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 June 30, 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 July 15, 1997, 27,720,866 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
For the Quarterly Period ended June 30, 1997
INDEX
Part I - Financial Information
Page
Item 1: Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996
Consolidated Statements of Operations for the three and six months
ended June 30, 1997 and 1996
Consolidated Statement of Shareholders' Equity for the six months
ended June 30, 1997
Consolidated Statements of Cash Flows for the six months ended
June 30, 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
June 30, December 31,
1997 1996
(Unaudited)
(in thousands)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 120,225 $ 120,999
Buildings and improvements 815,221 798,470
Deferred leasing and other charges 39,075 41,223
Net 974,521 960,692
Accumulated depreciation and amortization (296,454) (281,478)
Net 678,067 679,214
Other assets:
Investment in joint venture 5,719 5,799
Cash and cash equivalents 2,724 6,746
Tenant and other receivables 13,202 16,516
Deferred charges and other assets 33,087 32,363
Net $ 732,799 $ 740,638
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 586,099 $ 568,785
Accounts payable and other liabilities 22,481 32,201
Net 608,580 600,986
Minority interest in Operating Partnership 31,553 35,576
Commitments and contingencies
Shareholders' equity:
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,720,866
and 27,612,756 shares issued and outstanding
at June 30, 1997 and December 31, 1996,
respectively 277 276
Additional paid-in capital 186,175 184,205
Accumulated deficit (93,786) (80,405)
Net 92,666 104,076
Net $ 732,799 $ 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 20,076 $ 20,584 $ 39,820 $ 41,542
Percentage rent 1,130 998 2,608 2,617
Property operating cost 7,298 6,711 14,437 14,636
recoveries
Temporary and promotional leasing 1,607 1,393 3,262 2,780
Net utility income 681 591 1,413 1,272
Business interruption insurance 356 830
Miscellaneous income 194 306 319 679
Net 30,986 30,939 61,859 64,356
Property operating costs:
Recoverable operating costs 9,318 9,549 18,855 20,277
Property administrative costs 447 495 1,024 992
Other operating costs 485 693 924 1,327
Depreciation and amortization 9,330 9,160 19,134 16,900
Net 19,580 19,897 39,937 39,496
Net 11,406 11,042 21,922 24,860
Other expenses:
General and administrative 894 989 2,049 1,984
Interest 11,460 11,086 22,820 22,318
Net 12,354 12,075 24,869 24,302
Net (948) (1,033) (2,947) 558
Property sales, disposals and
adjustments:
Gain on sale of outparcel land 273 1,755 569 2,584
Income (loss) before
extraordinary item
and minority interest (675) 722 (2,378) 3,142
Extraordinary loss on early
extinguishment
of debt (732) (120) (732) (120)
Income (loss) before minority (1,407) 602 (3,110) 3,022
interest
Minority interest in Operating 359 (151) 793 (767)
Partnership
Net income (loss) $ (1,048) $ 451 $ (2,317) $ 2,255
Per share data (after minority
interest):
Income (loss) before $ (.01) $ .01 $ (.06) $ .08
extraordinary item
Extraordinary item (.02) (.02)
Net income (loss) $ (.03) $ .01 $ (.08) $ .08
Weighted average shares 27,685 27,493 27,657 27,476
outstanding
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statement of
Shareholders' Equity
(Unaudited)
Additional (Accumu-
Shares Common Paid in ulated
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
108 reinvestment plan 1 857 858
Transfer in (out) of minority
limited partners' interest
in the Operating Partnership (137) (137)
Capital contributions from
Crown Investments Trust:
Cash flow support 1,250 1,250
Net loss (2,317) (2,317)
Dividends paid (11,064) (11,064)
27,721 Balance, June 30, 1997 $ 277 $ 186,175 $ (93,786) $92,666
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
1997 1996
(reclassified)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,317) $ 2,255
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Minority interest in Operating Partnership (793) 767
Equity earnings in joint venture (255) (300)
Depreciation and amortization 22,897 21,277
Extraordinary loss on early extinguishment of debt 732 120
Net changes in:
Tenant and other receivables 3,314 3,699
Deferred charges and other assets (3,277) 2,442
Accounts payable and other liabilities (8,044) (5,943)
Net cash provided by operating activities 12,257 24,317
Cash flows from investing activities:
Investment in income properties (17,834) (29,536)
Distributions from joint venture 150 200
Net cash (used in) investing activities (17,684) (29,336)
Cash flows from financing activities:
Net proceeds from dividend reinvestment plan 858 503
Proceeds from issuance of debt, net of issuance 77,435 40,804
cost
Debt repayments (62,049) (21,179)
Dividends and distributions paid (14,839) (14,766)
Net cash provided by financing activities 1,405 5,362
Net (decrease) increase in cash and cash (4,022) 343
equivalents
Cash and cash equivalents, beginning of period 6,746 6,036
Cash and cash equivalents, end of period $ 2,724 $ 6,379
Interest paid (net of capitalized amounts) $ 21,135 $ 20,188
Interest capitalized $ 1,265 $ 1,439
Non-cash financing activities:
Cash flow support credited to minority interest and
paid-in capital that was prefunded in 1995. $ 1,676 $ 1,448
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 alesser 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 3). 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 - PREFERRED SHARE OFFERING
The Company completed an offering of 2,500,000 11.00% non-convertible senior
preferred shares (the "Shares") on July 3, 1997. The initial offering price was
$50.00 per share. The Shares are non-callable by the Company for a ten-year
period (until July 31, 2007). On or after July 31, 2007, the Company, at its
option, may redeem the Shares for cash at the redemption price per share set
forth below:
Redemption Price
Redemption Period Per Share
July 31, 2007 through July 30, 2009 $52.50
July 31, 2009 through July 20, 2010 $51.50
On or after July 31, 2010 $50.00
The net proceeds from the offering were approximately $119 million after
underwriter's commission and other offering expenses; $58.3 million of the net
proceeds were used by the Company in early July to repay outstanding
indebtedness. The remaining proceeds will be used to fund a common share
repurchase program, finance future property acquisitions and development
projects, and raise working capital. The repayment of debt fully unencumbered
three of the Company's mall properties.
As stipulated in the Prospectus Supplement, additional dividends shall be paid
quarterly to the holders of the Shares if the Company's total debt (as defined)
exceeds the product of 6.5 times EDITDA (as defined) (the "Leverage Ratio")
without the consent of the holders of at least 50% of the Shares outstanding at
the time. The leverage ratio computed on a pro-forma basis as of June 30, 1997,
assuming the repayment of debt as described above, is approximately 5.53 to 1.
If required to be paid, additional dividends will be for an amount per Share
equal to 0.25% of the Preferred Liquidation Preference Amount (as defined) on an
annualized basis for the first quarter with respect to which an additional
dividend is due. For each quarter thereafter that the Company continues to
exceed the permitted Leverage Ratio, the additional dividend will increase by an
amount per Share equal to an additional 0.25% of the Preferred Liquidation
Preference Amount on an annualized basis. However, the maximum total dividend
on the Shares, including any additional dividends, will not at any time exceed
13.00% of the Preferred Liquidation Preference Amount per annum.
NOTE 3 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
June 30, December 31,
1997 1996
Mortgage loans $ 280,637 $ 280,637
Permanent loans 187,245 165,134
Construction loans 75,092 87,389
Secured term loans 43,125 35,625
Net $ 586,099 $ 568,785
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 June 30, 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 June
30, 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 June 30, 1997, $0.7 million of restricted cash
was held for this purpose and is included in deferred charges and other assets.
Permanent Loans
At June 30, 1997, permanent loans consisted of ten loans secured by eight
properties held by the Operating Partnership with various maturities from
January 1998 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 $11.5 million as of June 30, 1997. One
of the permanent loans aggregating $38.3 million was repaid in July from the
proceeds of the preferred shares.
Construction Loans
At June 30, 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 $16.7 million as of June
30, 1997. The loans have certain restrictive covenants including minimum
coverage ratios and limitations on investments and borrowings without the prior
consent of the lenders. Two of these construction loans, including the loan
guaranteed by Crown Investments, aggregating $22.1 million were repaid in July
from the proceeds of the preferred shares.
Secured Term Loans and Lines of Credit
At June 30, 1997, the Company had three secured term loan arrangements totaling
$45.6 million, of which $5.6 million is a revolving line of credit ($5.6
million outstanding at both June 30, 1997 and December 31, 1996) used for
general corporate purposes and is renewable annually on April 30. The
loans have certain restrictive covenants including the maintenance of
certain coverageratios 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, of
which $7.5 million was outstanding at June 30, 1997. The outstanding
balances under two lines of credit aggregating $13.1 million were repaid in
July from the proceeds of the preferred shares.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and nine of the
permanent loans related to seven of the Operating Partnership properties
(aggregate principal outstanding of $417.9 million at June 30, 1997) have fixed
interest rates ranging from 0% to 9.79%. The weighted average interest rate on
this fixed-rate debt at June 30, 1997 and June 30, 1996 was 7.70% and 7.85%,
respectively. The weighted average interest rate during the three months ended
June 30, 1997 and 1996 was 7.82% and 7.90%, respectively.
All of the remaining loans (aggregate principal outstanding of $168.2 million at
June 30, 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
June 30, 1997, December 31, 1996, and June 30, 1996 was 8.05%, 8.14%, and 8.00%,
respectively. The weighted average interest rate during the six months ended
June 30, 1997 and 1996 was 8.01% and 8.03%, respectively.
Refinancing or Extension of Three Mortgage Loans Completed in Late June
On June 27 and 30, 1997 the Company refinanced or extended mortgage loans on
three existing shopping mall properties: Capital City Mall, Harrisburg, PA;
Oak Ridge Mall, Oak Ridge, TN; and Schuylkill Mall, Frackville, PA.
Capital City Mall was refinanced with a new $41.0 million mortgage, placed with
a major life insurance company, that has a seven-year maturity, a fixed interest
rate of 8.27% and 25 year amortization. It replaced a $38.3 million 9.79% fixed
interest rate mortgage loan that has been scheduled to mature on December 1,
1997. Approximately $1.5 million of the proceeds of the new mortgage will
be used for an interior renovation of Capital City Mall.
On Oak Ridge Mall the Company replaced the existing $25.2 million mortgage with
a new mortgage loan from a bank lender totaling $26.0 million, of which $20.0
million was funded and $6.0 million will be drawn in the future to fund planned
redevelopment costs at the property. The previous lender also funded a $3.0
million temporary loan that was repaid with the preferred share proceeds in
early July. The $20.0 million loan has a five-year maturity and a fixed
interest rate of 8.12%; the $6.0 million loan for future redevelopment costs
will also have a five-year maturity with a floating interest rate during the
first year and a fixed rate for the last four years. The repaid $25.2 million
mortgage had a floating interest rate of 9.2% and principal amortization of $1.2
million per year.
The Company also extended its existing $36.9 million mortgage loan on Schuylkill
Mall for seven years to December 1, 2004; this loan has been scheduled to mature
on December 1, 1997. The extended loan will have a fixed interest rate of
8.375% beginning December 1, 1997, with 23 year amortization and will be
recourse. The loan currently has a fixed interest rate of 9.79% and is non-
amortizing.
In connection with the repayment of indebtedness under existing loans as
described above, the Company has recorded approximately $732,000 extraordinary
loss on early extinguishment of debt. This loss results from writing off
unamortized deferred financing costs and from prepayment penalties associated
with the loans that were prepaid.
Debt Maturities
As of June 30, 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 (six months) $ 2,642
1998 (year) 136,025
1999 (year) 19,719
2000 (year) 202,403
2001 (year) 21,544
Thereafter 203,766
$ 586,099
NOTE 4 - 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 a 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 June 30, 1997.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three and six months ended June 30, 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Selected Financial Data:
EBITDA (1 & 3) $ 21,138 $ 22,063 $ 41,792 $ 44,617
Funds from Operations (FFO)
2 & 3):
Net Income (loss) $ (1,048) $ 451 $ (2,317) $ 2,255
Adjustments:
Minority interest in Operating (359) 151 (793) 767
Partnership
Depreciation and amortization - 9,623 9,449 19,815 17,520
real estate
Operating covenant amortization 657 647 1,315 1,293
Cash flow support 886 690 1,676 1,448
Extraordinary loss on early 732 120 732 120
extinguishment of debt
Funds from Operations (FFO) $ 10,491 $ 11,508 $ 20,428 $ 23,403
Funds from Operations (Company's
percentage share):
Funds from Operations $ 7,824 $ 8,593 $ 15,230 $ 17,485
Average shares outstanding 27,685 27,493 27,657 27,476
Cash Flows:
Net cash provided by operating $ 2,364 $ 14,776 $ 12,257 $ 24,317
activities
Net cash used in investing $(12,736) $ (16,272) $ (17,684) $(29,336)
activities
Net cash provided by financing $ 8,122 $ 5,661 $ 1,405 $ 5,362
activities
(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 Six and Three Months Ended June 30, 1997 to the corresponding
period in 1996
- - Revenues
For the first six months of 1997, revenues totaled $61.9 million compared to
$64.4 million in the first six months of 1996, a decrease of $2.5 million.
Positive factors affecting revenues for the six months were temporary and
promotional leasing, which increased $0.5 million over 1996, and straight-line
rents (up $0.3 million); negative factors affecting revenues for the first half
were: lower minimum and percentage rents of $1.6 million due to fewer mall
shops open in the first quarter and due to delayed tenant openings, lower
business interruption income of $0.8 million from the Logan Valley Fire, lower
recovery income of $0.2 million due mainly to lower recoverable costs, lower
lease buyout income of $0.3 million, and lower miscellaneous income of
$0.2 million.
Total revenues for the second quarter of 1997 were $31.0 million compared with
$30.9 million for the same period in 1996. Positive factors affecting revenues
for the second quarter were: revenues from temporary and promotional leasing
were up $0.2 million over 1996, straight-line rents increased by $0.4 million,
and tenant recovery income increased by $0.6 million over 1996. Negative
factors affecting revenues for the quarter were: lower minimum and percentage
rents of $0.5 million, primarily due to delayed openings; lower business
interruption income of $0.4 million from the Logan Valley Fire; and lower lease
buyout income of $0.3 million.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the first six
months of 1997 were $20.8 million, down $1.8 million from the corresponding
period in 1996. Factors contributing to this decrease were lower snow removal
costs in the first quarter of 1997, lower insurance costs and real estate tax
expense, and lower consulting fees and non-recoverable mall repairs.
Depreciation and amortization expense increased by $2.2 million in the first six
months of 1997 compared to 1996 due to a cessation of depreciation in the first
quarter of 1996 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.
Recoverable operating costs for the three months ended June 30, 1997 were $9.3
million compared to $9.5 million in 1996; this decrease was primarily due to
lower insurance expense and lower real estate tax expense. Other operating
costs decreased by $0.2 million in the second quarter of 1997 compared to the
same period in 1996 due to lower consulting fees and repair costs. Depreciation
and amortization increased by $0.2 million for the three months ended June 30,
1997 over the same three months of 1996 due to higher balances of depreciable
assets.
- - General, Administrative and Interest Expenses:
For the first six months of 1997, general and administrative expenses were
approximately $2.1 million, up less than $0.1 million from 1996. Interest
expense increased by $0.5 million in the first half of 1997 compared to 1996 due
to higher average balances outstanding and lower capitalized interest, partially
offset by lower deferred financing cost amortization.
In the second quarter of 1997, general and administrative expenses were $0.9
million, or $0.1 million less than the second quarter of 1996. Interest expense
for the three months ended June 30, 1997 was $11.5 million, an increase of $0.4
million over the $11.1 million reported in the second quarter of 1996. This
increase was primarily attributable to higher average balances outstanding.
- - Gain on Property Sales and Disposals:
The gain on the sale of outparcel land was $0.6 million for the first six months
of 1997, a decrease of $2.0 million from the corresponding period of 1996. For
the second quarter of 1997, gain on outparcel sales was $0.3 million, or $1.5
million lower than the second quarter of 1996.
- - Net Income (loss):
The net loss for the first six months of 1997 was $2.3 million, or $0.08 per
share, compared with net income of $2.3 million, or $0.08 per share, for the
first six months of 1996.
The net loss for the second quarter of 1997 of $1.0 million, or $0.03 per share,
compared to net income of $0.5 million, or $0.01 per share, in 1996. The second
quarter of 1997 includes an extraordinary loss on the early extinguishment of
debt of $0.7 million, or $0.02 per share.
- - Funds from Operations:
For the six months ended June 30, 1997, the Company's percentage share of total
Funds from Operations ("FFO") was $15.2 million, compared with $17.5
million, for the corresponding period in 1996. The anticipated decline in
FFO was primarily due to significantly lower gain on sale of outparcel land,
lower mall shop base and percentage rents, lower business interruption
income, and higher interest expense; these negative factors were
partially offset by lower property operating costs and higher temporary and
promotional leasing income.
For the quarter ended June 30, 1997, the Company's 74.6 percentage share of
total Funds from Operations ("FFO") was $7.8 million, compared to $8.6
million, in the same quarter of 1996. This anticipated decline in total FFO was
mainly due to significantly lower gain on sale of outparcel land, lower
mall shop base rents due primarily to delayed openings, lower business
interruption income, lower lease buyout income, and higher interest expense
caused mainly from higher average borrowings, offset by lower property operating
costs, higher straight-line rental income, higher tenant recovery income and
higher temporary and promotional leasing rental income.
EBITDA - Earnings before Interest, Taxes, Depreciation And Amortization, and
Unusual Items
For the six months ended June 30, 1997, EBITDA was $41.8 million compared to
$44.6 million in 1996. For the second quarter of 1997, EBITDA was $21.1 million
compared to $22.1 million in 1996. EBITDA was largely impacted by the same
factors as FFO above, 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 common or preferred
equity raised in the public or private markets, and from retained internally
generated cash flows, or from combinations thereof.
As further described in Note 2 to the interim financial statements included
herein, on July 3, 1997 the Company completed an offering of 11.00% senior
preferred shares for an aggregate of $125,000,000 before underwriter's
commission and other offering expenses. The Company used $58.3 million of the
proceeds to paydown outstanding indebtedness and will use the remaining proceeds
to fund a common share repurchase program, finance future property acquisitions
and development projects, and raise working capital.
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 June 30, 1997 the scheduled principal payments on all debt are as follows:
$2.6 million for the six months ending December 31, 1997, and $136.0 million;
$19.7 million; $202.4 million; and $21.5 million in the years ending December
31, 1998 through 2001, respectively, and $203.8 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
The Annual Meeting of Shareholders was held in Johnstown, Pennsylvania on
April 30, 1997 for the purpose of considering and acting on the following
proposals:
1. Election of persons (Frank J. Pasquerilla and Zachary L. Solomon) to
serve as Trustees for a three-year term.
The proposals were described in a proxy statement dated March 31, 1997. A
quorum was present at the meeting, and the two proposals were approved.
The holders of 96% of the Common Shares which were present in person or by
proxy at the Annual Meeting voted for the election of Frank J. Pasquerilla and
Zachary L. Solomon as Trustees of the Company for three-year terms expiring at
the annual meeting of shareholders in 2000.
There were no other nominees for election as a Trustee for a three-year
term expiring at the annual meeting of shareholders in 2000. Accordingly, Frank
J. Pasquerilla and Zachary L. Solomon were elected as Trustees of the Company
for a three-year term expiring at the annual meeting of shareholders in 2000.
Item 5: Other Information
On July 30, 1997, the Company issued its regular quarterly earnings
release and its Second 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 July 30, 1997
Exhibit 99 (b) - Second Quarter 1997 Supplemental Financial and
Operational Information Package
Item 6: Exhibits and Reports on Form 8-K
On July 14, 1997, the Company filed with the Securities and Exchange
Commission a report on Form 8-K relating to the offering of 11.00% senior
preferred shares that was completed on July 3, 1997.
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: August 4, 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: August 4, 1997 CROWN AMERICAN REALTY TRUST
/s/ Mark E. Pasquerilla
Mark E. Pasquerilla
President
(Authorized Officer of the Registrant
and Principal Operating Officer)
Date: August 4, 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: August 4, 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: www.crownam.com
IMMEDIATE RELEASE: Wednesday, July 30, 1997
CROWN AMERICAN REALTY TRUST ANNOUNCES SECOND QUARTER RESULTS
AND DECLARES QUARTERLY DIVIDENDS
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the second quarter and first six months ended June 30, 1997. The Board of
Trustees also declared a regular second quarter dividend on its common shares
and an initial pro-rated dividend on its new issue of senior preferred shares.
_______________________
"Results for the second quarter met company and analysts' expectations,"
stated Crown American Realty Trust President, Mark E. Pasquerilla. "As we have
stated in our last two earnings releases, we expected FFO in the first half of
1997 to be lower than in 1996, but we also expect FFO to begin improving in the
second half based on leasing and other trends. Core mall operations for the
six months, which comprise base and percentage rents, net operating cost,
temporary leasing, and utilities redistribution, are up over $0.01 per share
compared to 1996. We are on track for the expected second half improvement
before the temporary dilutive impact of the preferred share offering completed
on July 3, which will occur until the net offering proceeds of $119 million can
be fully deployed. This temporary dilutive effect is estimated to be
approximately $0.06 per share in the second half of 1997.
"The fundamental operating trends in the portfolio continue to be strong.
For the first six months of 1997, comparable mall shop sales increased by 4.5
percent, and small shop leasing activity increased by 82 percent in annual
rental income. These positive trends should produce a turnaround in our core
operating performance in the second half of 1997 and continuing into 1998."
Pasquerilla continued, "We also made substantial improvements in our
capital structure during the past several months. In late June we refinanced or
extended $104 million of mortgage debt at significantly lower interest rates,
from a previous annualized average rate of 9.6 percent to the new average of 8.3
percent. On July 3 we completed an offering of 11.00 percent senior preferred
shares for net proceeds of approximately $119 million. We have used $58.3
million of the proceeds to pay-off mortgage debt on three malls and our lines of
credit. The remaining proceeds are being used to fund a common share repurchase
program of up to 1,250,000 common shares, to fund property expansions or
acquisitions, and for working capital. As a result of these capital
transactions, our debt to total market capitalization ratio at June 30, 1997,
adjusted on a pro-forma basis to reflect the preferred share offering and
related debt paydowns, was approximately 53 percent, down from nearly 67 percent
at March 31, 1997. We were very pleased that the capital markets have viewed
these developments positively, with the common share market price rising from
the $8.00 range just two months ago to the recent trading range of $9.75."
Dividend Information
For the quarter ended June 30, 1997, the Board of Trustees declared a
regular quarterly dividend of $.20 per common share. The Board also declared an
initial pro-rated dividend of $0.9931 per senior preferred share which covers
the period from July 9 to September 11 inclusive. Both dividends are payable
September 12, 1997 to shareholders of record on August 29, 1997.
Financial Information
For the quarter ended June 30, 1997, the Company's 74.6 percentage share of
total Funds from Operations ("FFO") was $7.8 million, or $0.28 per share,
compared to $8.6 million, or $0.32 per share, in the same quarter of 1996. This
anticipated decline in FFO was mainly due to significantly lower gain on sale of
outparcel land, lower mall shop base rents due primarily to fewer mall shops
being open compared to the second quarter of 1996, lower business interruption
insurance, lower lease buyout income, and higher interest expense caused mainly
from higher average borrowings, offset by lower property operating costs, higher
straight-line rental income, higher tenant recovery income, and higher temporary
and promotional leasing income.
Total revenues for the second quarter of 1997 were $31.0 million compared
with $30.9 million for the same period in 1996. Revenues in the quarter were
positively impacted by higher tenant recovery income, higher straight-line
rental income, and higher temporary and promotional leasing income, offset by
lower mall shop rents due to fewer mall shops being open, partially offset by
higher average rental rates, by lower business interruption insurance income and
by lower lease buyout income. Second quarter results were also negatively
impacted by a $0.7 million extraordinary loss on early extinguishment of debt
arising from the mortgage loan refinancings that occurred at the end of June;
this extraordinary loss does not impact FFO. The Company reported a net loss
for the second quarter of $1.0 million, or $0.03 per share, compared to net
income of $0.5 million, or $0.01 per share, in the second quarter of 1996.
For the first six months of 1997, the Company's share of FFO was $15.2
million, or $0.55 per share, as compared to $17.5 million, or $0.64 per share,
for the same period in 1996. For the first six months of 1997, total revenues
were $61.9 million compared to $64.4 million for the same period of 1996.
Operating Information
During the second quarter of 1997, leases for 182,000 square feet of mall
shops were signed resulting in $3.7 million in annual base rental income.
This compares to 65,000 square feet for $1.4 million during the same period
in 1996, a 164 percent increase based on annual rental income. A total of
96 leases were signed, which included 48 renewals and 48 new leases. For
the six months ended June 30, 1997, the average rent for mall shop leases
signed was $20.53 per square foot compared with $19.06 for the same period
in 1996, an increase of 7.7 percent. The average rents per square foot
were $23.17 for new leases and $18.43 for renewals in the first six months
of 1997 compared with $19.89 and $17.50, respectively, in 1996.
Also during the second quarter of 1997, leases for 216,000 square feet in
non-mall shop and/or freestanding locations were signed resulting in $2.2
million in annual base rental income. This includes a 50,000 square foot
theater at Oak Ridge Mall, a 44,000 square foot theater at West Manchester
Mall and a 23,000 square foot office supply superstore at Carlisle Plaza
Mall.
The average mall shop base rent of the portfolio as of June 30, 1997 was
$16.13 per square foot. This is a 4 percent increase from $15.56 per
square foot as of June 30, 1996, and the 15th consecutive quarter that
average mall shop base rent has increased.
Overall, mall shop occupancy was 77 percent as of June 30, 1997, up from
the 75 percent reported as of March 31, 1997, and the same as reported at
June 30, 1996.
Comparable mall shop sales for the first six months of 1997 were $92.88 per
square foot, a 4.5 percent increase over the $88.88 per square foot reported for
the first six months of 1996.
Occupancy costs, that is, base rent, percentage rent and expense recoveries
as a percentage of mall shop sales at all properties, were 10.7 percent as
of June 30, 1997, as compared to 10.9 percent as of June 30, 1996.
Temporary and promotional leasing income for the first six months of 1997
amounted to $3.3 million, a 17 percent increase over the same period in
1996.
"The Company's principal focus remains achieving growth through increasing
mall shop occupancy," continued Pasquerilla. "The positive specialty retail
climate presents an environment conducive to mall shop occupancy growth.
Furthermore, the positive trends in the Crown portfolio that include higher mall
shop sales and higher mall shop rentals with lower occupancy costs indicates a
transformed portfolio attractive to specialty retailers. This is represented by
our increase in signed leases of 69 percent (based on square footage) in the
first half of 1997 compared to 1996's performance. Leases out-for-signature, the
best indicator of our future earnings pipeline, increased by 80 percent in the
first half of 1997. We continue to expect mall shop occupancy to end the year
between 78 and 80 percent.
"While management continues to implement its internal growth strategy, the
recent completion of the 11.00 percent senior preferred offering for net
proceeds of approximately $119 million marks an important turning point for the
Company. Crown now has the flexibility to implement a viable external growth
strategy. Management embraces the challenges of executing an acquisition
program and an accelerated program of expanding and re-developing its existing
portfolio."
_______________________
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 together
own, acquire, operate and develop 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 and six months ended June 30, 1997. A copy of the Company's Supplemental
Financial and Operational Information Package is available by calling Investor
Relations at 1-800-860-2011.
<TABLE>
<CAPTION>
EXHIBIT 99(b)
CROWN AMERICAN REALTY TRUST
SECOND QUARTER 1997
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 vs. 1996 1997 vs 1996
(in thousands, except per share data)
<S> <C> <C> <C> <C>
FINANCIAL AND ANALYTICAL DATA:
Incr (Decr) in Total FFO - 1997 Total Per Total Per
compared to 1996: Share Share
Temporary and promotional leasing
income $ 214 $ 0.006 $ 482 $ 0.013
Lease buyout income (296) (0.008) (332) (0.009)
Mall operating costs, net of tenant
recovery income 1,026 0.028 1,626 0.044
Property administrative and general &
administrative expenses 143 0.004 (97) (0.003)
Cash flow support earned 196 0.005 228 0.006
Interest expense (375) (0.010) (502) (0.014)
Gain on sale of outparcel land (1,482) (0.040) (2,015) (0.054)
Business interruption insurance from
Logan Valley Fire (356) (0.010) (830) (0.022)
Base and percentage rents from
anchors and mall shops (497) (0.013) (1,641) (0.044)
Straight line rental income 418 0.011 255 0.007
Miscellaneous income & other;
rounding to whole cents; and
effect of additional outstanding
shares and units (8) (0.013) (149) (0.014)
Change in Total FFO for the period $ (1,017) $ (0.040) $ (2,975) $ (0.090)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Funds from Operations ($000 except
per share data):
Net income (loss) $ (1,048) $ 451 $ (2,317) $ 2,255
Adjustments:
Minority Interest in Operating
Partnership (359) 151 (793) 767
Depreciation and amortization - real
estate 9,623 9,449 19,815 17,520
Operating covenant amortization 657 647 1,315 1,293
Cash flow support amounts 886 690 1,676 1,448
Extraordinary loss on early
extinguishment of debt 732 120 732 120
Funds from Operations - - Total $ 10,491 $ 11,508 $ 20,428 $ 23,403
Funds from Operations - - Company's
percentage share $ 7,824 $ 8,593 $ 15,230 $ 17,485
FFO per share $ 0.28 $ 0.32 $ 0.55 $ 0.64
Average shares outstanding during the
period 27,685 27,493 27,657 27,476
Shares outstanding at period end 27,721 27,516 27,721 27,516
Avg. partnership units and shares
outstanding during the period 37,124 36,932 37,096 36,915
Partnership units and shares
outstanding at period end 37,160 36,955 37,160 36,955
Components of Minimum Rents:
Anchor - contractual or base rents $ 5,723 $ 5,665 $ 11,235 $ 11,360
Mall shops - contractual or base
rents 14,563 15,230 29,140 30,618
Straight line rental income (7) (425) (78) (333)
Ground lease - contractual or base
rents 374 385 750 770
Lease buyout income 80 376 88 420
Operating covenant amortization (657) (647) (1,315) (1,293)
Total minimum rents $ 20,076 $ 20,584 $ 39,820 $ 41,542
Components of Percentage Rents:
Anchors $ 626 $ 633 $ 1,405 $ 1,562
Mall shops and ground leases 504 365 1,203 1,055
Net $ 1,130 $ 998 $ 2,608 $ 2,617
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
SECOND QUARTER 1997
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
(in thousands, except as noted)
<S> <C> <C> <C> <C>
EBITDA: earnings (including gain on
sale of outparcel land)
before interest, taxes and all $ 21,138 $ 22,063 $ 41,792 $ 44,617
depreciation and amortization
Debt and Interest:
Fixed rate debt at period end $417,883 $ 401,666 $ 417,883 $ 401,666
Variable rate debt at period end 168,216 160,620 168,216 160,620
Total debt at period end $586,099 $ 562,286 $ 586,099 $ 562,286
Weighted avg. interest rate on fixed 7.8% 7.9% 7.8% 7.9%
rate debt for the period
Weighted avg. interest rate on variable 8.1% 8.0% 8.0% 8.0%
rate debt for the period
Total interest expense for period $ 11,460 $ 11,086 $ 22,820 $ 22,318
Amort. of deferred debt cost for period 836 1,073 1,685 2,130
(incl. in interest exp)
Capitalized interest costs during period 656 832 1,265 1,439
Capital Expenditures Incurred:
Allowances for anchors tenants $ 2,598 $ 1,825 $ 2,873 $ 3,368
Allowances for mall shop tenants 1,801 2,277 2,655 3,976
Leasing costs and commissions 1,123 429 1,561 1,251
Expansions and major renovations 7,264 11,841 10,745 20,941
All other capital expenditures (included 171 298 270 460
in Other Assets)
Total Capital Expenditures during the $ 12,957 $ 16,670 $ 18,104 $ 29,996
period
OPERATING DATA:
Mall shop GLA at period end 5,243 5,234
(000 sq. ft.)
Occupancy percentage at period end 77.0% 77.0%
Comp. Store Mall shop sales - 6 months $ 92.88 $ 88.88
(per sq. ft.)
Mall shop occupancy cost percentage at 10.7% 10.9%
period end
Average mall shop base rent at period $ 16.13 $ 15.56
end (per sq. ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 81 51 174 150
New leases - $ per sq. ft. $ 23.46 $ 21.20 $ 23.17 $ 19.89
Number of new leases signed. 48 32 105 76
Renewal leases - sq. feet (000) 101 14 218 82
Renewal leases - $ per sq. ft. $ 17.81 $ 26.51 $ 18.43 $ 17.50
Number of renewal leases signed. 48 13 104 52
Tenant Allowances for leases signed
during the period:
First Generation Space - per sq. ft. $ 42.08 $ 52.04 $ 32.69 $ 33.54
Second Generation Space - per sq. ft. $ 7.48 $ 33.35 $ 5.86 $ 12.06
Leases Signed during the period by:
First Generation Space - sq. feet (000) 39 8 55 61
Second Generation Space - sq. feet (000) 143 57 337 171
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
SIX MONTHS ENDED JUNE 30, 1997
TOP 25 REVENUE -GENERATING TENANTS
(Unaudited)
Percent of Total
Total Number Sq. Ft.
Tenant Notes Revenues Of Stores Occupied
<S> <C> <C> <C> <C>
Sears, Roebuck And Co. 5.7% 19 1,920,461
J C Penney Inc. (1) 4.8% 24 1,626,945
The Bon-Ton (2) 3.6% 14 1,072,905
May Department Stores Co. (3) 1.2% 8 991,380
Value City Department Stores 1.2% 6 441,665
The Limited Stores Inc. (4) 5.0% 47 353,888
Proffitts, Inc. 1.1% 5 318,989
Wal-Mart Stores 1.3% 3 302,204
K-Mart Corporation 1.1% 3 259,517
F.W. Woolworth (5) 3.9% 75 216,616
Charming Shops 1.8% 20 185,375
Deb Shops, Inc. 1.2% 15 91,447
Shoe Show Of Rocky Mt. Inc. 1.5% 20 87,137
The Wall Music Inc. (6) 1.6% 20 80,185
Hallmark-Owned Stores 1.7% 25 79,389
Consolidated Stores (7) 1.3% 20 68,366
Walden Book Co., Inc. 1.6% 20 67,369
Intimate Brands, Inc. (8) 1.5% 18 65,335
Payless Shoesource Inc. 1.2% 20 64,207
Tandy Corporation 1.1% 24 59,265
Moray, Inc. (9) 1.0% 14 54,409
Maurices 0.8% 13 50,525
Dollar Tree Stores (10) 0.8% 17 42,236
The Gap, Inc. 0.9% 10 40,494
General Nutrition Inc. 0.8% 22 34,164
TOTALS 47.4% 8,574,473
Notes:
(1) Includes 16 J.C. Penney department stores and 8 Thrift Drug stores.
(2) Excludes 5 former Hess's locations that had been operated on a temporary
basis.
(3) May Co. owns 5 of 8 stores totaling 619,333 square feet.
(4) Includes Limited Express, Lane Bryant, Lerner Shops, The Limited (core
division), and Structures.
(5) Includes Woolworth (only 1 location), Afterthoughts, Kinney, Footlocker,
Lady Footlocker, and Northern Reflections.
(6) Subsidiary of W.H. Smith Group Holdings USA, Inc.
(7) Includes Kay-Bee Toys which it recently purchased from Melville Realty Co.
(8) Spun off by the Limited. Includes Victoria Secrets and Bath & Body.
(9) Operates as B. Moss
(10) Includes Only One Dollar and Dollar Tree Stores
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 20,076 $ 20,584 $ 39,820 $ 41,542
Percentage rent 1,130 998 2,608 2,617
Property operating cost 7,298 6,711 14,437 14,636
recoveries
Temporary and promotional 1,607 1,393 3,262 2,780
leasing
Net utility income 681 591 1,413 1,272
Business interruption insurance - 356 - 830
Miscellaneous income 194 306 319 679
Net 30,986 30,939 61,859 64,356
Property operating costs:
Recoverable operating costs 9,318 9,549 18,855 20,277
Property administrative costs 447 495 1,024 992
Other operating costs 485 693 924 1,327
Depreciation and amortization 9,330 9,160 19,134 16,900
Net 19,580 19,897 39,937 39,496
Net 11,406 11,042 21,922 24,860
Other expenses:
General and administrative 894 989 2,049 1,984
Interest 11,460 11,086 22,820 22,318
Net 12,354 12,075 24,869 24,302
Net (948) (1,033) (2,947) 558
Property sales, disposals and
adjustments:
Gain on sale of outparcel land 273 1,755 569 2,584
Income (loss) before
extraordinary items
and minority interest (675) 722 (2,378) 3,142
Extraordinary loss on early
extinguishment of debt (732) (120) (732) (120)
Income (loss) before minority (1,407) 602 (3,110) 3,022
interest
Minority interest in Operating 359 (151) 793 (767)
Partnership
Net income (loss) $ (1,048) $ 451 $ (2,317) $ 2,255
Per share data (after minority
interest):
Income (loss) before $ (0.01) $ 0.01 $ (0.06) $ 0.08
extraordinary item
Extraordinary item (0.02) - (0.02) -
Net income (loss) $ (0.03) $ 0.01 $ (0.08) $ 0.08
Weighted average shares 27,685 27,493 27,657 27,476
outstanding
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
June 30, December 31,
1997 1996
(Unaudited)
(in thousands)
Assets
<S> <C> <C>
Income properties:
Land $ 120,225 $ 120,999
Buildings and improvements 815,221 798,470
Deferred leasing and other charges 39,075 41,223
Net 974,521 960,692
Accumulated depreciation and amortization (296,454) (281,478)
Net 678,067 679,214
Investment in joint venture 5,719 5,799
Cash and cash equivalents 2,724 6,746
Tenant and other receivables 13,202 16,516
Deferred charges and other assets 33,087 32,363
Net $ 732,799 $ 740,638
Liabilities and Shareholders' Equity
Debt on income properties $ 586,099 $ 568,785
Accounts payable and other liabilities 22,481 32,201
Net 608,580 600,986
Minority interest in Operating Partnership 31,553 35,576
Commitments and contingencies
Shareholders' equity:
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,720,866
and 27,612,756 shares issued and
outstanding at June 30, 1997 and December 31,
1996, respetively 277 276
Additional paid-in capital 186,175 184,205
Accumulated deficit (93,786) (80,405)
Net 92,666 104,076
Net $ 732,799 $ 740,638
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
1997 1996
(reclassified)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,317) $ 2,255
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority interest in Operating Partnership (793) 767
Equity earnings in joint venture (255) (300)
Depreciation and amortization 22,897 21,277
Extraordinary loss on early extinguishment of debt 732 120
Net changes in:
Tenant and other receivables 3,314 3,699
Deferred charges and other assets (3,277) 2,442
Accounts payable and other liabilities (8,044) (5,943)
Net cash provided by operating activities 12,257 24,317
Cash flows from investing activities:
Investment in income properties (17,834) (29,536)
Distributions from joint venture 150 200
Net cash (used in) investing activities (17,684) (29,336)
Cash flows from financing activities:
Net proceeds from dividend reinvestment plan 858 503
Proceeds from issuance of debt, net of issuance cost 77,435 40,804
Debt repayments (62,049) (21,179)
Dividends and distributions paid (14,839) (14,766)
Net cash provided by financing activities 1,405 5,362
Net (decrease) increase in cash and cash equivalents (4,022) 343
Cash and cash equivalents, beginning of period 6,746 6,036
Cash and cash equivalents, end of period $ 2,724 $ 6,379
Interest paid (net of capitalized amounts) $ 21,135 $ 20,188
Interest capitalized $ 1,265 $ 1,439
Non-cash financing activities:
Cash flow support credited to minority interest and
paid-in capital that was prefunded in 1995. $ 1,676 $ 1,448
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,724
<SECURITIES> 0
<RECEIVABLES> 13,202
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 974,521
<DEPRECIATION> 296,454
<TOTAL-ASSETS> 732,799
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 277
<OTHER-SE> 92,389
<TOTAL-LIABILITY-AND-EQUITY> 732,799
<SALES> 61,859
<TOTAL-REVENUES> 61,859
<CGS> 39,937
<TOTAL-COSTS> 39,937
<OTHER-EXPENSES> 2,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,820
<INCOME-PRETAX> (2,378)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,378)
<DISCONTINUED> 0
<EXTRAORDINARY> (732)
<CHANGES> 0
<NET-INCOME> (2,317)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
