-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M8Mb1zU6vURR/peWV2++ee2Fuz6mKWECkzXlf5u9GSZItdZF6CupXCyDyC1pmV1Y yzzMK2Vi8YqqpeRp8Q1VVA== 0000950168-00-001301.txt : 20000512 0000950168-00-001301.hdr.sgml : 20000512 ACCESSION NUMBER: 0000950168-00-001301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KONOVER PROPERTY TRUST INC CENTRAL INDEX KEY: 0000899757 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561819372 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11998 FILM NUMBER: 626717 BUSINESS ADDRESS: STREET 1: 11000 REGENCY PARKWAY 3RD FLOOR STREET 2: EAST TOWER SUITE 300 CITY: CARY STATE: NC ZIP: 27511 BUSINESS PHONE: 9194628787 MAIL ADDRESS: STREET 1: 11000 REGENCY PKWY 3RD FLOOR STREET 2: EAST TOWER SUITE 300 CITY: CARY STATE: NC ZIP: 27511 FORMER COMPANY: FORMER CONFORMED NAME: FAC REALTY TRUST INC DATE OF NAME CHANGE: 19980217 FORMER COMPANY: FORMER CONFORMED NAME: FAC REALTY INC DATE OF NAME CHANGE: 19970618 FORMER COMPANY: FORMER CONFORMED NAME: FACTORY STORES OF AMERICA INC DATE OF NAME CHANGE: 19930403 10-Q 1 FORM 10-Q UNITED STATES 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 MARCH 31, 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 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (919) 462-8787 (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 the 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: 31,131,814 shares of Common Stock, $0.01 par value, as of May 4, 2000. KONOVER PROPERTY TRUST, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO. ITEM 1. Consolidated Financial Statements (Unaudited).................. 3 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 12 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk..... 20 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings.............................................. 21 ITEM 2. Changes in Securities and Use of Proceeds...................... 21 ITEM 3. Defaults Upon Senior Securities................................ 21 ITEM 4. Submission of Matters to a Vote of Security Holders............ 21 ITEM 5. Other Information.............................................. 21 ITEM 6. Exhibits and Reports on Form 8-K............................... 21 2 PART I ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS PAGE NO. Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999..................................................... 4 Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999......................................... 5 Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2000..................................... 6 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999......................................... 7 Notes to Consolidated Financial Statements.............................. 8 3 KONOVER PROPERTY TRUST, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 DECEMBER 31, 1999 (UNAUDITED) (AUDITED) -------------- ----------------- (IN THOUSANDS) ASSETS INCOME PRODUCING PROPERTIES: Land $ 129,212 $ 119,360 Buildings and improvements 563,002 516,579 Deferred leasing and other charges 40,151 35,605 --------- --------- 732,365 671,544 Accumulated depreciation and amortization (94,929) (89,019) --------- --------- 637,436 582,525 Properties under development 13,318 65,924 Properties held for sale 611 611 OTHER ASSETS: Cash and cash equivalents 5,604 8,164 Restricted cash 9,149 8,634 Tenant and other receivables, net allowance of $1,914 and $1,588 at March 31, 2000 and December 31, 1999, respectively 7,846 9,974 Deferred charges and other assets 12,739 12,197 Investment in and advances to unconsolidated entities 26,260 26,143 Notes receivable 2,767 5,285 --------- --------- $ 715,730 $ 719,457 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Debt on income properties $ 370,016 $ 362,041 Capital lease obligations 627 698 Accounts payable and other liabilities 18,694 22,661 --------- --------- 389,337 385,400 COMMITMENTS AND CONTINGENCIES MINORITY INTERESTS 10,683 12,999 --------- --------- STOCKHOLDERS' EQUITY: Convertible preferred stock, Series A, 5,000,000 shares authorized, 780,680 issued and outstanding at March 31, 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, 31,138,341 and 30,868,630 issued and outstanding at March 31, 2000 and December 31, 1999, respectively 311 309 Additional paid-in capital 305,574 307,871 Accumulated deficit (8,281) (5,432) Deferred compensation - Restricted Stock Plan (582) (378) --------- --------- 315,710 321,058 --------- --------- $ 715,730 $ 719,457 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 4 KONOVER PROPERTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 1999 --------- -------- RENTAL OPERATIONS: (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Base rents $ 17,032 $ 14,560 Percentage rents 139 161 Property operating cost recoveries 4,496 3,759 Other income 465 683 -------- -------- 22,132 19,163 -------- -------- Property operating costs: Common area maintenance 2,658 2,088 Utilities 698 622 Real estate taxes 2,239 1,928 Insurance 249 241 Marketing 38 154 Other 1,185 979 -------- -------- 7,067 6,012 Depreciation and amortization 6,974 5,570 -------- -------- 14,041 11,582 -------- -------- 8,091 7,581 -------- -------- OTHER EXPENSES: General and administrative 1,598 1,435 Interest, net 6,331 3,308 -------- -------- INCOME FROM OPERATIONS 162 2,838 Loss on sale of real estate 559 79 Abandoned transaction costs 13 113 Equity in losses of unconsolidated entities: E-commerce operations 2,432 - Real estate operations 293 3 -------- -------- (LOSS) INCOME BEFORE MINORITY INTEREST (3,135) 2,643 Minority interest 286 (87) -------- -------- NET (LOSS)INCOME (2,849) 2,556 Preferred dividends (271) (275) -------- -------- NET (LOSS)INCOME APPLICABLE TO COMMON SHAREHOLDERS $ (3,120) $ 2,281 ======== ======== BASIC (LOSS)INCOME APPLICABLE TO COMMON SHAREHOLDERS PER SHARE $ (0.10) $ 0.07 ======== ======== WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 30,516 31,119 ======== ======== DILUTED (LOSS)INCOME APPLICABLE TO COMMON SHAREHOLDERS PER SHARE $ (0.10) $ 0.07 ======== ======== WEIGHTED-AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 30,516 34,646 ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 KONOVER PROPERTY TRUST, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA)
DEFERRED COMPENSATION CONVERTIBLE STOCK ADDITIONAL RESTRICTED PREFERRED PURCHASE COMMON PAID ACCUMULATED STOCK STOCK WARRANTS STOCK IN CAPITAL DEFICIT PLAN TOTAL --------- -------- ------ ---------- ----------- --------- ---------- BALANCE AT DECEMBER 31, 1999 $ 18,679 $ 9 $ 309 $ 307,871 $ (5,432) $ (378) $ 321,058 Issuance of 10,446 employee stock purchase plan shares - - - 49 - - 49 Issuance of 66,829 restricted shares - - - 347 - (347) - Repurchase of 1,701 restricted shares - - - (9) - - (9) Cancellation of 5,863 restricted shares - - - (40) - 40 - OP units converted into 200,000 common shares - - 2 1,898 - - 1,900 Expenses related to sale of common stock to Lazard - - - (37) - - (37) Compensation under stock plans - - - - - 103 103 Preferred stock dividends ($0.125 per share) - - - (271) - - (271) Common stock dividends ($0.125 per share) - - - (4,234) - - (4,234) Net loss - - - - (2,849) - (2,849) --------- ----- ------ ---------- --------- ------- ---------- BALANCE AT MARCH 31, 2000 $ 18,679 $ 9 $ 311 $ 305,574 $ (8,281) $ (582) $ 315,710 ========= ===== ====== ========== ========= ======= ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 6 KONOVER PROPERTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 1999 ---------- ---------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (2,849) $ 2,556 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Amortization of debt premium (130) (522) Minority interest (286) 87 Depreciation and amortization 6,974 5,570 Loss on sale of real estate 559 79 Abandoned transaction costs 13 113 Amortization of deferred financing costs 729 270 E-commerce operations 2,432 - Net changes in: Tenant and other receivables 2,128 1,787 Deferred charges and other assets (622) (1,576) Accounts payable and other liabilities (4,613) (1,246) Dividends payable (1) (405) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,334 6,713 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in income-producing properties (8,742) (14,993) Acquisition of income-producing properties, net - (26,207) Payments received on notes receivable, net 2,518 1,772 Investment in and advances to unconsolidated entities (2,549) 859 Change in restricted cash (515) 490 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (9,288) (38,079) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt on income properties 9,054 - Repayment of debt on income properties (949) (621) Expenses related to sale of common stock (37) - Deferred financing charges (1,007) (836) Other debt repayments (72) (49) Issuance of shares under employee stock purchase plan 49 58 Dividends paid (4,635) (4,107) Repurchase of common stock (9) (2,518) -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,394 (8,073) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,560) (39,439) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,164 72,302 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,604 $ 32,863 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 7,833 $ 5,690 ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (Unaudited) 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 March 31, 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. one center with approximately 25,000 square feet, that is held for sale and three 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 and 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 three months ended March 31, 2000 and 8.2 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 March 31, 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 provides 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. 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 the Company. Accordingly, these entities are accounted for under the equity method for investments. Additionally, these taxable subsidiaries are taxed as regular corporations. 8 BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company, its subsidiaries and the Operating Partnership. All significant intercompany balances have been eliminated in consolidation. Properties which 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-month period ended March 31, 2000 are not necessarily indicative of results that may be expected for a full fiscal year. 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 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. 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 shares"). For the three months ended March 31, 1999, the denominator for diluted income per share is calculated as follows, (in thousands): 9 MARCH 31, 1999 --------- Denominator for weighted-average shares 31,119 Effect of dilutive securities: Preferred Stock 2,200 Employee Stock Options 33 Restricted Stock 248 Operating Partnership Units 1,046 -------- Dilutive potential shares 3,527 -------- Denominator - Adjusted - weighted-average shares and assumed conversions 34,646 ======== For the three months ended March 31, 2000, basic and dilutive earnings per share are computed based on a weighted average number of shares of 30,516,337. Potential dilutive common shares have been excluded from diluted earnings per share for the three months ended March 31, 2000 because their inclusion would be antidilutive. DIVIDENDS In March, 2000, the Company declared a $0.125 per share quarterly dividend to shareholders of record as of March 20, 2000. The dividend and dividend equivalent totaling $4.6 million was paid on March 31, 2000. COMPREHENSIVE INCOME Comprehensive income equals net income for all periods presented. 3. ACQUISITIONS A summary of the Company's acquisition activity since 1997 follows (in thousands):
OP UNITS STATE PURCHASE ($9.50 PER LOCATION DATE SQUARE FEET PRICE DEBT ASSUMED CASH SHARE) ----------------- ----------- ------------- ------------- --------------- --------------- ----------- 1999 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 - 10 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 1,513 85,400 55,200 26,700 369 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 ============= ============= =============== =============== ===========
(1) Includes 292 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 292 OP units. The remaining 117 OP units continue to be outstanding at March 31, 2000. 4. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED ENTITIES A summary of the Company's investments in and advances to unconsolidated entities at March 31, 2000 and December 31, 1999 is as follows (all investments in unconsolidated entities are accounted for under the equity method):
March 31, December 31, Entity Location Ownership 2000 1999 - ---------------------------------------------- ------------------- ------------- ------------- --------------- Community Center Ventures: Atlantic Realty LLC (2 community centers) North Carolina 50% $ 2,530 $ 2,440 Park Place KPT LLC Morrisville, NC 50% 6,347 6,245 Falls Pointe KPT LLC Raleigh, NC 50% 7,482 7,059 Taxable Subsidiaries (see Note 1): Sunset KPT Investment, Inc. 85% 10,793 9,888 truefinds.com, Inc. 95% (892)(1) 511 -------- --------- $ 26,260 $ 26,143 ========= ==========
(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. 11 (All data in thousands and excludes straight line rent) Community Outlet VF Centers (1) Centers (2) Centers HRD (1)(2) All others Total Three months ended March 31, 2000: NOI $ 8,803 $ 4,642 $ 968 $ 593 $ 59 $ 15,065 Total Assets $ 358,482 $ 190,265 $ 45,071 $ 54,034 $ 67,878 $ 715,730 Three months ended March 31, 1999: NOI $ 6,115 $ 5,349 $ 1,354 $ 431 $ 45 $ 13,294 Total Assets $ 256,093 $ 202,020 $ 50,808 $ 74,988 $ 96,495 $ 680,404
(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. 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 The following information should be read with the consolidated financial statements and notes thereto included in this report. 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). 12
THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 -------- -------- OPERATING DATA: Rental revenues $ 22,132 $ 19,163 Property operating costs 7,067 6,012 -------- -------- Net operating income 15,065 13,151 Depreciation and amortization 6,974 5,570 General and administrative 1,598 1,435 Interest, net 6,331 3,308 Loss on sale of real estate 559 79 Abandoned transaction costs 13 113 Equity in losses of unconsolidated entities: E-commerce operations 2,432 - Real estate operations 293 3 -------- -------- (Loss) income before minority interest (3,135) 2,643 Minority interest 286 (87) -------- -------- Net (loss) income $ (2,849) $ 2,556 Preferred stock dividends (271) (275) -------- -------- (Loss) income applicable to common shareholders $ (3,120) $ 2,281 ======== ======== BASIC (LOSS) INCOME PER COMMON SHARE: Net (loss) income applicable to common shareholders per share $ (0.10) $ 0.07 ======== ======== Weighted average common shares outstanding 30,516 31,119 ======== ======== DILUTED (LOSS) INCOME PER COMMON SHARE: Net (loss) income applicable to common shareholders per share $ (0.10) $ 0.07 ======== ======== Weighted average common shares outstanding diluted 30,516 34,646 ======== ========
13
THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 -------- -------- OTHER DATA: EBITDA: Net (loss) income $ (2,849) $ 2,556 Adjustments: Interest, net 6,331 3,308 Depreciation and amortization 6,974 5,570 Loss on sale of real estate 559 79 Abandoned transaction costs 13 113 Equity in losses of unconsolidated 2,725 3 ventures Minority interest (286) 87 ======== ======== $ 13,467 $ 11,716 ======== ======== FUNDS FROM OPERATIONS: Net (loss) income $ (2,849) $ 2,556 Adjustments: Real estate depreciation and amortization 5,954 4,642 Stock based compensation amortization 751 400 Loss on sale of real estate 559 79 E-commerce operations 2,432 - Share of depreciation in unconsolidated ventures 210 24 Minority interest in Operating Partnership (82) 87 -------- -------- $ 6,975 $ 7,788 ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED (A) 34,304 34,646 ======== ======== FUNDS AVAILABLE FOR DISTRIBUTION/REINVESTMENT: Funds from Operations $ 6,975 $ 7,788 Adjustments: Non-recurring administrative costs $ - $ (379) Capitalized tenant allowances (230) (281) Capitalized leasing costs (454) (302) Recurring capital expenditures (1) (64) -------- -------- $ 6,290 $ 6,762 ======== ======== DIVIDENDS DECLARED ON QUARTERLY EARNINGS $ 4,635 $ 4,512 ======== ======== DIVIDENDS DECLARED ON QUARTERLY EARNINGS PER SHARE $ 0.125 $ 0.125 ======== ======== CASH FLOWS: Cash flows provided by operating activities $ 4,334 $ 6,713 Cash flows used in investing activities (9,288) (38,079) Cash flows provided by (used in) financing 2,394 (8,073) activities -------- -------- Net decrease in cash and cash equivalents $ (2,560) $(39,439) ======== ========
(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." 14
BALANCE AT MARCH 31, 2000 1999 -------------- ------------- BALANCE SHEET DATA: Income-producing properties (before depreciation and amortization) $ 732,365 $ 607,389 Total assets 715,730 680,404 Debt on income properties 370,016 307,733 Total liabilities 389,337 322,451 Minority interest 10,683 12,852 Total stockholders' equity 315,710 345,101 PORTFOLIO PROPERTY DATA: Total GLA (at end of period) 9,519 8,692 Weighted average GLA 9,519 8,247 Number of properties (at end of period) 68 64 Occupancy (at end of period): Operating 92.4% 94.5% Held for sale/redevelopment/development 68.9% 46.8%
MARCH 31, 2000 1999 ------ ------ DENOMINATOR: Denominator- weighted average common shares 30,516 31,119 Effect of dilutive securities: Preferred stock 2,169 2,200 Employee stock options - 33 Restricted stock 446 248 Operating Partnership units 1,173 1,046 ------ ------ Dilutive potential common shares 3,788 3,527 ------ ------ Denominator- adjusted weighted average shares and assumed conversions 34,304 34,646 ====== ====== 15 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999 NET INCOME The Company reported a net loss applicable to common shareholders of $3.1 million, or $0.10 per common share, for the three months ended March 31, 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 $1.8 million, or 13.5%, to $15.1 million from $13.3 million for the same period in 1999. Including the effect of straight-line rent adjustment ($0.1 million) NOI increased by $1.9 million. This increase was partly attributable to the $3.1 million in NOI generated from 1999 acquisitions and Mount Pleasant. The NOI generated from the 1999 acquisitions and Mount Pleasant were partially offset by decreasing NOI of $0.6 million from three centers under redevelopment and $0.2 million related to two properties sold in December, 1999. >> The Company recognized losses from unconsolidated ventures of $2.7 million, including a $2.4 million loss related to the e-commerce operations. >> Net interest expense increased by $3.0 million, or 91%, to $6.3 million from $3.3 million for the same period in 1999. >> Through acquisitions, the Company had increased depreciation and amortization of $1.4 million and increased general and administrative expenses of $0.2 million. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION AND FUNDS FROM OPERATIONS EBITDA was $13.5 million for the three months ended March 31, 2000, an increase of $1.8 million or 15.4%, from $11.7 million for the same period in 1999. The increase was primarily due to increased NOI of $1.9 million over 1999, including adjustment for straight line rent (as described above). Funds from Operations ("FFO") for the three months ended March 31, 2000 decreased $0.8 million, or 10.3%, to $7.0 million. The Company's FFO for the same period in 1999 was $7.8 million. FFO increased primarily as a result of: >> $1.9 million increase in NOI offset by, >> an increase in equity in loss in unconsolidated ventures of $0.3 million, exclusive of losses from the e-commerce operations. >> the increase in net interest expense of $3 million. TENANT INCOME Base rent, including straight-line rent, increased to $17.0 million for the three months ended March 31, 2000 from $14.6 million for the same period in 1999. Base rent before the adjustment for straight-line rent increased $2.3 million, or 15.6%, to $17.0 million for the three months ended March 31, 2000 when compared to $14.7 million in 1999. The increase in base rent for the three months ended March 31, 2000 is attributable primarily to the $2.2 million in base rent, excluding straight-line rent, attributable to the 1999 acquisitions. During this same period, the Company's weighted-average square feet of gross leasable area in operation increased 15.4%. Gross leasable area in operation increased by 0.8 million square feet, primarily because of the 1999 acquisitions which occurred subsequent to March 31, 1999 with 0.6 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. Recoveries from tenants increased for the three months ended March 31, 2000 to $4.5 million compared to $3.8 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 increased 2.2% to $0.47 for the three months ended March 31, 2000 when compared to $0.46 for the same period in 1999. The average recovery of property operating expenses, exclusive of marketing and other non-recoverable operating costs, remained at 77% for the three months ended March 31, 2000 as compared to the same period in 1999. With 16 respect to approximately 14% of the leased gross leasable area, the Company is obligated to pay all utilities and operating expenses. OTHER INCOME Other income decreased $0.2 million to $0.5 million in 2000 compared to $0.7 million in 1999 primarily as a result of decreased leasing fee income of $0.1 million. PROPERTY OPERATING EXPENSES Property operating costs increased $1.1 million, or 18%, to $7.1 million in 2000 from $6.0 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 15.4% to 9.5 million square feet in 2000 from 8.2 million square feet in 1999. On a weighted-average square-foot basis, operating expenses increased 1.4% to $0.74 from $0.73 per weighted average square foot. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the three months ended March 31, 2000 increased $0.2 million, or 11.4%, to $1.6 million in 2000 from $1.4 million in 1999. General and administrative expense decreased as a percentage of revenues to 7.2% from 7.5% in 1999. DEPRECIATION Depreciation increased to $4.8 million for the three months ended March 31, 2000 compared to $3.7 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 $0.3 million to $2.2 million. On a weighted-average square-foot basis, depreciation and amortization increased to $0.73 in 2000 from $0.68 in 1999. INTEREST EXPENSE Interest expense for the three months ended March 31, 2000, net of interest income of $2.0 million, increased by $3.0 million, or 91%, to $6.3 million compared to $3.3 million, net of interest income of $2.6 million, in the first three 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 three months of 2000, debt outstanding was $366 million, and the average interest rate was 8.30%. This compares to $273 million of outstanding debt and a 7.89% average interest rate in 1999. The Company capitalized $1.0 million of interest costs associated with its development projects in the first three months of 2000 compared to $0.1 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 March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS The Company's cash and cash equivalents balance at March 31, 2000 was $5.6 million. Restricted cash, as reported in the financial statements, as of such date, was $9.1 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 $4.3 million for the three months ended March 31, 2000. Net cash used in investing activities was $9.3 million in that same period. The primary use of these funds included: >> $8.7million invested in income-producing properties, >> $2.5 million invested in or advanced to unconsolidated entities offset by, >> $2.5 million collected on the repayment of a note receivable. 17 Net cash provided by financing activities was $2.4 million for the three months ended March 31, 2000. The primary transactions included: >> $4.6 million for dividends paid, >> $1.1 million for debt repayments, >> $1.0 million in deferred financing charges offset by, >> $9.1 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 March 31, 2000 was $87.7 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. At March 31, 2000, the availability and balance of this line of credit was $54.3 million. The availability under this line is 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 extended during the first quarter of 2000. The Company has received a verbal commitment from our lender extending the credit facility until June 19, 2000. The Company is in the process of refinancing this credit facility on a long-term basis and believes such refinancing will be completed within the extension period. 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 March 31, 2000, was $66.4 million including a $6.8 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 March 31, 2000 was $6.7 million and matures on May 31, 2001. The line of credit is secured by a community center. 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 March 31, 2000. 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. 18 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 March, 2000, the Company declared a $0.125 per share quarterly dividend to shareholders of record as of March 20, 2000. The dividend and dividend equivalent totaling $4.6 million was paid on March 31, 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 three months ended March 31, 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 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. 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. 19 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 not party to any interest rate hedge contracts. As of March 31, 2000, the Company had approximately $98.2 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 $0.2 million for the three months ended March 31, 2000. The Company has no fixed rate debt maturing in 2000. 20 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 None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 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 March 31, 2000. 21 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: May 11, 2000 By: /S/Patrick M. Miniutti ---------------------- Patrick M. Miniutti, Executive Vice President, Chief Financial Officer and Director By: /S/Daniel J. Kelly ------------------ Daniel J. Kelly, Sr. Vice President, Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 14,753 0 7,846 0 0 0 746,294 94,929 715,730 0 370,016 0 18,679 311 296,720 715,730 0 22,132 0 7,067 0 0 6,331 (2,849) 0 0 0 0 0 (2,849) (0.10) (0.10) The Company's balance sheet is unclassified.
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