SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 6, 1997
(Date of report)
KRANZCO REALTY TRUST
(Exact Name of Registrant as Specified in Charter)
Maryland 1-11478 23-2691327
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
128 Fayette Street, Conshohocken, Pennsylvania 19428
(Address of Principal Executive Offices) (Zip Code)
(610) 941-9292
Registrant's telephone number, including area code
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
February 27, 1997, as set forth in the pages attached hereto:
Item 7: Financial Statements and Exhibits.
Pursuant to the requirements of the Securities Exchange Act of 1924, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
KRANZCO REALTY TRUST
(Registrant)
By:/s/ Robert H. Dennis
Chief Financial Officer, Controller
Dated: May 6, 1997
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
Included herewith are the following financial statements reflecting the
merger/acquisition of Union Property Investors, Inc.:
Union Property Investors, Inc. - Financial Statements as of December 31,
1996, together with Auditor's Report
Pro Forma Financial Information
Pro Forma Condensed Balance Sheet December 31, 1996 (Unaudited)
Pro Forma Consolidating Statement of Operations for the Year Ended
December 31, 1996 (Unaudited)
Notes and Management's Assumptions to Unaudited Pro Forma Consolidating
Financial Statements
<PAGE>
UNION PROPERTY INVESTORS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
TOGETHER WITH AUDITORS' REPORT
<AUDIT-REPORT>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Union Property Investors, Inc.
We have audited the accompanying balance sheet of Union Property Investors, Inc.
(a Delaware corporation) as of December 31, 1996, and the related statements of
revenues and expenses, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Union Property Investors, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
West Palm Beach, Fl.,
February 4, 1997
</AUDIT-REPORT>
<PAGE>
UNION PROPERTY INVESTORS, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
CASH AND CASH EQUIVALENTS (Note 2) $ 397,795
ACCOUNTS RECEIVABLE (Note 1) 361,385
ESCROWED FUNDS (Note 3) 360,258
PREPAID EXPENSES AND OTHER (Note 10) 158,269
DEFERRED COSTS (Note 13) 688,124
----------
Total current assets 1,965,831
PROPERTY, IMPROVEMENTS AND EQUIPMENT, net
(Notes 1, 2 and 3) 48,175,400
PROPERTY HELD FOR SALE (Notes 1, 2 and 3) 299,047
DEBT FINANCING COSTS, net (Note 2) 197,584
----------
Total assets $ 50,637,862
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT PORTION OF LONG-TERM DEBT (Notes 5 and 11) $ 4,924,542
ACCRUED INTEREST PAYABLE 197,538
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 728,704
ACCRUED INCOME TAXES (Notes 1 and 8) 124,882
DUE TO RELATED PARTY (Note 10) 6,268
----------
Total current liabilities 5,981,934
MORTGAGES AND NOTES PAYABLE (Notes 5 and 11) 25,437,891
----------
Total liabilities 31,419,825
----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 11 and 13)
REDEEMABLE PREFERRED STOCK (Notes 6 and 13) 3,958,334
STOCKHOLDERS' EQUITY (Notes 1, 2, 7 and 13):
Common stock, $.01 par value, 20,000,000 shares
authorized, 3,789,171 shares issued and outstanding 37,892
Additional paid-in surplus 15,180,333
Accumulated earnings 41,478
----------
Total stockholders' equity 15,259,703
----------
Total liabilities and stockholders' equity $ 50,637,862
==========
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNION PROPERTY INVESTORS, INC.
STATEMENT OF REVENUES AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
REVENUES:
Base rents (Notes 2 and 4) $ 7,182,930
Percentage rents 166,396
Other income 75,200
Expense reimbursements-
Real estate taxes 429,680
Common area maintenance 252,348
Insurance 77,878
----------
Total revenues 8,184,432
----------
EXPENSES:
Mortgage interest (Note 5) 2,579,070
Depreciation and amortization (Notes 2 and 3) 1,661,261
Provision to reduce property to net realizable value 400,000
Real estate taxes 493,821
Management fees to related party (Note 10) 1,229,750
Common area maintenance 443,054
Insurance 132,322
Salaries, general and administration 354,706
----------
Total expenses 7,293,984
----------
Income before income taxes 890,448
PROVISION FOR INCOME TAXES (Notes 2 and 8) 365,803
----------
Net income 524,645
DISTRIBUTIONS ON PREFERRED STOCK (Notes 6 and 7) 383,766
----------
Net income attributable to common shareholders $ 140,879
==========
NET INCOME PER SHARE OF COMMON STOCK $ .04
==========
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK 3,789,171
==========
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNION PROPERTY INVESTORS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
Common Stock Additional
-------------------------- Paid-in Accumulated Stockholders'
Shares Amount Surplus Earnings Equity
--------- ------ ---------- -------- ----------
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 3,789,171 $37,892 $15,180,333 $ 193,792 $15,412,017
Distribution to former parent(Note 1) - - - (293,193) (293,193)
Net income - - - 524,645 524,645
Cash dividend declared--8% redeemable
preferred stock (Note 6) - - - (383,766) (383,766)
--------- ------ ---------- -------- ----------
BALANCE AT DECEMBER 31, 1996 3,789,171 $37,892 $15,180,333 $ 41,478 $15,259,703
========= ====== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNION PROPERTY INVESTORS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 524,645
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 1,661,261
Gain on sale of property (302)
Provision to reduce property to net realizable value 400,000
Changes in assets and liabilities--
Increase in accounts receivable (296,536)
Increase in prepaid and other assets (84,676)
Decrease in due from related party 113,643
Increase in accrued income taxes 124,882
Increase in accrued interest payable 197,538
Increase in accounts payable and accrued expenses 291,316
Decrease in deferred income taxes (250,045)
Decrease in due to related party (149,660)
----------
Net cash provided by operating activities 2,532,066
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deferred costs (688,124)
Purchase of building improvements (90,997)
Increase in accounts payable and accrued expenses 245,387
----------
Net cash used in investing activities (533,734)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage payable (680,125)
Decrease in redeemable preferred stock dividend
payable (97,797)
Proceeds from notes payable 2,000,000
Preferred stock redemption (2,541,666)
Payment of dividends on preferred stock (383,766)
----------
Net cash used in financing activities (1,703,354)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 294,978
----------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 102,817
----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 397,795
==========
CASH PAID FOR:
Interest $ 2,381,532
==========
Income taxes $ 562,388
==========
The accompanying notes are an integral part of this financial statement.
<PAGE>
UNION PROPERTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND BASIS OF PRESENTATION:
Union Property Investors, Inc. ("UPI" or the "Company") was incorporated under
the laws of the State of Delaware on November 1, 1994, as a wholly-owned
subsidiary of Milestone Properties, Inc. ("Milestone"). UPI is comprised of
seven single tenant commercial properties and nine shopping centers in 11
states.
UPI was spun off from Milestone upon the distribution by Milestone (the
"Distribution") on November 20, 1995, of all of the outstanding shares of UPI's
common stock, par value $.01 per share (the "Common Stock"), to Milestone's
common stockholders of record as of October 31, 1995, on a share-for-share basis
and for no consideration.
In connection with the Distribution, UPI amended its Certificate of
Incorporation on October 27, 1995, to effect a recapitalization and change the
1,000 authorized shares of Common Stock into 20,000,000 shares of Common Stock
and 650,000 shares of preferred stock, par value $.01 per share and a $10
redemption value per share (the "Preferred Stock"). As part of such
recapitalization, the 100 shares of outstanding Common Stock that were then held
by Milestone were converted into an aggregate of 3,789,171 shares of Common
Stock and 650,000 shares of Preferred Stock on October 31, 1995.
On August 4, 1995 and October 30, 1995, Milestone transferred to UPI five and
eleven retail properties (the "UPI Transfer"), respectively (collectively, the
"UPI Properties"). The UPI Transfer was accounted for in a manner similar to
that in a pooling-of-interest accounting. Therefore, the assets and liabilities
transferred to UPI were reflected at the historical cost basis of Milestone.
The cumulative earnings of the UPI Properties through the distribution date of
$293,193 were paid to Milestone as a final distribution in 1996.
The Common Stock began trading on December 11, 1995 in the "pink sheets" in the
over-the-counter market and on the OTC Bulletin Board. The Common Stock has
traded under the symbol "UPIC" since that date. Prior to that date, there was
no public market for the Common Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
UPI's records are maintained on the accrual basis of accounting for both
financial reporting and tax purposes.
Use of Estimates
The preparation of 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 at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
ultimate results could differ from those estimates.
Cash and Cash Equivalents
UPI considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Property, Improvements and Equipment and Related Depreciation and Amortization
Property and equipment are stated at the lower of depreciated cost or net
realizable value, less depreciation using the straight-line method over the
estimated useful lives of 39 and 5 years for such property and equipment,
respectively. Building improvements and equipment are stated at the lower of
depreciated cost or net realizable value. Leasehold improvements and leasing
commissions are amortized using the straight-line method over the term of the
applicable lease.
UPI has adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets". SFAS No. 121 requires UPI
to assess any impairments to property value by making comparisons of the current
and projected operating cash flow of each of its properties over the remaining
useful life, on an undiscounted basis, to the carrying amount of the properties.
Such carrying amounts will be adjusted, if necessary, to reflect impairments in
the value of the properties. SFAS 121 requires buildings and land held for sale
to be valued at fair value less cost to sell instead of net realizable value
(see Note 3).
Debt Financing Costs
The costs to obtain financing are capitalized and are amortized over the term of
a financing arrangement.
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.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. Prior to November 20, 1995, UPI filed as a
part of the consolidated tax return of Milestone.
3. PROPERTY, IMPROVEMENTS AND EQUIPMENT--NET:
UPI's net investment in real estate properties at December 31, 1996, consisted
of the following:
Land $ 10,980,396
Buildings 46,398,880
Leasehold improvements and equipment 880,095
-----------
58,259,371
Less- Accumulated depreciation
and amortization
(10,083,971)
-----------
Total $ 48,175,400
===========
Property held for sale $ 299,047
===========
UPI is currently holding a property located in Richmond, Virginia, as property
held for sale, which was previously leased to Ames Department Store. The
property was vacant for approximately three years. In July 1996, the space was
leased to an Auction House for $30,000 per annum ending April 30, 1997. The
lease has been extended through April 30, 1998 for $35,000. Based on the
criteria of SFAS No. 121, UPI recognized a valuation allowance of $400,000 to
reduce this property to its estimated net realizable value in 1996.
The Company sold a parcel of land from the Columbia, S.C. property for $372,500
and recorded a gain on sale of $302. The proceeds from the sale were placed in
escrow with an unrelated third party.
4. PROPERTY OPERATING LEASES:
UPI's shopping centers are leased to tenants under operating leases with
expiration dates extending to the year 2016. Minimum base rental income under
tenant operating lease agreements that have remaining lease terms ranging from 1
to 40 years as of December 31, 1996, are listed as follows:
Year Ending December 31 Amount
------------------------ -----------
1997 $ 7,254,641
1998 6,546,428
1999 5,905,781
2000 5,521,513
2001 5,037,250
Thereafter 33,911,687
-----------
Total minimum base rental income $ 64,177,300
===========
5. MORTGAGES AND NOTES PAYABLE:
Mortgages and notes payable balances as of December 31, 1996, consist of the
following:
Livonia, MI $ 1,577,934
Harrodsburg, KY 2,179,525
Chambersburg, PA 5,435,550
Bainbridge, GA 5,074,001
Spartanburg, SC 2,942,212
Columbia, SC 4,591,487
Columbus, MS 1,978,380
Flint, MI 3,043,398
Cary, NC 1,539,946
Morganton, NC 2,000,000
-----------
Total $ 30,362,433
===========
The maturity of the mortgages and notes payable at December 31, 1996, is as
follows:
Year Ending December 31 Amount
------------------------ -----------
1997 $ 4,924,542
1998 804,125
1999 7,713,490
2000 5,948,759
2001 946,014
Thereafter 10,025,503
-----------
Total $ 30,362,433
===========
The mortgage on the property located in Livonia, Michigan, accrues interest at a
fixed rate of 9.625% and requires monthly payments of principal and interest of
$13,600, based on a 30-year amortization schedule, until December 1, 1999, at
which time the remaining balance on the mortgage is due. As of December 1996,
this mortgage may be prepaid in full or in part at any time with a premium of
5%, after which, if paid in part, the premium will decrease 0.5% annually until
maturity.
The mortgage on the property located in Harrodsburg, Kentucky, accrues interest
at a fixed rate of 10% and requires monthly payments of principal and interest
of $19,658. This mortgage had an original maturity date of December 1, 1996 and
is due upon UPI's merger with Kranzco Realty Trust (see Note 13).
The mortgage on the property located in Chambersburg, Pennsylvania, requires
monthly principal payments of $3,525 plus 8.75% per annum interest on the
outstanding principal balance based on (i) a 29.16-year amortization until
February 1, 1997, and (ii) an option to extend at 9% per annum interest from
March 1, 1997 until February 1, 1999. This mortgage may be prepaid in full or
in part at any time without premium or penalty.
The mortgage on the property located in Bainbridge, Georgia, accrues interest at
a fixed rate of 10% per annum and requires monthly payments of interest until
October 2, 2000. The mortgage may be prepaid in full with a premium of 3% in
1997 and 2% thereafter.
The mortgage on the property located in Spartanburg, South Carolina, requires
monthly payments of principal and interest of $26,541 at a rate of 7.125% which
adjusts annually at 0.125% below the Moody's A Corporate Bond Index Daily Rate
until the mortgage matures on December 15, 2002. As of December 1993, the
mortgage may be prepaid in full or in part, at any time with a premium of 5%,
after which, if paid in part, the premium will decrease 0.5% annually until
maturity.
The mortgage on the property located in Columbia, South Carolina, accrues
interest at a rate of 7.625% which adjusts annually at 0.125% below Moody's A
Corporate Bond Index Daily Rate and requires monthly payments of principal and
interest of $36,360 until it matures on February 3, 2003. This mortgage may be
prepaid in full or in part at any time with a premium of 3.5% as of December
1996, and decreasing 0.5% annually until maturity.
The mortgage on the property located in Columbus, Mississippi, accrues interest
at a fixed rate of 8.5% and requires monthly payments of principal and interest
of $29,837 until it matures on May 1, 2004. This mortgage may be prepaid in
full or in part at any time without premium or penalty.
The mortgage on the property located in Flint, Michigan, accrues interest at a
fixed rate of 7.5% and requires monthly payments of principal and interest of
$36,538 until such loan matures on October 1, 2006. This loan may not be
prepaid in whole or in part until March 1999, after which time the mortgage may
be paid with a penalty equal to the greater of 1% or yield maintenance.
The mortgage on the property located in Cary, North Carolina, bears interest at
a fixed rate of 7.875% and requires monthly payments of principal and interest
of $16,361 until it matures on February 1, 2009. This mortgage may be prepaid
in full or in part at any time with a premium of 5% until February 3, 2001,
which will decline 0.5% in each succeeding year to a minimum of 2% until it
matures.
Milestone assigned a $3 million line of credit it had obtained from First Union
National Bank of Florida ("First Union") with the borrowing to bear interest, at
the option of UPI, at either prime plus .25% or LIBOR plus 2.2%. The line of
credit is secured by a first mortgage encumbering one of the UPI Properties
located in Morganton, North Carolina. UPI entered into an agreement with First
Union in December 1996 to extend UPI's line of credit, which came due on October
24, 1996, until the earlier of March 31, 1997, or the consummation of the merger
with Kranzco Realty Trust (see Note 13). The weighted average interest rate on
this line was 7.98% for the year ended December 31, 1996. As of December 31,
1996, $2,000,000 was outstanding under this line of credit.
6. REDEEMABLE PREFERRED STOCK:
UPI's Board of Directors may, at its option, redeem an unlimited number of
shares of Preferred Stock in each calendar quarter to and including the quarter
commencing January 1, 2002. The redemption price per share is $10 plus an
amount per share equal to the accrued and unpaid dividends thereon. On January
31, 2001, UPI is required to redeem all shares of the Preferred Stock that
remain outstanding at a redemption price per share equal to $10 plus an amount
equal to the accrued and unpaid dividends thereon.
Milestone, as the holders of the Preferred Stock, is entitled to receive, out of
funds legally available therefor, a dividend on the Preferred Stock at a rate
per annum initially set at 9%. Each dividend is fully cumulative and accrues
from November 1, 1995 through January 31, 2002 (the "Dividend Contract Period"),
provided that the outstanding shares of Preferred Stock are not redeemed in full
prior to January 31, 2002. Pursuant to the UPI Certificate of Incorporation,
the dividend rate is subject to a decrease from 9% to 8% per annum if and after
UPI meets an optional schedule of redemption and redeems no less than $270,833
of the Preferred Stock in any quarter (a "Triggering Quarter") commencing
January 1, 1996, and continuing through December 31, 2001. If, however,
subsequent to satisfying the requirements for the Triggering Quarter, UPI fails
to redeem at least $270,833 of the Preferred Stock in any quarter during the
Dividend Contract Period (the "Reversion Quarter"), the dividend rate for the
Reversion Quarter and for the remainder of the Dividend Contract Period will
remain fixed at an annual dividend rate of 9%.
On March 21, 1996, UPI borrowed $2,000,000 under the line of credit (see Notes 5
and 10) to pay for the redemption on March 22, 1996 of 200,000 shares of the
Preferred Stock from Milestone at $10 per share plus an amount equal to the
accrued and unpaid dividends thereon for a total redemption price of
approximately $2,040,000. As a result of a redemption of $2,000,000 of the UPI
Preferred Stock on March 22, 1996, the dividend rate on the UPI Preferred Stock
was decreased from 9% to 8% effective January 1, 1996. The 8% dividend rate
will be in effect to the extent that the minimum of $270,833 of the UPI
Preferred Stock is redeemed quarterly.
On each of July 1, 1996 and October 1, 1996, UPI redeemed 27,083 shares of UPI
Preferred Stock for a per quarter redemption price of $270,833.
In the event of the liquidation, dissolution or winding-up of UPI, and provided
there are sufficient assets after payment of all outstanding debts and other
liabilities, holders of the Preferred Stock will be entitled to receive $10 per
share plus an amount per share equal to all accrued and unpaid dividends
thereon.
7. COMMON STOCK:
The holders of the Common Stock are entitled to receive dividends when, as and
if declared by UPI's Board of Directors out of funds legally available therefor,
after payment of all preferential dividends on the Preferred Stock. No such
dividends were declared for the year ended December 31, 1996. The holders of
the Common Stock have no conversion, preemptive or other subscription rights,
and there are no redemption provisions applicable to the Common Stock.
In the event of the liquidation, dissolution or winding up of UPI, the holders
of the Common Stock are entitled to share ratably in all assets remaining after
payment of all debts and other liabilities and after distribution in full of the
preferential amounts to be distributed to the holders of any shares of Preferred
Stock then outstanding.
8. INCOME TAXES:
Deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The provision for income taxes for the year ended December 31, 1996, consists of
the following:
Current Tax:
Federal $ 523,471
State 92,377
-----------
Total current tax 615,848
-----------
Deferred Tax:
Federal $ (212,542)
State (37,503)
-----------
Total deferred tax (250,045)
-----------
Total provision for income taxes $ 365,803
===========
Temporary differences between the amount reported in the Company's financial
statements and the federal tax basis of assets and liabilities result in
deferred taxes. There was no change in the valuation allowance for the year
ended December 31, 1996. Deferred tax assets and liabilities at December 31,
1996, were as follows:
Deferred Tax Asset:
Property held for sale allowance $ 494,388
Deferred income 67,227
Less- Valuation allowance -
-----------
Deferred tax asset--net of
valuation allowance 561,615
-----------
Deferred Tax Liability:
Accelerated depreciation 561,615
-----------
Net deferred tax liabilities $ -
===========
The following table reconciles the statutory federal rate to the effective tax
rate:
1996
-----------
Statutory federal tax rate 34%
Increase in taxes from state taxes
net of federal tax benefit 7%
-----------
41%
===========
9. FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that UPI disclose estimated fair values for certain of its financial
instruments. The following estimated fair values were determined by UPI using
available market information and valuation methodologies considered appropriate
by management. However, considerable judgment is necessary to interpret and
apply market data to develop specific fair value estimates for given financial
instruments, and the use of different market assumptions and/or estimation
methodologies could have a material effect on reported fair value estimates.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that could be realized upon disposition of UPI's financial
instruments.
Cash and cash equivalents, accounts receivable, and accounts payable and accrued
expenses are reflected in the accompanying balance sheet at amounts considered
by management to approximate fair value due to their short-term nature.
At December 31, 1996, the carrying value of the mortgage and notes payable
approximated the fair value of such instruments as determined using year-end
interest rates and market conditions.
The fair value of the redeemable preferred stock is based on the applicable
mandatory redemption features, and the dividend rate, and has been evaluated by
management using interest rates currently offered on like securities with
similar remaining maturities. The carrying value of the redeemable preferred
stock at December 31, 1996 approximated the fair value.
The fair value estimates presented herein are based on information available as
of December 31, 1996. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts, a comprehensive
reevaluation has not been performed for purposes of these financial statement
disclosures and current estimates of fair value may differ significantly from
the amounts presented herein.
10. RELATED-PARTY TRANSACTIONS:
In October 1995, Milestone completed the UPI Transfer of the UPI Properties to
UPI and effected the Distribution (see Note 1).
UPI entered into a property management agreement (the "MPMI Agreement") on
November 20, 1995, with Milestone Property Management, Inc. ("MPMI"), a
wholly-owned subsidiary of Milestone, under which MPMI will perform property
management and leasing services for the UPI Properties. Under the MPMI
Agreement, MPMI is paid an annual fee of $5,000 for each single-tenant UPI
Property and a fee based on a percentage of the base rental income for the
remaining UPI Properties. The aggregate annual fee paid by UPI to MPMI under
the MPMI Agreement was $260,024.
On November 20, 1995, UPI entered into an agreement with Milestone to provide to
UPI certain management and administrative services (the "Management Services
Agreement"). Under this agreement, Milestone is required to present to UPI
asset acquisition opportunities consistent with the policies and objectives of
UPI and to furnish UPI's Board of Directors with information concerning the
acquisition, holding, performance and disposition of portfolio assets. UPI is
provided with office space in Milestone's principal executive office and
Milestone's employees, some of whom are executive officers of UPI, provide all
levels of employee services to UPI. UPI is obligated to pay Milestone a fee
under the Management Service Agreement of an amount equal to approximately 1.5%
of the value of the UPI Properties based on each property's net operating income
from the prior year. The aggregate annual fee paid by UPI to Milestone under
the Management Services Agreement was $969,726. UPI owes Milestone $6,268 under
the Management Services Agreement for the year ended December 31, 1996.
In November 1995, Milestone assigned to UPI a $3 million line of credit obtained
by Milestone from First Union (see Notes 5 and 6).
All of the Preferred Stock is owned by Milestone and may be deemed to be
beneficially owned by Concord Assets Group, Inc. ("Concord") and both Leonard S.
Mandor and Robert A. Mandor. Leonard S. Mandor is the Chairman of the Board,
Chief Executive Officer and a director of both UPI and Milestone, and Robert A.
Mandor is the President, Chief Financial Officer and a director of both UPI and
Milestone. Leonard S. Mandor and Robert A. Mandor are directors, executive
officers and the sole stockholders of Concord.
On February 5, 1996, Concord transferred ownership of 76,388 shares of UPI
stock from Concord equally among three executive officers of UPI for recognition
of services provided to Concord. Accordingly, no costs or expense were recorded
in the accompanying financial statements.
11. COMMITMENTS AND CONTINGENCIES:
Investments in real property create a potential for environmental liability on
the part of the owner, operator and developer of such real property. If
hazardous substances are discovered on or emanating from any of the UPI
Properties, UPI and/or others may be held strictly liable for all costs and
liabilities relating to the cleanup of such hazardous substances. While none of
the UPI Properties is presently subject to any environmental actions, the
presence of such substances may adversely affect the ability to sell or rent the
UPI Properties or to borrow using any of the UPI Properties as collateral.
12. LEGAL PROCEEDINGS:
UPI is not subject to any legal proceedings. An action (the "Action") was
commenced on January 30, 1996, in the Delaware Court against Milestone and its
Board of Directors and Concord, which, together with its affiliates, owns
approximately 75% of the Common Stock and whose executive officers and directors
are also executive officers and directors of Milestone and UPI. In the Action,
the plaintiff, a preferred stockholder of Milestone purporting to bring the
action on behalf of himself and other preferred stockholders of Milestone, is
seeking, among other things, damages from Milestone and rescission of the UPI
Transfer and the Distribution. Milestone moved to dismiss the complaint. UPI
was not named as a party in the Action. In the Action, the Delaware Court
dismissed, on October 25, 1996, the plaintiff's claim for rescission of both the
UPI Transfer and the Distribution. The Delaware Court, however, reserved
decision on the defendants' motion to dismiss the plaintiff's claim for damages
and other relief. On December 9, 1996, the plaintiff requested that the
Delaware Court dismiss the amended complaint, and filed a new purported class
action. On January 14, 1997, the defendants filed a motion to dismiss or stay
the purported new class action. In management's opinion, the ultimate outcome
of these matters will have no material adverse effect on UPI's financial
condition or results of operations.
13. SUBSEQUENT EVENT:
On November 12, 1996, UPI entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Kranzco Realty Trust, a Maryland real estate investment
trust ("Kranzco"), and KRT Union Corp., a Delaware corporation and a
wholly-owned subsidiary of Kranzco, dated November 12, 1996, as amended,
pursuant to which UPI has agreed to merge with and into KRT Union Corp. (the
"Merger"). LSG Advisors, a division of Societe Generale Securities Corporation,
is acting as UPI's exclusive financial advisor in connection with the Merger.
Upon consummation of the Merger, LSG is entitled to a transaction fee of
$1,137,500 equal to 1.75% of the aggregate purchase consideration of the Merger.
This fee has not been accrued at December 31, 1996. Consummation of the Merger
is subject to certain conditions, including approval by the stockholders of UPI.
UPI mailed a proxy statement on January 30, 1997 to its stockholders to obtain
their approval of the Merger at a special meeting of stockholders on February
26, 1997. If approved, all outstanding shares of UPI common stock will be
converted into shares from Kranzco's Series B-1 or B-2 cumulative convertible
preferred shares and all outstanding shares of UPI preferred stock will be
converted into shares of Kranzco's Series C cumulative redeemable preferred
shares. The Company has accrued $688,124 of costs relating the Merger at
December 31, 1996.
<PAGE>
The following Pro Forma Consolidated Balance Sheet as of December 31, 1996 and
Pro Forma Consolidating Statement of Operations for the year ended December 31,
1996 have been prepared to reflect the transactions and the adjustments
described in the accompanying notes. The pro forma financial information is
based on the historical finacial statements and should be read in conjunction
with the notes and management's assumptions thereto. The Pro Forma Consolidating
Statement of Operations was prepared as if the transactions occured on January
1, 1996. The Pro Forma Consolidated Balance Sheet was prepared as if the
transactions occured on December 31, 1996. The pro forma financial information
is unaudited and is not necessarily indicative of the consolidated results which
actually would have occured if the transactions had been consummated at the
beginning of 1996, nor does it purport to represent the future financial
position and results of operations for future periods.
<TABLE>
KRANZCO REALTY TRUST
PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1996
<CAPTION>
Kranzco Realty Union Property Merger
Trust Investors, Inc. Pro forma Pro Forma
(Historical) (Historical) adjustments Total
--------- -------- -------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Assets:
Shopping centers, at cost, net $ 335,204 $ 48,175 $ 17,966 <F1> $ 401,345
Property held for sale, net 0 299 299
Cash and marketable securities 5,301 399 (2,500) <F2> 3,200
Restricted cash relating to mortgages 329 0 329
Rents and other receivables, net 9,661 361 10,022
Due from related party 0 0 0
Prepaid expenses 1,729 158 1,887
Deferred financing costs, net 1,893 198 (198) <F3> 1,893
Other deferred costs, net 1,793 0 1,793
Other assets 3,247 1,048 (2,188) <F3> 2,107
--------- -------- -------- ---------
Total assets $ 359,157 $ 50,638 $ 13,080 $ 422,875
========= ======== ======== =========
Liabilities:
Mortgages and notes payable $ 212,590 $ 30,363 $ 0 $ 242,953
Tenant security deposits 1,136 0 1,136
Accounts payable and accrued expenses 2,785 1,058 3,843
Due to related party 0 0 0 0
Other liabilities 527 0 0 527
Distributions payable 5,106 0 5,106
--------- -------- -------- ---------
Total liabilities 222,144 31,421 0 253,565
--------- -------- -------- ---------
UPI Preferred Stock 3,958 (3,958) <F5> 0
Kranzco Series C Preferred Stock 3,958 <F5> 3,958
Beneficiaries Equity:
Common shares
and Preferred shares- 104 38 (27) <F4> 115
Capital in excess of par value 187,177 15,180 13,148 <F4> 215,505
Cumulative net income available for
common shares 26,754 41 (41) <F4> 26,754
Cumulative distributions on
common shares (76,891) (76,891)
--------- -------- -------- ---------
137,144 19,217 13,080 169,441
Unearned compensation on
restricted common shares (131) (131)
--------- -------- -------- ---------
Total beneficiaries' equity 137,013 19,217 13,080 169,310
--------- -------- -------- ---------
--------- -------- -------- ---------
Total liabilities and beneficiaries'
equity $ 359,157 $ 50,638 $ 13,080 $ 422,875
========= ======== ======== =========
<FN>
The accompanying notes and management's assumptions are an
integral part of this statement.
KRANZCO REALTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1996
NOTES AND MANAGEMENT'S ASSUMPTIONS TO PRO FORMA CONDENSED BALANCE SHEET FOR
KRANZCO AND SUBSIDIARIES AS OF DECEMBER 31, 1996
<F1>
Adjustment to reflect investment in properties at fair
value and purchase price allocation:
Total Purchase Price $ 64,500
Less: Other net assets acquired at fair value-
Cash 399
Rents and other receivables, net 361
Prepaid expenses 158
Accounts payable and accrued expenses (1,058)
Due to related party 0
Other liabilities 0
(140)
----- ------
64,640
Plus: Acquisition costs 1,800
------
66,440
Less: Historical book value of UPI Properties (48,474)
------
Net property adjustment $ 17,966
======
<F2>
Adjustments to cash:
Property acquisition costs $ 300
Preferred share costs of registration 200
Cash merger expenses incurred by UPI 2,000
------
$ 2,500
======
<F3>
To record closing adjustments.
Reclassification of UPI costs in this transaction to (688)
property
Elimination of UPI's deferred financing costs
not related to this transaction (198)
Reclassification of Kranzco's deferred transaction cos (1,500)
Payment of due to related party 0
<F4>
Adjustment to reflect purchase accounting in the equity section:
Capital in
excess
Common and of Cumulative
Preferred Shares Par Value Net Income
Reverse UPI equity $ (38) $ (15,180) $ (41)
Issuance of Series B Preferred Shares 11 28,528 0
Costs of issuance 0 (200) 0
--- ------ ---
$ (27) $ 13,148 $ (41)
=== ====== ===
<F5>
To reflect the retirement of UPI Preferred Stock and the issuance of
Kranzco Series C Preferred Shares.
</FN>
</TABLE>
<TABLE>
Kranzco Realty Trust
Pro Forma for UPI acquisition
Statement of Operations for
December 31, 1996
<CAPTION>
Union
Kranzco Property Merger
Realty Investors, Pro Forma
Trust Inc. Adjustments Pro Forma
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
REVENUES:
Minimum Rent $ 41,665 $ 7,183 $ 48,848
Percentage rent 1,042 166 1,208
Expense reimbursements 11,732 760 12,492
Other income 117 75 192
Interest income 624 0 624
------ ----- ---- ------
Total revenues 55,180 8,184 0 63,364
------ ----- ---- ------
EXPENSES:
Interest 17,069 2,579 19,648
Depreciation and amortization 11,194 1,661 449 <F2> 13,304
Provision to reduce property
to net realizable value 0 400 400
Real estate taxes 6,073 494 6,567
Operations and maintenance 9,473 575 10,048
General and administrative 2,836 1,584 (1,108) <F1> 3,312
------ ----- ---- ------
Total expenses 46,645 7,293 (659) 53,279
------ ----- ---- ------
Income before income taxes,
loss on sale of land and
extraordinary item 8,535 891 659 10,085
PROVISION FOR INCOME TAXES 0 366 (366) <F3> 0
------ ----- ---- ------
Net Income before loss on
sale of land and extraordinary 8,535 525 1,025 10,085
DISTRIBUTIONS ON PREFERRED STOCK 695 384 2,787 <F4><F5> 3,866
Net income attributable to ------ ----- ---- ------
common shareholders $ 7,840 $ 141 $ (1,762) $ 6,219
====== ===== ==== ======
INCOME BEFORE EXTRAORDINARY ITEM
PER COMMON SHARE $ 0.76 $ 0.60
====== ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OF
BENEFICIAL INTEREST 10,332,784 10,332,784
<FN>
Footnotes to Pro Forma statements
The extraordinary loss of $11,052 on refinancing recorded in the
second quarter of 1996 and the loss of $63 on the sale of real estate recorded
in the first quarter of 1996 by Kranzco have been excluded from the pro forma
presentation of the Statement of Operations.
December 31,
1996
<F1>
To eliminate general and administrative and management
costs not incurred after the merger.
General and administrative $ 354
Management fees 1,230
-------
1,584
Less: estimated general and administrative expenses 476
-------
$ 1,108
<F2>
To record additional depreciation incurred after the Merger.
Estimated adjustments to fair value upon Merger $ 17,966
Building portion of estimated adjustments
to fair value upon Merger $ 13,475
Depreciation expense calculated based on Kranzco's
estimated useful life of 30 years $ 449
<F3>
To eliminate income tax provision for
Federal Income Tax $ 366
<F4>
To record preferred distributions of 9.75% on the
Kranzco Series B Preferred Shares.
Face value of the Kranzco Series B Preferred Shares $ 29,600
Distributions $ 2,886
<F5>
To record preferred distributions of 8.00% per year on the
Kranzco Series C Preferred Shares.
Face value of the Kranzco Series C Preferred Shares $ 3,564
Distributions $ 285
Less: previously recorded 384
-------
$ (99)
</FN>
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K/A of our report dated February 28, 1997 on the
financial statements of Kranzco Realty Trust and our report dated February 4,
1997 on the financial statements of Union Property Investors, Inc., included in
this Form 8-K/A, into the Company's previously filed Registration Statements on
Form S-3 (File Nos. 33-75554 and 33-72076) and on Form S-8 (File Nos. 33-56990
and 33-94294).
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
May 6, 1997
