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, 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
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(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
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 6, 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 September 30, December 31,
2002 2001
---- ----
Real estate - income producing, net of accumulated depreciation $ 687,955 $ 684,608
Properties held for sale 11,066 11,742
Mortgage notes receivable 34,035 35,340
Investments in unconsolidated affiliates 2,979 3,065
Cash and cash equivalents (includes $1,686 and $1,718 restricted) 7,627 10,904
Other assets 33,388 23,501
--------- ---------
Total assets $ 777,050 $ 769,160
========= =========
LIABILITIES AND BENEFICIARIES' EQUITY
LIABILITIES:
Mortgages and notes payable $ 500,429 $ 510,212
Accounts payable and other liabilities 15,023 11,094
Distributions payable 9,091 8,394
--------- ---------
Total liabilities 524,543 529,700
--------- ---------
Minority interests in Operating Partnerships 19,493 20,437
--------- ---------
BENEFICIARIES' EQUITY:
Preferred shares of beneficial interest 30 30
Common shares of beneficial interest, $0.01 par value; authorized
96,683,845 shares; outstanding, 21,265,985 and 18,872,295 at September 30,
2002 and December 31, 2001, respectively 213 189
Additional paid-in capital 210,008 177,553
Retained earnings 33,791 45,574
Accumulated other comprehensive loss (1,747) (1,214)
Treasury stock, A-1 increasing rate cumulative preferred shares of
beneficial interest, 11,155 shares at September 30, 2002 and none at
December 31, 2001, at cost (6,070) --
Treasury stock, Redeemable preferred shares of beneficial interest Series
D, 146,800 shares at September 30, 2002 and December 31, 2001,
respectively, at cost (2,349) (2,349)
--------- ---------
233,876 219,783
Unearned compensation on restricted shares of beneficial interest (862) (760)
--------- ---------
Total beneficiaries' equity 233,014 219,023
--------- ---------
Total liabilities and beneficiaries' equity $ 777,050 $ 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 Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rent $ 26,008 $ 25,062 $ 77,553 $ 75,754
Interest, principally from mortgage notes 1,206 1,291 3,634 3,984
Other -- -- -- 894
------------ ------------ ------------ ------------
27,214 26,353 81,187 80,632
------------ ------------ ------------ ------------
Expenses:
Interest 9,270 9,526 27,899 28,828
Operating 7,470 6,616 21,641 21,134
Depreciation and amortization 4,252 3,880 12,647 11,482
General and administrative 2,012 2,101 5,444 5,836
------------ ------------ ------------ ------------
23,004 22,123 67,631 67,280
------------ ------------ ------------ ------------
4,210 4,230 13,556 13,352
Equity in income of unconsolidated affiliates 181 227 561 606
Minority interests in income of
Operating Partnerships (200) (169) (677) (545)
------------ ------------ ------------ ------------
Net income from continuing operations 4,191 4,288 13,440 13,413
Results from discontinued operations:
Income (loss) from operations of properties sold or
held for sale 226 159 (101) 3,352
Gain (loss) on sale of properties -- (119) 212 1,498
Minority interest in discontinued operations (16) (3) (7) (318)
------------ ------------ ------------ ------------
Net income from discontinued operations 210 37 104 4,532
------------ ------------ ------------ ------------
Net Income 4,401 4,325 13,544 17,945
------------ ------------ ------------ ------------
Preferred share distribution 1,703 1,884 5,380 5,643
------------ ------------ ------------ ------------
Net income to common shareholders $ 2,698 $ 2,441 $ 8,164 $ 12,302
============ ============ ============ ============
Per common share:
Net income from continuing operations, basic
and diluted $ .12 $ .13 $ .40 $ .41
Net income from discontinued operations, basic
and diluted $ .01 $ .00 $ .01 $ .24
------------ ------------ ------------ ------------
Total net income per share, basic and diluted $ .13 $ .13 $ .41 $ .65
============ ============ ============ ============
Dividends declared $ .325 $ .325 $ .975 $ .975
============ ============ ============ ============
Average common shares outstanding:
Basic 21,265,985 18,830,748 20,076,065 18,783,769
============ ============ ============ ============
Diluted 21,285,430 18,844,142 20,095,510 18,797,163
============ ============ ============ ============
See accompanying notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 4,401 $ 4,325 $ 13,544 $ 17,945
Change in fair value of cash flow hedges (647) (1,289) (1,361) (2,004)
Reclassification adjustment for hedge losses (gains)
included in net income 271 188 828 346
-------- -------- -------- --------
Comprehensive income $ 4,025 $ 3,224 $ 13,011 $ 16,287
======== ======== ======== ========
KRAMONT REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
-------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 20,886 $ 20,931
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on mortgage notes receivable 1,305 1,287
Acquisitions, net of cash acquired (9,410) (417)
Capital improvements (6,480) (9,709)
Net proceeds from the sale of real estate 988 10,232
Change in restricted cash 32 (133)
Other 50 (151)
-------- --------
Net cash (used in) provided by investing activities (13,515) 1,109
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,074 10,710
Repayments of borrowings (12,857) (11,514)
Deferred financing costs (398) --
Cash distributions paid on common shares (19,175) (18,307)
Cash distributions paid on preferred shares (5,561) (5,638)
Cash received from stock issuance 31,253 --
Cash received from stock options exercised 635 691
Repurchase of Preferred Stock (6,071) --
Distributions to minority interests (1,516) (1,283)
-------- --------
Net cash used in financing activities (10,616) (25,341)
-------- --------
Net decrease in unrestricted cash and cash equivalents (3,245) (3,301)
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 $ 5,941 $ 7,066
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 27,242 $ 26,915
======== ========
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 September 30, 2002, the Company owned 92.78% of
Kramont OP and is its sole general partner. As of September 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 September 30, 2002, the OP's owned
and operated 81 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
In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring Costs.
SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Under SFAS 146, a
company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require a company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective for exit or disposal activities initiated after
December 31, 2002. FASB 146 does not currently affect the Company.
(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.
5
On August 22, 2002, the Company completed the acquisition of a vacant 2,650
square foot free-standing building in Plymouth Meeting, Pennsylvania for a
purchase price of $1.0 million including transaction costs. The Company has
executed a lease with a regional restaurant to occupy the premises.
(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 September 30, 2002 include a
shopping center in Columbus, Mississippi, a shopping center in Hamden,
Connecticut, three parcels of undeveloped land in Florida, and an out parcel in
Bensalem, Pennsylvania. There was no debt on the properties held for sale at
September 30, 2002. The Company anticipates disposing of the assets held for
sale prior to the end of the third quarter 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 Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues - properties sold $ -- $ 560 $ 14 $ 4,626
Revenues - properties held for sale 264 48 355 290
Expenses - properties sold -- (275) (7) (1,034)
Expenses - properties held for sale (38) (174) (463) (530)
------- ------- ------- -------
Income (loss) from operations of properties sold or
held for sale 226 159 (101) 3,352
Gain on sale of properties -- (119) 212 1,498
Minority interest in discontinued operations (16) (3) (7) (318)
------- ------- ------- -------
Net income (loss) from discontinued operations $ 210 $ 37 $ 104 $ 4,532
======= ======= ======= =======
(5) REAL ESTATE
(a) Real Estate is located in 16 states and consists of (in thousands):
September 30, December 31,
2002 2001
---- ----
Income producing:
Land $ 122,250 $ 120,479
Shopping centers 605,023 591,265
Office buildings 5,084 5,014
--------- ---------
Total 732,357 716,758
Less accumulated depreciation (44,402) (32,150)
--------- ---------
Net real estate - income producing $ 687,955 $ 684,608
========= =========
Properties held for sale (at carrying amount):
Land $ 1,231 $ 1,331
Shopping centers 4,485 4,959
Undeveloped land 5,350 5,452
--------- ---------
Properties held for sale $ 11,066 $ 11,742
========= =========
6
(b) Real Estate with a net book value of $658.0 million, at September 30, 2002,
is pledged as collateral for borrowings (see Note 7).
(6) MORTGAGE NOTES RECEIVABLE
At September 30, 2002, the Company's mortgage notes receivable consisted of
$34.0 million collateralized by first mortgages on the recreation facilities at
three Century Village adult condominium communities in southeast Florida
(collectively, the "Recreation Notes"). The Recreation Notes provide for
self-amortizing equal monthly principal and interest payments due through 2012,
bear interest ranging from 8.84% to 13.5% per annum and contain certain
prepayment prohibitions. The Recreation Notes are pledged as collateral for
certain borrowings (see Note 7).
(7) BORROWINGS
Borrowings consist of (in thousands):
September 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. 170,025 176,758
Mortgage notes payable through August 2003
under $155 million credit facility,
interest at one month LIBOR (1.81% at
September 30, 2002) plus a spread of 2.45%
to 2.95%, collateralized by mortgages on
thirteen shopping centers. 66,098 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. 63,345 63,846
Collateralized Mortgage Obligations, net of
unamortized discount of $186,000 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. 19,261 21,805
-------- --------
Totals $500,429 $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 all 11,155 outstanding Series A-1
Increasing Rate Cumulative Convertible Preferred Shares for $6.0 million plus
costs.
7
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, $1.0 million for the purchase of a
free standing building in Plymouth Meeting, Pennsylvania, 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended September 30, 2002 and 2001
Net Income
For the quarter ended September 30, 2002, net income to holders of common shares
of beneficial interest was $2.7 million or $.13 per common share compared to
$2.4 million or $.13 per common share for the same period of 2001.
During the quarter ended September 30, 2002, rent revenue and operating expenses
increased by $946,000 and $854,000, respectively (a net rental income increase
of $92,000). The rent revenue increase is primarily due to increased rentals in
the existing portfolio in the amount of $312,000 and $977,000 in rents from the
acquisition of two shopping centers on December 27, 2001 and April 26, 2002,
offset by tenant bankruptcies in the amount of $343,000. Operating expenses
increased during the third quarter of 2002 primarily due to higher operating
expenses in the existing portfolio in the amount of $672,000 as well as the
purchase of two shopping centers with operating expense of $182,000.
Interest income decreased by $85,000 during the third 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.
Interest expense decreased by $256,000 during the third quarter of 2002
primarily as a result of a decrease in interest rates on the Company's variable
rate debt, $133,000, and the repayment of borrowings, $367,000, offset by an
increase in interest rate expense of $244,000 due to the assumption of debt in
the acquisition of a shopping center on December 27, 2001.
Depreciation and amortization increased by $372,000 due to additional expenses
incurred in the amount of $225,000 as a result of capital expenditures and
additional expense of $147,000 as a result of the acquisition of two shopping
centers on December 27, 2001 and April 26, 2002.
Net income from discontinued operations was $210,000 for the third quarter of
2002 compared to $37,000 for the third quarter of 2001. The 2002 amount includes
income from the operations of the property sold and properties held for sale of
$226,000. The 2001 amount consisted of a loss from the sale of real estate in
the amount of ($119,000) and income from the operations of properties sold and
properties held for sale of $159,000. The 2001 amount includes the net income
from properties sold in 2001 and 2002, as well as the properties held for sale.
8
Nine Months Ended September 30, 2002 and 2001
For the nine months ended September 30, 2002, net income to common shareholders
of beneficial interest was $8.2 million or $.41 per common share compared to
$12.3 million or $.65 per common share for the same period of 2001.
During the nine months ended September 30, 2002, rent revenue and operating
expenses increased by $1.8 million and $507,000, respectively (a net rental
income increase of $1.3 million). The rent revenue increase is primarily due to
increased rentals in the existing portfolio in the amount of $800,000 and $2.4
million in rents from the acquisition of two shopping centers on December 27,
2001 and April 26, 2002, offset by tenant bankruptcies in the amount of $1.4
million. Operating expenses increased during the nine months ended September 30,
2002 primarily due to the purchase of two shopping centers.
Interest income decreased by $350,000 during the first nine 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 $929,000 during the first nine months of 2002
primarily as a result of a decrease in interest rates on the Company's variable
rate debt, $912,000, and the repayment of borrowings, $749,000, offset by an
increase in interest rate expense of $732,000 due to the assumption of debt in
the acquisition of a shopping center on December 27, 2001.
Depreciation and amortization increased by $1.2 million primarily due to
additional expense of $821,000 as a result of capital expenditures and the
additional expense of $379,000 as a result of the acquisition of two shopping
centers on December 27, 2001 and April 26, 2002.
General and administrative expenses decreased by $392,000 principally due to a
decrease in performance related bonuses.
Net income from discontinued operations was $104,000 for the first nine months
of 2002 compared to $4.5 million for the first nine months of 2001. The 2002
amount consisted of a gain from the sale of real estate in the amount of
$212,000 and a loss from the operations of properties sold and properties held
for sale of ($101,000). The 2001 amount consisted of a gain from the sale of
real estate in the amount of $1.5 million and income from the operations of
properties sold and properties held for sale of $3.4 million. The 2001 amount
includes the net income from properties sold in 2001 and 2002, as well as the
properties held for sale.
Funds From Operations
Funds From Operations ("FFO"), as defined by the National Association of Real
Estate Investment Trusts (NAREIT), consists of net income (computed in
accordance with generally accepted accounting principles) before depreciation
and amortization of real property, extraordinary items and gains and losses on
sales of real estate.
9
The following schedule reconciles FFO to net income (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net income to common shareholders $ 2,698 $ 2,441 $ 8,164 $ 12,302
Depreciation and amortization of real
property (including unconsolidated affiliates) * 4,044 3,756 11,901 11,100
(Gain) loss on sale of real estate* -- 112 (196) (1,400)
-------- -------- -------- --------
FFO $ 6,742 $ 6,309 $ 19,869 $ 22,002
======== ======== ======== ========
* 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 $20.9 million for the nine months ended
September 30, 2002 and for the comparable period in 2001.
Net cash used in investing activities for the nine months ended September 30,
2002 was $13.5 million compared to $1.1 million provided by investing activities
for the same period in 2001. The 2002 amounts reflect $9.4 million used for the
acquisition of real estate and $6.5 million of capital improvements offset by
$1.3 million of collections on mortgage notes receivable and net proceeds from
the sale of real estate in the amount of $988,000. The 2001 amounts reflect $9.7
million of capital improvements, as well as payments of $417,000 towards accrued
acquisition costs, offset by $1.3 million of collections on mortgage notes
receivable and $10.2 of net proceeds from the sale of real estate.
Net cash used in financing activities was $10.6 million for the nine months
ended September 30, 2002 compared to $25.3 million used in the same period in
2001. The 2002 amounts consist of cash distributions of $24.7 million to
shareholders and $1.5 million to minority interests, $12.9 million repayment of
borrowings, and $6.1 million for the repurchase of Series A-1 Increasing Rate
Cumulative Convertible Preferred Shares, partially offset by proceeds of $31.3
million from the sale 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. The 2001 amounts consist of $11.5
million repayment of borrowings, cash distributions of $23.9 million to
shareholders and $1.3 million to minority interests, partially offset by
$691,000 from the issuance of common shares of beneficial interest due to
options exercised and $10.7 million of proceeds from borrowings.
10
Borrowings
At September 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
$4.2 $340.1 $31.5 $124.6
At September 30, 2002, borrowings were $500.4 million. Scheduled principal
payments over the remainder of this year and the next four years are $375.8
million with $124.6 million due thereafter. Borrowings consist of $416.3 million
of fixed rate indebtedness, with a weighted average interest rate of 7.68% at
September 30, 2002, and $84.1 million of variable rate indebtedness with a
weighted average interest rate of 4.97% at September 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 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 September 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 September 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
11
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. On October 23,
2002, the Company obtained a commitment from Metropolitan Life Insurance Company
(the "Commitment") for a loan in the amount of $190.0 million to replace the
Mortgage Loan at maturity in June, 2003. The terms of the Commitment are for ten
years with a weighted average interest rate of 6.12%, interest only for the
first two years, with amortization for the remainder of the loan term. The
closing of the loan under the Commitment is subject to certain closing
conditions.
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 $63.3 million
as of September 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 September 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 these mortgage loans have fixed interest rates ranging from
6.08% to 9.38%. The outstanding principal balance on these mortgage loans at
September 30, 2002 was approximately $152.0 million. Three mortgage loans with
an outstanding principal balance at September 30, 2002 of $3.0 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 September 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 September 30, 2002 of $5.3 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, 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 19.3 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 September 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 September 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.
12
On May 15, 2002, the Company purchased all 11,155 outstanding Series A-1
Increasing Rate Cumulative Convertible Preferred Shares for $6.0 million plus
costs.
On May 16, 2002, under the Shelf Registration, the Company sold 2.3 million of
its common shares of beneficial interest for proceeds of $31.3 million 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, $1.0 million for the
purchase of a free standing building in Plymouth Meeting, Pennsylvania, 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.
Subsequent Events
On October 23, 2002, the Company obtained a commitment from Metropolitan Life
Insurance Company (the "Commitment") for a loan in the amount of $190.0 million
to replace the $181.7 million Mortgage Loan that matures in June 2003. The terms
of the Commitment are for ten years with a weighted average interest rate of
6.12%, interest only for the first two years, with amortization based on a 30
year schedule for the remaining eight years of the loan term. The closing of the
loan under the Commitment is subject to certain closing conditions.
INFLATION
During recent years, the rate of inflation has remained at a low level and has
had minimal impact on the Company's operating results.
Most of the tenant leases contain provisions designed to lessen the impact of
inflation. These provisions include escalation clauses which generally increase
rental rates periodically 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).
13
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 $500.4
million of debt outstanding as of September 30, 2002 of which $416.3 million, or
83.19%, 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
September 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; risks of disposition of real estate held
for sale; 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the filing date of this report, the
Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure
controls and
14
procedures pursuant to Exchange Act Rules 13a-14(c) and 15-d-14(c).
Based upon that evaluation, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective. Disclosure controls and
procedures are controls and procedures that are designed to ensure
that information required to be disclosed in Company reports filed
or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls
subsequent to the date the Company carried out our last evaluation
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:
(a) Exhibits:
EXHIBIT NO. DOCUMENT
99.1 Certification by Chief Executive Officer of
Kramont Realty Trust pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer of
Kramont Realty Trust pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Form 8-K
On April 18, 2002, the Company filed a Current Report on Form
8-K, reporting under
15
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.
On August 12, 2002, the Company filed a Current Report on Form 8-K,
reporting under Item 7 - "Financial Statements and Exhibits" and
Item 9 - "Regulation FD Disclosure" copies of the certifications
required by Section 906 of the Sarbanes-Oxley Act of 2002.
16
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)
November 6, 2002 /s/ Louis P. Meshon, Sr.
-----------------------------------------
Louis P. Meshon Sr., President
November 6, 2002 /s/ Etta M. Strehle
-----------------------------------------
Etta M. Strehle, Chief Accounting Officer
November 6, 2002 /s/ Carl E. Kraus
-----------------------------------------
Carl E. Kraus, Chief Financial Officer
and Treasurer
17
CERTIFICATIONS
I, Louis P. Meshon, Sr., President and Chief Executive Officer of Kramont Realty
Trust, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kramont Realty
Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present on all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13-a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or nor material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
November 6, 2002 /s/ Louis P. Meshon, Sr.
--------------------------------------
Louis P. Meshon Sr., President
18
CERTIFICATIONS
I, Carl E. Kraus, Chief Financial Officer of Kramont Realty Trust, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Kramont Realty
Trust;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present on all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13-a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or nor material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
November 6, 2002 /s/ Carl E. Kraus
--------------------------------------
Carl E. Kraus, Chief Financial Officer
and Treasurer
19