<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to_________
Commission file number 1-12588
ALEXANDER HAAGEN PROPERTIES, INC.
(Exact name of registrant as specified in charter)
Maryland 95-4444963
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3500 Sepulveda Boulevard
Manhattan Beach, California 90266
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 546-4520
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 at least the past 90 days. YES [X] NO [ ].
As of May 7, 1997, 12,024,522 shares of Common Stock, Par Value $.01 Per
Share, were outstanding.
================================================================================
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II OTHER INFORMATION 12
SIGNATURES 13
i
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Rental properties $ 665,327 $ 659,565
Accumulated depreciation and amortization (108,328) (104,330)
--------- ---------
Rental properties, net 556,999 555,235
Cash and cash equivalents 5,308 5,941
Tenant receivables, net 5,894 5,987
Other receivables 3,612 3,650
Receivable from management company 428 1,055
Investment in management company 621 621
Restricted cash 3,188 3,252
Deferred charges, net 18,155 18,365
Other assets 1,427 770
--------- ---------
TOTAL $ 595,632 $ 594,876
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Secured debt $ 247,531 $ 242,641
7 1/2% Convertible subordinated debentures 138,599 138,599
7 1/4% Exchangeable subordinated debentures 30,000 30,000
Accrued distributions 5,872 7,039
Accrued interest 3,471 5,490
Accounts payable and other accrued expenses 6,471 5,340
Accrued construction costs 3,309 1,207
Tenant security and other deposits 4,831 4,287
--------- ---------
Total liabilities 440,084 434,603
--------- ---------
MINORITY INTERESTS
Operating Partnership 40,429 41,640
Other minorities 1,899 2,007
--------- ---------
Total minority interests 42,328 43,647
--------- ---------
STOCKHOLDERS' EQUITY
Common stock ($.01 par value, 50,000,000 shares authorized;
12,024,522 and 12,024,378 shares issued and outstanding
at March 31, 1997 and December 31, 1996, respectively) 120 120
Additional paid-in capital 174,782 174,792
Accumulated distributions and deficit (61,682) (58,286)
--------- ---------
Total stockholders' equity 113,220 116,626
--------- ---------
TOTAL $ 595,632 $ 594,876
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
REVENUES:
Minimum rents $15,926 $15,216
Recoveries from tenants 4,987 4,529
Percentage rents 271 238
Other income 999 895
------- -------
Total revenues 22,183 20,878
------- -------
EXPENSES:
Interest 8,897 8,854
Depreciation and amortization 4,315 4,437
Property Operating Costs:
Common Area 3,349 3,179
Property taxes 2,076 1,813
Leasehold rentals 403 407
Marketing 112 188
Other operating 452 348
Non-recurring provision for unbilled deferred rent - 6,900
General and administrative 1,238 1,164
------- -------
Total expenses 20,842 27,290
------- -------
INCOME (LOSS) FROM OPERATIONS 1,341 (6,412)
EQUITY IN INCOME OF MANAGEMENT COMPANY - -
------- -------
INCOME (LOSS) BEFORE MINORITY INTERESTS 1,341 (6,412)
MINORITY INTERESTS:
Operating Partnership (332) 848
Other minorities (76) (68)
------- -------
NET INCOME (LOSS) $ 933 $(5,632)
======= =======
NET INCOME (LOSS) PER SHARE $0.08 $(0.47)
======= =======
Weighted average shares 12,024 12,024
outstanding ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 933 $(5,632)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of rental properties 4,315 4,437
Amortization of deferred financing costs 554 523
Non-recurring provision for unbilled deferred rent - 6,900
Minority interests in operations 408 (780)
Equity in income of management company - -
Net changes in operating assets and liabilities 61 (359)
------- -------
Net cash provided by operating activities 6,271 5,089
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and Development Costs (4,599) (7,239)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage financing (610) (550)
Borrowings on secured line of credit 8,000 9,500
Repayment of secured line of credit (2,500) (1,500)
Decrease in restricted cash 63 948
Distributions paid to shareholders (4,329) (4,329)
Distributions paid to minority interests (2,895) (554)
Other (34) -
------- -------
Net cash (used by) provided by financing activities (2,305) 3,515
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (633) 1,365
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF PERIOD 5,941 3,687
------- -------
CASH AND CASH EQUIVALENTS, AT END
OF PERIOD $ 5,308 $ 5,052
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements and related notes of Alexander Haagen
Properties, Inc. (the "Company") are unaudited; however, they have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and the instructions to Form 10-Q and the rules
and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared under generally accepted accounting principles have
been condensed or omitted pursuant to such rule. In the opinion of
management, all adjustments considered necessary for fair presentation of
the Company's financial position, results of operations and cash flows have
been included. These financial statements should be read in conjunction
with the Company's Form 10-K for the year ended December 31, 1996.
2. INVESTMENT IN MANAGEMENT COMPANY
Equity in Income (Loss) of Management Company represents the Company's 95%
economic interest in Haagen Property Management, Inc. ("HPMI"). In
conjunction with the Initial Public Offering of the Company's common stock
and Debentures in December 1993 (the "IPO"), HPMI assumed all of the
property management functions for the Company's properties. Executive and
property management fees for the three months ended March 31, 1997 and 1996
totaled $997,000 and $948,000, respectively, and are included in general
and administrative expenses. In addition, HPMI provides leasing, legal and
construction services for the properties owned by the Company, such fees
for the three months ended March 31, 1997 and 1996 of $716,000 and
$885,000, respectively, were capitalized and are being amortized over the
useful lives of the related leases and/or properties.
As the OP owns a 95% economic interest in but does not control HPMI, the
investment is accounted for on an equity basis.
3. DEVELOPMENT PROPERTIES
Certain of the Properties had not completed their respective leasing plans
at the date of the IPO (the "Development Properties"). To facilitate
inclusion of the Development Properties in the Company's initial portfolio,
the partners of certain Predecessor Affiliates that transferred the
Development Properties to the Company had the right to receive additional
OP Units. In general, the number of additional OP Units issued was based
on the increase in net annualized cash flow from new leases signed through
March 31, 1996 and in occupancy and paying rent by June 30, 1996. Such
increase in cash flow was not fully realized until the third quarter of
1996.
On August 12, 1996, the Independent members of the Board of Directors
approved the issuance of 3,242,379 OP Units to the Predecessor Affiliates.
The market capitalization of the OP was thereby increased by $41.7 million
based upon the stock price as of August 12, 1996. The Predecessor
Affiliates' interest in the OP was thereby increased from 8% to
approximately 26% effective July 1, 1996. As a result of the issuance in
the third quarter of the 3,242,379 OP Units, minority interest was
increased and additional paid-in capital decreased by approximately $31.5
million. The number of OP Units issued and outstanding as of March 31,
1997 was 4,286,456.
6
<PAGE>
4. UNBILLED DEFERRED RENTS
During the first quarter of 1996 the Company reassessed the recoverability
of straight-line contractual rent increases as a result of the continuing
mergers and consolidations within the retail industry and the financial
difficulties of certain retailers. Accordingly, during the first quarter
the Company recorded a non-recurring non-cash charge of $6.9 million to
increase the reserve against the receivable for straight-line rents.
Additionally, the Company fully reserved against future unbilled deferred
rents effective January 1, 1996. The company believes this to be an
appropriate and conservative approach to account for future contractual
rent increases in the current retail environment.
5. RENTAL PROPERTIES
The Company regularly reviews long-lived assets and intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of
expected future cash flow is less than the carrying amount of the asset,
the Company recognizes an impairment loss.
6. DISTRIBUTIONS
Approximately 76% of the distributions to stockholders for the year ended
December 31, 1996 represented a return of capital.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
HISTORICAL RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1997 to the three months
ended March 31, 1996.
Revenues increased by $1.3 million to $22.2 million for the three months
ended March 31, 1997 from $20.9 million for the three months ended March 31,
1996. The revenue increase was primarily a result of the lease-up of the
Development Properties, principally Media City Center, Empire Center and Baldwin
Hills Crenshaw Plaza.
Interest expense remained constant at $8.9 million for the three months
ended March 31, 1997 and March 31, 1996. An increase due to borrowings on the
Company's line of credit to finance construction and redevelopment activity at
various properties was offset by a reduction from a partial loan repayment in
connection with a property sale in 1996.
Property operating costs increased by $0.5 million to $6.4 million for the
three months ended March 31, 1997 from $5.9 million for the three months ended
March 31, 1996. The increase is a result of increased property taxes and an
overall inflationary increase in operating costs at the Company's properties.
During the first quarter of 1996 the Company reassessed the recoverability
of straight-line contractual rent increases as a result of the continuing
mergers and consolidations within the retail industry and the financial
difficulties of certain retailers. Accordingly, the Company recorded a non-
recurring non-cash charge of $6.9 million to increase the reserve against the
receivable for straight-line rents. Additionally, the Company fully reserved
against unbilled deferred rents effective with the first quarter of 1996. The
company believes this to be an appropriate and conservative approach to account
for the straight-lining of contractual rent increases in the current retail
environment.
General and administrative expenses remained constant at approximately $1.2
million for the three months ending March 31, 1996 and 1997.
Income from operations increased by $7.7 million from a loss of $6.4
million for the three months ended March 31, 1996 to income of $1.3 million for
the three months ended March 31, 1997 for the reasons stated above.
8
<PAGE>
Selected Property Financial Information
Net operating income (defined as revenues less property operating costs)
for the Company's properties is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
------- -------
<S> <C> <C>
Stabilized Properties (33 in 1997 and 35 in 1996):
Regional Malls $ 4,697 $ 3,943
Power Centers 4,216 3,792
Community Centers 4,114 4,248
Single Tenants 1,931 2,002
Redevelopment Properties:
Covina Town Square 544 685
Medford Center 212 203
Other income 77 70
------- -------
Net Operating Income $15,791 $14,943
======= =======
</TABLE>
The following summarizes the percentage of leased GLA (excluding non-owned
GLA and GLA leased but not yet constructed) as of:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Stabilized Properties (33):
Regional Malls 90.5% 92.5%
Power Centers 91.7 95.4
Community Centers 94.8 95.9
Single Tenants 100.0 100.0
Redevelopment Properties:
Covina Town Square 88.9 88.3
Medford Center 97.8 97.0
Aggregate Portfolio 94.2% 95.8%
===== =====
</TABLE>
During the first quarter of 1997 the Company signed leases for
approximately 242,000 square feet, including 115,000 square feet at its Re-
Development Properties. Such signed leases resulted in an increase in the
overall rent per square foot of the Company's portfolio to $10.87 per square
foot at March 31, 1997 from $10.61 per square foot at December 31, 1996.
In the first quarter of 1997 the non-owned IKEA store and several other
tenants in Empire Center (Fontana, California) vacated their premises. The
leased space of Empire Center decreased to 66.2% at March 31, 1997 from 90.3% at
December 31, 1996. Leased space at the Company's aggregate portfolio decreased
to 94.2% at March 31, 1997 from 95.8% at December 31, 1996.
Certain of the Properties had not completed their respective leasing plans
at the date of the IPO (the "Development Properties"). To facilitate inclusion
of the Development Properties in the Company's initial portfolio, the partners
of certain Predecessor Affiliates that transferred the Development Properties to
the Company had the right to receive additional OP Units. In general, the
number of additional OP Units issued was based on the increase in net annualized
cash flow from new leases signed through March 31, 1996 and in occupancy and
paying rent by June 30, 1996. Such increase in cash flow was not fully realized
until the third quarter of 1996.
9
<PAGE>
On August 12, 1996, the Independent members of the Board of Directors
approved the issuance of 3,242,379 OP Units to the Predecessor Affiliates. The
market capitalization of the OP was thereby increased by $41.7 million based
upon the stock price as of August 12, 1996. The Predecessor Affiliates'
interest in the OP was thereby increased from 8% to approximately 26% effective
July 1, 1996. The number of OP Units issued and outstanding as of March 31,
1997 was 4,286,458.
Funds from Operations
The Company considers funds from operations ("FFO") to be an alternative
measure of the performance of an equity REIT since such measure does not
recognize depreciation and amortization expenses as operating expenses. FFO has
been defined by the National Association of Real Estate Investment Trusts
("NAREIT") as net income plus depreciation and amortization of real estate, less
gains on sales of properties. Management concurs with NAREIT in believing that
reductions for the depreciation and amortization of real estate and its related
costs are not meaningful in evaluating income-producing real estate.
The Company computes FFO on both a primary and a fully diluted basis and
considers Operating Partnership Units as the equivalent of shares for the
purpose of these computations. The fully diluted basis assumes the conversion
of the convertible and exchangeable debentures into shares of common stock. In
computing fully-diluted FFO the Company adds back the amortization of deferred
financing costs related to the outstanding debentures, principally representing
the underwriting discount on the convertible debentures. The following table
summarizes the Company's computation of FFO and provides certain additional
disclosures (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
------ --------
<S> <C> <C>
FUNDS FROM OPERATIONS
Net income (loss) $ 933 $(5,632)
Adjustments to reconcile net income (loss) to funds from
operations:
Depreciation and Amortization:
Buildings and improvements 2,917 3,101
Tenant improvements and allowances 1,071 1,088
Leasing costs 314 234
Non-recurring provision for unbilled deferred rent - 6,900
Minority Interests 259 (927)
------ -------
Funds from Operations, primary 5,494 4,764
Debenture interest expense 3,142 3,142
Amortization of deferred financing costs-debentures 325 326
------ -------
Funds from operations, fully diluted $8,961 $ 8,232
====== =======
SUPPLEMENTAL DISCLOSURES
Capital Expenditures:
Expansion of the Company's portfolio $5,713 $ 2,245
Releasing and maintenance of portfolio 49 72
------ -------
$5,762 $ 2,317
====== =======
Capitalized leasing costs:
Expansion of the Company's portfolio $ 501 $ 856
Releasing and maintenance of portfolio 134 137
------ -------
$ 635 $ 993
====== =======
</TABLE>
10
<PAGE>
The Company considers any space that was vacant or unbuilt at the date of
its initial public offering to be expansion of its portfolio.
Funds from operations, on a primary basis, increased to $5.5 million for
the three months ended March 31, 1997, as compared to $4.8 million for the same
period in 1996. On a fully diluted basis, assuming conversion of the
debentures, funds from operations increased to $9.0 million from $8.2 million.
The increase in funds from operations is principally a result of the reasons
stated above under Results of Operations. During the first quarter of 1996 the
Company recorded a non-recurring non-cash charge of $6.9 million to increase the
reserve against the receivable for straight-line rents. The non-recurring
charge was not included in the computation of FFO as the Company considers it to
be a significant non-recurring event that if deducted would materially distort
the comparative measurement of Company performance. Additionally, the Company
fully reserved against straight-line rents effective in the first quarter of
1996.
Funds from operations do not represent cash flows from operations as
defined by Generally Accepted Accounting Principles and should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
CASH FLOWS
Net cash provided by operating activities increased $1.2 million from the
$5.1 million for the three months ended March 31, 1996 to $6.3 million for the
three months ended March 31, 1997, due, principally, to the reasons stated above
under results of operations.
Net cash used by investment activities decreased to $4.6 million for the
three months ended March 31, 1997 from $7.2 million for the three months ended
March 31, 1996. Net cash used by financing activities increased to $2.3 million
for the three months ended March 31, 1997 from $3.5 million provided by
financing activities in the three months ended March 31, 1996. The decrease in
cash used by investment activities was a result of decreased development
activity at the Company's properties. The principal cause of the decrease in
cash provided by financing activities was the result of a decrease in borrowings
on the Company's Credit Facility and an increase in distributions to Minority
Interests as a result of the issuance of additional OP Units discussed above.
LIQUIDITY SOURCES AND REQUIREMENTS
At March 31, 1997, outstanding debt (excluding the debentures) increased by
$4.9 million to $247.5 million from the $242.6 million outstanding at December
31, 1996, as a result of additional borrowings on the Credit Facility to fund
development activity. At March 31, 1997 the Company had drawn approximately
$46.7 million against its $90 Million Credit Facility. Subsequent to March 31,
1997, the Company has drawn an additional $6.0 million to fund continuing
development activity.
The Company anticipates investing approximately $33 million in tenant
improvements and developments as well as other planned improvements over the
next eighteen months which will be spent on various expansion and redevelopment
opportunities. The Company anticipates that such capital improvement
requirements for the Properties will be funded from its Credit Facility.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALEXANDER HAAGEN PROPERTIES, INC.
By: /s/ Stuart J.S. Gulland
-----------------------
Stuart J.S. Gulland
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
and Director
Dated: May 9, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,308
<SECURITIES> 0
<RECEIVABLES> 5,894
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 665,327
<DEPRECIATION> 108,328
<TOTAL-ASSETS> 595,632
<CURRENT-LIABILITIES> 0
<BONDS> 416,130
0
0
<COMMON> 120
<OTHER-SE> 113,100
<TOTAL-LIABILITY-AND-EQUITY> 595,632
<SALES> 0
<TOTAL-REVENUES> 22,183
<CGS> 0
<TOTAL-COSTS> 6,392
<OTHER-EXPENSES> 5,961<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,897
<INCOME-PRETAX> 933
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 933
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.00
<FN>
<F1>Includes depreciation and amortization of $4,315, and $408 allocated to
minority interests, respectively.
</FN>
</TABLE>
