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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2001
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: 1-15923
KRAMONT REALTY TRUST
(Exact name of Registrant as specified in its charter)
Maryland 25-6703702
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(State of Incorporation) (I.R.S. Employer Identification No.)
580 West Germantown Pike, Plymouth Meeting, PA 19462
----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 825-7100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
Number of Common Shares of Beneficial Interest, par value $.01 per share, as of
August 10, 2001: 18,821,612
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS June 30, 2001 December 31, 2000
------ ------------- -----------------
Real estate - income producing, net of accumulated depreciation $ 675,839 $ 685,281
Mortgage notes receivable 36,395 37,240
Investments in unconsolidated affiliates 3,115 3,137
Cash and cash equivalents (includes $1,666 and $1,574 restricted) 9,053 11,941
Other assets 26,371 26,378
--------- ---------
Total assets $ 750,773 $ 763,977
========= =========
LIABILITIES AND BENEFICIARIES' EQUITY
LIABILITIES:
Mortgages and notes payable $ 493,619 $ 500,294
Accounts payable and other liabilities 9,713 14,137
Distributions payable 8,374 8,355
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Total liabilities 511,706 522,786
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Minority interests in Operating Partnerships 15,824 15,989
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BENEFICIARIES' EQUITY:
Preferred shares of beneficial interest 30 30
Common shares of beneficial interest, $0.01 par value; authorized
96,683,845 shares; outstanding, 18,811,612 and 18,752,912, respectively 188 188
Additional paid-in capital 176,823 176,227
Retained earnings 49,438 51,785
Accumulated other comprehensive income (loss) (284) --
Treasury stock, Redeemable preferred shares of beneficial interest Series
D, 146,800 shares at cost (2,349) (2,349)
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223,846 225,881
Unearned compensation on restricted shares of beneficial interest (603) (680)
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Total beneficiaries' equity 223,243 225,201
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Total liabilities and beneficiaries' equity $ 750,773 $ 763,977
========= =========
See accompanying notes to consolidated financial statements.
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KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Rent $ 25,582 $ 9,700 $ 52,050 $ 16,674
Interest, principally from mortgage notes 1,309 1,992 2,693 3,965
Other 2,950 -- 3,844 --
------------ ------------ ------------ ------------
29,841 11,692 58,587 20,639
------------ ------------ ------------ ------------
Expenses:
Interest 9,660 4,503 19,616 7,692
Operating 7,126 2,393 15,132 4,611
Depreciation and amortization 3,929 1,592 7,789 2,696
General and administrative 1,928 533 3,736 953
------------ ------------ ------------ ------------
22,643 9,021 46,273 15,952
------------ ------------ ------------ ------------
7,198 2,671 12,314 4,687
Equity in income of unconsolidated affiliates 187 52 379 126
Gain on sale of assets 1,618 -- 1,618 --
Minority interests in income of
Operating Partnerships (466) (250) (691) (574)
------------ ------------ ------------ ------------
Net Income 8,537 2,473 13,620 4,239
Preferred share distribution (1,882) (323) (3,759) (323)
------------ ------------ ------------ ------------
Net income to common shareholders $ 6,655 $ 2,150 $ 9,861 $ 3,916
============ ============ ============ ============
Per common share:
Net income, basic and diluted $ .35 $ .22 $ .53 $ .44
============ ============ ============ ============
Dividends declared $ .33 $ .33 $ .65 $ .62
============ ============ ============ ============
Average common shares outstanding:
Basic 18,776,793 9,849,599 18,759,891 8,908,110
============ ============ ============ ============
Diluted 18,772,286 9,850,532 18,765,384 8,909,043
============ ============ ============ ============
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income $ 8,537 $ 2,473 $ 13,620 $ 4,239
Gain (Loss) on interest rate hedges 123 -- (557) --
-------- -------- -------- --------
Comprehensive income $ 8,660 $ 2,473 13,063 $ 4,239
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
2001 2000
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 15,813 $ 5,012
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on mortgage notes receivable 845 737
Paydown of accrued acquisition costs (321) --
Proceeds from sale of real estate 9,244 --
Cash acquired in acquisition -- 5,479
Capital improvements (5,509) (991)
Change in restricted cash (92) (2,174)
Other (77) 167
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Net cash used in investing activities 4,090 3,218
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,250 11,464
Repayments of borrowings (9,925) (2,005)
Cash distributions paid on common shares (12,194) (4,624)
Cash distributions paid on preferred shares (3,755) --
Cash received from options exercised 597 --
Distributions to minority interests (856) (849)
--------- ---------
Net cash (used in) provided by financing activities (22,883) 3,986
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Net (decrease) in unrestricted cash and cash equivalents (2,980) 12,216
Unrestricted cash and cash equivalents at the beginning of the period 10,367 3,495
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Unrestricted cash and cash equivalents at the end of the period $ 7,387 $ 15,711
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Supplemental disclosure of cash flow information:
Cash paid for interest $ 20,166 $ 7,612
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Acquisitions:
Fair Value of assets acquired $ -- $(527,093)
Liabilities assumed or incurred -- 375,866
Preferred shares of beneficial interest issued -- 51,040
Common shares if beneficial interest issued -- 105,666
--------- ---------
Net of cash acquired $ -- $ 5,479
========= =========
Accrued acquisition costs $ 1,145 $ 10,230
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See accompanying notes to consolidated financial statements.
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KRAMONT REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Kramont Realty Trust ("Kramont") is a self-administered, self - managed real
estate investment trust ("REIT") which is engaged in the ownership, acquisition,
redevelopment, management and leasing of community and neighborhood shopping
centers. Kramont does not directly own any assets other than its interest in
Kramont Operating Partnership, L.P. ("Kramont OP") and conducts its business
through Kramont OP and its affiliated entities, including Montgomery Operating
Partnership, L.P. ("Montgomery OP", together with their wholly-owned
subsidiaries, hereinafter collectively referred to as the "OP's", which together
with Kramont are hereinafter referred to as the "Company"). The OP's, directly
and indirectly, own all of the Company's assets, including its interest in
shopping centers. Accordingly, the Company conducts its operations through an
Umbrella Partnership REIT ("UPREIT") structure. As of June 30, 2001, the Company
owned 93.49% of the partnerships interests in Kramont OP and is its sole general
partner. As of June 30, 2001, the Company indirectly owned 99.87% of the
partnership interests of Montgomery OP and owned 100% of its sole general
partner. As of June 30, 2001, the OP's owned, operated and managed 86 shopping
centers and two office buildings, located in 16 states and aggregating
approximately 11.8 million square feet.
Kramont acquired its assets through the merger of Kranzco Realty Trust
("Kranzco") and CV Reit, Inc. ("CV Reit") into Kramont in a merger effective as
of June 16, 2000 (the "Merger"). The Agreement and Plan of Reorganization and
Merger dated December 10, 2000, was adopted and approved by the shareholders of
both companies on June 6, 2000. Terms of the Merger called for holders of common
shares of both companies to each receive one common share of beneficial interest
of Kramont for each outstanding share of CV Reit and Kranzco on a tax-free basis
and for holders of Kranzco preferred shares to receive in exchange for such
Kranzco preferred shares, Kramont preferred shares with the same rights.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information please refer to the
audited financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
(2) CHANGES TO SIGNIFICANT POLICIES AND PROCEDURES
(a) Revenue Recognition
Beginning in fiscal year 2000 the Company recognized percentage rent in the
periods they became accruable.
(b) Derivative Instruments
Effective January 1, 2001, Kramont adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted. FAS 133 requires that all derivative
instruments, such as interest rate swap contracts, be recognized in the
financial statements and measured at their fair market value. Changes in the
fair market value of derivative instruments are recognized each period in
current operations or stockholders equity (as a component of accumulated other
comprehensive loss), depending on whether a derivative instrument qualifies as a
hedge transaction.
In the normal course of business, Kramont is exposed to changes in interest
rates. The objective in managing
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its exposure to interest rates is to decrease the volatility that changes in
interest rates might have on operations and cash flows. To achieve this
objective, Kramont uses interest rate swaps and caps to hedge a portion of total
long-term debt that is subject to variable interest rates and designates these
instruments as cash flow hedges. Under these swaps, Kramont agrees to pay fixed
rates of interest. These contracts are considered to be a hedge against changes
in the amount of future cash flows associated with the interest payments on
variable-rate debt obligations. Accordingly, the interest rate swaps are
reflected at fair value in the Consolidated Balance Sheet and the related gains
or losses on these contracts are recorded as a component of accumulated other
comprehensive loss. Kramont does not enter into such contracts for speculative
purposes and currently these are the only derivative instruments held by Kramont
as of June 30, 2001. The fair value of interest rate swap contracts are
determined based on the fair market value as determined by a third party.
The adoption of FAS 133 at January 1, 2001, resulted in recording $273,000 in
accumulated other income for the cumulative effect of the accounting change. As
of January 1, 2001, Kramont had interest rate swap contracts to pay fixed rates
of interest (ranging from 6.088% to 6.78%) and receive variable rates of
interest based on LIBOR on an aggregate of $32.5 million notional amount of
indebtedness with maturity dates ranging from March 2004 through May 2004. These
hedges are highly effective and there is no ineffective portion. The aggregate
fair market value of all interest rate swap contracts was $273,000 on January 1,
2001. The aggregate fair market value of these interest rate swap contracts was
($284,000) on June 30, 2001 and is included in accounts payable and other
liabilities on the Consolidated Balance Sheet.
(c) Segment Disclosure
The Company's income producing properties and other assets represent one segment
as they have similar economic and environmental conditions, business processes,
types of customers (i.e., tenants), and services provided, and because resource
allocation and other operating decisions are based on an evaluation of the
entire portfolio. In addition, due to the repayment of the Hilcoast Note in
December 2000, the Company believes the remaining Mortgage Note Receivables are
not material and no longer represent a separate operating segment.
(3) ACQUISITIONS
The merger of CV Reit and Kranzco was accounted for as a purchase by CV Reit of
Kranzco. Accordingly, the consolidated statement of income for 2000 includes the
operating results of the net assets acquired from the effective date of the
Merger.
The following unaudited proforma data summarizes the consolidated results of
operations for the six month period as if the acquisition had occurred on
January 1, 2000. The proforma results do not purport to be indicative of the
results of operations which would have actually been reported had the
acquisitions been consummated on this date, or which may be reported in the
future (in thousands, except per share data):
June 30, 2000
-------------
Revenues $ 57,202
Net income before preferred distribution $ 10,963
Net income to common shareholders $ 7,056
Net income per common share, basic and diluted $ .38
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(4) REAL ESTATE
(a) Real estate is located in 16 states and consists of (in thousands):
June 30, 2001 December 31, 2000
------------- -----------------
Land $ 118,892 $ 120,386
Shopping centers 576,576 577,059
Office buildings 5,014 5,002
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Total 700,482 702,447
Less accumulated depreciation (24,643) (17,166)
--------- ---------
Net book value of real estate $ 675,839 $ 685,281
========= =========
(b) Real estate with a net book value of $660.1 million, at June 30, 2001, is
pledged as collateral for borrowings (Note 5).
(5) BORROWINGS
Borrowings consist of (in thousands):
June 30, December 31,
2001 2000
---- ----
Mortgage notes payable through June 2003 under a mortgage loan, interest fixed at an
average rate of 7.96%, collateralized by mortgages on Real Estate $181,700 $181,700
Mortgage notes payable through November 2010, interest ranging
from 6.08% to 10.28% per annum, collateralized by mortgages on Real Estate 143,359 141,281
Mortgage notes payable through August 2003 under $155 million credit facility,
interest at one month LIBOR (4.06% at June 30, 2001) plus a minimum of 1.85% to
a maximum of 2.95%, collateralized by mortgages on Real Estate 80,953 86,611
Mortgage notes payable through October 2008 under a fixed rate mortgage, interest
fixed at 7.00%, collateralized by mortgages on Real Estate 64,198 64,551
Collateralized mortgage obligations, net of unamortized discount of $291,000 and
$336,000 based on a fixed effective interest rate of 8.84%, collateralized by
certain of the Recreation Notes (see Note 4) with quarterly self-amortizing
principal and interest payments required through March 2007 23,409 24,946
Margin loan, interest at Federal Funds rate plus 1.50%, (5.45% at June 30,
2001), maturing January 29, 2001 -- 1,205
-------- --------
Totals $493,619 $500,294
======== ========
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(6) SALE OF ASSETS
The Company sold one of its properties on April 13, 2001. The property was a
176,000 square foot shopping center located in Baltimore, Maryland. The center
contained a vacant 94,000 square foot department store building that formerly
housed a Caldor discount store. Kramont received gross proceeds of approximately
$9.2 million as a result of the sale of the property and $2.9 million of lease
terminations and buyout fees. The proceeds of the sale and related
transactions were used to pay down debt obligations of approximately $5.7
million and for general corporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Kramont acquired its assets through the merger of Kranzco and CV Reit into
Kramont, effective June 16, 2000. The Agreement and Plan of Reorganization and
Merger, dated as of December 10, 2000 was adopted and approved by the
shareholders of both Kranzco and CV Reit on June 6, 2000. Terms of the Merger
called for holders of common shares of both companies to each receive one common
share of beneficial interest of Kramont for each outstanding common share of CV
Reit and Kranzco on a tax-free basis and for the holders of Kranzco preferred
shares to receive in exchange for such Kranzco preferred shares, Kramont
preferred shares with the same rights.
RESULTS OF OPERATIONS
The Merger was accounted for as a purchase by CV Reit of Kranzco. Accordingly,
the operating results of the net assets acquired are included in the
consolidated financial statements from the effective date of the Merger. As a
result, the Company believes the comparison for the three month periods may not
be meaningful. Further, as a result of the Merger and the sale of certain
mortgage notes receivable in December 2000, the Company is effectively operating
in one business reporting segment.
Net Income
Three Months Ended June 30, 2001 and 2000
For the quarter ended June 30, 2001, net income to common shareholders of
beneficial interest was $6.7 million or $.35 per common share compared to $2.2
million or $.22 per common share for the same period of 2000.
During the quarter ended June 30, 2001, rent revenue and operating expenses
increased by $15.9 million , and $4.7 million, respectively (a net rental income
increase of $11.2 million), primarily due to the Merger.
Interest expense increased by $5.2 million during the second quarter of 2001
primarily as a result of increased borrowings assumed in the Merger.
Depreciation and amortization increased by $2.3 million primarily due to the
addition of 62 shopping centers as a result of the Merger.
Interest income decreased by $683,000 during the second quarter of 2001,
primarily attributable to scheduled repayments of mortgage notes receivable (see
Note 4) ,which are long term and require self-amortizing payments through 2023,
as well as the prepayment of the Hilcoast Note on December 22, 2000.
General and administrative expenses increased by $1.4 million primarily due to
higher professional fees and increased personnel as a result of the Merger and
performance related bonuses.
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Six Months Ended June 30, 2001 and 2000
For the six months ended June 30, 2001, net income to common shareholders of
beneficial interest was $9.9 million or $.53 per common share compared to $3.9
million or $.44 per common share for the same period of 2000.
During the six months ended June 30, 2001, rent revenue and operating expenses
increased by $35.4 million, and $10.5 million, respectively (a net rental income
increase of $24.9 million), primarily due to the Merger. The increase also
reflects improved operating results from income producing properties owned by CV
Reit prior to the Merger in the amount of $250,000.
Interest expense increased by $11.9 million during the first six months of 2001
primarily as a result of increased borrowings assumed in the Merger.
Depreciation and amortization increased by $5.1 million primarily due to the
addition of 62 shopping centers as a result of the Merger.
Interest income decreased by $1.3 million during the first six months of 2001,
primarily attributable to scheduled repayments of mortgage notes receivable (see
Note 4), which are long term and require self-amortizing payments through 2023,
as well as the prepayment of the Hilcoast Note on December 22, 2000.
General and administrative expenses increased by $2.8 million primarily due to
higher professional fees and increased personnel as a result of the Merger and
performance related bonuses.
Funds From Operations
Funds From Operations ("FFO"), as defined by the National Association of Real
Estate Investment Trusts (NAREIT), consists of net income (computed in
accordance with generally accepted accounting principles) before depreciation
and amortization of real property, extraordinary items and gains and losses on
sales of real estate.
The following schedule reconciles FFO to net income (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-----------------------------------------------------
Net income to common shareholders $ 6,655 $ 2,150 $ 9,861 $ 3,916
Depreciation and amortization of real
property (including unconsolidated affiliates) * 3,703 1,438 7,344 2,421
Gain on sale of real estate * (1,512) -- (1,512) --
-------- -------- -------- --------
FFO $ 8,846 $ 3,588 $ 15,693 $ 6,337
======== ======== ======== ========
- Net of amounts attributable to minority interests.
The Company believes that FFO is an appropriate measure of operating performance
because real estate depreciation and amortization charges are not meaningful in
evaluating the operating results of the Company's properties and certain
extraordinary items, such as the gain on the sale of real estate and deferred
income tax benefit, would distort the comparative measurement of performance and
may not be relevant to ongoing operations. However, FFO does not represent cash
generated from operating activities in accordance
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with generally accepted accounting principles and should not be considered as an
alternative to either net income as a measure of the Company's operating
performance or to cash flows from operating activities as an indicator of
liquidity or cash available to fund all cash flow needs. In addition, since
other REIT's may not calculate FFO in the same manner, FFO presented herein may
not be comparable to that reported by other REIT's.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Statements of Cash Flows
Net cash provided by operating activities, as reported in the Consolidated
Statements of Cash Flows, amounted to $15.8 million for the six months ended
June 30, 2001 compared to $5.0 million for the same period in 2000. These
amounts primarily reflect increased operating income as a result of the Merger
in which the Company acquired 62 shopping centers on June 16, 2000.
Net cash provided by investing activities for the six months ended June 30, 2001
increased to $4.1 million from net cash provided by investing activities of $3.2
million for the same period in 2000. The 2001 amounts reflect $9.2 million in
proceeds from the sale of real estate and $845 of collections on mortgage notes
receivable, offset by $5.5 million of capital improvements, as well as payments
of $321,000 towards accrued acquisition costs. The 2000 amounts reflect $5.5
million net cash received in the Merger and $737,000 of collections on mortgage
notes receivable partially offset by $991,000 of capital improvements as well as
an increase in restricted cash of $2.2 million.
Net cash used in financing activities increased to $22.9 million for the six
months ended June 30, 2001 from net cash provided by financing activities of
$3.9 million in the same period in 2000. The 2001 amounts consist of cash
distributions of $12.2 million to common shareholders, $3.8 million to preferred
shareholders and $856,000 to minority interests, as well as a net $6.7 million
repayment of borrowings. The 2000 amounts primarily consist of cash
distributions of to $4.6 million to common shareholders, $849,000 to minority
interests as well as a net $9.5 million of proceeds from borrowings.
Borrowings
At June 30, 2001, borrowings were $493.6 million. Scheduled principal payments
over the remainder of this year and the next four years are $385.6 million with
$108.0 million due thereafter. Borrowings consist of $391.0 million of fixed
rate indebtedness, with a weighted average interest rate of 7.78% at June 30,
2001, and $102.6 million of variable rate indebtedness with a weighted average
interest rate of 6.68% at June 30, 2001. The borrowings are collateralized by a
substantial portion of the Company's real estate and the Recreation Notes. The
Company expects to refinance certain of these borrowings, at or prior to
maturity, through new mortgage loans on real estate. The ability to do so,
however, is dependent upon various factors, including the income level of the
properties, interest rates and credit conditions within the commercial real
estate market. Accordingly, there can be no assurance that such refinancing can
be achieved.
As of June 30, 2001, aggregate principal payments on all outstanding
indebtedness were due, as follows (in thousands):
2001 $ 6,511
2002 14,113
2003 302,626
2004 50,165
2005 12,164
Thereafter 108,040
---------
$ 493,619
=========
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Effective August 1, 2000, the Company entered into an Amended and Restated Loan
and Credit Facility Agreement (the "Amended Facility") with GMAC Commercial
Mortgage ("GMAC") wherein GMAC increased an existing $100 million facility to a
$155 million facility. The Amended Facility is a non-revolving line of credit
with individual loan terms of three years if funds are advanced within the first
twelve months, and two years if funds are advanced during the thirteenth through
the eighteenth months. Advances under the Amended Facility: (1) must be secured
by assets based on specified aggregate loan to value and debt service coverage
ratios, (2) bear interest at an annual rate of one month LIBOR plus a spread
ranging from 185 to 295 basis points, based on loan to value ratios, and (3) may
be drawn only during the first eighteen months of the credit facility.
Additional provisions include a -1/2% commitment fee, a minimum net worth
covenant of $175.0 million, cross-default and cross-collateralization
requirements with respect to debt and properties within the Amended Facility,
and under certain conditions an exit fee. Advances under the Amended Facility
may be used to fund acquisitions, expansions, renovations, financing and
refinancing of real estate. As of June 30, 2001, the Company had $80.9 million
outstanding under the $155 million Amended Facility, including $39.6 million
that was funded upon closing the Amended Facility on August 1, 2000. These
proceeds, along with $1.2 million in cash, were used to pay off a line of credit
that was assumed by the Company in the Merger and matured on August 1, 2000.
Interest rate caps in the notional amount of $87.3 million were purchased upon
closing of the Amended Facility. Pursuant to the Amended Facility, the Company
is required to make monthly escrow payments for the payment of tenant
improvements and repair reserves.
In 1996, Kranzco entered into a seven year, fixed rate real estate mortgage loan
in the principal amount of $181.7 million (the " Mortgage Loan"), at a weighted
average interest rate of 7.96%, which is inclusive of trustee and servicing
fees. The Mortgage Loan is secured by twenty seven shopping center properties
(the "Mortgaged Properties"). The entire outstanding principal balance of the
Mortgage Loan is due in June 2003. The Mortgage Loan requires maintenance of a
sinking fund account and a capital and tenant improvement (TI) reserve account.
All funds in the capital and TI reserve account may be used to fund capital
improvements, repairs, alterations, tenant improvements and leasing commissions
at the Mortgaged Properties.
In 1998, Kranzco obtained a $65.9 million fixed rate mortgage from Salomon
Brothers Realty Corp. This loan is secured by a first mortgage on nine
properties acquired by Kranzco in September 1998. The mortgage loan bears a
fixed interest rate of 7% per annum and requires monthly payments of interest
and principal based on a 30-year amortization. The mortgage matures on October
1, 2008. The outstanding balance on the mortgage was approximately $64.2 million
as of June 30, 2001. Pursuant to the mortgage, the Company is required to make
monthly escrow payments for the payment of tenant improvements and repair
reserves.
In addition, the Company has twenty-nine mortgage loans outstanding as of June
30, 2001 which were primarily assumed in connection with various acquisitions of
certain shopping centers. These mortgage loans have maturity dates ranging from
2001 through 2010. Twenty of the twenty-nine mortgage loans have fixed interest
rates ranging from 6.08% to 10.28%. The outstanding principal balance on these
mortgage loans at June 30, 2001 was approximately $121.8 million. Three mortgage
loans with an outstanding principal balance at June 30, 2001 of $3.2 million
have interest rates payable at a rate adjusted each year equal to the sum of
Moody's A Corporate Bond Index Daily Rate plus 0.125% per annum, rounded up to
the next highest 1/8 percentage rate. Two mortgage loans with an outstanding
principal balance at June 30, 2001 of $6.5 million have interest rates payable
at a rate adjusted each year equal to the sum of Moody's A Corporate Bond Index
Daily Rate minus 0.125% per annum, rounded up to the next highest 1/8 percentage
rate. One mortgage loan with an outstanding principal balance at June 30, 2001
of $1.5 million has an interest rate payable at a rate adjusted monthly to the
sum of 30 day LIBOR plus 2.5%. One mortgage loan with an outstanding principal
balance at June 30, 2001 of $3.2 million has an interest rate payable at a rate
adjusted monthly to the sum of 30 day LIBOR plus 1.6%. One mortgage loan with an
outstanding principal balance at June 30, 2001 of $4.0 million has an interest
rate payable at a rate adjusted semi-annually to the sum of 6 month LIBOR plus
1.85%.
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One mortgage loan with an outstanding principal balance at June 30, 2001 of $3.2
million has an interest rate payable at a rate adjusted monthly to the sum of
the bank's prime rate plus .25%.
The Company also has $23.4 million of borrowings consisting of collateralized
mortgage obligations, net of unamortized discount, with a fixed effective
interest rate of 8.84% which are collateralized by the Recreation Notes and
require self-amortizing principal and interest payments through March 2007.
The Company has a secured line of credit with Wilmington Trust of Pennsylvania
in the amount of $3.5 million with an interest rate payable at a rate adjusted
monthly to the sum of 30 day LIBOR plus 1.8%. At June 30, 2001 there was no
outstanding balance on this line of credit
On July 12, 2001, the Company established a secured line of credit in the amount
of $3.2 million with First Union National Bank. This line has an interest rate
payable at a rate adjusted monthly to the sum of 30 day LIBOR plus 1.8%.
Capital Resources
The Company's funds are generated from rent revenue net of operating expense
from income producing properties and, to a much lesser extent, interest income
on the mortgage notes receivable. The Company believes that the operating funds
will be sufficient in the foreseeable future to fund operating and
administrative expenses, interest expense, recurring capital expenditures and
distributions to shareholders in accordance with REIT requirements. Sources of
capital for non-recurring capital expenditures and scheduled principal payments,
including balloon payments, on outstanding borrowings are expected to be
obtained from property refinancings, scheduled principal repayments on the
mortgage notes receivable, sales of non-strategic real estate, the Company's
lines of credit and/or potential debt or equity financings in the public or
private markets.
INFLATION
During recent years, the rate of inflation has remained at a low level and has
had minimal impact on the Company's operating results.
Most of the tenant leases contain provisions designed to lessen the impact of
inflation. These provisions include escalation clauses which generally increase
rental rates annually based on cost of living indexes (or based on stated rental
increases which are currently higher than recent cost of living increases), and
percentage rentals based on tenant's gross sales, which generally increase as
prices rise. Many of the leases are for terms of less than ten years which
increases the Company's ability to replace those leases which are below market
rates with new leases at higher base and/or percentage rentals. In addition,
most of the leases require the tenants to pay their proportionate share of
increases in operating expenses, including common area maintenance, real estate
taxes and insurance.
However, in the event of significant inflation, the Company's operating results
could be adversely affected if general and administrative expenses and interest
expense increases at a rate higher than rent income or if the increase in
inflation exceeds rent increases for certain tenant leases which provide for
stated rent increases (rather than based on cost of living indexes).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposure to market risk is to changes in interest rates.
The Company has both fixed and variable rate debt. The Company has $493.6
million of debt outstanding as of June 30, 2001 of which $391.0 million, or
79.2%, has been borrowed at fixed rates ranging from 6.08% to 10.28% with
maturities
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through 2010. As these debt instruments mature, the Company typically refinances
such debt at their existing market interest rates which may be more or less than
interest rates on the maturing debt. Changes in interest rates have different
impacts on the fixed and variable rate portions of the Company's debt portfolio.
A change in interest rates impacts the net market value of the Company's fixed
rate debt, but has no impact on interest incurred or cash flows on the Company's
fixed rate debt. Interest rate changes on variable debt impacts the interest
incurred and cash flows but does not impact the net market value of the debt
instrument. Based on the variable rate debt of the Company as of June 30, 2001,
a 100 basis point increase in interest rates would result in an additional
$800,000 in interest incurred per year and a 100 basis point decline would lower
interest incurred by $800,000 per year. To ameliorate the risk of interest rate
increases, the Company has entered into interest rate Swap and Cap Agreements in
the notional amounts of $32.5 million and $87.3 million, respectively.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and elsewhere in this Form 10-Q, that are
not related to historical results, are forward looking statements, such as
anticipated liquidity and capital resources, completion of potential
acquisitions and collectibility of mortgage notes receivable. The matters
referred to in forward looking statements are based on assumptions and
expectations of future events which may not prove to be accurate and which could
be affected by the risks and uncertainties involved in the Company's business;
many of which cannot be predicted with accuracy and some of which might not even
be anticipated. Prospective investors are cautioned that any such statements are
not guarantees of future performance and that actual results may differ
materially from those projected and implied in the forward-looking statements.
These risks and uncertainties include, but are not limited to, the burden of the
Company's substantial debt obligations; the risk that the Company may not be
able to refinance its debt obligations on reasonable terms, if at all; the
highly competitive nature of the real estate leasing market; adverse changes in
the real estate leasing markets, including, among other things, competition with
other companies; general economic and business conditions, which will, among
other things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants and lease rents; financial condition and
bankruptcy of tenants, including disaffirmance of leases by bankrupt tenants;
the availability and terms of debt and equity financing; risks of real estate
acquisition, expansion and renovation; construction and lease-up delays; the
level and volatility of interest rates; governmental actions and initiatives;
environmental/safety requirements, as well as certain other risks described in
this Form 10-Q. Subsequent written and oral forward looking statements
attributable to the Company or persons acting on the Company's behalf are
expressly qualified in their entirety by cautionary statements in this paragraph
and elsewhere described in this Form 10-Q and in other reports the Company filed
with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
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ITEM 4. Submission of Matters to a Vote of Security Holders
An annual meeting of the shareholders of the Company was held
on June 12, 2001. Proxies for the meeting were solicited by
the Company pursuant to Regulation 14 under the Securities
Exchange Act of 1934. In connection with Proposal 1 regarding
the election of trustees, there was no solicitation in
opposition to the management's nominees as listed in the proxy
statement and all of such nominees were elected. There were no
broker non-votes in connection with such proposal.
Votes of 17,138,552 common shares of beneficial interest
(including the number of Series B-1 preferred shares equal to
the number of common shares into which the Series B preferred
shares were convertible) were cast for the election of Norman
M. Kranzdorf as a Trustee; votes of 321,240 common shares were
withheld. In addition, there were no broker non-votes in
connection with such proposal.
Votes of 17,269,071 common shares of beneficial interest
(including the number of Series B-1 preferred shares equal to
the number of common shares into which the Series B preferred
shares were convertible) were cast for the election of Bernard
J. Korman as a Trustee; votes of 190,721 common shares were
withheld. In addition, there were no broker non-votes in
connection with such proposal.
In connection with Proposal 2, there was no solicitation in
opposition of the ratification of the appointment of BDO
Seidman, LLP as the Company's independent public accounts as
set forth in the proxy statement and such appointment was
ratified.
Votes of 17,272,581 common shares of beneficial interest
(including the number of Series B-1 preferred shares equal to
the number of common shares into which the Series B preferred
shares were convertible) were cast for the ratification of the
appointment of BDO Seidman, LLP as the Company's independent
public accountants; votes of 77,197 common shares were
against; votes of 110,014 common shares abstained. In
addition, there were no broker non-votes in connection with
such proposal.
ITEM 5. Other Information
Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K:
None.
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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.
KRAMONT REALTY TRUST
-------------------------------------
(Registrant)
/s/ Louis P. Meshon, Sr.
August 10, 2001 -------------------------------------
Louis P. Meshon Sr., President
/s/ Etta M. Strehle
August 10, 2001 -------------------------------------
Etta M. Strehle, Chief Financial Officer
and Treasurer
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