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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 1998 OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to ____
Commission File Number 1-11478
KRANZCO REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 23-2691327
(State of incorporation) (I.R.S. employer identification no.)
128 Fayette Street, Conshohocken, PA 19428 (610) 941-9292
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of exchange on which registered
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Common Shares of Beneficial Interest,
$.01 par value New York Stock Exchange
9.75% Series B-1 Cumulative Convertible
Preferred Shares of Beneficial Interest,
$.01 par value New York Stock Exchange
9.50% Series D Cumulative Redeemable
Preferred Shares of Beneficial Interest,
$.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $133 million based on the closing price on the
New York Stock Exchange for such stock on March 23, 1999.
The number of shares of the Registrant's Common Shares of Beneficial Interest
outstanding was 10,538,716 as of March 23, 1999.
Documents Incorporated by Reference.
Portions of the 1999 Kranzco Realty Trust Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days after the year covered
by this Form 10-K with respect to the Annual Meeting of Shareholders to be
held on June 2, 1999 are incorporated by reference into Part III.
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<PAGE>
TABLE OF CONTENTS
Form 10-K
Item No. Report Page
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PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Propertiesy . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 9
4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . 9
6. Selected Financial Data . . . . . . . . . . . . . . . . . . 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 12
8. Financial Statements and Supplementary Data . . . . . . . . 17
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures. . . . . . . . . . . 17
PART III
10. Director and Executive Officers of the Registrant . . . . . 18
11. Executive Compensation. . . . . . . . . . . . . . . . . . . 18
12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . 18
13. Certain Relationships and Related Transactions. . . . . . . 18
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K, Property Table. . . . . . . . . . . . . . . . . 18
<PAGE>
PART I
This Form 10-K, together with other statements and information publicly
disseminated by the Company, contains certain statements that may be deemed
to be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-K, that address
activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future, including such matters as future
capital expenditures, distributions and acquisitions (including the amount
and nature thereof), the use of proceeds of offerings, expansion and other
development trends of the real estate industry, business strategies,
expansion and growth of the Company's operations and other such matters are
forward-looking statements. Such statements are based on assumptions and
expectations which may not be realized and are inherently subject to risks
and uncertainties, many of which cannot be predicted with accuracy and some
of which might not even be anticipated. Prospective investors are
cautioned that any such statements are not guarantees of future performance
and that actual results or developments may differ materially from those
anticipated in the forward-looking statements. Risks and other factors that
might cause such differences, some of which could be material, include, but
are not limited to: the burden of the Company's substantial debt obligations;
the necessity of future financings to repay the "balloon" payments required
at the maturity of certain of the Company's debt obligations; the highly
competitive nature of the real estate leasing market; adverse changes in the
real estate markets including, among other things, competition with other
companies; general economic and business conditions, which will, among other
things, affect demand for retail space or retail goods, availability and
creditworthiness of prospective tenants and lease rents; financial condition
and bankruptcy of tenants, including disaffirmance of leases by bankrupt
tenants; the availability and terms of debt and equity financing; risks of
real estate acquisition, expansion and renovation; governmental actions and
initiatives; environmental/safety requirements; and other changes and factors
referenced herein under Item 1. Business and from time to time in the
Company's reports filed with the Securities and Exchange Commission or
otherwise publicly disseminated by the Company.
Item 1. Business
(a) General Description of Business
Kranzco Realty Trust (the "Trust") was formed on June 17, 1992 as a
Maryland real estate investment trust ("REIT").
On November 19, 1992, the Trust consummated an initial public offering
(the "IPO") of 6,400,000 of its common shares of beneficial interest (the
"Shares"). On December 15, 1992, the Trust sold an additional 361,900 Shares
as a result of the exercise of the over-allotment option granted to the
underwriters in connection with the IPO.
On October 7, 1993, the Trust consummated a second public offering (the
"Second Offering") of 2,200,000 Shares. On November 3, 1993, the Trust sold
an additional 50,000 Shares as a result of the exercise of the over-allotment
option granted to the underwriters in connection with the Second Offering.
The Trust and its consolidated subsidiaries are hereinafter referred to
as the "Company".
(b) Developments During the 1998 Fiscal Year
In March 1998, the Company acquired one shopping center in Georgia for
approximately $4,000,000. This shopping center was under contract as of
December 31, 1997 and was the last of a portfolio of five Georgia properties
to be acquired. The other four properties were acquired prior to December 31,
1997. The Company funded the purchase of the property through the assumption
of approximately $3,300,000 of debt, the issuance of approximately $320,000
of Shares and the payment of approximately $225,000 of cash.
In September 1998, the Company acquired nine community shopping centers
in five midwestern and southern states for approximately $89,000,000. The
Company funded the purchase of the property through a 10-year 7% fixed rate
$65,900,000 mortgage with Salomon Brothers Realty Corp. and the draw down of
$23,100,000 from the secured line of credit with Salomon Brothers Realty
Corp. The centers, seven of which are anchored by Wal-Mart, have a total of
approximately 1.4 million square feet of gross leasable area and were
approximately 99% leased when purchased. The acquisition resulted in an
increase of approximately 15% in gross leasable area.
In August 1998, the Company sold one of its free-standing properties
located in Richmond, Virginia, for a sale price of $420,000. The Company
recorded a gain on sale of the property of $89,000. In July 1998, the
Company sold a parcel of land of approximately 8,500 square feet at one of
its properties to a third party buyer. The sales price of the land parcel
was $40,000 and the Company recorded a gain on the sale of approximately
$20,000.
On August 12, 1998, the Company commenced an Exchange Offer pursuant to
which the Company offered to exchange an aggregate of $8,000,000 of Callable
Convertible Subordinated Notes Due 2008, for an aggregate of 10,379,531
shares of common stock, par value $.01 per share (the "NAI Shares") of New
America Network, Inc., a Delaware corporation which conducts business under
the name New America International ("NAI"), or approximately 80% of the
outstanding NAI Shares. Pursuant to the terms of the proposed transactions,
NAI would have become a public company which would have been approximately
9.8% owned by the Company and would have provided for a long-term cooperative
agreement under which the two companies would collaborate in developing new
opportunities and revenue streams for each other from real estate brokerage
and related services, but would otherwise remain independent. In December
1998, the Company terminated the Exchange Offer with NAI due to disruptions
to the securities markets. It was in management's opinion that a public
offering of a small capitalization company would not be favorable at that
time. Under a new agreement, the Company invested $1,000,000 for a minority
interest in NAI common stock and entered into an intercompany agreement with
NAI.
In November 1998, the Company adopted a shareholder rights plan under
which the Company has declared a distribution of one Preferred Share Purchase
Right (collectively, the "Rights") on each outstanding share of Kranzco's
common shares of beneficial interest. The Rights were designed to assure
that all of the Company's shareholders receive fair and equal treatment in
the event of any proposed takeover of the Company and to guard against
abusive tactics to gain control of Kranzco. The Rights were not adopted in
response to any specific takeover threat, but were a response to the general
takeover environment in the REIT industry. The Rights are intended to enable
all of the Company's shareholders to realize the long-term value of their
investment in Kranzco. The Rights will not prevent a takeover, but should
encourage anyone seeking to acquire Kranzco to negotiate with the Board prior
to attempting a takeover. The Rights will expire on November 10, 2008.
During 1998, the Company had two anchor tenants, Bradlees and Caldor,
which were in bankruptcy under Chapter 11 of the bankruptcy code. In general,
in a Chapter 11 proceeding, the tenant is required to pay the full rental to
the landlord for the store on a current basis unless the lease is
disaffirmed.
In January 1999, Bradlees announced that they emerged from Chapter 11.
The Bradlees store is located in Bethlehem, Pennsylvania and is
approximately 85,899 square feet. This store is open and operating with
rental obligations being paid on a timely basis in accordance with the lease.
The Caldor stores are located in Towson, Maryland, Bristol, Pennsylvania and
Hamilton Township, New Jersey and are approximately 94,600, 113,160 and
119,935 square feet, respectively. The Towson lease is guaranteed by The May
Company. The three stores represent approximately $2.8 million or 3.9% of
the Company's annual revenues. The average annual rent paid by Caldor for
these locations is approximately $6.15 per square foot. In January 1999,
Caldor announced that it would discontinue operations and close all stores
during 1999. The Company is awaiting notice as to whether its leases are
assigned in the bankruptcy liquidation proceedings. If not, the Company will
seek replacement tenants for these spaces.
(c) Financial Information About Industry Segments
The Company is in the business of owning, managing, operating, leasing,
acquiring, developing, investing in and disposing of neighborhood and
community shopping centers and free-standing properties. The Company
internally evaluates all properties as one segment and accordingly will not
report segment information. See the Consolidated Financial Statements and
Notes thereto included in Item 8 of this Annual Report on Form 10-K for
certain financial information required by Item 1.
(d) Narrative Description of Business
General At March 23, 1999, the Company owned and operated 67
neighborhood and community shopping centers and free-standing properties (the
"Properties") aggregating approximately 9.1 million square feet of GLA
located in Arizona, Connecticut, Georgia, Florida, Kentucky, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee and
Virginia.
The Company is self-administered and self-managed and does not engage or
pay a REIT advisor because the Company provides management, leasing,
accounting, legal, design and construction expertise through its own
personnel or, where appropriate, through outside professionals.
The Company's executive offices are located at 128 Fayette Street,
Conshohocken, Pennsylvania 19428 and its telephone number is (610) 941-9292.
Operating Strategies The Company's primary business objective is to
achieve growth in its funds from operations by enhancing the operating
performance of the Properties and, through selective acquisitions, the value
of its portfolio. The Company's operating strategies are to: (i) focus on
the neighborhood and community shopping center business; (ii) actively manage
its properties for long-term growth in funds from operations and capital
appreciation; (iii) increase portfolio occupancy by capitalizing on
management's reputation and long-standing relationships with national and
regional tenants and extensive experience in marketing to local tenants, as
well as the negotiating leverage inherent in a large portfolio of properties;
(iv) maintain, renovate, expand and reconfigure its properties; (v) optimize
the tenant mix in each shopping center; (vi) develop or ground lease
outparcels or expansion areas existing from time to time at its properties
for use as restaurants, banks, auto centers, cinemas or other facilities; and
(vii) benefit from economies of scale by spreading overhead expenses over a
larger asset base.
Acquisition Strategies/Investment Strategies The Company intends to
make acquisitions in a manner consistent with the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") applicable to REITs
and related regulations with respect to the composition of the Company's
portfolio and the derivation of income unless, because of circumstances or
changes in the Code (or any related regulation), the trustees (the
"Trustees") of the Company determine that it is no longer in the best
interests of the Company to qualify as a REIT. The Company's acquisition
strategy is to opportunistically acquire properties which need replacement
anchor tenants or where the Company's management expertise and reputation can
enhance value. That strategy includes acquiring and rehabilitating
properties in new markets with strong demographic characteristics in order to
reduce the Company's sensitivity to regional economic cycles. The Company
does not intend to invest in excess of 15% of its assets in any single
property.
The Company will generally acquire 100% fee simple or leasehold
interests in real property consistent with the Company's acquisition
strategies set forth above. However, the Company may make equity investments
through joint ventures with developers, owners or other persons which may
provide for, among other terms, (i) a cumulative preference as to cash
distributions; (ii) a participation in net cash flows from operations; and
(iii) a participation in the appreciation of the value of the underlying real
property. The Company contemplates that it would maintain at least equal
control over the underlying real property to be operated by any joint venture
(including possibly the day-to-day management of the real property) and
additional investments in or sale or financing of such underlying real
property. The Company may also acquire investments in real property or real
estate oriented companies through issuance of debt or equity securities in
exchange for investments or by such other methods as the Trustees deem to be
in the best interests of the Company.
Financing Strategies The Company intends to maintain a conservative
ratio of debt to estimated value of the Company's real estate assets (as
determined by the Trustees, taking into consideration the tenants in
occupancy, gross rental revenues, geographic location and other factors
affecting the value of the Company's properties) ("Debt Ratio") of generally
not more than 50%, depending on current market conditions. At December 31,
1998, the Company had a Debt Ratio of approximately 55% and a ratio of debt
to total market capitalization, based upon the closing price of the Company's
stock on the New York Stock Exchange as of December 31, 1998, of
approximately 62%. The Company intends to finance acquisitions with the most
appropriate sources of capital, as determined by the Trustees, which may
include available cash flows from operations, the issuance of equity
securities, the sale of investments and, within the debt guidelines described
above, bank and other institutional borrowings and the issuance of debt
securities. Future borrowings by the Company for acquisitions may be either
on a secured or unsecured basis. In this regard, in addition to the
$181,700,000 real estate mortage loan (the "Mortgage Loan"), the Company has
obtained several credit facilities as described below.
The Company has a $1.0 million unsecured credit facility from First
Union National Bank (the "First Union Facility"). Amounts borrowed under
the line of credit bear interest at the bank's prime rate. As of December
31, 1998, there were no borrowings outstanding under the First Union
Facility. The facility was extended through March 31, 1999.
The Company has a $3.0 million secured line of credit facility from Bank
Leumi Trust Company of New York (the "Bank Leumi Facility"). Amounts
borrowed under the Bank Leumi Facility will bear interest at 50 basis points
above that bank's reference rate. Borrowings under the Bank Leumi Facility
are secured by a first mortgage lien on the Golfland Shopping Center in
Orange, Connecticut. There were no outstanding borrowings under this
facility as of December 31, 1998. The expiration date of the Bank Leumi
Facility was extended to June 30, 1999.
In September 1998, the Company increased its secured line of credit from
Salomon Brothers Realty Corp. to $100 million from $50 million (the "Salomon
Facility"). Eighteen of the Company's shopping centers or portions thereof
secure the Salomon Facility. Amounts borrowed under the Salomon Facility
will bear interest at a rate equal to the one month London Interbank Offering
Rate ("LIBOR") plus a spread of 175 basis points. The term of the Salomon
Facility was extended to July 2000, with an option for a one year renewal.
As of December 31, 1998, the Company had $42 million of outstanding
borrowings under this facility.
Operating Practices Virtually all operating and administrative
functions, such as leasing, data processing, maintenance, finance,
accounting, construction and legal, are centrally managed at the Company's
headquarters. In addition, the Company maintains regional offices at The
Village of Mableton in Mableton, Georgia, The Mall at Cross County in
Yonkers, New York and Marumsco Plaza, in Woodbridge, Virginia. On-site
functions such as security, maintenance, landscaping, sweeping, plumbing,
electrical and other similar activities are either performed by the Company
or subcontracted. The cost of these functions are passed through to tenants
to the extent permitted by their respective leases.
The Company has proprietary sophisticated computer software systems
designed to support its operating and administrative functions and to
optimize management's ability to own, operate and manage additional
properties without significant increase in its general and administrative
expenses. The Company's systems allow instant access to floor plans, store
availability, lease data, tenants' sales history, cash flows and budgets.
The Company believes its systems to be as advanced as any in the industry.
Competition All of the Company's properties are located in developed
retail and commercial areas. There are generally numerous other neighborhood
and community shopping centers within a five-mile radius of each of the
properties. In addition, with respect to some of the Company's properties
there are one or more regional malls within a 10-mile radius. The amount of
rentable space in the area could have a material effect on the Company's
ability to rent space and the rents charged. In addition, the Company will
be competing with others who may have greater financial resources and
experience than the Company and its officers and Trustees for tenants and
acquisitions.
Employees As of December 31, 1998, the Company had approximately 60
full and part-time employees. None of the Company's employees are subject to
a collective bargaining agreement and the Company has experienced no
labor-related work stoppages. The Company considers its relations with its
personnel to be good.
Business Risks The Company is subject to risks arising in connection
with the underlying real estate, including defaults under or nonrenewal of
tenant leases, tenant bankruptcies, competition, inability to rent unleased
space, failure to generate sufficient income to meet operating expenses,
including debt service (including "balloon" payments on certain financial
obligations), capital expenditures and tenant improvements, environmental
matters, financing availability and costs, and changes in real estate and
zoning laws. The success of the Company also depends upon certain key
personnel, its ability to maintain its qualification as a REIT, compliance
with the terms and conditions of its mortgages and the credit facilities and
trends in the national and local economy, including income tax laws,
governmental regulations and legislation and population trends.
Tax Status The Company has elected to be taxed as a REIT under Sections
856 through 860 of the Code. So long as the Company qualifies for taxation
as a REIT, the Company generally will not be subject to Federal income tax to
the extent it distributes at least 95% of its REIT taxable income to its
shareholders. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to Federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
federal income and excise taxes on its undistributed income.
Item 2. Properties
Shopping Center Properties The Company owns and operates 67
neighborhood and community shopping centers and free-standing properties
located in Arizona, Connecticut, Georgia, Florida, Kentucky, Maryland,
Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee and
Virginia. The Properties were designed to attract local area customers and
are typically anchored by a supermarket, discount department store or
drugstore, and are diversified in size, ranging from 387,000 square feet of
gross leasable area to a free-standing restaurant of only 4,000 square feet
of gross leasable area. Typical tenants are Wal-Mart (at 11 Properties),
Kmart (8), A & P SuperFresh Supermarkets (2), Pathmark Supermarkets (6),
Stop & Shop (4), The Sports Authority (2), Food Lion (4), Ames (3), Kroger
(3), Home Depot (1), Fashion Bug (15), Marshalls/TJ Maxx (4), Cato (14),
Eckerd Drug (6), Drug Emporium (3), Toys "R" Us (1) and Kids "R" Us (3). At
36 of the Properties, free-standing restaurants, retail stores or banks, such
as McDonalds, Ponderosa, Pizza Hut, First Union National Bank, Auto Zone,
Tire America and Somerset Tire Service, are businesses located on
Out-Parcels. Three of the Properties are community malls of 295,000 square
feet, 262,000 square feet and 177,000 square feet, respectively. One is
anchored by Kmart and Ames Department Store while another is anchored by Kids
"R" Us, The Sports Authority, Circuit City, National Wholesale Liquidators
and TJ Maxx. The third is anchored by Ames Department Stores. Thirteen of
the Properties contain additional land for expansion of existing stores and
thirty one of the Properties have Out-Parcels available for development of
free-standing buildings for use as restaurants, banks, auto centers, cinemas
and other operations.
The Properties are smaller than regional malls, depend less on long
travel times and the sale of major consumer goods and focus on everyday
purchases from a smaller customer base. Discount stores and supermarkets
attract convenience goods shoppers and bring customers to the smaller
satellite shops. Shopping centers of this kind are typically less vulnerable
to shifts in population and traffic patterns and rely heavily on weekly
advertising by the anchor tenants.
Consistent with its intention to retain its shopping centers for
long-term investment, the Company intends to continue to pursue a program of
regular physical maintenance, together with major renovations and
refurbishing, to preserve and increase the value of the Properties. These
projects usually include or will include renovating existing facades,
installing uniform signage, resurfacing parking lots and increasing parking
lot lighting.
A substantial portion of the income from the Properties consists of rent
received under long-term leases. Most of the leases provide for the payment
of fixed minimum rent monthly in advance and for the payment by tenants of a
pro rata share of the real estate taxes, insurance, utilities and common area
maintenance of the shopping center. Certain of the major tenant leases
provide that the landlord is obligated to pay certain of these expenses above
or below specific levels. Except for Wal-Mart, Pathmark Supermarkets, Kmart,
Stop & Shop and Caldor, which represented approximately 7%, 4%, 4%, 3% and
3%, respectively, no tenant represented more than 3% of the aggregate minimum
rent of the Properties as of December 31, 1998. Minimum rent revenues and
operating expense reimbursements accounted for approximately 98% of the total
revenues of the Company for the year ended December 31, 1998. A majority of
the leases associated with the Properties also provide for the payment of
percentage rent calculated as a percentage of a tenant's gross sales above
predetermined thresholds. Percentage rent accounted for appoximately 2% of
the total revenues of the Company for the year ended December 31, 1998.
The leases of space at the Properties typically require the landlord to
provide maintenance of a shopping center's common areas, including cleaning,
lighting, paving, security, landscaping and insurance, the costs of which are
typically reimbursed to the landlord by the tenants. The landlord is also
typically required to make roof and structural repairs as needed, which in
some cases are without reimbursement. The leases for larger shopping center
tenants often restrict the ability of tenants to assign or sublet their
spaces and require tenants to use the space they lease for the purposes
designated in the leases and to operate their businesses on a continuous
basis. However, certain of the leases with major tenants contain
modifications of these provisions as a result of the financial condition,
stability or desirability of such tenants. If a tenant assigns or subleases
its space, the original tenant generally will remain liable for the payment
of rent under the lease.
Three of the Properties and a portion of another are subject to
long-term ground leases where a third party owns and has leased the
underlying land to the Company to operate a shopping center. The Company
pays rent for the use of the land and generally is responsible for all costs
and expenses associated with the building and improvements. At the end of
the lease term, unless extended, the land, together with all improvements
thereon, will revert to the land owner without compensation to the Company.
As of March 1, 1999, the occupancy rate for the Properties was
approximately 93%. The property table set forth below gives more specific
information with respect to each of the Properties as of March 1, 1999.
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth certain information as of March 1, 1999 relating to the Shopping Center Properties owned by the
Company:
Gross Percent
Location of Year Ownership Leasable Leased Anchor Tenants
Shopping Developed Interest/ Land Area Area (1) (lease expiration/
Shopping Center Property Center or Aquired (expiration) (acres) (Sq. Ft.) option expiration)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arizona
Sinclair Paints Tuscon 1997 Fee 0.77 14,840 100.00% Sinclair Paints(2000/2020)
Connecticut
Golfland Orange 1984 Fee 6.20 60,580 100.00% Pathmark (2008/2038) (1)
Groton Square Groton 1987 Fee 17.74 191,955 98.47% Stop & Shop (2007/2027),
Stop & Shop (2007/2027) (1)
Manchester Kmart Plaza Manchester 1994 Fee 21.06 183,376 100.00% Kmart(2002/2022), Stop &
Shop(2018/2058), Pep Boys
(2016/2036)
Milford Milford 1966 Leasehold (2020) 3.00 25,200 100.00% Xpect Discount Drug
(1999/2009)
Orange Orange 1967 Leasehold (2006) 3.43 27,000 100.00% Countrywide Floor Coverings
(2004/2004)
Parkway Plaza I Hamden 1982 Fee 6.55 72,530 92.07% Pathmark (2007/2037) (1)
Parkway Plaza II Hamden 1985 Fee 8.00 131,100 53.72% Kids R Us (2006/2026),
Pathmark (2005/2035)(1)
Stratford Square Stratford 1984 Fee 19.58 160,176 99.00% Pathmark (2009/2039) (1),
Marshalls (2000/2010)
Florida
Village Oaks Pensacola 1998 Fee 15.74 171,653 100.00% Wal Mart (2008/2038),
Haverty Furniture Company
(2003/2018)
Georgia
Bainbridge Town Center Bainbridge 1997 Fee 19.86 143,729 98.89% Kmart(2015/2065), Food
Lion(2010/2030)
Douglasville Crossing Douglasville 1998 Fee 35.67 267,800 100.00% Cub Foods Inc. (2010/2035),
Rhodes Furniture (2000/2010)
Holcomb Bridge Roswell 1997 Fee 11.27 105,420 100.00% Cub Foods Inc. (2008/2033),
Georgetown Interiors
(2003/2008)
Northpark Macon 1997 Fee 19.04 195,355 99.18% Kroger(2008/2028),
Kmart(2013/2063)
Park Plaza Douglasville 1997 Fee 8.30 46,495 93.24% Kroger(not owned by the
Company)
Snellville Oaks Snellville 1998 Fee 36.37 220,885 93.98% Wal Mart(2011/2041), Georgia
State Theatres (2015/2025)
Summerville Wal Mart Center Summerville 1998 Fee 9.06 67,809 100.00% Wal Mart(2004/2034)
Tifton Corners Tifton 1998 Fee 20.03 186,629 100.00% Wal Mart(2011/2041), Bruno's
(2010/2025)
Tower Plaza Carrollton 1997 Fee 10.20 87,990 94.05% Bruno's (2007/2027)
Vidalia Wal Mart Center Vidalia 1998 Fee 7.42 93,696 100.00% Wal Mart(2005/2035)
Village at Mableton Mableton 1997 Fee 23.30 239,474 94.54% Kmart(2014/2064), Cub Foods
(2009/2029), CVS (2004/2019)
(1)
Kentucky
Harrodsburg Marketplace Harrodsburg 1997 Fee 7.00 60,048 91.01% Kroger(2007/2027)
Maryland
Anneslie Baltimore 1993 Fee 9.26 134,543 100.00% Caldor (2011/2041) (3)
Campus Village College Park 1995 Fee 1.89 25,529 100.00% None
Coral Hills Coral Hills 1995 Fee 7.00 86,050 90.27% Shoppers Food Warehouse
(2004/2029)
Fox Run Prince 1994 Fee 40.87 293,492 98.86% Kmart(2016/2066), Giant
Frederick Foods (2021/2051), Peebles
(2012/2032)
Hillcrest Plaza Frederick 1995 Fee 12.00 109,071 89.02% Shoppers Food Warehouse
(1999/2024)
Massachusetts
Ames Center Raynham 1997 Fee 5.76 55,000 100.00% Ames(2011/2031)
Michigan
Builder's Square Flint 1997 Fee 8.20 80,000 100.00% Builder's Square(2006/2026)
Musicland Livonia 1997 Fee 8.83 80,000 100.00% Media Play(2007/2027)
Minnesota
Baker's Square Minnetonka 1997 Fee 1.30 3,881 100.00% Baker's Square(2001/2021)
Baker's Square Roseville 1997 Fee 1.30 5,067 100.00% Baker's Square(2001/2021)
Mississippi
Brookway Village Brookhaven 1997 Fee 6.00 47,587 100.00% Delchamps(2008/2028) (1)
Towne Square Columbus 1997 Fee 9.77 116,378 82.92% Goody's(1998/2008), Jitney
Jungle(2003/2003)
New Jersey
Collegetown Glassboro 1989 Fee 23.00 250,223 97.24% Kmart (2001/2021), Acme
(1999/2044)
Hillcrest Mall Phillipsburg 1985 Fee 18.00 220,985 57.62% Staples(2010/2025), Warren
Hospital (2008/2018)
Suburban Plaza Hamilton 1994 Fee 23.15 239,723 96.27% Caldor (2013/2033), Shop
Rite (2002/2020 ) (3)
New York
A & P Mamaroneck Mamaroneck 1976 Fee 2.17 24,978 100.00% A & P (2006/2016)
The Mall at Cross County Yonkers 1986 Fee 10.07 262,218 98.64% National Wholesale
Liquidators (2012/2032),T.J.
Maxx (2004/2014)
The Sports Authority
(2010/2025), Circuit
City(2018/2038)
Highridge Yonkers 1977 Fee 8.90 88,501 93.65% Pathmark (2003/2027)
North Ridge New Rochelle 1971 Fee 2.80 42,198 98.94% Harmon Cosmetics(2007/2017),
NRHMC(2011/2016)
Port Washington Port 1968 Leasehold (2067) 1.00 19,600 100.00% North Shore Farms
Washington (2003/2033)
Village Square Larchmont 1981 Fee 0.93 17,126 94.39% Trader Joe's (2008/2023)
North Carolina
Cary Plaza Cary 1997 Fee 8.32 60,702 97.69% Food Lion(2010/2030)
Magnolia Plaza Morganton 1997 Fee 17.14 104,539 98.85% Ingles
Supermarket(2007/2062),
Goody's(1999/2004)
Ohio
Pickaway Crossing Circleville 1999 Fee 13.48 127,130 97.14% Wal Mart (2009/2039)
Pennsylvania
69th Street Plaza Upper Darby 1994 Fee 2.96 42,500 100.00% Drug Emporium (2000/2006)
Barn Plaza Doylestown 1987 Fee 35.00 210,782 100.00% Acme (2007/2037), Marshalls
(2004/2019), Regal Cinemas,
Inc.(2018/2026)
Bensalem Square Bensalem 1983 Fee 16.38 72,558 100.00% Pathmark (2009/2039)
Bethlehem Square Bethlehem 1987 Fee 48.00 386,820 99.28% Bradlees (2007/2025),TJ Maxx
(2006/2021), Home Depot
(2010/2040)
Shop Rite (2010/2030)
Bradford Mall Bradford 1990 Fee (2) 30.00 287,975 99.79% Kmart (2004/2049),
Consolidated
Stores(2002/2012), Ames
(2008/2026)
Bristol Commerce Park Bristol 1992 Fee 50.00 273,229 98.39% Superfresh (2008/2038),
Caldor (2013/2033) (3)
Franklin Center Chambersburg 1997 Fee 25.02 174,892 95.48% Food Lion(2010/2030), Big
Lots(2001/2011),Lowe's
(2010/2018)
MacArthur Road Whitehall 1993 Fee 4.74 50,856 100.00% Oak Works (2007/2017),
Frank's Nursery (2002/2032)
Park Hills Plaza Altoona 1985 Fee 24.00 279,858 97.86% Weis Market (2022/2037),
Dunham's Sporting
Goods(2004/2014),
Toys R Us (2015/2035),
Staples (2010/2020),
Superpetz (2005/2015)
Pilgrim Gardens Drexel Hill 1986 Fee 5.00 83,358 98.56% Loehmann's (2003/2013), QVC
Network, Inc. (1999/1999)
Street Road Bensalem 1993 Fee 10.35 68,031 100.00% Drug Emporium (2002/2008),
Frank's Nursery (2007/2022)
Valley Fair Tredyffrin 1993 Fee 11.14 113,000 85.99% Filene's
Basement(2009/2019), MedMax
(2008/2018) (1)
Valley Forge Mall Phoenixville 1985 Fee 18.00 177,379 72.41% Eckerd Drug (2000/2010),
Ames ( 2017/2025)
Whitehall Square Whitehall 1986 Fee 30.44 298,023 99.63% Stop & Shop (2006/2024),
Phar Mor (2001/2016),
Today's Man (2002/2007),
The Sports Authority
(2006/2036), Kids R Us
(2007/2027) (1)
Rhode Island
Wampanoag Plaza East 1989 Fee 18.00 242,162 82.49% Rx Drug (2001/2016),
Providence Cherry&Webb(2000/2005),
Marshalls (2001/2001),
Savers/TVI, Inc.(2010/2025)
South Carolina
East Main Centre Spartanburg 1997 Fee 23.06 171,595 100.00% Wal Mart(2009/2039),
Goody's(1999/2009)
Park Centre Columbia 1997 Fee 20.64 190,705 100.00% Wal Mart(2009/2039), Harris
Teeter(2012/2015)
Tennessee
Meeting Square Jefferson
City 1998 Fee 9.43 92,968 100.00% Wal Mart(2009/2039), Food
Lion (2009/2039) (1)
Virginia
Culpeper Town Mall Culpeper 1995 Fee 27.48 133,321 58.28% Central Tractor(2000/2010),
Schewel Furniture
(2001/2006),
Marumsco-Jefferson Plz. Woodbridge 1995 Fee 36.00 329,305 71.21% Giant Food
Store(2004/2024),Peebles
(2004/2010), CVS (2002/2002)
Statler Crossing Staunton 1998 Fee 21.04 166,944 97.12% Wal Mart (2009/2039), Rack
'N Sack (2013/2028) (1)
---------------------
Total 1,017.41 9,094,522 93.73%
=====================
Footnotes:
(1) Includes space for which rent is being paid but which is not presently occupied.
(2) 84,692 square feet gross leasable area is subject to a ground lease which expires in 2004.
(3) Includes data for Caldor stores which will close in 1999.
/TABLE
<PAGE>
Corporate Headquarters The Company leases from Norman M. Kranzdorf and
his wife a three-story building containing approximately 20,000 square feet
located at 128 Fayette Street, Conshohocken, Pennsylvania 19428, which serves
as the Company's headquarters. This lease was extended to January 14, 2004
and provides that the Company will pay a rental of $153,720 per annum. The
lease also requires the Company to pay for all real estate taxes, utilities,
repairs and other costs and expenses in connection with the use and occupancy
of the building.
Item 3. Legal Proceedings
The Company is not presently involved in any material litigation nor, to
its knowledge, is any material litigation threatened against the Company or
its properties. The Company is involved in routine litigation arising in the
ordinary course of business and which is expected to be covered by the
Company's liability insurance.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
(a) Market Information
The Shares have been listed on the New York Stock Exchange ("NYSE")
since November 19, 1992 under the symbol "KRT." On March 23, 1999, the last
reported sale price of the Shares on the NYSE was $12.625. The following
table shows the high and low sales price for the Shares for the fiscal
periods indicated as reported by the New York Stock Exchange Composite Tape
and the cash distributions per Common Share paid by the Company with respect
to each such period.
1998 High Low Distributions
First Quarter $19.63 $17.38 $.48
Second Quarter $18.69 $17.50 $.48
Third Quarter $19.00 $15.00 $.48
Fourth Quarter $16.38 $13.38 $.48
1997 High Low Distributions
First Quarter $17.63 $15.38 $.48
Second Quarter $17.38 $15.75 $.48
Third Quarter $19.75 $16.88 $.48
Fourth Quarter $20.00 $18.50 $.48
(b) Holders
The approximate number of holders of record of the Shares was 929 as of
March 23, 1999.
(c) Recent Sales of Unregistered Securities
On April 1, 1998, July 1, 1998, October 1, 1998 and January 1, 1999,
Shares were issued to the non-employee trustees of the Company (the "Trustee
Shares"). Trustee Shares issued to Dr. Peter Linneman, Mr. Bernard Korman,
Mr. James Selonick and Mr. E. Donald Shapiro totalled 1,194, 1,148, 493 and
1,302, respectively, for the above periods. Mr. Gerald Finn filled the
vacancy left on the Board of Trustees and received 54, 307 and 502 Trustee
Shares on July 1, 1998, October 1, 1998 and January 1, 1999, respectively,
The Trustee Shares were issued to such individuals in lieu of (i) their
annual trustee fee of $18,000, and (ii) a fee of $1,500 for each regular
Board meeting attended. The Trustee Shares were valued based on the closing
price of the Shares on the New York Stock Exchange on the last business day
of the fiscal quarter preceding the date of grant. No underwriter was used
in connection with the issuance of the Trustee Shares. For the fiscal year
1998, the non-employee trustees received an aggregate of 5,000 Shares having
an aggregate value of $82,500 at the respective dates of grant.
On July 1, 1998, the Company issued 13,049 restricted Shares (the
"Employee Shares") to certain employees. The Employee Shares were valued
based on a per share price of $18.44 and were issued as bonuses for
performance. The Employee Shares vest over a period of three years from the
date of issuance, although employees are immediately entitled to the
dividends from the date of grant. No underwriter was used in connection with
the issuance of the Employee Shares.
On March 26, 1998, the Company issued 16,842 Shares (the "GP Development
Shares") in connection with the purchase of the fifth of the five Georgia
Properties. The GP Development Shares were valued at approximately $320,000
and were issued to the seller of the properties. The other four centers were
acquired in December 1997 and the Company issued 67,369 GP Development Shares
at that time. No underwriter was used in connection with the issuance of
these shares.
The issuance of the Trustee Shares, the Employee Shares and the GP
Development Shares were exempt from registration under the Securities Act of
1993, as amended (the "Act"), as transactions by an issuer not involving any
public offering in accordance with Section 4(2) of the Act.
d) Distributions
The Company declared distributions to common shareholders aggregating
$1.92 per Share during the fiscal year ended December 31, 1998. Of these
distributions, it was determined that $0.83 per share is a return of capital
and $1.09 per share is ordinary income.
The Company has paid regular quarterly cash distributions on the Shares
since it commenced operations as a REIT in November 1992.
Future distributions paid by the Company will be at the discretion of
the Trustees and will depend on the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Trustees deem relevant.
The Company has adopted a dividend reinvestment plan pursuant to which
shareholders may elect to automatically reinvest their distributions in
Shares. To fulfill its obligations under this dividend reinvestment plan,
the Company will, from time to time, repurchase Shares in the open market or
issue new Shares.
Item 6. Selected Financial Data
The following table sets forth on a historical basis Selected Financial
Data for the Company, This information should be read in conjunction with
the financial statements of the Company (including the related notes thereto)
and Management's Discussion and Analysis of the Financial Condition and
Results of Operations. The historical Selected Financial Data for Kranzco
Realty Trust has been derived from the audited financial statements.
KRANZCO REALTY TRUST
Year Ended December 31--
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands except share and per share data)
OPERATING DATA:
Revenue
Minimum rent $56,823 $47,579 $41,665 $40,259 $33,166
Percentage rent 1,233 1,163 1,042 1,044 1,000
Expense reim-
bursements 12,800 11,165 11,732 10,988 9,455
Interest income 335 278 624 902 985
Other income 151 127 117 277 434
------ ------ ------ ------ ------
Total revenue 71,342 60,312 55,180 53,470 45,040
Operating expenses,
exclusive of interest,
depreciation and
amortization 23,242 17,807 18,382 16,482 15,638
Interest expense 21,764 18,887 17,069 16,208 10,469
Depreciation and
amortization 14,582 12,534 11,194 10,903 9,066
------ ------ ------ ------ ------
Income before gain
(loss) on sale of
real estate and
extraordinary items 11,754 11,084 8,535 9,877 9,867
Gain (loss) on sale of
real estate 109 0 (63) 0 0
Extraordinary loss on
early extinguishment
of debt/debt
refinancing 0 (467) (11,052) 0 0
------ ------ ------ ------ ------
Net income (loss) 11,863 10,617 (2,580) 9,877 9,867
Preferred share
distributions 7,984 3,565 695 485 0
------ ------ ------ ------ ------
Net income (loss) for
common shareholders $3,879 $7,052 ($3,275) $9,392 $9,867
------ ------ ------ ------ ------
Basic earnings (loss)
per common share $0.37 $0.68 ($0.32) $0.91 $0.96
------ ------ ------ ------ ------
Diluted earnings (loss)
per common share $0.37 $0.68 ($0.32) $0.91 $0.95
------ ------ ------ ------ ------
Weighted average number
of Common Shares
outstanding 10,478,793 10,341,958 10,327,795 10,319,464 10,315,497
BALANCE SHEET DATA:
Real estate, before
accumulated
depreciation $584,883 $484,741 $370,491 $368,073 $318,870
Total assets $546,516 $466,220 $359,157 $372,983 $331,779
Total mortgages and
notes payable $350,141 $255,124 $212,590 $204,247 $160,771
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At December 31, 1998 the Company had $2,913,000 of cash on hand. In
addition to its cash reserve, unused capacity under credit facilities totaled
$13,000,000 at year end.
As of December 31, 1998 the Company had total mortgages and notes
payable of $350,141,000 of which $301,032,000 bear interest at fixed rates
ranging from 7.00% to 10.50%. The weighted average interest rate of all of
the Company's mortgages and notes payable as of December 31, 1998 was 7.83%.
As of December 31, 1998, the Company is required to make aggregate principal
payments on all of its outstanding indebtedness of $8,247,000 in 1999,
$50,082,000 in 2000, $5,279,000 in 2001, $4,354,000 in 2002 and $193,970,000
in 2003.
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. 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 entire principal balance of the Mortgage Loan is due
in June 2003. The Mortgage Loan is secured by twenty-seven of the Company's
properties (the "Mortgaged Properties").
As a condition of the Mortgage Loan, the Company was required to
establish a Sinking Fund Account and a Capital and TI Reserve Account. The
balance in the Sinking Fund Account was $349,000 as of December 31, 1998.
All funds in the Capital and TI Reserve Account may be used on a current
basis to fund capital improvements, repairs, alterations, tenant improvements
and leasing commissions at the Mortgaged Properties. The balance in the
Capital and TI Reserve Account was $178,000 as of December 31, 1998.
As of December 31, 1998, the Company has two floating rate mortgages
with principal outstanding of $7,109,000. The interest rate on both of the
mortgages is equal to the sum of Moody's A Corporate Bond Index Daily Rate
minus 0.125% per annum, rounded up to the next highest 1/8 percentage rate.
The rates are reset once a year. As of December 31, 1998, the rates of the
two mortgages were 6.875% and 7.00%.
The Company has available a $3.0 million secured line of credit from
Bank Leumi Trust Company of New York which expires in June 1999. This line
is secured by a property in Orange, CT. Amounts borrowed under the line bear
interest at 50 basis points above that bank's reference rate, which was 7.75%
as of December 31, 1998. There were no outstanding borrowings under this
facility as of December 31, 1998.
The Company also has available a $1.0 million unsecured line of credit
from First Union National Bank. Amounts borrowed under the line will bear
interest at the bank's prime rate, which was 7.75% at December 31, 1998. The
facility has been extended through March 31, 1999, and there were no
borrowings outstanding under this facility as of December 31, 1998.
In 1997, the Company obtained a secured first mortgage loan facility of
up to $50 million from Salomon Brothers Realty Corp. (the "Salomon
Facility"). In September 1998, the Company doubled this Salomon Facility to
$100 million from $50 million. The maturity of the Salomon Facility was
extended two years to July 2000, with an option for a one-year extension.
Eighteen of the Company's shopping centers or portions thereof secure the
mortgage loan facility. Amounts borrowed under the Salomon Facility bear
interest at a rate equal to the one-month London Interbank Offering Rate
("LIBOR") plus a spread of 175 basis points, which was 7.30% as of December
31, 1998. The Salomon Facility requires the following covenants be met:
consolidated equity will not fall below $175 million; consolidated income
available for debt service will not be less than 1.75 to 1.0; and debt to
market cap will not be above 70%. The Company is in compliance with these
covenants. There was $42,000,000 of outstanding borrowings under this
facility as of December 31, 1998. The proceeds of the Salomon Facility were
used by the Company for funding property acquisitions, general corporate
purposes and capital needs.
In March 1998, the Company acquired one shopping center in Georgia for
approximately $4,000,000. This shopping center has approximately 95,800
square feet of gross leasable area. The shopping center was under contract
as of December 31, 1997 and was the last of a package of five Georgia
properties to be acquired. The other four properties were acquired prior to
December 31, 1997. The Company funded the purchase of the property through
the assumption of approximately $3.3 million of debt, the issuance of
approximately $320,000 of Shares and the payment of approximately $225,000 of
cash.
In September 1998, the Company acquired nine community shopping centers
in five midwestern and southern states for approximately $89,000,000. The
Company funded the purchase of the property through a 10-year 7% fixed rate
$65,900,000 mortgage with Salomon Brothers Realty Corp. and the draw down of
$23,100,000 from the Salomon Facility. The centers, seven of which are
anchored by Wal-Mart, have a total of approximately 1.4 million square feet
of gross leasable area and were approximately 99% leased when purchased.
The acquisitions described above resulted in a 18% increase in the
Company's gross leasable square feet and enabled the Company to expand into
three additional states.
In August 1998, the Company sold one of its free-standing properties
located in Richmond, Virginia, for a sale price of $420,000. The Company
recorded a gain on sale of the property of $89,000. In July 1998, the
Company sold a parcel of land of approximately 8,500 square feet at one of
its properties to a third party buyer. The sales price of the land parcel
was $40,000 and the Company recorded a gain on the sale of approximately
$20,000.
On August 12, 1998, the Company commenced an Exchange Offer pursuant to
which the Company offered to exchange an aggregate of $8,000,000 of Callable
Convertible Subordinated Notes Due 2008, for an aggregate of 10,379,531
shares of common stock, par value $.01 per share (the "NAI Shares") of New
America Network, Inc., a Delaware corporation which conducts business under
the name New America International ("NAI"), or approximately 80% of the
outstanding NAI Shares. Pursuant to the terms of the proposed transactions,
NAI would have become a public company which would have been approximately
9.8% owned by the Company and would have provided for a long-term cooperative
agreement under which the two companies would collaborate in developing new
opportunities and revenue streams for each other from real estate brokerage
and related services, but would otherwise remain independent. In December
1998, the Company terminated the Exchange Offer with NAI due to disruptions
to the securities markets. It was management's opinion that a public
offering of a small capitalization company would not be favorable at that
time. Under a new agreement, the Company invested $1million for a minority
interest in NAI common stock and entered into an intercompany agreement with
NAI.
In August 1998, pursuant to a registered offering, the Company received
net proceeds of $1.3 million and issued 73,455 common shares of beneficial
interest. The proceeds were used for general corporate purposes.
The National Association of Real Estate Investment Trusts ("NAREIT")
defines funds from operations as income before depreciation and amortization
of real estate assets and significant non-recurring events, less gains on
sale of real estate. Funds from operations does not represent cash flows from
operations as defined by generally accepted accounting principles and is not
necessarily indicative as a measure of liquidity of the Company. Also, funds
from operations should not be construed as an alternative to net income as
defined by generally accepted accounting principles as an indicator of the
Company's operating performance. Funds from operations for common
shareholders decreased $1,611,000 or 8% from $19,428,000 for the year ended
December 31, 1997 to $17,817,000 for the year ended December 31, 1998.
The Company has several tenants who are operating under Chapter 11 of
the United States Bankruptcy code. Among the tenants are Caldor (three stores
representing approximately $2.8 million or 3.9% of the Company's annual
revenues). Caldor announced in January 1999 that it was liquidating. At the
Company's Anneslie Shopping Center in Baltimore, Maryland, the Caldor lease
is guaranteed by The May Company. The Company is awaiting notice of whether
its leases are purchased as part of the bankruptcy liquidation. In the
meantime, management is seeking potential replacement tenants for the three
locations. Bradlees, a tenant at the Company's Bethlehem Square shopping
center, was in bankruptcy during 1998. In January 1999, Bradlees emerged
from bankruptcy protection and continues to operate and pay its obligations
in accordance with its lease at this location. Other tenants in the
Company's portfolio that continue to pay current rent and operate their
stores under Chapter 11 are individually less than 1% and in the aggregate
just over 1% of the Company's annual revenues. The Company believes that it
is adequately reserved for these tenants.
During the year ended December 31, 1998, the Company invested
approximately $92,692,000 in the acquisition of new property and $8,360,000
in the expansion and improvement of existing shopping center properties. 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 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
issue additional equity securities.
Management believes it has adequate access to capital to continue to
meet its short-term and long-term requirements and objectives.
The Company has substantially completed a review of its Information
Technology ("IT") Systems and non-IT Systems regarding Year 2000 compliance.
All required changes to mission critical systems found thus far have been
completed and successfully tested. All desktop computer systems and network
systems are believed to be Year 2000 compliant.
At this time, management does not believe that the Company is
responsible for any computer controlled systems that are vulnerable to the
Year 2000 problem such as HVAC, elevators or alarms at any of its properties.
While the Company is still in the process of completing this review, all
vendors of such systems that are known to us have been contacted. All of the
Company's tenants have been notified of the issues regarding the Year 2000.
The Company expects to have completed identification, remediation and
testing of all of its systems by May of 1999.
Costs for modifications to current IT systems have not been separated
from ongoing IT expenses due to their limited nature. Similarly, no budget
has been allocated for future costs due to their minor contribution to
ongoing IT operations.
There can be no guarantee that the Company will identify all IT and
non-IT systems that may be vulnerable to Year 2000 issues prior to January 1,
2000 or February 29, 2000. To the extent that systems are overlooked or
remediation measures are themselves subject to error, the Company may
experience loss of normal operation which could adversely effect the
Company's operating results and financial condition.
Tenants of the Company's properties may own or maintain IT and non-IT
systems which are not Year 2000 compliant. To the extent that such tenants
are unable to process payments or otherwise perform business as usual, the
Company's operating results and financial condition could be adversely
effected. However, all leases will remain in full effect and tenants will
remain liable for all amounts due to the Company after the change to the Year
2000. Requiring tenants' representations of Year 2000 compliance would have
little if any effect on the situation and the Company does not intend to
pursue this course.
Vendors of the Company may own or maintain IT and non-IT systems which
are not Year 2000 compliant. To the extent that such vendors are unable to
render critical services, the Company's operating results and financial
condition could be adversely effected. In particular, outages of utilities
such as gas, electric and phone service could have a severely negative impact
on the Company's ongoing operations at any of its locations. The Company is
in contact with certain vendors regarding the Year 2000, but requiring all
vendors' representations of Year 2000 compliance would have little if any
effect on the situation and the Company does not intend to pursue this
course.
Due to the widely varying potential impacts of the Year 2000 problem,
the Company does not believe it is reasonable to assign dollar amounts
attendant to the various risks and outcomes at this time.
Based on current information, the Company does not consider it necessary
to develop a formal contingency plan. Ad-hoc contingency plans regarding some
of the Company's IT systems are being assembled, and a formal plan will be
considered as a part of our ongoing Year 2000 planning.
Results of Operations
Year ended December 31, 1998 versus the year ended December 31, 1997
Net income for common shareholders decreased $3,173,000 from $7,052,000
or $0.68 per common share in 1997 to $3,879,000 or $0.37 per common share in
1998. This decrease is due to a combination of factors as described below,
but is primarily attributable to two charges in 1998. The Company reserved
approximately $250,000 of costs incurred in the terminated transaction with
NAI (see above for additional details). The Company also recorded a charge
of approximately $2,863,000 related to straight-line rentals and pre-petition
rents, primarily for the three Caldor stores.
Minimum rent increased $9,244,000 or 19% from $47,579,000 for the year
ended December 31, 1997 to $56,823,000 for the year ended December 31, 1998.
The increase was primarily due to the additional rents from a full year of
operations of the twenty centers acquired by the Company in
1997(approximately $5,594,000 increase from prior year), as well as an
increase in the minimum rents of approximately $2,468,000 from the ten
shopping centers purchased by the Company in 1998. The remaining increase of
approximately $1,182,000 was an increase in the minimum rents of the
Company's shopping centers owned prior to 1997.
Expense reimbursements increased $1,635,000 or 15% from $11,165,000 for
the year ended December 31, 1997 to $12,800,000 for the year ended December
31, 1998. The increase was primarily due to higher common area maintenance
expenses in 1998 (see operations and maintenance expenses below), as well as
the additional reimbursements from the operations of the ten centers acquired
by the Company during 1998 of approximately $514,000.
Interest income increased $57,000 or 21% from $278,000 for the year
ended December 31, 1997 to $335,000 for the year ended December 31, 1998.
The increase was primarily due to the additional cash on hand in the
beginning of the year which represented the net proceeds from the issuance of
the Company's Series D Preferred Shares in December 1997. These proceeds
were invested in a money market fund.
Interest expense increased $2,877,000 or 15% from $18,887,000 for the
year ended December 31, 1997 to $21,764,000 for the year ended December 31,
1998. The increase is primarily due to the operations of the ten centers
acquired by the Company in 1998 of approximately $1,425,000 as well as a full
year of interest expense for the four centers acquired by the Company in
December 1997 of approximately $1,872,000. In addition, interest expense was
reduced by capitalized interest on projects under construction and land under
development in the amount of $947,000 and $850,000 during 1997 and 1998,
respectively.
Depreciation and amortization increased $2,048,000 or 16% from
$12,534,000 for the year ended December 31, 1997 to $14,582,000 for the year
ended December 31, 1998. The increase was primarily due to the additional
depreciation of approximately $553,000 for the operations of the ten centers
acquired by the Company in 1998 and the additional depreciation for a full
year for the twenty centers acquired in 1997.
Real estate taxes increased $820,000 or 12% from $6,584,000 for the year
ended December 31, 1997 to $7,404,000 for the year ended December 31, 1998.
The increase was primarily due to the additional real estate taxes of
approximately $366,000 for the ten centers acquired by the Company in 1998.
The remaining increase was due to a full years expense recorded in 1998 for
the twenty centers purchased in 1997. The increase was offset by the
capitalization of real estate taxes on projects under construction of
$188,000 and $142,000 during the years 1997 and 1998, respectively.
Operations and maintenance expenses increased $4,016,000 or 48% from
$8,346,000 for the year ended December 31, 1997 to $12,362,000 for the year
ended December 31, 1998. The increase was primarily due to the Company's
provision of $2,863,000 of straight-line rents and pre-petition rent
receivables for certain tenants in bankruptcy, primarily Caldor. The
additional increase relates to additional monies spent in 1998 for repairs at
the centers as well as an increase in insurance costs for the additional
centers purchased in 1998 and the full year's effect for those centers
purchased during 1997.
General and administrative expenses increased $599,000 or 21% from
$2,877,000 for the year ended December 31, 1997 to $3,476,000 for the year
ended December 31, 1998. The increase is primarily due to salaries which
were capitalized in 1997 in connection with acquisitions. Due to a change in
accounting rules, internal salary costs, even though directly attributable to
the project, are no longer permitted to be capitalized as part of the
acquisition costs. The Company also recorded a $250,000 charge for
transaction costs related to the December termination of a proposed exchange
offer with NAI. In lieu of the proposed exchange offer, the Company made a
$1,000,000 investment for a minority interest in NAI.
Year ended December 31, 1997 versus the year ended December 31, 1996
Net income (loss) for common shareholders increased $10,327,000 from a
loss of ($3,275,000) or ($0.32) per common share in 1996 to net income of
$7,052,000 or $0.68 per common share in 1997. Excluding the extraordinary
losses on early extinguishment of debt and debt refinancing, the net income
for common shareholders decreased $258,000 or 3% from $7,777,000, or $0.75
per common share in 1996 to $7,519,000, or $0.73 per common share in 1997.
This decrease is due to a combination of factors as described below.
Minimum rent increased $5,914,000 or 14% from $41,665,000 for the year
ended December 31, 1996 to $47,579,000 for the year ended December 31, 1997.
The increase was primarily due to the additional rents from ten months of
operations of the sixteen centers acquired by the Company in February
1997(approximately $6,056,000), which was offset by a net decrease in the
minimum rents of approximately $142,000 from the other thirty-eight shopping
centers, excluding the Georgia Properties.
Expense reimbursements decreased $567,000 or 5% from $11,732,000 for the
year ended December 31, 1996 to $11,165,000 for the year ended December 31,
1997. The decrease was primarily due to the common area maintenance expenses
which were significantly lower in 1997 due to the severe winter weather in
the Northeast portion of the United States in 1996, offset by the additional
reimbursements from ten months of operations for the sixteen centers acquired
by the Company during February 1997.
Interest income decreased $346,000 or 55% from $624,000 for the year
ended December 31, 1996 to $278,000 for the year ended December 31, 1997.
The decrease was primarily due to the sale of the Series A-2 Commercial
Mortgage Modified Pass - Through Interest Only Certificates (the "Series A-2
Certificates"). The Series A-2 Certificates provided for payment of interest
only at 65 basis points calculated on a notional amount of $100,000,000. The
Series A-2 Certificates were sold in connection with the debt refinancing in
June 1996.
Interest expense increased $1,818,000 or 11% from $17,069,000 for the
year ended December 31, 1996 to $18,887,000 for the year ended December 31,
1997. The increase is primarily due to ten months of operations of the
sixteen centers acquired by the Company in February 1997 of approximately
$2,285,000. In addition, interest expense was reduced by capitalized
interest on projects under construction and land under development in the
amount of $252,000 and $947,000 during 1996 and 1997, respectively.
Depreciation and amortization increased $1,340,000 or 12% from
$11,194,000 for the year ended December 31, 1996 to $12,534,000 for the year
ended December 31, 1997. The increase was primarily due to the additional
depreciation of approximately $1,191,000 for ten months of operations of the
sixteen centers acquired by the Company in February 1997.
Real estate taxes increased $511,000 or 8% from $6,073,000 for the year
ended December 31, 1996 to $6,584,000 for the year ended December 31, 1997.
The increase was primarily due to the additional real estate taxes of
approximately $342,000 for approximately ten months of operations of the
sixteen centers acquired by the Company in February 1997. The increase was
offset by the capitalization of real estate taxes on projects under
construction of $124,000 and $188,000 during the years 1996 and 1997,
respectively.
Operations and maintenance expenses decreased $1,127,000 or 12% from
$9,473,000 for the year ended December 31, 1996 to $8,346,000 for the year
ended December 31, 1997. The decrease 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).
General and administrative expenses increased $41,000 or 1% from
$2,836,000 for the year ended December 31, 1996 to $2,877,000 for the year
ended December 31, 1997. The increase is primarily due to additional
salaries for new employees in 1997.
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 tenants' 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.
Item 7a. Quantitative and Qualitative Disclosures about Market Risks
The Company's primary exposure to market risk is to changes in
interest rates. The Company has $350,141,000 of debt outstanding as of
December 31, 1998 of which 86% has been borrowed at fixed rates ranging from
7.00% to 10.50%. As these debt instruments mature, the Company typically
refinances such debt at their existing market interest rates which may be
more or less than interest rates on the maturing debt.
Item 8. Financial Statements and Supplementary Data
The response to this Item 8 is included as a separate section of Item 14
in Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Director and Executive Officers of the Registrant
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual
Meeting of Shareholders to be held on June 2, 1999.
Item 11. Executive Compensation
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual
Meeting of Shareholders to be held on June 2, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual
Meeting of Shareholders to be held on June 2, 1999.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the year covered by this Form 10-K with respect to its Annual
Meeting of Shareholders to be held on June 2, 1999.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) (1) Financial Statements
Kranzco Realty Trust
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements Of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements Of Beneficiaries' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements Of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes To Consolidated Financial Statements
(2) Financial Statement Schedule
Kranzco Realty Trust
Report of Independent Public Accountants
Schedule III - Real Estate and Accumulated Depreciation - December 31,
1998
Notes to Schedule III
(3) Exhibits
3.1 Amended and Restated Declaration of Kranzco Realty Trust.
(Incorporated by reference to Exhibit 3.4 of the Company's
Registration Statement No.33-49434.)
3.2 Amendment of Amended and Restated Declaration of Trust, dated
December 31, 1995. (Incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.)
3.3 Amendment No. 2 of Amended and Restated Declaration of Trust,
dated June 4, 1997. (Incorporated by reference to Exhibit 4.1(c)
of the Company's Registration Statement on Form S-3 filed July 31,
1997.)
3.4 Amended and Restated Bylaws of Kranzco Realty Trust, as amended.
4.1 Specimen certificate for Common Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement No.33-49434.)
4.2 Articles Supplementary for the Series A Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest.
(Incorporated by reference to the Company's Report on Form 8-K
dated May 4, 1995.)
4.3 Articles Supplementary Classifying 11,155 Shares of Beneficial
Interest as Series A-1 Increasing Rate Cumulative Convertible
Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 4.5 of the Company's Registration Statement
on Form S-4 No. 333-18249.)
4.4 Articles Supplementary for the Company's Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 3.4 of the Company's
Registration Statement on Form 8-A dated February 27, 1997.)
4.5 Articles Supplementary for the Company's Series B-2 Cumulative
Convertible Preferred Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-4 No. 333-18249.)
4.6 Articles Supplementary for the Company's Series C Cumulative
Redeemable Preferred Shares of Beneficial Interest. (Incorporated
by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-4 No. 333-18249.)
4.7 Articles Supplementary for the Company's Series D Redeemable
Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 3.5 of the Company's Registration Statement
on Form 8-A filed December 10, 1997.)
4.8 Specimen of the Company Series D Redeemable Preferred Shares of
Beneficial Interest. (Incorporated by reference to Exhibit 4.1 of
the Company's Registration Statement on Form 8-A filed December
10, 1997.)
4.9 Specimen of the Company's Rights Certificate. (Incorporated by
reference to Exhibit B of Exhibit 10.1 of the Company's Current
Report on Form 8-K filed November 12, 1998.)
4.10 Articles Supplementary for the Company's Series E Junior
Participating Preferred Shares of Beneficial Interest.
(Incorporated by reference to Exhibit A of Exhibit 10.1 of the
Company's Current Report on Form 8-K filed November 12, 1998.)
10.1 Kranzco Realty Trust 1992 Employees Share Option Plan, as amended.
(Incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.)
10.2 Kranzco Realty Trust 1992 Employees Share Option Plan, amended.
(Incorporated by reference to Exhibit 10.11 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.)
10.3 Kranzco Realty Trust 1995 Incentive Plan. (Incorporated by
reference to Exhibit 4.4 of the Company's Registration Statement
on Form S-8 No. 33-94294.)
10.4 Loan Agreement dated as of February 26, 1997 with Salomon Brothers
Realty Corp. (Incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K filed March 14, 1997.)
10.5 Global Promissory Note dated February 26, 1997 in the amount of
$50,000,000 executed in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K filed March 14, 1997.)
10.6 Unlimited Guaranty of Payment dated as of February 26, 1997 issued
by Kranzco Realty Trust in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.3 of the Company's
Current Report on Form 8-K filed March 14, 1997.)
10.7 Form of Exemplar Open End Fee and Leasehold Mortgage, Assignment
of Leases and Rents, Security Agreement and Fixture Filing made by
the Borrowers for the benefit of Salomon Brothers Realty Corp.,
and filed in Pennsylvania, New York, Connecticut, Rhode Island,
Mississippi, North Carolina, Kentucky, Massachusetts, Minnesota,
Arizona, Georgia, and Michigan with respect to Bradford Mall,
Bradford, PA; Barn Plaza, Doylestown, Pennsylvania; Circuit City
at Mall at Cross County, Yonkers, New York; Parkway Plaza I,
Hamden, Connecticut; Valley Forge Mall, Phoenixville,
Pennsylvania; Wampanoag Plaza, East Providence, Rhode Island;
Brookway Village, Brookhaven, Mississippi; Magnolia Plaza,
Morganton, North Carolina; Harrodsburg Marketplace, Harrodsburg,
Kentucky; Franklin Center, Chambersburg, Pennsylvania; Ames
Center, Raynham, Massachusetts; Baker's Square, Minnetonka,
Minnesota; Baker's Square, Roseville, Minnesota; Sinclair Paints,
Tucson, Arizona; 30000 Plymouth Road, Livonia, Michigan; Tower
Plaza, Georgia; 1615 E. Shotwell Street, Bainbridge Town Center,
Georgia; and Filene's Basement at Valley Fair, 260 West Swedesford
Road, Devon, Pennsylvania. (Incorporated by reference to Exhibit
10.4 of the Company's Current Report on Form 8-K filed March 14,
1997.)
10.8 Trust and Servicing Agreement, dated as of June 18, 1996, among
KRT Origination Corp., GE Capital Management Corporation and State
Street Bank and Trust Company. (Incorporated by reference to
Exhibit 10.43 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.9 Cash Collateral Account, Security, Pledge and Assignment
Agreement, dated as of June 18, 1996, among the Borrowers, State
Street Bank and Trust Company, as Agent, and KRT Origination
Corp., as Lender. (Incorporated by reference to Exhibit 10.44 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
10.10 Cash Collateral Agreement, dated June 18, 1996, among the
Borrowers, and State Street Bank and Trust Company, as Agent.
(Incorporated by reference to Exhibit 10.45 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996)
10.11 $123,700,000.00 Class A Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.46 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.12 $20,600,000.00 Class B Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.47 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.13 $28,900,000.00 Class C Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.48 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.14 $8,500,000.00 Class D Mortgage Note dated June 18, 1996 made by
the Borrowers in favor of KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.49 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.15 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases,
Rents and Security Deposits made by the Borrowers, as grantor, for
the benefit of KRT Origination Corp., as mortgagee, and filed in
Connecticut, Maryland, New Jersey, New York and Pennsylvania with
respect to Groton Square in Groton, Connecticut, Manchester Kmart
in Manchester, Connecticut, Milford in Milford, Connecticut,
Orange in Orange, Connecticut, Fox Run in Prince Frederick,
Maryland, Hillcrest Plaza in Frederick, Maryland, Anneslie in
Baltimore, Maryland, Suburban Plaza in Hamilton, New Jersey,
Collegetown in Glassboro, New Jersey, Hillcrest Mall in
Phillipsburg, New Jersey, The Mall at Cross County in Yonkers, New
York, Highridge Plaza in Yonkers, New York, North Ridge in New
Rochelle, New York, Village Square in Larchmont, New York, A&P
Mamaroneck in Mamaroneck, New York, Port Washington in Port
Washington, New York, Bethlehem in Bethlehem, Pennsylvania,
Whitehall Square in Whitehall, , Pennsylvania, Bristol Commerce
Park in Bristol, Pennsylvania, Park Hills Plaza in Altoona,
Pennsylvania, Barn Plaza in Doylestown, Pennsylvania, Best Plaza
in Tredyffrin, Pennsylvania, Bensalem Square in Bensalem,
Pennsylvania, Street Road in Bensalem, Pennsylvania, Pilgrim
Gardens in Drexel Hill, Pennsylvania, 69th Street Plaza in Upper
Darby, Pennsylvania and MacArthur Road in Whitehall, Pennsylvania
(the "Properties"). (Incorporated by reference to Exhibit 10.50 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
10.16 Form of Unrecorded Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of
Leases, Rents and Security Deposits made by the Borrowers, as
grantor, for the benefit of KRT Origination Corp., and held in
escrow with respect to the Properties located in Maryland and in
New York. (Incorporated by reference to Exhibit 10.51 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
10.17 Escrow Agreement made among KRT Origination Corp., the Borrowers
and Robinson Silverman Pearce Aronsohn & Berman LLP, as escrow
agent, with respect to the unrecorded second mortgages covering
the Properties located in New York and Maryland. (Incorporated by
reference to Exhibit 10.52 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
10.18 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Norman M. Kranzdorf.
(Incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ended June 30, 1997.)
10.19 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Robert H. Dennis. (Incorporated
by reference to Exhibit 10.2 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.20 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Edmund Barrett. (Incorporated by
reference to Exhibit 10.3 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.21 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Bengt Danielsson. (Incorporated
by reference to Exhibit 10.4 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.22 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Michael Warrington.
(Incorporated by reference to Exhibit 10.5 of the Company's Form
10-Q for the quarter ended June 30, 1997.)
10.23 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Michael Kranzdorf. (Incorporated
by reference to Exhibit 10.6 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.24 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and Peter J. Linneman. (Incorporated
by reference to Exhibit 10.7 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.25 Severance Benefits Agreement dated as of March 28, 1997 by and
between Kranzco Realty Trust and E. Donald Shapiro. (Incorporated
by reference to Exhibit 10.9 of the Company's Form 10-Q for the
quarter ended June 30, 1997.)
10.26 Severance Benefits Agreement dated as of July 30, 1998 by and
between Kranzco Realty Trust and Gerald C. Finn.
10.27 Severance Benefits Agreement dated as of July 30, 1998 by and
between Kranzco Realty Trust and Bernard J. Korman.
10.28 Agreement dated October 30, 1997 between Kranzco Realty Trust and
GP Development Corporation. (Incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K dated November 25,
1997.)
10.29 Agreement and Plan of Merger dated October 30, 1997 between
Kranzco Realty Trust, GP Development Corporation, the shareholders
of GP Development Corporation and KR Atlanta, Inc. (Incorporated
by reference to Exhibit 2.2 of the Company's Current Report on
Form 8-K dated November 25, 1997.)
10.30 Mortgage Note for $6,700,000.00, dated as of October 5, 1990, from
Holcomb Bridge Partners, L.P., a Georgia limited partnership
("Holcomb"), in favor of Allstate Life Insurance Company
("Allstate") (relating to Holcomb Bridge Crossing). (Incorporated
by reference to Exhibit 2.3 of the Company's Current Report on
Form 8-K dated November 25, 1997.)
10.31 Modification of Mortgage Note, dated as of October 31, 1995,
between Holcomb and Harris Trust and Savings Bank ("Harris Trust")
(relating to Holcomb Bridge Crossing). (Incorporated by reference
to Exhibit 2.4 of the Company's Current Report on Form 8-K dated
November 25, 1997.)
10.32 Deed to Secure Debt, Assignment of Leases, Rents and Contracts,
Security Agreement and Fixture Filing ("Deed to Secure Debt") from
Holcomb to Allstate, dated as of October 5, 1990 (relating to
Holcomb Bridge Crossing). (Incorporated by reference to Exhibit
2.5 of the Company's Current Report on Form 8-K dated November 25,
1997.)
10.33 Modification of Deed to Secure Debt between Holcomb and Harris
Trust, dated as of October 31, 1995 (relating to Holcomb Bridge
Crossing). (Incorporated by reference to Exhibit 2.6 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.34 Real Estate Note for $3,725,000.00, dated as of August 6, 1987,
from West Stewarts Mill Associates, Ltd., a Georgia limited
partnership ("West Stewarts"), in favor of Confederation Life
Insurance Company, a mutual insurance company incorporated in
Canada ("Confederation"), first amendment thereto dated as of
November 27, 1987, second amendment thereto dated as of November
1, 1993, third amendment thereto dated as of November 1, 1993 and
fourth amendment thereto dated as of February 21, 1995 (relating
to Park Plaza). (Incorparated by reference to Exhibit 2.7 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.35 Deed to Secure Debt and Security Agreement between West Stewarts
and Confederation,dated as of August 6, 1987, first amendment
thereto dated as of November 27, 1987 and second amendment thereto
dated as of November 1, 1993 (relating to Park Plaza).
(Incorporated by reference to Exhibit 2.8 of the Company's Current
Report on Form 8-K dated November 25, 1997.)
10.36 Escrow Agreement, dated as of November 1, 1993, between
Confederation and West Stewarts. (Incorporated by reference to
Exhibit 2.9 of the Company's Current Report on Form 8-K dated
November 25, 1997.)
10.37 Promissory Note for $10,670,000.00, dated as of July 31, 1996,
from Mableton Village Associates, L.L.C., a Georgia limited
liability company ("Mableton Village"), in favor of Lehman
Brothers Holdings, Inc. d/b/a Lehman Capital ("Lehman") (relating
to The Village at Mableton). (Incorporated by reference to Exhibit
2.10 of the Company's Current Report on Form 8-K dated November
25, 1997.)
10.38 Deed to Secure Debt and Security Agreement, dated as of July 31,
1996, between Mableton Village and Lehman (relating to The Village
at Mableton). (Incorporated by reference to Exhibit 2.11 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.39 Sales Contract dated June 26, 1998 by and among Kranzco Realty
Trust, a Maryland real estate investment trust, and Europco
Property Investors II, Ltd., a Georgia limited partnership;
Europco Property Investors III, Ltd., a Georgia limited
partnership; Europco Property Investors IV, Ltd., a Georgia
limited partnership; Secured Properties Investors V, L.P., a
Georgia limited partnership; Secured Properties Investors VIII,
L.P., a Georgia limited partnership; Secured Properties Investors
IX, L.P. a Georgia limited partnership; and Tifton Partners, L.P.,
a Georgia limited partnership. (Incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K dated June
26, 1998, filed July 16, 1998.)
10.40 Fixed Rate Note, dated September 29, 1998, made by the Borrowers
named therein in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.38 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.)
10.41 Guaranty, dated as of September 29, 1998, made by and among
Kranzco Realty Trust, for the benefit of Salomon Brothers Realty
Corp. (Incorporated by reference to Exhibit 10.39 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.)
10.42 Form of Mortgage/Deed of Trust/Deed to secure Debt and Security
Agreement, dated September 29, 1998, made by the Borrowers named
therein for the benefit of Salomon Brothers Realty Corp. and filed
in Florida, Georgia, Ohio, Tennessee, and Virginia with respect to
Village Oaks, Pensacola, Florida; Vidalia Wal-Mart Center,
Vidalia, Georgia; Summerville Wal-Mart Center, Summerville,
Georgia; Tifton Corners, Tifton, Georgia; Douglasville Crossing,
Douglasville, Georgia; Snellville Oaks, Snellville, Georgia;
Pickaway Crossing, Circleville, Ohio; Meeting Square, Jefferson
City, Tennessee; and Statler Crossing, Staunton, Virginia.
(Incorporated by reference to Exhibit 10.40 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.)
10.43 Rights Agreement dated as of November 10, 1998 between Kranzco
Realty Trust and First Union National Bank, as Rights Agent. The
Rights Agreement includes as Exhibit A the form of Articles
Supplementary for the Preferred Shares, as Exhibit B the form of
Right Certificate and as Exhibit C the form of Summary of Rights
to Purchase Preferred Shares. (Incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K filed
November 12, 1998).
21 Subsidiaries of Kranzco Realty Trust.
23 Consent of Arthur Andersen LLP.
(4) Reports on Form 8-K
A Report on Form 8-K dated November 12, 1998 was filed by the Company
with the Securities and Exchange Commission on November 12, 1998. The
Company reported the adoption of a shareholders' rights plan.
A Report on Form 8-K dated October 13, 1998 was filed by the Company
with the Securities and Exchange Commission on October 13, 1998. The Company
reported the acquisition of nine shopping centers and an increase in an
available line of credit.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By: /s/ Norman M. Kranzdorf
-----------------------
Norman M. Kranzdorf
Chief Executive Officer
Dated: March 23, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Norman M. Kranzdorf President, Chief Executive March 23, 1999
- ------------------------- Officer and Trustee (Principal
Norman M. Kranzdorf Executive Officer)
/s/ Robert H. Dennis Chief Financial Officer, March 23, 1999
- ------------------------- Treasurer and Trustee (Principal
Robert H. Dennis Financial and Accounting Officer)
/s/ Edmund Barrett Chief Operating Officer, March 23, 1999
- ------------------------- Executive Vice President
Edmund Barrett and Trustee
/s/ Dr. Peter D. Linneman Trustee March 23, 1999
- -------------------------
Dr. Peter D. Linneman
/s/ E. Donald Shapiro Trustee March 23, 1999
- -------------------------
E. Donald Shapiro
/s/ Gerald C. Finn Trustee March 23, 1999
- -------------------------
Gerald C. Finn
/s/ Bernard J. Korman Trustee March 23, 1999
- -------------------------
Bernard J. Korman
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENTS ----
- --------------------
Kranzco Realty Trust
* Report of Independent Public Accountants F-1
* Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
* Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-3
* Consolidated Statements of Beneficiaries' Equity for the
years ended December 31, 1998, 1997 and 1996 F-4
* Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-5
* Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
Kranzco Realty Trust
* Report of Independent Public Accountants S-1
* Schedule III - Real Estate and Accumulated Depreciation -
December 31, 1998 S-2
* Notes to Schedule III S-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of Kranzco Realty Trust:
We have audited the accompanying consolidated balance sheets of Kranzco
Realty Trust (a Maryland trust) and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, beneficiaries'
equity and cash flows for each of the three years in the period ended
December 31, 1998. 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 audits.
We conducted our audits 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 audits provide 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 Kranzco Realty
Trust and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Philadelphia, Pennsylvania
February 22, 1999
<PAGE>
Kranzco Realty Trust and Subsidiaries
Consolidated Balance Sheets
December 31, December 31,
1998 1997
------------ ------------
ASSETS:
Shopping center properties owned, at cost
(Notes 1 and 9)
Buildings and improvements $437,242,000 $369,969,000
Land 147,641,000 114,772,000
------------- -------------
584,883,000 484,741,000
Less-accumulated depreciation 59,793,000 46,811,000
------------- -------------
525,090,000 437,930,000
Cash and cash equivalents (Note 1 ) 2,913,000 11,423,000
Restricted cash (Note 2) 1,465,000 883,000
Rents and other receivables, net of
allowance of $2,160,000 and
$1,152,000, December 31,1998 and
1997 (Notes 1, 3 and 4) 7,573,000 9,210,000
Prepaid expenses 2,237,000 1,870,000
Deferred financing costs, net of
accumulated amortization of $1,237,000
and $778,000, December 31,1998 and
1997 (Notes 1 and 2) 2,066,000 1,975,000
Deferred costs, net of accumulated
amortization of $1,040,000 and
$1,043,000, December 31,1998 and
1997 (Note 1) 2,753,000 2,119,000
Other assets 2,419,000 810,000
------------- -------------
Total assets $546,516,000 $466,220,000
============= =============
LIABILITIES:
Mortgages and notes payable (Notes
2 and 5) $350,141,000 $255,124,000
Tenant security deposits 1,453,000 1,318,000
Accounts payable and accrued expenses 3,234,000 2,831,000
Other liabilities 559,000 597,000
Distributions payable (Note 10) 6,650,000 6,010,000
------------- -------------
Total liabilities 362,037,000 265,880,000
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
REDEEMABLE PREFERRED SHARES, SERIES C,
$0.01 PAR VALUE; 44,550 AND 222,750 SHARES,
DECEMBER 31, 1998 AND 1997, RESPECTIVELY
(Notes 5 and 10) 445,000 2,228,000
BENEFICIARIES' EQUITY (Notes 5, 6 and 10):
Preferred shares of beneficial interest,
Series A-1, $0.01 par value; 11,155
shares, December 31, 1998 and 1997 1,000 1,000
Preferred shares of beneficial interest,
Series B-1 and B-2, $0.01 par value;
1,183,277 and 1,183,331 shares,
December 31, 1998 and 1997, respectively 12,000 12,000
Preferred shares of beneficial interest,
Series D, $0.01 par value; 1,800,000
shares, December 31, 1998 and 1997 18,000 18,000
Common shares of beneficial interest,
$0.01 par value; authorized 100,000,000
shares; issued and outstanding, 10,537,103
and 10,415,427 as of December 31, 1998
and 1997, respectively 105,000 104,000
Capital in excess of par value 263,370,000 261,097,000
Cumulative net income available for
common shareholders 37,685,000 33,806,000
Cumulative distributions on common
shares of beneficial interest (116,914,000) (96,771,000)
------------- ------------
184,277,000 198,267,000
Unearned compensation on restricted
shares of beneficial interest
(Note 6) (243,000) (155,000)
------------- -----------
Total beneficiaries' equity 184,034,000 198,112,000
------------- -------------
Total liabilities and beneficiaries'
equity $546,516,000 $466,220,000
============= =============
The accompanying notes are an integral part of these statements.
<PAGE>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Operations
For the year ended December 31,
1998 1997 1996
----------- ----------- -----------
REVENUES:
Minimum rent (Notes 1, 3 and 4) $56,823,000 $47,579,000 $41,665,000
Percentage rent (Note 1) 1,233,000 1,163,000 1,042,000
Expense reimbursements 12,800,000 11,165,000 11,732,000
Interest income 335,000 278,000 624,000
Other 151,000 127,000 117,000
----------- ----------- -----------
Total revenue 71,342,000 60,312,000 55,180,000
----------- ----------- -----------
EXPENSES:
Interest (Note 2) 21,764,000 18,887,000 17,069,000
Depreciation and amortization
(Note 1) 14,582,000 12,534,000 11,194,000
Real estate taxes 7,404,000 6,584,000 6,073,000
Operations and maintenance
(Note 3) 12,362,000 8,346,000 9,473,000
General and administrative
(Notes 7 and 8) 3,476,000 2,877,000 2,836,000
----------- ----------- -----------
Total expenses 59,588,000 49,228,000 46,645,000
----------- ----------- -----------
INCOME BEFORE GAIN (LOSS) ON SALE OF
REAL ESTATE AND EXTRAORDINARY ITEM 11,754,000 11,084,000 8,535,000
Gain (loss) on sale of real estate
(Note 9) 109,000 0 (63,000)
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 11,863,000 11,084,000 8,472,000
Extraordinary loss on early
extinguishment of debt/debt
refinancing (Notes 2, 5 and 9) 0 467,000 11,052,000
----------- ----------- -----------
NET INCOME (LOSS) 11,863,000 10,617,000 (2,580,000)
Preferred Share Distributions 7,984,000 3,565,000 695,000
----------- ----------- -----------
NET INCOME (LOSS) FOR COMMON
SHAREHOLDERS $3,879,000 $7,052,000 ($3,275,000)
=========== =========== ===========
Income before gain (loss) on sale
of real estate and before extraordinary
item per Common Share of Beneficial
Interest $0.36 $0.73 $0.75
Gain (loss) on sale of real estate
per Common Share of Beneficial Interest $0.01 $0.00 ($0.01)
Extraordinary loss on early
extinguishment of debt/debt
refinancing per Common Share
of Beneficial Interest $0.00 $(0.05) ($1.06)
----------- ----------- -----------
Basic and Diluted Earnings (Loss)
per Common Share of Beneficial
Interest $0.37 $0.68 ($0.32)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Beneficiaries' Equity
For the years ended December 31, 1998, 1997 and 1996
Unearned
Cumulative Compen-
Preferred Cumulative Distributions sation on
Common Preferred Shares of Net Income on Common Restricted
Shares of Shares of Beneficial Capital Available for Shares of Shares of
Beneficial Par Beneficial Interest In Excess Common Beneficial Beneficial
Interest Value Interest Par Value of Par Value Shareholders Interest Interest
---------- -------- ---------- ---------- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 10,322,858 $103,000 11,155 $1,000 $186,914,000 $30,029,000 ($57,061,000) ($104,000)
Issuance of common shares 9,949 - - - 145,000 - - (93,000)
Forfeiture of common shares (23) - - - - - - -
Accretion of discount on
preferred shares of
beneficial interest - - - - 118,000 (118,000) - -
Accretion of unearned
compensation on
restricted shares of
beneficial interest - - - - - - - 66,000
Net loss - - - - - (2,580,000) - -
Distributions on preferred
shares - - - - - (577,000) - -
Distributions on common
shares of beneficial
interest($1.92 per share) - - - - - - (19,830,000) -
---------- -------- ---------- ---------- ------------ ------------- ------------- ----------
BALANCE, DECEMBER 31, 1996 10,332,784 $103,000 11,155 $1,000 $187,177,000 $26,754,000 ($76,891,000) ($131,000)
Issuance of common shares 82,697 1,000 - - 1,545,000 - - (125,000)
Forfeiture of common shares (54) - - - (1,000) - - -
Issuance of preferred shares-
Series B-1, B-2 - - 1,183,331 12,000 29,354,000 - - -
Issuance of preferred shares-
Series D - - 1,800,000 18,000 42,927,000 - - -
Accretion of discount on
preferred shares of
beneficial interest - - - - 95,000 (95,000) - -
Accretion of unearned
compensation on restricted
shares of beneficial
interest - - - - - - - 101,000
Net income - - - - - 10,617,000 - -
Distributions on
preferred shares - - - - - (3,470,000) - -
Distributions on common
shares of beneficial
interest($1.92 per share) - - - - - - (19,880,000) -
---------- -------- ---------- ---------- ------------ ------------- ------------- ----------
BALANCE, DECEMBER 31, 1997 10,415,427 $104,000 2,994,486 $31,000 $261,097,000 $33,806,000 ($96,771,000) ($155,000)
Issuance of common shares 122,748 1,000 - - 2,218,000 - - (241,000)
Forfeiture of common shares (1,072) - - - (18,000) - - -
Conversion of Series B-1
to common shares - - (54) - (1,000) - - -
Accretion of discount on
preferred shares of
beneficial interest - - - - 74,000 (74,000) - -
Accretion of unearned
compensation on restricted
shares of beneficial
interest - - - - - - - 153,000
Net income - - - - - 11,863,000 - -
Distributions on preferred
shares - - - - - (7,910,000) - -
Distributions on common
shares of beneficial
interest($1.92 per share) - - - - - - (20,143,000) -
---------- -------- ---------- ---------- ------------ ------------- ------------- ----------
BALANCE, DECEMBER 31, 1998 10,537,103 $105,000 2,994,432 $31,000 $263,370,000 $37,685,000 ($116,914,000) ($243,000)
========== ======== ========== ========== ============ ============= ============= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Kranzco Realty Trust and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $11,863,000 $10,617,000 ($2,580,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 14,582,000 12,534,000 11,194,000
Amortization of deferred interest costs 0 0 674,000
Amortization of unearned compensation on
restricted shares of beneficial interest 153,000 101,000 66,000
(Gain) loss on sale of real estate (109,000) 0 63,000
Extraordinary loss on early extinguishment of
debt/debt refinancing 0 467,000 11,052,000
Changes in assets and liabilities:
(Increase) decrease in-
Rents and other receivables 1,637,000 451,000 (1,379,000)
Prepaid expenses (367,000) (141,000) 146,000
Other assets (284,000) (30,000) 23,000
Increase (decrease) in-
Accounts payable and accrued expenses 697,000 469,000 (578,000)
Tenant security deposits 135,000 182,000 7,000
Other liabilities (38,000) 70,000 (229,000)
------------ ------------ ------------
Net cash provided by operating activities 28,269,000 24,720,000 18,459,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in shopping center properties (97,387,000) (27,803,000) (2,418,000)
Net proceeds from sale of real estate 440,000 0 524,000
(Increase) decrease in other assets (1,325,000) 2,467,000 (2,329,000)
(Decrease) increase in accrued acquisition costs 185,000 (902,000) 1,500,000
Decrease in marketable securities 0 0 273,000
Increase in restricted cash (582,000) (554,000) (113,000)
Increase in deferred costs (1,120,000) (759,000) (496,000)
------------ ------------ ------------
Net cash used in investing activities (99,789,000) (27,551,000) (3,059,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid on common shares of
beneficial interest (20,084,000) (19,846,000) (19,830,000)
Distributions paid on preferred shares of
beneficial interest (7,329,000) (2,604,000) (577,000)
Issuance of common shares of beneficial
interest, net 1,638,000 120,000 52,000
Issuance of preferred shares of beneficial
interest, net 0 42,732,000 0
Redemption of redeemable preferred shares (1,782,000) (1,336,000) 0
Proceeds from sale of interest rate protection
agreements 0 0 3,935,000
Proceeds of mortgages and notes payable 95,400,000 20,404,000 181,700,000
Repayments of mortgages and notes payable (3,728,000) (30,158,000) (179,500,000)
(Decrease) increase in accrued expenses for
preferred share offering (479,000) 479,000 0
Increase in deferred financing costs (626,000) (838,000) (2,008,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 63,010,000 8,953,000 (16,228,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,510,000) 6,122,000 (828,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,423,000 5,301,000 6,129,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,913,000 $11,423,000 $5,301,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Accretion of discount on increasing rate
preferred shares $74,000 $95,000 $118,000
============ ============ ============
Preferred and common shares issued as part of
the purchase price for the acquisition of
real estate:
Fair value of assets acquired $3,665,000 $86,447,000 $0
Liabilities assumed 3,345,000 52,000,000 0
============ ============ ============
Preferred shares issued $0 $33,147,000 $0
Common shares issued $320,000 $1,300,000 $0
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
KRANZCO REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. 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 and free-standing
properties. The Company completed its initial public offering of shares of
beneficial interest and commenced operations on November 19, 1992. In
addition to its own properties, the Company may provide management
services for shopping centers owned by third parties. As of December 31,
1998, the Company owned 67 properties in nineteen Northeastern, Southern 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.
Segment Information
The Company internally evaluates all properties as one segment and
accordingly, will not report segment information.
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 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 carried at
depreciated cost. Depreciation is computed using the straight-line method
over the estimated useful life of thirty years for buildings and the lesser
of the useful life or lease term of the improvements. Maintenance and
repairs are charged to expense as incurred. The Company determines
potential impairment losses in accordance with the provisions of Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
Deferred Costs
Deferred costs relate to the placement of debt and costs of leasing the
shopping centers. Deferred 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.
Capitalized Charges
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 then depreciated over the estimated useful life of
the property. The Company capitalizes certain direct labor charges on
identifiable projects, such as certain significant tenant leases. These
costs are amortized over the length of the applicable leases.
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.
Comprehensive Income
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income." The standard establishes
additional disclosure for the elements of comprehensive income and a total
comprehensive income calculation. Net income as reported by the Company
reflects total comprehensive income for the years ended December 31, 1998,
1997 and 1996.
Earnings Per Share Data
In 1997, the FASB issued Statement No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings
per share ("EPS") and applies to entities with publicly held common stock or
potential common stock.
Basic Earnings Per Share ("Basic EPS") is based on the weighted average
number of common shares of beneficial interest outstanding. The weighted
average number of shares outstanding used in the Basic EPS computations was
10,478,793, 10,341,958 and 10,327,795 in 1998, 1997 and 1996, respectively.
The Diluted Earnings Per Share ("Diluted EPS") computations have been
adjusted to give effect to common share equivalents; specifically, common
share options outstanding. The weighted average number of shares outstanding
used in the Diluted EPS computations was 10,485,091, 10,348,216 and
10,327,925 in 1998, 1997 and 1996, respectively. The Company's Series A-1
and B Preferred Shares and the majority of the Company's stock options were
not included in the Diluted EPS calculation because their impact would be
anti-dilutive based on current market prices.
Statements 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
$22,196,000, $19,715,000, and $16,870,000 for the years ended December 31,
1998, 1997 and 1996, 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
shareholders, will differ from net income reported for financial reporting
purposes due to the differences in the cost basis for Federal income tax
purposes and in the estimated useful lives used to compute depreciation. The
Federal tax basis of the shopping center properties was $533,469,000 as of
December 31, 1998.
2. INDEBTEDNESS:
At December 31, 1998 and 1997, the Company had mortgages and notes payable
outstanding of $350,141,000 and $255,124,000, respectively.
In 1996, 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 Mortgage Loan is secured by twenty-seven
shopping center properties (the "Mortgaged Properties"). The entire
outstanding principal balance of the Mortgage Loan is due in June 2003. In
1996, the Company recorded an extraordinary loss on refinancing of
$11,052,000 including the write-off of approximately $8,844,000 of
unamortized deferred finance costs related to the debt instruments repaid, as
well as other costs including prepayment fees, premiums paid on repurchase of
the $100 million adjustable rate mortgage loan (the "$100 million REMIC")
certificates and professional 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 reduced the extraordinary loss on debt refinancing. Interest
expense for the years ended December 31, 1998, 1997 and 1996 on the
accompanying statements of operations is shown net of reimbursements of $0,
$0 and $275,000, respectively, relating to the interest rate protection
agreements and capitalized interest of $850,000, $947,000 and $252,000,
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. The balance in
the Sinking Fund Account as of December 31, 1998 and 1997 was $349,000 and
$204,000, respectively. All funds in the Capital and TI Reserve Account may
be used by the Company to fund capital improvements, repairs, alterations,
tenant improvements and leasing commissions at the Mortgaged Properties. The
balance in the Capital and TI Reserve Account was $178,000 and $182,000 as
of December 31, 1998 and 1997, respectively.
In September 1998, the Company obtained a $65.9 million fixed rate mortgage
from Salomon Brothers Realty Corp. This mortgage is secured by nine
properties acquired in September, 1998. The mortgage bears a fixed interest
rate of 7% per annum and requires monthly payments of interest and principal
based on a 30-year amortization. The mortgage matures on October 1, 2008.
Pursuant to the mortgage, the Company is required to make monthly escrow
payments for the payment of real estate taxes, insurance, tenant improvements
and repair reserves. The balance of the tenant improvement and repair
reserve account as of December 31, 1998 was $345,000.
In addition, the Company has eleven mortgages outstanding as of December 31,
1998 which were assumed in connection with various acquisitions of certain
shopping centers. These mortgages have maturity dates ranging from 1999
through 2009. Nine of the eleven mortgages assumed have fixed interest rates
ranging from 7.50% to 10.50%. The outstanding principal balance on these
mortgages at December 31, 1998 was approximately $53,527,000. The other two
mortgages have interest rates payable at a rate adjusted each year to equal
the sum of Moody's A Corporate Bond Index Daily Rate minus 0.125% per annum.
The outstanding principal balance on these mortgages at December 31, 1998
was approximately $7,109,000.
In 1998, the Company increased its secured line of credit from Salomon
Brothers Realty Corp. to $100 million from $50 million (the "Salomon
Facility"). Amounts borrowed under the line bear interest at the one month
London Interbank Offering Rate ("LIBOR") plus 175 basis points, which
interest rate was 7.30% at December 31, 1998. The weighted average interest
rate on the Salomon Facility was 7.29% for the year ending December 31, 1998.
As of December 31, 1998, there was $42,000,000 outstanding under this
facility and an additional $9,000,000 available for future borrowing. The
facility is secured by eighteen of the Company's shopping centers or portions
thereof and the due date was extended to July 2000. The Company has an
option to extend the facility for an additional year. As a condition of the
facility, the Company was required to establish a Repair Reserve Account for
immediate and ongoing capital expenditure reserves and replacement reserves.
The balance in the Repair Reserve Account was $422,000 as of December 31,
1998.
The Company has a $3.0 million secured line of credit from Bank Leumi Trust
Company of New York that expires June 30, 1999. Amounts borrowed under the
line will bear interest at 50 basis points above that bank's reference rate
which was 7.75% at December 31, 1998. The weighted average interest rate on
the Bank Leumi facility was 9.0% for the year ending December 31, 1998.
There was no outstanding borrowings under this facility as of December 31,
1998 and $1,000,000 outstanding as of December 31, 1997.
The Company has a $1.0 million unsecured line of credit from First Union
National Bank. Amounts borrowed under the line will bear interest at that
bank's prime rate. The weighted average interest rate on the First Union
facility was 8.16% for the year ending December 31, 1998. There were no
outstanding borrowings under this facility as of December 31, 1998 and 1997.
The facility was extended through March 31, 1999.
Aggregate principal payments on all outstanding indebtedness are due, as
follows:
1999 $ 8,247,000
2000 50,082,000
2001 5,279,000
2002 4,354,000
2003 193,970,000
Thereafter 88,209,000
------------
$350,141,000
------------
The carrying values of the long-term debt at December 31, 1998 and 1997 were
approximately equal to their respective fair values, as determined by using
year-end interest rates and market conditions.
3. RISKS AND UNCERTAINTIES:
The retailing industry has had numerous entities file for bankruptcy
protection in recent years. The Company has been affected by the bankruptcy
filing of two anchor tenants, Bradlees and Caldor, and several smaller
tenants at various properties in the portfolio. Bradlees has since emerged
from bankruptcy. The Company monitors each situation closely and believes
that it maintains adequate reserves against the risk of uncollectable amounts
associated with pre-petition rent, straight-line rental income and expense
reimbursements for certain of these tenants. The Company's releasing
assumptions provide for the related capital costs of retenanting including
capital improvements, tenant allowances and leasing commissions. The
Company believes that in the event certain leases are disaffirmed by these
anchor tenants, the existing lease terms are at or below market rental rates
and could be relet.
Caldor operates three stores representing approximately $2.8 million of the
Company's annual revenues. Caldor announced in January 1999 that they would
be closing all of their stores and cease operations. The Company is
currently waiting to receive notice if any of the three leases will be
purchased through the bankruptcy court. The lease for one of the stores is
guaranteed by The May Company. Should this lease not be purchased, The May
Company will be responsible for the charges in accordance with the lease
terms. In the fourth quarter of 1998, the Company recorded a charge of
approximately $2.9 million for receivables for straight line rents and
pre-petition charges for troubled tenants, primarily relating to the three
Caldor stores.
A provision for credit losses is recorded based on management's judgment of
tenant creditworthiness. This provision is recorded in operations and
maintenance expenses within the accompanying consolidated statements of
operations. The activity in the allowance for credit losses during 1998,
1997 and 1996 was as follows:
Balance at Provision Accounts Balance at
Beginning for Credit Written End of
Year Ended of Year Losses Off Year
- ------------------ ----------- ----------- ----------- ----------
December 31, 1998 $1,152,000 $3,443,000 ($2,435,000) $2,160,000
December 31, 1997 $1,245,000 $445,000 ($538,000) $1,152,000
December 31, 1996 $831,000 $717,000 ($303,000) $1,245,000
4. OPERATING LEASES:
The Company's shopping centers are leased to tenants under operating leases
with expiration dates extending to the year 2022. Future minimum rentals
under noncancellable operating leases, excluding tenant reimbursements of
operating expenses and additional contingent rentals based on tenants' sales
volume as of December 31, 1998 are as follows:
1999 $61,200,000
2000 $56,241,000
2001 $52,069,000
2002 $46,418,000
2003 $42,289,000
Thereafter $233,816,000
The revenue resulting from straight-line rental income adjustments for the
years ended December 31, 1998, 1997 and 1996 was $505,000, $946,000 and
$1,149,000, respectively. No tenant represented more than 10% of the minimum
rental revenues for 1998, 1997 or 1996.
5. PREFERRED SHARES OF BENEFICIAL INTEREST:
In connection with the purchase of five shopping centers in 1995, the Company
issued 11,155 shares of non-voting Series A-1 Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest, $0.01 par value per
share, of Kranzco Realty Trust (the "Series A-1 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. As of December 31, 1998, the
distribution rate on the Preferred Shares is 5.75%. 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 through a charge to cumulative net income available for common
shareholders. 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"), at a rate of 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, up to a maximum of the
greater of 500,000 Common Shares or 5% of the then outstanding Common Shares.
In connection with the acquisition of sixteen shopping centers in 1997, the
Company issued 1,183,331 shares of Series B-1 and Series B-2 Cumulative
Convertible Preferred Shares of Beneficial Interest (the "Series B Preferred
Shares"), par value $0.01 per share, each with a $25.00 per share liquidation
preference. These shares were recorded, net of issuance costs, at
approximately $29,366,000. The Series
B Preferred Shares have a distribution rate of 9.75% per annum and
distributions are paid quarterly in arrears for each calendar quarter on
January 20, April 20, July 20 and October 20 of each year. The Series B-1
Preferred Shares are convertible into Common Shares after February 1998 with
the following conversion prices: $19.175 in the first year, $18.69 in the
second year, $18.20 in the third year, $17.71 in the fourth year and
thereafter. In the second quarter of 1998, 54 shares of the Series B
Preferred Shares were converted into 70 Common Shares. The Series B-2
Preferred Shares automatically convert into Series B-1 Preferred Shares after
the third anniversary date and follow the conversion rates of the Series B-1
Preferred Shares thereafter. The Company also issued 356,400 shares of
Series C Cumulative Redeemable Preferred Shares of Beneficial Interest (the
"Series C Preferred Shares"), par value $0.01 per share, each with a $10.00
liquidation preference. These shares were recorded, net of issuance costs,
at approximately $3,560,000. The Series C Preferred Shares have a
distribution rate of 8% per annum and distributions are payable quarterly on
the last day of January, April, July and October of each year with respect to
the immediately preceding calendar quarter. The Company was required to
redeem, commencing April 1997, in eight equal quarterly installments all of
the outstanding Series C Preferred Shares at a redemption price equal to the
$10.00 liquidation price plus an amount equal to the accrued and unpaid
distributions, if any, allocable to the Series C Preferred Shares. The final
redemption of the Series C Preferred Shares was on January 29, 1999.
In December 1997, the Company issued 1,800,000 shares of 9 1/2% Series D
Cumulative Redeemable Preferred Shares of Beneficial Interest (the "Series D
Preferred Shares"), par value $0.01 per share, each with a $25.00 per share
liquidation preference. These shares were recorded, net of issuance costs,
at approximately $42,945,000. The proceeds of the issuance were used in
connection with the acquisition of four shopping centers in December 1997
(approximately $15,774,000), to repay approximately $19,810,000 of
indebtedness and for general corporate purposes. In connection with the debt
repayment, the Company recorded an extraordinary loss on the early
extinguishment of debt of $467,000 including the write-off of approximately
$179,000 of unamortized deferred finance costs related to the repaid debt
instruments and prepayment fees. The distributions are paid quarterly in
arrears for each calendar quarter on January 20, April 20, July 20 and
October 20 of each year. The Series D Preferred Shares are not redeemable
prior to December 11, 2002. On or after December 11, 2002, the Series D
Preferred Shares may be redeemed for cash at the option of the Company at a
redemption price of $25.00 per share, plus accrued and unpaid distributions,
if any, thereon to the redemption date.
Other than the 54 Series B Preferred Shares discussed above, there was no
conversion of preferred shares into common shares of beneficial interest
during 1998 or 1997.
6. SHARE OPTION PLANS, INCENTIVE PLAN AND WARRANTS:
The Company has established share option plans for the employees and trustees
of the Company. The employees' plan has a maximum of 300,000 shares
available for issuance and the trustees' plan has a maximum of 700,000 shares
available for issuance. The options are exercisable at a price not less
than fair market value at the date of grant and expire ten years after the
date of grant.
On June 6, 1995 the shareholders approved the Company's 1995 Incentive Plan.
The purpose of the Incentive Plan is to align the interests of the Company's
trustees, executive officers, key employees, advisors and consultants with
those of the shareholders and to enable the Company to attract, compensate
and retain trustees, executive officers, key employees, advisors and
consultants and provide them with appropriate incentives and rewards for
performance. Awards under the Incentive Plan may take the form of share
options ("Options"), including corresponding share appreciation rights
("SARs") and reload options, and in the case of employees, restricted share
awards, and share purchase awards. Awards under the Incentive Plan may be
granted in combination with other awards. The maximum number of Common Shares
that may be the subject of awards under the Incentive Plan is 1,000,000
Common Shares. The Incentive Plan provides that in any given year, the
maximum number of Common Shares with respect to which Options or SARs may be
granted to any employee is 100,000 Common Shares. During 1998, 1997 and
1996, 13,049, 7,711 and 6,445 restricted shares, respectively, were issued
to employees and officers of the Company at the then market price of $18.44,
$16.25 and $14.50 per share, respectively. The shares will vest with the
employees and be recorded as compensation expense over various periods of
time. Compensation expense of $153,000 in 1998, $101,000 in 1997 and $66,000
in 1996 was recognized in connection with these plans.
The following tables show the activity and balances for each share option
plan and the incentive plan:
<PAGE>
<TABLE>
<CAPTION>
Trustee Plan Employee Plan
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 430,800 387,800 381,800 191,550 133,200 133,200
Granted at
$19.06 per share - - - 7,500 - -
$18.31 per share 3,000 - - - - -
$15.50 per share - - 3,000 - - -
$15.125 per share - - 3,000 - - -
$16.25 per share - 43,000 - - 59,500 -
Exercised at
$17.13 per share (3,000) - - - - -
$16.25 per share - - - (3,750) - -
Retired at prices ranging
from $16.25 to $20.00 per share (3,000) - - (3,750) (1,150) -
-------- -------- -------- -------- -------- --------
Outstanding, end of year 427,800 430,800 387,800 191,550 191,550 133,200
</TABLE>
<PAGE>
Incentive Plan
1998 1997 1996
--------- --------- ---------
Outstanding, beginning of year 303,000 297,000 285,000
Granted at
$19.19 per share 12,000 - -
$18.31 per share 1,500 - -
$15.25 per share - - 12,000
$16.25 per share - 4,500 -
$16.00 per share - 1,500 -
Exercised at $15.25 per share (3,000) - -
-------- -------- --------
Outstanding, end of year 313,500 303,000 297,000
In connection with the acquisition of certain unaffiliated shopping center
properties, the Company issued 191,429 warrants in November 1992 to purchase
common shares of beneficial interest. These warrants were exercisable within
five years after issuance at $26 per share. No such warrants were exercised
and the warrants expired in November 1997.
During 1996, the Company adopted the stock-based compensation accounting
standard, "Accounting for Stock-Based Compensation"("SFAS No. 123"). SFAS
No. 123 encourages a fair value method of accounting for employee stock
options and similar equity instruments. The statement also allows an entity
to continue to account for stock-based compensation using the intrinsic value
based method in APB Opinion No. 25. As provided for in the statement, the
Company elected to continue the intrinsic value method of expense
recognition. If compensation cost for these plans had been determined using
the fair value method prescribed by SFAS No. 123, the Company's net income
(loss) would have reflected the pro forma amounts indicated below.
1998 1997 1996
---------- ---------- -----------
Net income (loss) for common
shareholders $3,852,000 $6,935,000 ($3,295,000)
Earnings (loss) per common share $0.37 $0.67 ($0.32)
The pro forma effect on results may not be representative of the impact in
future years because the fair value method was not applied to options granted
before 1995.
The fair value of each option was estimated on the grant date using the
Black-Scholes option pricing model and assumptions including the following
weighted-average information presented below.
1998 1997 1996
---------- --------- ----------
Expected life in years 2.33 2.99 2.33
Risk-free interest rate 5.57% 6.20% 5.28%
Volatility 18.26% 19.65% 22.07%
Dividend yield 9.06% 9.01% 9.34%
The weighted average fair value of options granted was $1.13 per option in
1998, $1.08 per option in 1997 and $1.13 per option in 1996.
7. RELATED PARTY TRANSACTIONS:
The Company rents office space in Conshohocken, Pennsylvania, under the terms
of a net lease from an officer of the Company. The minimum annual rental
under the lease is $154,000 and the lease was extended to January 14, 2004.
During 1998, 1997 and 1996, the Company paid $154,000 in annual rent,
respectively.
In December 1998, the Company terminated an Exchange Offer with New America
Network, Inc., a Delaware corporation which conducts business under the name
New America International ("NAI"), due to disruptions to the securities
markets. In management's opinion, public offerings of small capitalization
companies would not be favorable at that time. The Company recorded a
$250,000 charge to general and administrative expenses for costs related to
the terminated transaction in the fourth quarter of 1998. The Company has a
$250,000 note receivable from NAI to reimburse the Company for costs related
to the terminated Exchange Offer. Under a separate agreement, the Company
invested $1 million for a minority interest in NAI common stock. This
investment is accounted for using the cost method. The Chief Executive
Officer of NAI is a member of the Company's Board of Trustees. The
investment and note receivable are included in other assets in the
accompanying consolidated balance sheet.
8. 401 (k) PLAN:
During 1993, the Company adopted a 401(k) Plan covering substantially all of
the officers and employees of the Company and subsidiaries which permits
participants to defer up to a maximum of 10% of their compensation. The
Company, at its discretion, may match up to 50% of the initial five percent
of the employees' contributions and may also make an additional discretionary
contribution. The employees' contributions, together with contributions from
the Company are generally fully vested and are fully funded as of December
31, 1998 and 1997. The Company's contributions to the Plan for the years
ended December 31, 1998, 1997 and 1996 were $80,000, $70,000 and $67,000,
respectively.
9. ACQUISITIONS AND DISPOSITIONS:
The Company acquired ten shopping centers during the year ended December 31,
1998 for approximately $93,000,000 which were accounted for by the purchase
method. The results of operations of each center were included from the
respective purchase date. The pro forma financial information presented below
may not be indicative of results that would have been reported if the
acquisitions had occurred on January 1, 1998 and 1997, respectively. The
extraordinary loss recorded in 1997 of $467,000 has been excluded from the
pro forma presentation.
Year ended December 31, Year ended December 31,
1998 (Unaudited) 1997 (Unaudited)
- ------------------------------------- -----------------------------------
Pro forma total Pro forma total
revenues $78,124,000 revenues $76,323,000
Pro forma net income Pro forma net income
available for common available for common
shareholders $3,478,000 shareholders $4,146,000
Pro forma net income Pro forma net income
per common share $0.33 per common share $0.40
The Company acquired twenty shopping centers during the year ended December
31, 1997 for approximately $104,000,000 which were accounted for by the
purchase method. The results of operations of each center were included from
the respective purchase date. The pro forma financial information presented
below may not be indicative of results that would have been reported if the
acquisitions had occurred on January 1, 1997 and 1996, respectively.
Extraordinary losses recorded in both 1997 and 1996 of $467,000 and
$11,052,000, respectively, as well as the $63,000 loss on sale of real estate
recorded in 1996, have been excluded from the pro forma presentation.
Year ended December 31, Year ended December 31,
1997 (Unaudited) 1996 (Unaudited)
- ------------------------------------- -----------------------------------
Pro forma total Pro forma total
revenues $67,067,000 revenues $68,724,000
Pro forma net income Pro forma net income
available for common available for common
shareholders $6,970,000 shareholders $5,502,000
Pro forma net income Pro forma net income
per common share $0.67 per common share $0.53
In August 1998, the Company sold one of its free-standing properties located
in Richmond, Virginia, for a sale price of $420,000. The Company recorded a
gain on sale of the property of $89,000. In July 1998, the Company sold a
parcel of land of approximately 8,500 square feet at one of its properties to
a third party buyer. The sales price of the land parcel was $40,000 and the
Company recorded a gain on the sale of approximately $20,000.
10. DISTRIBUTIONS ON COMMON AND PREFERRED SHARES OF BENEFICIAL INTEREST:
On December 15, 1998, the Trustees declared a cash distribution of $0.48 per
common share, payable to common shareholders of record on December 28, 1998.
The distribution of $5,058,000 was paid on January 20, 1999. The Company
declared distributions of $1.92 per common share for the year ended December
31, 1998. The Company determined that $1.09 per share of the distributions
represented ordinary income to the recipient and $0.83 per share represented
a return of capital in 1998.
In December 1997, the Trustees declared a cash distribution of $0.48 per
common share, payable to common shareholders of record on December 26, 1997.
The distribution of $4,999,000 was paid on January 21, 1998. The Company
declared distributions of $1.92 per common share for the year ended December
31, 1997. The Company determined that $1.07 per share of the distributions
represented ordinary income to the recipient and $0.85 per share represented
a return of capital in 1997.
In December 1996, the Trustees declared a cash distribution of $0.48 per
common share, payable to common shareholders of record on December 24, 1996.
The distribution of $4,960,000 was paid on January 20, 1997. The Company
declared distributions of $1.92 per common share for the year ended December
31, 1996. The Company determined that the entire distribution represented a
return of capital in 1996.
The Company accrued the quarterly distribution on the Series A-1 Preferred
Shares of $160,000, $153,000 and $146,000 as of December 31, 1998, 1997 and
1996, respectively. These distributions were paid on January 1, 1999, 1998
and 1997, respectively.
The Company accrued $572,000 and $571,000 of the distribution on the Series B
Preferred Shares as of December 31, 1998 and 1997, respectively. The
distributions were paid on January 20, 1999 and 1998.
The Company accrued $12,000 and $45,000 of the distribution on the Series C
Preferred Shares as of December 31, 1998 and 1997, respectively. The
distributions were paid on January 29, 1999 and January 30, 1998,
respectively.
The Company accrued $848,000 and $242,000 of the distribution on the Series D
Preferred Shares as of December 31, 1998 and 1997, respectively. The
distributions were paid on January 20, 1999 and 1998.
11. INTERIM RESULTS (Unaudited):
The following presents a summary of the unaudited quarterly financial
information for the years ended December 31, 1998 and 1997:
Basic/Diluted
Net Income(Loss) Earnings(Loss)
For Common Per Common
Revenues Shareholders Share
---------- ---------------- --------------
Year ended December 31, 1998
First Quarter $16,707,000 $1,659,000 $0.16
Second Quarter $16,982,000 $1,795,000 $0.17
Third Quarter $17,296,000 $1,946,000 $0.19
Fourth Quarter $20,357,000 ($1,521,000) ($0.14)
Year ended December 31, 1997
First Quarter $13,979,000 $2,001,000 $0.19
Second Quarter $15,259,000 $1,885,000 $0.18
Third Quarter $15,305,000 $1,818,000 $0.18
Fourth Quarter $15,769,000 $1,348,000 $0.13
As a result of tenant bankruptcy filings and a terminated transaction, the
Company recorded a total charge of $3.1 million in the fourth quarter of
1998. Per share amounts are based on weighted average shares outstanding
each quarter and may not equate to the full year amounts due to increases in
shares outstanding.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders and Trustees of
Kranzco Realty Trust:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Kranzco Realty Trust and subsidiaries
included in this Form 10-K, and have issued our report thereon dated February
22, 1999. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The financial statement schedule referred to in
Item 14 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. The financial statement
schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
February 22, 1999
<PAGE>
<TABLE>
<CAPTION>
Kranzco Realty Trust Schedule III
Real Estate and Accumulated Depreciation- December 31, 1998
Column A Column B Column C Column D Column E Column F Column G Column I
& H
Cost of Amount at Date
Encumbrances Improve- Which Accumu- Const- Deprec-
---------------------------- Initial ments Carried lated ructed iable
Interest Maturity Balance at Cost Net of December 31, Depre- or Life
Description Rate Date 31, 1998 to Trust Retirements 1998 ciation Acquired (Years)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
A & P Mamaroneck
Land Note 1 Note 1 $1,061,000 $287,710 $0 $287,710
Buildings and
improvements 1,150,837 65,731 1,216,568 $240,848 11/19/92 30
Ames Center
Land Note 6 Note 6 1,553,000 1,200,651 0 1,200,651
Buildings and
improvements 800,434 0 800,434 48,915 02/21/97 30
Anneslie Shopping Center
Land Note 1 Note 1 5,859,000 1,348,713 0 1,348,713
Buildings and
improvements 5,394,854 505,643 5,900,497 1,094,334 06/29/93 10-30
Bainbridge Town Center
Land Note 6 Note 6 4,500,000 2,328,145 0 2,328,145
Buildings and
improvements 5,432,338 13,800 5,446,138 336,310 02/21/97 5-30
Bakers Square-Minnetonka
Land Note 6 Note 6 900,000 670,656 0 670,656
Buildings and
improvements 447,104 0 447,104 27,323 02/21/97 30
Bakers Square-Roseville
Land Note 6 Note 6 1,082,000 847,112 0 847,112
Buildings and
improvements 564,741 0 564,741 34,512 02/21/97 30
Barn Plaza Shopping Center
Land Note 1 Note 1 9,164,000 1,284,790 742,258 2,027,048
Buildings and
improvements 6,808,226 2,987,404 9,795,630 2,143,826 11/19/92 5-30
Barn Theater
Land Note 6 Note 6 0 226,865 899,873 1,126,739
Buildings and
improvements 584,818 171,169 755,987 51,984 09/01/94 30
Bensalem Square
Land Note 1 Note 1 4,281,000 1,185,101 160,806 1,345,907
Buildings and
improvements 4,532,826 37,730 4,570,556 938,169 11/19/92 5-30
Bethlehem Square
Land Note 1 Note 1 16,249,000 4,816,318 146 4,816,464
Buildings and
improvements 19,265,294 1,228,170 20,493,464 4,361,624 11/19/92 10-30
Bradford Mall
Land Note 6 Note 6 1,000,000 1,518,627 93,746 1,612,373
Buildings and
improvements 5,954,606 1,698,446 7,653,052 1,561,087 11/19/92 5-30
Bristol Commerce Park
Land Note 1 Note 1 12,994,000 3,092,633 (15,872) 3,076,761
Buildings and
improvements 13,959,722 1,452,575 15,412,297 3,120,576 11/19/92 4-30
Brookway Village
Land Note 6 Note 6 1,923,000 854,647 (0) 854,647
Buildings and
improvements 1,994,177 0 1,994,177 121,866 02/21/97 30
Builder's Square
Land 7.50% 10/01/06 2,591,000 2,476,656 (0) 2,476,656
Buildings and
improvements 1,651,104 0 1,651,104 100,901 02/21/97 30
Campus Village
Land 8% 12/01/02 2,607,000 951,663 1,763 953,426
Buildings and
improvements 3,013,599 21,148 3,034,747 376,956 04/19/95 5-30
Cary Plaza
Land 7.875% 02/01/09 1,376,000 945,387 0 945,387
Buildings and
improvements 2,205,903 8,297 2,214,199 136,443 02/21/97 5-30
Collegetown Shopping Center
Land Note 1 Note 1 5,487,000 1,901,831 9,704 1,911,535
Buildings and
improvements 7,609,275 1,336,072 8,945,347 1,798,521 11/19/92 4-30
Coral Hills
Land 10.5% 08/01/99 6,477,000 3,086,879 6,104 3,092,983
Buildings and
improvements 5,732,775 12,553 5,745,328 707,888 04/19/95 30
The Mall at Cross County
Land Note 1 Note 1 20,283,000 5,330,148 0 5,330,148
Buildings and
improvements 21,320,590 6,912,696 28,233,286 5,121,117 11/19/92 5-30
Culpeper
Land 0 1,172,766 282,599 1,455,365
Buildings and
improvements 3,518,299 230,584 3,748,883 441,262 04/19/95 30
Douglas Crossing
Land 7.00% Note 9 15,145,000 7,166,424 0 7,166,424
Buildings and
improvements 13,309,074 0 13,309,074 110,909 09/29/98 30
East Main Center
Land Note 7 Note 7 2,707,000 2,133,090 7,753 2,140,843
Buildings and
improvements 4,406,511 0 4,406,511 269,287 02/21/97 30
Fox Run
Land Note 1 Note 1 14,069,000 7,945,202 218,403 8,163,605
Buildings and
improvements 16,663,137 389,384 17,052,521 2,931,139 07/21/94 5-30
Franklin Center
Land Note 6 Note 6 6,510,000 2,873,838 0 2,873,838
Buildings and
improvements 6,705,622 0 6,705,622 409,788 02/21/97 30
Golfland
Land Note 2 Note 2 0 997,368 0 997,368
Buildings and
improvements 3,989,469 20,693 4,010,162 816,857 11/19/92 5-30
Groton Square
Land Note 1 Note 1 12,174,000 3,490,394 0 3,490,394
Buildings and
improvements 13,986,580 297,638 14,284,218 2,986,116 11/19/92 5-30
Harrodsburg Marketplace
Land Note 6 Note 6 2,785,000 1,235,502 0 1,235,502
Buildings and
improvements 2,882,839 2,500 2,885,339 176,271 02/21/97 30
Highridge Plaza
Land Note 1 Note 1 7,242,000 1,564,430 611,382 2,175,812
Buildings and
improvements 6,057,721 407,505 6,465,226 1,293,058 11/19/92 4-30
Hillcrest Mall
Land Note 1 Note 1 5,384,000 1,415,066 0 1,415,066
Buildings and
improvements 4,416,833 817,946 5,234,779 946,705 11/19/92 4-30
Hillcrest Plaza
Land Note 1 Note 1 3,832,000 1,134,826 2,056 1,136,882
Buildings and
improvements 5,957,835 56,717 6,014,552 752,779 04/19/95 4-30
Holcomb Bridge Center
Land 8.20% 11/01/00 6,414,000 2,483,409 0 2,483,409
Buildings and
improvements 5,800,621 20,198 5,820,819 201,899 12/19/97 3-30
KR Development, LP
Land Note 6 Note 6 5,000,000 0 0 0
Buildings and
improvements 0 3,989,494 3,989,494 112,606 06/01/97 10-30
Lilac New York
Land Note 6 Note 6 4,000,000 205,935 152,147 358,082
Buildings and
improvements 0 2,749,975 2,749,975 97,359 11/21/97 30
Mableton Village
Land 9.20% 08/01/06 10,497,000 4,165,152 0 4,165,152
Buildings and
improvements 9,724,688 0 9,724,688 335,258 12/19/97 30
Marumsco-Jefferson Plaza
Land 9.375% 07/01/04 15,566,000 5,487,073 10,785 5,497,858
Buildings and
improvements 16,461,219 541,458 17,002,677 2,199,287 04/19/95 30
MacArthur Plaza
Land Note 1 Note 1 2,308,000 682,696 (264) 682,432
Buildings and
improvements 2,727,666 28,138 2,755,804 488,031 09/28/93 3-30
Magnolia
Land Note 6 Note 6 2,772,000 1,747,286 0 1,747,286
Buildings and
improvements 4,077,001 41,000 4,118,001 258,033 02/21/97 30
Manchester Kmart Plaza
Land Note 1 Note 1 2,522,000 1,051,958 59,394 1,111,352
Buildings and
improvements 3,092,778 990,399 4,083,178 551,383 05/24/94 3-30
Meeting Square
Land 7.00% Note 9 2,427,000 1,279,112 (0) 1,279,112
Buildings and
improvements 2,375,493 0 2,375,493 19,796 09/29/98 30
Milford
Land Note 1 Note 1 1,470,000 0 0 0
Buildings and
improvements 2,123,804 8,813 2,132,617 434,489 11/19/92 30
Musicland
Land Note 6 Note 6 2,500,000 2,787,494 0 2,787,494
Buildings and
improvements 1,858,329 (0) 1,858,329 113,565 02/21/97 30
Newbridge
Land 0 313,978 (313,978) 0
Buildings and
improvements 0 0 0 0 02/21/97 30
North Ridge Shopping Center
Land Note 1 Note 1 2,597,000 590,343 0 590,343
Buildings and
improvements 2,361,369 280,891 2,642,260 534,123 11/19/92 5-30
Northpark Center
Land 7.75% 01/01/03 4,654,000 3,738,602 0 3,738,602
Buildings and
improvements 8,729,404 0 8,729,404 300,939 12/19/97 30
Orange
Land Note 1 Note 1 786,000 0 0 0
Buildings and
improvements 105,724 439 106,163 21,629 11/19/92 30
Park Center
Land Note 8 Note 8 4,402,000 2,651,520 10,450 2,661,970
Buildings and
improvements 5,478,753 28,925 5,507,678 345,035 02/21/97 5-30
Park Hills Plaza
Land Note 1 Note 1 9,602,000 2,752,903 4,516 2,757,419
Buildings and
improvements 9,976,436 1,509,731 11,486,167 2,166,706 11/19/92 30
Park Plaza
Land 8.25% 09/01/01 3,345,000 1,222,700 0 1,222,700
Buildings and
improvements 2,853,117 0 2,853,117 72,607 03/27/98 30
Parkway Plaza I
Land Note 6 Note 6 1,350,000 1,213,750 0 1,213,750
Buildings and
improvements 4,854,998 252,476 5,107,474 1,037,405 11/19/92 5-30
Parkway Plaza II
Land 0 1,032,538 0 1,032,538
Buildings and
improvements 3,930,151 20,593 3,950,744 804,746 11/19/92 30
Pickaway Crossing
Land 7.00% Note 9 6,254,000 2,898,636 0 2,898,636
Buildings and
improvements 5,383,180 0 5,383,180 44,860 09/29/98 30
Pilgrim Gardens
Land Note 1 Note 1 4,058,000 1,056,600 0 1,056,600
Buildings and
improvements 4,083,178 453,953 4,537,131 923,158 11/19/92 5-30
Port Washington
Land Note 1 Note 1 446,000 50,000 0 50,000
Buildings and
improvements 600,026 2,697 602,723 122,788 11/19/92 30
69th Street Drug Emporium Plaza
Land Note 1 Note 1 2,479,000 730,424 3,542 733,966
Buildings and
improvements 2,921,696 33,054 2,954,750 487,993 02/15/94 30
Sinclair Paints
Land Note 6 Note 6 500,000 484,782 0 484,782
Buildings and
improvements 323,188 0 323,188 19,750 02/21/97 30
Snellville Oaks
Land 7.00% Note 9 12,354,000 5,763,012 0 5,763,012
Buildings and
improvements 10,702,736 3,558 10,706,294 89,367 09/29/98 5-30
Statler Crossing
Land 7.00% Note 9 6,350,000 3,064,466 0 3,064,466
Buildings and
improvements 5,691,151 0 5,691,151 47,426 09/29/98 30
Stratford Square
Land 0 3,057,993 241,273 3,299,266
Buildings and
improvements 12,231,971 77,016 12,308,987 2,511,490 11/19/92 5-30
Street Road Plaza
Land Note 1 Note 1 4,127,000 1,796,172 32,963 1,829,135
Buildings and
improvements 5,159,488 849,448 6,008,936 1,051,790 09/28/93 5-30
Suburban Plaza
Land Note 1 Note 1 10,453,000 3,277,322 4,784 3,282,106
Buildings and
improvements 13,109,289 18,736 13,128,025 2,151,350 02/15/94 30
Summerville
Land 7.00% Note 9 2,302,000 885,057 0 885,057
Buildings and
improvements 1,643,676 0 1,643,676 13,697 09/29/98 30
Tifton Corners
Land 7.00% Note 9 8,690,000 4,373,875 0 4,373,875
Buildings and
improvements 8,122,911 0 8,122,911 67,691 09/29/98 30
Tower Plaza
Land Note 6 Note 6 2,500,000 1,567,130 0 1,567,130
Buildings and
improvements 3,662,636 150 3,662,786 126,256 12/19/97 30
Towne Square
Land 0 1,589,041 0 1,589,041
Buildings and
improvements 3,707,763 26,082 3,733,845 234,483 02/21/97 3-30
Valley Fair (Formerly Best Plaza)
Land Note 1 Note 1 5,747,000 1,693,227 531 1,693,758
Buildings and
improvements 6,772,906 32,059 6,804,965 1,192,423 09/28/93 3-30
Valley Forge Mall
Land Note 6 Note 6 0 972,663 113,789 1,086,452
Buildings and
improvements 4,006,745 494,721 4,501,466 850,349 11/19/92 5-30
Vidalia
Land 7.00% Note 9 4,309,000 1,449,626 0 1,449,626
Buildings and
improvements 2,692,162 0 2,692,162 22,435 09/29/98 30
Village Oaks
Land 7.00% Note 9 7,974,000 4,134,169 0 4,134,169
Buildings and
improvements 7,677,742 0 7,677,742 63,981 09/29/98 30
Village Square
Land Note 1 Note 1 1,850,000 371,566 0 371,566
Buildings and
improvements 1,486,265 852,019 2,338,284 364,836 11/19/92 3-30
Wampanoag Plaza
Land Note 6 Note 6 3,125,000 1,583,670 (16,456) 1,567,214
Buildings and
improvements 8,606,897 1,227,933 9,834,830 2,078,725 11/19/92 5-30
Whitehall Square
Land Note 1 Note 1 15,176,000 4,522,056 105,081 4,627,138
Buildings and
improvements 18,088,227 511,871 18,600,098 3,776,176 11/19/92 3-30
------------ ------------ ----------- ------------ -----------
$350,141,000 $547,733,902 $37,149,506 $584,883,408 $59,793,294
============ ============ =========== ============ ===========
Notes:
(1) Total REMIC of $181,700,000 with interest rate of 7.960% and maturity date 6/2003.
(2) Property secures $3,000,000 line of credit with Bank Leumi Trust Company of New York, with
an interest rate of 50 basis points above that bank's reference rate.
(3) The Federal tax basis of the Shopping Center properties was $533,469,000 at December 31, 1998.
(4) Reconciliation of amount shown in column E:
Balance at beginning of period, December 31, 1997 $484,741,489
Additions during period:
Land $33,199,013
Buildings and improvements 67,852,799
-----------
101,051,812
Deductions during the period
Retirements 579,230
Properties sold 330,663
-----------
909,893
------------
Balance December 31, 1998 $584,883,408
============
(5) Reconciliation of amount shown in column F:
Balance at beginning of period, December 31, 1997 $46,811,489
Additions during period:
Buildings and improvements $13,561,035
-----------
13,561,035
Deductions during the period
Retirements 579,230
Properties sold 0
----------
579,230
-----------
Balance December 31, 1998 $59,793,294
===========
(6) Property is collateral for the Salomon Brothers Realty Corp. secured line of credit of up to $100 million.
Interest rate is 1 month LIBOR plus 175 basis points. Maturity date 7/00.
(7) Annual rate adjusted each year to equal the sum of Moody's A Corporate Bond Index Daily Rate minus 0.125% per annum, rounded
up to the next highest 1/8 percentage rate, but in no event shall the rate exceed 11.5% prior to 1/1/98.
Also, no prepayment penalty from 1/1-1/16 in any year.
(8) Annual rate adjusted each year to equal the sum of Moody's A Corporate Bond Index Daily Rate minus 0.125% per annum, rounded
up to the next highest 1/8 percentage rate, but in no event shall the rate exceed 11.375% prior to 2/25/98.
Also, no prepayment penalty from 4/1-4/16 in any year.
(9) Property secured with the Salomon Mortgage in the amount of $65.9 million. Interest rate is 7%. Maturity date 10/08.
</TABLE>
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Page
Exhibit
No. Description
- -- -----------
3.1 Amended and Restated Declaration of Kranzco Realty Trust.
(Incorporated by reference to Exhibit 3.4 of the Company's Registration
Statement No.33-49434.)
3.2 Amendment of Amended and Restated Declaration of Trust, dated December
31, 1995. (Incorporated by reference to Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
3.3 Amendment No. 2 of Amended and Restated Declaration of Trust, dated
June 4, 1997. (Incorporated by reference to Exhibit 4.1(c) of the
Company's Registration Statement on Form S-3 filed July 31, 1997.)
3.4 Amended and Restated Bylaws of Kranzco Realty Trust, as amended.
4.1 Specimen certificate for Common Shares of Beneficial Interest.
(Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement No.33-49434.)
4.2 Articles Supplementary for the Series A Increasing Rate Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated by
reference to the Company's Report on Form 8-K dated May 4, 1995.)
4.3 Articles Supplementary Classifying 11,155 Shares of Beneficial Interest
as Series A-1 Increasing Rate Cumulative Convertible Preferred Shares
of Beneficial Interest. (Incorporated by reference to Exhibit 4.5 of
the Company's Registration Statement on Form S-4 No. 333-18249.)
4.4 Articles Supplementary for the Company's Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 3.4 of the Company's Registration Statement on
Form 8-A dated February 27, 1997.)
4.5 Articles Supplementary for the Company's Series B-2 Cumulative
Convertible Preferred Shares of Beneficial Interest. (Incorporated by
reference to Exhibit 4.2 of the Company's Registration Statement on
Form S-4 No. 333-18249.)
4.6 Articles Supplementary for the Company's Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest. (Incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on Form S-4 No.
333-18249.)
4.7 Articles Supplementary for the Company's Series D Redeemable Preferred
Shares of Beneficial Interest. (Incorporated by reference to Exhibit
3.5 of the Company's Registration Statement on Form 8-A filed December
10, 1997.)
4.8 Specimen of the Company Series D Redeemable Preferred Shares of
Beneficial Interest. (Incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form 8-A filed December 10, 1997.)
4.9 Specimen of the Company's Rights Certificate. (Incorporated by
reference to Exhibit B of Exhibit 10.1 of the Company's Current Report
on Form 8-K filed November 12, 1998.)
4.10 Articles Supplementary for the Company's Series E Junior Participating
Preferred Shares of Beneficial Interest. (Incorporated by reference to
Exhibit A of Exhibit 10.1 of the Company's Current Report on Form 8-K
filed November 12, 1998.)
10.1 Kranzco Realty Trust 1992 Employees Share Option Plan, as amended.
(Incorporated by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.)
10.2 Kranzco Realty Trust 1992 Employees Share Option Plan, amended.
(Incorporated by reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.)
10.3 Kranzco Realty Trust 1995 Incentive Plan. (Incorporated by reference
to Exhibit 4.4 of the Company's Registration Statement on Form S-8 No.
33-94294.)
10.4 Loan Agreement dated as of February 26, 1997 with Salomon Brothers
Realty Corp. (Incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K filed March 14, 1997.)
10.5 Global Promissory Note dated February 26, 1997 in the amount of
$50,000,000 executed in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.2 of the Company's Current
Report on Form 8-K filed March 14, 1997.)
10.6 Unlimited Guaranty of Payment dated as of February 26, 1997 issued by
Kranzco Realty Trust in favor of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.3 of the Company's Current
Report on Form 8-K filed March 14, 1997.)
10.7 Form of Exemplar Open End Fee and Leasehold Mortgage, Assignment of
Leases and Rents, Security Agreement and Fixture Filing made by the
Borrowers for the benefit of Salomon Brothers Realty Corp., and filed
in Pennsylvania, New York, Connecticut, Rhode Island, Mississippi,
North Carolina, Kentucky, Massachusetts, Minnesota, Arizona, Georgia,
and Michigan with respect to Bradford Mall, Bradford, PA; Barn Plaza,
Doylestown, Pennsylvania; Circuit City at Mall at Cross County,
Yonkers, New York; Parkway Plaza I, Hamden, Connecticut; Valley Forge
Mall, Phoenixville, Pennsylvania; Wampanoag Plaza, East Providence,
Rhode Island; Brookway Village, Brookhaven, Mississippi; Magnolia
Plaza, Morganton, North Carolina; Harrodsburg Marketplace, Harrodsburg,
Kentucky; Franklin Center, Chambersburg, Pennsylvania; Ames Center,
Raynham, Massachusetts; Baker's Square, Minnetonka, Minnesota; Baker's
Square, Roseville, Minnesota; Sinclair Paints, Tucson, Arizona; 30000
Plymouth Road, Livonia, Michigan; Tower Plaza, Georgia; 1615 E.
Shotwell Street, Bainbridge Town Center, Georgia; and Filene's Basement
at Valley Fair, 260 West Swedesford Road, Devon, Pennsylvania.
(Incorporated by reference to Exhibit 10.4 of the Company's Current
Report on Form 8-K filed March 14, 1997.)
10.8 Trust and Servicing Agreement, dated as of June 18, 1996, among KRT
Origination Corp., GE Capital Management Corporation and State Street
Bank and Trust Company. (Incorporated by reference to Exhibit 10.43 of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
10.9 Cash Collateral Account, Security, Pledge and Assignment Agreement,
dated as of June 18, 1996, among the Borrowers, State Street Bank and
Trust Company, as Agent, and KRT Origination Corp., as Lender.
(Incorporated by reference to Exhibit 10.44 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
10.10 Cash Collateral Agreement, dated June 18, 1996, among the Borrowers,
and State Street Bank and Trust Company, as Agent. (Incorporated by
reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996)
10.11 $123,700,000.00 Class A Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated
by reference to Exhibit 10.46 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
10.12 $20,600,000.00 Class B Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated
by reference to Exhibit 10.47 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
10.13 $28,900,000.00 Class C Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated
by reference to Exhibit 10.48 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
10.14 $8,500,000.00 Class D Mortgage Note dated June 18, 1996 made by the
Borrowers in favor of KRT Origination Corp., as Lender. (Incorporated
by reference to Exhibit 10.49 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
10.15 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases, Rents and
Security Deposits made by the Borrowers, as grantor, for the benefit of
KRT Origination Corp., as mortgagee, and filed in Connecticut,
Maryland, New Jersey, New York and Pennsylvania with respect to Groton
Square in Groton, Connecticut, Manchester Kmart in Manchester,
Connecticut, Milford in Milford, Connecticut, Orange in Orange,
Connecticut, Fox Run in Prince Frederick, Maryland, Hillcrest Plaza in
Frederick, Maryland, Anneslie in Baltimore, Maryland, Suburban Plaza in
Hamilton, New Jersey, Collegetown in Glassboro, New Jersey, Hillcrest
Mall in Phillipsburg, New Jersey, The Mall at Cross County in Yonkers,
New York, Highridge Plaza in Yonkers, New York, North Ridge in New
Rochelle, New York, Village Square in Larchmont, New York, A&P
Mamaroneck in Mamaroneck, New York, Port Washington in Port Washington,
New York, Bethlehem in Bethlehem, Pennsylvania, Whitehall Square in
Whitehall, , Pennsylvania, Bristol Commerce Park in Bristol,
Pennsylvania, Park Hills Plaza in Altoona, Pennsylvania, Barn Plaza in
Doylestown, Pennsylvania, Best Plaza in Tredyffrin, Pennsylvania,
Bensalem Square in Bensalem, Pennsylvania, Street Road in Bensalem,
Pennsylvania, Pilgrim Gardens in Drexel Hill, Pennsylvania, 69th Street
Plaza in Upper Darby, Pennsylvania and MacArthur Road in Whitehall,
Pennsylvania (the "Properties"). (Incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
10.16 Form of Unrecorded Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of
Leases, Rents and Security Deposits made by the Borrowers, as grantor,
for the benefit of KRT Origination Corp., and held in escrow with
respect to the Properties located in Maryland and in New York.
(Incorporated by reference to Exhibit 10.51 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
10.17 Escrow Agreement made among KRT Origination Corp., the Borrowers and
Robinson Silverman Pearce Aronsohn & Berman LLP, as escrow agent, with
respect to the unrecorded second mortgages covering the Properties
located in New York and Maryland. (Incorporated by reference to Exhibit
10.52 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
10.18 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Norman M. Kranzdorf. (Incorporated by
reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter
ended June 30, 1997.)
10.19 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Robert H. Dennis. (Incorporated by reference
to Exhibit 10.2 of the Company's Form 10-Q for the quarter ended June
30, 1997.)
10.20 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Edmund Barrett. (Incorporated by reference to
Exhibit 10.3 of the Company's Form 10-Q for the quarter ended June 30,
1997.)
10.21 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Bengt Danielsson. (Incorporated by reference
to Exhibit 10.4 of the Company's Form 10-Q for the quarter ended June
30, 1997.)
10.22 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Michael Warrington. (Incorporated by
reference to Exhibit 10.5 of the Company's Form 10-Q for the quarter
ended June 30, 1997.)
10.23 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Michael Kranzdorf. (Incorporated by reference
to Exhibit 10.6 of the Company's Form 10-Q for the quarter ended June
30, 1997.)
10.24 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and Peter J. Linneman. (Incorporated by reference
to Exhibit 10.7 of the Company's Form 10-Q for the quarter ended June
30, 1997.)
10.25 Severance Benefits Agreement dated as of March 28, 1997 by and between
Kranzco Realty Trust and E. Donald Shapiro. (Incorporated by reference
to Exhibit 10.9 of the Company's Form 10-Q for the quarter ended June
30, 1997.)
10.26 Severance Benefits Agreement dated as of July 30, 1998 by and between
Kranzco Realty Trust and Gerald C. Finn.
10.27 Severance Benefits Agreement dated as of July 30, 1998 by and between
Kranzco Realty Trust and Bernard J. Korman.
10.28 Agreement dated October 30, 1997 between Kranzco Realty Trust and GP
Development Corporation. (Incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K dated November 25, 1997.)
10.29 Agreement and Plan of Merger dated October 30, 1997 between Kranzco
Realty Trust, GP Development Corporation, the shareholders of GP
Development Corporation and KR Atlanta, Inc. (Incorporated by reference
to Exhibit 2.2 of the Company's Current Report on Form 8-K dated
November 25, 1997.)
10.30 Mortgage Note for $6,700,000.00, dated as of October 5, 1990, from
Holcomb Bridge Partners, L.P., a Georgia limited partnership
("Holcomb"), in favor of Allstate Life Insurance Company ("Allstate")
(relating to Holcomb Bridge Crossing). (Incorporated by reference to
Exhibit 2.3 of the Company's Current Report on Form 8-K dated November
25, 1997.)
10.31 Modification of Mortgage Note, dated as of October 31, 1995, between
Holcomb and Harris Trust and Savings Bank ("Harris Trust") (relating to
Holcomb Bridge Crossing). (Incorporated by reference to Exhibit 2.4 of
the Company's Current Report on Form 8-K dated November 25, 1997.)
10.32 Deed to Secure Debt, Assignment of Leases, Rents and Contracts,
Security Agreement and Fixture Filing ("Deed to Secure Debt") from
Holcomb to Allstate, dated as of October 5, 1990 (relating to Holcomb
Bridge Crossing). (Incorporated by reference to Exhibit 2.5 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.33 Modification of Deed to Secure Debt between Holcomb and Harris Trust,
dated as of October 31, 1995 (relating to Holcomb Bridge Crossing).
(Incorporated by reference to Exhibit 2.6 of the Company's Current
Report on Form 8-K dated November 25, 1997.)
10.34 Real Estate Note for $3,725,000.00, dated as of August 6, 1987, from
West Stewarts Mill Associates, Ltd., a Georgia limited partnership
("West Stewarts"), in favor of Confederation Life Insurance Company, a
mutual insurance company incorporated in Canada ("Confederation"),
first amendment thereto dated as of November 27, 1987, second amendment
thereto dated as of November 1, 1993, third amendment thereto dated as
of November 1, 1993 and fourth amendment thereto dated as of February
21, 1995 (relating to Park Plaza). (Incorparated by reference to
Exhibit 2.7 of the Company's Current Report on Form 8-K dated November
25, 1997.)
10.35 Deed to Secure Debt and Security Agreement between West Stewarts and
Confederation,dated as of August 6, 1987, first amendment thereto dated
as of November 27, 1987 and second amendment thereto dated as of
November 1, 1993 (relating to Park Plaza). (Incorporated by reference
to Exhibit 2.8 of the Company's Current Report on Form 8-K dated
November 25, 1997.)
10.36 Escrow Agreement, dated as of November 1, 1993, between Confederation
and West Stewarts. (Incorporated by reference to Exhibit 2.9 of the
Company's Current Report on Form 8-K dated November 25, 1997.)
10.37 Promissory Note for $10,670,000.00, dated as of July 31, 1996, from
Mableton Village Associates, L.L.C., a Georgia limited liability
company ("Mableton Village"), in favor of Lehman Brothers Holdings,
Inc. d/b/a Lehman Capital ("Lehman") (relating to The Village at
Mableton). (Incorporated by reference to Exhibit 2.10 of the Company's
Current Report on Form 8-K dated November 25, 1997.)
10.38 Deed to Secure Debt and Security Agreement, dated as of July 31, 1996,
between Mableton Village and Lehman (relating to The Village at
Mableton). (Incorporated by reference to Exhibit 2.11 of the Company's
Current Report on Form 8-K dated November 25, 1997.)
10.39 Sales Contract dated June 26, 1998 by and among Kranzco Realty Trust, a
Maryland real estate investment trust, and Europco Property Investors
II, Ltd., a Georgia limited partnership; Europco Property Investors
III, Ltd., a Georgia limited partnership; Europco Property Investors
IV, Ltd., a Georgia limited partnership; Secured Properties Investors
V, L.P., a Georgia limited partnership; Secured Properties Investors
VIII, L.P., a Georgia limited partnership; Secured Properties Investors
IX, L.P. a Georgia limited partnership; and Tifton Partners, L.P., a
Georgia limited partnership. (Incorporated by reference to Exhibit 2.1
of the Company's Current Report on Form 8-K dated June 26, 1998, filed
July 16, 1998.)
10.40 Fixed Rate Note, dated September 29, 1998, made by the Borrowers named
therein in favor of Salomon Brothers Realty Corp. (Incorporated by
reference to Exhibit 10.38 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.)
10.41 Guaranty, dated as of September 29, 1998, made by and among Kranzco
Realty Trust, for the benefit of Salomon Brothers Realty Corp.
(Incorporated by reference to Exhibit 10.39 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.)
10.42 Form of Mortgage/Deed of Trust/Deed to secure Debt and Security
Agreement, dated September 29, 1998, made by the Borrowers named
therein for the benefit of Salomon Brothers Realty Corp. and filed in
Florida, Georgia, Ohio, Tennessee, and Virginia with respect to Village
Oaks, Pensacola, Florida; Vidalia Wal-Mart Center, Vidalia, Georgia;
Summerville Wal-Mart Center, Summerville, Georgia; Tifton Corners,
Tifton, Georgia; Douglasville Crossing, Douglasville, Georgia;
Snellville Oaks, Snellville, Georgia; Pickaway Crossing, Circleville,
Ohio; Meeting Square, Jefferson City, Tennessee; and Statler Crossing,
Staunton, Virginia. (Incorporated by reference to Exhibit 10.40 of the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998.)
10.43 Rights Agreement dated as of November 10, 1998 between Kranzco Realty
Trust and First Union National Bank, as Rights Agent. The Rights
Agreement includes as Exhibit A the form of Articles Supplementary for
the Preferred Shares, as Exhibit B the form of Right Certificate and as
Exhibit C the form of Summary of Rights to Purchase Preferred Shares.
(Incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K filed November 12, 1998).
21 Subsidiaries of Kranzco Realty Trust.
23 Consent of Arthur Andersen LLP.
AMENDED AND RESTATED BY-LAWS OF
KRANZCO REALTY TRUST
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Trust
shall be located at such place or places as the Trustees may designate.
Section 2. ADDITIONAL OFFICES. The Trust may have additional
offices at such places as the Trustees may from time to time determine or the
business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held at
the principal office of the Trust or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders
for the election of Trustees and the transaction of any business within the
powers of the Trust shall be held during the second calendar quarter of each
year on a date and at the time set by the Trustees, beginning with the year
1993.
Section 3. SPECIAL MEETINGS. (a) The president, the chairman of
the Board of Trustees or one-third of the Trustees may call special meetings
of the shareholders. Subject to subsections (b) through (h) of this Section
3, special meetings of shareholders shall also be called by the secretary of
the Trust upon the written request of shareholders entitled to cast not less
than a majority of all the votes entitled to be cast at such meeting.
(b) In order that the Trust may determine the shareholders
entitled to request a special meeting, the Trustees may fix a record date to
determine the shareholders entitled to make such a request (the "Request
Record Date"). The Request Record Date shall not precede the close of
business on the date upon which the resolution fixing the Request Record Date
is adopted by the Trustees and shall not be more than ten days after the date
upon which the resolution fixing the Request Record Date is adopted by the
Trustees. Any shareholder of record seeking to have shareholders request a
special meeting shall, by sending written notice to the secretary of the
Trust by certified or registered mail, return receipt requested, request the
Trustees to fix a Request Record Date. Unless the Trustee shall, within ten
days after the date on which a valid request to fix a Request Record Date is
received, adopt a resolution fixing the Request Record Date and make a public
announcement of such Request Record Date, the Request Record Date shall be
the close of business on the tenth day after the first date on which a valid
written request to set a Request Record Date is received by the secretary.
To be valid, such written request shall set forth the purpose or purposes for
which the special meeting is to be held and the matters proposed to be acted
on at such meeting, shall be signed by one or more shareholders of record (or
their duly authorized proxies or other representatives), shall bear the date
of signature of each such shareholder (or proxy or other representative) and
shall set forth all information relating to such shareholder that is required
to be disclosed in solicitations of proxies for election of Trustees in an
election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14a-11 thereunder.
(c) In order for a shareholder or shareholders to request a
special meeting, a written request or requests for a special meeting signed
by the shareholders of record as of the Request Record Date entitled to cast
not less than a majority of all of the votes entitled to be cast at such
meeting, must be delivered to the Trust. To be valid, each written request
by a shareholder for a special meeting shall set forth the specific purpose
or purposes for which the special meeting is to be held (which purpose or
purposes shall be limited to the purpose or purposes set forth in the written
request to set a Request Record Date received by the Trust pursuant to
paragraph (b) of this Section 3 of Article II), shall be signed by one or
more persons who as of the Request Record Date are shareholders of record (or
their duly authorized proxies or other representatives), shall bear the date
of signature of each such shareholder (or proxy or other representative), and
shall set forth the name and address, as they appear in the Trust's books, of
each shareholder signing such request and the class and number of shares of
the Trust which are owned of record and beneficially by each such
shareholder, shall be sent to the secretary by certified or registered mail,
return receipt requested, and shall be received by the secretary within 60
days after the Request Record Date.
(d) The Trust shall not be required to call a special meeting upon
shareholder request unless, in addition to the documents required by
paragraph (c) of this Section 3 of Article II, the secretary receives a
written agreement signed by each Soliciting Shareholder (as defined below),
pursuant to which each Soliciting Shareholder, jointly and severally, agrees
to pay the Trust's costs of holding the special meeting, including the costs
of preparing and mailing proxy materials for the Trust's own solicitation,
provided that if each of the resolutions introduced by any Soliciting
Shareholder at such meeting is adopted, and each of the individuals nominated
by or on behalf of any Soliciting Shareholder for election as a Trustee of
such meeting is elected, then the Soliciting Shareholders shall not be
required to pay such costs. For purposes of this paragraph (d), the
following terms shall have the meanings set forth below:
(1) "Affiliate" of any Person (as defined herein) shall
mean any Person controlling, controlled by or under common control with such
first Person.
(2) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(3) "Person" shall mean any individual, firm, partnership,
limited liability company, joint venture, association, real estate investment
trust, trust, unincorporated organization or other entity.
(4) "Proxy" shall have the meaning assigned to such term in
Rule 14a-1 promulgated under the Exchange Act.
(5) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(6) "Soliciting Shareholder" shall mean, with respect to
any special meeting requested by a shareholder or shareholders, any of the
following persons:
(i) if the number of shareholders signing the
request or requests of meeting delivered to the
Trust pursuant to paragraph (c) of this Section
3 of Article II is ten or fewer, each
shareholder signing such Request;
(ii) if the number of shareholders signing the
request or requests of meeting delivered to the
Trust pursuant to paragraph (c) of this Section
3 of Article II is more than ten, each person
who either (I) is a Participant in any
Solicitation of such request or requests or
(II) at the time of the delivery to the Trust
of the documents described in paragraph (c) of
this Section 3 of Article II had engaged or
intended to engage in any Solicitation of
Proxies for use at such special meeting (other
than a Solicitation of Proxies on behalf of the
Trust); or
(iii) any Affiliate of a Soliciting Shareholder, if a
majority of the Trustees then in office
determine that such Affiliate should be
required to sign the written notice described
in paragraph (c) of this Section 3 of Article
II and/or the written agreement described in
this paragraph (d) in order to prevent the
purposes of this Section 3 of Article II from
being evaded.
(e) Except as provided in the following sentence, any special
meeting shall be held at such place, hour and date as may be designated by
whoever of the president, chairman of the Board of Trustees, or Trustees
shall have called such meeting. In the case of any special meeting called by
the secretary upon the request of shareholders (a "Request Special Meeting"),
such meeting shall be held at such place, hour and date as may be designated
by the Trustees; provided, however, that the date of any Request Special
meeting shall be not more than 60 days after the Meeting Record Date (as
defined in subsection (h) of this Section 3 of Article II); and provided
further that in the event that the Trustees fail to designate, within ten
days after the date that valid written requests for such meeting are
delivered to the Trust by the shareholders of record as of the Request Record
Date entitled to cast not less than a majority of all the votes entitled to
be cast at such meeting (the "Delivery Date"), a place, hour and date for a
Request Special Meeting, then such meeting shall be held at the principal
executive offices of the Trust at 2:00 p.m. local time on the 90th day after
the Delivery Date or, if such 90th day is not a Business Day (as defined
below), on the first preceding Business Day. In fixing a meeting day for any
special meeting, the president, chairman of the Board of Trustees or Trustees
may consider such factors as he or she deems relevant within the good faith
exercise of business judgment, including, without limitation, the nature of
the action proposed to be taken, the facts and circumstances surrounding any
request of such meeting, and any plan of the Trustees to call an annual
meeting or a special meeting for the conduct of related business.
(f) The Trust may engage regionally or nationally recognized
independent inspectors of elections to act as an agent of the Trust for the
purpose of promptly performing a ministerial review of the validity of any
purported written request or requests for a special meeting received by the
secretary. For the purpose of permitting the inspectors to perform such
review, no purported request shall be deemed to have been delivered to the
Trust until the earlier of (i) five Business Days following receipt by the
secretary of such purported request and (ii) such date as the independent
inspectors certify to the Trust that the valid requests received by the
secretary represent at least a majority of all the votes entitled to be cast
at such meeting. Nothing contained in this paragraph (f) shall in any way be
construed to suggest or imply that the Trustees or any shareholder shall not
be entitled to contest the validity of any request, whether during or after
such five Business Day period, or to take any other action (including,
without limitation, the commencement, prosecution or defense of any
litigation with respect thereto, and the seeking of injunctive relief in such
litigation).
(g) For purposes of these Bylaws, "Business Day" shall mean any
day other than a Saturday, a Sunday or a day on which banking institutions in
the State of Maryland are authorized or obligated by law or executive order
to close.
(h) In the case of any Request Special Meeting, (i) the record
date for such meeting (the "Meeting Record Date") shall be not later than the
30th day after the Delivery Date and (ii) if the Trustees fail to fix the
Meeting Record Date within 30 days after the Delivery Date, then the close of
business on such 30th day shall be the Meeting Record Date.
Section 4. NOTICE. Not less than ten nor more than 90 days before
each meeting of shareholders, the secretary shall give to each shareholder
entitled to vote at such meeting and to each shareholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating
the time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by statute, the purpose for which the meeting is
called, either by mail or by presenting it to such shareholder personally or
by leaving it at his residence or usual place of business. If mailed, such
notice shall be deemed to be given when deposited in the United States mail
addressed to the shareholder at his post office address as it appears on the
records of the Trust, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Trust may be
transacted at an annual meeting of shareholders without being specifically
designated in the notice, except such business as is required by statute to
be stated in such notice. No business shall be transacted at a special
meeting of shareholders except as specifically designated in the notice.
Section 6. QUORUM. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the
votes entitled to be cast at such meeting shall constitute a quorum; but this
section shall not affect any requirement under any statute or the Declaration
of Trust for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the shareholders, the
shareholders entitled to vote at such meeting, present in person or by proxy,
shall have power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. VOTING. A plurality of all the votes cast at a meeting
of shareholders duly called and at which a quorum is present shall be
sufficient to elect a Trustee. Each share may be voted for as many
individuals as there are Trustees to be elected and for whose election the
share is entitled to be voted. A majority of the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient
to approve any other matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute or by
the Declaration of Trust. Unless otherwise provided in the Declaration, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
Section 8. PROXIES. A shareholder may vote the shares owned of
record by him, either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Trust before or at the time of the meeting.
No proxy shall be valid after eleven months from the date of its execution,
unless otherwise provided in the proxy.
Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered
in the name of a corporation, partnership, trust or other entity, if entitled
to be voted, may be voted by the president or a vice president, a general
partner or trustee thereof, as the case may be, or a proxy appointed by any
of the foregoing individuals, unless some other person who has been appointed
to vote such shares pursuant to a bylaw or a resolution of the board of
directors of such corporation or other entity presents a certified copy of
such bylaw or resolution, in which case such person may vote such shares. Any
trustee or other fiduciary may vote shares registered in his name as such
fiduciary, either in person or by proxy.
Shares of the Trust directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding
shares at any given time.
The Trustees may adopt by resolution a procedure by
which a shareholder may certify in writing to the Trust that any shares
registered in the name of the shareholder are held for the account of a
specified person other than the shareholder. The resolution shall set forth
the class of shareholders who may make the certification, the purpose for
which the certification may be made, the form of certification and the
information to be contained in it; if the certification is with respect to a
record date or closing of the share transfer books, the time after the record
date or closing of the share transfer books within which the certification
must be received by the Trust; and any other provisions with respect to the
procedure which the Trustees consider necessary or desirable. On receipt of
such certification, the person specified in the certification shall be
regarded as, for the purposes set forth in the certification, the shareholder
of record of the specified shares in place of the shareholder who makes the
certification.
Notwithstanding any other provision of the Declaration of
Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
beneficial interest of the Trust.
Section 10. INSPECTORS. At any meeting of shareholders, the
chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented at the meeting
based upon their determination of the validity and effect of proxies, count
all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
shareholders.
Each report of an inspector shall be in writing and
signed by him or by a majority of them if there is more than one inspector
acting at such meeting. If there is more than one inspector, the report of a
majority shall be the report of the inspectors. The report of the inspector
or inspectors on the number of shares represented at the meeting and the
results of the voting shall be prima facie evidence thereof.
Section 11. REPORTS TO SHAREHOLDERS.
(a) Not later than 90 days after the close of each fiscal year of
the Trust, the Trustees shall deliver or cause to be delivered a report of
the business and operations of the Trust during such fiscal year to the
shareholders, containing a balance sheet and a statement of income and
surplus of the Trust, accompanied by the certification of an independent
certified public accountant, and such further information as the Trustees may
determine is required pursuant to any law or regulation to which the Trust is
subject. A signed copy of the annual report and the accountant's certificate
shall be filed by the Trustees with the State Department of Assessments and
Taxation of Maryland, and with such other governmental agencies as may be
required by law and as the Trustees may deem appropriate.
(b) Not later than 45 days after the end of each of the first
three quarterly periods of each fiscal year, the Trustees shall deliver or
cause to be delivered an interim report to the shareholders containing
unaudited financial statements for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter, and such further
information as the Trustees may determine is required pursuant to any law or
regulation to which the Trust is subject.
Section 12. NOMINATIONS AND SHAREHOLDER BUSINESS
(a) Annual Meetings of Shareholders. (1) Nominations of persons
for election to the Board of Trustees and the proposal of business to be
considered by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the
direction of the Trustees or (iii) by any shareholder of the Trust who was a
shareholder of record at the time of giving of notice provided for in this
Section 12(a), who is entitled to vote at the meeting and who complied with
the notice procedures set forth in this Section 12(a).
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph (a)(l) of this Section 12, the shareholder must have given timely
notice thereof in writing to the secretary of the Trust. To be timely, a
shareholder's notice shall be delivered to the secretary at the principal
executive offices of the Trust not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the tenth day following the day on which public announcement of
the date of such meeting is first made. Such shareholder's notice shall set
forth (i) as to each person whom the shareholder proposes to nominate for
election or reelection as a Trustee all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Trustees, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a Trustee if
elected); (ii) as to any other business that the shareholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made; and (iii)
as to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (x) the name and address of
such shareholder, as they appear on the Trust's books, and of such beneficial
owner and (y) the class and number of shares of the Trust which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of Trustees to be elected to the Board of Trustees is increased and
there is no public announcement naming all of the nominees for Trustee or
specifying the size of the increased Board of Trustees made by the Trust at
least 70 days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this Section 12(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Trust not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Trust.
(b) Specia1 Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Trust's notice of meeting. Nominations of
persons for election to the Board of Trustees may be made at a special
meeting of shareholders at which Trustees are to be elected pursuant to the
Trust's notice of meeting (i) by or at the direction of the Board of Trustees
or (ii) provided that the Board of Trustees has determined that Trustees
shall be elected at such special meeting, by any shareholder of the Trust who
is a shareholder of record at the time of giving of notice provided for in
this Section 12(b), who is entitled to vote at the meeting and who complied
with the notice procedures set forth in this Section 12(b). In the event the
Trust calls a special meeting of shareholders for the purpose of electing one
or more Trustees to the Board of Trustees, any such shareholder may nominate
a person or persons (as the case may be) for election to such position as
specified in the Trust's notice of meeting, if the shareholder's notice
required by paragraph (a)(2) of this Section 12(b) shall be delivered to the
secretary at the principal executive offices of the Trust not earlier than
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Trustees to
be elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 12 shall be eligible to serve
as Trustees and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 12. The presiding officer of the
meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made in accordance
with the procedures set forth in this Section 12 and, if any proposed
nomination or business is not in compliance with this Section 12, to declare
that such defective nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document
publicly filed by the Trust with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 12, a shareholder shall also comply with all applicable requirements
of state law and of the Exchange Act and the rules and regulations thereunder
with respect to the matters set forth in this Section 12. Nothing in this
Section 12 shall be deemed to affect any rights of shareholders to request
inclusion of proposals in the Trust's proxy statement pursuant to Rule 14a-8
under the Exchange Act.
Section 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
shareholder entitled to vote on the matter and any other shareholder entitled
to notice of a meeting of shareholders (but not to vote thereat) has waived
in writing any right to dissent from such action, and such consent and waiver
are filed with the minutes of proceedings of the shareholders.
Section 14. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 1. GENERAL POWERS: QUALIFICATIONS. The business and
affairs of the Trust shall be managed under the direction of its Board of
Trustees. A Trustee shall be an individual at least 21 years of age who is
not under legal disability.
Section 2. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
Trustees may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of regular meetings of the
Trustees without other notice than such resolution.
Section 3. SPECIAL MEETINGS. Special meetings of the Trustees may
be called by or at the request of the president or by a majority of the
Trustees then in office. The person or persons authorized to call special
meetings of the Trustees may fix any place, either within or without the
State of Maryland, as the place for holding any special meeting of the
Trustees called by them.
Section 4. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed or mailed to each Trustee at
his business or residence address. Personally delivered or telegraphed
notices shall be given at least two days prior to the meeting. Notice by mail
shall be given at least five days prior to the meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail
properly addressed, with postage thereon prepaid. If given by telegram, such
notice shall be deemed to be given when the telegram is delivered to the
telegraph company. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Trustees need be stated in
the notice, unless specifically required by statute or these Bylaws.
Section 5. QUORUM. A majority of the Trustees shall constitute a
quorum for transaction of business at any meeting of the Trustees, provided
that, if less than a majority of such Trustees are present at said meeting, a
majority of the Trustees present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the
Declaration of Trust or these Bylaws, the vote of a majority of a particular
group of Trustees is required for action, a quorum must also include a
majority of such group.
The Trustees present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Trustees to leave less than a
quorum.
Section 6. VOTING. The action of the majority of the Trustees
present at a meeting at which a quorum is present shall be the action of the
Trustees, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 7. TELEPHONE MEETINGS. Trustees may participate in a
meeting by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at
the same time. Participation in a meeting by these means shall constitute
presence in person at the meeting.
Section 8. INFORMAL ACTION BY TRUSTEES. Any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting, if a consent in writing to such action is signed by each Trustee and
such written consent is filed with the minutes of proceedings of the
Trustees.
Section 9. VACANCIES. If for any reason any or all the Trustees
cease to be Trustees, such event shall not terminate the Trust or affect
these Bylaws or the powers of the remaining Trustees hereunder (even if fewer
than three Trustees remain). Any vacancy (including a vacancy created by an
increase in the number of Trustees) shall be filled, at any regular meeting
or at any special meeting called for that purpose, by a majority of the
Trustees. Any individual so elected as Trustee shall hold office for the
unexpired term of the Trustee he is replacing.
Section 10. COMPENSATION. Trustees shall not receive any stated
salary for their services as Trustees but, by resolution of the Trustees,
fixed sums per year and/or per meeting. Expenses of attendance, if any, may
be allowed to Trustees for attendance at each annual, regular or special
meeting of the Trustees or of any committee thereof; but nothing herein
contained shall be construed to preclude any Trustees from serving the Trust
in any other capacity and receiving compensation therefor.
Section 11. REMOVAL OF TRUSTEES. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 12. LOSS OF DEPOSITS. No Trustee shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or shares
have been deposited.
Section 13. SURETY BONDS. Unless required by law, no Trustee shall
be obligated to give any bond or surety or other security for the performance
of any of his duties.
Section 14. RELIANCE. Each Trustee, officer, employee and agent of
the Trust shall, in the performance of his duties with respect to the Trust,
be fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel or upon reports made to the Trust by any of
its officers or employees or by the adviser, accountants, appraisers or other
experts or consultants selected by the Trustees or officers of-the Trust,
regardless of whether such counsel or expert may also be a Trustee.
Section 15. CERTAIN RIGHTS OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. The Trustees shall have no responsibility to devote their full time
to the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust, in his personal capacity or in a capacity as an affiliate, employee,
or agent of any other person, or otherwise, may have business interests and
engage in business activities similar to or in addition to those of or
relating to the Trust.
ARTICLE IV
COMMITTEES
Section 1. NUMBER. TENURE AND QUALIFICATIONS. The Trustees may
appoint from among its members an Executive Committee, an Audit Committee and
other committees, composed of two or more Trustees, to serve at the pleasure
of the Trustees.
Section 2. POWERS. The Trustees may delegate to committees
appointed under Section 1 of this Article any of the powers of the Trustees,
except as prohibited by law.
Section 16 MEETINGS. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Trustee to act in the place of such
absent member.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Trustees may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means shall constitute presence in person at the meeting.
Section 5. INFORMAL action BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be
taken without a meeting, if a consent in writing to such action is signed by
each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust may
consist of a chairman of the board, a vice chairman of the board, a
president, one or more vice presidents, a treasurer, one or more assistant
treasurers, a secretary, and one or more assistant secretaries. In addition,
the Trustees may from time to time appoint such other officers with such
powers and duties as they shall deem necessary or desirable. The officers of
the Trust shall be elected annually by the Trustees at the first meeting of
the Trustees held after each annual meeting of shareholders. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until
his successor is elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices except
president and vice president may be held by the same person. In their
discretion, the Trustees may leave unfilled any office except that of
president, treasurer and secretary. Election of an officer or agent shall not
of itself create contract rights between the Trust and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Trust may be removed by the Trustees if in their judgment the best interests
of the Trust would be served thereby, but such removal shall be without
prejudice to the contract rights, if any,
of the person so removed. Any officer of the Trust may resign at any time by
giving written notice of his resignation to the Trustees, the chairman of the
board, the president or the secretary. Any resignation shall take effect at
any time subsequent to the time specified therein or, if the time when it
shall become effective is not specified therein, immediately upon its
receipt. The acceptance of a resignation shall not be necessary to make it
effective unless otherwise stated in the resignation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Trustees may designate a
chief executive officer from among the elected officers. The chief executive
officer shall have responsibility for implementation of the policies of the
Trust, as determined by the Trustees, and for the administration of the
business affairs of the Trust.
Section 5. CHIEF OPERATING OFFICER. The Trustees may designate a
chief operating officer from among the elected officers. Said officer will
have the responsibilities and duties as set forth by the Trustees or the
chief executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Trustees may designate a
chief financial officer from among the elected officers. Said officer will
have the responsibilities and duties as set forth by the Trustees or the
chief executive officer.
Section 7. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. In the
absence of the president, the chairman of the board shall preside over the
meetings of the Trustees and of the shareholders at which he shall be
present. In the absence of both the president and the chairman of the board,
the vice chairman of the board shall preside at such meetings at which he
shall be present. The chairman of the board and the vice chairman of the
board shall perform such other duties as may be assigned to him or them by
the Trustees.
Section 8. PRESIDENT. The president shall preside over the
meetings of the Trustees and of the shareholders at which he shall be present
and shall in general supervise and control all of the business and affairs of
the Trust. In the absence of a designation of a chief executive officer by
the Trustees, the president shall be the chief executive officer and shall be
ex officio a member of all committees that may, from time to time, be
constituted by the Trustees. He may execute any deed, mortgage, bond,
contract or other instrument, except in cases where the execution thereof
shall be expressly delegated by the Trustees or by these Bylaws to some other
officer or agent of the Trust or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Trustees from
time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in
the event of a vacancy in such office, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall perform the duties of
the president and when so acting shall have all the powers of and be subject
to all the restrictions upon the president; and shall perform such other
duties as from time to time may be assigned to him by the president or by the
Trustees. The Trustees may designate one or more vice presidents as executive
vice president or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of
the proceedings of the shareholders, the Trustees and committees of the
Trustees in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the trust records and of the seal of
the Trust; (d) keep a register of the post office address of each shareholder
which shall be furnished to the secretary by such shareholder; (e) have
general charge of the share transfer books of the Trust; and (f) in general
perform such other duties as from time to time may be assigned to him by the
president or by the Trustees.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Trust and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Trust in such depositories as may be designated by the Trustees.
He shall disburse the funds of the Trust as may be
ordered by the Trustees, taking proper vouchers for such disbursements, and
shall render to the president and Trustees, at the regular meetings of the
Trustees or whenever they may require it, an account of all his transactions
as treasurer and of the financial condition of the Trust.
If required by the Trustees, he shall give the Trust a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Trustees for the faithful performance of the duties of his office and for
the restoration to the Trust, in case of his death, resignation, retirement
or removal from office, all books, papers, vouchers, moneys and other
property of whatever kind in his possession or under his control belonging to
the Trust.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform
such duties as shall be assigned to them by the secretary or treasurer,
respectively, or by the president or the Trustees. The assistant treasurers
shall, if required by the Trustees, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Trustees.
Section 13. SALARIES. The salaries of the officers shall be fixed
from time to time by the Trustees and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Trustee.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Trustees may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Trust and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the Trustees or by an authorized person
shall be valid and binding upon the Trustees and upon the Trust when
authorized or ratified by action of the Trustees.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the Trust shall be signed by such officer or officers, agent or
agents of the Trust and in such manner as shall from time to time be
determined by the Trustees.
Section 3. DEPOSITS. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such
banks, trust companies or other depositories as the Trustees may designate.
ARTICLE VII
SHARES
Section 1. CERTIFICATES. Each shareholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of beneficial interests held by him in the Trust. Each
certificate shall be signed by the president or a vice president and
countersigned by the secretary or an assistant secretary or the treasurer or
an assistant treasurer and may be sealed with the seal, if any, of the Trust.
The signatures may be
either manual or facsimile. Certificates shall be consecutively numbered; and
if the Trust shall, from time to time, issue several classes of shares, each
class may have its own number series. A certificate is valid and may be
issued whether or not an officer who signed it is still an officer when it is
issued. Each certificate representing shares which are restricted as to their
transferability or voting powers, which are preferred or limited as to their
dividends or as to their allocable portion of the assets upon liquidation or
which are redeemable at the option of the Trust, shall have a statement of
such restriction, limitation, preference or redemption provision, or a
summary thereof, plainly stated on the certificate. In lieu of such statement
or summary, the Trust may set forth upon the face or back of the certificate
a statement that the Trust will furnish to any shareholder, upon request and
without charge, a full statement of such information.
Section 2. TRANSFERS. Certificates shall be treated as negotiable
and title thereto and to the shares they represent shall be transferred by
delivery thereof to the same extent as those of a Maryland stock corporation.
Upon surrender to the Trust or the transfer agent of the Trust of a share
certificate duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Trust shall issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
The Trust shall be entitled to treat the holder of
record of any share or shares as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
the State of Maryland.
Section 3. LOST CERTIFICATE. The Trustees may direct a new
certificate to be issued in place of any certificate previously issued by the
Trust alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. When authorizing the issuance of a new certificate, the
Trustees may, in their discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or his legal representative to advertise the same in such manner
as they shall require and/or to give bond, with sufficient surety, to the
Trust to indemnify it against any loss or claim which may arise as a result
of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders,
or shareholders entitled to receive payment of any dividend or the allotment
of any other rights, or in order to make a determination of shareholders for
any other proper purpose. Such date, in any case, shall not be prior to the
close of business on the day the record date is fixed and shall be not more
than 90 days and, in the case of a meeting of shareholders not less than ten
days, before the date on which the meeting or particular action requiring
such determination of shareholders is to be held or taken.
In lieu of fixing a record date, the Trustees may
provide that the share transfer books shall be closed for a stated period but
not longer than 20 days. If the share transfer books are closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
before the date of such meeting.
If no record date is fixed and the share transfer books
are not closed for the determination of shareholders, (a) the record date for
the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day on which
the notice of meeting is mailed or the 30th day before the meeting, whichever
is the closer date to the meeting; and (b) the record date for the
determination of shareholders entitled to receive payment of a dividend or an
allotment of any other rights shall be the close of business on the day on
which the resolution of the directors, declaring the dividend or allotment of
rights, is adopted.
When a determination of shareholders entitled to vote
at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof, except where the
determination has been made through the closing of the transfer books and the
stated period of closing has expired.
Section 5. STOCK LEDGER. The Trust shall maintain at its
principal office or at the office of its counsel, accountants or transfer
agent, an original or duplicate share ledger containing the name and address
of each shareholder and the number of shares of each class held by such
shareholder.
Section 6. FRACTIONAL SHARES; ISSUANCE OF UNITS. The Trustees may
issue fractional shares or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any
other provision of the Declaration or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in
a unit shall have the same characteristics as any identical securities issued
by the Trust, except that the Trustees may provide that for a specified
period securities of the Trust issued in such unit may be transferred on the
books of the Trust only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Trustees shall have the power, from time to time, to fix the
fiscal year of the Trust by a duly adopted resolution.
ARTICLE IX
DIVIDENDS
Section 1. DECLARATION. Dividends upon the shares of the Trust may
be declared by the Trustees, subject to the provisions of law and the
Declaration of Trust. Dividends may be paid in cash, property or shares of
the Trust, subject to the provisions of law and the Declaration.
Section 2. CONTINGENCIES. Before payment of any dividends, there
may be set aside out of any funds of the Trust available for dividends such
sum or sums as the Trustees may from time to time, in its absolute
discretion, think proper as a reserve fund for contingencies, for equalizing
dividends, for repairing or maintaining any property of the Trust or for such
other purpose as the Trustees shall determine to be in the best interest of
the Trust, and the Trustees may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE X
SEAL
Section 1. SEAL. The Trustees may authorize the adoption of a seal
by the Trust. The seal shall have inscribed thereon the name of the Trust and
the year of its organization. The Trustees may authorize one or more
duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Trust is required to place
its seal to a document, it shall be sufficient to meet the requirements of
any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Trust.
ARTICLE XI
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from time
to time, the Trust, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify (a) any Trustee,
officer or shareholder or any former Trustee, officer or shareholder
(including among the foregoing, for all purposes of this Article XI and
without limitation, any individual who, while a Trustee and at the request of
the Trust, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise), who has been successful,
on the merits or otherwise, in the defense of a proceeding to which he was
made a party by reason of such status, against reasonable expenses incurred
by him in connection with the proceeding, (b) any Trustee or officer or any
former Trustee or officer against any claim or liability to which he may
become subject by reason of such status unless it is established that (i) his
act or omission was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) he actually received an improper personal benefit
in money, property or services or (iii) in the case of a criminal proceeding,
he had reasonable cause to believe that his act or omission was unlawful and
(c) each shareholder or former shareholder against any claim or liability to
which he may become subject by reason of his status as a shareholder or
former shareholder. In addition, the Trust shall pay or reimburse, in advance
of final disposition of a proceeding, reasonable expenses incurred by a
Trustee, officer or shareholder or former Trustee, officer or shareholder
made a party to a proceeding by reason of his status as a Trustee, officer or
shareholder provided that, in the case of a Trustee or officer, the Trust
shall have received (i) a written affirmation by the Trustee or officer of
his good faith belief that he has met the applicable standard of conduct
necessary for indemnification by the Trust as authorized by these Bylaws and
(ii) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the Trust if it shall ultimately be determined that the
applicable standard of conduct was not met. The Trust may, with the approval
of its Trustees, provide such indemnification and payment or reimbursement of
expenses to any Trustee, officer or shareholder or any former Trustee,
officer or shareholder who served a predecessor of the Trust and to any
employee or agent of the Trust or a predecessor of the Trust. Neither the
amendment nor repeal of this Section, nor the adoption or amendment of any
other provision of the Declaration of Trust or these Bylaws inconsistent with
this Section, shall apply to or affect in any respect the applicability of
this paragraph with respect to any act or failure to act which occurred prior
to such amendment, repeal or adoption. Any indemnification or payment or
reimbursement of the expenses permitted by these Bylaws shall be furnished in
accordance with the procedures provided for indemnification and payment or
reimbursement of expenses under Section 2-418 of the Maryland General
Corporation Law (the "MGCL") for directors of Maryland corporations. The
Trust may provide to Trustees, officers and shareholders such other and
further indemnification or payment or reimbursement of expenses as may be
permitted by the MGCL, as in effect from time to time, for directors of
Maryland corporations.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
Declaration of Trust or Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent
to the giving of such notice. Neither the business to be transacted at nor
the purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or
convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
The Trustees shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws; provided, however, that
any amendment to or repeal of the following provisions of these Bylaws shall
require the affirmative vote of two-thirds of the entire Board of Trustees:
Article II, Section 3. - Special Meetings
Article II, Section 12. - Nominations and Shareholder Business
Article XII - Indemnification
Article XIII - Amendment of Bylaws
SEVERANCE BENEFITS AGREEMENT
-----------------------------
AGREEMENT, dated as of July 30, 1998, between KRANZCO REALTY TRUST, a
Maryland real estate investment trust with offices at 128 Fayette Street,
Conshohocken, Pennsylvania 19428 (the "Company"), and Gerald C. Finn, an
individual having an address c/o P.O. Box 950, Highstown, NJ 07520 (the
"Trustee").
WHEREAS, the Trustee has been a trustee of the Company to perform
certain services to the Company upon terms and conditions which the parties
hereto have previously agreed (the "Services");
WHEREAS, the Company recognizes that the Trustee's contributions to the
past and future growth of the Company has been substantial; and
WHEREAS, to induce the Trustee to remain as a trustee of the Company,
the parties hereto desire to set forth certain severance benefits which the
Company will pay to the Trustee in the event of a Change in Control of the
Company (as defined in Section 2 hereof).
IT IS AGREED:
1. TERM: This Agreement shall commence on the date hereof and shall
terminate upon the earlier of (a) the date on which the Company has satisfied
all of its obligations hereunder, or (b) the date on which the Trustee is no
longer a trustee of the Company for any reason whatsoever including, without
limitation, termination without cause. Notwithstanding the termination of
this Agreement subsequent to a Change in Control of the Company, in the event
that the Trustee is a trustee of the Company at the moment immediately prior
to a Change in Control of the Company, the Trustee shall be entitled to
receive all benefits described hereunder and the provisions hereof related
thereto shall survive such termination.
2. CHANGE IN CONTROL OF THE COMPANY. For purposes of this Agreement,
a "Change in Control of the Company" shall be deemed to occur if:
(i) there shall have occurred a change in control of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),as in effect
on the date hereof, whether or not the Company is then subject to
such reporting requirement, provided, however, that there shall not
be deemed to be a Change in Control of the Company if immediately
prior to the occurrence of what would otherwise be a Change in
Control of the Company (a) the Trustee is the other party to the
transaction (a "Control of the Company Event") that would otherwise
result in a Change in Control of the Company or (b) the Trustee is
an officer, trustee, director or more than 5% equity holder of the
other party to the Control of the Company Event or of any entity,
directly or indirectly, controlling such other party:
(ii) the Company merges or consolidates with, or sells all or
substantially all of its assets to, another company (each, a
"Transaction"), provided, however, that a Transaction shall not be
deemed to result in a Change in Control of the Company if (a)
immediately prior thereto the circumstances in (i)(a) or (i)(b)
above exist or (b)(1) the shareholders of the Company, immediately
before such Transaction own, directly or indirectly, immediately
following such Transaction in excess of fifty percent (50%) of the
combined voting power of the outstanding voting securities of the
corporation or other entity resulting rom such Transaction (the
"Surviving Corporation") in substantially the same proportion as
their ownership of the voting securities of the Company immediately
before such Transaction and (2) the individuals who were members of
the Company's Board of Trustees immediately prior to the execution
of the agreement providing for such Transaction constitute at least
a majority of the members of the board of directors or the board of
trustees, as the case may be, of the Surviving Corporation, or of a
corporation or other entity beneficially directly or indirectly
owning a majority of the outstanding voting securities of the
Surviving Corporation; or
(iii) the Company acquires assets of another company or a
subsidiary of the Company mergers or consolidates with another
company (each, an "Other Transaction") and (a) the shareholders of
the Company, immediately before such Other Transaction own,
directly or indirectly, immediately following such Other
Transaction 50% or less of the combined voting power of the
outstanding voting securities of the corporation or other entity
resulting from such Other Transaction (the "Other Surviving
Corporation") in substantially the same proportion as their
ownership of the voting securities of the Company immediately
before such Other Transaction or (b) the individuals who were
members of the Company's Board of Trustees immediately prior to the
execution of the agreement providing for such Other Transaction
constitute less than a majority of the members of the board of
directors or the board of trustees, as the case may be, of the
Other Surviving Corporation, or of a corporation or other entity
beneficially directly or indirectly owning a majority of the
outstanding voting securities of the Other Surviving Corporation,
provided, however, that an Other Transaction shall not be deemed to
result in a Change in Control of the Company if immediately prior
thereto the circumstances in (i)(a) or (i)(b) above exist.
3. COMPENSATION UPON A CHANGE IN CONTROL OF THE COMPANY.
(a) (i) If the Trustee is a trustee of the Company at the moment
immediately prior to a Change in Control of the Company, the Trustee shall be
entitled to receive compensation in for the form of cash equal to, on the
date of a Change in Control of the Company and with respect to each Option to
purchase common shares of beneficial interest of the Company (the "Shares")
held by the Trustee whether or not such Option has vested or is exercisable
on such date (an "Option"), the number of Shares underlying the Option,
multiplied by the amount, if any, that the exercise price of the Option or
the Closing Share Value (as defined below), whichever is less, exceeds the
Initial Share Value (as defined below).
(ii) With respect to each Option, in the event that the
Closing Share Value is greater that the exercise price of such Option, then
the Trustee can (1) retain the Option, or (2) forfeit the Option and receive,
in exchange therefor, a cash payment equal to the number of Shares underlying
the Option multiplied by the amount that the Closing Share Value exceeds the
exercise price of the Option.
(iii) For purposes of this subsection (a), the "Initial Share
Value" of an Option shall mean the average of the Closing Prices of the
Shares for the period commencing on the 180th day prior to the date of the
Change in Control of the Company and ending on the 150th day prior to the
date of the Change in Control of the Company, and the "Closing Share Value"
shall mean the Closing Price of the Shares on the date of the Change in
Control of the Company. For purposes of this subsection (a), the "Closing
Price" of a Share on any date shall mean the last sale price, regular way,
or, in case no such sale takes place on such date, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or,
if the Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Shares are listed or admitted to trading or, if the
Shares are not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the
highest bid and lowest ask prices in the overthecounter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or, if such system is no longer used, the principal other automated
quotation system that may then be in use or, if the Shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making the market in the Shares as
such person is selected from time to time by the Board of Trustees of the
Company.
(b) The Trustee shall not be required to mitigate the amount of
any payment provided for in this Section 3 by seeking other trusteeships or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 3 be reduced by any compensation earned by him as the result of
a trusteeship for another company or by retirement benefits after the date of
termination, or otherwise, except as specifically provided in this Section 3.
4. SCALEBACK. To the extent any benefits to be granted to the Trustee
hereunder constitute a "parachute payment" (within the meaning of Section
280G(b)(2) of the Code), and the Trustee would otherwise be liable for an
excise tax pursuant to Code Section 4999, there shall be a reduction in the
benefits payable or available to the Trustee hereunder such that the total
parachute payments will be less than three (3) times the Trustee's "base
amount" (within the meaning of Section 280G(b)(3) of the Code) with the
result that the excise tax under Code Section 4999 will not be payable;
provided, however, that such reduction shall occur only if the Trustee shall
realize a greater after tax economic benefit by making such reduction than if
no reduction was made.
5. EXPENSES. (a) The Company shall pay or reimburse the Trustee, as
the case may be, for all legal and accounting fees and expenses incurred by
the Trustee in connection with the structuring, negotiation and preparation
of this Agreement.
(b) The Company shall pay or reimburse the Trustee, as the
case may be, for all legal fees and related expenses (including the costs of
experts, evidence and counsel) paid by the Trustee as a result of (i) the
Trustee seeking to obtain or enforce any right or benefit provided by this
Agreement, or (ii) any action taken by the Company against the Trustee in
enforcing the Company's rights hereunder; provided, however, that the Company
shall reimburse the legal fees and related expenses described in this
subsection 4(b) only if and when a final judgment has been rendered in favor
of the Trustee and all appeals related to any such action have been
exhausted.
6. NO RETENTION RIGHTS OR OBLIGATIONS. Nothing contained herein shall
confer upon the Trustee the right to continue as a trustee of the Company or
any subsidiary or affiliate of the Company or affect any right that the
Company or any subsidiary or affiliate of the Company may have to terminate
the service of the Trustee at any time for any reason.
7. GOVERNING LAW; ARBITRATION. This Agreement shall be governed by,
and construed in accordance with, the internal laws of the State of Maryland,
without regard to Maryland's conflicts of law principles. Any dispute or
controversy arising under this Agreement, or out of the interpretation
hereof, or based upon the breach hereof, shall be resolved by arbitration
held at the offices of the American Arbitration Association in the City of
Philadelphia in accordance with the rules and regulations of such association
prevailing at the time of the demand for arbitration by either party hereto,
and the decision of the arbitrator or arbitrators shall be final and binding
upon both parties hereto, provided, however, that the arbitrator or
arbitrators shall only have the power and authority to interpret, and not to
modify or amend, the terms and provisions hereof. Judgment upon an award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. Notwithstanding anything contained in this Section 6,
either party shall have the right to seek preliminary injunctive relief in
any court in the City of Philadelphia in aid of, and pending the final
decision in, the arbitration proceeding.
8. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties and is intended to supersede all prior negotiations,
understandings and agreements with respect to the subject matter hereof. No
provision of this Agreement may be waived or changed, except by a writing
signed by the party to be charged with such waiver or change.
9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by the Company, its successors
and assigns and the Trustee, and the Trustee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
10. NOTICES. All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when given by telex, telegram or
mailgram, or when mailed first class postage prepaid, by registered or
certified mail, return receipt requested, addressed to the party to receive
the same at his or its address above set forth, or such other address as the
party to receive the same shall have specified by written notice given in the
manner provided for in this Section 9. All notices shall be deemed to have
been given as of the date of personal delivery, transmittal or mailing
thereof.
11. SEVERABILITY. If any provision in this Agreement is determined to
be invalid, it shall not affect the validity or enforceability of any of the
other remaining provisions hereof.
12. EXCULPATION. This Agreement and all documents, agreements,
understanding and arrangements relating to the matters described herein have
been executed by the undersigned in his/her capacity as an officer or trustee
of the Company which has been formed as a Maryland real estate investment
trust pursuant to an Amended and Restated Declaration of Trust of the
Company, as amended, and not individually, and neither the trustees, officers
or shareholders of the Company shall be bound or have any personal liability
hereunder or thereunder. The Trustee shall look solely to the assets of the
Company for satisfaction of any liability of the Company in respect of this
Agreement and all documents, agreements, understandings and arrangements
relating to this transaction and will not seek recourse or commence any
action against any of the trustees, officers or shareholders of the Company
or any of their personal assets for the performance or payment of any
obligation hereunder or thereunder. The foregoing shall also apply to any
future documents, agreements, understandings, arrangements and transactions
between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
KRANZCO REALTY TRUST
By: /s/Norman M. Kranzdorf
------------------------------
Norman M. Kranzdorf, President
TRUSTEE:
/s/Gerald C. Finn
- -----------------
GERALD C. FINN
SEVERANCE BENEFITS AGREEMENT
-----------------------------
AGREEMENT, dated as of July 30, 1998, between KRANZCO REALTY TRUST, a
Maryland real estate investment trust with offices at 128 Fayette Street,
Conshohocken, Pennsylvania 19428 (the "Company"), and Bernard J. Korman, an
individual residing at 5785 Hopkins Neck Road, Easton, MD (the "Trustee").
WHEREAS, the Trustee has been a trustee of the Company to perform
certain services to the Company upon terms and conditions which the parties
hereto have previously agreed (the "Services");
WHEREAS, the Company recognizes that the Trustee's contributions to the
past and future growth of the Company has been substantial; and
WHEREAS, to induce the Trustee to remain as a trustee of the Company,
the parties hereto desire to set forth certain severance benefits which the
Company will pay to the Trustee in the event of a Change in Control of the
Company (as defined in Section 2 hereof).
IT IS AGREED:
1. TERM: This Agreement shall commence on the date hereof and shall
terminate upon the earlier of (a) the date on which the Company has satisfied
all of its obligations hereunder, or (b) the date on which the Trustee is no
longer a trustee of the Company for any reason whatsoever including, without
limitation, termination without cause. Notwithstanding the termination of
this Agreement subsequent to a Change in Control of the Company, in the event
that the Trustee is a trustee of the Company at the moment immediately prior
to a Change in Control of the Company, the Trustee shall be entitled to
receive all benefits described hereunder and the provisions hereof related
thereto shall survive such termination.
2. CHANGE IN CONTROL OF THE COMPANY. For purposes of this Agreement,
a "Change in Control of the Company" shall be deemed to occur if:
(i) there shall have occurred a change in control of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),as in effect
on the date hereof, whether or not the Company is then subject to
such reporting requirement, provided, however, that there shall not
be deemed to be a Change in Control of the Company if immediately
prior to the occurrence of what would otherwise be a Change in
Control of the Company (a) the Trustee is the other party to the
transaction (a "Control of the Company Event") that would otherwise
result in a Change in Control of the Company or (b) the Trustee is
an officer, trustee, director or more than 5% equity holder of the
other party to the Control of the Company Event or of any entity,
directly or indirectly, controlling such other party:
(ii) the Company merges or consolidates with, or sells all or
substantially all of its assets to, another company (each, a
"Transaction"), provided, however, that a Transaction shall not be
deemed to result in a Change in Control of the Company if (a)
immediately prior thereto the circumstances in (i)(a) or (i)(b)
above exist or (b)(1) the shareholders of the Company, immediately
before such Transaction own, directly or indirectly, immediately
following such Transaction in excess of fifty percent (50%) of the
combined voting power of the outstanding voting securities of the
corporation or other entity resulting rom such Transaction (the
"Surviving Corporation") in substantially the same proportion as
their ownership of the voting securities of the Company immediately
before such Transaction and (2) the individuals who were members of
the Company's Board of Trustees immediately prior to the execution
of the agreement providing for such Transaction constitute at least
a majority of the members of the board of directors or the board of
trustees, as the case may be, of the Surviving Corporation, or of a
corporation or other entity beneficially directly or indirectly
owning a majority of the outstanding voting securities of the
Surviving Corporation; or
(iii) the Company acquires assets of another company or a
subsidiary of the Company mergers or consolidates with another
company (each, an "Other Transaction") and (a) the shareholders of
the Company, immediately before such Other Transaction own,
directly or indirectly, immediately following such Other
Transaction 50% or less of the combined voting power of the
outstanding voting securities of the corporation or other entity
resulting from such Other Transaction (the "Other Surviving
Corporation") in substantially the same proportion as their
ownership of the voting securities of the Company immediately
before such Other Transaction or (b) the individuals who were
members of the Company's Board of Trustees immediately prior to the
execution of the agreement providing for such Other Transaction
constitute less than a majority of the members of the board of
directors or the board of trustees, as the case may be, of the
Other Surviving Corporation, or of a corporation or other entity
beneficially directly or indirectly owning a majority of the
outstanding voting securities of the Other Surviving Corporation,
provided, however, that an Other Transaction shall not be deemed to
result in a Change in Control of the Company if immediately prior
thereto the circumstances in (i)(a) or (i)(b) above exist.
3. COMPENSATION UPON A CHANGE IN CONTROL OF THE COMPANY.
(a) (i) If the Trustee is a trustee of the Company at the moment
immediately prior to a Change in Control of the Company, the Trustee shall be
entitled to receive compensation in for the form of cash equal to, on the
date of a Change in Control of the Company and with respect to each Option to
purchase common shares of beneficial interest of the Company (the "Shares")
held by the Trustee whether or not such Option has vested or is exercisable
on such date (an "Option"), the number of Shares underlying the Option,
multiplied by the amount, if any, that the exercise price of the Option or
the Closing Share Value (as defined below), whichever is less, exceeds the
Initial Share Value (as defined below).
(ii) With respect to each Option, in the event that the
Closing Share Value is greater that the exercise price of such Option, then
the Trustee can (1) retain the Option, or (2) forfeit the Option and receive,
in exchange therefor, a cash payment equal to the number of Shares underlying
the Option multiplied by the amount that the Closing Share Value exceeds the
exercise price of the Option.
(iii) For purposes of this subsection (a), the "Initial Share
Value" of an Option shall mean the average of the Closing Prices of the
Shares for the period commencing on the 180th day prior to the date of the
Change in Control of the Company and ending on the 150th day prior to the
date of the Change in Control of the Company, and the "Closing Share Value"
shall mean the Closing Price of the Shares on the date of the Change in
Control of the Company. For purposes of this subsection (a), the "Closing
Price" of a Share on any date shall mean the last sale price, regular way,
or, in case no such sale takes place on such date, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or,
if the Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Shares are listed or admitted to trading or, if the
Shares are not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the
highest bid and lowest ask prices in the overthecounter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or, if such system is no longer used, the principal other automated
quotation system that may then be in use or, if the Shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making the market in the Shares as
such person is selected from time to time by the Board of Trustees of the
Company.
(b) The Trustee shall not be required to mitigate the amount of
any payment provided for in this Section 3 by seeking other trusteeships or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 3 be reduced by any compensation earned by him as the result of
a trusteeship for another company or by retirement benefits after the date of
termination, or otherwise, except as specifically provided in this Section 3.
4. SCALEBACK. To the extent any benefits to be granted to the Trustee
hereunder constitute a "parachute payment" (within the meaning of Section
280G(b)(2) of the Code), and the Trustee would otherwise be liable for an
excise tax pursuant to Code Section 4999, there shall be a reduction in the
benefits payable or available to the Trustee hereunder such that the total
parachute payments will be less than three (3) times the Trustee's "base
amount" (within the meaning of Section 280G(b)(3) of the Code) with the
result that the excise tax under Code Section 4999 will not be payable;
provided, however, that such reduction shall occur only if the Trustee shall
realize a greater after tax economic benefit by making such reduction than if
no reduction was made.
5. EXPENSES. (a) The Company shall pay or reimburse the Trustee, as
the case may be, for all legal and accounting fees and expenses incurred by
the Trustee in connection with the structuring, negotiation and preparation
of this Agreement.
(b) The Company shall pay or reimburse the Trustee, as the
case may be, for all legal fees and related expenses (including the costs of
experts, evidence and counsel) paid by the Trustee as a result of (i) the
Trustee seeking to obtain or enforce any right or benefit provided by this
Agreement, or (ii) any action taken by the Company against the Trustee in
enforcing the Company's rights hereunder; provided, however, that the Company
shall reimburse the legal fees and related expenses described in this
subsection 4(b) only if and when a final judgment has been rendered in favor
of the Trustee and all appeals related to any such action have been
exhausted.
6. NO RETENTION RIGHTS OR OBLIGATIONS. Nothing contained herein shall
confer upon the Trustee the right to continue as a trustee of the Company or
any subsidiary or affiliate of the Company or affect any right that the
Company or any subsidiary or affiliate of the Company may have to terminate
the service of the Trustee at any time for any reason.
7. GOVERNING LAW; ARBITRATION. This Agreement shall be governed by,
and construed in accordance with, the internal laws of the State of Maryland,
without regard to Maryland's conflicts of law principles. Any dispute or
controversy arising under this Agreement, or out of the interpretation
hereof, or based upon the breach hereof, shall be resolved by arbitration
held at the offices of the American Arbitration Association in the City of
Philadelphia in accordance with the rules and regulations of such association
prevailing at the time of the demand for arbitration by either party hereto,
and the decision of the arbitrator or arbitrators shall be final and binding
upon both parties hereto, provided, however, that the arbitrator or
arbitrators shall only have the power and authority to interpret, and not to
modify or amend, the terms and provisions hereof. Judgment upon an award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. Notwithstanding anything contained in this Section 6,
either party shall have the right to seek preliminary injunctive relief in
any court in the City of Philadelphia in aid of, and pending the final
decision in, the arbitration proceeding.
8. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties and is intended to supersede all prior negotiations,
understandings and agreements with respect to the subject matter hereof. No
provision of this Agreement may be waived or changed, except by a writing
signed by the party to be charged with such waiver or change.
9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of, be binding upon and be enforceable by the Company, its successors
and assigns and the Trustee, and the Trustee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
10. NOTICES. All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when given by telex, telegram or
mailgram, or when mailed first class postage prepaid, by registered or
certified mail, return receipt requested, addressed to the party to receive
the same at his or its address above set forth, or such other address as the
party to receive the same shall have specified by written notice given in the
manner provided for in this Section 9. All notices shall be deemed to have
been given as of the date of personal delivery, transmittal or mailing
thereof.
11. SEVERABILITY. If any provision in this Agreement is determined to
be invalid, it shall not affect the validity or enforceability of any of the
other remaining provisions hereof.
12. EXCULPATION. This Agreement and all documents, agreements,
understanding and arrangements relating to the matters described herein have
been executed by the undersigned in his/her capacity as an officer or trustee
of the Company which has been formed as a Maryland real estate investment
trust pursuant to an Amended and Restated Declaration of Trust of the
Company, as amended, and not individually, and neither the trustees, officers
or shareholders of the Company shall be bound or have any personal liability
hereunder or thereunder. The Trustee shall look solely to the assets of the
Company for satisfaction of any liability of the Company in respect of this
Agreement and all documents, agreements, understandings and arrangements
relating to this transaction and will not seek recourse or commence any
action against any of the trustees, officers or shareholders of the Company
or any of their personal assets for the performance or payment of any
obligation hereunder or thereunder. The foregoing shall also apply to any
future documents, agreements, understandings, arrangements and transactions
between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
KRANZCO REALTY TRUST
By: /s/Norman M. Kranzdorf
------------------------------
Norman M. Kranzdorf, President
TRUSTEE:
/s/Bernard J. Korman
- --------------------
BERNARD J. KORMAN
EXHIBIT 21.1
KRANZCO REALTY TRUST
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1998
DATE OWNERSHIP
SUBSIDIARY FORMED PERCENTAGE TYPE
------ ---------- ----
KRT Property Holdings, Inc. 11/92 100% MD corp
Parkway Plaza II Corp. 11/92 100% MD corp
KR Trust One, Inc. 6/93 100% MD corp
Lilac Connecticut Corp. 11/92 100% CT corp.
Lilac New York Corp. 11/92 100% NY corp.
KRT Union Corp. 10/96 100% DE corp
KR Hillcrest Mall, Inc. 6/96 100% NJ corp.
KR Collegetown, Inc. 6/96 100% NJ corp.
KR Orange, Inc. 6/96 100% CT corp.
KR Brookhaven, Inc. 2/97 100% MS corp
KR Harrodsburg, Inc. 2/97 100% KY corp
KR Minnetonka, Inc. 2/97 100% MN corp.
Kranzco Raynham, Inc. 2/97 100% MA corp.
KR Roseville, Inc. 2/97 100% MN corp.
KR Tucson, Inc. 2/97 100% AZ corp.
KR Bainbridge, Inc. 2/97 100% GA corp.
KR Cary, Inc. 2/97 100% NC corp.
KR Morganton, Inc. 2/97 100% NC corp.
KR Columbia, Inc. 2/97 100% SC corp.
KR Columbus, Inc. 2/97 100% MS corp.
KR Flint, Inc. 2/97 100% MI corp.
KR Livonia, Inc. 2/97 100% MI corp.
KR Richmond, Inc. 2/97 100% Va corp.
KR Spartanburg, Inc. 2/97 100% SC corp.
KR Parkway Plaza I Corp. 2/97 100% CT corp.
KR Wampanoag, Inc. 2/97 100% RI corp.
KR Atlanta, Inc. 11/97 100% GA corp.
KR Holcomb, Inc. 11/97 100% GA corp.
KR Park Plaza, Inc. 11/97 100% GA corp.
KR Tower, Inc. 11/97 100% GA corp.
KR Mableton, Inc. 11/97 100% GA corp.
KR Circleville, Inc. 8/98 100% OH corp.
KR Douglasville, Inc. 8/98 100% GA corp.
KR Pensacola, Inc. 8/98 100% FL corp.
KR Pensacola II, Inc. 12/98 100% FL corp.
KR Snellville, Inc. 8/98 100% GA corp.
KR Staunton, Inc. 8/98 100% VA corp.
KR Summerville, Inc. 8/98 100% GA corp.
KR Tifton, Inc. 8/98 100% GA corp.
KR Vidalia, Inc. 8/98 100% GA corp.
KR Development, Inc. 5/97 100% PA corp.
KR Development, L.P. 5/97 99% PA ltd. partnership
(KR Development, Inc. is 1% General Partner in Limited Partnership)
KR Best Associates, Inc. 9/93 100% PA corp.
KR Best Associates, L.P. 9/93 99% PA ltd. partnership
(KR Best Associates, Inc. is 1% General Partner in Limited Partnership)
KR Street, Inc. 9/93 100% PA corp.
KR Street Associates, L.P. 9/93 99% PA ltd. partnership
(KR Street, Inc. is 1% General Partner in Limited Partnership)
KR MacArthur, Inc. 9/93 100% PA corp.
KR MacArthur
Associates, L.P. 9/93 99% PA ltd. partnership
(KR MacArthur, Inc. is 1% General Partner in Limited Partnership)
KR Manchester, Inc. 4/94 100% CT corp.
KR Suburban, Inc. 1/94 100% NJ corp.
KR Suburban, LP 1/94 99% NJ limited partnership
(KR Suburban, Inc. is 1% General Partner in Limited Partnership)
KR 69th Street, Inc. 1/94 100% PA corp.
KR 69th Street, LP 1/94 99% PA limited partnership
(KR 69th Street, Inc. is 1% General Partner in Limited Partnership)
KR Fox Run, Inc. 7/94 100% MD corp.
Fox Run, Limited
Partnership Acquired 7/94 99% AL limited partnership
(KR Fox Run, Inc. is 1% General Partner)
KR Marumsco, Inc. 3/95 100% MD corp.
KR Marumsco II, Inc. 4/95 100% MD corp.
(Note: KR Marumsco, Inc. owns 99% GP interest and KR Marumsco II, Inc. owns
1% GP interest in Marumsco-Jefferson Joint Venture, a VA general partnership
- - purchased by the two corps in 4/95)
KR Culpeper, Inc. 3/95 100% MD corp.
KR Culpeper II, Inc. 4/95 100% MD corp.
(Note: KR Culpeper, Inc. owns 99% GP interest and KR Culpeper II, Inc. owns
1% GP interest in Culpeper Shopping Center Joint Venture, a MD general
partnership - purchased by the two corps in 4/95)
KR Campus, Inc. 3/95 100% MD corp.
KR Campus II, Inc. 4/95 100% MD corp.
(Note: KR Campus, Inc. owns 99% GP interest and KR Campus II, Inc. owns 1%
GP interest in Campus Village Shopping Center Joint Venture, a MD general
partnership - purchased by the two corps in 4/95)
KR Hillcrest, Inc. 3/95 100% MD corp.
Hillcrest Plaza Limited
Ptnrshp Acquired 4/95 99% LP MD limited partnership
(KR Hillcrest, Inc. is 1% general partner in Hillcrest Plaza Limited
Partnership)
KR Coral Hills, Inc. 3/95 100% MD corp.
Coral Hills Assoc.Limited
Ptnrshp Acquired 4/95 99% LP MD limited partnership
(KR Coral Hills, Inc. is 1% general partner in Coral Hills Associates Limited
Partnership)
KR Pilgrim, Inc 6/96 100% PA corp.
KR Pilgrim, LP 6/96 99% PA LP
(Note: KR Pilgrim, Inc. is 1% General Partner in limited partnership)
KR Bradford Mall, Inc. 6/96 100% PA corp.
KR Bradford Mall, LP 6/96 99% PA LP
(Note: KR Bradford, Inc. is 1% General Partner in limited partnership)
KR Valley Forge, Inc. 6/96 100% PA corp.
KR Valley Forge, LP 6/96 99% PA LP
(Note: KR Valley Froge, Inc. is 1% General Partner in limited partnership)
**KR Barn, Inc. 2/21/97 100% PA corp.
KR Barn, L.P. 2/21/97 99% PA LP
(Note: KR Barn, Inc. is 1% General Partner in limited partnership - ** NOTE
THAT THIS ENTITY OWNS ONLY THE CINEMA PORTION OF THE BARN PROPERTY)
KR Jefferson City GP, Inc. 100% TN corp.
(Note: KR Jefferson City GP, Inc. (TN corp.) owns a 1% GP in KR Jefferson
City, LP and KR Jefferson City LP, Inc. (DE corp.) owns a 99% LP in KR
Jefferson City, LP)
KR Northpark, Inc. 11/97 100% GA corp.
Northpark Associates, L.P.
(Cobb) 11/97 95% of LP owned by corporate entity
- GA lp
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 22, 1999 included in this Form 10-K, into the
Company's previously filed: Form S-3 Registration Statements File Nos.
33-75554 and 33-72076 and Form S-8 Registration Statements File Nos. 33-56990
and 33-94294.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information extracted from
the consolidated balance sheets and consolidated statements of operation and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,913,000
<SECURITIES> 0
<RECEIVABLES> 9,733,000
<ALLOWANCES> 2,160,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,237,000
<PP&E> 584,883,000
<DEPRECIATION> 59,793,000
<TOTAL-ASSETS> 546,516,000
<CURRENT-LIABILITIES> 10,443,000
<BONDS> 350,141,000
<COMMON> 116,094,000
0
68,385,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 546,516,000
<SALES> 0
<TOTAL-REVENUES> 71,451,000
<CGS> 0
<TOTAL-COSTS> 45,808,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,764,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,879,000
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
