Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from _______ to ________.
Commission File Number 1-11998
KONOVER PROPERTY TRUST, INC.
(Exact name of Registrant as specified in its charter)
Maryland 56-1819372
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
11000 Regency Parkway 27511
Suite 300 (Zip Code)
Cary, North Carolina (919) 462-8787
(Address of Principal Executive Offices) (Registrant's telephone
number, including area
code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _______ No_______
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 31,241,631 shares of Common
Stock, $0.01 par value, as of August 7, 2000.
<PAGE>
KONOVER PROPERTY TRUST, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements (Unaudited)............................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 14
Item 3. Quantitative and Qualitative Disclosures of Market Risk........ 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 25
Item 2. Changes in Securities and Use of Proceeds...................... 25
Item 3. Defaults Upon Senior Securities................................ 25
Item 4. Submission of Matters to a Vote of Security Holders............ 25
Item 5. Other Information.............................................. 25
Item 6. Exhibits and Reports on Form 8-K............................... 25
Signatures ........................................................... 26
2
<PAGE>
PART I
Item 1. Financial Statements (Unaudited)
Index to Unaudited Financial Statements
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999.................................. 4
Consolidated Statements of Operations for the three months ended June 30, 2000 and 1999................ 5
Consolidated Statements of Operations for the six months ended June 30, 2000 and 1999.................. 6
Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2000.................. 7
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999.................. 8
Notes to Consolidated Financial Statements............................................................. 9
</TABLE>
3
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(Unaudited) (Audited)
---------------------------------------------
(in thousands, except per share data))
Assets
<S> <C> <C>
Income producing properties:
Land $ 130,620 $ 119,360
Buildings and improvements 540,455 516,579
Deferred leasing and other charges 43,408 35,605
---------------------------------------------
714,483 671,544
Accumulated depreciation and amortization (94,431) (89,019)
---------------------------------------------
620,052 582,525
Properties under development 11,843 65,924
Properties held for sale 19,738 611
Other assets:
Cash and cash equivalents 14,555 8,164
Restricted cash 8,909 8,634
Tenant and other receivables, net allowance of $1,400 and $1,588 at June 30,
2000 and December 31, 1999, respectively 8,707 9,974
Deferred charges and other assets 14,194 12,197
Investment in and advances to unconsolidated entities 28,464 26,143
Notes receivable 671 5,285
---------------------------------------------
$ 727,133 $ 719,457
=============================================
Liabilities and Stockholders' Equity
Liabilities:
Debt on income properties $ 381,780 $ 362,041
Capital lease obligations 563 698
Accounts payable and other liabilities 24,809 22,661
---------------------------------------------
407,152 385,400
Commitments and contingencies
Minority interests 9,423 12,999
---------------------------------------------
Stockholders' equity:
Convertible preferred stock, Series A, 5,000,000 shares authorized, 780,680
issued and outstanding at June 30, 2000 and December 31, 1999 18,679 18,679
Stock purchase warrants 9 9
Common stock, $0.01 par value, 100,000,000 shares authorized, 31,230,761 and
30,868,630 issued and outstanding at June 30, 2000 and December 31,
1999, respectively 312 309
Additional paid-in capital 302,203 307,871
Accumulated deficit (10,086) (5,432)
Deferred compensation - Restricted Stock Plan (559) (378)
---------------------------------------------
310,558 321,058
---------------------------------------------
$ 727,133 $ 719,457
=============================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
4
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30,
2000 1999
---------------------------------------------
Rental operations: (in thousands, except per share data)
<S> <C> <C>
Revenues:
Base rents $ 17,889 $ 15,988
Percentage rents 92 408
Property operating cost recoveries 4,304 4,236
Other income 811 521
---------------------------------------------
23,096 21,153
---------------------------------------------
Property operating costs:
Common area maintenance 2,403 2,415
Utilities 662 624
Real estate taxes 2,121 2,009
Insurance 267 239
Marketing 44 163
Other 1,470 1,326
---------------------------------------------
6,967 6,776
Depreciation and amortization 7,413 6,444
---------------------------------------------
14,380 13,220
---------------------------------------------
8,716 7,933
---------------------------------------------
Other expenses:
General and administrative 1,727 1,237
Interest, net 6,791 3,862
---------------------------------------------
Income from operations 198 2,834
Loss on sale of real estate 315 134
Abandoned transaction costs 5 24
Equity in losses of unconsolidated ventures:
Technology venture 1,207 -
Real estate operations 525 24
---------------------------------------------
(Loss) income before minority interest (1,854) 2,652
Minority interest 49 (100)
---------------------------------------------
Net (loss) income $ (1,805) $ 2,552
Preferred dividends (271) (275)
---------------------------------------------
Net (loss) income applicable to common shareholders $ (2,076) $ 2,277
=============================================
Basic (loss) income available to common stockholders per share $ (0.07) $ 0.07
=============================================
Weighted-average number of common shares outstanding 31,025 30,756
=============================================
Diluted (loss) income applicable to common shareholders per share $ (0.07) $ 0.07
=============================================
Weighted-average number of diluted shares outstanding 31,025 34,341
=============================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
2000 1999
---------------------------------------------
Rental operations: (in thousands, except per share data)
<S> <C> <C>
Revenues:
Base rents $ 34,921 $ 30,548
Percentage rents 231 569
Property operating cost recoveries 8,800 7,995
Other income 1,276 1,204
---------------------------------------------
45,228 40,316
---------------------------------------------
Property operating costs:
Common area maintenance 5,061 4,503
Utilities 1,360 1,246
Real estate taxes 4,360 3,937
Insurance 518 480
Marketing 81 317
Other 2,654 2,305
---------------------------------------------
14,034 12,788
Depreciation and amortization 14,387 12,014
---------------------------------------------
28,421 24,802
---------------------------------------------
16,807 15,514
---------------------------------------------
Other expenses:
General and administrative 3,325 2,672
Interest 13,122 7,170
---------------------------------------------
Income from operations 360 5,672
Loss on sale of real estate 874 213
Abandoned transaction costs 18 137
Equity in losses of unconsolidated ventures:
Technology venture 3,639 -
Real estate operations 818 27
---------------------------------------------
(Loss) income before minority interest (4,989) 5,295
Minority interest 335 (187)
---------------------------------------------
Net (loss) income $ (4,654) $ 5,108
Preferred dividends (542) (550)
---------------------------------------------
Net (loss) income available to common stockholders $ (5,196) $ 4,558
=============================================
Basic (loss) income available to common stockholders per share $ (0.17) $ 0.15
=============================================
Weighted-average number of common shares outstanding 30,770 30,936
=============================================
Diluted (loss) income available to common shareholders per share $ (0.17) $ 0.15
=============================================
Weighted-average number of diluted shares outstanding 30,770 34,492
=============================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
6
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statement of Stockholders' Equity
Six Months ended June 30, 2000
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Convertible Stock Purchase Additional Paid
Preferred Stock Warrants Common Stock in Capital
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 18,679 $ 9 $ 309 $ 307,871
Issuance of 10,446 employee stock purchase plan
shares - - - 49
Issuance of 104,900 restricted shares - - 1 569
Repurchase of 7,803 restricted shares - - - (43)
Cancellation of 6,288 restricted shares - - - (43)
OP units converted into 260,876 common shares - - 2 2,476
Expenses related to sale of common stock to Lazard - - - (172)
Compensation under stock plans - - - -
Adjustment to value of minority interest in
Operating Partnership - - - 510
Preferred stock dividends ($0.25 per share) - - - (542)
Common stock dividends ($0.25 per share) - - - (8,472)
Net loss - - - -
---------------------------------------------------------------------
Balance at June 30, 2000 $ 18,679 $ 9 $ 312 $ 302,203
=====================================================================
<CAPTION>
Deferred
Compensation
Retained Restricted Stock
Earnings Plan Total
------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1999 $ (5,432) $ (378) $ 321,058
Issuance of 10,446 employee stock purchase plan
shares - - 49
Issuance of 104,900 restricted shares - (407) 163
Repurchase of 7,803 restricted shares - - (43)
Cancellation of 6,288 restricted shares - 43 -
OP units converted into 260,876 common shares - - 2,478
Expenses related to sale of common stock to Lazard - - (172)
Compensation under stock plans - 183 183
Adjustment to value of minority interest in
Operating Partnership - - 510
Preferred stock dividends ($0.25 per share) - - (542)
Common stock dividends ($0.25 per share) - - (8,472)
Net loss (4,654) - (4,654)
------------------------------------------------------
Balance at June 30, 2000 $ (10,086) $ (559) $ 310,558
======================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of this statement.
7
<PAGE>
KONOVER PROPERTY TRUST, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
--------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (4,654) $ 5,108
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Minority interest (335) 187
Depreciation and amortization 14,387 12,014
Loss on sale of real estate 874 213
Abandoned transaction costs 18 137
Amortization of deferred financing costs 1,207 848
Technology venture operations 3,639 -
Amortization of debt premium (261) (652)
Net changes in:
Tenant and other receivables 2,334 (87)
Deferred charges and other assets (1,061) (5,220)
Accounts payable and other liabilities (3,786) 6,238
--------------------------------
Net cash provided by operating activities 12,362 18,786
--------------------------------
Cash flows from investing activities:
Investment in income-producing properties (17,144) (43,188)
Net proceeds from sale of real estate 603 -
Acquisitions of income-producing properties, net - (36,382)
Payments received on notes receivable, net 4,614 8,131
Investment in and advances to unconsolidated entities (5,961) (873)
Change in restricted cash (275) 389
--------------------------------
Net cash used in investing activities (18,163) (71,923)
--------------------------------
Cash flows from financing activities:
Proceeds from debt on income properties 21,754 13,397
Repayment of debt on income properties (1,754) (1,786)
Expenses related to sale of common stock (172) (213)
Deferred financing charges (2,870) (842)
Other debt repayments (136) (123)
Issuance of shares under employee stock purchase plan 49 58
Dividends paid (4,636) (9,031)
Repurchase of common stock (43) (2,967)
--------------------------------
Net cash provided by (used in) financing activities 12,192 (1,507)
--------------------------------
Net increase (decrease) in cash and cash equivalents 6,391 (54,644)
Cash and cash equivalents at beginning of period 8,164 72,302
--------------------------------
Cash and cash equivalents at end of period $ 14,555 $ 17,658
================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 14,975 $ 8,823
================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
8
<PAGE>
KONOVER PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000
1. Interim Financial Statements
Organization
Konover Property Trust, Inc. (the "Company"), formerly FAC Realty
Trust, Inc., was incorporated on March 31, 1993 as a self-advised and
self-managed real estate investment trust (REIT). The Company is principally
engaged in the acquisition, development, ownership, and operation of retail
shopping centers. The Company's revenues are primarily derived under real estate
leases with national, regional and local retailing companies.
On June 30, 2000, the Company-owned and consolidated properties
consisted of:
1. 39 community shopping centers in nine states aggregating approximately
5,396,000 square feet;
2. 9 outlet centers in nine states aggregating approximately 1,977,000 square
feet;
3. 16 Vanity Fair (VF) anchored centers in 12 states aggregating approximately
1,424,000 square feet;
4. 3 centers under redevelopment aggregating approximately 697,000 square
feet; and
5. approximately 150 acres of outparcel land located near or adjacent to
certain of the Company's centers, which are being marketed for lease or
sale.
The weighted-average square feet of gross leasable area was 9.5 million
square feet for the six months ended June 30, 2000 and 8.6 million square feet
for the same period in 1999.
On December 17, 1997, following shareholder approval, the Company
changed its domicile from the State of Delaware to the State of Maryland. The
reincorporation was accomplished through the merger of FAC Realty, Inc. into its
Maryland subsidiary, Konover Property Trust, Inc. (formerly FAC Realty Trust,
Inc.). Following the reincorporation on December 18, 1997, the Company
reorganized as an umbrella partnership real estate investment trust (an
"UPREIT"). The Company then contributed to KPT Properties, L.P. (formerly FAC
Properties, L.P.), a Delaware limited partnership (the "Operating Partnership")
all of its assets and liabilities. In exchange for the Company's assets, the
Company received limited partnership interests ("Units") in the Operating
Partnership in an amount and designation that corresponded to the number and
designation of outstanding shares of capital stock of the Company at the time.
The Company is the sole general partner of the Operating Partnership and owns a
97% interest as of June 30, 2000. As additional limited partners are admitted to
the Operating Partnership in exchange for the contribution of properties, the
Company's percentage ownership in the Operating Partnership will decline. As the
Company issues additional shares of capital stock, it will contribute the
proceeds for that capital stock to the Operating Partnership in exchange for a
number of Units equal to the number of shares that the Company issues. The
Company conducts all of its business and owns all of its assets through the
Operating Partnership (either directly or through subsidiaries) such that a Unit
is economically equivalent to a share of the Company's common stock.
An UPREIT may allow the Company to offer Units in the Operating
Partnership in exchange for ownership interests from tax-motivated sellers.
Under certain circumstances, the exchange of Units for a seller's ownership
interest will enable the Operating Partnership to acquire assets while allowing
the seller to defer the tax liability associated with the sale of such assets.
Effectively, this allows the Company to use Units instead of stock to acquire
properties, which may provide an advantage over non-UPREIT entities.
The Company has two taxable subsidiaries, Sunset KPT Investment, Inc.
(formerly Wakefield Investment, Inc.) and truefinds.com, Inc. (formerly kpt.com,
Inc.) formed under the laws of Delaware. These taxable subsidiaries have the
ability to conduct e-commerce business, develop properties, buy and sell
properties, provide equity to developers and perform third party management,
leasing and brokerage services. The Company holds substantially all of the
non-voting common stock of these taxable subsidiaries. Substantially all of the
voting common stock is held by certain officers of
9
<PAGE>
KONOVER PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(continued)
the Company. Accordingly, these entities are accounted for under the equity
method for investments. Additionally, these taxable subsidiaries are taxed as
regular corporations.
Basis of Presentation
The accompanying consolidated financial statements include the accounts
of the Company, its subsidiaries and the Operating Partnership. All significant
inter-company balances have been eliminated in consolidation.
Properties that are owned or owned less than 100% and are controlled by
the Operating Partnership have been consolidated. Control is demonstrated by the
ability of the Operating Partnership to manage, directly or indirectly,
day-to-day operations, refinance debt and sell the assets of the entity that
owns the property without the consent of the other owners and the inability of
the other owners to replace the general partner or manager. Investments in
ventures which represent noncontrolling ownership interests or where control is
deemed temporary are accounted for using the equity method of accounting. These
investments are recorded initially at cost and subsequently adjusted for net
equity in income (loss) and cash contributions and distributions.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (primarily consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 2000 are not necessarily indicative of results that may be expected for the
year ended December 31, 2000. For further information, refer to the audited
financial statements and accompanying footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
Certain amounts from prior years were reclassified to conform with
current-year presentation. These reclassifications had no effect on net income
(loss) or stockholders' equity as previously reported.
2. Significant Accounting Policies
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
10
<PAGE>
KONOVER PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(continued)
Basic and diluted income per share
Basic earnings per share is calculated by dividing the income
applicable to common stockholders by the weighted-average number of shares
outstanding. Diluted earnings per share reflects the potential dilution that
could occur if options or warrants to purchase common shares were exercised and
preferred stock was converted into common shares ("potential common share").
For the three months and six months ended June 30, 1999, the
denominator for diluted earnings per share is calculated as follows (in
thousands):
Three Six Months
Months ended ended
June 30, June 30,
1999 1999
---------------- ------------
Denominator:
Denominator- weighted average shares 30,756 30,936
Effect of dilutive securities:
Preferred stock 2,200 2,200
Employee stock options 33 33
Restricted stock 301 272
Operating Partnership Units 1,051 1,051
---------------- ------------
Dilutive potential common shares 3,585 3,556
---------------- ------------
Denominator- adjusted weighted average
shares and assumed conversions 34,341 34,492
================ ============
For the three and six months ended June 30, 2000, basic and dilutive
earnings per share are computed based on a weighted average number of shares of
31,024,746 and 30,770,340, respectively. Potential dilutive common shares have
been excluded from diluted earnings per share for the three and six months ended
June 30, 2000 because their inclusion would be antidilutive.
Dividends
In June, 2000, the Company declared a $0.125 per share quarterly
dividend to shareholders of record as of June 23, 2000. The dividend and
dividend equivalent totaling $4.6 million was paid on July 7, 2000.
Comprehensive Income
Comprehensive income equals net income for all periods presented.
Properties Held for Sale
As part of the Company's ongoing strategic evaluation of its portfolio
of assets, the Company intends to sell a non-strategic outlet center located in
Las Vegas. The net carrying value of this center at June 30, 2000 is $19.7
million which approximates its fair value less selling costs. The center
generated a net operating loss of $0.1 million for the six months ended June 30,
2000 and net operating income of $0.3 million for the same period in 1999.
11
<PAGE>
KONOVER PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(continued)
Acquisitions and Disposals
A summary of the Company's acquisition activity since 1997 follows (in
thousands):
<TABLE>
<CAPTION>
OP Units
State Square Feet Purchase Price Debt ($9.50
Location Date Assumed Cash per share)
-----------------------------------------------------------------------------------------------
1999 to date
<S> <C> <C> <C> <C> <C> <C> <C>
Merchant's Festival GA 11/30/99 152 $ 16,750 - $ 16,750 -
Lake Washington FL 9/17/99 119 9,700 - 9,700 -
Patriots Plaza SC 9/1/99 115 8,700 - 8,700 -
Grove Park SC 5/13/99 94 5,700 - 5,700 -
Crossroads at Mandarin FL 4/14/99 72 4,500 - 4,500 -
Dare Center NC 3/31/99 113 5,000 - 5,000 -
Braves Village SC 3/31/99 60 4,500 - 4,500 -
Eastgate Plaza FL 3/30/99 182 10,400 - 10,400 -
Dukes Plaza VA 3/1/99 140 6,500 4,100 2,400 -
Robertson Corners SC 1/6/99 48 3,900 - 3,900 -
-----------------------------------------------------------------------------
TOTAL 1,095 75,650 4,100 71,550 -
1998
Waverly Place NC 12/14/98 181 12,800 10,700 2,100 -
University Shoppes SC 8/31/98 54 4,700 3,200 1,500 -
Konover (portfolio) FL, NC, VA, AL 4/1/98 1,515 85,400 55,200 26,700 369
Rodwell/Kane (portfolio) NC, VA 3/31/98 955 57,100 44,300 3,500 974 (1)
Market Square VA 1/7/98 56 3,100 2,300 800 -
-----------------------------------------------------------------------------------------------
TOTAL 2,761 163,100 115,700 34,600 1,343
1997
North Hills (portfolio) NC 3/31/97 606 32,300 - 32,300 -
----------- -------------- ------------- ------------- ----------
TOTAL 4,462 $ 271,050 $ 119,800 $ 138,450 1,343
=========== ============== ============= ============= ==========
</TABLE>
(1) Includes 250 units to be issued upon the completion of certain contingencies
contained in the agreement. In 1999, certain of the contingencies were met,
which resulted in the issuance of 175 of the 250 OP units. The remaining 75 OP
units continue to be subject to various contingencies at June 30, 2000.
The development of the venture properties are subject to, among other
things, completion of due diligence and various contingencies, including those
inherent in development projects, such as zoning, leasing and financing. There
can be no assurance that such development will be completed. All debt incurred
by unconsolidated ventures is secured by their respective properties as well as
various guarantees of the Company and by the Company's respective venture
partners.
In May 2000, the Company sold a center that was held for sale for its
approximate net book value of $0.6 million.
12
<PAGE>
KONOVER PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(continued)
4. Investment in and Advances to Unconsolidated Entities
A summary of the Company's investments in and advances to
unconsolidated entities at June 30, 2000 and December 31, 1999 is as follows
(all investments in unconsolidated entities are accounted for under the equity
method):
<TABLE>
<CAPTION>
June 30, December 31,
Entity Location Ownership 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Community Center Ventures:
Atlantic Realty LLC (2 community centers) North Carolina 50% $ 2,573 $ 2,440
Park Place KPT LLC Morrisville, NC 50% 6,442 6,245
Falls Pointe KPT LLC Raleigh, NC 50% 8,160 7,059
Taxable Subsidiaries (See Note 1):
Sunset KPT Investment, Inc. 85% 12,828 9,888
truefinds.com, Inc. 95% (1,539)(1) 511
--------------------------------
$ 28,464 $ 26,143
================================
</TABLE>
(1) Net balance in truefinds.com, Inc. represents the pro-rata share of
accumulated losses in excess of investments in and advances to truefinds.com,
Inc.
The development of the venture properties are subject to, among other
things, completion of due diligence and various contingencies, including those
inherent in development projects, such as zoning, leasing and financing. There
can be no assurance that such development will be completed. All debt incurred
by unconsolidated ventures is secured by their respective properties as well as
various guarantees of the Company and by the Company's respective venture
partners.
5. Reportable Segments
Management has determined under Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information", that it has four reportable segments: community centers,
outlet centers, VF anchored centers, and centers held for
sale/redevelopment/development (HRD). The outlet segment includes properties
which generate a majority of their revenue from traditional outlet manufacturers
and are destination oriented. The VF anchored segment includes properties that
have less than $1.5 million in total revenue, generate at least 20% of their
revenue from VF and have less than 150,000 square feet. The Company evaluates
performance and allocates resources based on the net operating income (NOI) of
the Company's investment portfolio. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. The Company's reportable segments are business units that
offer retail space to varied tenants and in varied geographical areas.
(All data in thousands and excludes straight line rent)
<TABLE>
<CAPTION>
Community Outlet VF
Centers (1) Centers (2) Centers HRD (1) (2) All others Total
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 2000:
NOI $ 17,965 $ 9,689 $ 2,062 $ 1,154 $ 324 $ 31,194
Total Assets $ 358,858 $ 188,778 $ 44,292 $ 53,163 $ 82,042 $ 727,133
Six months ended June 30, 1999:
NOI $ 12,645 $ 11,104 $ 2,686 $ 871 $ 507 $ 27,813
Total Assets $ 260,672 $ 209,923 $ 50,024 $ 86,682 $ 90,506 $ 697,807
</TABLE>
(1) Mount Pleasant was under development during 1999 and was placed in service
in 2000. Accordingly, the NOI and total assets for Mount Pleasant are included
in the HRD segment in 1999 and the community center segment in 2000.
(2) The Company's Nashville outlet center was included under the outlet segment
for 1999. Due to current market conditions, the center is under redevelopment
and therefore included in the HRD segment in 2000.
13
<PAGE>
KONOVER PROPERTY TRUST, INC.
Notes to Consolidated Financial Statements
(continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion should be read with the selected financial data in this
section and the consolidated financial statements and notes in this report.
Certain comparisons between the periods have been made on a percentage basis and
on a weighted-average square-foot basis. Comparisons on a weighted-average
square-foot basis adjust for square-footage added at different times during the
year.
Selected Financial Data
Industry analysts generally consider Funds From Operations ("FFO") an
appropriate measure of performance for an equity REIT. Beginning in 2000 the
Company adapted a change in the definition of FFO as promulgated by the National
Association of Real Estate Investment Trusts (NAREIT). Under the new definition
FFO means net income before extraordinary items (computed in accordance with
accounting principles generally accepted in the United States) excluding gains
or losses on the sale of real estate plus real estate depreciation and
amortization. Management believes that FFO, as defined herein, is an appropriate
measure of the Company's operating performance because reductions for
depreciation and amortization charges are not meaningful in evaluating the
operating results of its properties, which have historically been appreciating
assets. All prior periods have been restated.
"EBITDA" is defined as revenues less operating costs, including general
and administrative expenses, before interest, depreciation and amortization and
unusual items. As a REIT, the Company is generally not subject to Federal income
taxes. Management believes that EBITDA provides a meaningful indicator of
operating performance for the following reasons: (i) it is industry practice to
evaluate the performance of real estate properties based on net operating income
("NOI"), which is generally equivalent to EBITDA; and (ii) both NOI and EBITDA
are unaffected by the debt and equity structure of the property owner.
FFO and EBITDA (i) do not represent cash flow from operations as
defined by generally accepted accounting principles, (ii) are not necessarily
indicative of cash available to fund all cash flow needs and (iii) should not be
considered as an alternative to net income for purposes of evaluating the
Company's operating performance or as an alternative to cash flow as a measure
of liquidity.
Other data that management believes is important in understanding
trends in its business and properties are also included in the following table
(in thousands, except per share data).
14
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------- --------------- -----------------
2000 1999 2000 1999
-------------------- -------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Operating Data:
Rental revenues $ 23,096 $ 21,153 $ 45,228 $ 40,316
Property operating costs 6,967 6,776 14,034 12,788
-------------------- -------------------- --------------- -----------------
Net operating income 16,129 14,377 31,194 27,528
Depreciation and amortization 7,413 6,444 14,387 12,014
General and administrative 1,727 1,237 3,325 2,672
Interest, net 6,791 3,862 13,122 7,170
Loss on sale of real estate 315 134 874 213
Abandoned transaction costs 5 24 18 137
Equity in losses of unconsolidated entities:
Technology venture 1,207 - 3,639 -
Real estate operations 525 24 818 27
-------------------- -------------------- --------------- -----------------
(Loss) income before minority interest (1,854) 2,652 (4,989) 5,295
Minority interest 49 (100) 335 (187)
-------------------- -------------------- --------------- -----------------
Net (loss) income $ (1,805) $ 2,552 $ (4,654) $ 5,108
Preferred stock dividends (271) (275) (542) (550)
-------------------- -------------------- --------------- -----------------
(Loss) income applicable to common
shareholders $ (2,076) $ 2,277 $ (5,196) $ 4,558
==================== ==================== =============== =================
Basic (loss) income per common share:
Net (loss) income applicable to common
shareholders per share $ (0.07) $ 0.07 $ (0.17) $ 0.15
==================== ==================== =============== =================
Weighted average common shares outstanding 31,025 30,756 30,770 30,936
==================== ==================== =============== =================
Diluted (loss) income per common share:
Net (loss) income applicable to common
shareholders per share $ (0.07) $ 0.07 $ (0.17) $ 0.15
==================== ==================== =============== ================
Weighted average common shares outstanding
diluted 31,025 34,341 30,770 34,492
==================== ==================== =============== ================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- ------------------ -------------- ---------------
2000 1999 2000 1999
------------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Other Data:
EBITDA:
Net (loss) income $ (1,805) $ 2,552 $ (4,654) $ 5,108
Adjustments:
Interest, net 6,791 3,862 13,122 7,170
Depreciation and amortization 7,413 6,444 14,387 12,014
Loss on sale of real estate 315 134 874 213
Abandoned transaction costs 5 24 18 137
Equity in losses of unconsolidated
entities 1,732 24 4,457 27
Minority interest (49) 100 (335) 187
=================== ================== ============== ===============
$ 14,402 $ 13,140 $ 27,869 $ 24,856
=================== ================== ============== ===============
Funds from Operations:
Net (loss) income $ (1,805) $ 2,552 $ (4,654) $ 5,108
Adjustments:
Real estate depreciation and amortization 6,236 5,440 12,190 10,082
Stock based compensation amortization 899 548 1,650 948
Loss on sale of real estate 315 134 874 213
Technology venture operations 1,207 - 3,639 -
Share of depreciation in unconsolidated
ventures 181 24 391 48
Minority interest in Operating Partnership (49) 79 (131) 166
------------------ ------------------ -------------- ---------------
$ 6,984 $ 8,777 $ 13,959 $ 16,565
================== ================== ============== ===============
Weighted average shares outstanding diluted (a) 34,713 34,341 34,508 34,492
================== ================== ============== ===============
Funds Available for Distribution/Reinvestment:
Funds from Operations $ 6,984 $ 8,777 $ 13,959 $ 16,565
Adjustments:
Capitalized leasing costs (525) (747) (979) (1,049)
Capitalized tenant allowances (900) (282) (1,130) (563)
Recurring capital expenditures (48) (67) (49) (131)
------------------ ------------------ -------------- ---------------
$ 5,511 $ 7,681 $ 11,801 $ 14,822
================== ================== ============== ===============
Dividends declared on quarterly earnings $ 4,635 $ 4,517 $ 9,267 $ 9,032
================== ================== ============== ===============
Dividends declared on quarterly earnings per
share $ 0.125 $ 0.125 $ 0.250 $ 0.250
================== ================== ============== ===============
Cash Flows:
Cash flows provided by operating activities $ 8,028 $ 12,073 $ 12,362 $ 18,786
Cash flows used in investing activities (8,875) (33,844) (18,163) (71,923)
Cash flows provided by (used in) financing
activities 9,798 6,566 12,192 (1,507)
------------------ ------------------ -------------- ---------------
Net decrease in cash and cash equivalents $ 8,951 $ (15,205) $ 6,391 $ (54,644)
================== ================== ============== ===============
</TABLE>
(a) The following table sets forth the computation of the denominator to be
used in calculating the weighted-average shares outstanding based on SFAS
No. 128, "Earnings Per Share."
16
<PAGE>
<TABLE>
<CAPTION>
Balance at June 30,
2000 1999
-------------- -------------
<S> <C> <C>
Balance Sheet Data:
Income-producing properties (before
depreciation and amortization) $ 714,483 $ 620,261
Total assets 727,133 697,807
Debt on income properties 381,780 319,835
Total liabilities 407,152 342,329
Minority interest 9,423 12,817
Total stockholders' equity 310,558 342,661
Portfolio Property Data:
Total GLA (at end of period) 9,494 9,032
Weighted average GLA 9,511 8,580
Number of properties (at end of period) 67 67
Occupancy (at end of period):
Operating 92.3% 92.8%
Held for sale/redevelopment/development 56.0% 46.6%
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------
<S> <C> <C> <C> <C>
Denominator:
Denominator- weighted average common shares 31,025 30,756 30,770 30,936
Effect of dilutive securities:
Preferred stock 2,169 2,200 2,169 2,200
Employee stock options - 33 - 33
Restricted stock 499 301 478 272
Operating Partnership units 1,020 1,051 1,091 1,051
--------------------------------------------------------
Dilutive potential common shares 3,688 3,585 3,738 3,556
--------------------------------------------------------
Denominator- adjusted weighted average shares
and assumed conversions 34,713 34,341 34,508 34,492
========================================================
</TABLE>
17
<PAGE>
Results Of Operations
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999
Net Income
The Company reported a net loss applicable to common shareholders of
$2.1 million, or $0.07 per common share, for the three months ended June 30,
2000. The same period in 1999 reflected net income applicable to common
shareholders of $2.3 million, or $0.07 per common share. The elements having a
material impact on the change are discussed below:
>> The Company's NOI, exclusive of straight-line rent, increased by $1.7
million, or 11.8%, to $16.1 million from $14.4 million for the same period
in 1999. Including the effect of straight-line rent adjustment ($0.1
million) NOI increased by $1.8 million. This increase was partly
attributable to the $2.5 million in NOI growth generated from 1999
acquisitions and completed expansions and developments. The NOI growth
generated from the 1999 acquisitions and completed expansions and
developments was partially offset by decreasing NOI of $0.5 million from
three centers under redevelopment with the remaining decreases related to
the VF and outlet operating segments.
>> The Company recognized losses from unconsolidated ventures of $1.7
million, including a $1.2 million loss related to the e-commerce
operations.
>> Net interest expense increased by $2.9 million, or 74.4%, to $6.8
million from $3.9 million for the same period in 1999.
>> Through acquisitions, depreciation and amortization increased by $1.0
million and general and administrative expenses increased by $0.5 million.
Earnings Before Interest, Taxes, Depreciation, and Amortization and Funds from
Operations
EBITDA was $14.4 million for the three months ended June 30, 2000, an
increase of $1.3 million or 9.9%, from $13.1 million for the same period in
1999. The increase was primarily due to increased NOI of $1.8 million over 1999,
including adjustment for straight line rent (as described above) offset by a
$0.5 million increase in general and administrative expenses.
Funds from Operations ("FFO") for the three months ended June 30, 2000
decreased $1.8 million, or 20.5%, to $7.0 million. The Company's FFO for the
same period in 1999 was $8.8 million. FFO decreased primarily as a result of:
>> $1.8 million increase in NOI offset by,
>> an increase in equity in loss in unconsolidated ventures of $0.5
million, exclusive of losses from the e-commerce operations.
>> the increase in net interest expense of $2.9 million.
>> an increase in general and administrative expenses of $0.5 million.
Tenant Income
Base rent, including straight-line rent, increased to $17.9 million for
the three months ended June 30, 2000 from $16.0 million for the same period in
1999. Base rent before the adjustment for straight-line rent increased $1.8
million, or 11.2%, to $17.9 million for the three months ended June 30, 2000
when compared to $16.1 million in 1999. The increase in base rent for the three
months ended June 30, 2000 is attributable primarily to the $2.6 million in base
rent, excluding straight-line rent, attributable to the 1999 acquisitions and
completed expansions and developments. These increases were offset by a decrease
of base rent of $0.6 million related to two properties sold in December 1999 and
other properties under redevelopment.
During this same period, the Company's weighted-average square feet of
gross leasable area in operation increased 6.6%. Gross leasable area in
operation increased by 0.6 million square feet, primarily because of the 1999
acquisitions which occurred subsequent to June 30, 1999 with 0.4 million in
gross leasable area and the development in Mt. Pleasant that delivered 0.4
million square feet. These described increases were partially offset by the
sales of properties in Texas and Arizona totaling 0.2 million in gross leasable
area.
18
<PAGE>
Recoveries from tenants increased for the three months ended June 30,
2000 to $4.3 million compared to $4.2 million in the same period of 1999. These
recoveries represent contractual reimbursements from tenants of certain common
area maintenance, real estate taxes and insurance costs. On a weighted-average
square-foot basis, recoveries decreased 4.3% to $0.45 for the three months ended
June 30, 2000 when compared to $0.47 for the same period in 1999. The average
recovery of property operating expenses, exclusive of marketing and other
non-recoverable operating costs, remained relatively stable at 79% for the three
months ended June 30, 2000 as compared to 80% for the same period in 1999. With
respect to approximately 15% of the leased gross leasable area, the Company is
obligated to pay all utilities and operating expenses.
Other Income
Other income increased $0.3 million to $0.8 million in 2000 compared to
$0.5 million in 1999 primarily as a result of increased leasing fee income of
$0.3 million.
Property Operating Expenses
Property operating costs increased $0.2 million, or 2.9%, to $7.0
million in 2000 from $6.8 million in the same period of 1999. The increase in
operating costs was principally due to the increase in the weighted-average
square feet in operation in 2000, which rose 6.6% to 9.5 million square feet in
2000 from 8.9 million square feet in 1999. On a weighted-average square-foot
basis, operating expenses decreased 3.9% to $0.73 from $0.76 per weighted
average square foot.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30,
2000 increased $0.5 million, or 41.7%, to $1.7 million in 2000 from $1.2 million
in 1999. General and administrative expense increased as a percentage of
revenues to 7.5% from 5.8% in 1999.
Depreciation
Depreciation increased to $4.7 million for the three months ended June
30, 2000 compared to $4.5 million in the same period of 1999. The increase is
due primarily to the 1999 acquisitions. Amortization of deferred leasing and
other charges and stock based compensation amortization increased $0.8 million
to $2.7 million. On a weighted-average square-foot basis, depreciation and
amortization increased to $0.78 in 2000 from $0.72 in 1999.
Interest Expense
Interest expense for the three months ended June 30, 2000, net of
interest income of $1.7 million, increased by $2.9 million, or 74.4%, to $6.8
million compared to $3.9 million, net of interest income of $2.7 million, for
the same period in 1999. This increase resulted primarily from higher borrowing
levels in 2000 due to the investment in and acquisition of income-producing
properties. On a weighted-average basis, in the three months ended June 30,
2000, debt outstanding was $374.6 million, and the average interest rate was
7.9%. This compares to $313.7 million of outstanding debt and a 8.0% average
interest rate in 1999. The Company capitalized $0.3 million of interest costs
associated with its development projects in the three months ended June 30, 2000
compared to $0.2 million in the same period of 1999. In addition, the Company
incurred costs related to short-term line of credit extensions in the three
months ended June 30, 2000.
19
<PAGE>
Results Of Operations
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999
Net Income
The Company reported a net loss applicable to common shareholders of
$5.2million, or $0.17 per common share, for the six months ended June 30, 2000.
The same period in 1999 reflected net income applicable to common shareholders
of $4.6 million, or $0.15 per common share. The elements having a material
impact on the change are discussed below:
>> The Company's NOI, exclusive of straight-line rent, increased by $3.4
million, or 12.2%, to $31.2 million from $27.8 million for the same period
in 1999. Including the effect of straight-line rent adjustment ($0.3
million) NOI increased by $3.7 million. This increase was partly
attributable to the $6.1 million in NOI growth generated from 1999
acquisitions and completed expansions and developments. The NOI growth
generated from the 1999 acquisitions and completed expansions and
developments was partially offset by decreasing NOI of $1.1 million from
three centers under redevelopment with the remaining decreases related to
the VF and outlet operating segments.
>> The Company recognized losses from unconsolidated ventures of $4.5 million,
including a $3.6 million loss related to the e-commerce operations.
>> Net interest expense increased by $5.9 million, or 81.9%, to $13.1 million
from $7.2 million for the same period in 1999.
>> Through acquisitions, depreciation and amortization increased by $2.4
million and general and administrative expenses increased by $0.6 million.
Earnings Before Interest, Taxes, Depreciation, and Amortization and Funds from
Operations
EBITDA was $27.9 million for the six months ended June 30, 2000, an
increase of $3.0 million or 12.0%, from $24.9 million for the same period in
1999. The increase was primarily due to increased NOI of $3.7 million over 1999,
including adjustment for straight line rent (as described above) offset by
increased general and administrative expenses of $0.6 million.
Funds from Operations ("FFO") for the six months ended June 30, 2000
decreased $2.6 million, or 15.7%, to $14.0 million. The Company's FFO for the
same period in 1999 was $16.6 million. FFO increased primarily as a result of:
>> $3.7 million increase in NOI offset by,
>> an increase in equity in loss in unconsolidated ventures of $0.8
million, exclusive of losses from the e-commerce operations.
>> the increase in net interest expense of $5.9 million.
Tenant Income
Base rent, including straight-line rent, increased to $34.9 million for
the six months ended June 30, 2000 from $30.5 million for the same period in
1999. Base rent before the adjustment for straight-line rent increased $4.1
million, or 13.3%, to $34.9 million for the six months ended June 30, 2000 when
compared to $30.8 million in 1999. The increase in base rent for the six months
ended June 30, 2000 is attributable primarily to the $6.0 million in base rent,
excluding straight-line rent, attributable to the 1999 acquisitions and
completed expansions and developments. These increases are offset by a decrease
in base rent of $1.1 million related to two properties sold in December 1999 and
other properties under redevelopment.
During this same period, the Company's weighted-average square feet of
gross leasable area in operation increased 10.9%. Gross leasable area in
operation increased by 0.6 million square feet, primarily because of the 1999
acquisitions which occurred subsequent to June 30, 1999 with 0.4 million in
gross leasable area and the development in Mt. Pleasant that delivered 0.4
million square feet. These described increases were partially offset by the
sales of properties in Texas and Arizona totaling 0.2 million in gross leasable
area.
20
<PAGE>
Recoveries from tenants increased for the six months ended June 30,
2000 to $8.8 million compared to $8.0 million in the same period of 1999. These
recoveries represent contractual reimbursements from tenants of certain common
area maintenance, real estate taxes and insurance costs. On a weighted-average
square-foot basis, recoveries remained at $0.93 for the six months ended June
30, 2000 and 1999. The average recovery of property operating expenses,
exclusive of marketing and other non-recoverable operating costs, remained
relatively stable at 77.9% for the six months ended June 30, 2000 as compared to
78.6% for the same period in 1999. With respect to approximately 15% of the
leased gross leasable area, the Company is obligated to pay all utilities and
operating expenses.
Other Income
Other income increased $0.1 million to $1.3 million in 2000 compared to
$1.2 million in 1999 primarily as a result of increased leasing fee income of
$0.2 million offset by decreased lease buy-out income of $0.1 million.
Property Operating Expenses
Property operating costs increased $1.2 million, or 9.4%, to $14.0
million in 2000 from $12.8 million in the same period of 1999. The increase in
operating costs was principally due to the increase in the weighted-average
square feet in operation in 2000, which rose 10.9% to 9.5 million square feet in
2000 from 8.6 million square feet in 1999. On a weighted-average square-foot
basis, operating expenses decreased 0.7% to $1.48 from $1.49 per weighted
average square foot.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30,
2000 increased $0.6 million, or 22.2%, to $3.3 million in 2000 from $2.7 million
in 1999. General and administrative expense increased as a percentage of
revenues to 7.4% from 6.6% in 1999.
Depreciation
Depreciation increased to $9.5 million for the six months ended June
30, 2000 compared to $8.2 million in the same period of 1999. The increase is
due primarily to the 1999 acquisitions. Amortization of deferred leasing and
other charges and stock based compensation amortization increased $1.1 million
to $4.9 million. On a weighted-average square-foot basis, depreciation and
amortization increased to $1.51 in 2000 from $1.40 in 1999.
Interest Expense
Interest expense for the six months ended June 30, 2000, net of
interest income of $3.8 million, increased by $5.9 million, or 81.9%, to $13.1
million compared to $7.2 million, net of interest income of $5.3 million, in the
first six months of 1999. This increase resulted primarily from higher borrowing
levels in 2000 due to the investment in and acquisition of income-producing
properties. On a weighted-average basis, in the first six months of 2000, debt
outstanding was $370.3 million, and the average interest rate was 8.1%. This
compares to $309.5 million of outstanding debt and a 7.7% average interest rate
in 1999. The Company capitalized $1.2 million of interest costs associated with
its development projects in the first six months of 2000 compared to $0.4
million in the same period of 1999. In addition, the Company incurred costs
related to short-term line of credit extensions in the six months ended June 30,
2000.
Liquidity and Capital Resources
Cash Flows
The Company's cash and cash equivalents balance at June 30, 2000 was
$14.6 million. Restricted cash, as reported in the financial statements, as of
such date, was $8.9 million. The restricted cash is an amount the Company was
required to escrow in connection with various loans. The escrows are required to
fund taxes, environmental and engineering work, recurring replacement costs and
insurance.
Net cash provided by operating activities was $12.4 million for the six
months ended June 30, 2000. Net cash used in investing activities was $18.2
million in that same period. The primary use of these funds included:
21
<PAGE>
>> $17.1 million invested in income-producing properties,
>> $6.0 million invested in or advanced to unconsolidated entities
offset by,
>> $4.6 million collected on the repayment of notes receivable.
>> $0.6 million of net proceeds from sale of real estate.
Net cash provided by financing activities was $12.2 million for the six
months ended June 30, 2000. The primary transactions included:
>> $4.6 million for dividends paid,
>> $1.8 million for debt repayments,
>> $2.9 million in deferred financing charges offset by,
>> $21.8 million of net proceeds from debt on income producing
properties.
Financing Activities
The Company's policy is to finance its acquisitions, expansions and
developments with the source of capital believed by management to be most
appropriate and provide the proper balance of equity and fixed and floating rate
debt. Sources may include undistributed cash flow, borrowings from institutional
lenders, equity issuances, and the issuance of debt securities on a secured or
unsecured basis. The Company's philosophy is to use its Funds Available for
Distribution as a key source of financing.
In December 1998, the Company completed a substitution and
recollateralization of its REMIC facility. This $95 million facility was
originally issued in May, 1995 and was secured by 18 properties. The
substitution was the first step in an effort by the Company to gain greater
flexibility in the sale of assets that may no longer meet the Company's ongoing
strategy. The REMIC balance as of June 30, 2000 was $87.4 million, which was
secured by 23 properties, and matures in June, 2002.
An acquisition line of credit was put in place in early 1997 for $150
million. The availability under this line was based upon a predetermined formula
on the Net Operating Income of the properties that secure the facility. The line
originally was secured by 21 properties plus an assignment of the excess
cashflow of the REMIC facility referenced above. The $150 million line was
converted into a $60 million term loan in June 2000. The loan, which expires the
latter of December 2002 or the termination of the REMIC facility, has an
interest rate of LIBOR plus 3.25%.
On March 11, 1998, the Company closed on a $75 million, 15-year
permanent credit facility. The loan has an effective rate of 7.73% and is
amortized on a 338-month basis. Eleven properties previously securing the $150
million revolving credit facility secure this new facility. The proceeds were
used to pay down borrowings outstanding on the $150 million credit facility. The
credit facility balance as of June 30, 2000, was $73.0 million including a $6.7
million unamoritized interest premium.
On January 11, 2000, the Company closed on a $5 million line of credit
with a bank. In March, 2000, the available borrowings were increased by $5
million to $10 million. The line of credit has an interest rate of LIBOR plus
2%. The line of credit balance as of June 30, 2000 was $6.7 million and matures
on May 31, 2001. The line of credit is secured by a community shopping center in
Georgia.
The Company may enter into additional mortgage indebtedness related to
certain joint venture development projects. The Company's policy is to extend
loans to unconsolidated entities only upon terms similar to those that would be
made by third parties.
Any additional debt financing, including additional lines of credit,
may be secured by mortgages on the Properties. Such mortgages may be recourse or
non-recourse or cross-collateralized or may contain cross-default provisions.
The Company does not have a policy limiting the number of mortgages that may be
placed on, or the amount of indebtedness that may be secured by, any particular
property, however; current mortgage financing instruments do limit additional
indebtedness on such properties.
The Company has a $2.5 million line of credit with a financial
institution. The line of credit is secured by one of the Company's
income-producing properties and has an interest rate of prime plus 1/2%. There
were no outstanding borrowings on this line of credit at June 30, 2000.
22
<PAGE>
On August 5, 1998, stockholders approved the Lazard transaction
involving the Prometheus Southeast Retail, LLC ("PSR") $200 million purchase of
the Company's Common Stock at $9.50 per share. As part of the Lazard
transaction, the Company signed a Contingent Value Rights Agreement with PSR.
Under this agreement, if PSR has not essentially doubled its investment (through
stock appreciation and dividends) by January 1, 2004, the Company will be
required to pay PSR, in cash or stock at its discretion, an amount necessary to
achieve such a return, subject to a maximum payment of 4,500,000 shares or the
cash value thereof.
Current and Future Cash Needs
The Company's management anticipates that cash generated from
operations as well as access to capital resources, including additional
borrowings and issuances of debt or equity securities, will provide the
necessary funds for operating expenses, interest expense on outstanding
indebtedness, dividends and distributions in accordance with REIT federal income
tax requirements, re-tenanting and lease renewal tenant improvement costs,
capital expenditures to maintain the quality of its existing centers as well as
development projects. The Company is pursuing outside equity and/or debt to fund
the ventures of its taxable subsidiaries.
Dividends
In June, 2000, the Company declared a $0.125 per share quarterly
dividend to shareholders of record as of June 23, 2000. The dividend and
dividend equivalent totaling $4.6 million was paid on July 7, 2000.
Economic Conditions
Inflation has remained relatively low during the past three years with
certain segments of the economy experiencing disinflation, such as apparel
sales. Disinflation in this market segment has slowed the growth of tenant
sales, which adversely affects the Company's revenue due to lower percentage and
overage rents on some properties. Any weakness in the overall retail environment
as it relates to tenant sales volumes may have an impact on the Company's
ability to renew leases at current rental rates or to re-lease space to other
tenants. A decline in sales does not affect base rent, aside from renewals;
however, sales declines could result in reduced revenue from percentage rent
tenants, as well as overage rent paid to the Company. Both revenue items are
directly impacted by sales volumes and represented 4% of the Company's total
revenue for the six months ended June 30, 2000 and 1999. Continuation of this
economic trend may affect the Company's operating centers' occupancy rate,
rental rates, and concessions, if any, granted on new leases or re-leases of
space. This in turn may cause fluctuations in the cash flow from the operation
and performance of the operating centers.
Disclosure Regarding Forward Looking Statements
Some of the information in this Quarterly Report on Form 10-Q may
contain forward-looking statements. Such statements include, in particular,
statements about our plans, strategies and prospects under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." You can identify forward-looking statements by our use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue," or other similar words. Although we believe that our
plans, projections and expectations reflected in or suggested by such
forward-looking statements are reasonable, we cannot assure you that our plans,
projections or expectations will be achieved. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement:
>> our markets could suffer unexpected increases in development of
retail properties;
>> the financial condition of our tenants could deteriorate;
>> the costs of our development projects could exceed our original
estimates;
>> we may not be able to complete development, acquisition or joint
venture projects as quickly or on as favorable terms as
anticipated;
>> we may not be able to obtain financing on as favorable terms as
current financing;
>> we may not be able to lease or release space quickly or on as
favorable terms as old leases;
>> we may have incorrectly assessed the environmental condition of our
properties;
>> an unexpected increase in interest rates would increase our debt
service costs;
>> we could lose key executive officers;
>> our markets may suffer decline in economic growth or increase in
unemployment rates; and
>> new technology ventures may not produce a profit.
23
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Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to release publicly
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances or to reflect the occurrence
of unanticipated events.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The effects of potential changes in interest rates are discussed below.
Our market risk discussion includes "forward-looking statements" and represents
an estimate of possible changes in future earnings that would occur assuming
hypothetical future movements in interest rates. These disclosures are not
precise indicators of expected future results, but only indicators of reasonably
possible results. As a result, actual future may differ materially from those
presented. See "Management's Discussion and Analysis of Results of Operations -
Liquidity and Capital Resources," which provides information related to these
financial instruments.
To meet in part long-term liquidity requirements, the Company borrows
funds at a combination of fixed and variable rates. In addition, the Company has
assumed fixed rate debt in connection with acquiring properties. The Company's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower our overall borrowing costs.
Currently, the Company is party to an interest rate cap related to the June 2000
$60 million term loan. The agreement, which required a $0.5 million payment out
of the loan proceeds, caps the variable rate term loan at 10.66% for the entire
term of the loan. As of June 30, 2000, the Company had approximately $110.9
million of variable rate debt outstanding. If the weighted average interest rate
on this variable rate debt is 100 basis points higher or lower in 2000, out
interest expense would be increased or decreased approximately $0.6 million for
the six months ended June 30, 2000. The Company has no fixed rate debt maturing
in 2000.
24
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PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual meeting of shareholders on May 11, 2000. At that
meeting, our board of directors was elected. Information about the
votes casts for each nominee is set forth below:
Nominee Votes Cast For Against Abstain
----------------------------------------------------------------------
Simon Konover 29,911,567 - 260,332
Cammack Morton 29,914,674 - 257,225
Patrick M. Miniutti 29,498,549 - 673,350
William D. Eberle 29,914,674 - 257,225
Richard Futrell, Jr. 29,914,674 - 257,225
John W. Gildea 29,914,674 - 257,225
J. Michael Maloney 29,913,474 - 258,425
Jonathan O'Herron 29,914,674 - 257,225
Mark S. Ticotin 29,914,674 - 257,225
-----------------------------------------------------------------------
In addition, the Company's 1995 Outside Directors' Stock Compensation Plan
was amended to increase the number of shares of Common Stock reserved for
issuance thereunder from 150,000 to 250,000. Information about the votes
casts for the amendment is set forth below:
Votes Cast For Against Abstain
--------------------------------------------------------------------------
1995 Outside Director's Stock
Compensation Plan Amendment 29,665,531 480,237 26,131
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment to Loan Agreement between KPT Properties,
L.P. and LaSalle Bank National Association, as Trustee for
CDC Depositor Trust ST-I), (formerly known Normura Depositor
Trust ST-I), dated as of June 14, 2000, (Extension and
modification of the $150,000,000 credit line with Nomura
Asset Capital Corporation dated February 19, 1997).
10.2 Severance Agreement between Konover Property Trust Inc. and
William H. Neville, dated as of May 18, 2000
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 2000.
25
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Signatures
================================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KONOVER PROPERTY TRUST, INC.
Date: August 11, 2000
By: /S/Daniel J. Kelly
--------------------------------
Daniel J. Kelly, Sr. Vice President,
Chief Financial Officer
26
