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, 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
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(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
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, 2002: 21,265,985
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
ASSETS June 30, December 31,
2002 2001
---- ----
Real estate - income producing, net of accumulated depreciation $ 688,176 $ 684,608
Properties held for sale 11,138 11,742
Mortgage notes receivable 34,537 35,340
Investments in unconsolidated affiliates 3,016 3,065
Cash and cash equivalents (includes $1,684 and $1,718 restricted) 23,470 10,904
Other assets 21,461 23,501
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Total assets $ 781,798 $ 769,160
========= =========
LIABILITIES AND BENEFICIARIES' EQUITY
LIABILITIES:
Mortgages and notes payable $ 502,162 $ 510,212
Accounts payable and other liabilities 13,388 11,094
Distributions payable 9,082 8,394
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Total liabilities 524,632 529,700
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Minority interests in Operating Partnerships 19,823 20,437
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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, 21,237,095 and 18,872,295 at June 30, 2002
and December 31, 2001, respectively 212 189
Additional paid-in capital 209,571 177,553
Retained earnings 38,005 45,574
Accumulated other comprehensive loss (1,371) (1,214)
Treasury stock, A-1 increasing rate cumulative preferred shares of
beneficial interest, 11,155 shares at June 30, 2002 and December 31, 2001,
respectively, at cost (6,070) --
Treasury stock, Redeemable preferred shares of beneficial interest
Series D, 146,800 shares at June 30, 2002 and December 31, 2001,
respectively, at cost (2,349) (2,349)
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238,028 219,783
Unearned compensation on restricted shares of beneficial interest (685) (760)
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Total beneficiaries' equity 237,343 219,023
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Total liabilities and beneficiaries' equity $ 781,798 $ 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 Six Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rent $ 26,006 $ 25,018 $ 51,545 $ 50,692
Interest, principally from mortgage notes 1,214 1,309 2,428 2,693
Other -- -- -- 894
----------- ----------- ----------- -----------
27,220 26,327 53,973 54,279
----------- ----------- ----------- -----------
Expenses:
Interest 9,262 9,538 18,629 19,302
Operating 7,069 6,784 14,171 14,518
Depreciation and amortization 4,294 3,840 8,395 7,602
General and administrative 1,813 1,928 3,432 3,736
----------- ----------- ----------- -----------
22,438 22,090 44,627 45,158
----------- ----------- ----------- -----------
4,782 4,237 9,346 9,121
Equity in income of unconsolidated affiliates 209 187 380 379
Minority interests in income of
Operating Partnerships (246) (166) (477) (376)
----------- ----------- ----------- -----------
Net income from continuing operations 4,745 4,258 9,249 9,124
Results from discontinued operations:
Income (loss) from operations of
properties sold or held for sale (217) 2,961 (327) 3,193
Gain on sale of properties -- 1,618 212 1,618
Minority interest in discontinued operations 17 (300) 9 (315)
----------- ----------- ----------- -----------
Net income (loss) from discontinued operations (200) 4,279 (106) 4,496
----------- ----------- ----------- -----------
Net Income 4,545 8,537 9,143 13,620
----------- ----------- ----------- -----------
Preferred share distribution 1,793 1,882 3,677 3,759
----------- ---------- ----------- -----------
Net income to common shareholders $ 2,752 $ 6,655 $ 5,466 $ 9,861
=========== =========== =========== ===========
Per common share:
Net income from continuing operations,
basic and diluted $ .15 $ .12 $ .29 $ .29
Net income from discontinued operations,
basic and diluted $ (.01) $ .23 $ (.01) $ .24
=========== =========== =========== ===========
Total net income per share, basic and diluted $ .14 $ .35 $ .28 $ .53
=========== =========== =========== ===========
Dividends declared $ .325 $ .325 $ .65 $ .65
=========== =========== =========== ===========
Average common shares outstanding:
Basic 20,063,610 18,766,793 19,471,244 18,759,891
=========== =========== =========== ===========
Diluted 20,081,672 18,772,286 19,489,306 18,765,384
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $4,545 $8,537 $9,143 $13,620
Change in fair value of cash flow hedges (743) 93 (714) (584)
Reclassification adjustment for hedge losses
(gains) included in net income 265 30 557 27
------ ------ ------ -------
Comprehensive income $4,067 $8,660 $8,986 $13,063
====== ====== ====== =======
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 22,435 $ 15,974
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CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on mortgage notes receivable 803 845
Acquisitions, net of cash acquired (8,392) (321)
Capital improvements (3,588) (5,509)
Net proceeds from the sale of real estate 982 9,244
Change in restricted cash 34 (92)
Other 27 (77)
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Net cash provided by (used in) investing activities (10,134) 4,090
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,074 3,250
Repayments of borrowings (11,124) (9,925)
Deferred finance costs (379) (161)
Cash distributions paid on common shares (12,273) (12,194)
Cash distributions paid on preferred shares (3,859) (3,755)
Cash received from stock issuance 31,271 --
Cash received from stock options exercised 635 597
Repurchase of Preferred Stock (6,071) --
Distributions to minority interests (975) (856)
-------- --------
Net cash provided by (used in) financing activities 299 (23,044)
-------- --------
Net increase (decrease) in unrestricted cash and cash equivalents 12,600 (2,980)
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 $ 21,786 $ 7,387
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 18,051 $ 20,166
======== ========
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 June 30, 2002, the Company owned 92.17% of
Kramont OP and is its sole general partner. As of June 30, 2002, Kramont
indirectly owned 99.87% of the limited partnership interest of Montgomery OP and
owned 100% of its sole general partner. As of June 30, 2002, the OP's owned and
operated 80 shopping centers and two office buildings, and managed 5 shopping
centers for third parties, located in 16 states aggregating approximately 11.6
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 of. 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, that meet
specific criteria, at the lower of its carrying amount or fair value. The
statement expands the use of discontinued operation s (see Note 4). The
provisions of SFAS 144 generally are applied prospectively and the adoption of
SFAS 144 resulted in the reclassification of the statement of operations
(3) ACQUISITIONS
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 $8.4 million
including transaction costs. The center is anchored by a 50,000 square foot
supermarket and is unencumbered.
(4) DISCONTINUED OPERATIONS
The Company has determined that certain properties do not fit the Company's
core-portfolio. As a result, these properties have been sold, are under contact
of sale, or are held for sale. The Company sold three shopping centers during
2001. They include shopping centers located in Baltimore, Maryland sold on April
13, Brookhaven, Mississippi sold on August 30, and Frederick, Maryland sold on
October 12. The properties held for sale at June 30, 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 the
properties
5
held for sale at June 30, 2002. The Company anticipates disposing of the assets
held for sale prior to the end of 2003. The following schedule reconciles the
revenues of these properties sold or held for sale to the net income (loss) from
discontinued operations (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Revenues - properties sold $ -- $3,377 $ 14 $4,066
Revenues - properties held for sale 56 138 91 242
Expenses - properties sold -- (345) (7) (759)
Expenses - properties held for sale (273) (209) (425) (356
----- ------ ----- ------
Income (loss) from operations of properties sold or held for sale (217) 2,961 327 3,193
Gain on sale of properties -- 1,618 212 1,618
Minority interest in discontinued operations 17 (300) 9 (315)
----- ------ ----- ------
Net income (loss) from discontinued operations $(200) $4,279 $(106) $4,496
===== ====== ===== ======
(5) REAL ESTATE
(a) Real Estate is located in 16 states and consists of (in thousands):
June 30, 2002 December 31, 2001
------------- -----------------
Income producing:
Land $122,052 $120,479
Shopping centers 601,333 591,265
Office buildings 5,067 5,014
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Total 728,452 716,758
Less accumulated depreciation (40,276) (32,150)
-------- --------
Net real estate - income producing $688,176 $684,608
======== ========
Properties held for sale (at carrying amount):
Land $ 1,231 $ 1,331
Shopping centers 4,515 4,959
Undeveloped land 5,392 5,452
-------- --------
Properties held for sale $ 11,138 $ 11,742
======== ========
(b) Real Estate with a net book value of $644.3 million, at June 30, 2002, is
pledged as collateral for borrowings (see Note 7).
(6) MORTGAGE NOTES RECEIVABLE
At June 30, 2002, the Company's mortgage notes receivable consisted of $34.5
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
6
certain borrowings (see Note 7).
(7) BORROWINGS
Borrowings consist of (in thousands):
June 30, 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 9.38% per annum,
collateralized by mortgages on twenty-five shopping centers 170,706 176,758
Mortgage notes payable through August 2003
under $155 million credit facility,
interest at one month LIBOR (1.84% at June 30, 2002)
plus a minimum of 2.45% to a maximum of 2.95%,
collateralized by mortgages on thirteen 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 63,526 63,846
Collateralized Mortgage Obligations, net of
unamortized discount of $206,000 and $245,000
based on a fixed effective interest rate of 8.84% per
annum, collateralized by certain of the Recreation
Notes (see Note 6), quarterly self-amortizing
principal and interest payments required through
March 2007 20,127 21,805
-------- --------
Totals $502,162 $510,212
======== ========
(8) BENEFICIARIES EQUITY
On April 3, 2002, the Company filed a Shelf Registration Statement on Form S-3
("Shelf Registration") 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 May 15, 2002, the Company purchased 11,155 Series A-1 Increasing Rate
Cumulative Convertible Preferred Shares ("Series A-1 Preferred Shares") , for
$6.0 million plus costs, which shares constitute all of our outstanding Series
A-1 Preferred Shares.
On May 16, 2002, under the Shelf Registration, the Company sold 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 used $6.0 million for the
purchase of Series A-1 Preferred Shares, $8.4 million for the purchase of a
shopping center in Killingly , Connecticut, and paid down debt in the amount of
$8.0 million. The Company intends to use the balance of the proceeds for
acquisitions, debt reductions, and other corporate purposes.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 and 2001
Net Income
For the quarter ended June 30, 2002, net income to holders of common shares of
beneficial interest was $2.8 million or $.14 per common share compared to $6.7
million or $.35 per common share for the same period of 2001.
During the quarter ended June 30, 2002, rent revenue and operating expenses
increased by $988,000 and $285,000, respectively (a net rental income increase
of $703,000). The rent revenue increase is primarily due to increased rentals in
the existing portfolio in the amount of $603,000 and the acquisition of two
shopping centers on December 27, 2001 and April 26, 2002 in the amount of
$808,000 offset by tenant bankruptcies in the amount of $423,000. Operating
expenses increased during the second quarter of 2002 primarily due to the
purchase of two shopping centers in the amount of and $144,000.
Interest expense decreased by $276,000 during the second quarter of 2002
primarily as a result of a decrease in rates on the Company's variable rate debt
and the repayment of borrowings in the amounts of $317,000 and $204,000,
respectively, offset by an increase in borrowings primarily due to the
assumption of debt in the acquisition of a shopping center on December 27, 2001
in the amount of $245,000.
Depreciation and amortization increased by $454,000 due to additional expense
incurred in the amount of $318,000 as a result of capital expenditures and
additional expense of $136,000 as a result of the acquisition of two shopping
centers on December 27, 2001 and April 26, 2002.
Interest income decreased by $95,000 during the second quarter of 2002,
primarily attributable to scheduled repayments of mortgage notes receivable (see
Note 6) which are long term and require self-amortizing payments through 2012.
General and administrative expenses decreased by $115,000 principally due to
lower professional fees in the amount of $55,000 and lower performance related
bonuses paid in the amount of $145,000, offset by higher salary expense for the
three months ended June 30, 2002.
Net income (loss) from discontinued operations was ($200,000) for the second
quarter of 2002 compared to $4,279,000 for the second quarter of 2001. The 2002
amount includes a net loss from the operations of the property sold and
properties held for sale. The 2001 amount consisted of a gain from the sale of
real estate in the amount of $1.6 million and other income, primarily in the
form of termination fees. The 2001 amount includes the net income from
properties sold in 2001 and 2002, as well as the properties held for sale.
Six Months Ended June 30, 2002 and 2001
For the six months ended June 30, 2002, net income to common shareholders of
beneficial interest was $5.5 million or $.28 per common share compared to $9.9
million or $.53 per common share for the same period of 2001.
During the six months ended June 30, 2002, rent revenue increased by $853,000
and operating expenses decreased by $347,000 (a net rental income increase of
$1.2 million). The rent revenue increase is primarily due to increased rentals
in the existing portfolio in the amount of $286,000 and the acquisition of two
8
shopping centers on December 27, 2001 and April 26, 2002 in the amount of $1.4
million, offset by tenant bankruptcies in the amount of $823,000. Operating
expenses decreased during the six months ended June 30, 2002 primarily due to
less snow removal costs in 2002 in the amount of $1.1 million, offset by the
acquisition of two shopping centers in the amount of $253,000.
Interest income decreased by $265,000 during the first six months of 2002,
primarily attributable to scheduled repayments of mortgage notes receivable (see
Note 6), which are long term and require self-amortizing payments through 2012.
Interest expense decreased by $673,000 during the first six months of 2002
primarily as a result of a decrease in rates on the Company's variable rate debt
and the repayment of borrowings in the amounts of $757,000 and $404,000,
respectively, offset by an increase in borrowings primarily due to the
assumption of debt in the acquisition of a shopping center on December 27, 2001
in the amount of $488,000.
Depreciation and amortization increased by $793,000 primarily due to additional
expense of $562,000 as a result of capital expenditures and the additional
expense of $231,000 as a result of the acquisition of two shopping centers on
December 27, 2001 and April 26, 2002.
General and administrative expenses decreased by $304,000 principally due to
lower professional fees in the amount of $65,000 and a decrease in performance
related bonuses in the amount of $250,000 paid for the six months ended June 30,
2002, offset by higher salary expense.
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,
2002 2001 2002 2001
---- ---- ---- ----
Net income to common shareholders $2,752 $ 6,655 $ 5,466 $ 9,861
Depreciation and amortization of real
property (including unconsolidated affiliates) * 4,024 3,703 7,856 7,344
Gain on sale of real estate* -- (1,512) (196) (1,512)
------ ------- ------- -------
FFO $6,776 $ 8,846 $13,126 $15,693
====== ======= ======= =======
* 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
9
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 $22.4 million for the six months ended
June 30, 2002 compared to $16.0 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 $2.1 million for the six months ended June 30, 2002
compared to a decrease in accounts payable and other liabilities of $4.4 million
for the same period in 2001.
Net cash used in investing activities for the six months ended June 30, 2002 was
$10.1 million compared to $4.1 million provided by investing activities for the
same period in 2001. The 2002 amounts reflect $8.4 million used for the
acquisition of real estate and $3.6 million of capital improvements offset by
net proceeds from the sale of real estate in the amount of $982,000 and $803,000
of collections on mortgage notes receivable. The 2001 amounts reflect $5.5
million of capital improvements, as well as payments of $321,000 towards accrued
acquisition costs, offset by $845,000 of collections on mortgage notes
receivable and $9.2 of net proceeds from the sale of real estate.
Net cash provided by financing activities increased to $299,000 for the six
months ended June 30, 2002 from net cash used in financing activities of $23.0
million in the same period in 2001. The 2002 amounts consist of proceeds of
$31.3 million from the issuance of common shares of beneficial interest,
$635,000 from the issuance of common shares of beneficial interest due to
options exercised, and $3.1 million of proceeds from borrowings, offset by cash
distributions of $16.1 million to shareholders and $975,000 to minority
interests, $11.1 million repayment of borrowings, and $6.1 million for the
repurchase of Series A-1 Increasing Rate Cumulative Convertible Preferred
Shares. The 2001 amounts consist of cash distributions of $15.9 million to
shareholders and $856,000 to minority interests, partially offset by $3.3
million of proceeds from borrowings.
Borrowings
At June 30, 2002, the Company's contractual debt obligations are as follows:
Payments Due by Period
(in millions)
Less than 1 year 1 to 3 years 4 to 5 years After 5 years
$6.0 $340.1 $31.5 $124.6
At June 30, 2002, borrowings were $502.2 million. Scheduled principal payments
over the remainder of this year and the next four years are $377.6 million with
$124.6 million due thereafter. Borrowings consist of $417.9 million of fixed
rate indebtedness, with a weighted average interest rate of 7.70% at June 30,
2002, and $84.3 million of variable rate indebtedness with a weighted average
interest rate of 4.99% at June 30, 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
10
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 June 30, 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.
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 1, 2003, which is the maturity date of the Company's $155
million Amended Facility. At June 30, 2002 there was no outstanding balance on
this credit facility.
In 1996, the Company 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,the Company 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 the Company 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 $63.5 million
as of June 30, 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 twenty-seven mortgage loans, collateralized by
twenty-five properties, outstanding as of June 30, 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 twenty-seven mortgage loans have fixed interest rates ranging
from 6.08% to 9.38%. The outstanding principal balance on these mortgage loans
at June 30, 2002 was approximately $152.5 million. Three mortgage loans with an
outstanding principal balance at June 30, 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. One mortgage loan with an outstanding principal
balance at June 30, 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
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June 30, 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 June 30, 2002 of $6.5 million has an interest
rate payable at a rate adjusted monthly to the sum of the bank's prime rate
minus .25%.
The Company also has 20.1 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 June 30, 2002 there was no
outstanding balance.
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, 2003. At June 30, 2002 there was no
outstanding balance.
Capital Resources
On April 3, 2002, the Company filed a Shelf Registration Statement on Form S-3
("Shelf Registration") 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 May 15, 2002, the Company purchased 11,155 Series A-1 Increasing Rate
Cumulative Convertible Preferred Shares ("Series A-1 Preferred Shares") , for
$6.0 million plus costs, which shares constitute all of our outstanding Series
A-1 Preferred Shares.
On May 16, 2002, under the Shelf Registration, the Company sold 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 used $6.0 million for the
purchase of Series A-1 Preferred Shares, $8.4 million for the purchase of a
shopping center in Killingly , Connecticut, and paid down debt in the amount of
$8.0 million. The Company intends to use the balance of the proceeds for
acquisitions, debt reductions, and other corporate purposes.
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.
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
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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 $502.2
million of debt outstanding as of June 30, 2002 of which $418.0 million, or
83.23%, has been borrowed at fixed rates ranging from 6.08% to 9.38% with
maturities 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 June
30, 2002, a 100 basis point increase in interest rates would result in an
additional $840,000 in interest incurred per year and a 100 basis point decline
would lower interest incurred by $840,000. 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
13
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
An annual meeting of the shareholders of the Company was held
on June 11, 2002. 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 16,764,814 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 Louis
P. Meshon, Sr. as a Trustee; votes of 169,309 common shares
were withheld. In addition, there were no broker non-votes in
connection with such proposal.
Votes of 16,798,614 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 Milton
S. Schneider as a Trustee; votes of 135,509 common shares were
withheld. In addition, there were no broker non-votes in
connection with such proposal. Votes of 16,798,283 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 Alan L. Shulman as a Trustee; votes
of 135,840 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 16,785,544 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
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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 88,579
common shares were against; votes of 60,000 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:
Exhibits None.
Reports on Form 8-K:
On April 18, 2002, the Company filed a Current Report on Form
8-K, reporting under Item 5 - "Other Events" the Company
announced it had completed the acquisition of a shopping
center in Allentown, Pennsylvania on December 27, 2001; the
Company entered into an agreement for an $18.5 million
revolving line of credit with GMAC Commercial Mortgage
Corporation; the Company entered into an agreement to acquire
a shopping center in Killingly, Connecticut; the Registration
Statement on Form S-3 filed by the Company on April 3, 2002
became effective.
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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 12, 2002 --------------------------------------------------
Louis P. Meshon Sr., President
/s/ Etta M. Strehle
August 12, 2002 --------------------------------------------------
Etta M. Strehle, Chief Accounting Officer
/s/ Carl E. Kraus
August 12, 2002 --------------------------------------------------
Carl E. Kraus, Chief Financial Officer and Treasurer
16