Form 10-Q
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 March 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
-------SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number: 1-15923
-------
KRAMONT REALTY TRUST
--------------------
(Exact name of Registrant as specified in its charter)
Maryland 25-6703702
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(State of Incorporation) (I.R.S. Employer Identification No.)
580 West Germantown Pike, Plymouth Meeting, PA 19462
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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
May 11, 2001 : 18,757,912
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS March 31, 2001 December 31, 2000
------ -------------- -----------------
Real estate - income producing,
net of accumulated depreciation $ 683,083 $ 685,281
Mortgage notes receivable 36,824 37,240
Investments in unconsolidated affiliates 3,130 3,137
Cash and cash equivalents (includes $1,622 and
$1,574 restricted) 9,177 11,941
Other assets 27,996 26,378
------ ------
Total assets $ 760,210 $ 763,977
============ ============
LIABILITIES AND BENEFICIARIES' EQUITY
-------------------------------------
LIABILITIES:
Mortgages and notes payable $ 500,802 $ 500,294
Accounts payable and other liabilities 13,327 14,137
Distributions payable 8,350 8,355
----- -----
Total liabilities 522,479 522,786
------- -------
Minority interests in Operating Partnerships 15,787 15,989
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BENEFICIARIES' EQUITY:
Preferred shares of beneficial interest 30 30
Common shares of beneficial interest,
$0.01 par value; authorized
96,683,845 shares; outstanding, 18,752,912. 188 188
Additional paid-in capital 176,227 176,227
Retained earnings 48,897 51,785
Accumulated other comprehensive
income (loss) (407) -
Treasury stock, Redeemable preferred
shares of beneficial interest Series
D, 146,800 shares as of March 31,
2001, at cost (2,349) (2,349)
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222,586 225,881
Unearned compensation on restricted
shares of beneficial interest (642) (680)
----- -----
Total beneficiaries' equity 221,944 225,201
------- -------
Total liabilities and
beneficiaries' equity $ 760,210 $ 763,977
============ =============
See accompanying notes to consolidated financial statements.
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Three Months Ended
March 31,
-------------- -------------
2001 2000
-------------- -------------
Revenues:
Rent $ 27,362 $ 6,974
Interest, principally from mortgage notes 1,384 1,973
--------- -------
28,746 8,947
--------- -------
Expenses:
Interest 9,956 3,189
Operating 8,006 2,218
Depreciation and amortization 3,860 1,104
General and administrative 1,808 420
--------- -------
23,630 6,931
--------- -------
5,116 2,016
Equity in income of unconsolidated affiliates 192 74
Minority interests in income of
Operating Partnerships (225) (324)
--------- -------
Net income 5,083 1,766
Preferred share distribution (1,877) -
--------- -------
Net income to common shareholders $ 3,206 $ 1,766
========== ========
Per common share:
Net income, basic and diluted $ .17 $ .22
======== ========
Dividends declared $ .33 $ .29
======== ========
Average common shares outstanding:
Basic 18,677,912 7,966,621
========== ============
Diluted 18,678,853 7,967,160
========== ============
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(dollars in thousands)
Net income $ 5,083 $ 1,766
Loss on interest rate hedges (680) -
-------- --------
Comprehensive income $ 4,403 $ 1,766
========= ========
See accompanying notes to consolidated financial statements.
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
2001 2000
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 6,560 $ 2,411
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on mortgage notes receivable 415 301
Acquisitions, net of cash acquired (231) -
Capital improvements (1,570) (574)
Change in restricted cash (48) -
Other (42) 70
---------- ----------
Net cash used in investing activities (1,476) (203)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,250 -
Repayments of borrowings (2,742) (982)
Cash distributions paid on common shares (6,099) (2,312)
Cash distributions paid on preferred shares (1,877) -
Distributions to minority interests (428) (424)
---------- ----------
Net cash used in financing activities (7,896) (3,718)
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Net (decrease) in unrestricted cash
and cash equivalents (2,812) (1,510)
Unrestricted cash and cash equivalents
at the beginning of the period 10,367 3,495
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Unrestricted cash and cash equivalents
at the end of the period $ 7,555 $ 1,985
========== ==========
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 8,777 $ 3,017
========== ==========
Accrued acquisition costs $ 1,234 $ -
========== ==========
See accompanying notes to consolidated financial statements.
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 other assets other than its interest
in Kramont Operating Partnership, L.P. ("Kramont OP") and conducts its business
through Kramont OP and its affiliated entities, including Montgomery Operating
Partnership, L.P. ("Montgomery OP", together with their wholly-owned
subsidiaries, hereinafter collectively referred to as the "OP's", which together
with Kramont are hereinafter referred to as the "Company"). The OP's, directly
and indirectly, own all of the Company's assets, including its interest in
shopping centers. Accordingly, the Company conducts its operations through an
Umbrella Partnership REIT ("UPREIT") structure. As of March 31, 2001, the
Company owned 93.49% of the partnership interests in Kramont OP and is its sole
general partner. As of March 31, 2001, the Company indirectly owned 99.87% of
the partnership interests of Montgomery OP and owned 100% of its sole general
partner. As of March 31, 2001, the OP's owned, operated and managed 87 shopping
centers and two office buildings, located in 16 states and aggregating
approximately 12 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 common share of CV Reit and Kranzco on a
tax-free basis, and for holders of Kranzco preferred shares to receive in
exchange for such Kranzco preferred shares, Kramont preferred shares with the
same rights.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information please refer to the
audited financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
(2) Derivative Instruments
--------------------------
Effective January 1, 2001, Kramont adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted. FAS 133 requires that all derivative
instruments, such as interest rate swap contracts, be recognized in the
financial statements and measured at their fair market value. Changes in the
fair market value of derivative instruments are recognized each period in
current operations or stockholders equity (as a component of accumulated other
comprehensive loss), depending on whether a derivative instrument qualifies as a
hedge transaction.
In the normal course of business, Kramont is exposed to changes in interest
rates. The objective in managing 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 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 March 31, 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 in
accumulated other income for the cumulative effect of the accounting change. As
of January 1, 2001, Kramont had interest rate swap contracts to pay fixed rates
of interest (ranging from 6.088% to 6.78%) and receive variable rates of
interest based on LIBOR on an aggregate of $32.5 million notional amount of
indebtedness with maturity dates ranging from March 2004 through May 2004. These
hedges are highly effective and there is no ineffective portion. The aggregate
fair market value of all interest rate swap contracts was $273 on January 1,
2001. The aggregate fair market value of these interest rate swap contracts was
($407) on March 31, 2001 and is included in accounts payable and other
liabilities on the Consolidated Balance Sheet.
(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 three 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):
March 31, 2000
--------------
Revenues $ 29,906
Net income before preferred distribution $ 6,855
Net income to common shareholders $ 4,887
Net income per common share, basic and diluted $ .26
(4) Real Estate
----------------
(a) Real Estate is located in 16 states and consists of (in thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
Land $ 120,386 $ 120,386
Shopping centers 578,617 577,059
Office buildings 5,014 5,002
------------ -------------
Total 704,017 702,447
Less accumulated depreciation (20,934) (17,166)
------------ -------------
Net Real Estate $ 683,083 $ 685,281
============ ==============
(b) Real Estate with a net book value of $665.6 million, at March 31, 2001, is
pledged as collateral for borrowings (Note 5).
(5) Borrowings
--------------
Borrowings consist of (in thousands):
March 31, 2001 December 31,
-------------- ------------
2000
----
Mortgage notes payable through June 2003
under a mortgage loan, interest fixed at
an average rate of 7.96%, collateralized
by mortgages on Real Estate. $ 181,700 $ 181,700
Mortgage notes payable through November 2010,
interest ranging from 6.08% to 10.28% per
annum, collateralized by mortgages on
Real Estate. 143,942 141,281
Mortgage notes payable through August 2003
under $155 million credit facility, interest
at one month LIBOR (5.21% at March 31, 2001)
plus a minimum of 1.85% to a maximum of 2.95%,
collateralized by mortgages on Real Estate. 86,611 86,611
Mortgage notes payable through October 2008
under a fixed rate mortgage, interest
fixed at 7.00%, collateralized by mortgages
on Real Estate. 64,364 64,551
Collateralized Mortgage Obligations, net of
unamortized discount of $314,000 and $336,000
based on a fixed effective interest rate of 8.84%,
collateralized by certain of the Recreation Notes
(see Note 4), quarterly self-amortizing principal
and interest payments required through
March 2007. 24,185 24,946
Margin loan, interest at Federal Funds rate plus
1.50%, (6.50% at March 31, 2001),
maturing January 29, 2001. - 1,205
$3.5 million revolving credit facility, interest
at one month LIBOR plus 1.80% (7.01% at March 31,
2001), maturing June 2001, collateralized by
Real Estate. - -
$1 million unsecured credit facility, interest
at Prime (8.00% at March 31, 2001),
maturing May, 2001. - -
- -
Totals $ 500,802 $ 500,294
=========== ==========
(6) Sale of Assets
-------------------
The Company sold one of its properties on April 13, 2001. The property was a
176,000 square foot shopping center located in Baltimore, Maryland. The center
contained a vacant 94,000 square foot department store building that formerly
housed a Caldor discount store. As a result of the sale and related
transactions, Kramont will receive gross proceeds of approximately $12.0 million.
The proceeds of the sale and related transactions will be used to pay down debt obligations of approximately
$5.7 million and for general corporate purposes.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Kramont acquired its assets through the merger of Kranzco and CV Reit into
Kramont, effective June 16, 2000. The Agreement and Plan of Reorganization and
Merger, dated as of December 10, 2000 was adopted and approved by the
shareholders of both Kranzco and CV Reit on June 6, 2000. Terms of the Merger
called for holders of common shares of both companies to each receive one common
share of beneficial interest of Kramont for each outstanding common share of CV
Reit and Kranzco on a tax-free basis, and for the holders of Kranzco preferred
shares to receive in exchange for such Kranzco preferred shares, Kramont
preferred shares with the same rights.
Results of Operations
The Merger was accounted for as a purchase by CV Reit of Kranzco. Accordingly,
the operating results of the net assets acquired are included in the
consolidated financial statements from the effective date of the Merger. As a
result, the Company believes the comparison for the three month periods may not
be meaningful. Further, as a result of the Merger and the sale of certain
mortgage notes receivable in December 2000, the Company is effectively operating
in one reporting segment.
Net Income
Three Months Ended March 31, 2001 and 2000
For the quarter ended March 31, 2001, net income to holders of common shares of
beneficial interest was $3.2 million or $.17 per common share compared to $1.8
million or $.22 per common share for the same period of 2000.
During the quarter ended March 31, 2001, rent revenue and operating expenses
increased by $20.4 million and $5.8 million, respectively (a net rental income
increase of $14.6 million), primarily due to the Merger. The increase also
reflects improved operating results from income producing properties owned by CV
Reit prior to the Merger in the amount of $308,000.
Interest expense increased by $6.8 million during the first quarter of 2001
primarily as a result of increased borrowings assumed in the Merger.
Depreciation and amortization increased by $2.8 million primarily due to the
addition of 62 shopping centers as a result of the Merger.
Interest income decreased by $589,000 during the first quarter of 2001,
primarily attributable to scheduled repayments of mortgage notes receivable (see
Note 4) which are long term and require self-amortizing payments through 2023,
as well as the prepayment of the Hilcoast Note on December 22, 2000.
General and administrative expenses increased by $1.4 million primarily due to
higher professional fees, performance related bonuses, and increased personnel
as a result of the Merger.
The $118,000 increase in equity in income of unconsolidated affiliates was
primarily attributable to the reduction of general and administrative charges
incurred by Drexel. As of the date of the Merger, these general and
administrative charges are incurred by Kramont OP.
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,
2001 2000
---------------- -------------
Net income to common shareholders $ 3,206 $ 1,766
Depreciation and amortization of real
property (including unconsolidated
affiliates) * 3,641 983
---------- ----------
FFO $ 6,847 $ 2,749
========== ==========
o 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 $6.6 million for the three months ended
March 31, 2001 compared to $2.4 million for the same period in 2000. These
amounts primarily reflect increased operating income as a result of the Merger
in which the Company acquired 62 shopping centers on June 16, 2000.
Net cash used in investing activities for the three months ended March 31, 2001
increased to $1.5 million from net cash used in investing activities of $203,000
for the same period in 2000. 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. The 2000 amounts
principally consist of $574,000 of capital improvements partially offset by
$301,000 of collections on mortgage notes receivable.
Net cash used in financing activities increased to $7.9 million for the three
months ended March 31, 2001 from net cash used in financing activities of $3.7
million in the same period in 2000. 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. The
2000 amounts consist of cash distributions amounting to $2.3 million to
shareholders, $424,000 to minority interests as well as $982,000 repayment of
borrowings.
Borrowings
At March 31, 2001, borrowings were $500.8 million. Scheduled principal payments
over the remainder of this year and the next four years are $392.8 million with
$108.0 million due thereafter. Borrowings consist of $392.4 million of fixed
rate indebtedness, with a weighted average interest rate of 7.78% at March 31,
2001, and $108.4 million of variable rate indebtedness with a weighted average
interest rate of 7.85% at March 31, 2001. The borrowings are collateralized by
80 of the Company's 87 properties 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 March 31, 2001, aggregate principal payments on all outstanding
indebtedness were due, as follows (in thousands):
2001 $ 9,511
2002 12,638
2003 308,284
2004 50,165
2005 12,164
Thereafter 108,040
----------
$ 500,802
==========
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. Advances under the Amended Facility: (1) must be secured by
assets based on specified aggregate loan to value and debt service coverage
ratios, (2) bear interest at an annual rate of one month LIBOR plus a spread
ranging from 185 to 295 basis points, based on loan to value ratios, and (3) may
be drawn only during the first eighteen months of the credit facility.
Additional provisions include a1/2% 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, 2001, the Company had $86.6 million outstanding under the $155
million Amended Facility, including $45.3 million that was funded upon closing
the Amended Facility on August 1, 2000. These proceeds, along with $1.2 million
in cash, were used to pay off a line of credit that was assumed by the Company
in the Merger and matured on August 1, 2000. Interest rate caps in the notional
amount of $87.3 million were purchased upon closing of the Amended Facility.
Pursuant to the Amended Facility, the Company is required to make monthly escrow
payments for the payment of tenant improvements and repair reserves.
In 1996, Kranzco entered into a seven year, fixed rate real estate mortgage loan
in the principal amount of $181.7 million (the " Mortgage Loan"), at a weighted
average interest rate of 7.96%, which is inclusive of trustee and servicing
fees. The Mortgage Loan is secured by twenty seven shopping center properties
(the "Mortgaged Properties"). The entire outstanding principal balance of the
Mortgage Loan is due in June 2003. The Mortgage Loan requires maintenance of a
sinking fund account and a capital and tenant improvement (TI) reserve account.
All funds in the capital and TI reserve account may be used to fund capital
improvements, repairs, alterations, tenant improvements and leasing commissions
at the Mortgaged Properties.
In 1998, Kranzco obtained a $65.9 million fixed rate mortgage from Salomon
Brothers Realty Corp. This loan is secured by a first mortgage on nine
properties acquired by Kranzco in September 1998. The mortgage loan bears a
fixed interest rate of 7% per annum and requires monthly payments of interest
and principal based on a 30-year amortization. The mortgage matures on October
1, 2008. The outstanding balance on the mortgage was approximately $64.4 million
as of March 31, 2001. Pursuant to the mortgage, the Company is required to make
monthly escrow payments for the payment of tenant improvements and repair
reserves.
In addition, the Company has twenty-nine mortgage loans outstanding as of March
31, 2001 which were primarily assumed in connection with various acquisitions of
certain shopping centers. These mortgage loans have maturity dates ranging from
2001 through 2010. Twenty of the twenty-nine mortgage loans have fixed interest
rates ranging from 6.08% to 10.28%. The outstanding principal balance on these
mortgage loans at March was approximately $122.2 million. Three mortgage loans
with an outstanding principal balance at March 31, 2001 of $3.3 million have
interest rates payable at a rate adjusted each year equal to the sum of Moody's
A Corporate Bond Index Daily Rate 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, 2001 of $6.5 million have interest rates payable at a rate
adjusted each year equal to the sum of Moody's A Corporate Bond Index Daily Rate
minus 0.125% per annum, rounded up to the next highest 1/8 percentage rate. One
mortgage loan with an outstanding principal balance at March 31, 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
March 31, 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 March 31, 2001 of $4.0 million has an interest
rate payable at a rate adjusted semi-annually to the sum of 6 month LIBOR plus
1.85%. One mortgage loan with an outstanding principal balance at March 31, 2001
of $3.2 million has an interest rate payable at a rate adjusted monthly to the
sum of the bank's prime rate plus .25%.
The Company also has $24.2 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 an unsecured line of credit in the amount of $1.0 million with
no outstanding balance at March 31, 2001. This line has an interest rate payable
at a rate adjusted monthly to the sum of the bank's prime rate.
The Company has a secured line of credit 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 March 31, 2001 there was no outstanding balance 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 April 13, 2001. The property was the
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. As a result of the sale and related
transactions, Kramont received gross proceeds of approximately $12.0 million.
The proceeds of the sale were used to pay down debt obligations of approximately
$5.7 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 $500.8
million of debt outstanding as of March 31, 2001 of which $392.4 million, or
78.4%, has been borrowed at fixed rates ranging from 6.08% to 10.28% with
maturities through 2010. As these debt instruments mature, the Company typically
refinances such debt at then 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, 2001, a 100 basis point increase in interest rates would result in an
additional $.9 million in interest incurred per year and a 100 basis point
decline would lower interest incurred by $.9 million per year. To ameliorate
these risks, 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.
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.
May 10, 2001 _____________________________________
Louis P. Meshon Sr., President
/s/ Etta M. Strehle
May 10, 2001 _____________________________________
Etta M. Strehle, Chief Financial Officer and Treasurer