<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 September 30, 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 November 10, 1997, 14,967,732 shares of Common Stock, Par Value $.01
Per Share, were outstanding.
================================================================================
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited)
for the three months and nine months ended September 30,
1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
2
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Rental properties $ 707,779 $ 659,565
Accumulated depreciation and (116,608) (104,330)
amortization --------- ---------
Rental properties, net 591,171 555,235
Cash and cash equivalents 9,705 5,941
Tenant receivables, net 4,866 5,987
Other receivables 3,845 3,650
Receivable from management company 32 1,055
Investment in management company 640 621
Restricted cash 3,269 3,252
Deferred charges, net 17,395 18,365
Other assets 3,293 770
--------- ---------
TOTAL $ 634,216 $ 594,876
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Secured debt $ 265,820 $ 242,641
7 1/2% Convertible subordinated 138,599 138,599
debentures
7 1/4% Exchangeable subordinated 30,000 30,000
debentures
Accrued distributions 6,746 7,039
Accrued interest 3,537 5,490
Accounts payable and other accrued 5,053 5,340
expenses
Accrued construction costs 1,093 1,207
Tenant security and other deposits 4,206 4,287
--------- ---------
Total liabilities 455,054 434,603
--------- ---------
MINORITY INTERESTS
Operating Partnership 40,641 41,640
Other minorities 1,768 2,007
--------- ---------
Total minority interests 42,409 43,647
--------- ---------
STOCKHOLDERS' EQUITY
Common stock ($.01 par value,
50,000,000 shares authorized;
14,451,532 and 12,024,378 shares 145 120
issued and outstanding
at September 30, 1997 and December
31, 1996, respectively)
Additional paid-in capital 206,680 174,792
Accumulated distributions and deficit (70,072) (58,286)
--------- ---------
Total stockholders' equity 136,753 116,626
--------- ---------
TOTAL $ 634,216 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents $16,083 $15,956 $47,717 $46,618
Recoveries from tenants 4,525 4,875 14,022 13,927
Percentage rents 187 145 625 552
Other income 1,043 1,012 2,995 2,980
------- ------- ------- -------
Total revenues 21,838 21,988 65,359 64,077
------- ------- ------- -------
EXPENSES:
Interest 9,088 8,946 27,010 26,669
Depreciation and amortization 4,567 4,248 13,357 12,745
Property Operating Costs:
Common Area 3,288 3,143 9,855 9,445
Property taxes 1,797 1,899 5,678 5,474
Leasehold rentals 408 404 1,228 1,211
Marketing 94 234 246 705
Other operating 540 391 1,214 1,172
Non-recurring provision for unbilled
deferred rent - - 6,900
General and administrative 1,224 1,274 3,714 3,663
------- ------- ------- -------
Total expenses 21,006 20,539 62,302 67,984
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS
BEFORE OTHER ITEMS 832 1,449 3,057 (3,907)
NET GAIN ON SALE OF RENTAL PROPERTY - - - 2,502
EQUITY IN INCOME OF MANAGEMENT COMPANY 19 54 19 16
MINORITY INTERESTS:
Operating Partnership (182) (222) (726) 303
Other minorities (69) (61) (216) (210)
------- ------- ------- -------
NET INCOME (LOSS) $ 600 $ 1,220 $ 2,134 $(1,296)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE $ 0.04 $ 0.10 $ 0.17 $ (0.11)
======= ======= ======= =======
Weighted average shares
outstanding 13,777 12,024 12,653 12,024
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
ALEXANDER HAAGEN PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,134 $ (1,296)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of rental properties 13,357 12,745
Amortization of deferred financing costs 1,664 1,533
Non-recurring provision for unbilled deferred rent - 6,900
Gain on sale of rental property - (2,502)
Minority interests in operations 942 (93)
Equity in income of management company (19) (16)
Net changes in operating assets and liabilities (2,929) (2,120)
-------- --------
Net cash provided by operating activities 15,149 15,151
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and Development Costs (17,980) (19,392)
Expenditures for acquisition of rental properties (32,074) -
Proceeds from sale of rental property - 3,300
-------- --------
Net cash used by investing activities (50,054) (16,092)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage financing (1,821) (1,694)
Borrowings on secured line of credit 57,500 25,500
Repayment of secured line of credit (32,500) (1,500)
Costs of obtaining financing (12) -
(Increase) decrease in restricted cash (17) 964
Payment of other liabilities - (5,000)
Proceeds from issuance of stock 34,818 -
Distributions paid to shareholders (13,047) (11,819)
Distributions to minority interests (6,252) (2,673)
Other - (122)
-------- --------
Net cash provided by financing activities 38,669 3,656
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,764 2,715
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 5,941 3,687
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 9,705 $ 6,402
======== ========
</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 and the
Company's July 15, 1997 Proxy Statement.
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 nine months ended September 30, 1997 and
1996 totaled $2,889,000 and $2,941,000, respectively, and are included in
general and administrative expenses. In addition, HPMI provides
acquisition, leasing, legal and construction services for the properties
owned or acquired by the Company, such fees for the nine months ended
September 30, 1997 and 1996 of $2,427,000 and $2,691,000, 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 September 30,
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
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. Additionally, effective January 1, 1996 the Company implemented a
policy of fully reserving against unbilled deferred rents. 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. STOCKHOLDERS' EQUITY
On June 1, 1997 the Company entered into a Stock Purchase Agreement with LF
Strategic Realty Investors, L.P. and Prometheus Western Retail, LLC,
affiliates of Lazard Freres Real Estate Investors, LLC, (together "LFREI"),
providing for LFREI to invest a total of up to $235 million in common stock
of the Company (the "Transaction").
Pursuant to the Stock Purchase Agreement the Company will sell an aggregate
of 15,666,666 shares of Common Stock to LFREI at a price of $15.00 per
share, for an aggregate purchase price of $235 million (the "Total Equity
Commitment"). The purchase price per share was determined as a result of
arm's length negotiations between the Company and its advisors and LFREI
and its advisors.
On July 10, 1997, the Company sold 1,306,434 shares to LFREI at $15.00 per
share (the "Initial Purchase"), for aggregate proceeds of approximately
$19.6 million.
As approved by the stockholders on August 14, 1997, the Company will sell
14,360,232 additional shares of common Stock, from time to time, as it
chooses, to LFREI at a price of $15.00 per share, for aggregate proceeds of
approximately $215.4 million (the "Remaining Equity Commitment"). Of the
Remaining Equity Commitment, the Company must sell at least 5,360,233
shares, in addition to the 1,306,434 shares sold in the Initial Purchase,
within six months of stockholder approval and must sell the entire
Remaining Equity Commitment not later than the earlier of (i) eighteen
months after stockholder approval and (ii) March 14, 1999. If the Company
has not drawn the Remaining Equity Commitment by such dates, LFREI will
have the right on such dates to purchase such shares from the Company, at a
price of $15.00 per share. If LFREI acquires all of the shares represented
by the Remaining Equity Commitment (and assuming no other change in the
number of outstanding shares), LFREI will own approximately 56.6% of the
outstanding Common Stock (36.9% on a Fully Diluted Basis).
On August 15, 1997 and October 31, 1997, the Company sold 1,000,000 and
500,000 additional shares, respectively, to LFREI under the terms of the
Transaction for aggregate proceeds of $22,500,000, reducing the Remaining
Equity Commitment to $192.9 million. As of October 31, 1997, LFREI owned
approximately 18.8% of the outstanding Common Stock.
7
<PAGE>
Subject to certain restrictions, in the event that the Company issues or
sells shares of capital stock for cash, LFREI will be entitled to purchase
or subscribe for, either as part of such issuance or in a concurrent
issuance, that portion of the total number of shares to be issued equal to
LFREI's proportionate holdings of Common Stock prior to such issuance (but
not to exceed 37.5% of the offering).
For a period of five years following stockholder approval (the "Standstill
Period") and any Standstill Extension Term, LFREI and its affiliates may
not (i) acquire beneficial ownership of more than 49.9% of the outstanding
shares of Common Stock, on an Adjusted Fully Diluted Basis (as defined
below), (ii) sell, transfer or otherwise dispose of any shares of Common
Stock except in accordance with certain specified limitations (including a
requirement that the Company, in its sole and absolute discretion, approve
any transfer in a negotiated transaction that would result in the
transferee beneficially owning more than 9.8% of the Company's capital
stock). As used herein, the term Adjusted Fully Diluted Basis shall mean
on a Fully Diluted Basis, except that shares of Common Stock issuable upon
conversion of the Company's outstanding convertible debt or upon exercise
of options granted under management benefit plans shall not be included.
After giving effect to the sale of 15,666,666 shares to LFREI, and assuming
no other change in the number of outstanding shares, LFREI will own 49.0%
of the Common Stock on an Adjusted Fully Diluted Basis. In the event that
the number of outstanding shares were to increase for any reason (including
as a result of issuance of Common Stock upon conversion or exercise of the
outstanding convertible debt or management stock options), then LFREI would
be allowed to acquire additional shares of Common Stock, up to 49.9% on an
Adjusted Fully Diluted Basis.
7. DISTRIBUTIONS
Approximately 76% of the distributions to stockholders for the year ended
December 31, 1996 represented a return of capital.
8. SUBSEQUENT EVENT
On October 31, 1997 the Company acquired a community center with total
gross leasable area of approximately 154,000 square feet located in
Washington state. Total consideration amounted to $14.4 million which was
financed by the issuance of common stock to LFREI and the Company's secured
line of credit.
8
<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.
LIQUIDITY SOURCES AND REQUIREMENTS
On June 1, 1997, the Company entered into a Stock Purchase Agreement with
two affiliates of Lazard Freres Real Estate Investors, LLC, LF Strategic Realty
Investors, L.P. and Prometheus Western Retail, LLC (together "LFREI"), providing
for LFREI to invest a total of up to $235 million in the Company (the
"Transaction").
Pursuant to the Stock Purchase Agreement, the Company will sell an
aggregate of 15,666,666 shares of Common Stock to LFREI at a price of $15.00 per
share, for an aggregate purchase price of $235 million (the "Total Equity
Commitment"). The purchase price per share was determined as a result of arm's
length negotiations between the Company and its advisors and LFREI and its
advisors. On July 10, 1997, the Company sold 1,306,434 shares to LFREI at
$15.00 per share (the "Initial Purchase"), for aggregate proceeds of
approximately $19.6 million. Subsequent to July 10, 1997 the Company has sold
an additional 1,500,000 shares to LFREI under the terms of the Transaction for
aggregate proceeds of $22.5 million. As of October 31, 1997, LFREI owned
approximately 18.8% of the outstanding common stock.
For a more detailed description of the Transaction, please refer to the
Notes to the Company's September 30, 1997 Consolidated Financial Statements and
the Company's July 15, 1997 Proxy Statement.
The Company anticipates investing approximately $28 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 within the existing portfolio.
In addition, the Company is pursuing an aggressive growth strategy within
the Western United States. Pursuant to this growth plan it has purchased
approximately $47 million in property since the announcement of the LFREI equity
commitment. The Company is currently under contract to acquire three additional
shopping centers for an aggregate purchase price of approximately $37 million
which it expects to close prior to December 31, 1997.
At September 30, 1997, outstanding debt (excluding the debentures)
increased by $23.2 million to $265.8 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 September 30, 1997 the Company had
drawn approximately $66.2 million against its $90 Million Credit Facility.
The Company expects to repay the amount outstanding on its Credit Facility
with proceeds from a new line of credit that it expects to put in place during
the fourth quarter, or alternatively using funds available to it under the LFREI
Equity Commitment. In addition, the company anticipates that during 1998 it may
need to obtain financing in the form of additional debt or equity financing to
support its growth strategy.
PROPERTY ACQUISITIONS
On August 11, 1997 the Company acquired three properties, with a total
owned gross leasable area of approximately 280,000 square feet. One is located
in Oregon and the other two are located in Washington state. Total
consideration amounted to $32.3 million paid for by the issuance of common stock
to LFREI.
On October 31, 1997 the Company acquired a community center with total
gross leasable area of approximately 154,000 square feet located in Washington
state. Total consideration amounted to $14.4 million which was financed by the
issuance of common stock to LFREI and the Company's secured line of credit.
9
<PAGE>
HISTORICAL RESULTS OF OPERATIONS
Comparison of the nine months ended September 30, 1997 to the nine months
ended September 30, 1996.
Revenues increased by $1.3 million to $65.4 million for the nine months
ended September 30, 1997 from $64.1 million for the nine months ended September
30, 1996. The revenue increase was primarily a result of the higher occupancy
levels during 1997 at Media City Center and Baldwin Hills Crenshaw Plaza and the
acquisition of three community shopping centers.
Interest expense increased to $27.0 million for the nine months ended
September 30, 1997 from $26.7 million for the nine months ended September 30,
1996. The increase was caused by additional borrowings on the Company's line of
credit to finance construction and redevelopment activity at various properties
which was partially offset by a temporary decrease in the outstanding balance on
the line of credit as a result of the sale of common stock to LFREI prior to the
August 11, 1997 acquisition of three properties noted above, at which time the
balance on the line increased to a level comparable to the balance prior to the
initial sale of Common Stock to LFREI.
Property operating costs increased by $0.2 million to $18.2 million for the
nine months ended September 30, 1997 from $18.0 million for the nine months
ended September 30, 1996. The increase is a result of increased property taxes
and an increase in operating costs as a result of the three properties acquired
in August, 1997. These costs were partially offset by a decrease in marketing
cost 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.
Income from operations increased by $7.0 million from a loss of $3.9
million for the nine months ended September 30, 1996 to income of $3.1 million
for the nine months ended September 30, 1997 for the reasons stated above.
10
<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>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------- -------
<S> <C> <C>
Stabilized Properties (39 in 1997 and
38 in 1996):
Regional Malls $13,493 $12,303
Power Centers 12,102 11,890
Community Centers 12,672 12,896
Single Tenants 5,948 6,034
Redevelopment Properties:
Covina Town Square 1,968 2,024
Medford Center 711 716
Other income 244 207
------- -------
Net Operating Income $47,139 $46,070
======= =======
</TABLE>
The following summarizes the percentage of leased GLA (excluding non-owned
GLA and GLA leased but not yet constructed) as of:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Stabilized Properties (39):
Regional Malls 90.3% 92.5%
Power Centers 90.9 95.4
Community Centers 95.1 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 94.1% 95.8%
===== =====
</TABLE>
During the first nine months of 1997 the Company signed leases for
approximately 374,000 square feet, including 116,000 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 $10.90 per square
foot at September 30, 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 63.3% at September 30, 1997 from
90.3% at December 31, 1996. Leased space at the Company's aggregate portfolio
decreased to 94.1% at September 30, 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.
11
<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 September 30,
1997 was 4,286,456.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- ------- ------- --------
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net income (loss) $ 600 $1,220 $ 2,134 $(1,296)
Adjustments to reconcile net income
(loss) to funds from operations:
Depreciation and Amortization:
Buildings and improvements 2,984 2,786 8,802 8,849
Tenant improvements and allowances 1,204 1,142 3,422 3,036
Leasing costs 351 307 1,087 818
Non-recurring provision for deferred
rent - - - 6,900
Gain on sale of rental property - - - (2,502)
Minority Interests 97 158 494 (505)
------- ------ ------- -------
Funds from Operations, primary 5,236 5,613 15,939 15,300
Debenture interest expense 3,143 3,146 9,427 9,430
Amortization of debenture financing
costs 325 325 975 975
------- ------ ------- -------
Funds from operations, fully diluted $ 8,704 $9,084 $26,341 $25,705
======= ====== ======= =======
SUPPLEMENTAL DISCLOSURES
Capital Expenditures:
Expansion of the Company's portfolio $38,274 $1,222 $48,127 $11,502
Releasing and maintenance of
portfolio 8 118 87 455
------- ------ ------- -------
$38,282 $1,340 $48,214 $11,957
======= ====== ======= =======
Capitalized leasing costs:
Expansion of the Company's portfolio $ 468 $ 392 $ 1,350 $ 2,015
Releasing and maintenance of
portfolio 58 194 419 337
------- ------ ------- -------
$ 526 $ 586 $ 1,769 $ 2,352
======= ====== ======= =======
</TABLE>
12
<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 $15.9 million for
the nine months ended September 30, 1997, as compared to $15.3 million for the
same period in 1996. On a fully diluted basis, assuming conversion of the
debentures, funds from operations increased to $26.3 million from $25.7 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 used by investment activities increased to $50.1 million for the
nine months ended September 30, 1997 from $16.1 million for the nine months
ended September 30, 1996. Net cash provided by financing activities increased
to $38.7 million for the nine months ended September 30, 1997 from $3.7 million
provided by financing activities in the nine months ended September 30, 1996.
The increase in cash used by investment activities was a result of the
acquisition of three community centers in the Pacific Northwest. The principal
cause of the increase in cash provided by financing activities was the result of
the sale of Common Stock to LFREI.
13
<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
14
<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
(Principal Financial and Accounting Officer)
Dated: November 13, 1997
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,705
<SECURITIES> 0
<RECEIVABLES> 4,866
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 707,779
<DEPRECIATION> 116,608
<TOTAL-ASSETS> 634,216
<CURRENT-LIABILITIES> 0
<BONDS> 434,419
0
0
<COMMON> 145
<OTHER-SE> 136,608
<TOTAL-LIABILITY-AND-EQUITY> 634,216
<SALES> 0
<TOTAL-REVENUES> 65,359
<CGS> 0
<TOTAL-COSTS> 18,221
<OTHER-EXPENSES> 17,994<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,010
<INCOME-PRETAX> 2,134
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,134
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES DEPRECIATION AND AMORTIZATION OF $13,357 AND $942 ALLOCATED TO
MINORITY INTERESTS, RESPECTIVELY.
</FN>
</TABLE>
