VICE PRESIDENT
Mr. Walther has been an Executive Vice President of Realty since
November 1, 1998. Mr. Walther was a member of the Board of Directors
of Realty from June 17, 1994 to November 1, 1998. Mr. Walther had been
President and Chief Executive Officer of Walther Group, Inc., a full
service design and construction consultancy, and President of Precept
Builders, Inc. from 1991 to 1998. Previously, Mr. Walther was a
Partner at Trammell Crow Company, Project Manager with HCB Contractors
and Marketing Vice President for Researched Investments, Ltd.
JEFFREY D. GENT, 51, VICE PRESIDENT - FINANCE
Mr. Gent has been the Vice President-Finance of Realty since March
1990, having previously served as Vice President Finance of Southmark
Commercial Management since September 1984, where he was responsible
for the financial functions of a diversified real estate portfolio of
over 18,000,000 square feet.
ALAN G. CRISP, 57, DIRECTOR OF REALTY
Mr. Crisp was Chairman and Chief Executive Officer of Atlantic
Metropolitan Holdings (U.K.) plc from 1979 until 1988, when he joined
Interallianz Bank Zurich AG. From 1988 to 1993, he was General Manager
of the London Office of the Bank. Since 1994, Mr. Crisp has been a
consultant for various international companies. He is a Fellow of the
Royal Institution of Chartered Surveyors and holds a B.A. (Hons)
Degree.
WILLIAM F. FORSYTH, 49, DIRECTOR OF REALTY
Mr. Forsyth has been Chairman of Kildalton & Co., an investment
management consultancy based in Edinburgh, Scotland since 1992. He
graduated in law at Edinburgh University in 1971, and is a member of
the Society of Investment Analysts in the United Kingdom.
Page 33 of 38
<PAGE> 34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)
EDWARD T. STORY, 55, DIRECTOR OF REALTY
Mr. Story has been President and Chief Executive Officer of SOCO
International, plc, an oil and gas company, since September, 1991.
Prior to September 1991, he was Founder and Chairman of Thaitex
Petroleum Company, Co-founder and Chief Financial Officer of Conquest
Exploration Company, the Chief Financial Officer for Superior Oil
Company and Exploration and Production Controller with Exxon
Corporation.
Section 16(a) of the Securities and Exchange Act of 1934 requires a
registrant's officers and directors, if any, and persons who own more than ten
percent of a registered class of HRP's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the American Stock Exchange. Officers, directors and greater
than ten percent shareholders are required by the SEC regulations to furnish
HRP with copies of all Section 16(a) forms they file. Based solely on a review
of the copies of such forms furnished to HRP, or written representations that
no Forms 5 were required, HRP believes that during the period January 1, 1998
to December 31, 1998, all Section 16(a) filing requirements applicable to its
officers and directors were complied with.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND COMPENSATION OF
DIRECTORS
Realty does not have a compensation committee and compensation decisions are
made by the Board of Directors of Realty. During 1998, Messrs. Gumbiner, Troup
and Guzzetti served on the Board of Directors of Realty and the compensation
committee of Hallwood Energy. Mr. Gumbiner is also Chief Executive Officer of
Hallwood, Realty and the general partner of HEP. Mr. Troup is also President
and Chief Operating Officer of Hallwood. Mr. Guzzetti is also President and
Chief Operating Officer of Realty, Chief Operating Officer and President of the
general partner of HEP, and Executive Vice President of Hallwood. Messrs.
Forsyth, Crisp, Story and Walther were each paid $20,000 in each of the three
years ended December 31, 1998 for director fees.
Realty receives certain fees in connection with the ongoing management of HRP,
including an asset management fee, acquisition fees and incentive disposition
fees. Specifically, Realty is entitled to receive (i) an asset management fee
equal to 1% of the net aggregate base rents of the Properties, (ii) acquisition
fees equal to 1% of the purchase price of newly acquired properties, and (iii)
incentive fees for performing disposition services with respect to real estate
investments, other than the properties owned at the time of HRP's formation on
November 1, 1990, equal to 10% of the amount, by which the sales price of a
property disposed of exceeds the purchase price of such property.
HCRE receives compensation in connection with the management of the Properties,
which includes a property management fee, lease commissions and construction
supervision fees. The management contracts expire June 30, 1999 and provide for
(i) basic compensation from a property management fee which is an amount equal
to 2.85% of cash receipts collected from the Properties' tenants, (ii) lease
commissions equal to the current market rate as applied to the net aggregate
rent, not to exceed 6% of the net aggregate rent, and (iii) construction
supervision fees for administering all construction projects equal to 5% of the
total contracted costs of each capital expenditure or tenant improvement
project.
Realty and HCRE are compensated for services provided to HRP and its Properties
as described above. The following table sets forth such compensation and
reimbursement paid by HRP for the periods presented (in thousands):
<TABLE>
<CAPTION>
Entity
Paid or
Reimbursed 1998 1997 1996
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Asset management fee Realty $ 495 $ 458 $ 450
Acquisition fee Realty - 7 17
Reimbursement of costs (a) Realty 2,320 2,316 2,321
Property management fee HCRE 1,608 1,524 1,433
Lease commissions HCRE 1,964 1,425 2,888
Construction fees HCRE 314 353 382
</TABLE>
(a) These costs are mostly recorded as General and
Administrative Expenses and represent reimbursement to
Realty, at cost, for partnership level salaries, employee
and director insurance and certain overhead costs. HRP
pays, on a monthly basis, the balance of its account with
Realty.
Page 34 of 38
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION - (CONTINUED)
CASH COMPENSATION OF EXECUTIVE OFFICERS
The Partnership has no executive officers, however, employees of Realty
(general partner of the Partnership) perform all functions ordinarily performed
by executive officers. The following table sets forth annual compensation
information for the Chief Executive Officer and the three other executive
officers with earnings that exceeded $100,000 for the year ended December 31,
1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
-------------------------------------------------
Other Annual
Name and Principal Position Year Salary (a) Bonus Compensation (b)
- --------------------------- ---- ---------- ----- ----------------
<S> <C> <C> <C> <C>
Anthony J. Gumbiner 1998 $ -- $ -- $ --
Chairman of the Board and 1997 -- -- --
Chief Executive Officer 1996 -- -- --
William L. Guzzetti 1998 200,000 15,833 --
President and Chief 1997 200,000 17,583 --
Operating Officer 1996 200,000 8,333 --
John G. Tuthill 1998 150,360 57,265 8,212
Executive Vice President 1997 150,360 46,265 8,256
and Secretary 1996 150,360 46,265 3,345
Jeffrey D. Gent 1998 104,366 27,523 5,984
Vice President - Finance 1997 99,396 11,212 6,385
1996 90,360 15,648 2,317
</TABLE>
-----------------
(a) Represents executive officers' gross salary before contributions
to the qualified 401(k) Tax Favored Savings Plan. .
(b) Represents employer matching contributions to the 401(k) Tax
Favored Savings Plan or payments in lieu thereof . made under a
special bonus arrangement.
The following table discloses for each of the executive officers of Realty, who
have been granted options to purchase securities . of HRP the number of such
options held by each of the executive officers and the potential realizable
values for their options at December 31, 1998. None of the executive officers
exercised any options during the year ended December 31, 1998 and HRP has not
granted SARs.
AGGREGATED OPTION/SAR EXERCISES IN 1998
AND OPTION/SAR VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
Units December 31, 1998 December 31, 1998
Acquired -------------------------------- -----------------------------------
Name on Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Anthony J. Gumbiner 0 25,800 0 $ 1,228,725 $ 0
William L. Guzzetti 0 15,000 0 714,375 0
John G. Tuthill 0 13,000 0 619,125 0
Jeffrey D. Gent 0 7,000 0 333,375 0
</TABLE>
Page 35 of 38
<PAGE> 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 5, 1999 concerning the
number of Partnership units owned beneficially by (l) the persons who, to the
knowledge of the management, beneficially owned more than 5% of the units
outstanding on such date, (2) each director and (3) the present directors and
executive officers of Realty as a group:
<TABLE>
<CAPTION>
Amount Percent
Name and Address of Beneficially of
Beneficial Owner Owned (a) Class
- ------------------- ------------- --------
<S> <C> <C>
HWG, LLC
c/o The Hallwood Group Incorporated
3710 Rawlins, Suite 1500
Dallas, Texas 75219 413,040 24.7%
Gotham Partners, L.P. and
Gotham Partners, L.P. III
237 Park Avenue, 9th Floor
New York, NY 10017 247,994 14.8%
Private Management Group, Inc. ("PMG")
20 Corporate Park, Suite 400
Irvine, CA 92606 (b) 102,615 6.1%
Interstate Properties
Park 80 West, Plaza II
Saddle Brook, NJ 07662 98,600 5.9%
Alan G. Crisp (c) -- --
William F. Forsyth (c) -- --
Anthony J. Gumbiner (c) 25,800 (d) 1.5% (d)
William L. Guzzetti (c) 15,100 (e) 0.9% (e)
Edward T. Story (c) -- --
Brian M. Troup (c) 17,200 (f) 1.0% (f)
All directors and executive officers
as a group (9 persons) 78,100 (g) 4.5% (g)
</TABLE>
- --------------------
(a) Unless otherwise indicated, each of the persons named has sole
voting and investment power with respect to the units reported.
(b) PMG is an Investment Advisor registered under Section 203 of the
Investment Advisers Act of 1940 with sole power to vote or direct
the vote of all the units, including their directly-owned 840
units. PMG also has sole power to dispose or direct the disposition
of all of the units.
(c) Represents the following address: c/o Hallwood Realty, LLC, 3710
Rawlins, Suite 1500, Dallas, Texas, 75219.
(d) Comprised of currently exercisable options to purchase 25,800
units.
(e) Includes currently exercisable options to purchase 15,000 units.
(f) Comprised of currently exercisable options to purchase 17,200
units.
(g) Includes currently exercisable options to purchase 78,000 units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information covered by this item, see Note 3 to the Registrant's
financial statements included in Item 8 hereof.
Page 36 of 38
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) Financial Statements.
See Index contained in Item 8.
(2) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1998 or in
1999 prior to the filing of this Form 10-K for the year ended December
31, 1998.
(3) Exhibits and Reports on Form 8-K.
The response to this portion of Item 14 is incorporated by reference as
detailed in the Exhibit Index.
(4) Financial Statement Schedules.
See Index contained in Item 8.
Page 37 of 38
<PAGE> 38
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.
HALLWOOD REALTY PARTNERS, L.P.
BY: HALLWOOD REALTY, LLC
GENERAL PARTNER
DATE: March 10, 1999 BY: /s/ WILLIAM L. GUZZETTI
-------------- --------------------------------------
William L. Guzzetti
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K for the year ended December 31, 1998, has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ ANTHONY J. GUMBINER Chairman of the Board and Director, March 10, 1999
- -------------------------------------------------- Hallwood Realty, LLC --------------
Anthony J. Gumbiner (Chief Executive Officer)
/s/ WILLIAM L. GUZZETTI President and Director, March 10, 1999
- -------------------------------------------------- Hallwood Realty, LLC --------------
William L. Guzzetti (Chief Operating Officer)
/s/ JEFFREY D. GENT Vice President - Finance, March 10, 1999
- -------------------------------------------------- Hallwood Realty, LLC --------------
Jeffrey D. Gent (Chief Accounting Officer)
/s/ALAN G. CRISP Director, March 10, 1999
- -------------------------------------------------- Hallwood Realty, LLC --------------
Alan G. Crisp
/s/ WILLIAM F. FORSYTH Director, March 10, 1999
- -------------------------------------------------- Hallwood Realty, LLC --------------
William F. Forsyth
Director,
- -------------------------------------------------- Hallwood Realty, LLC --------------
Edward T. Story
/s/ BRIAN M. TROUP Director, March 10, 1999
- -------------------------------------------------- Hallwood Realty, LLC --------------
Brian M. Troup
</TABLE>
<PAGE> 39
HALLWOOD REALTY PARTNERS, L.P.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.1 (a) Certificate of Limited Partnership of Hallwood Realty
Partners, L.P., dated January 10, 1990.
3.2 (a) Amended and Restated Agreement of Limited Partnership of
Hallwood Realty Partners, L.P., dated June 7, 1990.
4.1 Unit Purchase Rights Agreement, dated as of November 30,
1990, between the Partnership and The First National Bank
of Boston, as Rights Agent (filed as part of Exhibit 1 to
Current Report of Form 8-K, dated November 30, 1990, and
which is incorporated herein by reference - File No.1
-10643). (4.1)
10.1 (b) Management Agreement between Equitec/San Diego and
Hallwood Management Company dated July 1, 1994.
10.2 (b) Management Agreement between Equitec/Bellevue Investors
and Hallwood Management Company dated July 1, 1994.
10.3 (b) Management Agreement between BBP General Partnership and
Hallwood Management Company dated July 1, 1994.
10.4 (b) Management Agreement between Hallwood Real Estate
Investors Fund XV and Hallwood Management Company dated
July 1, 1994.
10.5 (b) Management Agreement between Executive Park Ventures and
Hallwood Management Company dated July 1, 1994.
10.6 (b) Management Agreement between Equitec Dearborn Real
Estate Investors and Hallwood Management Company dated
July 1, 1994.
10.7 (b) Management Agreement between Hallwood Income Real
Estate Investors A and Hallwood Management Company dated
July 1, 1994.
10.8 (b) Management Agreement between Hallwood Real Estate
Investors Fund XVI Hallwood Management Company dated July
1, 1994.
10.9 (b) Management Agreement between First Associates Limited
Partnership and Hallwood Management Company dated July 1,
1994.
10.10 (b) Management Agreement between Montrose Center Limited
Partnership and Hallwood Management Company dated July 1,
1994.
</TABLE>
<PAGE> 40
HALLWOOD REALTY PARTNERS, L.P.
EXHIBIT INDEX - (Continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
10.11 (b) Management Agreement between Hallwood Real Estate
Investors Fund XIV and Hallwood Management Company dated
July 1, 1994.
10.12 (b) Management Agreement between Hallwood Real Estate
Investors Fund XVI and Hallwood Management Company dated
July 1, 1994.
10.13 (b) Management Agreement between SBP General and Hallwood
Management Company dated July 1, 1994.
10.14 (b) * 1995 Unit Option Plan for Hallwood Realty Partners, L.P.
10.15 (b) * 1995 Unit Option Plan Loan Program for Hallwood Realty
Partners, L.P.
10.16 Loan Agreement between Hallwood 95, L.P. and Nomura Asset
Capital Corporation. (Incorporated by reference from
exhibit 2.1 filed with Current Report on Form 8-K dated
September 29, 1995.)
10.17 Amended and Restate Agreement of Limited Partnership of
Hallwood 95, L.P. (Incorporated by reference from exhibit
10.17 filed with Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
27 Financial Data Schedule
</TABLE>
- ----------
* Constitutes a management compensation plan.
(a) Filed as an Exhibit to Registration Statement No. 33-35621 on Form S-4
of the Partnership, filed with the Commission on June 28, 1990, as
amended, on June 29, 1990 and incorporated herein by reference.
(b) Incorporated by reference as the exhibit indicated and filed with
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,497
<SECURITIES> 0
<RECEIVABLES> 1,456
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 336,721
<DEPRECIATION> 160,942
<TOTAL-ASSETS> 214,023
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 44,188
<OTHER-SE> 446
<TOTAL-LIABILITY-AND-EQUITY> 214,023
<SALES> 0
<TOTAL-REVENUES> 56,680
<CGS> 0
<TOTAL-COSTS> 34,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,781
<INCOME-PRETAX> 6,246
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,246
<DISCONTINUED> 0
<EXTRAORDINARY> 5,347
<CHANGES> 0
<NET-INCOME> 11,593
<EPS-PRIMARY> 6.86
<EPS-DILUTED> 6.59
</TABLE>
