SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 quarter ended March 31, 2002
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
(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
May 14, 2002: 18,872,295
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited)
ASSETS March 31, 2002 December 31, 2001
-------------- -----------------
Real estate - income producing, net of accumulated depreciation $ 682,074 $ 684,608
Properties held for sale 11,203 11,742
Mortgage notes receivable 35,024 35,340
Investments in unconsolidated affiliates 3,025 3,065
Cash and cash equivalents (includes $1,683 and $1,718 restricted) 12,928 10,904
Other assets 23,800 23,501
--------- ----------
Total assets $ 768,054 $ 769,160
========= ==========
LIABILITIES AND BENEFICIARIES' EQUITY
LIABILITIES:
Mortgages and notes payable $ 510,241 $ 510,212
Accounts payable and other liabilities 13,177 11,094
Distributions payable 8,499 8,394
, --------- ----------
Total liabilities 531,917 529,700
--------- ----------
Minority interests in Operating Partnerships 20,136 20,437
--------- ----------
BENEFICIARIES' EQUITY:
Preferred shares of beneficial interest 30 30
Common shares of beneficial interest, $0.01 par value; authorized
96,683,845 shares; outstanding, 18,872,295 189 189
Additional paid-in capital 177,553 177,553
Retained earnings 42,154 45,574
Accumulated other comprehensive income (loss) (893) (1,214)
Treasury stock, Redeemable preferred shares of beneficial interest Series
D, 146,800 shares as of March 31, 2002, at cost (2,349) (2,349)
--------- ----------
216,684 219,783
Unearned compensation on restricted shares of beneficial interest (683) (760)
--------- ----------
Total beneficiaries' equity 216,001 219,023
--------- ----------
Total liabilities and beneficiaries' equity $ 768,054 $ 769,160
========= ==========
See accompanying notes to consolidated financial statements.
2
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2002 2001
---------- ----------
Revenues:
Rent $ 25,539 $ 25,674
Interest, principally from mortgage notes 1,214 1,384
Other -- 894
---------- ----------
26,753 27,952
---------- ----------
Expenses:
Interest 9,367 9,764
Operating 7,102 7,734
Depreciation and amortization 4,101 3,762
General and administrative 1,619 1,808
---------- ----------
22,189 23,068
---------- ----------
4,564 4,884
Equity in income of unconsolidated affiliates 171 192
Minority interests in income of
Operating Partnerships (231) (210)
---------- ----------
Net income from continuing operations 4,504 4,866
Results from discontinued operations:
Income (loss) from operations of properties sold or
held for sale (110) 232
Gain on sale of properties 212 --
Minority interest in discontinued operations (8) (15)
---------- ----------
Net income from discontinued operations 94 217
---------- ----------
Net Income 4,598 5,083
---------- ----------
Preferred share distribution (1,884) (1,877)
---------- ----------
Net income to common shareholders $ 2,714 $ 3,206
========== ==========
Per common share:
Net income from continuing operations, basic
and diluted $ .14 $ .16
Net income from discontinued operation, basic
and diluted -- .01
---------- ----------
Total net income per share, basic and diluted $ .14 $ .17
---------- ----------
Dividends declared $ .325 $ .325
---------- ----------
Average common shares outstanding:
Basic 18,872,295 18,677,912
========== ==========
Diluted 18,885,102 18,678,853
========== ==========
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(dollars in thousands)
(Unaudited)
----------- ----------
2002 2001
----------- ----------
Net income $ 4,598 $ 5,083
Change in fair value of cash flow hedges 87 (656)
Reclassification adjustment for hedge losses (gains) included
in net income 234 (24)
----------- ----------
Comprehensive income $ 4,919 $ 4,403
=========== ==========
See accompanying notes to consolidated financial statements
3
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
2002 2001
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities 10,818 $ 6,560
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on mortgage notes receivable 316 415
Acquisitions, net of cash acquired -- (231)
Capital improvements (1,696) (1,570)
Proceeds from the sale of real estate (net) 982 --
Change in restricted cash 35 (48)
Other 28 (42)
-------- --------
Net cash used in investing activities (335) (1,476)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,728 3,250
Repayments of borrowings (1,699) (2,742)
Cash distributions paid on common shares (6,135) (6,099)
Cash distributions paid on preferred shares (1,884) (1,877)
Distributions to minority interests (434) (428)
-------- --------
Net cash used in financing activities (8,424) (7,896)
-------- --------
Net increase (decrease) in unrestricted cash and cash equivalents 2,059 (2,812)
Unrestricted cash and cash equivalents at the beginning of the period 9,186 10,367
-------- --------
Unrestricted cash and cash equivalents at the end of the period $ 11,245 $ 7,555
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 8,673 $ 8,777
======== ========
See accompanying notes to consolidated financial statements.
4
KRAMONT REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Kramont Realty Trust , a Maryland real estate investment trust ("Kramont"), is a
self-administered, self-managed equity 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 CV Realty, L.P. ("Montgomery
OP", together with Kramont OP and their wholly-owned subsidiaries, hereinafter
collectively referred to as the "OPs", which together with Kramont are
hereinafter referred to as the "Company"). The OP's, directly or 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 March 31, 2002, the Company owned 91.94% of
Kramont OP and is its sole general partner. As of March 31, 2002, Kramont
indirectly owned 99.87% of the limited partnership interest of Montgomery OP and
owned 100% of its sole general partner. As of March 31, 2002, the OP's owned and
operated 79 shopping centers and two office buildings, and managed 5 shopping
centers for third parties, located in 16 states aggregating approximately 11.5
million square feet.
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, 2001.
(2) CHANGES TO SIGNIFICANT POLICIES AND PROCEDURES
The company adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, effective January 1, 2002. SFAS 144 resolves significant
implementation issues related to SFAS No. 121, Accounting for the Impairment of
Long - Lived Assets and for Long-Lived Assets to be disposed. SFAS 144
supercedes SFAS 121, but it retains its fundamental provisions. SFAS 144 retains
the requirement of SFAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset within the scope of SFAS 144 is not recoverable
from its undiscounted cash flow and exceeds its fair value. SFAS 144 requires
the presentation of individual shopping centers sold or held for sale as
discontinued operations (see Note 3). The provisions of SFAS 144 generally are
applied prospectively and the adoption of SFAS 144 did not have a material
impact on the Company's financial position or results of operations.
(3) DISCONTINUED OPERATIONS
On March 11, 2002 the Company sold a free-standing building located in
Fredericksburg, Maryland for $750,000. The net gain from the sale of the
property was $212,000. The results of operations from this property, along with
properties held for sale, is reported as income (loss) from operations of
properties sold or held for sale. The properties held for sale at March 31, 2002
include a shopping center in Columbus, Mississippi, a shopping center in Hamden,
Connecticut and three parcels of undeveloped land in Florida. There was no debt
on these properties at March 31, 2002. The 2001 amount reflects the results of
operations for the three properties sold in 2001, as well as the properties held
for sale mentioned above and the property sold in 2002.
5
(4) REAL ESTATE
(a) Real Estate is located in 16 states and consists of (in thousands):
March 31, 2002 December 31, 2001
-------------- -----------------
Income producing:
Land $ 120,452 $ 120,479
Shopping centers 592,719 591,265
Office buildings 5,014 5,014
--------- ---------
Total 718,185 716,758
Less accumulated depreciation (36,111) (32,150)
--------- ---------
Net real estate - income producing $ 682,074 $ 684,608
========= =========
Properties held for sale:
Land $ 1,231 $ 1,331
Shopping centers 4,758 5,158
Undeveloped land 5,427 5,452
--------- ---------
Total 11,416 11,941
Less accumulated depreciation (213) (199)
--------- ---------
Net properties held for sale $ 11,203 $ 11,742
========= =========
(b) On April 26, 2002, Kramont completed the acquisition of a 75,400 square foot
shopping center in Killingly, Connecticut. The center was acquired for $8.3
million in cash including transaction costs.
(c) Real Estate with a net book value of $673.4 million, at March 31, 2002, is
pledged as collateral for borrowings (Note 6).
(5) MORTGAGE NOTES RECEIVABLE
At March 31, 2002, the Company's mortgage notes receivable consisted of $35.0
million collateralized by first mortgages on the recreation facilities at three
Century Village adult condominium communities in southeast Florida
(collectively, the "Recreation Notes"). The Recreation Notes provide for
self-amortizing equal monthly principal and interest payments due through 2012,
bear interest ranging from 8.84% to 13.5% per annum and contain certain
prepayment prohibitions. The Recreation Notes are pledged as collateral for
certain borrowings (see Note 6).
(6) BORROWINGS
Borrowings consist of (in thousands):
6
March 31, December 31,
-------- --------
2002 2001
-------- --------
Mortgage notes payable through June 2003, interest only fixed payments at an average
rate of 7.96% per annum, collateralized by mortgages on twenty-seven shopping centers $181,700 $181,700
Mortgage notes payable through August 2028, interest ranging from 6.08% to
10.28% per annum, collateralized by mortgages on thirty shopping centers 177,759 176,758
Mortgage notes payable through August 2003 under $155 million credit facility,
interest at one month LIBOR (1.88% at March 31, 2002) plus a minimum of 2.45% to
a maximum of 2.95%, collateralized by mortgages on fourteen shopping centers 66,103 66,103
Mortgage notes payable through October 2008 under a mortgage loan, interest fixed at
7.00% per annum, collateralized by mortgages on nine shopping centers 63,703 63,846
Collateralized Mortgage Obligations, net of unamortized discount of $226,000 and
$245,000 based on a fixed effective interest rate of 8.84% per annum,
collateralized by certain of the Recreation Notes (see Note 5), quarterly
self-amortizing principal and interest payments required through March 2007 20,975 21,805
-------- --------
Totals $510,240 $510,212
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and 2001
Net Income
For the quarter ended March 31, 2002, net income to holders of common shares of
beneficial interest was $2.7 million or $.14 per common share compared to $3.2
million or $.17 per common share for the same period of 2001.
During the quarter ended March 31, 2002, rent revenue and operating expenses
decreased by $139,000 and $632,000, respectively (a net rental income increase
of $497,000). The rent revenue decrease is primarily due to tenant bankruptcies
offset by increased rentals in the existing portfolio and the acquisition of a
shopping center on December 27, 2001. Operating expenses decreased during the
first quarter of 2002 primarily due to less snowfall.
Other income decreased by $894,000 due to non-recurring income received in the
first quarter of 2001, primarily in the form of lease termination fees.
Interest expense decreased by $397,000 during the first quarter of 2002
primarily as a result of a decrease in rates on the Company's variable rate
debt, offset by an increase in borrowings.
Depreciation and amortization increased by $339,000 due to capital expenditures.
Interest income decreased by $170,000 during the first quarter of 2002,
primarily attributable to scheduled repayments of mortgage notes receivable (see
Note 5) which are long term and require self-amortizing payments through 2012.
7
General and administrative expenses decreased by $189,000 primarily due to a
decrease in performance related bonuses.
Net income from discontinued operations was $94,000 for the first quarter of
2002 compared to $217,000 for the first quarter of 2001. The 2002 amount
consisted of a gain from the sale of real estate in the amount of $212,000,
offset by an aggregate loss from the operations of the property sold and
properties held for sale. The 2001 amount consists of the net income from
properties sold in 2001 and 2002, as well as the properties held for sale.
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
March 31,
2002 2001
-----------------
Net income to common shareholders $ 2,714 $3,206
Depreciation and amortization of real
property (including unconsolidated affiliates)* 3,832 3,641
Gain on sale of real estate* (197) --
------- ------
FFO $ 6,349 $6,847
======= ======
* 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 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.
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 $10.8 million for the three months ended
March 31, 2002 compared to $6.6 million for the same period in 2001. The
increase in cash flow is primarily due to an increase in accounts payable and
other liabilities of $2.4 million in the first quarter of 2002 compared to a
decrease in accounts payable and other liabilities of $1.2 million for the same
period in 2001.
8
Net cash used in investing activities for the three months ended March 31, 2002
decreased to $335,000 from net cash used in investing activities of $1.5 million
for the same period in 2001. The 2002 amounts reflect $1.7 million of capital
improvements offset by net proceeds from the sale of real estate in the amount
of $982,000 and $316,000 of collections on mortgage notes receivable. The 2001
amounts reflect $1.6 million of capital improvements, as well as payments of
$231,000 towards accrued acquisition costs, offset by $415,000 of collections on
mortgage notes receivable.
Net cash used in financing activities increased to $8.4 million for the three
months ended March 31, 2002 from net cash used in financing activities of $7.9
million in the same period in 2001. The 2002 amounts consist of cash
distributions of $8.0 million to shareholders and $434,000 to minority
interests. The 2001 amounts consist of cash distributions of $7.9 million to
shareholders and $428,000 to minority interests, partially offset by $508,000 of
net proceeds from borrowings.
Borrowings
At March 31, 2002, the Company's contractual obligations are as follows:
Payments Due by Period
(in thousands)
Less than 1 year 1 to 3 years 4 to 5 years After 5 years
$ 9.4 $ 346.2 $ 34.0 $ 120.6
At March 31, 2002, borrowings were $510.2 million. Scheduled principal payments
over the remainder of this year and the next four years are $389.6 million with
$120.6 million due thereafter. Borrowings consist of $418.1 million of fixed
rate indebtedness, with a weighted average interest rate of 7.73% at March 31,
2002, and $92.1 million of variable rate indebtedness with a weighted average
interest rate of 5.13% at March 31, 2002. The borrowings are collateralized by a
substantial portion of the Company's real estate and three Century Village adult
condominium communities in southeast Florida (collectively, 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.
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 to the
eighteenth months. Effective February 1, 2002, no more funds may be advanced.
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 London Interbank Offering Rate ("LIBOR")
plus a spread ranging from 245 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 March 31, 2002, the Company had $66.1 million
outstanding under the $155 million Amended Facility. 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.
9
On March 28, 2002 the Company entered into a Mezzanine Loan Agreement
("Mezzanine Agreement") with GMAC for an amount not to exceed $18.5 million in
the form of a revolving credit facility. Under terms of the Mezzanine Agreement,
the facility will be used for acquisitions, capital expenditures, and general
corporate purposes. The Mezzanine Agreement calls for an interest rate of the
greater of 7 percent, or one month LIBOR plus 375 basis points. The term of the
line expires on August 31, 2003, which is the maturity date of the Company's
$155 million Amended Facility. At March 31, 2002 there was no outstanding
balance on this credit facility.
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 $63.7 million
as of March 31, 2002. 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 thirty mortgage loans outstanding as of March 31,
2002 which were primarily assumed in connection with various acquisitions of
certain shopping centers. These mortgage loans have maturity dates ranging from
2002 through 2028. Twenty-one of the thirty mortgage loans have fixed interest
rates ranging from 6.08% to 10.28%. The outstanding principal balance on these
mortgage loans at March 31, 2002 was approximately $151.7 million. Three
mortgage loans with an outstanding principal balance at March 31, 2002 of $3.1
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 March 31, 2002 of $6.3 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 March 31, 2002 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 March 31, 2002 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 March 31, 2002 of
$5.4 million has an interest rate payable at a rate adjusted semi-annually to
the sum of 6 month LIBOR plus 1.85%. One mortgage loan with an outstanding
principal balance at March 31, 2002 of $6.5 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 $21.0 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 line of credit with Wachovia Bank in the amount of $3.2
million. This line is secured by a shopping center and has an interest rate
payable at a rate adjusted monthly to the sum of 30 day LIBOR plus 1.8%. The
line of credit matures on August 1, 2003. At March 31, 2002 there was no
outstanding balance on this line of credit.
10
The Company has a line of credit with Wilmington Trust of Pennsylvania in the
amount of $3.5 million secured by two shopping centers with an interest rate
payable at a rate adjusted monthly to the sum of 30 day LIBOR plus 1.8%. The
line of credit matures on June 30, 2002. At March 31, 2002 there was no
outstanding balance on this line of credit.
Capital Resources
The Company's operating 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.
Subsequent Events
On April 16, 2002, the Company signed an agreement to purchase 11,155 Series
A-1 Increasing Rate Cumulative Convertible Preferred Shares ("Series A-1
Preferred Shares"), from a shareholder of beneficial interest for $6.0 million,
which shares constitute all of our outstanding Series A-1 Preferred Shares. The
Company expects to close the purchase of the Series A-1 Preferred Shares on May
15, 2002.
On April 18, 2002, the Company filed a Shelf Registration Statement on Form S-3
to register $150,000,000 in common and preferred shares of beneficial interest,
depository shares, warrants and debt securities. The Shelf Registration
Statement became effective April 17, 2002.
On April 26, 2002, the Company completed the acquisition of a 75,400 square foot
shopping center in Killingly, Connecticut for a purchase price of $8.3 million
including transaction costs. The center is anchored by a 50,000 square foot
supermarket.
On May 9, 2002, the Company agreed to sell 2.3 million of its common shares of
beneficial interest to Cohen & Steers Capital Management, Inc. ("Cohen &
Steers"), on behalf of itself and as investment adviser to certain investment
advisory clients. The Company intends to use the estimated net proceeds of
$31.3 million for acquisitions, debt reductions, and other corporate purposes.
The purchase agreement provides that the obligation to purchase the common
shares of beneficial interest is subject to certain closing conditions.
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 $510.2
million of debt outstanding as of March 31, 2002 of which $418.1 million, or
82.23%, has been borrowed at fixed rates ranging from 6.08% to 10.28% with
maturities
11
through 2028. 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 March 31, 2002,
a 100 basis point increase in interest rates would result in an additional
$900,000 in interest incurred per year and a 100 basis point decline would lower
interest incurred by $900,000. To ameliorate the risks 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
None.
ITEM 5. Other Information
Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K:
Exhibits:
10.78 Purchase Agreement between the Company and Cohen & Steers
Capital Management, Inc., dated as of May 9, 2002.
10.79 Preferred Stock Redemption Agreement between the Company and
David H. Hillman, dated as of April 16, 2002.
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)
May 14, 2002 /s/ Louis P. Meshon, Sr.
-------------------------------------
Louis P. Meshon Sr., President
May 14, 2002 /s/ Etta M. Strehle
-------------------------------------
Etta M. Strehle, Chief Accounting Officer
May 14, 2002 /s/ Carl E. Kraus
-------------------------------------
Carl E. Kraus, Chief Financial Officer and Treasurer
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