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 March 31, 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
MARCH 31, 1996
INDEX
PART I. PAGE
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
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>
PART I
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1996 1995
- - ------------ ------------
(Unaudited)
<S>
<C> <C>
ASSETS:
Shopping center properties owned, at cost
Land
$ 75,478,000 $ 75,386,000
Buildings and improvements
292,799,000 292,687,000
- - ------------ ------------
368,277,000 368,073,000
Less-accumulated depreciation
27,670,000 25,152,000
- - ------------ ------------
340,607,000 342,921,000
Cash and cash equivalents
5,063,000 6,129,000
Marketable securities
273,000 273,000
Capital reserve improvement fund
219,000 216,000
Rents and other receivables, net of allowance of
$1,015,000 and $831,000, March 31,1996 and December 31, 1995
9,591,000 8,282,000
Prepaid expenses
1,888,000 1,875,000
Deferred financing costs, net of accumulated amortization of $8,371,000,
and $7,633,000, March 31,1996 and December 31, 1995
9,417,000 10,071,000
Other deferred costs, net of accumulated amortization of $559,000,
and $496,000, March 31,1996 and December 31, 1995
1,791,000 1,688,000
Other assets
970,000 1,528,000
- - ------------ ------------
Total assets
$369,819,000 $372,983,000
============ ============
LIABILITIES:
Mortgages and notes payable
$203,811,000 $204,247,000
Tenant security deposits
1,110,000 1,129,000
Accounts payable and accrued expenses
2,100,000 1,875,000
Other liabilities
873,000 756,000
Distributions payable
5,094,000 5,094,000
- - ------------ ------------
Total liabilities
212,988,000 213,101,000
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, March 31, 1996 and
December 31, 1995; 10,322,858 common shares March 31, 1996 and
December 31, 1995, respectively
104,000 104,000
Capital in excess of par value
186,947,000 186,914,000
Cumulative net income available for common shareholders
31,886,000 30,029,000
Cumulative distributions on common shares of beneficial interest
(62,016,000) (57,061,000)
- - ------------ ------------
156,921,000 159,986,000
Unearned compensation on restricted shares of beneficial interest
(90,000) (104,000)
- - ------------ ------------
Total beneficiaries' equity
156,831,000 159,882,000
Total liabilities and beneficiaries' equity
$369,819,000 $372,983,000
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
For the three
For the three
months ended
months ended
March 31, 1996
March 31, 1995
--------------
- - --------------
(Unaudited)
(Unaudited)
<S> <C>
<C>
REVENUES:
Minimum rent $10,577,000
$ 9,086,000
Percentage rent 247,000
205,000
Expense reimbursements 3,510,000
2,707,000
Interest income 225,000
226,000
Other 19,000
33,000
-----------
- - -----------
Total revenues 14,578,000
12,257,000
-----------
- - -----------
EXPENSES:
Interest 4,281,000
3,393,000
Depreciation and amortization 2,872,000
2,520,000
Real estate taxes 1,445,000
1,377,000
Operations and maintenance 3,189,000
1,754,000
General and administrative 699,000
731,000
-----------
- - -----------
Total expenses 12,486,000
9,775,000
-----------
- - -----------
NET INCOME BEFORE LOSS ON SALE OF REAL ESTATE 2,092,000
2,482,000
Loss on sale of real estate 63,000
0
-----------
- - -----------
NET INCOME 2,029,000
2,482,000
Preferred Share Distribution 173,000
0
NET INCOME FOR COMMON SHAREHOLDERS $ 1,856,000
$ 2,482,000
===========
===========
NET INCOME PER COMMON SHARE OF BENEFICAL INTEREST $0.18
$0.24
===========
===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Beneficiaries' Equity
For the years ended December 31, 1994 and 1995
For the three months ended March 31, 1996
<CAPTION>
Unearned
Cumulative Cumulative Compensation
Common Preferred
Net Distributions on
Shares Preferred Shares of
Capital Income on Common Restricted
of Shares of Beneficial
In Excess Available Shares of Shares of
Beneficial Par Beneficial Interest
of Par for Common Beneficial Beneficial
Interest Value Interest Par Value
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)
Accretion of discount on preferred
shares - - - -
33,000 (33,000) - -
Accretion of unearned compensation
on restricted shares of
beneficial interest - - - -
- - - - - 14,000
Net income - - - -
- - - 2,029,000 - -
Distributions on preferred shares - - - -
- - - (139,000) - -
Distributions on common shares
of beneficial interest
($0.48 per share) - - - -
- - - - (4,955,000) -
---------- -------- ------ ------
- - ------------ ----------- ------------- ----------
BALANCE, March 31, 1996 10,322,858 $103,000 11,155 $1,000
$186,947,000 $31,886,000 ($62,016,00) ($90,000)
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the three
For the three
months ended
months ended
March 31,
1996 March 31, 1995
- - -------------- --------------
(Unaudited)
(Unaudited)
<S> <C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,029,000
$2,482,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,872,000
2,520,000
Amortization of deferred interest costs 447,000
447,000
Amortization of unearned compensation on restricted
shares of beneficial interest 14,000
0
Loss on sale of real estate 63,000
0
Payment of trustees' fees in common shares of
beneficial interest 16,000
0
Changes in assets and liabilities:
(Increase ) decrease in-
Rents and other receivables
(1,309,000) (693,000)
Prepaid expenses
(13,000) 17,000
Other assets
(29,000) 20,000
Increase (decrease) in-
Accounts payable and accrued expenses 209,000
(729,000)
Tenant security deposits
(19,000) (28,000)
Other liabilities 117,000
211,000
- - -------------- --------------
Net cash provided by operating activities 4,397,000
4,247,000
- - -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in shopping center properties
(204,000) (686,000)
Proceeds from sale of real estate 524,000
0
Decrease in marketable securities 0
244,000
(Increase)decrease in capital reserve improvement fund
(3,000) 739,000
Increase in deferred costs
(165,000) (61,000)
- - -------------- --------------
Net cash provided by investing activities 152,000
236,000
- - -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid on common shares of beneficial interest
(4,955,000) (4,951,000)
Distributions paid on preferred shares
(139,000) 0
Proceeds of mortgages and notes payable 0
2,500,000
Repayments of mortgages and notes payable
(436,000) (180,000)
Increase in deferred costs
(85,000) (16,000)
- - -------------- --------------
Net cash used in financing activities
(5,615,000) (2,647,000)
- - -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(1,066,000) 1,836,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,129,000
3,924,000
- - -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $5,063,000
$5,760,000
============== ==============
<FN>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company declared a distribution of $0.48 per share, payable to
shareholders of
record as of March 29, 1996. The distribution of $4,955,000 was paid on April
17, 1996.
The Company declared a distribution of $0.48 per share, payable to
shareholders of
record as of March 28, 1995. The distribution of $4,951,000 was paid on April
13, 1995.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
KRANZCO REALTY TRUST AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 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 10,322,858 and 10,315,497 for the three months ended March 31, 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
$3,806,000 and $3,040,000 for the three months ended March 31, 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. ORGANIZATION AND PUBLIC OFFERINGS OF SHARES OF BENEFICIAL INTEREST:
The Company completed its initial public offering of shares of beneficial
interest and commenced operations on November 19, 1992. In 1993, the Company
issued 2.25 million common shares of beneficial interest to the public at a
price of $24 per share which resulted in net proceeds of approximately
$50,500,000. The Company used a portion of the net proceeds to repay the
outstanding acquisition indebtedness from Nomura Asset Capital Corporation of
$24,100,000. In addition, the Company purchased additional interest rate
protection for the $100,000,000 Mortgage Loan for $1,660,000 and funded
$2,000,000 into the cash capital reserve improvement fund for such loan (see
Note 3).
4. INDEBTEDNESS:
At March 31, 1996 and December 31, 1995, the Company had mortgages and notes
payable outstanding of $203,811,000 and $204,247,000, respectively.
Concurrent with the initial public offering, one of the Company's subsidiaries,
KRT Property Holdings, Inc., borrowed $100,000,000 and issued a mortgage (the
"Mortgage Loan") to KRT Mortgage Securities Trust, a Real Estate Mortgage
Investment Conduit
<PAGE>
(the "REMIC"). The net proceeds of approximately $88,144,000, after costs of
approximately
$11,856,000 including $7,500,000 for interest rate protection agreements, were
used to acquire certain shopping centers. Interest is payable monthly at the
90-day London Interbank Offering Rate
("LIBOR") plus 200 basis points. The rate is reset quarterly on February 10,
May 10, August 10 and November 10 of each year until maturity. During 1993,
KRT purchased additional interest rate protection for $1,660,000 which further
limits its exposure to increases in LIBOR, resulting in Mortgage Loan interest
rates limited to:
November, 1995 to November, 1996 6.75%
November, 1996 to November, 1997 6.75%
November, 1997 to November, 1998 8.75%
November, 1998 to November, 1999 8.75%
November, 1999 to November, 2000 10.25%
November, 2000 to November, 2001 10.25%
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate protection agreements. However, the
Company does not anticipate nonperformance by the counterparties. During 1996
and 1995, increases in LIBOR resulted in mortgage loan interest rates above
limits provided by the interest rate protection agreements. Interest expense
for the three months ended March 31, 1996 and 1995 on the accompanying
statements of operations is shown net of reimbursements of $206,000 and
$325,000, respectively, relating to the interest rate protection agreements
and capitalized interest of $60,000 and $80,000, respectively.
The Mortgage Loan is nonrecourse and principal payments are due as follows:
$41,700,000 in 1999, $41,700,000 in 2000 and $16,600,000 in 2001. The
effective interest rate payable on the Mortgage Loan was 6.75% at March 31,
1996 and December 31, 1995, respectively.
As a condition of the Mortgage Loan, KRT was required to establish a capital
reserve improvement fund. Furthermore, if the adjusted net operating income,
as defined, of the twenty-one properties pledged as collateral for the Mortgage
Loan falls below $20,000,000 for any four consecutive quarters,
KRT must increase the reserve by $3,000,000 at the rate of $750,000 each
quarter. If KRT subsequently increases net operating income to $22,000,000,
the reserve may be reduced to the original $3,000,000 amount. The reserve may
be used to fund costs related to leasing, installation of tenants and capital
improvements. As of March 31, 1996, the Company was in compliance with these
covenants and no additional reserve is required.
The REMIC issued two types of certificates: Series A-1 Commercial Mortgage
Modified Pass-Through Principal/Interest Certificates (the "Series A-1
Certificates") and Series A-2 Commercial Mortgage
Modified Pass-Through Interest-Only Certificates (the "Series A-2
Certificates"). The Series A-1 Certificates entitle the holder to principal
payments of $100,000,000 and interest at LIBOR plus 135 basis points (see Note
7). The Series A-2 Certificates provide for payments of interest only at 65
basis points calculated on a notional amount of $100,000,000. On February 23,
1993, the Company purchased all of the outstanding Series A-2 Certificates for
$3,000,000. This cost is being amortized using the effective interest method
over the remaining life of the Mortgage Loan.
Other secured mortgages and notes payable are nonrecourse and are payable in
installments over various terms through 2004 at interest rates ranging from
6.00% to 10.50% as of March 31, 1996.
In April 1995, the Company assumed mortgages payable of approximately
$36,900,000 in connection with the acquisition of five shopping centers. These
mortgages have maturity dates ranging from 1996 through 2004. Three of the
five mortgages assumed have fixed interest rates ranging from 8.0% to
<PAGE>
10.5%. The outstanding principal balance on these mortgages at March 31, 1996
was approximately $25,546,000. The other two mortgages assumed have interest
rates payable at prime plus 1% and prime plus 1/2%, respectively. The
outstanding principal balance on these mortgages at March 31, 1996 was
approximately $10,382,000.
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. The outstanding borrowings under this facility was
$500,000 as of March 31, 1996. The principal is due at maturity on June 30,
1996 and the facility is renewable annually.
During 1994, the Company obtained a $7,000,000 secured line of credit from
Nomura Asset Capital Corporation. As of March 31, 1996, the Company has
fully utilized this line to fund improvements at various centers and to
acquire a parcel of land adjacent to the Barn Plaza Shopping Center. Interest
is payable at 30-day LIBOR plus 250 basis points, if the borrowing is less
than 80% of the purchase price, or 450 basis points if the borrowing is equal
to or greater than 80% of the purchase price. The principal is due at
maturity on June 30, 1996.
In 1993 the Company obtained a $50,000,000 secured line of credit from Nomura
Asset Capital Corporation for acquisitions. Interest is payable at 30-day
LIBOR plus 250 basis points, if the borrowing is less than 80% of the purchase
price, or 450 basis points if the borrowing is equal
to or greater than 80% of the purchase price. The outstanding principal
balance of this line of credit was $23,000,000 at March 31, 1996 and December
31, 1995, respectively. The principal is due at maturity on June 30, 1996.
The Company is currently seeking to refinance its maturing debt and believes
they will successfully complete a transaction(s) at market rates. Upon
refinancing, the Company will write off any existing unamortized deferred
financing costs (see Note 7).
5. 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 have 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. 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.
6. 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>
7. SUBSEQUENT EVENT:
In April 1996, the Company repurchased $97 million of the $100 million
Series A-1 Certificates in preparation for a new fixed rate secured financing.
The Company believes that the new proposed financing will be completed before
the close of the second quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
As of March 31, 1996 the Company had $5,336,000 of cash and marketable
securities on hand in addition to $219,000 in the cash capital reserve
improvement fund established pursuant to the terms of the $100,000,000 Mortgage
Loan (the "Mortgage Loan").
As of March 31, 1996 the Company had total mortgages payable of
$203,811,000 of which $37,624,000 bear interest at fixed rates ranging from
6.0% to 10.5%. As of March 31, 1996, the Company is required to make principal
payments on these fixed rate mortgages payable of $6,759,000 in 1996, $548,000
in 1997, $1,749,000 in 1998, $10,730,000 in 1999 and $365,000 in 2000. The
Company has a balloon payment coming due of approximately $6,345,000 in the
third quarter of 1996 on one of the fixed rate mortgages.
The Mortgage Loan bears interest at a fluctuating rate equal to 90-day
LIBOR plus 200 basis points, and matures in three principal installments of
$41,700,000 in 1999, $41,700,000 in 2000 and $16,600,000 in 2001. The
interest rate is reset quarterly in February, May, August and November. As of
February 8, 1996 the interest rate was reset at 7.30469% (90-day LIBOR plus 200
basis points). According to the provisions of the interest rate protection
agreements owned by the Company, the difference between the contract rate and
the maximum rate of 6.75% will be paid to the Company. The Company is exposed
to credit loss in the event of non-performance by the counterparties to the
interest rate protection agreements, however, the Company does not anticipate
non-performance by the counterparties. Under the interest rate protection
agreements, the maximum rates payable under the Mortgage Loan are as follows:
November 1995 to November 1996 6.75%
November 1996 to November 1997 6.75%
November 1997 to November 1998 8.75%
November 1998 to November 1999 8.75%
November 1999 to November 2000 10.25%
November 2000 to November 2001 10.25%
As of March 31, 1996 the Company also had $23.0 million outstanding under
the $50.0 million secured line of credit. These borrowings bear interest at a
rate equal to 30-day LIBOR plus 250 basis points and are due June 30, 1996.
The Company also had a $13,745,000 mortgage loan on the Fox Run Shopping Center
which bears interest at 30-day LIBOR plus 250 basis points, and which requires
principal payments of $130,000 for the remainder of 1996, $193,000 in 1997,
$211,000 in 1998 and $13,211,000 in 1999. At March 31, 1996 the interest rate
on these mortgages was 7.8125%.
The Company has fully utilized its $7.0 million operating line of credit
with Nomura Asset Capital Corporation. The line is secured by Best Plaza and
MacArthur Plaza shopping centers. Amounts borrowed under the line bear interest
at a fluctuating rate per annum equal to 30-day LIBOR plus 250 basis points and
are due June 30, 1996. At March 31, 1996 the interest rate on the line was
7.8125%.
In addition, as of March 31, 1996, the Company had four floating rate
mortgages where the interest rate is based on the prime rate, with principal
outstanding of $21,942,000. The interest rate on two of these mortgages is at
the prime rate and the principal balances of the $11,560,000 are due during
<PAGE>
1996. The interest rate on the third mortgage is the prime rate plus 50 basis
points with the principal balance being amortized at the rate of $200,000 per
year. The interest rate on the fourth mortgage is the prime rate plus 100
basis points with the principal balance of $4,665,000 due during the second
quarter of 1996. The prime rate was 8.25% at March 31, 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 March 31, 1996. The facility is renewable
annually, matures June 30, 1996 and there was $500,000 outstanding under this
facility as of March 31, 1996.
The Company is investigating and is currently in negotiations to extend or
refinance the mortgage debt that is maturing in 1996. During April 1996, the
Company purchased $97 million of the $100 million outstanding adjustable rate
Series A-1 Real Estate Mortgage Investment Conduit Certificates (REMIC
Certificates). The Company has engaged Merrill Lynch & Co. as investment
advisor in connection with a proposed fixed rate financing, which the Company
believes, but cannot give assurance, will be completed during the second
quarter of 1996.
In the first three months of 1996, the Company invested approximately
$204,000 in the expansion and improvement of existing shopping center
properties. The Company has budgeted approximately $0.7 million for the balance
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 cash capital reserve improvement
fund. The cash capital reserve improvement fund may be utilized by the Company
for the funding of costs related to leasing, installation of tenants and
capital improvements in the centers secured by the Mortgage Loan. 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 for common shareholders decreased $626,000 or 25% from
$2,482,000, or $0.24 per share, in the first quarter of 1995 to $1,856,000, or
$0.18 per share, in the first quarter of 1996. 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 $179,000 or 3% from $5,450,000 for the first
quarter of 1995 to $5,271,000 for the first quarter of 1996. Funds from
operations under the new definition decreased $239,000 or 5% from $4,724,000
for the first three months of 1995 to $4,485,000 for the first three months of
1996.
<PAGE>
Minimum rent increased $1,491,000 or 16% from $9,086,000 in the first
quarter of 1995 to $10,577,000 in the first quarter of 1996. This increase was
primarily due to the additional rents from the five centers purchased by the
Company in April 1995 ($1,269,000) and additional rents from the Company's core
portfolio of 33 centers owned during the first three months of 1995 and 1996
($222,000) which equates to a 2.5% increase.
Percentage rent increased $42,000 or 20% from $205,000 in the first quarter
of 1995 to $247,000 in the first quarter of 1996, primarily due to the
additional percentage rents paid by tenants from the five centers purchased in
April 1995.
Expense reimbursements increased $803,000 or 30% from $2,707,000 in the
first quarter of 1995 to $3,510,000 in the first quarter of 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 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 $888,000 or 26% from $3,393,000 in the first
quarter of 1995 to $4,281,000 in the first quarter of 1996. These increases are
primarily due to the interest on mortgages on centers purchased in 1995.
Interest expense was offset by capitalized interest of $60,000 and $80,000 for
the first quarter of 1996 and 1995, respectively.
Depreciation and amortization increased $352,000 or 14% from $2,520,000 in
1995 in the first quarter to $2,872,000 in the first quarter of 1996, primarily
due to the acquisition of the five centers in April 1995.
Real estate taxes increased $68,000 or 5% from $1,377,000 in the first
quarter of 1995 to $1,445,000 in the first quarter of 1996 primarily due to the
acquisition of five centers during 1995. Real estate tax expense was offset by
capitalized real estate taxes of $32,000 and $39,000 for the first quarter of
1996 and 1995, respectively.
Operations and maintenance expenses increased $1,435,000 or 82% from
$1,754,000 in the first quarter of 1995 to $3,189,000 in the first quarter of
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 $388,000).
General and administrative expenses decreased $32,000 or 4% from $731,000
in the first quarter of 1995 to $699,000 in the first quarter of 1996.
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: May 10, 1996 /S/ Norman M. Kranzdorf
Chief Executive Officer and President
Date: May 10, 1996 /S/Robert H. Dennis
Chief Financial Officer and Treasurer
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 5,063,000
<SECURITIES> 273,000
<RECEIVABLES> 10,606,000
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8,105,000
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