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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) July 16, 1998
(June 26, 1998)
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.
On June 26, 1998 Kranzco Realty Trust ("Kranzco" or the "Company")
entered into an agreement to acquire nine community shopping centers in five
midwest and southern states for approximately $85 million (the "Southeast
Acquisition"). The purchase price will initially be financed through a first
mortgage financing and borrowings under Kranzco's $50 million secured first
mortgage loan facility with Salomon Brothers Realty Corp. Five of the
centers are in Georgia and the others are in Ohio, Tennessee, Florida and
Virginia. The centers have a total of 1.4 million square feet of gross
leaseable area and an overall leased rate of approximately 99%. Wal-Mart is
a tenant in nine of the centers and has vacated its space at two of the
centers but continues to pay rent in accordance with its leases. Wal-Mart
has subleased space at one of these two centers to a third party. Besides
Wal-Mart, other well-known anchor retailers are Eckerd Drug, Food Lion, Radio
Shack and CVS. After the purchase, Kranzco will own 68 properties in 19
states with a total of nine million square feet of GLA, an approximate 15
percent increase in GLA. The purchase is subject to customary due diligence
and is expected to close by August 31, 1998.
Kranzco is acquiring such properties from Europco Property Investors II,
Ltd., a Georgia limited partnership; Europco Property Investors III, Ltd., a
Georgia limited partnership; Europco Property Investors IV, Ltd., a Georgia
limited partnership; Secured Properties Investors V, L.P., a Georgia limited
partnership; Secured Properties Investors VIII, L.P., a Georgia limited
partnership; Secured Properties Investors IX, L.P. a Georgia limited
partnership; and Tifton Partners, L.P., a Georgia limited partnership.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kranzco Realty Trust:
We have audited the combined statement of revenue and certain expenses of the
Southeast Acquisition Properties for the year ended December 31, 1997. This
combined financial statement is the responsibility of the Southeast
Acquisition Properties' management. Our responsibility is to express an
opinion on this combined 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 combined financial statement is
free of material misstatement. An audit includes examining, on a test basis,
the evidence supporting the amounts and disclosures in the combined financial
statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall combined financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The combined 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 Southeast Acquisition Properties' revenue and expenses.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of the Southeast
Acquisition Properties for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
Philadelphia, Pa.
July 2, 1998 /S/ ARTHUR ANDERSEN LLP
SOUTHEAST ACQUISITION PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
For the Three
For the Year Months
Ended Ended
December 31, March 31,
1997 1998
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(unaudited)
REVENUE
Minimum rent (Note 2) $ 8,237,692 $ 2,077,003
Percentage rent 214,817 20,019
Tenant reimbursements 803,032 178,456
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Total revenue 9,255,541 2,275,478
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CERTAIN EXPENSES
Maintenance and other
operating expenses 552,248 123,142
Utilities 92,272 28,110
Real estate taxes 419,823 123,382
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Total certain expenses 1,064,343 274,634
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REVENUE IN EXCESS OF
CERTAIN EXPENSES $ 8,191,198 $ 2,000,844
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The accompanying notes are an integral part of these financial statements.
SOUTHEAST ACQUISITION PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BASIS OF PRESENTATION:
The accompanying combined statements of revenue and certain operating
expenses of the Southeast Acquisition Properties (the "Properties") consist
of the following properties:
Property Square Footage
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Douglasville, Georgia 267,800
Snellville, Georgia 220,885
Tifton, Georgia 186,629
Pensacola, Florida 171,653
Staunton, Virginia 166,944
Circleville, Ohio 127,130
Vidalia, Georgia 93,696
Jefferson City, Tennessee 92,968
Summerville, Georgia 67,809
The combined statements of revenue and certain expenses are to be included in
the Company's current report on Form 8-K, as the above described transaction
has been deemed to be significant pursuant to the rules and regulations of
the Securities and Exchange Commission.
The accounting records of six of the nine Properties are maintained on a
modified cash basis. Adjusting entries have been made to present the
accompanying financial statements in accordance with generally accepted
accounting principles. The accompanying combined financial statements
exclude certain expenses such as interest, depreciation and amortization,
professional fees and other costs not directly related to the expected future
operations of the Properties.
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 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 three months
ended March 31, 1998 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 presented 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 adjustment
for the year ended December 31, 1997, was $30,301 and for the three-month
period ended March 31, 1998 was $9,617.
Wal-Mart Stores, Inc. is a tenant in each of the nine Properties. Wal-Mart
has vacated two of such Properties, but continues to pay rent in accordance
with both its leases. Wal-Mart has subleased space to a third party at one
of these propertes. Wal-Mart's annual minimum rent is approximately
$3,800,000 collectively at the nine Properties, which is greater than 10% of
the Properties' minimum rent.
The Properties are leased to tenants under operating leases with expiration
dates extending to the year 2015. Future minimum rentals under noncancelable
operating leases, excluding tenant reimbursements of operating expenses, as
of December 31, 1997, are as follows:
1998 $ 8,141,964
1999 7,657,861
2000 6,956,189
2001 6,405,779
2002 6,002,577
Thereafter 41,346,059
Certain leases also include provisions requiring tenants to reimburse the
Properties for management costs and other operating expenses up to stipulated
amounts.
3. SUBSEQUENT EVENT
The Properties are under contract to be acquired by Kranzco Realty Trust for
$84,750,000.
(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 Southeast Acquisition, as of March 31, 1998 and
the unaudited pro forma combined condensed Statements of Operations of
Kranzco Realty Trust for the three months ended March 31, 1998 and for the
year ended December 31, 1997.
The unaudited pro forma combined condensed Balance Sheet as of March 31,
1998 is presented as if the consummation of the Southeast Acquisition had
occurred on March 31, 1998. The unaudited pro forma combined condensed
Statements of Operations for the three months ended March 31, 1998 and for
the year ended December 31, 1997 are presented as if the consummation of the
UPI Acquisition, the Georgia Acquisition and the Southeast Acquisition had
occurred as of January 1, 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, the
Georgia Acquisition and the Southeast 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 March 31, 1998
(Unaudited)
The Company Southeast The Company
(Historical) Acquisition (Pro Forma)
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(Dollar amounts
Assets: in thousands)
Shopping centers, at cost, net $441,063 $87,000 (A) $528,063
Cash and marketable securities 6,448 -- 6,448
Restricted cash 1,185 -- 1,185
Rents and other receivables, net 9,732 -- 9,732
Prepaid expenses 2,067 -- 2,067
Deferred financing costs, net 1,828 1,000 2,828
Other deferred costs, net 2,155 -- 2,155
Other assets 1,172 -- 1,172
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Total assets $465,650 $88,000 $553,650
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Liabilities:
Mortgages and notes payable $257,201 $88,000 (A) $345,201
Tenant security deposits 1,364 -- 1,364
Accounts payable and accrued
expenses 2,772 -- 2,772
Other liabilities 574 -- 574
Distributions payable 6,617 -- 6,617
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Total liabilities 268,528 88,000 356,528
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Kranzco Series C Preferred Shares 1,782 -- 1,782
Beneficiaries Equity:
Common shares and Preferred shares 135 -- 135
Capital in excess of par value 261,647 -- 261,647
Cumulative net income available
for common shares 35,465 -- 35,465
Cumulative distributions on
common shares (101,784) -- (101,784)
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195,463 -- 195,463
Unearned compensation on
restricted common shares (123) -- (123)
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Total beneficiaries' equity 195,340 -- 195,340
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Total liabilities, Kranzco
Series C Preferred Shares
and beneficiaries' equity $465,650 $88,000 $553,650
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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 March 31,1998.
(Dollar amounts in thousands)
(A) Adjustment to reflect acquisition of Southeast
Acquisition Properties:
Purchase Price $84,750
Plus: Acquisition costs 2,250
Total Purchase Price 87,000
Deferred financing costs 1,000
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$88,000
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Acquisition paid for by:
First Mortgage $66,000
Credit lines 22,000
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Total Debt $88,000
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Kranzco Realty Trust
Pro Forma Combined Condensed
Statement of Operations for
the Three Months Ended March 31, 1998
(Unaudited)
Southeast
The Company Acquisition The Company
(Historical) (Pro Forma) (Pro Forma)
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(a)
(Dollar amounts in thousands
except share and per share data)
REVENUE:
Minimum rent $13,407 $2,077 $15,484
Percentage rent 310 20 330
Expense reimbursements 2,839 178 3,017
Other income 28 -- 28
Interest income 123 -- 123
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Total revenue 16,707 2,275 18,982
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EXPENSES:
Interest 4,871 1,733(b) 6,604
Depreciation and amortization 3,450 594(c) 4,044
Real estate taxes 1,804 123 1,927
Operations and maintenance 2,101 151 2,252
General and administrative 809 -- 809
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Total expenses 13,035 2,601 15,636
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Net income (loss) 3,672 (326) 3,346
DISTRIBUTIONS ON
PREFERRED SHARES 2,013 -- 2,013
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Net income (loss)
attributable to
common shareholders $1,659 $(326) $1,333
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Basic and Diluted
Earnings per Common Share $0.16 $0.13
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WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OF BENEFICIAL
INTEREST 10,424,000 10,424,000
The accompanying notes and management's assumptions are an integral part of
this statement.
Kranzco Realty Trust
Pro Forma Combined Condensed
Statement of Operations for
the Year Ended December 31, 1997
(Unaudited)
Georgia Acquisition
UPI /Issuance of Payoff
The Company Acquisition Preferred Shares of Existing Southeast The Company
(Historical) (Pro Forma) (Pro Forma) Debt Total Acquisition Pro Forma
---------- --------- ------------------- ---------- ----- ----------- -----------
(d) (e) (a)
(Dollar amounts in thousands, except share and per share data)
REVENUE:
Minimum rent $47,579 $1,194 $4,668 $-- $53,441 $8,238 $61,679
Percentage rent 1,163 4 -- -- 1,167 215 1,382
Expense reimbursements 11,165 152 692 -- 12,009 803 12,812
Other income 127 -- -- -- 127 -- 127
Interest income 278 -- -- -- 278 -- 278
------- ------ ------ ----- ------- ------ -------
Total revenue 60,312 1,350 5,360 -- 67,022 9,256 76,278
------- ------ ------ ----- ------- ------ -------
EXPENSES:
Interest 18,887 498 1,765(f) (1,862)(g) 19,288 6,930(b) 26,218
Depreciation and
amortization 12,534 228(h) 1,023(i) -- 13,785 2,375(c) 16,160
Real estate taxes 6,584 83 394 -- 7,061 420 7,481
Operations and
maintenance 8,346 96 482 -- 8,924 644 9,568
General and
administrative 2,877 0 -- -- 2,877 -- 2,877
------- ------ ------ ----- ------- ------ -------
Total expenses 49,228 905 3,664 (1,862) 51,935 10,369 62,304
------- ------ ------ ----- ------- ------ -------
Net income 11,084 445 1,696 1,862 15,087 (1,113) 13,974
DISTRIBUTIONS ON
PREFERRED SHARES 3,565 528 4,275(j) -- 8,368 -- 8,368
------- ------ ------ ----- ------- ------ -------
Net income (loss)
attributable to
common shareholders $7,519 $(83) $(2,579) $1,862 $6,719 $(1,113) $5,606
======= ====== ====== ===== ======= ====== =======
NET INCOME PER COMMON
SHARE $0.73 $ 0.64 $0.54
======= ======= =======
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OF BENEFICIAL
INTEREST 10,342,000 10,426,000 10,426,000
The accompanying notes and management's assumptions are an integral part of this statement.
/TABLE
Footnotes to Pro Forma Combined Condensed Statements of Operations
(unaudited)
(a) To record the operations of the 1998 Acquisition Properties.
(b) To record interest on the debt incurred to acquire the 1998 Acquisition
Properties:
Rate Debt March 31, 1998 December 31, 1997
First Mortgage 7.50% $66,000 $1,238 $4,950
Credit Lines 9.00% 22,000 495 1,980
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Total $88,000 $1,733 $6,930
(c) To record depreciation and amortization on the Southeast Acquisition
Properties:
Purchase Price $84,750
Costs 2,250
Total $87,000 $544 $2,175
Amortization of
deferred financing costs 1,000 50 200
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$88,000 $594 $2,375
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(d) In February 1997, Kranzco acquired from Union Property Investors, Inc.
("UPI") 16 properties located in 11 states for approximately $65
million, aggregating approximately 1.3 million square feet of GLA (the
"UPI Acquisition"). This adjustment reflects the operations of UPI.
(e) In December 1997, Kranzco acquired five shopping centers in the Atlanta
metropolitan area (the "Georgia Properties") aggregating approximately
650,000 square feet of GLA, for approximately $44 million (the "Georgia
Acquisition"). This adjustment reflects the operations of the Georgia
Properties.
(f) To reflect interest expense of debt assumed and the additional
borrowings as a result of the Georgia Acquisition:
December 31,
1997
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Debt assumed $20,435
Interest expense
at various rates $1,765
(g) To record the repayment of debt outstanding and the related reduction of
interest expenses as follows:
Principal amount of debt repayment $19,894
Interest expense reduction on debt repayment $1,862
(h) The depreciation and amortization include pro forma adjustments as a
result of the UPI Acquisition.
(i) To reflect depreciation expense over a 30-year life as a result of the
Georgia Acquisition as follows:
December 31,
1996
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Depreciable basis
of the Georgia Properties $30,702
Depreciation expense $ 1,023
=====
(j) To record the distributions on the issuance of
Series D Preferred Shares: December 31,
1997
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Shares issued 1,800
Face amount per share $ 25.00
Gross Proceeds $ 45,000
Distribution rate 9.50%
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Distributions $ 4,275
(c) Exhibits
2.1 Sales Contract dated June 26, 1998 by and among Kranzco Realty Trust, a
Maryland real estate investment trust, and Europco Property Investors
II, Ltd., a Georgia limited partnership; Europco Property Investors III,
Ltd., a Georgia limited partnership; Europco Property Investors IV,
Ltd., a Georgia limited partnership; Secured Properties Investors V,
L.P., a Georgia limited partnership; Secured Properties Investors VIII,
L.P., a Georgia limited partnership; Secured Properties Investors IX,
L.P. a Georgia limited partnership; and Tifton Partners, L.P., a Georgia
limited partnership.
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: July 16, 1998
KRANZCO REALTY TRUST
By:/s/ Norman M. Kranzdorf
______________________________
Name: Norman M. Kranzdorf
Title: President and
Chief Executive Officer
EXHIBIT INDEX
2.1 Sales Contract dated June 26, 1998 by and among Kranzco Realty
Trust, a Maryland real estate investment trust, and Europco
Property Investors II, Ltd., a Georgia limited partnership; Europco
Property Investors III, Ltd., a Georgia limited partnership;
Europco Property Investors IV, Ltd., a Georgia limited partnership;
Secured Properties Investors V, L.P., a Georgia limited
partnership; Secured Properties Investors VIII, L.P., a Georgia
limited partnership; Secured Properties Investors IX, L.P. a
Georgia limited partnership; and Tifton Partners, L.P., a Georgia
limited partnership.
23.1 Consent of Independent Public Accountants - Arthur Andersen LLP