UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
Commission File Number 1-11478
KRANZCO REALTY TRUST
(Exact Name of Registrant as Specified in Charter)
Maryland
(State of Other Jurisdiction of
Incorporation or Organization)
23-2691327
(IRS Employer Identification No.)
128 Fayette Street, Conshohocken, Pennsylvania 19428
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code
(610) 941-9292
N/A
Former Name, Former Address and Former Fiscal Year, if Changes Since
Last Report.
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 [ ]
<PAGE>
KRANZCO REALTY TRUST
QUARTERLY REPORT FOR THE PERIOD ENDED
JUNE 30, 1996
INDEX
PART I. PAGE
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Mortgages and Notes Payable 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Shopping center properties owned, at cost
Land $75,787,000 $75,386,000
Buildings and improvements 293,308,000 292,687,000
------------- -------------
369,095,000 368,073,000
------------- -------------
Less-accumulated depreciation 30,199,000 25,152,000
338,896,000 342,921,000
Cash and cash equivalents 2,910,000 6,129,000
Marketable securities 7,488,000 273,000
Capital reserve improvement fund 0 216,000
Rents and other receivables, net of allowance of
$1,046,000 and $831,000, June 30, 1996 and December 31, 1995 9,681,000 8,282,000
Prepaid expenses 1,305,000 1,875,000
Deferred financing costs, net of accumulated amortization of $51,000,
and $7,633,000, June 30, 1996 and December 31, 1995 1,828,000 10,071,000
Other deferred costs, net of accumulated amortization of $648,000,
and $496,000, June 30, 1996 and December 31, 1995 1,799,000 1,688,000
Other assets 1,002,000 1,528,000
------------- -------------
Total assets $364,909,000 $372,983,000
============= =============
LIABILITIES:
Mortgages and notes payable $212,840,000 $204,247,000
Tenant security deposits 1,102,000 1,129,000
Accounts payable and accrued expenses 2,700,000 1,875,000
Other liabilities 304,000 756,000
Distributions payable 5,100,000 5,094,000
------------- -------------
Total liabilities 222,046,000 213,101,000
COMMITMENTS AND CONTINGENCIES
BENEFICIARIES' EQUITY:
Shares of beneficial interest, $0.01 par value; authorized 100,000,000
shares; issued and outstanding, 11,155 preferred shares, June 30,
1996 and December 31, 1995; 10,323,926 and 10,322,858 common shares
June 30, 1996 and December 31, 1995, respectively 104,000 104,000
Capital in excess of par value 186,992,000 186,914,000
Cumulative net income available for common shareholders 22,814,000 30,029,000
Cumulative distributions on common shares of beneficial interest (66,971,000) (57,061,000)
------------- -------------
142,939,000 159,986,000
Unearned compensation on restricted shares of beneficial interest (76,000) (104,000)
------------- -------------
Total beneficiaries' equity 142,863,000 159,882,000
Total liabilities and beneficiaries' equity $364,909,000 $372,983,000
============= =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
-------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Minimum rent $10,391,000 $10,215,000 $20,968,000 $19,301,000
Percentage rent 196,000 255,000 443,000 460,000
Expense reimbursements 2,713,000 2,439,000 6,223,000 5,146,000
Interest income 216,000 219,000 441,000 445,000
Other 43,000 44,000 62,000 77,000
-------------- ------------- ------------- -------------
Total revenues $13,559,000 $13,172,000 $28,137,000 $25,429,000
-------------- ------------- ------------- -------------
EXPENSES:
Interest $4,230,000 $4,125,000 8,511,000 7,518,000
Depreciation and amortization 2,842,000 2,748,000 5,714,000 5,268,000
Real estate taxes 1,514,000 1,451,000 2,959,000 2,828,000
Operations and maintenance 1,995,000 1,670,000 5,184,000 3,424,000
General and administrative 824,000 791,000 1,523,000 1,522,000
-------------- ------------- ------------- -------------
Total expenses 11,405,000 10,785,000 23,891,000 20,560,000
-------------- ------------- ------------- -------------
NET INCOME BEFORE EXTRAORDINARY ITEMS 2,154,000 2,387,000 4,246,000 4,869,000
Extraordinary loss on debt refinancing 11,052,000 0 11,052,000 0
Extraordinary loss on sale of real
estate 0 0 63,000 0
-------------- ------------- ------------- -------------
NET INCOME (LOSS) (8,898,000) 2,387,000 (6,869,000) 4,869,000
Preferred Share Distribution 174,000 139,000 347,000 139,000
-------------- ------------- ------------- -------------
NET INCOME (LOSS) FOR COMMON
SHAREHOLDERS (9,072,000) 2,248,000 (7,216,000) 4,730,000
============== ============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE
OF BENEFICIAL INTEREST ($0.88) $0.22 ($0.70) $0.46
============== ============= ============= =============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the six For the six
months ended months ended
June 30, 1996 June 30, 1995
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($6,869,000) $4,869,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,714,000 5,268,000
Amortization of deferred interest costs 675,000 894,000
Amortization of unearned compensation on restricted shares of
beneficial interest 28,000 0
Loss on sale of real estate 63,000 0
Loss on refinancing 11,052,000 0
Changes in assets and liabilities:
(Increase ) decrease in-
Rents and other receivables (1,399,000) (777,000)
Prepaid expenses 570,000 345,000
Other assets (61,000) (194,000)
Increase (decrease) in-
Accounts payable and accrued expenses 825,000 (217,000)
Tenant security deposits (27,000) 173,000
Other liabilities (452,000) (229,000)
------------- -------------
Net cash provided by operating activities 10,119,000 10,132,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in shopping center properties (1,022,000) (3,177,000)
Proceeds from sale of real estate 524,000 0
Increase(decrease) in marketable securities (7,215,000) 244,000
Decrease in capital reserve improvement fund 216,000 359,000
Increase in deferred costs (262,000) (210,000)
------------- -------------
Net cash used in investing activities (7,759,000) (2,784,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid on common shares of beneficial interest (9,910,000) (9,903,000)
Distributions paid on preferred shares (278,000) 0
Issuance of common stock, net 16,000 0
Proceeds from sale of interest rate protection agreements 3,935,000 0
Proceeds of mortgages and notes payable 181,700,000 3,500,000
Repayments of mortgages and notes payable (179,250,000) (547,000)
Increase in deferred costs (1,792,000) (109,000)
------------- -------------
Net cash used in financing activities (5,579,000) (7,059,000)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,219,000) 289,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,129,000 3,924,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,910,000 $4,213,000
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accretion of discount on increasing rate preferred shares $62,000 $27,000
============= =============
Preferred shares issued as part of the purchase price for the
acquisition of real estate, subject to liabilities assumed as follows:
Net assets acquired - $44,969,000
Liabilities assumed, primarily mortgages - 36,966,000
------------- -------------
- $8,003,000
============= =============
<FN>
The Company declared a distribution of $0.48 per common share, payable to shareholders of
record as of June 26, 1996. The distribution of $4,955,000 was paid on July 17, 1996.
The Company declared a distribution of $0.48 per common share, payable to shareholders of
record as of June 28, 1995. The distribution of $4,951,000 was paid on July 13, 1995.
The Company recorded the quarterly distribution on the preferred shares as of June 30, 1996.
The distribution of $145,000 was paid on July 1, 1996.
The Company recorded the quarterly distribution on the preferred shares as of June 30, 1995.
The distribution of $112,000 was paid on July 3, 1995.
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Beneficiaries' Equity
For the years ended December 31, 1994 and 1995
For the six months ended June 30, 1996
<CAPTION>
Unearned
Cumulative Compensation
Preferred Cumulative Distributions on
Common Preferred Shares of Capital Net Income on Common Restricted
Shares of Shares of Beneficial In Excess Available Shares of Shares of
Beneficial Par Beneficial Interest of for Common Beneficial Beneficial
Interest Value Interest Par Value Par Value Shareholders Interest Interest
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $10,315,497 $103,000 0 $0 $178,712,000 $10,770,000 ($17,648,000) $0
Net income - - - - - 9,867,000 - -
Distributions
($1.90 per share) - - - - - - (19,600,000) -
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
BALANCE, DECEMBER 31, 1994 10,315,497 103,000 0 0 178,712,000 20,637,000 (37,248,000) 0
Issuance of shares 8,062 - - - 145,000 - - (104,000)
Forfeiture of common shares (701) - - - (14,000) - - -
Issuance of preferred
shares, net - - 11,155 1,000 7,976,000 - - -
Accretion of discount on
preferred shares - - - - 95,000 (95,000) - -
Net income - - - - - 9,877,000 - -
Distributions on preferred
shares - - - - - (390,000) - -
Distributions on common
shares of beneficial
interest
($1.92 per share) - - - - - - (19,813,000) -
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
BALANCE, December 31, 1995 10,322,858 $103,000 11,155 $1,000 $186,914,000 $30,029,000 ($57,061,000) ($104,000)
Issuance of shares 1,068 - - - 16,000 - - -
Accretion of discount on
preferred shares - - - - 62,000 (62,000) - -
Accretion of unearned
compensationon restricted
shares of
beneficial interest - - - - - - - 28,000
Net income - - - - - (6,869,000) - -
Distributions on preferred
shares - - - - - (284,000) - -
Distributions on common
shares of beneficial
interest
($0.96 per share) - - - - - - (9,910,000) -
------------ -------- ---------- ---------- ------------- ------------- -------------- -------------
BALANCE, June 30, 1996
(unaudited) 10,323,926 $103,000 11,155 $1,000 $186,992,000 $22,814,000 ($66,971,000) ($76,000)
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
KRANZCO REALTY TRUST AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
1. BASIS OF PRESENTATION:
The financial statements are unaudited but reflect all adjustments which are, in
the opinion of management, necessary to fairly present the results for the
interim periods presented. These financial statements should be read in
conjunction with the financial statements and related notes contained in the
1995 Annual Report to Shareholders. Results from any interim period are not
necessarily indicative of the results for a full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS AND NATURE OF OPERATIONS
Kranzco Realty Trust (a Maryland real estate investment trust) and its
subsidiaries ("KRT" or the "Company") are engaged in the ownership, management,
leasing, operation, acquisition, development, investment and disposition of
neighborhood and community shopping centers. In addition to its own properties,
the Company may provide management services for shopping centers owned by
third parties. As of June 30, 1996, the Company owns 38 properties in seven
Northeastern and Mid-Atlantic states.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of KRT
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the reporting
periods. The ultimate results could differ from those estimates.
REAL ESTATE
Real estate assets and improvements or replacements are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful life of thirty years for buildings and the related life of the
improvements or the related lease term. Maintenance and repairs are charged to
expense, as incurred.
CAPITALIZED INTEREST AND TAXES
Carrying charges, principally interest and taxes, of land under development and
buildings under construction are capitalized by the Company. Interest is
capitalized using an interest rate which equals a weighted average interest rate
on the Company's indebtedness. Capitalization ceases when construction
activities are completed and the property is available for occupancy by tenants
and the costs are depreciated over the estimated useful life of the property.
DEFERRED COSTS
Deferred costs relate to the organization of the Company, amounts related to
the placement of debt and costs of leasing the shopping centers. Organization
costs are amortized on a straight-line basis over five years. Financing costs
are amortized using the effective interest method over the term of the related
debt. Leasing costs are amortized on a straight-line basis over the term of the
related lease.
<PAGE>
REVENUE RECOGNITION
Minimum rental income is recognized on a straight-line basis over the term of
the lease agreements regardless of when payments are due and accrued rents are
included in rents receivable. Certain lease agreements contain provisions which
provide for additional rents based on tenants' sales volume and reimbursement of
the tenants' share of real estate taxes and certain common area maintenance
costs. These additional rents are reflected on the accrual basis.
PER SHARE DATA
Net income per share is based on the weighted average number of common shares of
beneficial interest outstanding adjusted to give effect to common share
equivalents. The weighted average number of shares used in the computations was
10,323,392 and 10,315,497 for the six months ended June 30, 1996 and 1995,
respectively.
STATEMENT OF CASH FLOWS
Cash and cash equivalents include all cash and liquid investments with original
maturities of three months or less, primarily consisting of money market
accounts and government investments. Cash paid for interest was $8,100,000 and
$6,540,000 for the six months ended June 30, 1996 and 1995, respectively.
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax return.
KRT intends to maintain its election to be taxed as a Real Estate Investment
Trust ("REIT") under Sections 856 to 860 of the Internal Revenue Code.
Accordingly, no provision for Federal income taxes has been reflected in the
financial statements. The Company is subject to a Federal excise tax computed
on a calendar year basis. The excise tax equals 4% of the excess, if any, of
85% of the Company's ordinary income plus 95% of any capital gain income for the
calendar year over cash distributions during the calendar year, as defined. No
provision for excise tax has been reflected in the financial statements as no
tax was due.
Earnings and profits, which will determine the taxability of distributions to
stockholders, will differ from net income reported for financial reporting
purposes due to the differences in the cost basis for
Federal tax purposes and in the estimated useful lives used to compute
depreciation.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
3. INDEBTEDNESS:
At June 30, 1996 and December 31, 1995, the Company had mortgages and notes
payable outstanding of $212,840,000 and $204,247,000, respectively.
In June, 1996, the Company completed a refinancing of substantially all of its
variable rate debt and a portion of its fixed rate debt with a new fixed rate
secured financing. The Company entered into a seven year, secured, fixed rate
real estate mortgage loan in the principal amount of $181,700,000 (the
"Mortgage Loan"), at a weighted average interest rate of 7.96%, which is
inclusive of trustee and servicer fees. The net proceeds of the refinancing
transaction of $177,662,000, after net costs of $4,038,000, retired the
short-term funds which repurchased the $100 million adjustable rate mortgage
loan issued in conjunction with the Company's initial public offering in
November 1992, pay off virtually all of the $60 million of additional adjustable
rate debt and extend the maturities of the Company's debt. The entire
outstanding principal balance of the certificates is due in June 2003.
The loss on refinancing of $11,052,000 includes the write off of approximately
$8,844,000 of unamortized deferred costs related to the debt instruments repaid,
as well as other costs including prepayment fees, premium paid on repurchase of
the $100 million REMIC certificates and professional
<PAGE>
fees. In connection with the repayment of the $100 million REMIC, the Company
sold its interest rate protection agreements. The proceeds received on the
sale of the agreements of approximately $3,935,000 are netted against the loss
on refinancing. Interest expense for the six months ended June 30,1996 and 1995
on the accompanying statements of operations is shown net of reimbursements of
$275,000 and $695,000, respectively, relating to the interest rate protection
agreements and capitalized interest of $122,000 and $164,000, respectively.
As a condition of the Mortgage Loan, the Company was required to establish a
Sinking Fund Account and a Capital and TI Reserve Account. On a monthly basis,
$11,000 will be deposited into a Sinking Fund Account maintained with the
Collateral Agent until the aggregate amount in the account equals or exceeds
$786,000. All funds in the Sinking Fund Account are to be returned to the
Company on the earlier of the repayment in full of the Mortgage Loan and the
date of release or substitution of the mortgaged property located in Orange, CT.
Also on a monthly basis, an amount equal to 1/12th of $0.25 per square foot of
the gross leasable area of the Mortgaged Properties will be deposited into the
Capital and 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 addition, the Company has four mortgages outstanding as of June 30, 1996
which were assumed in 1995 in connection with the acquisition of certain
shopping centers. These mortgages have maturity dates ranging from 1999 through
2004. Three of the four mortgages assumed have fixed interest rates ranging
from 8.0% to 10.5%. The outstanding principal balance on these mortgages at
June 30, 1996 was approximately $25,473,000. The other mortgage has an
interest rate payable at prime plus 1/2%. The outstanding principal balance on
this mortgage at June 30, 1996 was approximately $5,667,000.
In 1995, the Company obtained a $1.0 million unsecured line of credit from
Corestates Bank, N.A. Amounts borrowed under the line will bear interest at
that bank's prime rate. There were no outstanding borrowings under this
facility as of June 30, 1996 and the facility is renewable annually.
4. PREFERRED SHARES OF BENEFICIAL INTEREST:
In connection with the purchase of five shopping centers in April 1995, the
Company issued 11,155 shares of Series A Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest, $0.01 par value per share,
of Kranzco Realty Trust (the "Preferred Shares") at a face amount of
$11,155,000. The Preferred Shares were valued for accounting purposes based
on the fair value of the assets acquired and recorded at approximately
$7,976,000, net of issuance costs. The Preferred Shares had an initial
distribution rate of 5.0% per annum with increases of 0.25% per annum up to a
maximum rate of 6.5% per annum. As of June 30, 1996, the distribution rate on
the Preferred Shares is 5.25%. The Company recorded a discount of approximately
$467,000 at the time of issuance which represents the present value of the
difference between the total distributions to be paid in the seven year period
prior to commencement of the perpetual distribution and the perpetual
distribution amount for that same seven year period. This amount is accreted
on an effective interest method over the seven years. The Preferred Shares are
redeemable by the Company at any time at their liquidation preference and are
convertible into the Company's Common Shares of Beneficial Interest (the "Common
Shares"), 16.67% annually commencing in the fifth year, with a maximum of 50%
convertible in any one year. The Preferred Shares are convertible into that
number of Common Shares as would result in the holder receiving the same amount
of distributions from the Common Shares at the applicable conversion dates as
they received as a holder of the Preferred Shares.
<PAGE>
5. LOSS ON SALE OF REAL ESTATE:
In March 1996, the Company completed the sale of a parcel of land located in
Philadelphia, Pennsylvania. The 3.4 acre parcel of land was sold for the
purchase price of $600,000 and the Company recorded a loss of approximately
$63,000 related to the sale. The parcel of land was initially owned by a
partnership in which the Company was the General Partner.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996 the Company had $10,398,000 of cash and marketable
securities on hand.
As of June 30, 1996 the Company had total mortgages payable of $212,840,000 of
which $207,173,000 bear interest at fixed rates ranging from 7.96% to 10.5%. As
of June 30, 1996, the Company is required to make principal payments on these
fixed rate mortgages payable of $149,000 in 1996, $321,000 in 1997, $352,000 in
1998, $6,812,000 in 1999 and $365,000 in 2000.
In June, 1996, the Company successfully completed the refinancing of
substantially all of its variable rate debt and a portion of its fixed rate debt
with a new fixed rate secured financing. The Company entered into a seven
year, secured, fixed rate real estate mortgage loan in the principal amount of
$181,700,000(the "Mortgage Loan"), at a weighted average interest rate of 7.96%,
which is inclusive of trustee and servicer fees. The net proceeds of the
refinancing transaction of $177,662,000, after net costs of $4,038,000, retired
the short-term funds which repurchased the $100 million adjustable rate mortgage
loan issued in conjunction with the Company's initial public offering in
November 1992, pay off virtually all of the $60 million of additional adjustable
rate debt and extend the maturities of the Company's debt. The entire principal
balance of the certificates is due in June 2003. As a result of the
refinancing, 97% of the Company's debt is at fixed rates with a weighted average
interest rate of 8.15%. The Company recognized an extraordinary loss on
refinancing of $11,052,000 in the second quarter of 1996, primarily due to the
write off of unamortized deferred costs as well as premiums paid to repurchase
the original REMIC certificates.
As a condition of the Mortgage Loan, the Company was required to establish a
Sinking Fund Account and a Capital and TI Reserve Account. On a monthly basis,
$11,000 will be deposited into a Sinking Fund Account maintained with the
Collateral Agent until the aggregate amount in the account equals or exceeds
$786,000. All funds in the Sinking Fund Account are to be returned to the
Company on the earlier of the repayment in full of the Mortgage Loan and the
date of release or substitution of the mortgaged property located in Orange, CT.
Also on a monthly basis, an amount equal to 1/12th of $0.25 per square foot of
the gross leasable area of the Mortgaged Properties will be deposited into the
Capital and 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 addition, as of June 30, 1996, the Company had one floating rate mortgage
where the interest rate is based on the prime rate, with principal outstanding
of $5,667,000. The interest rate on the mortgage is the prime rate plus 50
basis points with the principal balance being amortized at the rate of $200,000
per year. The prime rate was 8.25% at June 30, 1996.
In 1995 the Company obtained a $1.0 million unsecured line of credit from
Corestates Bank, N.A. Amounts borrowed under the line will bear interest at the
bank's prime rate, which was 8.25% at June 30, 1996. The facility is renewable
annually as of June 30, 1996, and there were no borrowings outstanding under
this facility as of June 30, 1996.
<PAGE>
In the first six months of 1996, the Company invested approximately $1,022,000
in the expansion and improvement of existing shopping center properties. The
Company has budgeted approximately $300,000 for the balance of 1996 for capital
expenditures to expand and improve its existing portfolio of shopping centers.
The Company expects to meet its short-term liquidity requirements through net
cash flow provided from operations, existing cash, long-term or short-term
borrowings and the Capital and TI Reserve account. The Capital and TI Reserve
account may be utilized by the Company for the funding of costs related to
capital improvements, repairs, alterations, tenant improvements and leasing
commissions in the centers secured by the new REMIC. To meet its long-term
liquidity requirements, such as refinancing its balloon mortgages, financing
acquisitions and major capital improvements, the Company intends to either
utilize long-term borrowings, issue debt securities and/or offer additional
equity securities.
Management believes it has adequate access to capital to continue to meet its
short-term and long-term requirements and objectives.
RESULTS OF OPERATIONS
Net income(loss) for common shareholders decreased $11,320,000 from $2,248,000,
or $0.22 per common share, in the second quarter of 1995 to ($9,072,000), or
($0.88) per common share, in the second quarter of 1996. Excluding the
extraordinary loss on refinancing, the net income for common shareholders
decreased $268,000 or 12% from $2,248,000, or $0.22 per common share, in the
second quarter of 1995 to $1,980,000, or $0.19 per common share, in the second
quarter of 1996. Net income(loss) for common shareholders decreased $11,946,000
from $4,730,000, or $0.46 per common share, for the first six months of 1995 to
($7,216,000), or ($0.70) per common share, for the corresponding period in 1996.
Excluding the extraordinary loss on refinancing, the net income for common
shareholders decreased $894,000 or 19% from $4,730,000, or $0.46 per common
share, for the first six months of 1995 to $3,836,000, or $0.37 per common
share, for the corresponding period in 1996. Excluding the extraordinary loss
on refinancing, the decrease was primarily due to the unusually high snow
removal costs incurred in the first quarter of 1996 as a result of the severe
winter weather experienced in the Northeastern portion of the United States.
The Company also recognized a loss on the sale of real estate in the first
quarter of 1996 in connection with the sale of a 3.4 acre parcel of land located
in Philadelphia, Pennsylvania.
Funds from operations was previously defined as income before depreciation and
amortization and extraordinary items, less gains on the sale of real estate (the
"old definition"). Effective January 1, 1996, The National Association of Real
Estate Investment Trusts (NAREIT) revised the definition to income before
depreciation and amortization of real estate assets and significant
non-recurring events, less gains on sale of real estate (the "new definition").
Funds from operations does not represent cash flow from operations as defined by
generally accepted accounting principles and is not necessarily indicative of
cash flow available to fund all cash requirements. Funds from operations under
the old definition decreased $391,000 or 7% from $5,470,000 for the second
quarter of 1995 to $5,079,000 for the second quarter of 1996 and decreased
$569,000 or 5% from $10,919,000 for the first six months of 1995 to $10,350,000
for the corresponding period in 1996. Funds from operations under the new
definition decreased $146,000 or 3% from $4,731,000 for the second quarter of
1995 to $4,585,000 for the second quarter of 1996 and decreased $385,000 or 4%
from $9,455,000 for the first six months of 1995 to $9,070,000 for the first six
months of 1996.
Minimum rent increased $176,000 or 2% from $10,215,000 in the second quarter of
1995 to $10,391,000 in the second quarter of 1996 and increased $1,667,000 or 9%
from $19,301,000
<PAGE>
for the first six months of 1995 to $20,968,000 for the corresponding period in
1996. This increase was primarily due to the additional rents from the five
centers purchased by the Company in April 1995 ($1,360,000) and additional rents
from the Company's core portfolio of 33 centers owned during the first six
months of 1995 and 1996 ($306,000) which equates to a 1.6% increase.
Percentage rent decreased $59,000 or 23% from $255,000 in the second quarter of
1995 to $196,000 in the second quarter of 1996 and decreased $17,000 or 4% from
$460,000 for the first six months of 1995 to $443,000 for the corresponding
period in 1996, primarily due to the closing of the Jamesway store at the Valley
Forge Mall as well as the reduction of percentage rent amounts paid by one of
the Company's tenants currently in bankruptcy.
Expense reimbursements increased $274,000 or 11% from $2,439,000 in the second
quarter of 1995 to $2,713,000 in the second quarter of 1996 and increased
$1,077,000 or 21% from $5,146,000 for the first six months of 1995 to $6,223,000
for the corresponding period in 1996. The increase for the quarter was
primarily due to the acquisition of the five centers purchased in April 1995 and
the increased recovery of common area maintenance expenses for the six months
was due to the unusually high snow removal costs incurred as a result of the
severe winter experienced in the first quarter of 1996 in the Northeastern
portion of the United States.
Interest expense increased $105,000 or 3% from $4,125,000 in the second quarter
of 1995 to $4,230,000 in the second quarter of 1996 and increased $993,000 or
13% from $7,518,000 for the first six months of 1995 to $8,511,000 for the
corresponding period in 1996. These increases are primarily due to the interest
on mortgages on centers purchased in 1995. Interest expense was offset by
capitalized interest of $84,000 and $61,000 for the second quarter of 1995 and
1996, respectively, and $164,000 and $122,000 for the first six months of 1995
and 1996, respectively.
Depreciation and amortization increased $94,000 or 3% from $2,748,000 in 1995 in
the second quarter to $2,842,000 in the second quarter of 1996 and increased
$446,000 or 8% from $5,268,000 for the first six months of 1995 to $5,714,000
for the corresponding period in 1996, primarily due to the acquisition of the
five centers in April 1995 as well as the additional depreciation recorded for
building and tenant improvements completed in the second half of 1995 and the
first half of 1996.
Real estate taxes increased $63,000 or 4% from $1,451,000 in the second quarter
of 1995 to $1,514,000 in the second quarter of 1996 and increased $131,000 or 5%
from $2,828,000 for the first six months of 1995 to $2,959,000 for the
corresponding period in 1996 primarily due to the acquisition of five centers
during 1995. Real estate tax expense was offset by capitalized real estate taxes
of $35,000 and $32,000 for the second quarter of 1995 and 1996, respectively,
and $73,000 and $64,000 for the first six months of 1995 and 1996, respectively.
Operations and maintenance expenses increased $325,000 or 19% from $1,670,000 in
the second quarter of 1995 to $1,995,000 in the second quarter of 1996 and
increased $1,760,000 or 51% from $3,424,000 for the first six months of 1995 to
$5,184,000 for the corresponding period in 1996. This increase was primarily
due to the unusually high snow removal costs incurred as a result of the severe
winter experienced in the first quarter of 1996 in the Northeast portion of the
United States (approximately $1 million), as well as the additional costs
incurred at the five centers acquired in 1995 (approximately $595,000).
General and administrative expenses increased $33,000 or 4% from $791,000 in the
second quarter of 1995 to $824,000 in the second quarter of 1996 and increased
$1,000 from $1,522,000 for the first six months of 1995 to $1,523,000 for the
corresponding period in 1996.
<PAGE>
INFLATION
Most of the retail tenant leases at the shopping center properties contain
provisions which will entitle the Company to receive percentage rents based on
the tenant's gross sales. Such percentage rents minimize the risk to the Company
of the adverse effects of inflation. Most of the leases at the shopping center
properties require the tenants to pay a substantial share of operating expenses,
such as real estate taxes, insurance and common area maintenance costs, and
thereby
reduce the Company's exposure to increased costs. In addition, many of the
leases at the shopping center properties are for terms of less than ten years,
which may enable the Company to seek increased rents upon renewal of existing
leases.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None
Item 3. Defaults upon Mortgages and Notes Payable
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.
<PAGE>
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.
KRANZCO REALTY TRUST
Date: August 12, 1996 /S/ Norman M. Kranzdorf
Chief Executive Officer and President
Date: August 12, 1996 /S/Robert H. Dennis
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 2,910,000
<SECURITIES> 7,488,000
<RECEIVABLES> 10,727,000
<ALLOWANCES> 1,046,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,305,000
<PP&E> 369,095,000
<DEPRECIATION> 30,199,000
<TOTAL-ASSETS> 364,909,000
<CURRENT-LIABILITIES> 8,104,000
<BONDS> 212,840,000
<COMMON> 134,729,000
0
8,134,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 364,909,000
<SALES> 0
<TOTAL-REVENUES> 28,137,000
<CGS> 0
<TOTAL-COSTS> 15,727,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,511,000
<INCOME-PRETAX> 0
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<EXTRAORDINARY> 11,115,000
<CHANGES> 0
<NET-INCOME> (7,216,000)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> (.70)
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