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 March 31, 1997
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 April 15 1997, 27,667,636 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 ____
Crown American Realty Trust
Form 10-Q
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and December 31,
1996
Consolidated Statements of Operations for the three months ended March
31, 1997 and 1996
Consolidated Statement of Shareholders' Equity for the three months
ended March 31, 1997
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996
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
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
1997 1996
(Unaudited)
(in thousands)
Assets
<S>
Income-producing properties: <C> <C>
Land $ 120,299 $ 120,999
Buildings and improvements 803,473 798,470
Deferred leasing and other charges 37,952 41,223
Net 961,724 960,692
Accumulated depreciation and amortization (287,199) (281,478)
Net 674,525 679,214
Other assets:
Investment in joint venture 5,734 5,799
Cash and cash equivalents 4,974 6,746
Tenant and other receivables 12,214 16,516
Deferred charges and other assets 31,654 32,363
Net $ 729,101 $ 740,638
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 569,187 $ 568,785
Accounts payable and other liabilities 28,176 32,201
Net 597,363 600,986
Minority interest in Operating Partnership 33,511 35,576
Commitments and contingencies
Shareholders' equity:
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,667,636 and
27,612,756 shares issued and
outstanding at March 31, 1997 and December 31,
1996, respectively 277 276
Additional paid-in capital 185,150 184,205
Accumulated deficit (87,200) (80,405)
Net 98,227 104,076
Net $ 729,101 $ 740,638
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1997 1996
(in thousands, except
per share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 19,744 $ 20,958
Percentage rent 1,478 1,619
Property operating cost recoveries 7,139 7,925
Temporary and promotional leasing 1,655 1,387
Net utility income 732 681
Business interruption insurance 474
Miscellaneous income 125 373
Net 30,873 33,417
Property operating costs:
Recoverable operating costs 9,537 10,728
Property administrative costs 577 497
Other operating costs 439 634
Depreciation and amortization 9,804 7,740
Net 20,357 19,599
Net 10,516 13,818
Other expenses:
General and administrative 1,155 995
Interest 11,360 11,232
Net 12,515 12,227
Net (1,999) 1,591
Property sales
Gain on sale of outparcel land 296 829
Income (loss) before minority interest in
Operating Partnership (1,703) 2,420
Minority interest in Operating Partnership (434) 616
Net income (loss) $ (1,269) $ 1,804
Per share data (after minority interest):
Net income (loss) $ (.05) $ .07
Weighted average shares outstanding 27,629 27,459
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statement of Shareholder's Equity
(unaudited)
Additional
Shares Common Paid in (Accumulated
Outstanding Shares Capital Deficit) Total
(in thousands) (in thousands)
<C> <S> <C> <C> <C> <C>
27,613 Balance, January 1, 1997 $ 276 $ 184,205 $ (80,405) $104,076
Shares issued under dividend
55 reinvestment plan 1 429 430
Transfer in (out) of minority
limited partners'interests
in the Operating Partnership (73) (73)
Capital contributions from
Crown Investments Trust:
Cash flow support 589 589
Net loss (1,269) (1,269)
Dividends paid (5,526) (5,526)
27,668 Balance, March 31, 1997 $ 277 $ 185,150 $ (87,200) $ 98,227
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
1997 1996
(reclassified)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,269) $ 1,804
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority interest in Operating Partnership (434) 616
Equity earnings in joint venture (127) (150)
Depreciation and amortization 11,738 9,923
Net changes in:
Tenant and other receivables 4,302 1,109
Deferred charges and other assets (1,082) 888
Accounts payable and other liabilities (3,235) (4,649)
Net cash provided by operating activities 9,893 9,541
Cash flows from investing activities:
Investments in income-producing properties (5,048) (13,164)
Distributions from joint venture 100 100
Net cash used in investing activities (4,948) (13,064)
Cash flows from financing activities:
Net proceeds from sale of common shares 430 249
and from dividend reinvestment plan
Proceeds from issuance of debt 5,571 9,978
Cost of issuance of debt (135) (744)
Debt repayments (5,169) (2,402)
Dividends and distributions paid (7,414) (7,380)
Net cash used in financing activities (6,717) (299)
Net (decrease) in cash and cash equivalents (1,772) (3,822)
Cash and cash equivalents, beginning of period 6,746 6,036
Cash and cash equivalents, end of period $ 4,974 $ 2,214
Interest paid (net of capitalized amounts) $ 10,511 $ 10,175
Interest capitalized $ 609 $ 607
Non-cash financing activities:
Cash flow support credited to minority interest
and paid-in-capital
that was prefunded in 1995. $ 790 $ 758
The accompanying notes are an integral part of these statements.
</TABLE>
CROWN AMERICAN REALTY TRUST
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Crown American Realty Trust (the "Company") was formed on May 14, 1993 as a
Maryland real estate investment trust (a "REIT") to acquire and operate
substantially all of the enclosed shopping mall properties and two office
buildings (the "Properties") owned by Crown American Associates ("Crown
Associates"), formerly Crown American Corporation. Crown Associates is a wholly-
owned subsidiary of Crown Holding Company ("Crown Holding"). Crown Associates,
which was founded in 1950, was engaged principally in the development,
acquisition, ownership and management of enclosed shopping malls and, to a
lesser extent, strip shopping centers, hotels and office buildings. 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 an initial 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 to own and operate
the Properties. The proceeds were used by the Operating Partnership to retire
debt related to the Properties.
Simultaneously with the public offering, Crown Associates and an affiliate
transferred 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.
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
currently held by Crown Investments Trust ("Crown Investments"), by Crown
American Investment Company (a subsidiary of Crown Investments), and by members
of the Pasquerilla family. Two additional malls were acquired by the Company
in 1995.
Simultaneously with the above transactions, the Financing Partnership borrowed
approximately $300 million of mortgage debt (the "Mortgage Loans") secured by
its 15 enclosed shopping malls (see Note 2). The $300 million of mortgage debt
together with the proceeds of the equity offering were used to retire existing
debt contributed with the Properties.
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, an
office building located in Newport News, Virginia to an insurance company. The
net sales price was $9.45 million, and the net gain was $2.35 million. Existing
debt on the property of $5.36 million 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 unamortized deferred
financing costs.
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, tenant bankruptcies, 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 (74.6% 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, 1996, 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-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Mortgage loans $ 280,637 $ 280,637
Permanent loans 164,815 165,134
Construction loans 92,435 87,389
Secured term loans 31,300 35,625
$ 569,187 $ 568,785
</TABLE>
Mortgage Loans
Concurrently with the offering of shares of the Company in 1993, the Financing
Partnership borrowed an aggregate principal amount of $300 million
(collectively, the "Mortgage Loans") through Kidder Peabody Mortgage Capital
Corporation (the "Lender").
In connection with obtaining a construction loan for rebuilding and expanding
Logan Valley Mall, in December 1995 the Company repaid $19.4 million of the
Mortgage Loans in order to release the Logan Valley Mall from the Mortgage Loans
and Financing Partnership. No prepayment penalty was required.
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 7.24% in 1996 and 7.20% during 1995 and
1994. The average rate as of March 31, 1997 is 7.24%. Repayment of the
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. The Mortgage Loans allow the Financing Partnership to
borrow up to $10 million from other parties, either unsecured or secured by a
qualifying subordinate lien, provided the proceeds are used solely to finance
tenant improvements or leasing costs. No such amounts are borrowed as of March
31, 1997.
The $80.6 million mandatory principal payment due in August 1998 may be prepaid
at any time after August 1997, subject to the payment of a yield maintenance
charge; after February 1998 such prepayment would not be subject to the yield
maintenance charge. After August 1998 voluntary prepayments of the remaining
two tranches can be made in whole or in part on any monthly interest payment
date, subject to the payment of a yield maintenance charge; however, six months
prior to the due dates of the remaining two tranches, prepayment of that tranche
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 currently required to deposit $450,000 each quarter to a
restricted cash account for capital plan reserves and renovation reserves.
Amounts may be withdrawn from this account to reimburse the Company for incurred
qualifying expenditures. As of March 31, 1997, $0.6 million of restricted cash
was held for this purpose and is included in deferred charges and other assets.
Permanent Loans
At March 31, 1997, permanent loans consisted of nine loans secured by seven
properties held by the Operating Partnership with various maturities from
December 1997 through December 2008. Included in permanent loans are (1) a $3.1
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 4.5% Industrial Development Bond secured with a $1.3 million letter of
credit. This letter of credit expires on April 30, 1999. Crown Holding has
guaranteed one loan with a balance of $11.6 million as of March 31, 1997.
Construction Loans
At March 31, 1997, the Company had construction loans on four malls. The loans
bear interest at variable interest rates indexed to the LIBOR rate. Crown
Investments has guaranteed one loan with a balance of $16.9 million as of March
31, 1997. The loans have certain restrictive covenants including minimum
coverage ratios and limitations on investments and borrowings without the prior
consent of the lenders.
Secured Term Loans and Lines of Credit
At March 31, 1997, the Company had two secured term loan arrangements totaling
$35.6 million, of which $5.6 million is a revolving loan ($1.3 million and $5.6
million outstanding at March 31, 1997 and December 31, 1996, respectively) used
for general corporate purposes and is renewable annually on April 30. 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. In January 1997, the Company entered into a $10 million
unsecured line of credit with a related party. No amounts are currently
outstanding under this line.
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 $395.5 million at March 31, 1997) have fixed
interest rates ranging from 0% to 9.79%. The weighted average interest rate on
this fixed-rate debt at March 31, 1997 and March 31, 1996 was 7.83% and 7.89%,
respectively. The weighted average interest rate during the three months ended
March 31, 1997 and 1996 was 7.83% and 7.89%, respectively.
All of the remaining loans (aggregate principal outstanding of $173.7 million at
March 31, 1997) have variable rated debt based on spreads ranging from 1.75% to
3.50% above 30 day LIBOR, except for one loan which is based on the prime rate
plus .63%. The weighted average interest rate on the variable rated debt at
March 31, 1997, December 31, 1996, and March 31, 1996 was 7.93%, 8.14%, and
7.88%, respectively. The weighted average interest rate during the three months
ended March 31, 1997 and 1996 was 7.89% and 8.09%, respectively.
Debt Maturities
As of March 31, 1997, 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):
Period/Year Ending
December 31,
1997 (nine months) $ 78,752
1998 (year) 146,060
1999 (year) 16,880
2000 (year) 194,590
2001 (year) 18,770
Thereafter 114,135
Net $ 569,187
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt FAS No. 128, "Earnings per Share" and FAS No. 129
"Disclosure of Information about Capital Structure" in the fourth quarter of
1997. Neither of these new standards is expected to have any material effect on
the Company's consolidated financial statements.
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 March 31, 1997.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three months ended March 31, 1997 and 1996. 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 1996 Form 10K). Management believes that Funds from Operations is an
appropriate measure of the Company's operating performance because reductions
for real estate depreciation and amortization charges are not meaningful in
evaluating the 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.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
Selected Financial Data:
<S> <C> <C>
EBITDA (1 & 3) $ 20,654 $ 22,554
Funds from Operations (FFO) (2 & 3):
Net Income $ (1,269) $ 1,804
Adjustments:
Minority interest in Operating Partnership (434) 616
Depreciation and amortization - real estate 10,192 8,071
Operating covenant amortization 658 646
Cash flow support 790 758
Funds from Operations (FFO) $ 9,937 $ 11,895
Funds from Operations (Company's percentage
share):
Funds from Operations $ 7,407 $ 8,892
Average shares outstanding 27,629 27,459
Cash Flows:
Net cash provided by operating activities $ 9,893 $ 9,541
Net cash used in investing activities $ (4,948) $ (13,064)
Net cash used in financing activities $ (6,717) $ (299)
(1) EBITDA represents earnings before interest, depreciation and amortization,
and unusual items.
(2) Funds from Operations represents net income before real estate depreciation
and amortization plus earned cash flow support and adjustment for certain
unusual items.
(3) 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>
Comparison of Three Months Ended March 31, 1997 to the corresponding period in
1996
- - Revenues
Total Revenues were $30.9 million for the first quarter of 1997, a decrease of
$2.5 million from the first quarter of 1996. Positive factors affecting
revenues for the first quarter were: revenues from temporary and seasonal
leasing were up $0.3 million over 1996; negative factors affecting revenues
for the quarter were: lower minimum and percentage rents of $1.1 million due
to lower anchor and mall shop occupancy, lower business interruption insurance
recoveries of $0.5 million from the Logan Valley Fire, lower lease buyout income
and step rent revenues of $0.2 million, lower property operating cost recoveries
of $0.8 million due to a $1.2 million lower recoverable operating expenses and
lower miscellaneous income of $0.2 million, due to a reduction in fee income.
- - Property Operating Costs:
Recoverable operating costs for the three months ended March 31, 1997 were $9.5
million compared to $10.7 million in 1996; the decrease was due primarily to
lower snow removal costs and to lower insurance expense. Depreciation and
amortization for the three months ended March 31, 1997 was $9.8 million compared
to $7.7 million in 1996; the increase is due to higher balances of depreciable
assets and the cessation of depreciation on certain assets that had been held
for possible sale in 1996. These assets were withdrawn from held for sale
status during the second quarter of 1996.
- - General, Administrative and Interest Expenses:
In the first quarter of 1997, general and administrative expenses were $1.2
million, about $0.2 million greater than 1996. For the first three months of
1997, interest expense was $11.3 million, or approximately $0.1 million greater
than 1996.
- - Gain on Property Sales and Disposals:
The gain on the sale of outparcel land was $0.3 million for the first three
months of 1997, a decrease of $0.5 million from the first quarter of 1996.
- - Net Income (loss):
The net loss for the first quarter of 1997 was $1.3 million, or $0.05 per share,
compared with net income of $1.8 million in 1996, or $0.07 per share.
- - Funds from Operations:
For the quarter ended March 31, 1997, the Company's percentage share of FFO was
$7.4 million, compared with $8.9 million for the corresponding period in 1996.
Total FFO during the first quarter of 1997 was impacted by several factors
compared with 1996. Positive factors affecting total FFO were: $0.3 million of
higher temporary and seasonal leasing revenues and $0.6 million in lower
property operating costs, net of recoveries. These positive factors were offset
by $1.4 million in lower minimum and percentage rents (including $0.2 million
lower lease buyout income and straight line rental income which are included in
minimum rents.), $0.5 million in lower business interruption insurance income
related to the December 1994 fire at Logan Valley Mall, $0.1 million in higher
interest costs, $0.2 million in higher property and general and administrative
costs, and $0.5 million in lower gain on land sales.
EBITDA - Earnings before Interest, Taxes, Depreciation And Amortization, and
Unusual Items
For the first quarter of 1997, EBITDA was $20.7 million compared to $22.6
million in the corresponding period of 1996. EBITDA was largely impacted by the
same factors above impacting total FFO, except for the higher interest costs,
which are not included in EBITDA.
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
intends to pay regular quarterly dividends to its shareholders. However, the
Company's ability to pay dividends is affected by several factors, including
cash flow from operations and capital expenditures and its ability to refinance
its maturing debt as described below. 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 has been arranged with the
expected total borrowings ranging from $53 to $54 million, with the remaining
project costs funded from the Company's internal cash flows.
As of March 31, 1997 the scheduled principal payments on all debt are as
follows: $78.7 million; $146.1 million; $16.9 million; $194.6 million; and
$18.8 million in the years ended December 31, 1997 through 2001, respectively,
and $114.1 million thereafter. The Company expects to refinance or extend the
majority of the maturities over the next five years through additional Company
financings and mortgage loans on those properties having the maturing loans.
The Company's ability to refinance or extend these loans on or before their due
dates depends on the level of income generated by the properties, prevailing
interest rates, credit market trends, and other factors that may be in affect at
the time of such refinancings or extensions and there is no assurance that such
refinancings or extensions will be executed. The ratios of the Company's EBITDA
to cash interest costs for the years ended December 31, 1996, 1995, and 1994
were 2.08 to 1, 2.13 to 1, and 2.34 to 1, respectively.
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.
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.
As a result of the fire which damaged the Logan Valley Mall in Altoona,
Pennsylvania on December 16, 1994 a number of tenants or their insurers have
filed lawsuits against the Company for damages to property and for interruption
of business. In summary, nine lawsuits have been filed in the Court of Common
Pleas of Blair County, Pennsylvania. The Company has insurance policies in
place with coverage limits sufficient to indemnify the Company for any
anticipated losses arising from these lawsuits. Accordingly, the ultimate
outcome of this litigation is not expected to have any material adverse effect
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 April 30, 1997, the Company issued its regular quarterly earnings
release and its First Quarter 1997 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 April 30, 1997
Exhibit 99 (b) - First Quarter 1997 Supplemental Financial and Operational
Information Package
Item 6: Exhibits and Reports on Form 8-K
None
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: May 5, 1997 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: May 5, 1997 CROWN AMERICAN REALTY TRUST
/s/ Mark E. Pasquerilla
Mark E. Pasquerilla
President
(Authorized Officer of the Registrant
and Principal Operating Officer)
Date: May 5, 1997 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: May 5, 1997 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 Accounting Officer)
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, April 30, 1997
CROWN AMERICAN REALTY TRUST
ANNOUNCES FIRST QUARTER RESULTS AND
DECLARES QUARTERLY DIVIDEND
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the first three months ended March 31, 1997. The Board of Trustees also
declared a regular first quarter dividend.
"Results for the first quarter met company and analysts' expectations,"
stated Crown American Realty Trust President, Mark E. Pasquerilla. "As we
stated in our 1996 year end earnings release, we expected FFO to be lower in the
first half of 1997, but we also expect FFO to begin improving in the second
half. Looking beyond the first quarter, it is apparent that our strategy to
transform our specialty store retail tenant base is working. The fundamental
operating trends in our portfolio are strong, and momentum in tenant sales and
small shop leasing is accelerating. In the first quarter, comparable small shop
sales increased by 6.6 percent and small shop leasing activity increased 25
percent in amount of space and 16 percent in higher rental rates. These strong
positive trends in the portfolio should produce a significant turnaround in
performance beginning in the second half of 1997 and continuing into 1998."
Dividend Information
For the quarter ended March 31, 1997, the Board of Trustees declared a
regular quarterly dividend of $.20 per share. The dividend is payable June 13,
1997 to shareholders of record on May 30, 1997.
Financial Information
For the quarter ended March 31, 1997, the Company's 74.6 percentage share
of total Funds from Operations ("FFO") was $7.4 million, or $0.27 per share,
compared to $8.9 million, or $0.32 per share, in the same quarter of 1996. The
anticipated decline in FFO was mainly due to lower base and percentage rents
from both anchors and mall shops resulting largely from lower occupancy rates
compared to last year, lower business interruption insurance, and lower gain on
sale of outparcel land, partially offset by higher seasonal and temporary
leasing income and lower net operating costs and expenses.
Total revenues for the first quarter of 1997 were $30.9 million compared
with $33.4 million for the same period in 1996. Of this total decrease, $1.3
million related to the termination of business interruption insurance coverage
in 1996 and lower property operating cost recovery income due to lower mall
expenses. The remainder is largely due to the lower anchor and mall shop base
and percentage rents arising from the lower occupancy compared to year ago
levels. Anchor rents were affected by two Kmart buyouts that occurred in late
1996 and the expected closing at the end of January 1997 of three Bon-Ton store
locations that had been operated on a temporary basis. The Company reported a
net loss for the first quarter of 1997 of $1.3 million, or $0.05 per share,
compared to net income of $1.8 million, or $0.07 per share, in the first quarter
of 1996.
Operating Information
During the first quarter of 1997, leases for 210,000 square feet of mall
shops were signed resulting in $4.3 million in annual base rental income. This
compares to 167,000 square feet for $3.0 million during the same period in 1996,
a 43 percent increase based on annual rental income. A total of 113 leases were
signed, which included 56 renewals and 57 new leases. The average rent for
leases signed was $20.68 per square foot, which is 16 percent higher than the
average rent of $17.78 on leases signed in the first quarter of 1996. The
$20.68 per square foot average for the first quarter of 1997 includes $22.88 per
square foot for new leases (up 19 percent) and $18.93 per square foot for
renewals (up 21 percent).
The average base rent of the portfolio as of March 31, 1997 was $15.96 per
square foot. This is a 4 percent increase from $15.42 per square foot as of
March 31, 1996, and the 14th consecutive quarter that average base rent has
increased.
Overall, mall shop occupancy was 75 percent as of March 31, 1997, a one percent
drop from 76 percent as of December 31, 1996.
Comparable mall shop sales for the first quarter of 1996 were $45.35 per square
foot, a 6.6 percent increase over the $42.55 per square foot reported for the
first quarter of 1996.
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 March
31, 1997, as compared to 10.6 percent as of March 31, 1996.
Seasonal and temporary leasing income for the first quarter of 1997 amounted to
$1.7 million,
a 19 percent increase over the same period in 1996.
In March, plans were announced to expand the Wal-Mart in Martinsburg Mall
(Martinsburg, WV) to a Super Wal-Mart. The 90,000 square foot store will grow
to 204,000 square feet. The expansion will be funded almost entirely by Wal-
Mart, and work is expected to begin within the next few weeks.
Pasquerilla continued, "In addition to the strong portfolio trends outlined
above, Regal Cinemas of Knoxville, Tennessee, has just signed a lease to add a
43,400 square foot 13-screen theater to our West Manchester Mall in York, Pa.
The Regal Cinema lease will contribute to revenues and FFO in late 1997 with
full year impact beginning in 1998. In addition, this lease will contribute an
approximate one percent increase in portfolio occupancy in the second quarter
of 1997. Most importantly, it will be the largest multi-screen cinema in the
York/Harrisburg market and will increase the center's market share and enhance
our ability to lease space.
"The Wal-Mart expansion in Martinsburg Mall is also very good news. That
store has traditionally been one of the strongest performers for Wal-Mart in the
country. Expanding that store will also help expand the trade area for that
property.
"As you can see, we are continuing to transform our portfolio with
financially stronger and more productive specialty retailers. The fundamental
operating trends in our portfolio are strong and continue to improve.
Increasing mall shop occupancy remains our greatest opportunity for internal
earnings growth and is, therefore, our primary operational focus. Our goal is
to continue to obtain stronger tenants who we believe can thrive and grow into
the next decade, thus substantially improving the inherent value of our
properties' income stream which will, in turn, increase the underlying value of
the properties and ultimately increase 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 74.6
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.
Selected financial data follows for Crown American Realty Trust for the
three months ended March 31, 1997. A copy of the Company's Supplemental
Financial and Operational Information Package is available by calling Investor
Relations at 1-800-860-2011.
Exhibit 99(b)
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 1997
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
First Quarter
$000 $ per share
(in thousands, except
as noted)
<S>
FINANCIAL AND ANALYTICAL DATA: <C> <C>
Incr (Decr) in Total FFO - 1997 compared to 1996:
Seasonal and temporary leasing income $ 268 $ 0.007
Lease buyout income (36) (0.001)
Mall operating costs, net of tenant recovery income 600 0.016
Property and general & administrative expenses (240) (0.006)
Cash flow support agreement 32 0.001
Interest expense (127) (0.003)
Gain on sale of outparcel land (533) (0.014)
Business interruption insurance from Logan Valley (474) (0.013)
Fire
Base and percentage rents from anchors and mall (1,144) (0.031)
shops
(lower occupancy partially offset by higher rental
rates)
Straight line rental income (163) (0.004)
Miscellaneous income & other; rounding to whole
cents; and effect of additional outstanding shares
and units (141) (0.002)
Change in Total FFO for the period $ (1,958) $ (0.050)
Three Months Ended
March 31,
1997 1996
Funds from Operations ($000 except per share data):
Net Income (loss) $ (1,269) $ 1,804
Adjustments:
Minority Interest in Operating Partnership (434) 616
Depreciation and amortization - real estate 10,192 8,071
Operating covenant amortization 658 646
Cash flow support amounts 790 758
Funds from Operations - - Total $ 9,937 $ 11,895
Funds from Operations - - Company's percentage share 7,407 8,892
FFO per share $ 0.27 $ 0.32
Average Shares Outstanding during the period (000) 27,629 27,459
Shares Outstanding at period end (000) 27,668 27,483
Average Operating Units Outstanding during the 37,068 36,898
period(000)
Operating Units Outstanding at period end (000) 37,107 36,922
Components of Minimum Rents:
Anchor - contractual or base rents $ 5,512 $ 5,695
Mall shops - contractual or base rents 14,577 15,388
Straight line rental income (71) 92
Ground lease - contractual or base rents 376 385
Lease buyout income 8 44
Operating covenant amortization (658) (646)
Total minimum rents $ 19,744 $ 20,958
Components of Percentage Rents:
Anchors $ 779 $ 929
Mall shops and ground leases 699 690
$ 1,478 $ 1,619
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 1997
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended
March 31,
1997 1996
(in thousands, except
as noted)
<S> <C> <C>
EBITDA: earnings (including gain on sale of
outparcel land)
before interest, taxes and all depreciation and $ 20,654 $ 22,554
amortization
Debt and Interest ($000):
Fixed rate debt at period end $ 395,452 $ 401,395
Variable rate debt at period end 173,735 147,263
Total debt at period end $ 569,187 $ 548,658
Weighted avg. interest rate on fixed rate debt for 7.8% 7.9%
the period
Weighted avg. interest rate on variable rate debt 7.9% 8.1%
for the period
Total interest expense for period $ 11,360 $ 11,232
Amort. of deferred debt cost for period (incl. in
interest exp) 849 1,057
Capitalized interest costs during period
609 607
Capital Expenditures Incurred ($000):
Allowances for anchors tenants $ 275 $ 1,543
Allowances for mall shop tenants 854 1,699
Leasing costs and commissions 438 822
Expansions and major renovations 3,481 9,100
All other capital expenditures (included in Other 99 162
Assets)
Total Capital Expenditures during the period $ 5,147 $ 13,326
OPERATING DATA:
Mall shop GLA at period end (000 sq. ft.) 5,307 5,233
Occupancy percentage at period end 75.0% 79.0%
Comp. Store Mall shop sales - 3 months (per sq. $ 45.35 $ 42.55
ft.)
Mall shop occupancy cost percentage at period end 10.8% 10.6%
Average mall shop base rent at period end (per sq. $ 15.96 $ 15.42
ft.)
Mall shop leasing for the period:
New leases - sq. feet (000)
93 99
New leases - $ per sq. ft. $ 22.88 $ 19.22
Number of new leases signed.
57 44
Renewal leases - sq. feet (000)
117 68
Renewal leases - $ per sq. ft. $ 18.93 $ 15.68
Number of renewal leases signed.
56 39
Tenant Allowances for leases signed during the
period:
First Generation Space - per sq. ft. $ 10.29 $ 30.65
Second Generation Space - per sq. ft. $ 4.68 $ 1.54
Leases Signed during the period by:
First Generation Space - sq. feet (000)
16 53
Second Generation Space - sq. feet (000)
194 114
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Income Statements
(Unaudited)
Three Months Ended
March 31,
1997 1996
(in thousands, except
per share data)
<S>
Rental operations: <C> <C>
Revenues:
Minimum rent $ 19,744 $ 20,958
Percentage rent 1,478 1,619
Property operating cost recoveries 7,139 7,925
Temporary and promotional leasing 1,655 1,387
Net utility income 732 681
Business interruption insurance 0 474
Miscellaneous income 125 373
30,873 33,417
Property operating costs:
Recoverable operating costs 9,537 10,728
Property administrative costs 577 497
Other operating costs 439 634
Depreciation and amortization 9,804 7,740
20,357 19,599
10,516 13,818
Other expenses:
General and administrative 1,155 995
Interest 11,360 11,232
12,515 12,227
(1,999) 1,591
Property sales :
Gain on sale of outparcel land 296 829
296 829
Income(loss) before minority interest (1,703) 2,420
Minority interest in Operating (434) 616
Partnership
Net income (loss) $ (1,269) $ 1,804
Per share data:
Net income(loss) $ 0.05 $ 0.07
Weighted average shares outstanding 27,629 27,459
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
1997 1996
(Unaudited)
(in thousands)
Assets
<S> <C> <C>
Income properties:
Land $ 120,299 $ 120,999
Buildings and improvements 803,473 798,470
Deferred leasing and other charges 37,952 41,223
961,724 960,692
Accumulated depreciation and amortization (287,199) (281,478)
674,525 679,214
Investment in joint venture 5,734 5,799
Cash and cash equivalents 4,974 6,746
Tenant and other receivables 12,214 16,516
Deferred charges and other assets 31,654 32,363
Net $ 729,101 $ 740,638
Liabilities and Shareholders' Equity
Debt on income properties $ 569,187 $ 568,785
Accounts payable and other liabilities 28,176 32,201
Net 597,363 600,986
Minority interest in Operating Partnership 33,511 35,576
Commitments and contingencies
Shareholders' equity:
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,667,636
and 27,612,756 shares issued and
outstanding at March 31, 1997 and December 31,
1996, respectively 277 276
Additional paid-in capital 185,150 184,205
Accumulated deficit (87,200) (80,405)
Net 98,227 104,076
Net $ 729,101 $ 740,638
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flow
(Unaudited)
Three Months Ended
March 31,
1997 1996
(reclass-
ified)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,269) $ 1,804
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Minority interest in Operating Partnership (434) 616
Equity earnings in joint venture (127) (150)
Depreciation and amortization 11,738 9,923
Net changes in:
Tenant and other receivables 4,302 1,109
Deferred charges and other assets (1,082) 888
Accounts payable and other liabilities (3,235) (4,649)
Net cash provided by operating activities 9,893 9,541
Cash flows from investing activities:
Investment in income properties (5,048) (13,164)
Distributions from joint venture 100 100
Net cash (used in) investing activities (4,948) (13,064)
Cash flows from financing activities:
Net proceeds from sale of common shares and from
dividend reinvestment plan 430 249
Proceeds from issuance of debt, net of issuance 5,436 9,234
cost
Debt repayments (5,169) (2,402)
Dividends and distributions paid (7,414) (7,380)
Net cash (used in) provided by financing (6,717) (299)
activities
Net (decrease) in cash and cash equivalents (1,772) (3,822)
Cash and cash equivalents, beginning of period 6,746 6,036
Cash and cash equivalents, end of period $ 4,974 $ 2,214
Interest paid (net of capitalized amounts) $ 10,511 $ 10,175
Interest capitalized $ 609 $ 607
Non-cash financing activities:
Cash flow support that was prefunded in 1995 $ 790 $ 758
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 4,974
<SECURITIES> 0
<RECEIVABLES> 12,214
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 961,724
<DEPRECIATION> 287,199
<TOTAL-ASSETS> 729,101
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 277
<OTHER-SE> 97,950
<TOTAL-LIABILITY-AND-EQUITY> 729,101
<SALES> 30,873
<TOTAL-REVENUES> 30,873
<CGS> 20,357
<TOTAL-COSTS> 20,357
<OTHER-EXPENSES> 1,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,360
<INCOME-PRETAX> (1,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,269)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
