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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD - FROM TO
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COMMISSION FILE NUMBER: 1-10643
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HALLWOOD REALTY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
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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:
Name of each exchange on
Title of each class which registered
- ------------------------------------------------ ------------------------
UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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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. [ ]
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 [ ] No [X]
The aggregate market value of units held by nonaffiliates of the registrant as
of March 13, 2000 was $61,711,000.
CLASS: UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS.
OUTSTANDING AT MARCH 13, 2000: 1,672,556 UNITS.
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Page 1 of 38
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HALLWOOD REALTY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
PART I
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 7a. Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplemental Information 14
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
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF THE BUSINESS
Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware limited
partnership, operates in the commercial real estate business segment. HRP's
activities include the acquisition, ownership and operation of its commercial
real estate assets. Units representing limited partnership interests are traded
on the American Stock Exchange under the symbol "HRY".
As of December 31, 1999, HRP owned fourteen real estate properties (the
"Properties") located in six states (see Item 2 - Properties) containing
5,352,000 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 ("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 ("HCRE"), another wholly-owned subsidiary of
Hallwood, provides property management services to the Properties.
OCCUPANCY/MAJOR TENANT INFORMATION
In the aggregate, the Properties were 94% occupied at December 31, 1999. 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>
2000 28%
2001 13%
2002 17%
2003 12%
2004 8%
Thereafter 22%
</TABLE>
During 1999 and 1998, two tenants leasing space contributed 10% or more of HRP's
revenues. Ford Motor Company and affiliates ("Ford") leases space in Parklane
Towers, Fairlane Commerce Park, and Gulley Road Industrial Park. Ford accounted
for 13% of revenues in both 1999 and 1998. The General Services Administration
("GSA") leases space in Corporate Square and Executive Park. GSA accounted for
10% and 9% of the revenues in 1999 and 1998, respectively.
As of December 31, 1999, Ford occupied 224,000 square feet of office space under
7 leases at Parklane Towers; 216,000 square feet of office, technical laboratory
and industrial space under 8 leases at Fairlane Commerce Park; and 5,000 square
feet under 1 lease at Gulley Road Industrial Park. These leases expire between
2000 and 2003 and most contain renewal options, providing for one to ten year
renewals. As of December 31, 1999, GSA occupied 270,000 square feet of office
space at Executive Park under 5 leases which expire between 2001 and 2007 and
158,000 square feet of office space at Corporate Square under a lease which
expires in 2013. In addition, HRP is constructing a 6-story office building
containing 151,000 net rentable square feet. The building will be 100% occupied
by the GSA starting in July 2000.
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
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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
not required because it is cementitious, it is not friable and because the
procedures in HRP's site environmental program Operations and Maintenance Manual
are performed as required.
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 91 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, 1999, HRP owned fourteen properties in six states with
5,352,000 net rentable square feet.
<TABLE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION OF THE PROPERTY
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<S> <C>
Airport Plaza Fee simple interest in a 3-story office
San Diego, California building constructed in 1982 containing
48,853 net rentable square feet of space
located on 2 acres of land. The property
was 100% occupied at December 31, 1999.
Allfirst Building Fee simple interest in a 22-story office
Baltimore, Maryland building constructed in 1972 containing
344,224 net rentable square feet of
office space on 0.6 acres of land. At
December 31, 1999, the property was 97%
occupied.
Bellevue Corporate Plaza Fee simple interest in a 10-story office
Bellevue, Washington building constructed in 1980 containing
242,847 net rentable square feet of
space located on 3.6 acres of land. The
property was 99% occupied at December
31, 1999.
Bradshaw Business Parks Fee simple interest in 21 single-story
Sacramento and buildings located at four separate sites
Rancho Cordova, California containing an aggregate of 452,838 net
rentable square feet of office/warehouse
space on 31 acres of land and
constructed between 1973 and 1981. At
December 31, 1999, the property was 94%
occupied.
Corporate Square Fee simple interest in an 8-building
Atlanta, Georgia office complex ranging from one to seven
stories, constructed between 1968 and
1973, containing an aggregate of 440,231
net rentable square feet of space
located on 32 acres of land. The
property was 98% occupied at December
31, 1999. In addition, HRP is
constructing, on existing land, a
6-story office building containing
151,000 net rentable square feet which
is 100% pre-leased with occupancy
anticipated to take place by July 2000.
</TABLE>
Page 4 of 38
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<TABLE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION OF THE PROPERTY
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<S> <C>
Executive Park Fee simple interest in 26 office
Atlanta, Georgia buildings ranging from one to six
stories, constructed between 1965 and
1972, containing a total of 910,909 net
rentable square feet of space located on
70 acres of land. The property was 94%
occupied at December 31, 1999.
Fairlane Commerce Park Fee simple interest in a portion of an
Dearborn, Michigan office/industrial park 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 96% occupied at December
31, 1999.
Gulley Road Industrial Park Fee simple interest in a 5-building
Dearborn, Michigan industrial park constructed between 1991
and 1993 containing 154,360 net rentable
square feet on 11 acres of land. The
property was 98% occupied at December
31, 1999.
Joy Road Distribution Center Fee simple interest in a 442,201 square
Detroit, Michigan foot warehouse situated on 21 acres and
originally constructed in the early
1940's. The property was 98% occupied at
December 31, 1999.
Montrose Office Center Fee simple interest in a 10-story office
Rockville, Maryland building constructed in 1980 containing
147,658 net rentable square feet of
space on 3 acres of land. The property
was 98% occupied at December 31, 1999.
Parklane Towers Fee simple interest in twin 15-story
Dearborn, Michigan office buildings constructed in 1973
containing 482,517 net rentable square
feet of space on 31.8 acres of land. The
property was 96% occupied at December
31, 1999.
Raintree Industrial Park Fee simple interest in an
Solon, Ohio office/industrial complex constructed
between 1971 and 1978 containing 794,953
net rentable square feet of space in 14
buildings on 49 acres of land. The
property was 88% occupied at December
31, 1999.
Riverbank Plaza Fee simple interest in two 3-story
San Diego, California office buildings constructed in 1978
containing 40,304 net rentable square
feet of space located on 1.6 acres of
land. As of December 31, 1999, the
property was being renovated and was not
occupied, however HRP has leased
approximately 90% of the space with
occupancy to coincide with the
anticipated April 2000 completion of
property and tenant improvements.
Seattle Business Parks Fee simple interest in office/industrial
Kent and Tukwila, Washington parks located at two 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, 1999, the property
was 98% occupied.
</TABLE>
On January 26, 2000, HRP acquired three 3-story office buildings in San Diego,
California (Fountain View) containing approximately 89,000 net rentable square
feet on 4.3 acres of land. The property was 95% occupied at the date of
acquisition.
For information regarding encumbrances to which the properties are subject and
the status of 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 6 to the Consolidated Financial
Statements and Schedule III in Item 8.
OFFICE SPACE -
HRP leases and shares office with Hallwood in Dallas, Texas under a lease which
expires May 31, 2002. The minimum cash rental payments are $295,000, $295,000,
and $123,000 for 2000, 2001, and 2002, respectively, of which HRP's portion is
approximately $179,000, $179,000, and $74,000, for 2000, 2001, and 2002,
respectively.
Page 5 of 38
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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. Trial is scheduled for January
2001.
HRP's management believes that the claims are without merit and intend to defend
against the claims vigorously, but cannot predict the outcome of the claims or
any possible effect an adverse outcome might have.
On February 15, 2000, HRP filed a lawsuit in the United States District Court
for the Southern District of New York styled Hallwood Realty Partners, L.P. v.
Gotham Partners, L.P. et al. (Civ. No. 00 CV 115) alleging violations of the
Securities Exchange Act of 1934 by certain purchasers of its units, including
Gotham Partners, L.P., Gotham Partners, III, L.P., Private Management Group,
Inc., Interstate Properties, Steven Roth and EFO Realty, Inc., by virtue of
those purchasers' misrepresentations and/or omissions in connection with filings
required under the Securities Exchange Act of 1934. HRP seeks various forms of
relief, including declaratory judgments, divestiture, corrective disclosures, a
"cooling-off" period and damages, including costs and disbursements.
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 1999.
Page 6 of 38
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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 13, 2000, there were approximately 30,000 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
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High Low
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<S> <C> <C>
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
1999 -
1st Quarter $ 59.00 $ 51.00
2nd Quarter 61.50 47.75
3rd Quarter 61.25 52.00
4th Quarter 54.50 50.00
</TABLE>
Page 7 of 38
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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,
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1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands except per unit amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Total revenues $ 59,645 $ 56,680 $ 53,899 $ 49,612 $ 50,829
Income (loss) before extraordinary item 4,062 6,246 2,357 (9,428) (9,024)
Net income (loss) 4,062 11,593 2,357 (9,428) (9,789)
Income (loss) per unit and equivalent unit :
Basic -
Income (loss) before extraordinary item 2.40 3.70 1.40 (5.50) (5.55)
Net income (loss) 2.40 6.86 1.40 (5.50) (5.55)
Assuming dilution -
Income (loss) before extraordinary item 2.31 3.55 1.35 (5.50) (5.55)
Net income (loss) per unit 2.31 6.59 1.35 (5.50) (5.55)
BALANCE SHEETS:
Real estate, net(a) $ 192,814 $ 175,779 $ 179,028 $ 182,877 $ 192,266
Total assets 230,386 214,023 207,134 210,214 225,359
Mortgages payable 171,312 162,078 157,911 160,732 166,675
Partners' capital(b) 48,696 44,634 33,041 30,684 41,917
</TABLE>
Notes to Selected Financial Data:
(a) During 1999, HRP, through acquisition and construction activity,
increased its real estate assets. These increases were partially
offset by depreciation and amortization. Prior to 1999, real estate
assets declined in each of the years, primarily due to depreciation
and amortization exceeding the additions of tenant and property
improvements.
(b) 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:
1999 VERSUS 1998 -
REVENUE FROM PROPERTY OPERATIONS in 1999 increased $2,927,000, or 5.2%, compared
to 1998. The following table illustrates the components of the change:
<TABLE>
<S> <C>
Rental income, net $2,122,000
Other property income 805,000
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Net increase $2,927,000
==========
</TABLE>
Overall, net rental income increased primarily due to higher rental rates,
partially offset by a slight decline in average occupancy between the comparable
periods from 93.5% to 93.1%. As of December 31, 1999, HRP had leases executed
and in place for 94.3% of the portfolio's net rentable square feet. Other
property income increased due to increases in parking revenues, tenants' utility
reimbursements and various tenant services.
INTEREST INCOME increased $38,000 as a result of additional earnings on
overnight investments due to higher average cash balances available for
investment.
PROPERTY OPERATING EXPENSES for 1999 increased $1,701,000, or 7.6%, compared to
1998. The increase is comprised primarily of the following components:
o Real estate taxes increased $1,078,000 due to higher taxable values at
Executive Park, Corporate Square and Bellevue Corporate Plaza and in
1998, HRP received non-recurring tax refunds of $545,000 for prior
years' taxes.
o Snow removal costs increased $164,000 primarily due to a mild 1998
winter.
o Professional fees increased $141,000 due to costs incurred in 1999 for
research and analysis of potential property development projects.
o Fees paid to Realty of $105,000, which were incurred for the
acquisitions of Riverbank Plaza and Gulley Road during 1999.
o Combined, all other operating costs increased $213,000, or less than
1%.
INTEREST EXPENSE for 1999 increased $920,000, or 7.2%, compared to 1998. The
1998 period included $1,485,000 of non-cash amortization of Allfirst Building's
loan forgiveness, which served to decrease 1998 expense. This non-cash
amortization ceased in November 1998 as the result of the retirement and
refinancing of that loan. Cash mortgage interest decreased $645,000 (primarily
as the result of reduced contractual interest rates from 1998 loan refinancings)
and loan cost amortization increased $80,000 in 1999 compared to 1998.
DEPRECIATION AND AMORTIZATION EXPENSE decreased $116,000 primarily due to a
reduction in the amount of depreciable tenant improvements in 1999 compared to
1998.
GENERAL AND ADMINISTRATIVE EXPENSES for 1999 increased $2,644,000, or 80.7%,
compared to 1998, primarily as a result of an increase of $1,971,000 in
litigation costs (see Note 10 to the consolidated financial statements). All
other costs increased $673,000 primarily as a result of higher personnel,
occupancy and travel costs.
Page 9 of 38
<PAGE> 10
RESULTS OF OPERATIONS (CONTINUED) -
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
Other property income 93,000
----------
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.
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 decreased $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 6 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 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 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 6 to the
Consolidated Financial Statements:
o A gain of $7,223,000 from the early payoff of the loan secured by
Allfirst 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 10 of 38
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
HRP operates in the commercial real estate business segment. HRP's activities
include the acquisition, ownership and operation of its commercial real estate
assets. While it is the General Partner's 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 decreased $6,165,000 during 1999 from $14,497,000 as of
December 31, 1998 to $8,332,000 as of December 31, 1999. The sources of cash
during the period were $8,874,000 of cash provided by operating activities and
$6,998,000 of mortgage principal proceeds from a new construction loan. The uses
of cash during the period were $7,024,000 of property and tenant improvements,
$6,427,000 of property development costs, $5,454,000 of property acquisition
costs, $2,913,000 of mortgage principal payments, and $219,000 of loan fees and
expenses.
In addition to the commitments described below with regards to Corporate Square
and Riverbank Plaza, HRP had commitments for construction projects in progress
as of December 31, 1999 of about $1,500,000. Additionally for the year 2000, HRP
has estimated and budgeted tenant and capital improvements of $7,400,000 and
lease commissions of about $1,700,000.
For the foreseeable future, HRP anticipates that mortgage principal payments,
tenant and capital improvements, lease commissions and litigation costs 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.
PROPERTY DEVELOPMENT -
During the second quarter of 1999, HRP began construction of a 6-story office
building containing approximately 151,000 net rentable square feet. It is being
constructed on 6.1 acres of land that was acquired in May 1997 within the
Corporate Square complex in Atlanta, Georgia. A 20-year lease with the General
Services Administration for all six floors has been executed with occupancy
anticipated to take place by July 2000.
The building, tenant improvements, lease commissions and loan costs are
estimated to be $19,000,000 (excluding the land). In August 1999, HRP paid off
the outstanding loan balance of $475,000 that was secured by the land and closed
on interim-construction loan financing that will fund up to $13,762,000 of the
costs. The amount outstanding under the interim-construction loan as of December
31, 1999 was $6,998,000. The interim-construction loan calls for interest
payments only with an interest rate of LIBOR plus 170 basis points (8.19% as of
December 31, 1999). HRP anticipates repaying the interim-construction loan at
its maturity in August 2000 from proceeds of a $19,000,000 to $20,000,000
permanent loan.
As of December 31, 1999, HRP has incurred and capitalized $9,068,000 of the
construction costs. Additionally, HRP has paid $1,481,000, or 50%, of the lease
commissions incurred; the remaining 50%, which has been accrued as of December
31, 1999, will be paid when the tenant takes occupancy of the space.
ACQUISITIONS -
In August 1999, HRP acquired two 3-story office buildings in San Diego,
California (Riverbank Plaza) containing approximately 40,300 net rentable square
feet on 1.6 acres of land for $2,354,000 in cash. As of December 31, 1999, the
property was being renovated and was not occupied, however HRP has leased
approximately 90% of the space with occupancy to coincide with the anticipated
April 2000 completion of approximately $1,550,000 of property and tenant
improvements.
In October 1999, HRP acquired a 5-building industrial park in Dearborn, Michigan
(Gulley Road Industrial Park) containing approximately 154,000 net rentable
square feet on 11 acres of land. The property was 98% occupied as of December
31, 1999. The acquisition costs of $8,249,000 included the assumption of an
outstanding mortgage of $5,149,000. The loan, which fully amortizes over the
next eleven and a half years, matures in May 2011, and has a fixed interest rate
of 7.375%.
Page 11 of 38
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)
On January 26, 2000, HRP acquired three 3-story office buildings in San Diego,
California (Fountain View) containing approximately 89,000 net rentable square
feet on 4.3 acres of land. The property was 95% occupied at the date of
acquisition. The acquisition cost was approximately $7,800,000, including a loan
with two notes totaling $5,500,000. The loan's monthly payment is based on a
twenty-year amortization, but matures in ten years, and has a fixed interest
rate of 8.17%. The balance of the acquisition cost, or approximately $2,300,000,
was paid in cash.
MORTGAGES -
Substantially all of the buildings in twelve of HRP's fourteen real estate
properties were encumbered and pledged as collateral by nine non-recourse
mortgages aggregating $171,312,000 as of December 31, 1999. These mortgages have
interest rates varying from 6.78% to 8.70% (with an effective average interest
rate of 8.10%) and mature between 2003 and 2011. Except for the construction
loan discussed previously, HRP has no other mortgage loans maturing or requiring
balloon principal payments until the year 2003. Based upon loan amortizations in
effect, HRP is required to pay $2,874,000 of principal payments in 2000.
NEW ACCOUNTING STANDARDS -
Statements of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998 and is
effective for periods (or years) beginning after June 15, 2000. It requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives would be recorded each period in
current earnings or 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.
YEAR 2000 COMPLIANCE -
In 1999, HRP completed its year 2000 compliance review of its information
technology ("IT") systems and non-IT systems and successfully implemented all
related upgrades, replacements, or modifications necessary. HRP did not
experience any year 2000 business interruptions either internally or related to
its major vendors. Total costs were less than $100,000.
INFLATION -
Inflation did not have a significant impact on HRP in 1999, 1998 and 1997 and is
not anticipated to have a material impact in 2000.
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, interest rates, occupancy
rates, lease rental rates, outcome of litigation, 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.
Page 12 of 38
<PAGE> 13
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE INFORMATION -
HRP's primary risk management strategy is to manage its exposure to adverse
changes in interest rates by issuing fixed rate debt, where possible. HRP
attempts to manage the exposure to adverse changes in the fair value of its
fixed rate debt by issuing fixed rate debt when business and market conditions
are favorable. There is inherent rollover risk for borrowings as they mature and
are renewed at the then current market rates. The extent of this risk is not
quantifiable or predictable because of the variability of future interest rates
and HRP's future financing requirements. HRP does not hold or issue derivative
financial instruments for trading purposes. As part of HRP's financing activity,
a derivative security was used for the sole purpose of fixing the interest rate
of HRP's only variable rate debt instrument.
SPECIFIC AND QUANTITATIVE INFORMATION -
HRP's derivative instrument, which is matched directly against an outstanding
borrowing is a "pay fixed / receive variable" interest rate swap with a highly
rated counterparty 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:
<TABLE>
<CAPTION>
Variable Rate as of December 31, 1999
--------------------------------------
Fair Value
Notional Amount Maturity Date Fixed Rate % % Based On of Swap(a)
- --------------- ------------- ------------ ----- -------------- -----------
<S> <C> <C> <C> <C> <C>
$ 25,000,000 April 30, 2006 6.78% 7.78% 30 day LIBOR $1,873,000
</TABLE>
(a) The estimated amount that HRP would receive upon termination of its
interest rate swap agreement as of December 31, 1999 was based on a quote
received from the swap counterparty.
Page 13 of 38
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: Page
----
<S> <C>
Independent Auditors' Report 15
Consolidated Balance Sheets as of December 31, 1999 and 1998 16
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 17
Consolidated Statements of Partners' Capital for the years
ended December 31, 1999, 1998 and 1997 18
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 19
Notes to Consolidated Financial Statements 20
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 14 of 38
<PAGE> 15
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, 1999 and 1998, and the
related consolidated statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1999. Our audit for the
year ended December 31, 1999 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 auditing standards generally accepted
in the United States of America. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America. 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 25, 2000
Page 15 of 38
<PAGE> 16
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Real estate:
Land $ 58,378 $ 56,441
Buildings and improvements 282,013 262,588
Tenant improvements 17,924 17,692
--------- ---------
358,315 336,721
Accumulated depreciation and amortization (165,501) (160,942)
--------- ---------
Real estate, net 192,814 175,779
Cash and cash equivalents 8,332 14,497
Accounts receivable 2,287 1,456
Lease commissions, net 10,653 7,186
Loan reserves and escrows 7,073 6,986
Loan costs, net 3,607 3,923
Prepaid expenses and other assets 5,620 4,196
--------- ---------
Total assets $ 230,386 $ 214,023
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 171,312 $ 162,078
Accounts payable and accrued expenses 6,013 4,435
Prepaid rent and security deposits 2,578 2,703
Payable to affiliates, net 1,787 173
--------- ---------
Total liabilities 181,690 169,389
--------- ---------
COMMITMENTS AND CONTINGENCIES
Partners' capital:
Limited partners - 1,672,556 units outstanding 48,209 44,188
General partner 487 446
--------- ---------
Total partners' capital 48,696 44,634
--------- ---------
Total liabilities and partners' capital $ 230,386 $ 214,023
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 16 of 38
<PAGE> 17
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Property operations $ 58,737 $ 55,810 $ 52,946
Gain from property sale -- -- 394
Interest 908 870 559
--------- --------- ---------
Total revenues 59,645 56,680 53,899
--------- --------- ---------
EXPENSES:
Property operations 23,962 22,261 23,248
Interest 13,701 12,781 12,945
Depreciation and amortization 11,998 12,114 12,055
General and administrative 5,922 3,278 3,294
--------- --------- ---------
Total expenses 55,583 50,434 51,542
--------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 4,062 6,246 2,357
Extraordinary item -
Net gain on early extinguishments of debt -- 5,347 --
--------- --------- ---------
NET INCOME $ 4,062 $ 11,593 $ 2,357
========= ========= =========
ALLOCATION OF NET INCOME:
Limited partners $ 4,021 $ 11,477 $ 2,334
General partner 41 116 23
--------- --------- ---------
Total $ 4,062 $ 11,593 $ 2,357
========= ========= =========
NET INCOME PER UNIT AND POTENTIAL UNIT:
Earnings per unit - basic
Income before extraordinary item $ 2.40 $ 3.70 $ 1.40
Net gain on early extinguishments of debt -- 3.16 --
--------- --------- ---------
Net income $ 2.40 $ 6.86 $ 1.40
========= ========= =========
Earnings per unit - assuming dilution
Income before extraordinary item $ 2.31 $ 3.55 $ 1.35
Net gain on early extinguishments of debt -- 3.04 --
--------- --------- ---------
Net income $ 2.31 $ 6.59 $ 1.35
========= ========= =========
WEIGHTED AVERAGE UNITS
USED IN COMPUTING NET INCOME
PER UNIT AND POTENTIAL UNIT:
Basic 1,673 1,673 1,673
========= ========= =========
Assuming dilution 1,740 1,741 1,730
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
Page 17 of 38
<PAGE> 18
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
Limited
Partnership
General Limited Units
Partner Partners Total Outstanding
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL, JANUARY 1, 1997 $ 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
Net income 41 4,021 4,062 --
--------- --------- --------- ---------
PARTNERS' CAPITAL, DECEMBER 31, 1999 $ 487 $ 48,209 $ 48,696 1,672,556
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
Page 18 of 38
<PAGE> 19
HALLWOOD REALTY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,062 $ 11,593 $ 2,357
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 11,998 12,114 12,055
Net gain on early extinguishments of debt -- (5,347) --
Amortization of mortgage principal forgiveness -- (1,485) (1,674)
Gain from property sale -- -- (394)
Effective rent adjustments (778) (444) (157)
Changes in assets and liabilities:
Receivables (831) (294) 444
Lease commission payments (4,272) (2,369) (2,191)
Prepaid expenses and other assets (250) 255 510
Accounts payable and other liabilities (1,055) 55 (1,086)
---------- ---------- ----------
Net cash provided by operating activities 8,874 14,078 9,864
---------- ---------- ----------
INVESTING ACTIVITIES:
Property and tenant improvements (7,024) (6,603) (5,534)
Property development cost (6,427) -- --
Property acquisitions (5,454) -- (649)
Tenant improvement escrow -- -- 1,532
Cash proceeds from property sale, net of selling costs -- -- 502
Mortgage receivable principal collections -- -- 46
---------- ---------- ----------
Net cash used in investing activities (18,905) (6,603) (4,103)
---------- ---------- ----------
FINANCING ACTIVITIES:
Mortgage principal proceeds 6,998 66,500 549
Mortgage principal refinanced -- (59,577) --
Mortgage prepayment penalties -- (1,855) --
Mortgage principal payments (2,913) (2,756) (3,226)
Loan reserves -- (550) --
Loan fees and expenses (219) (1,405) 25
---------- ---------- ----------
Net cash provided by (used in) financing activities 3,866 357 (2,652)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,165) 7,832 3,109
BEGINNING CASH AND CASH EQUIVALENTS 14,497 6,665 3,556
---------- ---------- ----------
ENDING CASH AND CASH EQUIVALENTS $ 8,332 $ 14,497 $ 6,665
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 19 of 38
<PAGE> 20
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
1. ORGANIZATION
Hallwood Realty Partners, L.P. ("HRP"), a publicly traded Delaware limited
partnership, operates in the commercial real estate business segment. HRP's
activities include the acquisition, ownership and operation of its
commercial real estate assets. Units representing limited partnership
interests are traded on the American Stock Exchange under the symbol "HRY".
As of December 31, 1999, there were 1,672,556 units outstanding.
As of December 31, 1999, HRP owned fourteen real estate assets (the
"Properties"), located in six states containing 5,352,000 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, 1999,
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.
HRP capitalizes all costs related to the development and construction of
its projects, including interest of $124,000 in 1999. The development
period of a project is considered to have begun when activities related to
the construction of the project or a portion thereof have commenced. All
costs for construction are capitalized and allocated to each building.
Capitalization of construction costs related to a particular building is
discontinued when the building is available for occupancy.
Page 20 of 38
<PAGE> 21
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
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 2000 to 2013. Loan
costs are amortized over the terms of the respective loans. The loans
mature between 2000 and 2011. Amortization of effective rent income
adjustments, included in property operations revenues, was $778,000,
$444,000 and $157,000 in 1999, 1998 and 1997, respectively. Amortization of
lease commissions, included in depreciation and amortization expense, was
$2,286,000, $2,232,000, and $2,101,000 in 1999, 1998 and 1997,
respectively. Amortization of loan costs, included in interest expense, was
$536,000, $456,000, and $453,000 in 1999, 1998 and 1997, respectively. The
caption "Prepaid expenses and other assets" on the Consolidated Balance
Sheets include unamortized effective rent adjustments, 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 $243,000, $248,000,
and $117,000 in 1999, 1998, and 1997, 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 21 of 38
<PAGE> 22
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
2. ACCOUNTING POLICIES - (CONTINUED)
COMPUTATION OF NET INCOME 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 following table illustrates the amounts
used to calculate the weighted average number of units outstanding:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average units outstanding - basic 1,673 1,673 1,673
Issuance of units from options 86 86 86
Repurchase of units from unit option proceeds (19) (18) (29)
--------- --------- ---------
Weighted average units outstanding - assuming dilution 1,740 1,741 1,730
========= ========= =========
</TABLE>
ACCOUNTING PRONOUNCEMENTS AND OTHER
The preparation of consolidated 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.
Statements of Financial Accounting Standards ("SFAS") No. 133 "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998
and is effective for periods (or years) beginning after June 15, 2000. It
requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of the derivatives would be
recorded each period in current earnings or 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.
Page 22 of 38
<PAGE> 23
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
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 (none exceeding 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 1999 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Asset management fee Realty $ 514 $ 495 $ 458
Acquisition fee Realty 105 -- 7
Reimbursement of costs(a) Realty 2,941 2,320 2,316
Property management fee HCRE 1,693 1,608 1,524
Lease commissions(b) HCRE 4,933 1,964 1,425
Construction fees HCRE 891 314 353
</TABLE>
(a) These costs are mostly recorded as general and administrative
expenses and represent reimbursement to Realty, at cost, for
partnership level salaries, bonuses, employee and director
insurance, and certain overhead costs. HRP pays the balance of
its account with Realty on a monthly basis.
(b) As of December 31, 1999, $1,481,000 of the 1999 lease commissions
accrued are related to the development property at Corporate
Square and are scheduled to be paid in the year 2000. See Note 5.
4. STATEMENTS OF CASH FLOWS
Cash interest payments were $13,114,000 (net of capitalized interest of
$94,000), $13,934,000, and $14,177,000 in 1999, 1998 and 1997,
respectively.
Supplemental disclosure of noncash investing and financing activities -
As of December 31, 1999, HRP had a construction payable for property
development cost at Corporate Square of $2,641,000 for 1999.
In October 1999, HRP acquired Gulley Road Industrial Park for
$8,249,000 including the assumption of an outstanding mortgage of
$5,149,000.
Page 23 of 38
<PAGE> 24
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
5. PROPERTY TRANSACTIONS
ACQUISITIONS -
In May 1997, HRP acquired 6.1 acres of land at the Corporate Square office
complex 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. The note was paid in full during
1999 in connection with the development of the land discussed below.
In August 1999, HRP acquired two 3-story office buildings in San Diego,
California (Riverbank Plaza) containing approximately 40,300 net rentable
square feet on 1.6 acres of land for $2,354,000 in cash. As of December 31,
1999, the property was being renovated and was not occupied, however HRP
has leased approximately 90% of the space with occupancy to coincide with
the anticipated April 2000 completion of approximately $1,550,000 of
property and tenant improvements.
In October 1999, HRP acquired a 5-building industrial park in Dearborn,
Michigan (Gulley Road Industrial Park) containing approximately 154,000 net
rentable square feet on 11 acres of land. The property was 98% occupied as
of December 31, 1999. The acquisition costs of $8,249,000 included the
assumption of an outstanding mortgage of $5,149,000. The loan, which fully
amortizes over the next eleven and a half years, matures in May 2011, and
has a fixed interest rate of 7.375%.
PROPERTY DEVELOPMENT
During the second quarter of 1999, HRP began construction of a 6-story
office building containing approximately 151,000 net rentable square feet.
It is being constructed on 6.1 acres of land that was acquired in May 1997
within the Corporate Square complex and discussed above. A 20-year lease
with the General Services Administration for all six floors has been
executed with occupancy anticipated to take place by July 2000.
The building, tenant improvements, lease commissions and loan costs are
estimated to be $19,000,000 (excluding the land). In August 1999, HRP paid
off the outstanding loan balance of $475,000 that was secured by the land
and closed on interim-construction loan financing that will fund up to
$13,762,000 of the costs.
As of December 31, 1999, HRP has incurred and capitalized $9,068,000 of the
construction costs. Additionally, HRP has paid $1,481,000, or 50%, of the
lease commissions incurred; the remaining 50%, which has been accrued as of
December 31, 1999, will be paid when the tenant takes occupancy of the
space.
PROPERTY SALE
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, 1999
6. MORTGAGES PAYABLE
Substantially all of the buildings in twelve of HRP's fourteen real estate
properties were encumbered and pledged as collateral by nine non-recourse
mortgages aggregating $171,312,000 as of December 31, 1999. These mortgages
have interest rates varying from 6.78% to 8.70% (with an effective average
interest rate of 8.10%) and mature between 2003 and 2011.
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>
2000 $ 2,874 $ 6,998 $ 9,872
2001 3,152 -- 3,152
2002 3,426 -- 3,426
2003 3,723 4,900 8,623
2004 3,695 -- 3,695
Thereafter 8,068 134,476 142,544
---------- ---------- ----------
Total $ 24,938 $ 146,374 $ 171,312
========== ========== ==========
</TABLE>
CORPORATE SQUARE -
In August 1999, HRP closed on interim-construction loan financing that will
fund up to $13,762,000 of the development costs of a new office building at
Corporate Square (see Note 5 for more information about this project). The
amount outstanding under the interim-construction loan as of December 31,
1999 was $6,998,000. The interim-construction loan calls for interest
payments only with an interest rate of LIBOR plus 170 basis points (8.19%
as of December 31, 1999). HRP anticipates repaying the interim-construction
loan at its maturity in August 2000 from proceeds of a $19,000,000 to
$20,000,000 permanent mortgage loan.
ALLFIRST BUILDING -
On November 16, 1998, HRP refinanced Allfirst Building's existing loan with
a new lender in the amount of $25,000,000. 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 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 has 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 LIBOR plus 325 basis points, or 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.
HRP was amortizing mortgage principal forgiveness associated with
Allfirst's previous loan over that loan's life. 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, which
is included in the Consolidated Statements of Income as an extraordinary
item in 1998.
Page 25 of 38
<PAGE> 26
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
6. MORTGAGES PAYABLE - (CONTINUED)
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 lengthened 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 Consolidated Statements of Income as an extraordinary item.
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 reduced the interest rate from 8.87% to an effective
interest rate of 7.32% and extended 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 Consolidated Statements of Income as an extraordinary item.
7. 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 $2,539,000, $2,591,000, and $2,561,000 in 1999, 1998 and
1997, respectively. At December 31, 1999, the Properties, in the aggregate,
were 94% occupied and minimum cash rental payments to be received under
non-cancelable leases with tenants were as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 51,073
2001 40,769
2002 33,529
2003 24,703
2004 18,174
Thereafter 37,067
---------
Total $ 205,315
=========
</TABLE>
During 1999 and 1998, two tenants leasing space contributed 10% or more of
HRP's revenues. Ford Motor Company and affiliates ("Ford") leases space in
Parklane Towers, Fairlane Commerce Park, and Gulley Road Industrial Park.
Ford accounted for 13% of revenues in both 1999 and 1998. The General
Services Administration ("GSA") leases space in Corporate Square and
Executive Park. GSA accounted for 10% and 9% of the revenues in 1999 and
1998, respectively.
As of December 31, 1999, Ford occupied 224,000 square feet of office space
under 7 leases at Parklane Towers; 216,000 square feet of office, technical
laboratory and industrial space under 8 leases at Fairlane Commerce Park;
and 5,000 square feet under 1 lease at Gulley Road Industrial Park. These
leases expire between 2000 and 2003 and most contain renewal options,
providing for one to ten year renewals. As of December 31, 1999, GSA
occupied 270,000 square feet of office space at Executive Park under 5
leases which expire between 2001 and 2007 and 158,000 square feet of office
space at Corporate Square under a lease which expires in 2013. In addition,
HRP is constructing a 6-story office building containing 151,000 net
rentable square feet. The building will be 100% occupied by the GSA
starting in July 2000.
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.
HRP leases and shares office with Hallwood in Dallas, Texas under a lease
which expires May 31, 2002. The minimum cash rental payments are $295,000,
$295,000, and $123,000 for 2000, 2001, and 2002, respectively, of which
HRP's portion is approximately $179,000, $179,000, and $74,000, for 2000,
2001, and 2002, respectively.
Page 26 of 38
<PAGE> 27
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
8. PARTNERS' CAPITAL
In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty with an exercise price of $11.875 per unit. The options expire after
10 years (approximately February 27, 2005) and generally, the optionees may
borrow the amounts necessary to exercise the options. As of December 31,
1999, none of the options had been exercised. HRP has adopted the
disclosure-only provisions of SFAS No. 123 - "Accounting for Stock Based
Compensation". The options were vested over a three year period ending in
1997, and accordingly under SFAS No. 123 would have had no effect on
compensation cost in 1998 or 1999. 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 income and
net income per unit for 1997 would have been the pro forma amounts
indicated below (in thousands except per unit amounts):
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Net income (loss) - as reported $ 2,357
Net income (loss) - pro forma 2,325
Net income (loss) per unit:
As reported -
Basic 1.40
Assuming dilution 1.35
Pro forma -
Basic 1.38
Assuming dilution 1.33
</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.
9. 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 fair values of its mortgages payable in
connection with interest rates currently available to the Partnership for
borrowing with similar characteristics and maturities (approximately 8.2%
and 7.3% as of December 31, 1999 and 1998, respectively) and has determined
that the estimated fair value as of December 31, 1999 and 1998 would equal
approximately $167,212,000 and $171,921,000, respectively.
The fair value of HRP's interest rate swap agreement (used to hedge against
exposure to interest rate fluctuations) is $1,873,000, the estimated amount
that HRP would receive upon termination of the agreement as of December 31,
1999. The amount was determined based on a quote received from its swap
counterparty.
As of December 31, 1999 and 1998, 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.
Page 27 of 38
<PAGE> 28
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
10. 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. Trial is scheduled for January 2001.
HRP's management believes that the claims are without merit and intend to
defend against the claims vigorously, but cannot predict the outcome of the
claims or any possible effect an adverse outcome might have.
On February 15, 2000, HRP filed a lawsuit in the United States District
Court for the Southern District of New York styled Hallwood Realty
Partners, L.P. v. Gotham Partners, L.P. et al (Civ. No. 00 CV 115) alleging
violations of the Securities Exchange Act of 1934 by certain purchasers of
its units, including Gotham Partners, L.P., Gotham Partners, III, L.P.,
Private Management Group, Inc., Interstate Properties, Steven Roth and EFO
Realty, Inc., by virtue of those purchasers' misrepresentations and/or
omissions in connection with filings required under the Securities Exchange
Act of 1934. HRP seeks various forms of relief, including declaratory
judgments, divestiture, corrective disclosures, a "cooling-off" period and
damages, including costs and disbursements.
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
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 not required because it is cementitious,
it is not friable and because the procedures in HRP's site environmental
program Operations and Maintenance Manual are performed as required.
Page 28 of 38
<PAGE> 29
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
10. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
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. 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.
Although it is HRP's position in the litigation filed in the Southern
District of New York that certain holders of HRP's units have become an
"Acquiring Person" under the Rights Plan by virtue of obtaining dispositive
power over more than 15% of the outstanding units, a final determination of
this issue will be made by the court. As a result, the general partner has
amended the Rights Plan, among other things, to postpone the "Distribution
Date" under the Rights Plan based on the general partner's current
understanding of the facts. By taking such action, the rights will become
exercisable, if at all, only after the final resolution by a court that an
"Acquiring Person" exists for the purposes of the Rights Plan.
Additionally, the expiration of the redemption period under the Rights Plan
has also been extended pending litigation. However, if additional facts
come to the general partner's attention or the status or unit ownership of
any unitholder change in any respect, the general partner will review the
circumstances at that time and may change its conclusions. HRP has also
amended the Rights Plan to extend the expiration period of the rights until
one year after entry of an order, which is final and not subject to appeal,
resolving the above-mention lawsuit.
OTHER
In addition to the commitments previously described in Note 5 with regards
to Corporate Square and Riverbank Plaza, HRP had commitments for
construction projects in progress as of December 31, 1999 of about
$1,500,000. Additionally for the year 2000, HRP has estimated and budgeted
tenant and capital improvements of $7,400,000 and lease commissions of
about $1,700,000.
11. SUBSEQUENT EVENT
On January 26, 2000, HRP acquired three 3-story office buildings in San
Diego, California (Fountain View) containing approximately 89,000 net
rentable square feet on 4.3 acres of land. The property was 95% occupied at
the date of acquisition. The acquisition cost was approximately $7,800,000,
including a loan with two notes totaling $5,500,000. The loan's monthly
payment is based on a twenty-year amortization, but matures in ten years,
and has a fixed interest rate of 8.17%. The balance of the acquisition
cost, or approximately $2,300,000, was paid in cash.
Page 29 of 38
<PAGE> 30
HALLWOOD REALTY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Set forth below is selected quarterly financial data for the years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Quarter Ending
----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
(in thousands except per unit amounts)
<S> <C> <C> <C> <C>
1999
Total revenues $ 14,559 $ 14,252 $ 15,140 $ 15,694
Property operations revenues less property
operations expenses and general
and administrative expenses 7,397 7,302 7,399 6,755
Net income 1,214 1,182 1,239 427
Net income per unit - basic .72 .70 .73 .25
Net income per unit - assuming dilution .69 .67 .70 .24
1998
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
Income before extraordinary item 1,069 1,655 1,727 1,795
Net income (loss)(a) (542) 1,390 1,727 9,018
Earnings per unit - basic
Income before extraordinary item .63 .98 1.02 1.07
Extinguishments of debt(a) (.95) (.16) -- 4.27
Net income (loss) (.32) .82 1.02 5.34
Earnings per unit - assuming dilution
Income before extraordinary item .61 .94 .98 1.02
Extinguishments of debt(a) (.92) (.15) -- 4.11
Net income (loss) (.31) .79 .98 5.13
</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 6 to the Consolidated
Financial Statements for more information about the refinancing of mortgage
loans during 1998).
Page 30 of 38
<PAGE> 31
HALLWOOD REALTY PARTNERS, L.P.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Costs
capitalized
subsequent to Gross amount at which
Initial cost acquisition carried at close of period
------------------------ ------------ ------------------------------------
Buildings Buildings Buildings
and and and
Description(A) Encumbrances Land improvements improvements Land improvements Total(B)
- --------------- ------------ ---------- ------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Airport Plaza $ 760 $ 300 $ 4,013 $ 306 $ 300 $ 4,319 $ 4,619
Allfirst Building 25,000 2,100 43,772 3,778 2,100 47,550 49,650
Bellevue Corporate Plaza 15,200 7,428 17,617 2,878 7,428 20,495 27,923
Bradshaw Business Parks 5,956 5,018 15,563 4,611 5,018 20,174 25,192
Corporate Square 18,818 6,142 14,112 17,274 6,142 31,386 37,528
Executive Park 33,337 15,243 34,982 9,674 15,243 44,656 59,899
Fairlane Commerce Park 20,141 5,191 18,080 5,599 5,191 23,679 28,870
Gulley Road Industrial Park 5,101 1,227 7,022 -- 1,227 7,022 8,249
Joy Road Distribution Center -- 359 1,340 2,107 359 3,447 3,806
Montrose Office Center 6,175 5,096 15,754 3,755 5,096 19,509 24,605
Parklane Towers 22,801 3,420 37,592 5,523 3,420 43,115 46,535
Raintree Industrial Park 10,640 1,191 18,208 1,401 1,191 19,609 20,800
Riverbank Plaza -- 710 1,644 214 710 1,858 2,568
Seattle Business Parks 7,383 4,953 8,730 4,170 4,953 12,900 17,853
Corporate office equipment -- -- -- 218 -- 218 218
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $ 171,312 $ 58,378 $ 238,429 $ 61,508 $ 58,378 $ 299,937 $ 358,315
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
Accumulated
depreciation Date
Description(A) (B)(C) acquired
- --------------- ------------- ---------------
<S> <C> <C> <C>
Airport Plaza $ 3,733 4/30/87
Allfirst Building 28,165 6/29/84
Bellevue Corporate Plaza 6,286 6/30/88
Bradshaw Business Parks 11,728 9/24/85
Corporate Square 14,366 8/2/85 & 10/1/92
Executive Park 32,671 12/19/85
Fairlane Commerce Park 11,081 12/30/86 & 7/1/87
Gulley Road Industrial Park 56 10/29/99
Joy Road Distribution Center 593 2/14/96
Montrose Office Center 8,614 1/8/88
Parklane Towers 29,549 12/16/84
Raintree Industrial Park 10,496 7/17/86
Riverbank Plaza 30 8/19/99
Seattle Business Parks 8,069 4/24/86
Corporate office equipment 64 various
----------
TOTAL $ 165,501
==========
</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, 1999
(IN THOUSANDS)
(A) PROPERTY LOCATIONS ARE AS FOLLOWS:
Airport Plaza San Diego, California
Allfirst Building Baltimore, Maryland
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
Gulley Road Industrial Park Dearborn, Michigan
Joy Road Distribution Center Detroit, Michigan
Montrose Office Center Rockville, Maryland
Parklane Towers Dearborn, Michigan
Raintree Industrial Park Solon, Ohio
Riverbank Plaza San Diego, California
Seattle Business Parks Kent and Tukwila, Washington
(B) RECONCILIATION OF CARRYING COSTS (in thousands):
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- -----------
<S> <C> <C>
Balance, January 1, 1997 $ 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
Additions 26,694 9,659
Retirements (5,100) (5,100)
----------- -----------
Balance, December 31, 1999 $ 358,315 $ 165,501
=========== ===========
</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.
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
HRP has no officers or directors. Realty, as general partner, performs functions
generally performed by officers and directors. Realty was formed in Delaware as
a corporation in January 1990 and became a limited liability company in December
1998.
BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS OF REALTY -
ANTHONY J. GUMBINER, 55, CHAIRMAN OF THE BOARD AND DIRECTOR OF REALTY
Mr. Gumbiner has served a director and Chairman of the Board of Realty
since January 1990. He has also served as Chairman of the Board of Hallwood
since 1981 and as Chief Executive Officer since April 1984. He has served
as a director of Hallwood Energy Corporation ("HEC") since June 1999. He
was Chairman of the Board from 1984 to June 1999 and Chief Executive
Officer from 1987 to June 1999 of the general partner of Hallwood Energy
Partners, L.P. ("HEP"). He was Chairman of the Board and Chief Executive
Officer of Hallwood Consolidated Resources Corporation ("HCRC") from
February 1992 to June 1999. Mr. Gumbiner has also served as Chairman of the
Board of Directors and as a director of Hallwood Holdings S.A. ("HHSA"), a
Luxembourg real estate investment company, since March 1984. Mr. Gumbiner
is also a solicitor of the Supreme Court of Judicature of England.
WILLIAM L. GUZZETTI, 56, PRESIDENT AND DIRECTOR OF REALTY
Mr. Guzzetti has been President, Chief Operating Officer and a director of
Realty since January 1990. He has also served as Executive-Vice President
of Hallwood since October 1989 and in that capacity may devote a portion of
his time to the activities of Hallwood, including the management of real
estate investments, acquisitions and restructurings of entities controlled
by Hallwood. He has served as President, Chief Operating Officer and a
director of HEC since December 1998 and in that capacity devotes a portion
of his time to the activities of HEC. He was President, Chief Operating
Officer and a director of the general partner of HEP from February 1985 to
June 1999. He was President, Chief Operating Officer and a director of HCRC
from May 1991 until June 1999. He is a member of The Florida Bar and the
State Bar of Texas.
JOHN G. TUTHILL, 56, EXECUTIVE VICE PRESIDENT AND SECRETARY
Mr. Tuthill has been an Executive Vice President and Secretary of Realty
since January 1990. He 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, 51, SENIOR VICE PRESIDENT
Mr. Walther has been an Executive Vice President of Realty since November
1998. Mr. Walther was a member of the Board of Directors of Realty from
June 1994 to November 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, 52, VICE PRESIDENT - FINANCE
Mr. Gent joined Hallwood in March 1990 and has been Vice President-Finance
of Realty since March 1990. He 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, 58, 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, 50, 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.
EDWARD T. STORY, 56, 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.
Page 33 of 38
<PAGE> 34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)
Section 16(a) of the Securities and Exchange Act of 1934 requires the officers
and directors of Hallwood Realty, LLC and persons who own more than ten percent
of HRP's units to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent owners 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 from certain
reporting persons that no forms were required of those persons, HRP believes
that during the period January 1, 1999 to December 31, 1999, all officers and
directors of Hallwood Realty, LLC and ten percent owners complied with
applicable filing requirements, except that, as alleged in litigation filed in
the Southern District of New York, HRP believes that certain holders of HRP's
units have obtained dispositive power over more than 15% of the outstanding
units, which has not been properly disclosed. A final determination of this
issue will be made by the court.
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 1999, Messrs. Gumbiner and
Guzzetti and (until December 21, 1999) Mr. Brian M. Troup served on the Board of
Directors of Realty and the compensation committee of HEC and the general
partner of HEP. Mr. Gumbiner is also Chief Executive Officer of Hallwood,
Realty, and HEC. Mr. Troup was the President and Chief Operating Officer of
Hallwood until December 1999. Mr. Guzzetti is also President and Chief Operating
Officer of Realty; Chief Operating Officer and President of HEC; and Executive
Vice President of Hallwood. Messrs. Forsyth, Crisp, and Story were each paid
$20,000 in each of the three years ended December 31, 1999 for director fees.
Mr. Walther was paid $20,000 in each of the two 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, 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 (none exceeding 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 1999 1998 1997
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Asset management fee Realty $ 514 $ 495 $ 458
Acquisition fee Realty 105 -- 7
Reimbursement of costs (a) Realty 2,941 2,320 2,316
Property management fee HCRE 1,693 1,608 1,524
Lease commissions (b) HCRE 4,933 1,964 1,425
Construction fees HCRE 891 314 353
</TABLE>
(a) These costs are mostly recorded as General and Administrative
Expenses and represent reimbursement to Realty, at cost, for
partnership level salaries, bonuses, employee and director
insurance, and certain overhead costs. HRP pays the balance of
its account with Realty on a monthly basis.
(b) As of December 31, 1999, $1,481,000 of the 1999 lease commissions
accrued are related to the development property at Corporate
Square and are scheduled to be paid in the year 2000.
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 four other executive
officers with earnings that exceeded $100,000 for the year ended December 31,
1999. Bonuses and other annual compensation are with respect to years presented
and are usually paid in the following year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------
Other Annual
Name and Principal Position Year Salary (a) Bonus Compensation (b)
--------------------------- ---- ---------- -------- ----------------
<S> <C> <C> <C> <C>
Anthony J. Gumbiner 1999 $ -- $150,000 $ --
Chairman of the Board and 1998 -- -- --
Chief Executive Officer 1997 -- -- --
William L. Guzzetti 1999 200,000 32,333 --
President and Chief 1998 200,000 28,833 --
Operating Officer 1997 200,000 15,583 --
John G. Tuthill 1999 150,360 68,265 7,923
Executive Vice President 1998 150,360 56,265 8,282
and Secretary 1997 150,360 57,265 8,212
Udo H. Walther 1999 150,000 68,250 --
Senior Vice President 1998 25,000 6,250 --
Jeffrey D. Gent 1999 108,541 18,784 6,206
Vice President - Finance 1998 104,366 15,523 8,017
1997 99,396 28,212 5,984
</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.
In 1995, HRP issued options totaling 86,000 units to certain executives of
Realty with an exercise price of $11.875 per unit. The following table discloses
for each of the executive officers of Realty the number of these options held by
each of the executive officers and the potential realizable values for their
options at December 31, 1999. None of the executive officers exercised any
options during the year ended December 31, 1999 and HRP has not granted SARs.
AGGREGATED OPTION/SAR EXERCISES IN 1999
AND OPTION/SAR VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Units Options at Options at
Acquired December 31, 1999 December 31, 1999
------------------------------- ----------------------------
Name on Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Anthony J. Gumbiner 0 25,800 0 $ 1,015,875 $ 0
William L. Guzzetti 0 15,000 0 590,625 0
John G. Tuthill 0 13,000 0 511,875 0
Jeffrey D. Gent 0 7,000 0 275,625 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 13, 2000 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(h) Class
- ------------------- ------------ -------
<S> <C> <C>
HWG, LLC 413,040 24.7%
c/o The Hallwood Group Incorporated
3710 Rawlins, Suite 1500
Dallas, Texas 75219 (a)
Gotham Partners, L.P. and 247,994 14.8%
Gotham Partners, L.P. III
237 Park Avenue, 9th Floor
New York, NY 10017 (b)
Interstate Properties 135,600 8.1%
Park 80 West, Plaza II
Saddle Brook, NJ 07662 (b)
Private Management Group, Inc. ("PMG") 108,655 6.5%
20 Corporate Park, Suite 400
Irvine, CA 92606 (b) (c)
Alan G. Crisp (d) -- --
William F. Forsyth (d) -- --
Anthony J. Gumbiner (d) 25,800(e) 1.5%(e)
William L. Guzzetti (d) 15,100(f) 0.9%(f)
Edward T. Story (d) -- --
All directors and executive officers
as a group (8 persons) 60,900(g) 3.5%(g)
</TABLE>
- --------------------
(a) Includes 82,608 units, or 4.9% of the outstanding units, transferred
to Epsilon Trust on December 21, 1999 as part of the resignation of
Mr. Brian Troup as an officer and director of Hallwood. Hallwood has
sole voting power with respect to the units and a right to purchase
such units for six months after the transfer and a right of first
refusal thereafter.
(b) See discussion in Item 3 regarding certain litigation filed in the
Southern District of New York.
(c) 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 any units directly-owned. PMG also
has sole power to dispose or direct the disposition of all of the
units.
(d) Represents the following address: c/o Hallwood Realty, LLC, 3710
Rawlins, Suite 1500, Dallas, Texas, 75219.
(e) Comprised of currently exercisable options to purchase 25,800 units.
(f) Includes currently exercisable options to purchase 15,000 units.
(g) Includes currently exercisable options to purchase 60,800 units.
(h) Unless otherwise indicated, each of the persons named has sole voting
and investment power with respect to the units reported.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information covered by this item, see Note 3 to the Registrant's
consolidated 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 1999 or in
2000 prior to the filing of this Form 10-K for the year ended December 31,
1999.
(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 15, 2000 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, 1999, has been signed below
by the following persons on behalf of the Registrant in the capacities and on
the date indicated.
Signature Capacity Date
--------- -------- ----
/s/ ANTHONY J. GUMBINER Chairman of the Board and Director, March 15, 2000
- ------------------------ Hallwood Realty, LLC
Anthony J. Gumbiner (Chief Executive Officer)
/s/ WILLIAM L. GUZZETTI President and Director, March 15, 2000
- ------------------------ Hallwood Realty, LLC
William L. Guzzetti (Chief Operating Officer)
/s/ JEFFREY D. GENT Vice President - Finance, March 15, 2000
- ------------------------ Hallwood Realty, LLC
Jeffrey D. Gent (Chief Accounting Officer)
/s/ ALAN G. CRISP Director, March 15, 2000
- ------------------------ Hallwood Realty, LLC
Alan G. Crisp
/s/ WILLIAM F. FORSYTH Director, March 15, 2000
- ------------------------ Hallwood Realty, LLC
William F. Forsyth
/s/ EDWARD T. STORY Director, March 15, 2000
- ------------------------ Hallwood Realty, LLC
Edward T. Story
Page 38 of 38
<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)
4.2 Amendment No. 1 to Unit Purchase Rights Agreement dated February
14, 2000
10.1(b)* 1995 Unit Option Plan for Hallwood Realty Partners, L.P.
10.2(b)* 1995 Unit Option Plan Loan Program for Hallwood Realty Partners,
L.P.
10.3 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.)
10.4 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.)
10.5 Management Agreement between Hallwood Real Estate Investors Fund
XV and Hallwood Commercial Real Estate, LLC dated July 1, 1999.
(Agreement is representative of each individual management
agreement for real estate properties owned by Hallwood Realty
Partners, L.P. Differences in the individual agreements include,
but not limited to, owners' name, property name, and legal
description. Exhibit D to this item is a schedule reflecting the
economic differences in leasing fee compensation.)
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.
<PAGE> 1
EXHIBIT 4.2
HALLWOOD REALTY PARTNERS, L.P.
and
BANK BOSTON, N.A.
as Rights Agent
AMENDMENT NO. 1 TO THE
UNIT PURCHASE RIGHTS AGREEMENT
DATED AS OF NOVEMBER 30, 1990
DATED: February 14, 2000
<PAGE> 2
AMENDMENT NO. 1 (the "Amendment") to the Unit Purchase Rights Agreement
dated as of November 30, 1990 (the "Rights Plan"), between HALLWOOD REALTY
PARTNERS, L.P., a Delaware limited partnership (the "Partnership"), and BANK
BOSTON, N.A., a national banking association (the "Rights Agent"), made as of
February 14, 2000. Any capitalized terms used herein which are not otherwise
expressly defined in this Amendment are as defined in the Rights Plan.
WHEREAS, the Partnership and the Rights Agent desire to amend certain terms
of the Rights Plan as set forth herein, pursuant to Section 26 of the Rights
Plan;
NOW, THEREFORE, in consideration of the premises, the parties agree as
follows:
1. Amendment. The Rights Plan is hereby amended as follows:
(a) Subsection (i) of Section 7(a) of the Rights Plan shall be
changed to read:
"(i) the Final Expiration Date (as defined below) or"
(b) The following sentence shall be added to the end of Section 7(a):
"The "Final Expiration Date," as used herein, shall be November
30, 2000, or in the event the litigation alleging violations of
the Securities Exchange Act of 1934 by certain purchasers of
Units filed in the United States District Court for the Southern
District of New York (or any appeal relating thereto) is pending
as of or at any time during the 90 day period immediately
preceding November 30, 2000, then such Final Expiration Date
shall be the date one year following the entry of an order, which
is final and not subject to appeal, resolving such litigation."
(c) The following sentence shall be added to the end of Section
24(b):
"Notwithstanding the foregoing, until 10 days after entry of an
order, which is final and not subject to appeal, in the
litigation alleging violations of the Securities Exchange Act of
1934 by certain purchasers of Units filed in the United
<PAGE> 3
States District Court for the Southern District of New York
determining such purchasers of Units to have become an Acquiring
Person (or such later date as may be determined by action of the
General Partner), the notice required of the Partnership
hereunder in connection with a Trigger Event as defined in
Section 11(a)(ii) need not be given.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the day and year first written above.
HALLWOOD REALTY PARTNERS, L.P.
By: Hallwood Realty, L.L.C.,
General Partner
Attest: /s/ John G. Tuthill By: /s/ William L. Guzzetti
------------------- ------------------------------
(seal) Name: William L. Guzzetti
Title: President
BANK BOSTON, N.A.
By: /s/ Tyler Haynes
------------------------------
Name: Tyler Haynes
Title: Managing Director
<PAGE> 1
EXHIBIT 10.5
MANAGEMENT AGREEMENT
This Agreement made as of July 1, 1999 between Hallwood Real Estate
Investors Fund XV ("Owner") and Hallwood Commercial Real Estate, LLC
("Manager").
In consideration of the mutual promises and covenants contained herein,
Owner and Manager agree as follows:
ARTICLE I
APPOINTMENT OF AGENT
1.1. THE PROPERTY. Owner is the owner of the following project (the
"Property"):
Name: Corporate Square (Building 10-12)
Address: 10-12 Corporate Boulevard
Atlanta, Georgia 30329
as more fully described in Exhibit A, attached hereto and
incorporated herein.
1.2. APPOINTMENT OF MANAGER. Owner hereby hires and designates Manager
as the sole and exclusive managing agent for the Property and Manager hereby
accepts such appointment, all subject to the terms and conditions as hereinafter
set forth.
ARTICLE II
SERVICES TO BE PERFORMED
2.1. SERVICES. Every act performed by Manager under the provisions of
this Agreement shall be done as agent of Owner, and all obligations or expenses
incurred hereunder shall be for the account, on behalf and at the expense of
Owner, except that Owner shall not be obligated to reimburse Manager for any
salaries or wages allocable to time spent on projects other than the Property,
or for any salaries, wages and expenses for any personnel other than the
personnel responsible for the Property. Owner shall provide adequate space at
the Property for a management office, unless Manager determines otherwise. At
Manager's option, the office may be at a location other than at the Property.
Without limiting the foregoing, Manager agrees to perform the
following management services pertaining to the Property:
A. EXCLUSIVE AGENCY. Manager shall be the sole rental agent for
the Property, and Owner may not employ any outside rental agent or broker. All
inquiries made to Owner and/or any entity directly or indirectly within Owner's
control, concerning any lease or renewals or agreements for the rental of any
tenant space in the Property, shall be conducted by or under
~1~
<PAGE> 2
the direction of Manager. Manager shall use its best efforts to lease units
and/or space in the Property. All leases shall be prepared by Manager on
standard forms of lease approved by Owner. Leases and other agreements with
tenants shall be executed and delivered by Manager as agent of Owner. Owner
agrees that in performing its leasing services hereunder, Manager may use the
services of any third party rental or leasing agency, including any locator
service in the city where the Property is located and the fee(s) payable for
such services shall be expenses of Owner and payable out of the Operating
Account for the Property.
B. EMPLOYMENT OF PERSONNEL. At Owner's expense, Manager shall
cause to be investigated, hired, paid and supervised, as employees of Manager,
all persons necessary to maintain and operate the Property and cause to be
discharged all persons Manager deems unnecessary or undesirable to the
operations and maintenance of the Property. Such personnel shall in every
instance be employees of Manager and not of Owner, and Owner shall have no right
to supervise or direct such employees. All reasonable salaries, wages, bonuses
and other compensation of personnel employed by Manager hereunder, including
so-called fringe benefits, medical and health insurance, pension plans, profit
sharing, deferred compensation or similar plans, social security, and medicare
contributions, state and federal employment taxes, workmen's compensation,
travel and training costs and the like shall be deemed to be expenses of the
Property which are to be reimbursed by Owner hereunder.
C. MAINTENANCE AND REPAIR OF PROPERTY. At Owner's expense,
Manager shall cause the Property to be maintained in good condition according to
local custom for comparable properties in the surrounding geographic area,
including, but not limited to, interior and exterior cleaning, repairs and
alterations, plumbing, carpentry and decorating, and such other normal
maintenance and repair work as may be deemed desirable or necessary by Manager
to be subject only to the limitations contained in this Agreement.
D. COMPLIANCE WITH REGULATIONS. At Owner's expense, Manager shall
use its best efforts to cause all such acts and things to be done in or about
the Property as Owner and/or Manager shall deem necessary or desirable to comply
with any and all orders or regulations pertaining to the Property as placed
thereon by any federal, state, county or municipal authority having jurisdiction
thereover, and orders of any Board of Fire Underwriters, or other similar body.
Manager shall not take any such action, however, as long as Owner provides
Manager with written notice that it is contesting or intends to contest and
promptly institutes proceedings contesting any such order or requirements;
provided, that if failure to comply promptly with any such order or requirement
would or might expose Manager to criminal liability, Manager may without the
Owner's approval, cause the same to be complied with, and, in such event,
Manager shall notify Owner promptly, and in no event later than seventy-two (72)
hours from the time of receipt of all such orders and notices of requirements,
in writing. In addition, Manager will obtain, at Owner's sole cost and expense,
any business licenses and/or operating permits which may be required for the
operation and/or management of the Property.
E. SERVICE CONTRACTS. On behalf of Owner, Manager shall enter
into or renew contracts for electricity, gas, steam, water, telephone, cleaning,
fuel oil, elevator maintenance, vermin extermination, trash removal, laundry,
security and other services deemed necessary or
~2~
<PAGE> 3
advisable by Manager for the operation of the Property. Manager shall also
purchase all supplies, equipment, tools, appliances and materials which Manager
shall deem necessary to maintain and operate the Property. Upon termination of
this Agreement, Owner shall remain bound by the obligations of all contracts for
services, supplies, repairs, alterations and the like which Manager has entered
into in connection with its performance of its obligation hereunder.
F. TERMINATION OF THIRD-PARTY CONTRACTS. Manager will use its
best efforts in entering into any service and/or employment contracts herein
contemplated, to include as a condition of any such contract the right to
terminate such contract upon thirty (30) days' prior written notice. Owner must
approve the entering into of contracts with a term longer than one year.
G. COLLECTION OF RENTS. Manager is hereby authorized to and shall
collect all rent and other charges due from tenants and lessees and otherwise
due Owner with respect to the Property in the ordinary course of business. Owner
authorizes Manager to request, demand, collect, receive and receipt all such
rent and other charges and to institute legal proceedings in the name of and as
an expense reimbursable by Owner for the collection thereof and for the
dispossession of tenants and other persons from the Property, and such expense
may include the engaging of legal counsel for any such matter. All monies
collected by Manager shall forthwith be deposited in the Operating Account
referred to in Section 2.3 hereof.
H. SIGNS AT THE PROPERTY. Manager may place and remove or cause
to be placed and removed at Owner's expense such signs upon the Property as
Owner may reasonably authorize and direct in writing. Owner agrees to not
withhold its consent unreasonably to one or more small signs or flags on or
about the Property stating the same is under the management of Hallwood
Commercial Real Estate, LLC.
I. PREPARATION OF BUDGET. Manager shall prepare a proposed
operating and capital budget for the promotion, operation, repair and
maintenance of the Property for the forthcoming fiscal year. Each proposed
budget shall be delivered to Owner no later than thirty (30) days before the end
of each year. Owner will consider the proposed budget and then will consult with
Manager in the ensuing period prior to the commencement of the forthcoming year
in order to agree on an "Approved Budget." Manager agrees to use diligence and
to employ all reasonable efforts to ensure that the actual costs of maintaining
and operating the Property shall not exceed the Approved Budget pertaining
thereto, either in total or in any one accounting category. All expenses must be
charged to the proper accounts as specified in the Manager's standard chart of
accounts and no expense may be classified or reclassified for the purpose of
avoiding an excess in the annual budgeted amount of an accounting category.
J. PREPARATION OF GOVERNMENT FORMS. Manager shall cause to be
prepared and filed the necessary forms, other than income tax forms, as may be
required by any federal, state or municipal authority in connection with
performing the duties of Manager hereunder.
2.2 PAYMENTS BY MANAGER. Manager shall, on behalf of Owner, make: (a)
all the payments specified in Section 2.1 hereof, (b) all debt service payments
on mortgage loans
~3~
<PAGE> 4
covering the Property (including therein amounts due under any note and mortgage
securing the same for interest, principal, and for allocation to reserves or
escrow funds), (c) the amount of all real estate taxes and other impositions
levied by appropriate authorities which, if not escrowed with any mortgagee,
shall be paid to the extent funds are available in the Operating Account
(hereinafter defined) before interest shall begin to accrue thereon, and (d)
amounts otherwise due and payable as operating expenses of the Property incurred
under the terms of this Agreement, including the Manager's compensation and
fees. Any payments made by Manager hereunder shall be made at Manager's
discretion as to order of priority out of such funds as Manager may from time to
time hold for the account of Owner as specified in Section 2.3 below, or as may
be provided by Owner. Manager shall not be obligated to make any advance to or
for the Operating Account pursuant to the terms hereof, nor shall Manager be
obligated to incur any liability or obligation for the account of the Owner.
2.3 OPERATING ACCOUNT. All funds collected by Manager for the account
of Owner shall be held in trust and deposited in a federally insured bank,
savings and loan association or trust company mutually agreeable to Owner and
Manager, referred to herein as the "Operating Account." All funds in such
account shall be the property of Owner, subject to the express rights of Manager
provided herein. Funds may be withdrawn from such account established by Manager
in accordance with this Section 2.3 upon the sole signature of any individual
designated by Manager, and funds may not be withdrawn from such account by
Owner.
2.4. TENANT SECURITY DEPOSITS. Owner will provide Manager a complete
and accurate accounting for all tenant security deposits, if any, which
accounting is attached hereto and incorporated herein as Exhibit C. The total
amount of such deposits, (none), will be delivered to Manager by Owner upon the
effective date hereof. Owner agrees to indemnify and hold Manager harmless for
any errors in said accounting and prior actions taken by Owner and Owner's
agents with respect to any tenant security deposits which may have been
collected by Owner prior to the term of this Agreement. All security deposits of
tenants shall be maintained in the Operating Account, and Manager may pay such
deposits to such tenants at the expiration of the terms of their leases or at
such other time as they become entitled thereto as shall be determined by
Manager and as provided by law; and further, Manager may deduct from such
deposits appropriate amounts as determined by Manager pursuant to the terms of
the lease agreement with each tenant and as provided by law.
2.5 BONDING. If Owner so requests Manager in writing, Manager agrees
during the term of this Agreement, but at the sole cost and expense of Owner, to
maintain in force a fidelity bond covering employee dishonesty with sureties
satisfactory to Owner in the sum reasonably established by Owner, and to furnish
the original of such bond to Owner. Owner may from time to time require
adjustments in the amount of such bond to reflect increases or decreases in the
aggregate annual rent and other charges payable with respect to the Property,
provided that the cost of said bond shall at all times be borne by Owner.
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<PAGE> 5
ARTICLE III
OWNER'S COVENANTS
3.1. OWNER'S REPRESENTATIVE. Owner shall designate in writing, one (1)
person to serve as the owner's representative in all dealings with Manager
hereunder. Whenever the approval, consent or other action of Owner is called for
hereunder, such approval, consent, or action shall be binding on Owner if such
is specified by its representative. Such representative may be changed at any
time at the sole discretion of Owner. The appointment of any subsequent
representative shall not be effective until Manager has received written notice
of the change.
3.2. INSURANCE. Owner shall at its sole cost and expense cause to be
effected property damage insurance on the Property and liability insurance in
such amounts and to cover such risks as Owner and Manager shall mutually approve
containing no less than the terms set forth in Exhibit B, attached hereto and
incorporated herein. Owner agrees that Manager shall not be responsible for
obtaining such insurance. Owner agrees to pay all premiums therefore in a timely
manner and to deliver copies of said policies and/or endorsements thereto to
Manager, and the failure of Owner to obtain such insurance and deliver copies of
supporting documentation as provided herein shall permit but not obligate
Manager to procure said insurance and pay the requisite premiums from the
operation account.
Manager agrees to make a timely written report to the insurance
carrier concerning all accidents and claims for damage relating to the
ownership, operation and maintenance of the Property that it is made aware of,
and shall prepare any reports reasonably required by an insurance carrier in
connecting therewith. A copy of any such reports above referenced shall also be
delivered to Owner. Manager is authorized to settle any and all claims with or
against insurance companies arising out of any policies, including the execution
of proofs of loss, the adjustment of losses, signing of receipts, and the
collection of money, without joinder of Owner if the amount involved is less
than Fifty Thousand Dollars ($50,000.00). If the amount involved exceeds the
above specified amount, then Owner must join in settlement of such claim. Owner
hereby waives all rights of recovery against Manager for any loss insured under
any insurance policy covering the Property, and Owner agrees to obtain
endorsements to such policies acknowledging the insurance carrier's waiver of
its rights of subrogation or right of recovery against the Manager and/or any
insurance carrier of Manager to the extent such endorsements are obtainable from
the insurance company. Nothing herein nor any insurance obtained or applied for
by Owner or Manager shall be construed as implying that Owner or Manager is
subject to any liability to which it would not otherwise be subject.
3.3. HAZARDOUS MATERIAL. Owner shall defend, indemnify and hold
harmless Manager from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs and attorneys' fees) which at any
time or from time to time may be paid, incurred or suffered by, or asserted
against, Manager for, with respect to, or as a direct or indirect result of, the
presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission or release from the Property into or upon any land, the atmosphere, or
any water source, body of water or woodland, or any Hazardous Material which
exists on, under or at the Property at any time during the term of this
Agreement,
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<PAGE> 6
and from time to time, (including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under the
Statutes, hereinafter defined); and the foregoing provisions of the undertakings
and indemnification set out shall survive the termination of this Agreement
forever. For purposes of this Agreement, "Hazardous Material" means and includes
any hazardous substance or any pollutant or contaminant defined as such in (or
for purposes of ) the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act, or any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance or material, as now or at any time hereafter in
effect (collectively, the "Statutes"), or any other hazardous, toxic or
dangerous waste, substance or material.
ARTICLE IV
MANAGER'S COMPENSATION
4.1. AMOUNT OF COMPENSATION. During the term hereof, Owner shall pay
Manager as compensation for the management services rendered hereunder as
follows:
A. MONTHLY MANAGEMENT FEE. A monthly management fee (the
"Management Fee") equal to two and eighty-five hundreths percent (2.85%) of the
collected monthly Gross Receipts (hereinafter defined) of the Property.
B. CONSTRUCTION SUPERVISORY FEE. Owner shall pay Manager as
compensation for any construction supervisory services rendered by Manager with
respect to the Property, a fee ("Supervisory Fee") equal to five percent (5%) of
all costs incurred in making capital improvements and tenant improvements
(excluding costs for normal repairs and replacements) on the Property that are
supervised by Manager on behalf of Owner. The Supervisory Fee shall be payable
monthly for costs incurred the previous month.
C. LEASING FEES. Owner shall pay Manager as compensation for
negotiation and consummation of new leases, renewal of existing leases, and
expansion of existing tenants, a leasing fee as follows:
1. Manager's Fee Where No Third Party Brokers are Involved.
Where no Third Party broker or similar party is involved, Owner shall pay to
Manager leasing fees as follows:
a) As to new leases and expansion of existing leases
executed subsequent to the commencement of this Agreement, Owner shall pay to
Manager a leasing fee equal to [see Exhibit D for the rate information for each
property]. Unless otherwise agreed, one-half of such fee shall be paid at the
time the tenant executes the lease and the remaining one-half at the time the
tenant occupies the premises.
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<PAGE> 7
b) In the event a lease is renewed subsequent to the
commencement of this Agreement, Owner shall pay to Manager a fee equal to three
percent (3%) of the Base Rental payable for the renewal term. Unless otherwise
agreed, such fee shall be paid at the time the tenant executes documents
evidencing the lease renewal.
c) If any leases for which Manager receives a fee as
provided for in paragraphs 1a and 1b above contains any renewal or expansion
options entitling the tenant thereunder to either renew the term of its lease or
to lease additional space, and if such tenant should exercise such renewal or
expansion options, then at the time that such tenant executes a definitive
document evidencing such exercise, Owner shall pay to Manager a fee as
determined above either as to the expanded premises as leased by the tenant, or
for the renewal term, as applicable.
2. Manager's Fee Where Third Party Brokers Are Involved. Where
a Third Party broker or similar party is involved, Owner shall pay Manager a
leasing fee with respect to such leases at fifty percent (50%) of the applicable
fee where no Third Party brokers are involved, as provided for above.
4.2. BASE RENTAL DEFINED. The term "Base Rental" as used herein shall
mean the actual rental reserved under the lease in question, but excluding
therefrom, (i) all amounts paid by the tenant under the lease as reimbursement
for increases of operating expenses for the building or project (including
without limitation taxes, interest, insurance, maintenance, and other like
items) above the expense stop amounts specified in the lease; (ii) rentals
credited to tenant by reason of a lease assumption and/or rent abatement; (iii)
additional rentals or payments for special tenant services over and above
building or project standard; and (iv) late payment charges.
4.2.1. INITIAL TERM DEFINED. The term "Initial Term" as used herein
shall mean the initial primary term specified in a lease, without regard to any
renewal rights. If a lease contains provisions allowing the tenant to cancel or
terminate the lease at a specified point in time, the portion of the lease term
subject to cancellation or termination shall not be considered a part of the
Initial Term; if the tenant does not cancel or terminate the lease, the same
shall be treated as the exercise of a renewal option.
4.2.2. GROSS RECEIPTS DEFINED. The term "Gross Receipts" as used
herein shall mean and include all gross receipts derived from the operation of
the Property, including, without limitation, all rent and other sums and charges
received from all tenants and lessees and payments made in consideration of the
cancellation of any tenant leases or damages by reason of and default
thereunder, including, without limitation, application of the security deposits
upon such default, the proceeds from rental interruption insurance, and receipts
from vending machines, concessions and other commercial operations conducted on
the Property, but shall exclude all other receipts, including but not limited
to, income derived from interest on investments, proceeds of claims on account
of insurance policies other than rent interruptions or similar insurance, the
abatement of taxes, awards arising out of taking by eminent domain, discounts
and dividends on insurance policies.
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<PAGE> 8
4.3. REPORTS. Within fifteen (15) days following the last day of each
calendar month in each fiscal year for the term of this Agreement, the Manager
shall furnish to Owner a true, correct and complete unaudited statement of cash
flow for the preceding calendar month and a true, complete and correct unaudited
copy of the general ledger for the preceding month and detail of all receipts
and disbursements.
4.4. BOOKS AND RECORDS. Manager agrees to keep and maintain a proper
and adequate system of books of accounts and records, all satisfactory to Owner
and in accordance with such method of accounting as Owner designates, so as to
show accurately and completely all income from and expenses incurred with
respect to the Property, and to preserve the same for a period of at least three
(3) years after the close of the fiscal year to which they relate. Manager
further agrees to permit Owner and/or its accountants and authorized
representatives to examine and copy during regular business hours all books and
records related to the operation of the Property. Manager agrees to keep all
financial information concerning the Property confidential at all times during
and after the term of this Agreement; and no such information shall be given to
any third party without the prior consent of Owner.
4.5. ANNUAL REPORT. Within thirty (30) days after the end of each
fiscal year of Owner, Manager shall deliver to Owner's representative an
unaudited profit and loss statement showing the results of operations for that
fiscal year and an unaudited balance sheet of the Property as of the end of that
fiscal year, both to be prepared in accordance with accounting methods as
prescribed by Owner.
4.6. REVIEW BY GOVERNMENTAL AUTHORITIES. Manager shall assist Owner,
if requested by Owner in writing, in rendering the Property for taxation to the
appropriate governmental authorities as required by the laws of the State in
which the Property is located, and any expenses incurred thereby shall be
reimbursed to Manager as expenses of Owner.
4.7. USE OF PROPERTY. Manager agrees to not knowingly permit the use
of the Property for any purpose which voids any policy of insurance held by
Owner or which might render any loss thereunder uncollectible or which would be
in material violation of any government law, regulation or restriction. Manager
shall use its best efforts to secure full compliance by the tenants with the
terms and conditions of their respective leases, and to this end, Manager shall
use its best efforts to see that all tenants are informed with respect to such
rules, regulations and notices as may be promulgated by Owner. Manager agrees to
perform such other acts and deeds as are reasonable, necessary and proper in the
discharge of its duties under this Agreement.
ARTICLE V
TERM AND MISCELLANEOUS PROVISIONS
5.1. TERM. Owner grants to Manager the right to manage, lease,
operate, maintain and service the Property, to the exclusion of all other
persons whomsoever, excepting Owner, upon the terms herein set forth for a term
commencing July 1, 1999, and ending June 30, 2004. Nothing herein contained
shall be construed as limiting in any way the right of Owner to lease any
~8~
<PAGE> 9
space in the Property, or to exercise any other power or duty granted Manager,
but in such event, Manager shall be entitled to receive remuneration or fees
thereon to the same extent as if Manager had performed such services.
5.2. TERMINATION. This Agreement shall terminate in accordance with
conditions as set forth below:
A. NOTICE BY MANAGER. In addition to the rights set forth herein
concerning termination and notwithstanding any other provision of this
Agreement, Manager may terminate this Agreement without penalty upon sixty (60)
days written notice to the Owner.
B. DEFAULT. Upon Manager's or Owner's default hereunder, provided
that the Manager or Owner, as appropriate, does not cure such default within
thirty (30) days of having received written notice from the other party of such
default; provided, however, if such breach cannot be reasonably cured within
said thirty (30) day period and efforts to cure continue to be pursued with due
diligence to conclusion, then there shall be no right to terminate this
Agreement, unless the default is not cured within a reasonable time.
C. APPOINTMENT OF RECEIVER OR BANKRUPTCY. If (i) a receiver,
liquidator or trustee of Owner or Manager shall be appointed by court order, or
(ii) a bona fide petition to reorganize Owner or Manager shall be filed against
Owner or Manager under any bankruptcy, reorganization or insolvency law, or
(iii) Owner or Manager shall file a petition in voluntary bankruptcy or shall
request a reorganization under any provision of any bankruptcy, reorganization
or insolvency laws, or (iv) if Owner or Manager shall make any assignment for
the benefit of creditors, then termination of this Agreement shall occur upon
Owner or Manager, as is appropriate, delivering written notice to the other that
such party delivering such notice is terminating this Agreement.
Termination of this Agreement under any of the foregoing
provisions shall not release either party from liability for failure to perform
any of the duties or obligations as expressed herein and required to be
performed by such party for the period prior to such termination.
5.3. ACTIONS AT TERMINATION. Upon termination of this Agreement above
provided, Manager shall forthwith take the following actions:
A. DELIVER THE PROPERTY. Surrender and deliver up to Owner the
Property and all rents and income of the Property on hand and in any bank
account which are monies of Owner (less payment to Manager of any amounts owed
it by Owner under this Agreement) except as provided in Section 5.5.
B. MONIES RECEIVED AFTER TERMINATION. Deliver to Owner as
received (after payment of any amounts owed by Owner under this Agreement
including but not limited to the Management Fee and all payments to be made by
Manager pursuant to Section 2.2 hereof) any monies due Owner under this
Agreement but received after such termination.
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<PAGE> 10
C. SUPPLIES. Deliver to Owner all materials, supplies, keys,
contracts and documents, and such other accounting papers and records pertaining
to this Agreement as Owner shall reasonably request.
Within fifteen (15) days after any such termination, Manager shall
deliver to Owner's representative the written cash flow report required by
Section 4.3 for any period not covered by such report at the time of
termination. Within thirty (30) days after any such termination, Manager shall
deliver to Owner's representative the profit and loss statement for the fiscal
year or portion thereof ending on the date of termination and the balance sheet
of the Property as of the date of termination. After the delivery of the final
cash flow reports and as a condition of the delivery of the final profit and
loss statement and balance sheet, Owner shall acknowledge to Manager in writing
that it has reviewed such final statements, and has been given the opportunity
to review the books and records of Manager to verify the accuracy of all reports
made by Manager during the term of this Agreement, and that, upon receipt of
such final report, shall have received from Manager a full and complete
accounting of the activities of Manager during the term of this Agreement.
5.4. FEES ON TERMINATION OF AGREEMENT. Upon termination of this
Agreement, Manager will be entitled to continue to receive, in accordance with
the provisions of this Agreement, any leasing fees to which Manager became
entitled prior to the effective date of such termination and not received by
such date. However, if Owner at any time transfers the Property, all sums earned
by Manager hereunder, but then unpaid, shall immediately become due and payable.
5.5. NOTIFICATION OF TENANTS UPON SALE OR TERMINATION. Immediately
after the termination of this Agreement or upon the transfer of the Property by
Owner as provided in Section 5.11, Owner and Manager shall notify each tenant in
the Property of such termination or sale. Such notice shall identify the name
and address of the new owner or manager, as the case may be, of the Property,
and shall direct each tenant with respect to the future payments of rent. Upon
termination of this Agreement, Manager shall transfer tenant deposits to Owner
or as directed by Owner, and the notice to tenants required by this Section 5.5
shall specify the person to whom inquiries regarding such deposits shall be
directed. Owner agrees that, anything else herein to the contrary
notwithstanding, Manager may, upon transfer of the Property or termination of
the Agreement, take such action as is reasonably necessary to comply with
applicable law to terminate Manager's liability as provided by law or hereunder.
5.6. HOLD HARMLESS AND INDEMNITY. Except for the gross negligence or
willful and wanton acts of Manager and/or employees of Manager, Owner agrees:
(i) to hold and save Manager, its parent company or companies, affiliates,
agents, successors and assigns free and harmless from any and all claims for
damage for bodily injury and damage to or destruction of property arising from
any cause either in and about the Property or elsewhere when Manager is carrying
out the provisions of this Agreement or acting under the express or implied
directions of Owner, including the loss of use of the Property following and
resulting from such damage or destruction, (ii) to indemnify and reimburse
Manager upon demand for any monies which Manager is required to pay for any
reason whatsoever in connection with, or as an expense in defending against, any
claim, civil or criminal action, proceeding, charge or prosecution made,
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<PAGE> 11
instituted or maintained against Manager, its parent company or companies,
affiliates, agents, successors and assigns, or against Owner and Manager jointly
or severally, by a private person or entity, federal, state or government or any
agency thereof, affecting or due to the conditions or use of the Property or
acts or omissions of Owner or Manager or their agents, or arising out of or
based upon any law, regulation, requirement, contract or award relating to
hiring practices, the hours of employment, working conditions, wages or
compensation of employees or former employees who worked or have worked
exclusively on the Property; (iii) to defend, if requested by Manager, promptly
and diligently, at its expense, any action or claim arising out of or in
connection with any of the foregoing and to hold Manager, its parent company or
companies, affiliates, agents, successors and assigns, harmless and fully
indemnify Manager, its parent company or companies, affiliates, agents,
successors and assigns, from any fine, judgment, loss or settlement on account
thereof. Except as provided in Section 2.1D, if Owner shall fail or refuse to
comply with or abide by any rule, order determination, judgment, ordinance or
law of any federal, state or local court or authority, then anything else herein
to the contrary notwithstanding, Manager may terminate this Agreement upon
twenty-four (24) hours written notice to Owner.
In connection with any termination of this Agreement, upon request by
Owner of a statement from Manager that all of its claims hereunder (except for
indemnification due pursuant to this Section 5.6) have been satisfied and the
delivery to Owner of the items described in Section 5.3, Owner agrees to
indemnify and hold Manager harmless from:
A. Any liability for or relating to the tenant deposits for the
Property, including specifically: (i) Manager's handling of such deposits and
any failure to segregate such deposits or to maintain cash reserves to cover
obligations for deposits, and (ii) any action taken by tenants against Manager
for the return of security deposits to them;
B. Any liabilities to suppliers, maintenance companies or
contractors or other trade creditors for goods, services or benefits for the
Property, provided such liabilities were incurred as provided herein;
C. Any other liabilities incurred within the scope of this
Agreement or other legitimate and appropriate benefits for the Property; and
D. Any liabilities arising out of any transactions disclosed in
any reports submitted to Owner by Manager during the term of this Agreement and
to the date of Manager's delivery of the items required pursuant to Section 5.4
hereof.
The indemnity and hold harmless provisions of this Section 5.6 shall
survive the termination of this Agreement and shall apply notwithstanding
Manager's failure to disclose its status as agent or Manager's identity to any
creditor or other person. The specific survival provision of this Section 5.6
shall not be construed to mean that Owner's liability with respect to other
provisions of this Agreement does not survive. The provision of this Section 5.6
shall not inure to the benefit of any tenant, creditor or other third party,
except the indemnity and hold harmless herein shall apply and inure to the
benefit of the officers, directors, agents and employees of Manager.
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<PAGE> 12
5.7. NOTICES. All notices, requests, demands, consents or other
communications given to any party hereunder or in connection herewith shall be
in writing and shall be sent by certified or registered mail, return receipt
requested, postage prepaid, addressed to such party at the following listed
addresses:
A. To Manager:
Hallwood Commercial Real Estate, LLC
3710 Rawlins, Suite 1500
Dallas, Texas 75219
B. To Owner:
Hallwood Real Estate Investors Fund XV
c/o Hallwood Realty, LLC
3710 Rawlins, Suite 1500
Dallas, Texas 75219
Any party may, by notice as aforesaid, change its mailing address for
any and all subsequent notices.
5.8. AGREEMENT NOT INTENDED TO ESTABLISH A PARTNERSHIP. Nothing
contained in this Agreement or in the relationship of Owner and Manager shall be
deemed to constitute a partnership, joint venture or any other relationship
between them except that of principal and agent.
5.9. GOVERNING LAW. This Agreement is made pursuant to and shall be
governed by and construed in accordance with the laws applicable to contracts
made and to be performed entirely within the State of Georgia.
5.10. ASSIGNMENT BY MANAGER AND BINDING EFFECT. Manager may not assign
this Agreement without the prior written approval of Owner. Except as aforesaid,
this Agreement shall be binding upon and shall inure to the benefits of the
parties hereto and to their respective successors and assigns.
5.11. ASSIGNMENT BY OWNER. Owner may not assign this Agreement without
the prior written approval of Manager. Except as aforesaid, this Agreement shall
be binding upon and shall inure to the benefits of the parties hereto and to
their respective successors and assigns. In the event Owner transfers and/or
assigns the Property to any other person and/or entity for any reason, Manager
shall have the option to cancel this Agreement by written notice to Owner within
thirty (30) days of receipt of notice of such transfer and/or assignment. Upon
assignment of the Property, Owner shall comply with the notice provision of
Section 5.5 and of all requirements of applicable law.
5.12. ATTORNEYS' FEES. In the event of litigation arising out of a
breach of this Agreement or dispute regarding the terms and conditions hereof,
the prevailing party shall be permitted to recover all costs and expenses
thereof, including reasonable attorneys' fees.
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<PAGE> 13
5.13. FORCE MAJEURE. Any delays in the performance of any obligation
of Manager under this Agreement shall be excused to the extent that such delays
are caused by wars, national emergencies, natural disasters, strikes, labor
disputes, utility failures, governmental regulations, riots, adverse weather,
and other similar causes not within the control of Manager, and any time periods
required for performance shall be extended accordingly.
5.14. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement between the parties hereto and no modification hereof shall be
effective unless such is made by supplemental agreement in writing executed by
the parties hereto.
5.15. REPRESENTATIONS. Owner represents and warrants: That Owner has
full power and authority to enter this Agreement; that there are no written or
oral agreements affecting the Property other than tenant leases, copies of which
have been furnished to Manager; that there are no recorded easements,
restrictions, reservations, or rights of way which adversely affect the use of
the Property for the purposes intended under this Agreement; that to the best of
Owner's knowledge, the Property is zoned for the intended use; that all leasing
and other permits for the operation of the Property have been secured and are
current; that the building and its construction and operation do not violate any
applicable statues, laws, ordinances, rules, regulations, orders or the like
(including, but not limited to, those pertaining to hazardous or toxic
substances); that the building does not contain any asbestos, urea,
formaldehyde, radon, or other toxic or hazardous substance; and that no unsafe
condition exists. Manager represents and warrants: That Manager has full power
and authority to enter this Agreement and discharge its duties hereunder.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
OWNER: MANAGER:
Hallwood Real Estate Investors Fund XV Hallwood Commercial Real Estate, LLC
By: Hallwood Realty Partners,
L.P., general partner
By: /s/ John G. Tuthill
--------------------------------
By: Hallwood Realty, LLC,
general partner Title: Executive Vice President
------------------------------
By: /s/ Jeffrey D. Gent
---------------------------
Title: Vice President
------------------------
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<PAGE> 14
EXHIBIT A
PROPERTY LEGAL DESCRIPTION
CORPORATE SQUARE
BUILDINGS 10, 11, AND 12
ALL OF THAT CERTAIN LOT, TRACT, OR PARCEL SITUATED, LYING, AND BEING IN LAND LOT
156 OF THE 18TH LAND DISTRICT OF DEKALB COUNTY, STATE OF GEORGIA AND BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS, TO WIT:
COMMENCE AT A POINT WHICH MARKS THE INTERSECTION OF THE CENTERLINE OF AN I-85
ACCESS ROAD AND THE CENTERLINE OF CORPORATE BOULEVARD, SAID ACCESS ROAD RIGHT OF
WAY BEING OF VARIABLE WIDTH AND SAID CORPORATE BOULEVARD RIGHT OF WAY BEING 70
FEET IN WIDTH, AND RUN THENCE NORTH 30 DEGREES 19 MINUTES 28 SECONDS WEST FOR A
DISTANCE OF 634.84 FEET TO THE POINT OF BEGINNING OF THE TRACT HEREIN DESCRIBED;
THENCE FROM SAID POINT OF BEGINNING RUNNING NORTH 56 DEGREES 23 MINUTES 58
SECONDS WEST ALONG THE NORTHEAST RIGHT OF WAY LINE OF CORPORATE BOULEVARD FOR A
DISTANCE OF 212.83 FEET TO A POINT;
THENCE RUNNING NORTH 33 DEGREES 45 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
608.25 FEET TO A POINT;
THENCE RUNNING NORTH 33 DEGREES 45 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
93.96 FEET TO A POINT WHICH MARKS THE BEGINNING OF A CURVE TO THE RIGHT;
THENCE RUNNING ALONG THE ARC OF A CURVE TO THE RIGHT HAVING A RADIUS OF 381.97
FEET, A CHORD BEARING OF NORTH 42 DEGREES 01 MINUTES 06 SECONDS EAST, AND A
CHORD LENGTH OF 90.15 FEET FOR A DISTANCE OF 90.36 FEET TO A POINT WHICH MARKS
THE ENDING OF THE AFORESAID CURVE AND THE BEGINNING OF A CURVE TO THE RIGHT;
THENCE RUNNING ALONG THE ARC OF A CURVE TO THE RIGHT HAVING A RADIUS OF 381.97
FEET, A CHORD BEARING OF NORTH 55 DEGREES 49 MINUTES 27 SECONDS EAST, AND A
CHORD LENGTH OF 113.08 FEET FOR A DISTANCE OF 113.50 FEET TO A POINT;
THENCE RUNNING SOUTH 25 DEGREES 39 MINUTES 48 SECONDS EAST FOR A DISTANCE OF
43.67 FEET TO A POINT WHICH MARKS THE BEGINNING OF A CURVE TO THE RIGHT;
THENCE RUNNING ALONG THE ARC OF A CURVE TO THE RIGHT HAVING A RADIUS OF 338.298
FEET, A CHORD BEARING OF NORTH 66 DEGREES 58 MINUTES 21 SECONDS EAST, AND A
CHORD LENGTH OF 31.12 FEET FOR A DISTANCE OF 31.13 FEET TO A POINT;
<PAGE> 15
THENCE RUNNING SOUTH 27 DEGREES 22 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
269.13 FEET TO A POINT;
THENCE RUNNING SOUTH 62 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
24.00 FEET TO A POINT;
THENCE RUNNING SOUTH 27 DEGREES 22 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
36.00 FEET TO A POINT;
THENCE RUNNING NORTH 62 DEGREES 37 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
68.96 FEET TO A POINT;
THENCE RUNNING SOUTH 27 DEGREES 22 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
190.00 FEET TO A POINT;
THENCE RUNNING SOUTH 62 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
198.00 FEET TO A POINT;
THENCE RUNNING SOUTH 62 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
198.97 FEET TO A POINT;
THENCE RUNNING SOUTH 27 DEGREES 22 MINUTES 30 SECONDS EAST FOR A DISTANCE OF
140.00 FEET TO A POINT;
THENCE RUNNING SOUTH 62 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
75.00 FEET TO A POINT;
THENCE RUNNING NORTH 27 DEGREES 22 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
6.50 FEET TO A POINT;
THENCE RUNNING SOUTH 62 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
72.00 FEET TO A POINT;
THENCE RUNNING NORTH 27 DEGREES 22 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
63.00 FEET TO A POINT;
THENCE RUNNING SOUTH 62 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
159.00 FEET TO A POINT;
THENCE RUNNING NORTH 54 DEGREES 37 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
71.00 FEET TO A POINT;
THENCE RUNNING SOUTH 35 DEGREES 22 MINUTES 30 SECONDS WEST FOR A DISTANCE OF
53.83 FEET TO THE POINT OF BEGINNING.
THE AFOREDESCRIBED TRACT BEING 8.121 ACRES OF 353,734.3 SQUARE FEET IN AREA.
<PAGE> 16
EXHIBIT B
INSURANCE
1. Owner shall maintain, at its expense, all-risk from property damage
insurance ("All Risk"), including without limitation coverage against
allied perils, vandalism, malicious mischief, sprinkler leakage and plate
glass, in the amount of full Replacement Cost without coinsurance and
containing such additional coverages, if any, as are customarily obtained
in connection with the ownership and management of properties of similar
quality, character and design in the same geographical area in which the
Property is located, but in no event in an amount or containing coverages
less than or lesser quality or extent than required by the terms of any
mortgage or trust deed encumbering the Property.
2. Owner shall also place and maintain, at Owner's expense, public liability
insurance, including the broad form comprehensive general liability
endorsement and contractual liability coverage on an occurrence form
covering owner's obligations under this Agreement, in the amount of
$2,000,000 combined single limit primary coverage, with an additional
$10,000,000 umbrella coverage, naming Owner as insured and Manager and
Manager's officers, directors, agents and employees as additional named
insured, containing such additional coverages, if any, as are customarily
obtained in connection with the ownership and management of properties of
similar quality, character and design in the same geographical area in
which the Property is located.
3. Each policy of insurance covering the Premises or Owner or Manager in
connection with the Premises shall be written with acceptable companies
licensed to do business in the state where the property is located and with
a minimum Best Key rating of no less than A VIII, containing an endorsement
in which the insurer waives its rights of subrogation, if any, against
Owner, Manager and Manager's officers, directors, agents and employees, and
in which the insurer agrees that the policy will not be invalidated in the
event that any insured waives, prior to the occurrence of the insured
event, any rights it may have against Owner, Manager or Manager's officers,
directors, agents or employees.
4. All policies of insurance required to be maintained by Owner hereunder
shall provide that they may not be cancelled or materially modified without
at least 10 days prior written notice from the insurer to both Owner and
Manager in the event of cancellation for non-payment, and at least 30 days
prior written notice from the insurer to both owner and Manager in any
other event. Upon the execution hereof, Owner shall provide Manager with
certified copies of all policies of insurance required to be maintained by
Owner hereunder, and thereafter at least 30 days prior to the expiration of
any of such policies, Owner shall provide Manager with a certificate
evidencing the continuation of such insurance.
<PAGE> 17
EXHIBIT C
SECURITY DEPOSITS
None.
<PAGE> 18
EXHIBIT D
LEASING FEE COMPENSATION
SCHEDULE OF FEES BY PROPERTY WITHOUT A THIRD PARTY BROKER
ARTICLE IV - SECTION 4.1C
<TABLE>
<CAPTION>
Property FIRST 5 YEARS NEXT 5 YEARS
- -------- ------------- ------------
<S> <C> <C>
Airport Plaza 5% 3%
Allfirst Building see note (a) 2%
Bellevue Corporate Plaza 5% 2.5%
Bradshaw Business Parks 6% 4%
Corporate Square 4% (b) 4%
Executive Park 4% (b) 4%
Fairlane Commerce Park 6% 3%
Fountain View Business Park 5% 3%
Gulley Road Industrial Park 6% 3%
Joy Road Distribution Center 6% 3%
Montrose Office Center 3% 3%
Parklane Towers 5% 3%
Raintree Industrial Park 6% or 4% (c) 6% or 4% (c)
Riverbank Plaza 5% 3%
Seattle Business Parks 5% 2.5%
</TABLE>
Notes:
- ------------
(a) 6% for year 1; 4% for years 2 and 3; and 3% for years 4 and 5.
(b) 100% for the first month, with a three year minimum.
(c) 6% of the first $1 million of base rent plus 4% thereafter.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,332
<SECURITIES> 0
<RECEIVABLES> 2,287
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 358,315
<DEPRECIATION> 165,501
<TOTAL-ASSETS> 230,386
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 48,209
<OTHER-SE> 487
<TOTAL-LIABILITY-AND-EQUITY> 230,386
<SALES> 0
<TOTAL-REVENUES> 59,645
<CGS> 0
<TOTAL-COSTS> 35,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,701
<INCOME-PRETAX> 4,062
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,062
<EPS-BASIC> 2.40
<EPS-DILUTED> 2.31
</TABLE>
