Crown American Realty Trust
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number: 1-12216
CROWN AMERICAN REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
25-1713733
(IRS Employer Identification No.)
Pasquerilla Plaza, Johnstown, Pennsylvania 15901
(Address of principal executive offices)
(814) 536-4441
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $.01 per share
(Title of Class)
As of October 15, 1996, 27,559,638 Common Shares of Beneficial Interest of the
registrant were issued and outstanding.
New York Stock Exchange
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for at least the past 90 days.
Yes X No ____
<PAGE> 1
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995
Consolidated Income Statements for the nine and three months ended
September 30, 1996 and 1995
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 1996
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II - Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
<PAGE> 2
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
September 30, 1996 December 31, 1995
(Unaudited)
(in thousands)
<S>
Assets
Income properties: <C> <C>
Land $ 121,313 $ 122,445
Buildings and improvements 790,155 757,834
Deferred leasing and other charges 40,555 52,941
Net 952,023 933,220
Accumulated depreciation and amortization (273,744) (263,650)
678,279 669,570
Investment in joint venture 5,766 5,893
Cash and cash equivalents 7,170 6,036
Tenant and other receivables 11,785 15,325
Deferred charges and other assets 36,879 40,694
Net $ 739,879 $ 737,518
Liabilities and Shareholders' Equity
Debt on income properties $ 564,668 $ 541,082
Accounts payable and other liabilities 32,406 39,152
Net 597,074 580,234
Minority interest in Operating Partnership 36,474 39,873
Commitments and contingencies
Shareholders' equity:
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,559,638
and 27,450,333 shares issued and
outstanding at September 30, 1996 and
December 31, 1995, respectively 276 274
Additional paid-in capital 183,308 181,337
Accumulated deficit (77,253) (64,200)
106,331 117,411
Net $ 739,879 $ 737,518
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Income Statements
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 20,778 $ 20,431 $ 62,320 $ 61,991
Percentage rent 1,263 1,373 3,880 3,968
Property operating cost
recoveries 7,241 7,287 21,877 21,724
Temporary and promotional
leasing 1,592 1,248 4,372 3,557
Net utility income 562 506 1,834 1,790
Business interruption
insurance 459 830 1,322
Miscellaneous income 348 303 1,027 1,071
Net 31,784 31,607 96,140 95,423
Property operating costs:
Recoverable operating costs 9,443 9,878 29,720 29,289
Property administrative costs 520 586 1,512 1,549
Other operating costs 731 573 2,058 1,756
Depreciation and amortization 9,399 8,847 26,299 25,586
20,093 19,884 59,589 58,180
Net 11,691 11,723 36,551 37,243
Other expenses:
General and administrative 1,039 1,173 3,023 3,099
Interest 11,181 10,972 33,499 31,788
12,220 12,145 36,522 34,887
Net (529) (422) 29 2,356
Property sales, disposals and
adjustments:
Adjustment to carrying value of
assets to be disposed of (35,000)
Gain on asset sales 2,351 2,351
Gain on sale of outparcel land 371 442 2,955 2,634
Net 2,722 442 5,306 (32,366)
Income (loss) before extraordinary
items and minority interest 2,193 20 5,335 (30,010)
Extraordinary loss on early
extinguishment of debt (598) (718)
Extraordinary gain on fire
insurance claim 244 11,244
Income (loss) before minority
interest 1,595 264 4,617 (18,766)
Minority interest in Operating
Partnership (406) (65) (1,173) 4,871
Net income (loss) $ 1,189 $ 199 $ 3,444 $ (13,895)
Per share data (after minority
interest):
Income (loss) before
extraordinary item $ .06 $ .00 $ .14 $ (.81)
Extraordinary items (.02) .01 (.02) .31
Net income (loss) $ .04 $ .01 $ .12 $ (.50)
Weighted average shares
outstanding 27,533 27,417 27,495 27,350
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statement of Shareholders' Equity
(Unaudited)
Common Additional
Shares Common Paid in (Accumulated
Outstanding Shares Capital Deficit) Total
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
27,450 Balance, January 1, 1996 $ 274 $ 181,337 $ (64,200) $ 117,411
110 Shares issued under
dividend reinvestment
plan 2 854 856
Transfer in (out) of limited
partner's interest in the
Operating Partnership (528) (528)
Capital contributions from
Crown Investments Trust:
Cash flow support 1,645 1,645
Tenant allowances
Net income 3,444 3,444
Dividends paid (16,497) (16,497)
27,560 Balance, September 30, 1996 $ 276 $ 183,308 $ (77,253) $ 106,331
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
1996 1995
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,444 $ (13,895)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in Operating Partnership 1,173 (4,871)
Gain on asset sales (2,351)
Adjustment to carrying value of assets to be
disposed of 35,000
Equity earnings in joint venture (450) (460)
Depreciation and amortization 32,597 31,945
Extraordinary loss on early extinguishment of
debt 718
Extraordinary gain on fire insurance claim (11,244)
Net changes in:
Tenant and other receivables 3,345 1,759
Deferred charges and other assets (434) (3,522)
Accounts payable and other liabilities (4,841) 6,651
Net cash provided by operating activities 33,201 41,363
Cash flows from investing activities:
Investment in income properties (1995 includes
$53.9 million related to two purchased malls
- see Note 3) (41,511) (84,227)
Distributions from joint venture 300 450
Cash from asset sales (net of closing costs) 9,452
Net cash (used in) investing activities (31,759) (83,777)
Cash flows from financing activities:
Net proceeds from sale of common shares and
from dividend reinvestment plan 856 3,533
Proceeds from issuance of debt, net of issuance
cost 82,630 76,075
Debt repayments (61,633) (5,070)
Dividends and distributions paid (22,161) (32,178)
Advances from affiliate 5,036
Cash flow support 1,934
Net cash (used in) provided by financing
activities (308) 49,330
Net increase in cash and cash equivalents 1,134 6,916
Cash and cash equivalents, beginning of period 6,036 2,136
Cash and cash equivalents, end of period $ 7,170 $ 9,052
Interest paid (net of capitalized amounts) $ 30,416 $ 28,987
Interest capitalized $ 2,272 $ 2,132
Non-cash financing activities:
Tenant improvements funded by Crown Investments
Trust, including $0 and $15 allocated to
minority interest in Operating Partnership $ $ 82
Issuance of partnership units related to
Wyoming Valley acquisition $ $ 8,149
Cash flow support credited to minority interest
and paid in capital that was prefunded in 1995. $ 2,209 $
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 6
CROWN AMERICAN REALTY TRUST
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
In 1993 Crown American Corporation, a Pennsylvania Corporation, and a wholly-
owned subsidiary of Crown Holding Company ("Crown Holding"), approved a
business combination plan in which Crown American Associates ("Crown
Associates" and "Successor to Crown American Corporation") and Crown American
Realty Trust (the "Company") were formed. The Company is a real estate
investment trust under the Internal Revenue Code of 1986, as amended. The
Company raised approximately $405 million in equity through an initial public
offering of approximately 25.5 million shares, which occurred on August 17,
1993, and used the proceeds to purchase a 78% general partnership interest in
Crown American Properties, L.P. (the "Operating Partnership"), a partnership
which was formed just prior to consummation of the offering referred to above
and is the successor entity of Crown American Realty Properties (the
"Predecessor"). The proceeds were used by the Operating Partnership to
retire debt.
Simultaneously with the public offering, Crown Associates and an affiliate
transferred certain properties (collectively, the "Properties") and the
management operations into either the Company, the Operating Partnership, or
Crown American Financing Partnership (the "Financing Partnership"), a
partnership which is 99.5% owned by the Operating Partnership and 0.5% owned
by the Company. As a result, the Company is engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion,
development and financing of shopping malls.
The limited partnership interest in the Operating Partnership and the 1.6
million shares in the Company received for two malls transferred in 1993 are
held by Crown Investments Trust ("Crown Investments"), an affiliate of Crown
Associates, or members of the Pasquerilla family.
Simultaneously with the above transaction, the Financing Partnership borrowed
$300 million of mortgage debt (the "Mortgage Loans") secured by its 15
enclosed shopping malls. The $300 million of mortgage debt, together with the
proceeds of the equity offering, were used to retire existing debt
contributed by the Predecessor.
In January and February 1995 the Company purchased two malls - see Note 3.
The Properties currently consist of: (1) 24 enclosed shopping malls
(together with adjoining outparcels and undeveloped land) located in
Pennsylvania, New Jersey, Maryland, Tennessee, West Virginia, Virginia and
Georgia, (2) a 50% general partnership interest in Palmer Park Mall Venture,
which owns Palmer Park Mall located in Easton, Pennsylvania (3) Pasquerilla
Plaza, an office building in Johnstown, Pennsylvania, which serves as the
headquarters of the Company and is partially leased to other parties, and (4)
a parcel of land improved with a building leased to an anchor store tenant.
In September 1996, the Company sold the Patrick Henry Corporate Center - See
Note 5.
<PAGE> 7
As the owner of real estate, the Company is subject to risks arising in
connection with the underlying real estate, including defaults under or non-
renewal of tenant leases, competition, inability to rent unleased space,
failure to generate sufficient income to meet operating expenses, as well as
debt service, capital expenditures and tenant improvements, environmental
matters, financing availability and changes in real estate and zoning laws. The
success of the Company also depends upon certain key personnel, the Company's
ability to maintain its qualification as a REIT, compliance with the terms and
conditions of the Mortgage Loans and other debt instruments, and trends in
the national and local economy, including income tax laws, governmental
regulations and legislation and population trends.
Basis of Presentation
The accompanying consolidated financial statements of the Company include all
accounts of the Company and its majority-owned subsidiary, the Operating
Partnership (74.4% owned by the Company), which in turn includes the Financing
Partnership (99.5% owned by the Operating Partnership and 0.5% by the
Company). All significant intercompany amounts have been eliminated.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments of a normal recurring nature
necessary for a fair presentation of the financial position and results of
operations of the Company. These consolidated financial statements and the
accompanying notes should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended
December 31, 1995, which are included in its Annual Report on Form 10-K. The
results of operations for interim periods are not necessarily indicative of
results to be expected for the year.
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.
NOTE 2 - DEBT ON INCOME PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
<S> <C> <C>
Mortgage loans $ 280,637 $ 280,637
Permanent loans 165,026 171,049
Construction loans 77,778 52,800
Secured term loans 41,227 36,596
Net $ 564,668 $ 541,082
</TABLE>
The Mortgage Loans are non-recourse to the Financing Partnership and are
evidenced by 14 separate notes requiring aggregate principal payments of
$80.6 million in August 1998 and $100 million each in August of 2000 and
2003, subject to optional prepayment. The notes bear fixed interest, payable
monthly, at rates of 6.55%, 7.20% and 7.85% for the loans due in 1998, 2000,
and 2003, respectively, for an average rate of 7.20% during 1993, 1994 and
1995. The average rate as of September 30, 1996 is 7.25%. Repayment of the
<PAGE> 8
Mortgage Loans is secured by separate first mortgage liens and second
mortgage liens (each a "Mortgage") on the 14 malls owned by the Financing
Partnership and by assignments of all of the Financing Partnership's interest
in the rents and the leases at each of such mortgaged properties. In order to
maintain certain tax bases, Crown Investments guaranteed approximately $250
million of such indebtedness. Each Mortgage contains a cross-default
provision allowing the Lender to declare a default under any or all of the
Mortgages if the Financing Partnership fails to make any payment of principal,
interest, premium or any other sum due under any Mortgage Loan or another
event of default occurs under the mortgage documents.
Principal of the Mortgage Loans is subject to prepayment, in whole or in part,
at the option of the Financing Partnership, on any monthly interest payment
date after five years; provided, however, that the mandatory principal payments
due at the end of year five may be made at any time after the end of year four.
The first $80.6 million tranche can be prepaid after August 1997, subject to
the payment of a yield maintenance charge. After February 1998 prepayment of
this tranche would not be subject to the yield maintenance charge. After August
1998 voluntary prepayments of the remaining two tranches would be subject to
the payment of a yield maintenance charge; however, six months prior to the due
date of the remaining two tranches, prepayment may be made without penalty.
Principal of the Mortgage Loans is subject to mandatory prepayment as a
result of certain events of casualty or condemnation at the Mortgaged Properties
as provided in the respective Mortgages.
The Company is also required to deposit funds, either quarterly or annually,
in a restricted cash account for capital plan reserves and renovation
reserves. Amounts may be withdrawn from such accounts for the specific items
related to such account. As of September 30, 1996, $1.5 million of cash was
restricted for the above items, including a fully-funded storage tank
remediation reserve, and is included in deferred charges and other assets.
Permanent Loans
At September 30, 1996, permanent loans consisted of nine loans secured by seven
properties held by the Operating Partnership with various maturities from
November 1997 through December 2008. Included in permanent loans are (1) a
$3.2 million interest free Urban Development Action Grant loan with the City of
Johnstown, Pennsylvania, secured by an office building and due October 2006,
and (2) a 4% Industrial Development Bond secured with a $1.5 million letter of
credit. This letter of credit expires on April 30, 1997, and requires an annual
fee of $22,000. Crown Investments has guaranteed one loan of $11.7 million.
In June 1996, the Company closed a $17.0 million mortgage loan secured by a mall
property. The new loan has a fixed interest rate of 8.7% and a five year term.
The proceeds from the new loan were primarily used to repay $16.5 million of
existing debt on the same property which had a 9.9% rate and which had been
scheduled to mature in September 1996. Unamortized deferred financing costs
of $120 thousand related to the repaid debt were written off in June 1996 as an
extraordinary loss on early extinguishment of debt.
Construction Loans
At September 30, 1996, the Company had construction loans on three malls. The
loans bear interest at variable interest rates indexed to the LIBOR rate.
Crown Investments has guaranteed one loan of $18.5 million. The loans have
certain restrictive covenants including minimum coverage ratios and
limitations on investments and borrowings without the prior consent of the
lenders.
<PAGE> 9
Secured Term Loans
At September 30, 1996, the Company had three secured term loan facilities
totaling $43.3 million of which $41.2 million was outstanding. In September
1996 the Company refinanced $29.2 million in loans which had been scheduled to
mature in January 1997. The new loan has an interest rate of 2.25% above 30 day
LIBOR and a two year term. Unamortized deferred financing costs of $195
thousand related to the repaid debt were written off in September 1996 as an
extraordinary loss on early extinguishment of debt. The $7.7 million loan
($5.6 million outstanding at September 30, 1996) is used for construction
commitments at West Manchester, Lycoming, Uniontown, and North Hanover Malls.
This loan expires in January 1997. The remaining $5.6 million is a secured line
of credit used for general corporate purposes. The loans have certain
restrictive covenants including the maintenance of certain coverage ratios and
limitations on investments and borrowings without the prior consent of the
lenders.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and eight of the
permanent loans related to six of the Operating Partnership properties
(aggregate principal outstanding of $396.0 million at September 30, 1996) have
fixed interest rates ranging from 0% to 9.8%. The weighted average interest
rate on this fixed-rate debt at September 30, 1996 and December 31, 1995 was
7.82% and 7.90%, respectively. The weighted average interest rate during the
nine months ended September 30, 1996 and 1995 was 7.88% and 7.75%, respectively.
All of the remaining loans (aggregate principal outstanding of $168.7 million
at September 30, 1996) have variable rated debt based on spreads ranging from
1.75% to 3.25% above 30 day LIBOR, except for one loan which is based on the
prime rate plus .625%. The weighted average interest rate on the variable rated
debt at September 30, 1996 and December 31, 1995 was 7.83% and 8.44%,
respectively. The weighted average interest rate during the nine months ended
September 30, 1996 and 1995 was 8.02% and 8.52%, respectively.
Debt Maturities
As of September 30, 1996, the scheduled principal payments on all debt,
including extensions available at the Company's option provided the debt is
not in default at the extension dates, are as follows (in thousands):
<TABLE>
<CAPTION>
Period/Year Ending
December 31,
<S> <C>
1996 (three months) $ 889
1997 (year) 130,742
1998 (year) 117,850
1999 (year) 826
2000 (year) 184,772
Thereafter 129,589
Net $ 564,668
</TABLE>
<PAGE> 10
NOTE 3 - PURCHASE OF TWO MALLS
At the time of the Company's formation in 1993, Crown Associates retained (i)
a 50% tenancy-in-common title to two enclosed shopping malls (Wyoming Valley
Mall located in Wilkes-Barre, Pennsylvania and Middletown Mall located in
Fairmont, West Virginia) and (ii) related ground leasehold interests pursuant
to long-term ground leases of each of such undivided interests. The other
50% tenancy-in-common interests in both properties were held by an unrelated
third party, which at the time objected to the purchase of the properties by
the Company.
In 1994, the Company, Crown Associates and the unrelated third party entered
into agreements under which all interests in the two malls together with the
related working capital were transferred to the Operating Partnership. The
Wyoming Valley Mall was transferred on January 31, 1995 and the Middletown
Mall was transferred on February 1, 1995 in exchange for $45.2 million in
cash, the assumption of debt aggregating $7.8 million, of which $6 million is a
non-recourse note (related to the Middletown Mall), and an additional
1,786,459 partnership units equal to a 5.1% partnership interest in the
Operating Partnership, which were issued to an affiliate of Crown Investments
Trust. The Company also paid all transaction costs, including transfer taxes
and legal fees. There is additional contingent consideration to CAIC with
respect to Middletown Mall, to be paid in partnership units, based on this
mall's operating performance over the following three year period. Working
capital at the date of purchase approximated $1.0 million.
The two malls were recorded at approximately $62.0 million, including (a)
$53.9 million based on the acquisition price paid to the unrelated third
party, the debt assumed, and the monetary consideration paid to Crown
Associates, and (b) $8.1 million based on the historical cost of Crown
Associates as a result of the issuance of additional partnership units.
NOTE 4 - EXTRAORDINARY GAIN
On December 16, 1994 a fire occurred at the Logan Valley Mall located in
Altoona, Pennsylvania. The fire destroyed 44 small shops aggregating 148,800
square feet of gross leaseable area (GLA) as well as affecting three additional
small shops containing approximately 18,000 square feet of GLA. In 1995 the
Company filed a claim with its insurance company for property damage and
business interruption losses. In the first quarter of 1995 an extraordinary
gain of $3.3 million was recorded representing the excess of advances
received under the property damage insurance over the net book value of
destroyed assets and related demolition and clean up costs. In the second
quarter of 1995 an additional extraordinary gain of $7.7 million was recorded
representing the remaining estimated gain expected to be realized upon
settlement of the insurance claim. In the third quarter of 1995 the Company
settled the claim with the insurance company and recorded $0.2 million of
additional gain. The Company also has business interruption insurance that has
provided for lost income on the damaged part of the mall through May 1996.
The destroyed portion of the mall is being re-built and expanded, the first
phase of which has opened in the third quarter of 1996.
NOTE 5 - PROPERTY SALES, DISPOSALS, AND ADJUSTMENTS
In September 1996, the Company sold its Patrick Henry Corporate Center, an
office building located in Newport News, Virginia, to an insurance company.
The gross sales price was $9.9 million, and the net gain was $2.35 million.
Existing debt on the property was repaid from the sales proceeds, resulting
in $364 thousand extraordinary loss on early extinguishment of debt arising
from a prepayment penalty and the write off of unamoritzed deferred financing
costs.
<PAGE> 11
As part of the Company's ongoing strategic evaluation of its portfolio of
assets, the Trustees of the Company authorized management in August 1995 to
pursue the sale of certain malls and other assets that currently are not fully
consistent with or essential to the Company's long-term strategies. Under
GAAP, assets held for the long-term production of income are recorded at the
lower of cost or net realizable value (generally defined as the future net cash
flows expected to be generated by the asset, undiscounted and without
interest charges). However, when a decision is made to dispose of certain
assets, the carrying value of those assets is computed using their fair value
(generally defined as the amount at which the asset could be bought or sold
in a current transaction other than a forced or liquidation sale) less selling
costs. Accordingly, in the second quarter of 1995 the Company recorded a
$35.0 million adjustment to the carrying value of one of the assets held for
sale as required under GAAP. This non-cash adjustment was charged to operations
and represents the difference between the estimated fair value (less direct
costs to sell) and net book value of that asset. As reported in Form 10Q for
the quarter ended June 30, 1996, assets that had been held for sale are no
longer being offered due to new development opportunities and other reasons.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain following comments contain forward looking statements that involve risk
and uncertainties. Factors that could cause actual results to differ
materially include: overall economic conditions, local economic conditions in
the market areas surrounding each property, consumer buying trends, expansion
and development plans of retailers and other current and potential tenants,
the impact of competition, weather patterns and related impact on consumer
spending, changing interest rates and financing conditions, and other risk
factors listed from time to time in the Company's SEC reports, including this
report on Form 10Q for the quarter ended September 30, 1996.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the nine months and the three months ended September 30, 1996 and
1995. Management's discussion and analysis of financial condition and results
of operations should be read in conjunction with this table and the interim
financial statements on pages 3 to 11.
Performance Measurement
Management believes that there are several important factors that contribute to
the ability of the Company to increase rent and improve profitability of its
enclosed shopping malls and other income properties, including aggregate anchor
tenant and mall shop tenant sales volume, mall shop retail tenant sales per
square foot and occupancy levels. Each of these factors has a significant
effect on Funds from Operations and EBITDA.
Funds from Operations (FFO) is a recognized industry performance measure for
real estate investment trusts (REIT's) and as defined by the National
Association of Real Estate Investment Trusts (NAREIT) generally represents net
income or loss (computed in accordance with generally accepted accounting
principles) before real estate depreciation and amortization (as defined) and
extraordinary items, and additionally includes amounts under the Company's cash
flow support agreement (see Note 7 to the financial statements included in the
Company's 1995 Form 10K). Management believes that Funds from Operations is
an appropriate measure of the Company's operating performance because reductions
for depreciation and amortization charges are not meaningful in evaluating the
<PAGE> 12
operating results of the Properties, which have historically been
appreciating assets. Gain on sales of outparcel land have been included in this
supplemental measure of performance. Gain on sales of anchor store
locations, adjustments to carrying values of assets to be disposed of, and the
extraordinary items are excluded from FFO because such transactions are
uncommon and not a part of ongoing operations.
EBITDA is defined as revenues and gain on sale of outparcel land, less operating
costs, including general and administrative expenses, before interest, and
all depreciation and amortization. Management believes this measure provides
the clearest 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 (or 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.
Funds from Operations 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.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the Selected Financial Data and
the accompanying consolidated financial statements and notes thereto.
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(in thousands, except per share data)
Selected Financial Data:
<S> <C> <C> <C> <C>
EBITDA (2 & 4) $ 21,644 $ 21,334 $ 66,261 $ 66,262
Funds from Operations (FFO)
(3 & 4):
Net Income $ 1,189 $ 199 $ 3,444 $ (13,895)
Adjustments:
Minority interest in Operating
Partnership 406 65 1,173 (4,871)
Gain on asset sales (2,351) (2,351)
Adjustment to carrying value of
assets to be disposed of 35,000
Depreciation and amortization -
real estate 9,738 9,501 27,258 26,814
Operating covenant amortization 680 647 1,973 2,039
Cash flow support 761 708 2,209 1,934
Extraordinary loss on early
extinguishment 598 718
Extraordinary gain on fire
insurance claim (244) (11,244)
Funds from Operations (FFO) $ 11,021 $ 10,876 $ 34,424 $ 35,777
Funds from Operations (Company's
percentage share):
Funds from Operations $ 8,240 $ 8,091 $ 25,725 $ 26,776
Funds from Operations per share (1)$ .30 $ .30 $ .94 $ .98
Average shares outstanding 27,533 27,417 27,495 27,350
(1) Per share data is based on the average shares outstanding for each period as
shown in the table.
(2) EBITDA represents earnings (before minority interest and extraordinary
items) before interests, and all depreciation and amortization.
(3) Funds from Operations represents net income before depreciation and
amortization of real estate assets, plus cash flow guarantee amounts, and
excluding unusual items.
(4) EBITDA and Funds from Operations (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.
</TABLE>
<PAGE>14
Comparison of Nine and Three Months Ended September 30, 1996 to the
corresponding periods of 1995
- - Revenues
For the third quarter of 1996, total revenues were up $0.2 million compared to
1995. The changes primarily consist of the following: Lease buyout income
was up $1.0 million and temporary leasing income was up $0.3 million compared to
1995; these increases were offset by $0.4 million in lower step rent income (due
mostly to write-offs of step rent receivables from tenants that terminated
early), by a reduction in business interruption insurance of $0.5 million and by
a $0.4 million reduction in minimum and percentage rents and other revenues. The
slight reduction in minimum and percentage rents is largely due to the drop
in occupancy compared to the third quarter of 1995, partially offset by higher
average rental rates.
For the first nine months of 1996, revenues were $96.1 million compared to $95.4
million in 1995. After adjusting for the effect of the two malls which were
purchased in the first quarter of 1995, comparable revenues were down $0.3
million, primarily due to $1.3 million in lower step rent income (mainly
write-offs of accrued step rent income from tenants that vacated early), $0.5
million in lower business interruption insurance income, offset by $0.8 million
in higher temporary leasing income and $0.8 million in higher lease buyout
income.
- - Property Operating Costs:
For the third quarter of 1996, property operating costs were $20.1 million
compared with $19.9 million in 1995, a $0.2 million increase. Factors
contributing to this $0.2 million increase were the following: a) $0.6 million
in higher depreciation and amortization and b) $0.4 million in lower recoverable
and non-recoverable property costs due to cost containment efforts.
For the first nine months of 1996, property operating costs were $59.6 million,
a $1.4 million increase from the first nine months of 1995. Factors
contributing to this $1.4 million increase were the following: a) $0.6 million
related to the two acquisition properties bought by the Company in January and
February 1995, b) additional recoverable and other operating costs and
expenses of $0.4 million, primarily due to higher snow removal costs in the
first quarter and real estate tax expense, and c) higher depreciation and
amortization expense of $0.5 million. During the second quarter, several
assets that had been held for sale were no longer being offered due to new
development opportunities and other reasons, and accordingly, depreciation
was resumed in the second quarter for such properties. (See Note 14 to the
financial statements in the Company's 1995 Form 10-K.)
- - General, Administrative and Interest Expenses:
In the third quarter of 1996, general and administrative expenses were $1.0
million, about $0.1 million less than 1995. For the first nine months of
1996, general and administrative expenses were $3.0 million, down from $3.1
million in 1995.
- - Gain on Property Sales and Disposals:
The gain on the sale of outparcel land was nearly $3.0 million for the first
nine months of 1996 and $0.4 million in the third quarter. These amounts are
$0.3 million higher and $0.1 million lower than the amounts in the corresponding
periods of 1995.
<PAGE> 15
- - Net Income:
Net income for the third quarter of 1996 was $1.2 million, or $0.04 per share,
compared with $0.20 million in 1995, or $0.01 per share.
Net income for the first nine months of 1996 was $3.4 million, or $0.12 per
share, compared with a $13.9 million loss in 1995, or $0.50 per share. The
net loss in 1995 resulted from the $35.0 million adjustment in the carrying
value of certain assets that were to be offered for sale (see Note 5 to interim
financial statements) offset by $11.2 million, or $0.31 per share, from
extraordinary gain from fire insurance (see Note 4 to interim financial
statements).
- - Funds from Operations:
Beginning in 1996, the Company adopted the new NAREIT (National Association of
Real Estate Investment Trusts) definition of Funds From Operations (FFO).
All prior period amounts have been restated in accordance with the new FFO
definition.
For the quarter ended September 30, 1996, the Company's percentage share of
Funds from Operations (FFO) was $8.2 million, or $0.30 per share, compared
with $8.1 million, or $0.30 per share for the corresponding period in 1995.
FFO during the third quarter of 1996 was impacted by several factors compared
with 1995. Positive factors affecting total FFO were: $1.0 million in higher
lease buyout income; $0.3 million in higher temporary leasing income; and
$0.4 million in lower property operating costs, net of tenant recoveries.
These positive factors were offset by: $0.5 million in lower business
interruption insurance; $0.2 million in higher interest costs ($0.5 million in
higher gross interest costs offset by $0.3 million in higher capitalized
interest relating to the Logan Valley Mall construction); $0.4 million in lower
step rent income (due mostly to write-offs of step rent receivables from
tenants that terminated early); and $0.4 million in lower minimum and
percentage rents due mainly from lower mall shop occupancy.
For the nine months ended September 30, 1996, the Company's percentage share of
Funds from Operations (FFO) was $25.7 million, or $0.94 per share, compared
with $26.8 million, or $0.98 per share for the corresponding period in 1995.
FFO during the first nine months of 1996 was impacted by several factors
compared with the same period of 1995. Positive factors affecting total FFO
were: $0.3 million additional contribution from the two malls purchased in the
first quarter of 1995; $0.8 million in higher temporary leasing income; $0.3
million in higher gain on land sales; and $0.8 million in higher lease buyout
income. These positive factors were offset by: $1.3 million in higher interest
costs from higher average balances outstanding, higher amortization of
deferred financing costs, and lower capitalized interest; $1.3 million in lower
step rent income; $0.5 million in lower business interruption income; and
$0.2 million in higher property operating costs (mainly snow removal costs)
net of higher recovery income.
EBITDA - Earnings before Interest, Taxes, Depreciation And Amortization, and
Unusual Items
For the third quarter of 1996, EBITDA was $21.6 million compared to $21.3
million in 1995. For the nine months ended September 30, 1996, EBITDA was
$66.3 million, unchanged from 1995.
<PAGE> 16
Liquidity and Capital Resources
The Company believes that its cash generated from property operations and funds
obtained from property financings will provide the necessary funds on a short
- -term and long-term basis for its operating expenses, interest expense on
outstanding indebtedness and recurring capital expenditures and tenant
allowances, and dividends to shareholders in amounts that would be necessary
to satisfy the REIT requirements under the Internal Revenue Code. The Company's
ability to pay dividends is affected by several factors, including cash flow
from operations and capital expenditures. Dividends by the Company will be
at the discretion of the Board of Trustees and will depend on the cash available
to the Company, its financial condition, investment needs and opportunities,
capital and other requirements, and such other factors as the Trustees may
consider.
Sources of capital for non-recurring capital expenditures, such as major
building renovations and expansions, as well as for scheduled principal
payments, including balloon payments on the outstanding indebtedness, are
expected to be obtained from additional Company or property financings and
refinancings, sale of non-strategic assets, additional equity raised in the
public or private markets, and from retained internally generated cash flows, or
from combinations thereof.
During 1995 the Company started the reconstruction and expansion of the fire-
damaged Logan Valley Mall; the entire construction project is expected to be
completed in late 1997 and to cost approximately $68.0 million, including
tenant allowances for new tenants; construction financing is expected to be
about $53.0 million with the remaining project costs to be funded from the
Company's internal cash flows and other sources.
Part II - Other Information
Item 1: Legal Proceedings
The Company from time to time is involved in litigation incidental to its
business. Except as described below, neither the Company, the Operating
Partnership nor the Financing Partnership are currently involved in any material
litigation and, to the best of the Company's knowledge, there is no material
litigation currently threatened against the Company, the Operating
Partnership, the Financing Partnership or the Properties, other than routine
litigation arising in the ordinary course of business, most of which is expected
to be covered by liability insurance or established reserves.
On August 10, 1995, August 17, 1995, and September 8, 1995, complaints were
filed by various individuals on behalf of themselves, and also purportedly on
behalf of other similarly situated persons, against the Company and certain of
its executive officers in United States District Court for the Western District
of Pennsylvania to recover unspecified damages under the federal securities
laws resulting from a decline in the market price for the Company's common
shares of beneficial interest which are listed and traded on the New York Stock
Exchange. The decline in the Company's share price followed the announcement
on August 8, 1995, of various operational and capital resource initiatives by
the Company, including a reduction of the Company's quarterly dividend to
increase its level of retained internal cash flow and the sale of certain
assets that do not currently fit the Company's growth strategy.
<PAGE> 17
A fourth Complaint was filed the week of December 15, 1995, by an individual on
behalf of himself and also purportedly on behalf of other similarly situated
persons, against the Company and certain of its current and former executive
officers in United States District Court for the Eastern District of
Pennsylvania. While this Complaint is substantially similar to the previous
Complaints, it alleges a class period extending from August 17, 1993, (the IPO
Date) to August 8, 1995.
All four cases have been transferred to the Western District, and a consolidated
amended complaint has been filed. The Company has filed a motion seeking to
dismiss the consolidated action which is currently pending before the Court.
This consolidated legal action is in a very preliminary stage. However, the
Company believes, based on advice of legal counsel, that it and the named
officers have substantial defenses to the Plaintiffs' claims, and the Company
intends to vigorously defend the action. The Company's current and former
officers that are named in this litigation are covered under a liability
insurance policy paid for by the Company. The Company's officers also have
indemnification agreements with the Company. While the final resolution of
this litigation cannot be presently determined, management does not believe
that it will have a material adverse affect on the Company's results of
operations or financial condition.
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
On October 30, 1996, the Company issued its regular quarterly earnings release
and its Third Quarter 1996 Supplemental Financial and Operational Information
Package for analysts and investors. Copies of these documents are hereby
filed as Exhibits to the Form 10-Q.
Exhibit 99 (a) - Press release dated October 30, 1996
Exhibit 99 (b) - Third Quarter 1996 Supplemental Financial and Operational
Information Package
Item 6: Exhibits and Reports on Form 8-K
None
<PAGE> 18
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.
Date: November 1, 1996 CROWN AMERICAN REALTY TRUST
/s/ Frank J. Pasquerilla
Frank J. Pasquerilla
Chairman of the Board
of Trustees and Chief
Executive Officer
(Authorized Officer of the
Registrant and Principal
Executive Officer)
Date: November 1, 1996 CROWN AMERICAN REALTY TRUST
/s/ Mark E. Pasquerilla
Mark E. Pasquerilla
President
(Authorized Officer of the
Registrant and Principal
Executive Officer)
Date: November 1, 1996 CROWN AMERICAN REALTY TRUST
/s/ John M. Kriak
John M. Kriak
Executive Vice-President and
Chief Financial Officer
(Authorized Officer of the
Registrant and Principal
Financial Officer)
Date: November 1, 1996 CROWN AMERICAN REALTY TRUST
/s/ Terry L. Stevens
Terry L. Stevens
Senior Vice President and
Chief Accounting Officer
(Authorized Officer of the
Registrant and Principal
Financial Officer)
<PAGE> 19
EXHIBIT 99 (a)
NEWS FROM:
C R O W N A M E R I C A N R E A L T Y T R U S T
CONTACT: Media Christine Menna 814-536-9520
Investors: Frank Pasquerilla 814-535-9347
Mark Pasquerilla 814-535-9364
Internet: http://www.crownam.com
IMMEDIATE RELEASE: Wednesday, October 30, 1996
CROWN AMERICAN REALTY TRUST
ANNOUNCES THIRD QUARTER RESULTS AND DECLARES DIVIDEND
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the third quarter and for the nine months ended September 30, 1996. The
Board of Trustees also declared a third quarter dividend.
Dividend Information
For the quarter ended September 30, 1996, the Board of Trustees declared a
regular quarterly dividend of $.20 per share. The dividend is payable December
13, 1996 to shareholders of record on November 27, 1996.
Financial Information - Third Quarter
For the quarter ended September 30, 1996, the Company reports that its
percentage share of Funds from Operations (FFO) was $8.2 million, or $0.30 per
share, compared with $8.1 million, or $0.30 per share, for the third quarter
of 1995. While overall FFO was flat, there were several positive and
negative factors affecting FFO. Positive factors in this quarter compared to
last year included: over $0.3 million in higher temporary leasing revenues; $0.4
million in lower property operating costs, net of tenant recoveries; and $1.0
million in higher lease buyout income. Negative factors compared to last year
included: $0.5 million from lower business interruption insurance income;
$0.2 million in higher interest expense (net of capitalized interest); $0.4
million in lower step rent income (a non-cash revenue component); and $0.4
million in lower minimum and percentage rents due mainly from lower occupancy
rates.
For the third quarter revenues were $31.8 million, up $0.2 million from the
third quarter of 1995 and up $0.8 million from the second quarter of 1996.
The $0.2 million increase from the third quarter of 1995 results from $1.0
million higher lease buyout income and $0.3 million higher temporary leasing
income, offset by $0.4 million lower step rent income, $0.5 million lower
business interruption insurance income, and $0.4 million in lower minimum and
percentage rents (due mainly to lower mall shop occupancy partially offset by
higher average rental rates). The $0.8 million increase from the second
quarter of 1996 results from $0.7 million higher lease buyout income, $0.2
million higher temporary leasing income, $0.3 million higher step rent income,
and $0.5 million in higher recovery income, offset by $0.4 million lower
business interruption insurance income, and $0.5 million in lower minimum and
percentage rents.
<PAGE> 20
Net income for the third quarter of 1996 was $1.2 million, or $0.04 per share,
compared to $0.2 million, or $0.01 per share, in the third quarter of 1995.
Financial Information - Nine Months
For the first nine months of 1996, FFO was $25.7 million or $0.94 per share,
compared to $26.8 million, or $0.98 per share, in 1995. Positive factors
affecting FFO in the first nine months of 1996 compared to 1995 included: $0.3
million additional contribution from the two malls purchased in first quarter
of 1995; $0.8 million in higher temporary leasing income; $0.3 million in higher
gain on sales of out-parcel land; and $0.8 million in higher lease buyout
income. Negative factors included: $1.3 million in higher interest costs
(net of capitalized interest); $1.3 million in lower step rent income due mainly
to write-offs of accrued step rent income from tenants that vacated early; $0.5
million from lower business interruption insurance income; and $0.2 million in
higher property operating costs (mainly snow removal costs in the first
quarter) net of tenant recoveries.
For the first nine months of 1996, revenues were $96.1 million compared to $95.4
million in 1995. After adjusting for the effect of the two malls which were
purchased in the first quarter of 1995, comparable revenues were down $0.3
million, primarily due to $1.3 million in lower step rent income (mainly
write-offs of accrued step rent income from tenants that vacated early), $0.5
million in lower business interruption insurance income, offset by $0.8 million
in higher temporary leasing income and $0.8 million in higher lease buyout
income.
For the first nine months of 1996, net income was $3.4 million, or $0.12 per
share, compared to a net loss of $13.9 million, or $0.50 per share, in the
corresponding period of 1995. The loss in 1995 related to the $35 million
adjustment in the carrying value of certain assets to be sold offset by $11.2
million in extraordinary gain from fire insurance.
Operating Information
During the third quarter of 1996, leases for 100,000 square feet of mall shops
were signed resulting in $2.3 million in annual base rental income. A total of
62 leases were signed, which included 22 renewals and 40 new leases. The
average rent for leases signed was $22.62 per square foot, including $21.50
for new leases and $25.29 for renewals.
During the first nine months of 1996, leases for 332,000 square feet of mall
shops were signed for $6.7 million in annual base rental income. A total of 190
leases were signed, including 74 renewals and 116 new leases. Average rent
per square foot for the first nine months of 1996 was $20.13, which includes
$20.40 per square foot for new space and $19.58 per square foot for renewals.
The average base rent of the portfolio as of September 30, 1996 was $15.71 per
square foot. This is a 4.2 percent increase from $15.07 per square foot as of
September 30, 1995, and the twelfth consecutive quarter that average base rent
has increased.
Overall, mall shop occupancy was 77 percent as of September 30, 1996, unchanged
from June 30, 1996. This compares to 81 percent as of September 30, 1995.
Mall shop comparable sales for the nine months ended September 30, 1996 were
$137.40 per square foot. This is a 5.3 percent increase over the amount
reported for September 30, 1995. In the six malls where The May Department
Stores Company opened new stores in 1995 comparable mall shop tenant sales
were 7.7 percent higher than last year's reported sales.
<PAGE> 21
Occupancy costs, that is, base rent, percentage rent and expense recoveries as
a percentage of mall shop sales at all properties, were 10.8 percent as of
September 30, 1996, as compared to 11.4 percent as of September 30, 1995.
In August 1996, Phase II of a three-phase expansion of Logan Valley Mall in
Altoona, Pa. was completed. Crown American's largest capital expenditure
continues to be on budget and ahead of schedule. A new two-story mall shop
area, a JCPenney department store and a three-level parking deck has been
constructed along with the expansion and renovation of Sears. Phase III will
begin in early 1997 after JCPenney opens its new location. The area that
currently houses JCPenney will be converted into additional mall shop space and
a food court.
In September, a $3.5 million renovation began at Shenango Valley Mall in
Sharon, Pa. This project includes upgrading the facility's interior, exterior
and parking lot.
In September, the sale of Patrick Henry Corporate Center in Newport News,
Virginia was finalized. Crown American sold this 102,000 gross square-foot
office building for $9.9 million. Net proceeds were used to repay existing debt
with the balance of approximately $4.0 million available for general business
purposes.
In October, the Company closed a $30 million loan with CS First Boston
Mortgage Capital Corporation for Viewmont Mall in Scranton, Pa. The proceeds
from the new loan were used to refinance an existing bank loan that had been due
in January 1997. The new loan has an approximate two year maturity and has an
interest rate that is approximately 90 basis points lower than the floating
interest rate on the retired debt. This is also the first transaction for
Crown American and CS First Boston.
Pennsylvania's first Stein Mart (NASDAQ:SMRT) opened in the Company's South
Mall in Allentown, Pa. in October. This upscale, off-price department store is
replacing Jamesway in the center.
"We are pleased that our third quarter FFO results matched our year-ago level,
and that comparable tenant sales continue to show significant growth," said
Crown American President, Mark E. Pasquerilla. "We are continuing the
transformation of our malls. As we've previously disclosed, in 1995 we
substantially improved the anchor base with the addition of six May Company
anchors stores, a new JCPenney, and several Sears expansions, and in 1996 we're
replacing poorer performing mall shop tenants with higher quality specialty
retailers. However, the consolidation and rationalization in mall specialty
retailing continues to hamper our growth, with higher than expected mall shop
closings and a slowing of new lease signings, both of which contributed to the
drop in occupancy in 1995 and through the first six months of 1996. While
mall shop occupancy remained flat in the third quarter at 77 percent, we expect
to lose about 30,000 square feet in the fourth quarter from the recently
announced bankruptcy filing by County Seat. As a result of these trends, we now
expect year-end 1996 mall shop occupancy to be about 76 percent, and FFO for
the full year 1996 to be slightly below the $1.37 per share achieved in 1995.
"Though tenant closings continue to inhibit our 1996 and 1997 performance
because of the time required to find viable and attractive replacement mall shop
tenants in this retailing environment, they are also a future opportunity. The
tenants that have closed have been the poorer performers, averaging slightly
less that $100 per foot in annual sales, and have been concentrated in the
popular-priced women's apparel, thus reducing our reliance on this weak
segment."
<PAGE> 22
"The re-leasing of the five temporary Bon-Ton locations also continues to be a
priority," noted Pasquerilla. "Two stores will close in January 1997, the lease
was extended to January 1998 for a third, and the rent subsidy escrow on the
remaining two stores that closed in January 1996 will expire in January 1997.
We have been working diligently to re-lease these locations and have a number of
prospects, but to date only one location has a permanent replacement
(Chambersburg Mall where JCPenney will open in early 1997) and one has a
temporary furniture store (Uniontown Mall). Also, in the third quarter we
completed the buyout of a vacant Kmart store in North Hanover, and in October we
completed the buyout of the vacant Kmart in Carlisle. We have potential
replacement anchors for both locations, but no leases have been signed to date.
"We continue to be on track with our capital improvement and financing program
announced in mid-1995. From July 1, 1995 to date, we have incurred
approximately $70 million of our $120 million spending plan covering the
2 1/2 years ending December 31, 1997. Most of the amount incurred to date
relates to the Logan Valley Mall reconstruction."
Pasquerilla continued, "Looking ahead to 1997 we now believe FFO will be
modestly lower than 1996. Our overall "core" revenues (base rent, percentage
rent, cost recovery income, temporary leasing, and utility income) are expected
to show modest growth in 1997, although not as much growth as we would have
desired due to the effect from 1996's tenant closings and the anchor vacancies
I've already noted. However, this growth is expected to be offset by several
factors: a reduction in lease buyout income from 1996's unusually high level;
gain on sales of out-parcel land in 1997 is expected to return to more
traditional levels from the all-time high expected for 1996; and interest
expense will increase as the full amount of the Logan Valley construction loan
is drawn coupled with a decrease in capitalized interest as the third and
final phase of that project is placed into service. Because these three
negative factors are not expected to impact 1998 in the same way as in 1997, and
assuming tenant closings decline to normal levels, we remain very optimistic
concerning our FFO growth potential for 1998 and beyond."
Pasquerilla concluded, "Our greatest growth opportunity continues to be growing
our mall shop occupancy with strong and productive tenants. We are encouraged
in our ability to grow our occupancy percentage because the occupancy cost
levels in our malls remain relatively low and attractive to retailers despite
the continuing growth in average base rents. A one percent increase in mall
shop occupancy, leased at approximately $20 per square foot, translates into an
annualized FFO increase of approximately $.03 per share. Building occupancy
with tenants that can thrive into the next decade will enhance the inherent
value of our properties' income stream and in turn should enhance the underlying
value of the properties and ultimately improve shareholder value."
___________________________________________________
Certain preceding quotations contain forward looking statements that involve
risk and uncertainties, including overall economic conditions, the impact of
competition consumer buying trends, weather patterns and other factors.
Crown American Realty Trust is the managing general partner and 74.4 percent
owner of Crown American Properties, L.P. (the "Operating Partnership") and a
general partner of Crown American Financing Partnership, which owns, acquires,
operates and develops regional shopping malls. Currently, Crown American owns
and operates 25 regional shopping malls in Pennsylvania, Maryland, Virginia,
West Virginia, New Jersey, Tennessee and Georgia.
Additional financial information follows.
<PAGE> 23
EXHIBIT 99 (b)
CROWN AMERICAN REALTY TRUST
THIRD QUARTER 1996
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
(in thousands, except as noted)
FINANCIAL DATA:
<S> <C> <C> <C> <C>
EBITDA: earnings (including gain on
sale of outparcel land) before
interest, taxes and all depreciation
and amortization $ 21,644 $ 21,344 $ 66,261 $ 66,262
Funds from Operations ($000 except per
share data):
Net Income (loss) $ 1,189 $ 199 $ 3,444 $(13,895)
Adjustments:
Minority Interest in Operating
Partnership 406 65 1,173 (4,871)
Gain on asset sales (2,351) (2,351)
Adjustment to carrying value of
assets to disposed 35,000
Depreciation and amortization -
real estate 9,738 9,501 27,258 26,814
Operating covenant amortization 680 647 1,973 2,039
Cash flow support amounts 761 708 2,209 1,934
Extraordinary gain on fire insurance (244) (11,244)
Extraordinary loss on early
extinguishment of debt 598 718
Funds from Operations - - Total $ 11,021 $ 10,876 $ 34,424 $ 35,777
Funds from Operations - - Company's
percentage share $ 8,240 $ 8,091 $ 25,725 $ 26,776
FFO per share $ 0.30 $ 0.30 $ 0.94 $ 0.98
Average Shares Outstanding during
the period (000) 27,533 27,417 27,495 27,350
Shares Outstanding at period end
(000) 27,560 27,428 27,560 27,428
Average Operating Units Outstanding
during the period (000) 36,972 36,856 36,934 36,592
Operating Units Outstanding at period
end (000) 36,999 36,867 36,999 36,867
Debt and Interest ($000):
Fixed rate debt at period end $396,031 $421,284 $396,031 $421,284
Variable rate debt at period end 168,637 129,905 168,637 129,905
Total debt at period end $564,668 $551,189 $564,668 $551,189
Weighted avg. interest rate on fixed
rate debt for the period 7.8% 7.7% 7.9% 7.7%
Weighted avg. interest rate on
variable rate debt for the period 8.0% 8.5% 8.0% 8.5%
Total interest expense for period $ 11,181 $ 10,972 $ 33,499 $ 31,788
Amort. of deferred debt cost for
period (incl. in interest expense) 953 1,048 3,083 2,810
Capitalized interest costs during
period 833 545 2,272 2,132
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
THIRD QUARTER 1996
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
(in thousands, except as noted)
<S> <C> <C> <C> <C>
Capital Expenditures Incurred ($000):
Tenant improvements, including those
funded by Crown Investments Trust $ 2,105 $ 1,853 $ 9,449 $ 7,452
Leasing costs and commissions 218 369 1,469 1,047
Expansions and major renovations 9,652 8,561 30,593 21,910
Acquired properties 53,900
All other capital expenditures(included
in Other Assets) 675 456 1,135 1,754
Total Capital Expenditures during the
period $12,650 $11,239 $42,646 $86,063
Other Data ($000):
Straight Line rental income during the
period $ (117) $ 267 $ (450) $ 878
OPERATING DATA:
Mall shop GLA at period end
(000 sq. ft.) 5,234 5,025
Occupancy percentage at period end 77% 81%
Comp. Store Mall shop sales - 9 months
(per sq. ft.) $137.40 $130.48
Mall shop occupancy cost percentage at
period end 10.8% 11.4%
Average mall shop base rent at period
end (per sq. ft.) $ 15.71 $ 15.07
Mall shop leasing for the period:
New leases - sq. feet (000) 70 104 220 242
New leases - $ per sq. ft. $ 21.50 $ 15.84 $ 20.40 $ 18.88
Number of new leases signed. 40 44 116 126
Renewal leases - sq. feet (000) 30 44 112 153
Renewal leases - $ per sq. ft. $ 25.29 $ 21.20 $ 19.58 $ 17.52
Number of renewal leases signed. 22 31 74 89
Tenant Allowances for leases signed
during the period:
First Generation Space -
per sq. ft. $ 16.47 $ 51.07 $ 32.38 $ 38.66
Second Generation Space -
per sq. ft. $ 10.05 $ 11.95 $ 11.34 $ 8.75
Leases Signed during the period by:
First Generation Space -
sq. feet (000) 4 29 65 51
Second Generation Space -
sq. feet (000) 96 119 267 344
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental Operations:
Minimum rent $20,778 20,431 62,320 61,991
Percentage rent 1,263 1,373 3,880 3,968
Property operating cost recoveries 7,241 7,287 21,877 21,724
Temporary and promotional leasing 1,592 1,248 4,372 3,557
Net utility income 562 506 1,834 1,790
Business interruption insurance 459 830 1,322
Miscellaneous income 348 303 1,027 1,071
Net 31,784 31,607 96,140 95,423
Property operating costs:
Recoverable operating costs 9,443 9,878 29,720 29,289
Property administrative costs 520 586 1,512 1,549
Other operating costs 731 573 2,058 1,756
Depreciation and amortization 9,399 8,847 26,299 25,586
Net 20,093 19,884 59,589 58,180
Net 11,691 11,723 36,551 37,243
Other expenses:
General and administrative 1,039 1,173 3,023 3,099
Interest 11,181 10,972 33,499 31,788
Net 12,220 12,145 36,522 34,887
Net (529) (422) 29 2,356
Property sales, disposals and
adjustments:
Adjustments to carrying value
of assets to be disposed of (35,000)
Gain on asset sales 2,351 2,351
Gain on sale of outparcel land 371 442 2,955 2,634
Net 2,722 442 5,306 (32,366)
Income (loss before extraordinary
items and minority interest 2,193 20 5,335 (30,010)
Extraordinary loss on early
extinguishment of debt (598) (718)
Extraordinary gain on fire
insurance claim 244 11,244
Income (loss) before minority
interest 1,595 264 4,617 (18,766)
Minority interest in Operating
Partnership (406) (65) (1,173) 4,871
Net income (loss) $ 1,189 199 3,444 (13,895)
Per share data (after minority
interest):
Income (loss) before
extraordinary item $ .06 .00 .14 (.81)
Extraordinary items (.02) .01 (.02) .31
Net income (loss) $ .04 .01 .12 (.50)
Weighted average shares
outstanding 27,533 27,417 27,495 27,350
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
September 30,1996 December 31, 1995
(Unaudited)
(in thousands)
<S> <C> <C>
Assets
Income properties:
Land $ 121,313 $122,445
Buildings and improvements 790,155 757,834
Deferred leasing and other charges 40,555 52,941
952,023 933,220
Accumulated depreciation and amortization (273,744) (263,650)
678,279 669,570
Investment in joint venture 5,766 5,893
Cash and cash equivalents 7,170 6,036
Tenant and other receivables 11,785 15,325
Deferred charges and other assets 36,879 40,694
Net $ 739,879 $737,518
Liabilities and Shareholders' Equity
Debt on income properties $ 564,668 $541,082
Accounts payable and other liabilities 32,406 39,152
Net 597,074 580,234
Minority interest in Operating Partnership 36,474 39,873
Commitments and contingencies
Shareholders' equity:
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,559,638
and 27,450,333 shares issued and outstanding
at September 30, 1996 and December 31, 1995,
respectively 276 274
Additional paid-in capital 183,308 181,337
Accumulated deficit (77,253) (64,200)
Net 106,331 117,411
Net $ 739,879 $737,518
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
1996 1995
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,444 $ (13,895)
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in Operating Partnership 1,173 (4,871)
Gain on asset sales (2,351)
Adjustment to carrying value of assets to be
disposed of 35,000
Equity earnings in joint venture (450) (460)
Depreciation and amortization 32,597 31,945
Extraordinary loss on early extinguishment of debt 718
Extraordinary gain on fire insurance claim (11,244)
Net changes in:
Tenant and other receivables 3,345 1,759
Deferred charges and other assets (434) (3,522)
Accounts payable and other liabilities (4,841) 6,651
Net cash provided by operating activities 33,201 41,363
Cash flows from investing activities:
Investment in income properties (1995 includes $53.9
million related to two purchased malls - See Note 3) (41,511) (84,227)
Distributions from joint venture 300 450
Cash from asset sales (net of closing costs) 9,452
Net cash (used in) investing activities (31,759) (83,777)
Cash flows from financing activities:
Net proceeds from sale of common shares and from
dividend reinvestment plan 856 3,533
Proceeds from issuance of debt, net of issuance cost 82,630 76,075
Debt repayments (61,633) (5,070)
Dividends and distributions (22,161) (32,178)
Advances from affiliate 5,036
Cash flow support 1,934
Net cash (used in) provided by financing activities (308) 49,330
Net increase in cash and cash equivalents 1,134 6,916
Cash and cash equivalents, beginning of period 6,036 2,136
Cash and cash equivalents, end of period $ 7,170 $ 9,052
Interest paid (net of capitalized amounts) $ 30,416 $ 28,978
Interest capitalized $ 2,272 $ 2,132
Non-cash financing activities:
Tenant improvements funded by Crown Investments
Trust, including $0 and $15 allocated to minority
interest in Operating Partnership $ $ 82
Issuance of partnership units related to Wyoming
Valley acquisition $ $ 8,149
Cash flow support credited to minority interest and
paid in capital that was prefunded in 1995 $ 2,209 $
</TABLE>
<PAGE> 28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,170
<SECURITIES> 0
<RECEIVABLES> 11,785
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 952,023
<DEPRECIATION> 273,744
<TOTAL-ASSETS> 739,879
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 276
<OTHER-SE> 106,055
<TOTAL-LIABILITY-AND-EQUITY> 739,879
<SALES> 96,140
<TOTAL-REVENUES> 96,140
<CGS> 59,589
<TOTAL-COSTS> 59,589
<OTHER-EXPENSES> 3,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,499
<INCOME-PRETAX> 5,335
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,335
<DISCONTINUED> 0
<EXTRAORDINARY> 718
<CHANGES> 0
<NET-INCOME> 3,444
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
