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 September 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
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 825-7100
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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
November 13, 2001: 18,857,295
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS September 30, December 31,
2001 2000
---- ----
Real estate - income producing, net of accumulated depreciation $ 675,052 $ 685,281
Mortgage notes receivable 35,952 37,240
Investments in unconsolidated affiliates 3,139 3,137
Cash and cash equivalents (includes $1,706 and $1,574 restricted) 8,773 11,941
Other assets 32,159 26,378
--------- ---------
Total assets $ 755,075 $ 763,977
========= =========
LIABILITIES AND BENEFICIARIES' EQUITY
LIABILITIES:
Mortgages and notes payable $ 499,490 $ 500,294
Accounts payable and other liabilities 12,845 14,137
Distributions payable 8,390 8,355
--------- ---------
Total liabilities 520,725 522,786
--------- ---------
Minority interests in Operating Partnerships 15,569 15,989
--------- ---------
BENEFICIARIES' EQUITY:
Preferred shares of beneficial interest 30 30
Common shares of beneficial interest, $0.01 par value; authorized
96,683,845 shares; outstanding, 18,857,295 and 18,752,912, respectively 188 188
Additional paid-in capital 177,383 176,227
Retained earnings 45,751 51,785
Accumulated other comprehensive income (loss) (1,385) --
Treasury stock, Redeemable preferred shares of beneficial interest Series
D, 146,800 shares at cost (2,349) (2,349)
--------- ---------
219,618 225,881
Unearned compensation on restricted shares of beneficial interest (837) (679)
--------- ---------
Total beneficiaries' equity 218,781 225,202
--------- ---------
Total liabilities and
beneficiaries' equity $ 755,075 $ 763,977
========= =========
See accompanying notes to consolidated financial statements.
2
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Rent $ 25,671 $ 25,149 $ 77,721 $ 41,823
Interest, principally from mortgage notes 1,291 2,109 3,984 6,074
Other -- 795 3,844 795
------------ ------------ ------------ ------------
26,962 28,053 85,549 48,692
------------ ------------ ------------ ------------
Expenses:
Interest 9,582 10,988 29,198 18,680
Operating 6,906 5,875 22,038 10,486
Depreciation and amortization 3,984 3,539 11,773 6,235
General and administrative 2,101 1,899 5,836 2,852
------------ ------------ ------------ ------------
22,573 22,301 68,845 38,253
------------ ------------ ------------ ------------
4,389 5,752 16,704 10,439
Equity in income of unconsolidated affiliates 227 167 606 293
Gain (Loss) on sale of assets (119) -- 1,498 --
Minority interests in income of
Operating Partnerships (172) (276) (863) (850)
------------ ------------ ------------ ------------
Net Income 4,325 5,643 17,945 9,882
Preferred share distribution (1,884) (1,952) (5,643) (2,275)
------------ ------------ ------------ ------------
Net income to common shareholders $ 2,441 $ 3,691 $ 12,302 $ 7,607
============ ============ ============ ============
Per common share:
Net income, basic and diluted $ .13 $ .20 $ .65 $ .62
============ ============ ============ ============
Dividends declared $ .33 $ .33 $ .98 $ .94
============ ============ ============ ============
Average common shares outstanding:
Basic 18,830,748 18,752,912 18,783,769 12,213,664
============ ============ ============ ============
Diluted 18,844,142 18,753,077 18,797,163 12,213,829
============ ============ ============ ============
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 4,325 $5,643 $ 17,945 $9,882
Gain (Loss) on interest rate hedges (1,101) -- (1,658) --
------- ------ -------- ------
Comprehensive income $ 3,224 $5,643 $ 16,287 $9,882
======= ====== ======== ======
See accompanying notes to consolidated financial statements.
3
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
-------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 20,931 $ 13,491
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on mortgage notes receivable 1,287 1,186
Pay down of accrued acquisition costs/Cash used for Merger Costs
(417) (5,330)
Proceeds from sale of real estate 10,230 --
Cash acquired in acquisition -- 5,251
Capital improvements (9,709) (2,534)
Change in restricted cash
(133) (1,680)
Other (151) 141
--------- ---------
Net cash (used in) provided by investing activities 1,109 (2,966)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings
10,710 56,074
Repayments of borrowings (11,513) (48,814)
Cash distributions paid on common shares (18,307) (10,719)
Cash distributions paid on preferred shares (5,638) (1,963)
Proceeds from exercise of stock options 692 --
Distributions to minority interests (1,283) (1,277)
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Net cash used in by financing activities
---------
(25,341) (6,699)
--------- ---------
Net (decrease)/increase in unrestricted cash and cash equivalents
(3,301) 3,826
Unrestricted cash and cash equivalents at the beginning of the period 10,367 3,495
--------- ---------
Unrestricted cash and cash equivalents at the end of the period $ 7,066 $ 7,321
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 26,915 $ 18,411
========= =========
Acquisitions:
Fair Value of assets acquired $ -- $(527,296)
Liabilities assumed or incurred -- 375,841
Preferred shares of beneficial interest issued -- 51,040
Common shares if beneficial interest issued
-- 105,666
--------- ---------
Net of cash acquired $ -- $ 5,251
========= =========
Accrued acquisition costs $ 1,000 $ 4,900
========= =========
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 ("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 Kramont OP and 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 September 30,
2001, the Company owned 93.53% of the partnership interests in Kramont OP and is
its sole general partner. As of September 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 September 30, 2001, the OP's owned, operated and managed
84 shopping centers and two office buildings, located in 16 states and
aggregating approximately 11.6 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.
Certain 2000 income amounts have been reclassified to conform to the 2001
financial statement presentation. These reclassifications had no impact on
operating results previously reported.
(2) CHANGES TO SIGNIFICANT POLICIES AND PROCEDURES
(a) Revenue Recognition
The Company recognizes 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 and cap 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. Amounts recorded on the consolidated statements of other
comprehensive income are reclassed
5
to the consolidated statement of operations upon the termination of the hedge
contract or related long term debt.
In the normal course of business, Kramont is exposed to changes in interest
rates. The objective in managing 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 September 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 and cap contracts was $273,000 on
January 1, 2001. The aggregate fair market value of these interest rate swap and
cap contracts was ($1,385,000) on September 30, 2001 and is included in accounts
payable and other liabilities on the Consolidated Balance Sheet. No amounts are
expected to be reclassified to the statement of income during 2001 or 2002.
(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 nine 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):
September 30, 2000
------------------
Revenues $ 85,255
Net income before preferred distribution $ 14,177
Net income to common shareholders $ 8,488
Net income per common share, basic and diluted $ .45
6
4) REAL ESTATE
(a) Real estate is located in 16 states and consists of (in thousands):
September 30, 2001 December 31, 2000
------------------ -----------------
Land $ 118,697 $ 120,386
Shopping centers 579,821 577,059
Office buildings
5,014 5,002
--------- ---------
Total 703,532 702,447
Less accumulated depreciation
---------
(28,481) (17,166)
--------- ---------
Net book value of real estate $ 675,052 $ 685,281
========= =========
(b) Real estate with a net book value of $655.3 million, at September 30, 2001,
is pledged as collateral for borrowings (Note 6).
(5) MORTGAGE NOTES RECEIVABLE
At September 30, 2001, the Company's mortgage notes receivable consisted of
$36.0 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
per annum, bear interest ranging from 8.84% to 13.5% 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):
September 30, December 31,
2001 2000
---- ----
Mortgage notes payable through June 2003, interest fixed at an average rate of 7.96%,
collateralized by mortgages on real estate $181,700 $181,700
Mortgage notes payable through July 2011, interest ranging
from 6.08% to 10.28% per annum, collateralized by mortgages on real estate 165,043 141,281
Mortgage notes payable through August 2003 under $155 million credit facility,
interest at one month LIBOR (2.64% at September 30, 2001) plus a minimum of
2.45% to a maximum of 2.95%, collateralized by mortgages on real estate 66,103 86,611
Mortgage notes payable through October 2008 under a mortgage loan, interest fixed at
7.00%, collateralized by mortgages on real estate 64,029 64,551
Collateralized mortgage obligations, net of unamortized discount of $268,000 and
$336,000 based on a fixed effective interest rate of 8.84%, collateralized by
certain of the Recreation Notes (see Note 5) with quarterly self-amortizing
principal and interest payments required through
March 2007 22,615 24,946
7
Other -- 1,205
-------- --------
Totals $499,490 $500,294
======== ========
(7) 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.
The Company sold one of its properties on August 30, 2001. The property was a
48,000 square foot shopping center located in Brookhaven, Mississippi. Kramont
received gross proceeds of approximately $1.0 million as a result of the sale of
the property. The property was unencumbered and the proceeds of the sale were
used for general corporate purposes.
(8) RESTRICTED SHARE AWARDS
On September 1, 2001, the Company awarded to certain executives 35,683
restricted common shares of beneficial interest at the then current market price
per Common Share of $13.06 for a total value of $465,842. One-third of the
restricted common shares vested immediately. The remaining two-thirds will vest
equally on July 1, 2002 and on July 1, 2003 if the executive is an employee of
the Company on the respective dates. The awarded shares entitle the executive to
exercise all voting and/or consensual powers pertaining to such shares and to
receive any and all dividends or other distributions on such shares. Any
unvested shares shall immediately vest in the event of a change in control of
the Company, the death or permanent disability of the executive or the
termination of the executive without cause.
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 nine month period 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.
8
Net Income
Three Months Ended September 30, 2001 and 2000
For the quarter ended September 30, 2001, net income to common shareholders of
beneficial interest was $2.4 million or $.13 per common share compared to $3.7
million or $.20 per common share for the same period of 2000.
During the quarter ended September 30, 2001, rent revenue increased and
operating expenses increased by $522,000, and $1.0 million, respectively (a net
rental income decrease of $509,000). The net decrease includes a reduction in
net operating income in the amount of $400,000 for the disposition of three
properties in the fourth quarter of 2000 and the first three quarters of 2001,
as well as an increase in operating expenses of $1.1 million offset by an
increase in rental revenues of $1.0 million for the remaining portfolio.
Interest income decreased by $818,000 during the third quarter of 2001,
primarily attributable to the prepayment of the Hilcoast Note on December 22,
2000 and the scheduled repayments of mortgage notes receivable (see Note 5) ,
which are long term and require self-amortizing payments through 2023.
Interest expense decreased by $1.4 million during the third quarter of 2001 as a
result of decreased interest rates on floating rate debt, as well as a reduced
debt balance due to the disposition of three properties in the fourth quarter of
2000 and the first three quarters of 2001, as well as the repayment of the
Hilcoast Note Receivable in December 2000. Interest expense for the third
quarter of 2000 also included an exit fee of $500,000 for a credit facility that
was repaid in August, 2000.
Depreciation and amortization increased by $445,000 primarily due to capital
expenditures and tenant improvements for the portfolio offset by the disposition
of three properties in the fourth quarter of 2000 and the first three quarters
of 2001.
General and administrative expenses increased by $202,000 primarily due to the
partial vesting of restricted shares awarded effective September 1, 2001.
Nine Months Ended September 30, 2001 and 2000
For the nine months ended September 30, 2001, net income to common shareholders
of beneficial interest was $12.3 million or $.65 per common share compared to
$7.6 million or $.62 per common share for the same period of 2000.
During the nine months ended September 30, 2001, rent revenue and operating
expenses increased by $35.9 million, and $11.6 million, respectively (a net
rental income increase of $24.3 million), primarily due to the Merger.
Interest income decreased by $2.1 million during the first nine months of 2001,
primarily attributable to the prepayment of the Hilcoast Note on December 22,
2000 and the scheduled repayments of mortgage notes receivable (see Note 5)
which are long term and require self-amortizing payments through 2023.
Interest expense increased by $10.5 million during the first nine months of 2001
primarily as a result of increased borrowings assumed in the Merger offset by
decreased interest rates on floating rate debt and a lower debt balance as a
result of the disposition of three properties in the fourth quarter of 2000 and
the first three quarters of 2001, as well as the repayment of the Hilcoast Note
Receivable in December 2000. Interest expense during the nine months of 2000
also included an exit fee of $500,000 for a credit facility that was repaid in
August, 2000.
9
Depreciation and amortization increased by $5.5 million during the first nine
months primarily due to the addition of 60 shopping centers as a result of the
Merger.
General and administrative expenses increased by $3.0 million during the first
nine months primarily due to higher professional fees and increased personnel as
a result of the Merger and performance related bonuses, as well as the partial
vesting of restricted shares awarded effective September 1, 2001.
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 Nine Months Ended
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Net income to common shareholders $ 2,441 $ 3,691 $ 12,302 $ 7,607
Depreciation and amortization of real
property (including unconsolidated affiliates) * 3,756 3,339 11,100 5,733
(Gain) loss on sale of real estate * 112 -- (1,400) --
----------- ------------ ------------ -----------
FFO $ 6,309 $ 7,030 $ 22,002 $ 13,340
=========== ============ ============ ===========
Average common shares outstanding:
Basic 18,830,748 18,752,912 18,783,769 12,213,664
=========== ============ ============ ===========
Diluted 18,844,142 18,753,077 18,797,163 12,213,829
=========== ============ ============ ===========
----------
* 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. 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 $20.9 million for the nine months ended
September 30, 2001 compared to $13.5 million for the same period in 2000. These
amounts primarily reflect increased operating income as a result of the Merger.
10
Net cash provided by investing activities for the nine months ended September
30, 2001 increased to $1.1 million from net cash used in investing activities of
$3.0 million for the same period in 2000. The 2001 amount reflects $10.2 million
in proceeds from the sale of real estate and $1.3 million of collections on
mortgage notes receivable, offset by $9.7 million of capital improvements, as
well as payments of $417,000 towards accrued acquisition costs. The 2000 amounts
reflect $5.3 million received in the Merger and $1.2 million of collections on
mortgage notes receivable partially offset by $5.3 million used for Merger
costs, $2.5 million of capital improvements as well as an increase in restricted
cash of $1.7 million.
Net cash used in financing activities amounted to $25.3 million for the nine
months ended September 30, 2001 while net cash used in financing activities was
$6.7 million in the same period in 2000. The 2001 amounts consist of cash
distributions of $18.3 million to common shareholders, $5.6 million to preferred
shareholders and $1.3 to minority interests, as well as a net $804,000 repayment
of borrowings. The 2000 amounts primarily consist of cash distributions of $10.7
million to common shareholders, $2.0 million to preferred shareholders, $1.3
million to minority interests as well as a net $7.3 million of proceeds from
borrowings.
Borrowings
At September 30, 2001, borrowings were $499.5 million. Scheduled principal
payments over the remainder of this year and the next four years are $371.4
million with $128.1 million due thereafter. Borrowings consist of $410.6 million
of fixed rate indebtedness, with a weighted average interest rate of 7.76% at
September 30, 2001, and $88.9 million of variable rate indebtedness with a
weighted average interest rate of 6.60% at September 30, 2001. The borrowings
are collateralized by a substantially all 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 September 30, 2001, aggregate principal payments on all outstanding
indebtedness were due, as follows (in thousands):
2001 $ 5,001
2002 14,310
2003 287,989
2004 51,704
2005 12,412
Thereafter 128,074
--------
$499,490
========
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 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 September 30, 2001, the Company had $66.1
million outstanding under the $155.0 million Amended Facility, including $39.6
million that was funded upon closing the Amended Facility on August 1, 2000.
These
11
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 $64.0 million
as of September 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 thirty mortgage loans outstanding as of September
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 2011. 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 September 30, 2001 was approximately $142.2 million.
Three mortgage loans with an outstanding principal balance at September 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 September 30, 2001 of $6.4 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 September 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 September 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 September
30, 2001 of $3.9 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 September 30, 2001 of $4.6 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 $22.6 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 September 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
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LIBOR plus 1.8%. No amounts were outstanding at September 30, 2001 on this line
of credit.
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.
Subsequent Events
The Company sold one of its properties on October 12, 2001. The property was a
108,000 square foot shopping center located in Frederick, Maryland. As a result
of the sale, Kramont received gross proceeds of approximately $7.6 million. The
proceeds of the sale were be used to pay down debt obligations of approximately
$3.4 million and for general corporate purposes.
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 $499.5
million of debt outstanding as of September 30, 2001 of which $410.6 million, or
82.2%, has been borrowed at fixed rates ranging from 6.08% to 10.28% with
maturities through 2011. 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
September 30, 2001, a 100 basis point increase in interest rates would result in
an additional $748,000 in interest incurred per year and a 100 basis point
decline would lower interest incurred by $748,000 per year. To ameliorate the
risk of interest rate
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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.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
Not Applicable.
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ITEM 6. Exhibits and Reports on Form 8-K:
None.
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.
November 13, 2001 -------------------------------------
Louis P. Meshon Sr., President
/s/ Etta M. Strehle
November 13, 2001 -------------------------------------
Etta M. Strehle, Chief Financial
Officer and Treasurer
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