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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 25, 1997
(November 7, 1997) -----------------
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KRANZCO REALTY TRUST
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(Exact Name of Registrant as Specified in Charter)
Maryland 1-11478 23-2691327
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
128 Fayette Street, Conshohocken, Pennsylvania 19428
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (610) 941-9292
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
Kranzco Realty Trust, a Maryland real estate investment trust
(the "Company"), has entered into an agreement with GP Development
Corporation ("GPD"), pursuant to which the Company will acquire GPD's
rights under five contracts to purchase three shopping centers and to
purchase partnership interests in entities which own two shopping centers,
all of which are located in the Atlanta metropolitan area (the "Georgia
Properties"), comprising an aggregate of approximately 650,000 square feet
of gross leasable area, which are known as The Village at Mableton, Park
Plaza, Northpark, Holcomb Bridge Crossing and Tower Plaza. The Georgia
Properties were approximately 98% leased as of November 1, 1997. The
Company will acquire the aforesaid shopping centers and interests pursuant
to contracts entered into with the following owners of the shopping
centers: (i) Tower Plaza - Tower Plaza Associates, L.P., (ii) Park Plaza -
West Stewarts Mill Associates, L.P., (iii) Northpark - NorthPark
Associates, L.P. (Cobb), (iv) Holcomb Bridge Crossing - Holcomb Bridge
Partners, L.P., and (v) The Village at Mableton - Mableton Village
Associates, L.L.C.
The Company will pay approximately $44 million for the Georgia
Properties of which approximately $1.6 million is payable by the issuance
of common shares of beneficial interest, par value $.01 per share, of the
Company (approximately 85,000 common shares assuming such shares are issued
at $18 13/16 per share, the closing price for such shares on the New York
Stock Exchange on November 24, 1997); approximately $21.9 million is
payable in cash (which is expected to be derived from the proceeds of a
contemplated offering of equity securities); and approximately $20.5
million is payable by the assumption of three mortgage loans each of which
is secured by one of the following properties: The Village at Mableton,
Park Plaza and Holcomb Bridge Crossing. Park Plaza secures a mortgage loan
in the unpaid principal amount of approximately $3,346,000 which bears
interest at the rate of 8.25% per annum and is due September 10, 2001. The
Village at Mableton secures a mortgage loan in the unpaid principal amount
of approximately $10,582,000 which bears interest at the rate of 9.22% per
annum, principal and interest payable monthly, with the unpaid principal
balance of approximately $9,567,000 on August 1, 2006 due on such date.
Holcomb Bridge Crossing secures a mortgage loan in the unpaid principal
amount of approximately $6,507,000 which bears interest at a rate of 8.20%
per annum, principal and interest payable monthly, with the unpaid
principal balance of approximately $6,162,000 on November 1, 2000 due on
such date.
The consummation of the acquisition of the Georgia Properties,
which is expected to take place in December 1997, is subject to the
satisfaction of various closing conditions.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
Kranzco Realty Trust:
We have audited the combined statement of revenue and certain expenses of
Georgia Properties, described in Note 1, for the year ended December 31,
1996. This financial statement is the responsibility of the Properties'
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The statement of revenue and certain expenses was prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in a current report on Form 8-K of Kranzco Realty
Trust, as described in Note 1, and is not intended to be a complete
presentation of the Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenue and certain expenses of Georgia
Properties for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
November 10, 1997
GEORGIA PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
FOR THE YEAR ENDED DECEMBER 31, 1996
September 30, December 31
1997 1996
---- ----
(unaudited)
REVENUE
Minimum rent (Note 2) $ 3,577,512 $ 4,667,835
Tenant reimbursements 476,155 691,798
------------ ------------
Total revenue 4,053,667 5,359,633
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CERTAIN EXPENSES
Maintenance and other
operating expenses 271,755 358,680
Utilities 97,197 122,713
Real estate taxes 315,097 393,905
------------ ------------
Total certain expenses 684,049 875,298
------------ ------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $ 3,369,618 $ 4,484,335
============ ============
The accompanying notes are an integral part of these financial statements.
GEORGIA PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1996
1. BASIS OF PRESENTATION:
The combined statements of revenue and certain expenses reflect the
operations of Georgia Properties (the "Properties") that are owned by a
common control group which is managed by Parkway Partners LLC ("Parkway"),
as described below:
Square
Property Location Footage
-------- -------- -------
The Village at Mableton Atlanta, Georgia 231,594
North Park Macon, Georgia 180,555
Tower Plaza Carrollton, Georgia 87,990
Park Plaza Douglasville, Georgia 46,494
Holcomb Bridge Crossing Atlanta, Georgia 105,420
The Properties are expected to be acquired by Kranzco Realty Trust
("Kranzco") from GP Development Corporation in December 1997. The
Properties are approximately 98% leased as of December 31, 1996. The
combined statements of revenue and certain expenses will be included in
Kranzco's current report on Form 8-K as the above described transaction has
been deemed significant pursuant to the rules and regulations of the
Securities and Exchange Commission.
The accounting records of the Properties are maintained on an accrual
basis. Adjusting entries have been made to present the accompanying
financial statements in accordance with generally accepted accounting
principles. The accompanying financial statements exclude certain expenses
such as interest, depreciation and amortization, management fees and other
costs not directly related to the future operations of the Properties.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. The ultimate results could differ from those
estimates.
The combined statement of revenue and certain expenses for the nine months
ended September 30, 1997 is unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for the fair presentation of the combined statement
of revenue and certain expenses for the interim period have been included.
The results of the interim period are not necessarily indicative of the
results for the full year.
2. OPERATING LEASES:
Minimum rent includes straight-line adjustments for rental revenue
increases in accordance with generally accepted accounting principles. The
aggregate rental revenue increase resulting from the straight-line
adjustments for the year ended December 31, 1996, was $20,583 and $15,437
for the nine months ended September 30, 1997.
The following tenants account for greater than 10% minimum annual rent:
Property Tenant Minimum Annual Rent
-------- ------ -------------------
North Park Kmart $474,349
The Village at Mableton Kmart 483,554
The Properties are leased to tenants under operating leases with expiration
dates extending to the year 2013. Future minimum rentals under
noncancelable operating leases, excluding tenant reimbursements of
operating expenses as of December 31, 1996, are as follows:
1997 $4,340,674
1998 4,120,537
1999 3,696,853
2000 3,084,251
2001 2,809,766
Thereafter 22,138,637
Certain leases also include provisions requiring tenants to reimburse the
Properties for management costs and other operating expenses up to
stipulated amounts.
3. SUBSEQUENT EVENTS:
In October 1997, there was a fire at the Village at Mableton that destroyed
the Kmart and damaged three other stores. Kmart intends to rebuild the
store within the next eight months and is continuing to pay its minimum
rent obligations during this period. Parkway intends to rebuild the three
other stores, aggregating 8,800 square feet and approximately $95,000 of
annual minimum rent, within the next two months. The three other stores
are not paying rent; however Parkway has insurance to cover the related
lost revenue during the renovation.
In November 1997, Kranzco signed a letter of intent to acquire the
Properties from GP Development Corporation. Under the terms of the
Purchase Agreement, Kranzco will purchase the Properties through the
assumption of approximately $20.5 million of debt, issuance of $1.6 million
of Kranzco common shares and approximately $21.9 million of cash.
(b) Pro Forma Financial Information.
Kranzco Realty Trust Pro Forma Combined Condensed Financial Information
(Unaudited)
The accompanying financial statements present the unaudited pro forma
combined condensed Balance Sheet of Kranzco Realty Trust after giving
effect to the consummation of the UPI Acquisition and the Georgia
Acquisition, as of September 30, 1997 and the unaudited pro forma combined
condensed Statements of Operations of Kranzco Realty Trust for the nine
months ended September 30, 1997 and for the year ended December 31, 1996.
The unaudited pro forma combined condensed Balance Sheet as of
September 30, 1997 is presented as if the consummation of the Georgia
Acquisition had occurred on September 30, 1997. The unaudited pro forma
combined condensed Statements of Operations for the nine months ended
September 30, 1997 and for the year ended December 31, 1996 are presented
as if the consummation of the UPI Acquisition and the Georgia Acquisition
had occurred as of January 1, 1996 and carried forward through September
30, 1997.
Preparation of the pro forma financial information was based on
assumptions deemed appropriate by the management of Kranzco Realty Trust.
The assumptions give effect to the consummation of the UPI Acquisition and
the Georgia Acquisition in accordance with generally accepted accounting
principles, the entity qualifying as a REIT, distributing all of its
taxable income and, therefore, incurring no federal income tax expense
during the periods presented. The pro forma financial information is
unaudited and is not necessarily indicative of the results which actually
would have occurred if the transactions had been consummated at the
beginning of the periods presented, nor does it purport to represent the
future financial position and results of operations for future periods.
The pro forma information should be read in conjunction with the historical
financial statements of Kranzco Realty Trust incorporated by reference into
this Form 8-K.
Kranzco Realty Trust
Pro Forma Combined Condensed Balance Sheet
As of September 30, 1997
(Unaudited)
The Company Georgia The Company
(Historical) Acquisition (Pro Forma)
---------- ---------- -----------
Assets: (Dollar amounts in thousands)
Shopping centers,
at cost, net $399,185 $43,860(B)
$443,045
Cash and marketable
securities 3,466 -- 3,466
Restricted cash 743 -- 743
Rents and other
receivables, net 9,025 -- 9,025
Prepaid expenses 2,843 -- 2,843
Deferred financing
costs, net 2,156 -- 2,156
Other deferred costs, net 2,158 -- 2,158
Other assets 1,232 -- 1,232
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Total assets $420,808 $42,260
$464,668
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========
Liabilities:
Mortgages and notes
payable $250,424 $20,435(B)
$270,859
Tenant security deposits 1,263 -- 1,263
Accounts payable and
accrued expenses 2,057 -- 2,057
Other liabilities 1,256 -- 1,256
Distributions payable 5,743 -- 5,743
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Total liabilities 260,743 20,435 281,178
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Kranzco Series C
Preferred Shares 2,673 -- 2,673
Beneficiaries Equity:
Common shares and
Preferred shares 116 10(A) 126
Capital in excess of
par value 216,777 23,415(A)
240,192
Cumulative net income
available for common shares 32,458 -- 32,458
Cumulative distributions on
common shares (91,772) -- (91,772)
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157,579 23,425 181,004
Unearned compensation on
restricted common shares (187) -- (187)
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Total beneficiaries' equity 157,392 23,425 180,817
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Total liabilities, Kranzco
Series C Preferred Shares
and beneficiaries' equity $420,808 $43,860 $464,668
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The accompanying notes and management's assumptions are an integral part of
this statement.
Notes and Management's Assumptions to Pro Forma Combined Condensed
Balance Sheet for Kranzco Realty Trust as of September 30, 1997
(Dollar amounts in thousands)
(A) To reflect the net proceeds from an
equity offering:
Gross proceeds $ 22,734
Cost of issuance 909
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Net proceeds $21,825
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(B) Adjustment to reflect acquisition of
Georgia Properties:
Purchase Price $43,000
Plus: Acquisition costs 860
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Total Purchase Price $43,860
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Acquisition paid for by:
Assumption of debt $20,435
Issuance of Common Shares 1,600
Cash 21,825
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Total Debt $43,860
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Kranzco Realty Trust
Pro Forma Combined Condensed
Statement of Operations for
the Nine Months Ended September 30, 1997
(Unaudited)
The UPI Georgia
Company Acquisition Acquisition The Company
(Historical) (1/1-2/27/97) Total (Pro Forma) (Pro Forma)
---------- ----------- --------- --------- -----------
(A)
(Dollar amounts in thousands
except share and per share data)
REVENUE:
Minimum rent $35,185 $1,194 $36,379 $3,578 $39,957
Percentage rent 831 4 835 -- 835
Expense reimbursements 8,253 152 8,405 476 8,881
Other income 94 -- 94 -- 94
Interest income 180 -- 180 -- 180
-------- ------- -------- ------- -------
Total revenue 44,543 1,350 45,893 4,054 49,947
-------- ------- -------- ------- -------
EXPENSES:
Interest 14,070 498 14,568 1,324(B) 15,892
Depreciation and amortization 9,247 228 9,475 768(C) 10,243
Real estate taxes 4,891 83 4,974 315 5,289
Operations and maintenance 6,062 96 6,158 369 6,527
General and administrative 2,190 -- 2,190 -- 2,190
-------- ------- -------- ------- -------
Total expenses 36,460 905 37,365 2,776 40,141
-------- ------- -------- ------- -------
Net income 8,083 445 8,528 1,278 9,806
DISTRIBUTIONS ON
PREFERRED SHARES 2,379 528 2,907 1,534(E) 4,441
-------- ------- -------- ------- -------
Net income (loss)
attributable to
common shareholders $5,704 $(83) $5,621 $(256) $5,365
======= ======= ======== ======= =======
NET INCOME PER COMMON SHARE $0.55 $0.54 $0.51
======= ======== =======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OF
BENEFICIAL INTEREST 10,337,000 10,337,000 10,422,000
The accompanying notes and management's assumptions are an integral part of this statement.
/TABLE
Kranzco Realty Trust
Pro Forma Combined Condensed
Statement of Operations for
the Year Ended December 31, 1996
(Unaudited)
The UPI Georgia
Company Acquisition Acquisition The Company
(Historical) (Pro Forma) Total (Pro Forma) (Pro Forma)
---------- ----------- --------- --------- -----------
(Dollar amounts in thousands,
except share and per share data) (A)
REVENUE:
Minimum rent $41,665 $7,183 $48,848 $4,668 $53,516
Percentage rent 1,042 166 1,208 -- 1,208
Expense reimbursements 11,732 760 12,492 692 13,184
Other income 117 75 192 -- 192
Interest income 624 -- 624 -- 624
-------- ------- -------- ------- -------
Total revenue 55,180 8,184 63,364 5,360 68,724
-------- ------- -------- ------- -------
EXPENSES:
Interest 17,069 2,579 19,648 1,765(B) 21,413
Depreciation and amortization 11,194 2,110(D) 13,304 1,023(C) 14,327
Provision to reduce property to
net realizable value -- 400 400 -- 400
Real estate taxes 6,073 494 6,567 394 6,961
Operations and maintenance 9,473 575 10,048 482 10,530
General and administrative 2,836 476(D) 3,312 -- 3,312
-------- ------- -------- ------- -------
Total expenses 46,645 6,634 53,279 3,664 56,943
-------- ------- -------- ------- -------
Net income 8,535 1,550 10,085 1,696 11,781
DISTRIBUTIONS ON PREFERRED
SHARES 695 3,171 3,866 2,046(E) 5,912
-------- ------- -------- ------- -------
Net income (loss) attributable to
common shareholders $7,840 $(1,621) $6,219 $(350) $5,869
======== ======= ======== ======= =======
NET INCOME PER COMMON SHARE $0.76 $0.60 $0.56
======== ======== =======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OF
BENEFICIAL INTEREST 10,333,000 10,333,000 10,418,000
The accompanying notes and management's assumptions are an integral part of this statement.
Footnotes to Pro Forma Combined Condensed Statements of Operations
(unaudited)
The extraordinary loss of $11,052 on refinancing recorded in the second
quarter of 1996 and the loss of $63 on the sale of real estate recorded in
the first quarter of 1996 by Kranzco have been excluded from the pro forma
presentation of the Statement of Operations.
(A) To record the operations of the Georgia Properties.
(B) To reflect interest expense of debt assumed and the additional
borrowings as a result of the Georgia Acquisition:
September 30, December 31,
1997 1996
---- ----
Debt assumed $20,435 $20,435
Interest expense
at various rates $ 1,324 $ 1,765
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(C) To reflect depreciation expense over a 30 year life as a result of the
Georgia Acquisition as follows:
September 30, December 31,
1997 1996
---- ----
Depreciable basis
of the Georgia Properties $30,702 $30,702
Depreciation expense $ 768 $ 1,023
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(D) The depreciation and amortization and general and administrative
amounts include pro forma adjustments as a result of the UPI
Acquisition.
(E) To reflect distributions on equity offering as follows:
September 30, December 31,
1997 1996
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Net proceeds from
equity offering $22,734 $22,734
Distribution rate 9% 9%
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Distributions $1,534 $2,046
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(c) Exhibits
2.1 Agreement dated October 30, 1997 between Kranzco Realty Trust and
GP Development Corporation.
2.2 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.
2.3 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).
2.4 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).
2.5 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).
2.6 Modification to Deed to Secure Debt between Holcomb and Harris
Trust, dated as of October 31, 1995 (relating to Holcomb Bridge
Crossing).
2.7 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).
2.8 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).
2.9 Escrow Agreement, dated as of November 1, 1993, between
Confederation and West Stewarts.
2.10 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).
2.11 Deed to Secure Debt and Security Agreement, dated as of July 31,
1996, between Mableton Village and Lehman (relating to The
Village at Mableton).
23.1 Consent of Independent Public Accountants - Arthur Andersen LLP.
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 hereunto duly authorized.
Date: November 25, 1997
KRANZCO REALTY TRUST
By:/s/ Robert H. Dennis
---------------------------------
Name: Robert H. Dennis
Title: Vice President and
Chief Financial Officer
EXHIBIT INDEX
2.1 Agreement dated October 30, 1997 between Kranzco Realty Trust and
GP Development Corporation.
2.2 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.
2.3 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).
2.4 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).
2.5 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).
2.6 Modification to Deed to Secure Debt between Holcomb and Harris
Trust, dated as of October 31, 1995 (relating to Holcomb Bridge
Crossing).
2.7 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).
2.8 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).
2.9 Escrow Agreement, dated as of November 1, 1993, between
Confederation and West Stewarts.
2.10 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).
2.11 Deed to Secure Debt and Security Agreement, dated as of July 31,
1996, between Mableton Village and Lehman (relating to The
Village at Mableton).
23.1 Consent of Independent Public Accountants - Arthur Andersen LLP