SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended December 31, 1997
Commission file number: 1-12216
CROWN AMERICAN REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 25-1713733
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Pasquerilla Plaza
Johnstown, Pennsylvania 15901 (814) 536-4441
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $.01 per share
11.00% Senior Preferred Shares, par value $.01 per share ($50.00 Liquidation
Preference)
(Title of Class)
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.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of February 17, 1998, 26,475,314 Common Shares of Beneficial
Interest and 2,500,000 11.00% Senior Preferred Shares of the registrant
were issued and outstanding. The registrant estimates that as of
February 17, 1998 the aggregate market value of the voting common shares held
by non-affiliates of the registrant was approximately $222.5 million based on
the closing price on the New York Stock Exchange for such stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the registrant's Annual Meeting
of Shareholders to be held on April 29, 1998, are incorporated by reference into
Part III of this Form 10-K.
Exhibit Index on pages 54 to 55
TABLE OF CONTENTS
Item No. Page No.
PART I
1. Business 1
2. Properties 8
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 15
Executive Officers of the Company 16
PART II
5. Market for Registrant's Common Shares of Beneficial
Interest and Related Shareholder Matters 17
6. Selected Financial Data 17
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
8. Financial Statements and Supplementary Data 30
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 53
PART III
10. Directors and Executive Officers of the Registrant 53
11. Executive Compensation 53
12. Security Ownership of Certain Beneficial Owners and
Management 53
13. Certain Relationships and Related Transactions 53
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 53
Signatures 56
PART I
Item 1. Business.
(a) General Development of Business
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 ("CAA" or "Crown
Associates"), formerly Crown American Corporation. Crown Associates is a wholly-
owned subsidiary of Crown Holding Company ("Crown Holding"), which is owned by
Frank Pasquerilla and members of his immediate family. CAA, 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.
On August 17, 1993, the Company consummated simultaneously the
acquisition of the Properties (the "Acquisition") and an initial public offering
(the "IPO") of 24,540,000 of its common shares of beneficial interest (the
"Shares"). Eleven Properties were acquired by Crown American Properties, L.P.,
a Delaware limited partnership (the "Operating Partnership") which is controlled
by the Company as the sole general partner, and 15 Properties were acquired by
Crown American Financing Partnership, a Delaware general partnership (the
"Financing Partnership") in which the Operating Partnership owns a 99.5% general
partnership interest and in which the Company, through Crown American Financing
Corporation, a wholly-owned corporate subsidiary of the Company (the "Financing
Corporation"), owns a 0.5% general partnership interest. The net proceeds of
the IPO were contributed by the Company to the Operating Partnership in exchange
for the general partnership interest in the Operating Partnership. The
Operating Partnership contributed a portion of the net proceeds from the IPO to
the Financing Partnership in exchange for the 99.5% general partnership interest
in the Financing Partnership. Concurrently with the transactions described
above, the Financing Partnership consummated the borrowing of $300 million of
loans (the "Mortgage Loans") secured by mortgages on the 15 Properties then
owned by the Financing Partnership. The Operating Partnership and the Financing
Partnership (collectively, the "OP/FP Partnerships") used the proceeds of the
IPO and the Mortgage Loans to pay down existing mortgage debt on the Properties.
On September 15, 1993, the Company sold an additional 978,500 Shares as a result
of the underwriters of the IPO exercising the over-allotment option granted to
them in connection with the IPO.
The consideration paid by the Company and the OP/FP Partnerships for
the Properties consisted of: (i) the issuance to CAA of 1,450,000 Shares (having
a value of approximately $25.0 million, based on the initial public offering
price), and a 22% limited partnership interest in the Operating Partnership,
held by Crown Investments Trust ("CIT" or "Crown Investments"), an affiliate of
CAA and the Initial Limited Partner of the Operating Partnership, (having a
value of approximately $132 million based on the initial public offering price
and the fact that each partnership unit is initially equivalent to one Share)
and (ii) the issuance to Pasquerilla Partnership (a partnership comprised of
Frank J. Pasquerilla, Chairman of the Board of Trustees and Chief Executive
Officer of the Company, and members of his immediate family) of 150,000 Shares
(having a value of approximately $2.6 million based on the initial public
offering price). In addition, with the proceeds of the IPO, the Company paid
off certain of the debt on the Properties, of which approximately $37 million
was cross-collateralized debt that encumbered certain of the Properties as well
as certain of the assets retained by CAA, and of which another approximately $67
million was construction debt that was recourse to CAA. Also, by virtue of
acquiring certain of the Properties, which were subject to recourse construction
loans, the Operating Partnership assumed sole responsibility for $98 million of
recourse debt. In addition to the transactions described above, all of the
executive, property and asset management, leasing, construction, financial,
legal services, development and administrative personnel of CAA relating to its
regional mall and shopping center business became employees of the Operating
Partnership.
At the time of the IPO, the Company held an initial 78.00%
partnership interest in the Operating Partnership and Crown Investments held the
remaining 22.00% interest. Subsequently, the ownership interests have changed
due to (a) Company shares issued for cash and under the dividend reinvestment
plan (proceeds then reinvested by the Company in the Operating Partnership in
exchange for an equivalent number of additional common Partnership Units),
(b) additional Partnership Units issued as partial consideration for the
purchase of Wyoming Valley Mall in 1995 (see below), (c) issuance of
preferred Partnership Units in exchange for cash contributed by the
Company to the Operating Partnership in connection with the Company's 1997
offering of senior preferred shares, and (d) redemption of common
Partnership Units in connection with the Company's repurchase in the open
market of its common shares. The number of common and preferred
Partnership Units outstanding at December 31, 1997 were as follows:
Held by Common Units Preferred Units
Number % Number %
Crown American Realty Trust 26,475,314 73.72% 2,500,000 100.00%
Crown Investments Trust and
its subsidiary, Crown
American Investment Company 9,438,959 26.28% - -
Totals 35,914,273 100.00% 2,500,000 100.00%
Prior to and through November 1994, Hess's Department Stores, Inc.
("Hess's") was an anchor tenant at 12 of the Company's malls, in the joint
venture's enclosed shopping mall, at an anchor pad in which the Company holds a
ground leasehold interest, and at the two malls purchased by the Company in
January 1995 as described below. Hess's was a subsidiary of Crown Holding. In
1994 all of Hess's store locations were transferred or sold to The Bon-Ton
Stores, Inc. ("Bon-Ton") and to The May Department Stores Company ("May");
Hess's operations ceased at that time and it began to liquidate its remaining
assets and liabilities which was largely completed in 1997. Management believes
that the May and Bon-Ton transactions were consistent with, and in furtherance
of, the Company's growth strategy of upgrading its existing properties. Refer to
Note 8 of the Company's Consolidated Financial Statements in Item 8 hereto for
additional information concerning these transactions as they affect the Company.
At the time of the Company's formation in 1993, CAA and First Union
Real Estate Equity and Mortgage Investments ("First Union"), an unrelated
entity, each owned an undivided fifty percent (50%) fee interest in each of the
Wyoming Valley Mall and Middletown Mall properties (the "Acquisition
Properties"). Each of CAA's and First Union's undivided interests were leased
to subsidiaries of CAA pursuant to separate long-term ground leases. Based on
the agreements between CAA and First Union relating to their co-ownership of the
Acquisition Properties, which contained a right of first refusal with respect to
any third-party offer to purchase either party's interest, First Union objected
to the transfer of CAA's interests in the Acquisition Properties to the
Operating Partnership pursuant to such purchase offer made shortly after the
Company's formation.
In September 1994, Crown Investments entered into a Purchase and Sales
Agreement with First Union (the "PSA") to acquire First Union's interests in
each of the Acquisition Properties for an aggregate purchase price of
$33,500,000. The total consideration consisted of $27,500,000, payable in cash,
for its interest in Wyoming Valley Mall, and $6,000,000, payable pursuant to a
purchase money note in favor of First Union due January 31, 1998 with interest
at the rate of 9% per annum of which 8% per annum was payable in current monthly
installments (the "Middletown Note"), for its interest in Middletown Mall.
On December 14, 1994, the independent members of the Company's Board
of Trustees (the "Independent Trustees") unanimously approved the assignment by
CIT to the Operating Partnership of the right to acquire First Union's interest
in Wyoming Valley Mall pursuant to the PSA, and the assumption by the Operating
Partnership of the obligation to purchase such interest from First Union, upon
the simultaneous contribution of the respective interests of CAA and its
subsidiary in Wyoming Valley Mall to the Operating Partnership in exchange for
the issuance to such entities of additional common Partnership Units and cash in
amounts to be determined by the Independent Trustees after receipt of an
appraisal approved by an executive officer of the Company, but not less than
750,000 Partnership Units to CIT or a subsidiary of CIT and not less than
$10,000,000 in cash to CAA.
The Independent Trustees adopted a similar resolution regarding
Middletown Mall (except that there was to be no cash payment by the Operating
Partnership nor any specified minimum number of common Partnership Units to be
issued), subject to satisfaction of certain conditions. On January 27, 1995,
the Independent Trustees unanimously approved the assignment by CIT or its
immediate assignee to the Operating Partnership of the right to acquire First
Union's interest in Middletown Mall pursuant to the PSA, upon the simultaneous
contribution to the Operating Partnership of the respective interests of CAA and
its subsidiary in Middletown Mall, in return for the assumption by the Operating
Partnership of the existing first mortgage indebtedness on Middletown Mall
(approximately $1,784,000 principal amount outstanding as of such date) and the
Operating Partnership's agreement to take title subject to a second mortgage to
be delivered to First Union to secure the $6.0 million Middletown Note (but
without any recourse to the Operating Partnership or the Company). In addition,
the Independent Trustees approved the issuance to CAA, CAA's subsidiary and a
subsidiary of CIT (as CIT's assignee), in exchange for the contribution of their
respective interests in Middletown Mall, of an aggregate number of additional
common Partnership Units to be determined by the Independent Trustees at the
time of the payment of the Middletown Note in full (retroactive to January 1 of
the year in which such payment occurs).
The total number of additional common Partnership Units issued and to
be issued in exchange for the respective contributions of such interests in
Wyoming Valley Mall and Middletown Mall is determined by dividing the estimated
annualized distribution of Funds from Operations, as defined, attributable to
Wyoming Valley Mall or Middletown Mall, as the case may be (after taking into
account adjustments to ground rent and debt service refinanced or assumed by the
Operating Partnership), by the dividend distribution rate per Share in effect
for the year ended prior to the year in which the units are issued.
On May 3, 1995, the Independent Trustees made the final determination
of the total number of additional common Partnership Units to be issued in
exchange for the contribution of the interests of CAA and CAA's subsidiary in
Wyoming Valley Mall; 1,786,459 additional common Partnership units were issued,
effective as of January 31, 1995, to Crown American Investment Company, a new
wholly-owned subsidiary of CIT (as successor by merger with CAA's subsidiary) in
exchange for such contributions. The new units represented approximately 5.1%
of the total units outstanding prior to the issuance of the new units.
On January 30, 1998, the Company paid in full the $6,000,000 note to
First Union in respect of the Middletown purchase. Approximately 400,000
additional common Partnership Units are expected to be issued to CAA and/or its
affiliates, effective as of January 1, 1998, as the deferred contingent
consideration for the contribution of Middletown Mall to the Operating
Partnership, subject to final determination and approval by the Independent
Trustees. The 400,000 units would represent approximately 1.1% of the total
common Partnership Units outstanding prior to the issuance of the new units. If
Middletown Mall is held for redevelopment during 1998, there may be additional
common Partnership Units issued to CAA and/or its affiliates in 1999 if such
redevelopment and leasing activities result in enhanced Funds from Operations,
as defined, during 1998. The Company has nearly finalized an agreement of
sale with an unrelated third party with respect to Middletown Mall and the
adjacent outparcel land under which the purchaser will have 30 days to complete
its due diligence and can cancel the agreement for any reason during this
period. The purchase price is approximately $12 million which would result in a
gain. For the year ended December 31, 1997 Middletown contributed $2.2 million
in revenues and $0.2 million in income before minority interest. Additional
consideration may also be due to CAA and/or its affiliates if such sale is
consummated, the amount of which will be dependent on net proceeds received.
As more fully described in Note 6 to the Consolidated Financial
Statements, the Company completed an offering of 2,500,000 11.00% non-
convertible senior preferred shares on July 3, 1997. The initial offering price
was $50.00 per share and the net proceeds to the Company were $118.7 million
after underwriter's commission and other offering expenses. The preferred
shares are listed on the New York Stock Exchange. The net proceeds were
contributed by the Company to the Operating Partnership in exchange for
2,500,000 preferred Partnership Units. The terms of the new class of preferred
Partnership Units generally parallel those of the Company's preferred
shares as to distributions and redemption rights. In turn, the Operating
Partnership used the proceeds to repay $58.3 million of debt and to acquire
Valley Mall, as described below. In connection with the preferred share
offering, the Company's Board of Trustees also authorized the Company to make
open market purchases of the Company's common shares. As of December 31, 1997,
the Company had repurchased 1,251,898 common shares for an aggregate purchase
price of $12.2 million; these shares are currently held as treasury shares.
Under the current Board resolution, the Company is authorized, but not
obligated, to repurchase up to an additional 1,248,102 common shares. In
connection with such repurchases, the Operating Partnership redeemed from the
Company an equivalent number of common Partnership Units for the equivalent
repurchase cost, thus maintaining a 1.0 to 1.0 relationship between the number
of the Company's outstanding common shares of beneficial interest and the number
of common Partnership Units in the Operating Partnership that are owned by the
Company.
As more fully described in Note 14 to the Consolidated Financial
Statements, on November 17, 1997 the Company acquired Valley Mall located in
Hagerstown, Maryland for $31.7 million in cash, plus $0.4 million in transaction
costs. Valley Mall is an enclosed regional mall consisting of approximately
616,000 square feet of gross leaseable area ("GLA"), of which 123,400 is owned
by the current department store occupant. In addition, the purchase included
48,762 square feet of out-parcel GLA, and 30.8 acres of additional adjacent
undeveloped land.
(b) Financial Information About Industry Segments
The Company is primarily engaged in the business of owning, operating,
managing, leasing, acquiring, developing, redeveloping, expanding, renovating
and financing enclosed shopping malls and, therefore, only operates in one
segment. See the Consolidated Financial Statements and Notes thereto referred
to in Item 8 of this Annual Report on Form 10-K for certain financial
information required by Item 1.
(c) Narrative Description of Business
General
The Company conducts all of its business activities through the
Operating Partnership, the Financing Partnership and other partnerships
(collectively the "Partnerships"). Through its ownership interests in the
Partnerships, as of December 31, 1997 the Company owns: (a) 25 enclosed
shopping malls and a 50% partnership interest in Palmer Park Mall (an enclosed
shopping mall) (collectively, the "Malls"), (b) an office building in Johnstown,
Pennsylvania with approximately 102,500 gross leasable square feet, which serves
as the headquarters of the Company and also is leased to CAA's hotel division
and third parties ("Pasquerilla Plaza"), (c) a ground leasehold interest in a
parcel of land with an approximate 107,000 square foot building sub-leased to an
anchor department store at Westgate Mall, a mall owned by an unaffiliated third
party (the "Anchor Pad"), and (d) approximately160 acres of outparcels and
undeveloped land, the majority of which adjoins or is in the vicinity of certain
of the Malls (hereinafter all such real estate assets to be referred to as the
"Properties"). As further described in Note 15 to the Consolidated Financial
Statements, the Company also owned, until September 1996 when it was sold to a
third party, an office building in Newport News, Virginia with approximately
102,000 gross square feet leased to third parties (the "Patrick Henry Corporate
Center"). The Operating Partnership manages 25 of the Malls (the "Managed
Malls") and Pasquerilla Plaza; the Anchor Pad and Palmer Park Mall are managed
by non-affiliated third party property managers.
The Company is self-administered and self-managed. The Company,
together with the Partnerships, is a fully-integrated real estate company
engaged in the ownership, operation, management, leasing, acquisition,
development, redevelopment, expansion, renovation and financing of enclosed
shopping malls.
The Company's executive offices are located at Pasquerilla Plaza,
Johnstown, Pennsylvania 15901 and its telephone number is (814) 536-4441.
Operating Strategies and Practices
General. The Company's management believes that the shopping center
business has evolved from primarily a development activity to an operating
business. The Company's management believes that a shopping center company must
be a fully integrated real estate company with asset management, property
management, leasing, expansion and renovation, acquisition, development and
redevelopment, and financing expertise.
Mall Management. The Operating Partnership performs all day-to-day
property management functions for the Managed Malls and Pasquerilla Plaza. These
functions include leasing, construction, management, accounting, finance, data
processing, maintenance, marketing, promotion and security. The Company provides
each Managed Mall with a general manager, who oversees the on-site staff, and a
marketing director. In addition, each Managed Mall is further supported by
regional group managers and multi-property operations, marketing and support
personnel.
Marketing Support. The Company has a Vice President of Marketing and
a corporate marketing director who, in conjunction with Managed Mall marketing
directors, develop customized marketing plans for each Managed Mall, including
special events, direct mail and television, radio and newspaper advertising.
Cost Controls. Management has developed a centralized program for
purchasing selected supply items, which permits all Managed Malls to share in
bulk purchase discounts. Management believes that effective control of
operating expenses will reduce common area charges which may enable the Company
to increase base rent levels.
To preserve and increase the value of the Managed Malls over the long
term, the Company has a program of preventive maintenance, renovations and
expansion plans. The maintenance plans encompass paving, roofing, HVAC and
general improvements to the Managed Mall common areas.
Business Objectives and Policies
The Company's business objective is to achieve long-term capital
appreciation through increases in cash flow and the value of the Company. The
Company seeks to accomplish this objective through its direct and indirect
ownership of the Properties, selective acquisitions of additional malls or other
real estate properties in the United States, improved operations of the
Properties, lease-up of unleased space and any acquired shopping centers and,
where deemed appropriate, renovations and expansions of these properties. The
Company intends to pursue development activities as opportunities arise. A
criterion for new investments will be that they offer the opportunity for growth
in Funds from Operations. As used herein, "Funds from Operations" means net
income before minority interest, extraordinary items and non-recurring items,
real estate depreciation and amortization, and additionally includes gain on
sale of outparcel land sales and cash flow support earned from Crown Investments
(See Note 8 to the Consolidated Financial Statements). The Company anticipates
that new real estate investments will be located primarily in the Eastern United
States, but it may also consider purchasing properties in other regions of the
United States. All of the Company's activities will be conducted through the
Partnerships, although the Company may hold temporary cash investments from time
to time pending investment or distribution to shareholders.
The Company may purchase or lease properties for long-term investment,
expand and improve the Properties presently owned, or sell such Properties, in
whole or in part, when circumstances warrant. The Company may also participate
with other entities in property ownership, through joint ventures or other types
of co-ownership. The Company expects that any single investment in a property
would not exceed 10% of the Company's assets. The Company's policy is to
acquire assets primarily for income and long-term appreciation in value through
the implementation of the Company's asset management and operating strategies.
Disposition Objectives and Policies
The Company will dispose of any of the Properties, if, based upon
management's periodic review of the Company's portfolio, the Board of Trustees
determines that such action would be in the best interests of the Company. As
further described in Note 15 to the Consolidated Financial Statements, in 1995
the Board of Trustees authorized management to pursue the sale of certain malls
and other assets that were not considered at that time to be fully consistent
with or essential to the Company's long-term strategies. As reported in the
Company's Form 10-Q for the second quarter of 1996, the assets that had been
held for sale in 1995 are no longer being offered due to potential new
development opportunities that have arisen, current market conditions, and other
reasons. Other than the Patrick Henry Corporate Center, an office building
located in Newport News, Virginia, which was sold to a third party in September
1996, none of the Properties have been sold to date, or are under a sale
agreement at this time except that the Company has nearly finalized an agree-
ment of sale for Middletown Mall, as more fully described in Item 1 (a) and
in Note 15 to the Consolidated Financial Statements in Item 8 hereto.
Financing
The Company maintains working capital and lines of credit that,
together with potential access to borrowings and other sources of funds, it
believes is adequate for the current conduct of its business and investments in
the ordinary course. The principal financing activities of the Company during
1997 included: (a) a public offering of senior preferred shares, (b) several
loan refinancings, and (c) a loan refinancing, two lines of credit and a
refinancing commitment with GE Capital Real Estate, as further described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 hereto, and in Notes 5 and 6 to the Consolidated Financial
Statements in Item 8 hereto.
If the Board of Trustees determines that additional funding is
required, the Company or the Partnerships may raise such funds through
additional infusions of equity (public or private and at the Company or the
Partnership level), debt financing or retention of additional cash flow by
reducing the dividend amount per share (subject to considerations regarding the
taxability of undistributed real estate investment trust income), or a
combination of these methods. In August 1995 the Company reduced its quarterly
dividend from $.35 per share to $.20 per share in order to reinvest more
internally-generated funds in various property expansions, improvements, and
related investments. It is anticipated that any additional borrowings will be
made through the Partnerships either directly or indirectly, although the
Company may also incur indebtedness which may be re-loaned to the Partnerships.
Indebtedness incurred by the Company may be in the form of bank borrowings,
secured and unsecured, and publicly and privately placed debt. Indebtedness
incurred by the Partnerships may be in the form of purchase money obligations to
the sellers of properties, publicly or privately placed debt, financing from
banks, institutional investors or other lenders, any of which indebtedness may
be unsecured or may be secured by mortgages or other interests in the property
owned by the Partnerships. Such indebtedness may be recourse to all or any part
of the Properties to be owned by the Partnerships, may be limited to the
particular property to which the indebtedness relates, and may be guaranteed by
the Company.
Strategy for Growth
The Company was formed to provide a public vehicle for the further
growth of CAA's enclosed shopping mall business. It is the objective of the
Company's management to achieve growth in Funds from Operations by maximizing
cash flow from existing Malls through increased occupancy and increased rent,
expanding and/or renovating existing Malls, acquiring and, to a lesser extent,
developing new enclosed shopping malls, and by selling properties that are not
consistent with or essential to the Company's long-term growth strategies.
The Company follows a program of renovation and expansion in
circumstances where management believes that higher rental rates and occupancy
levels can be achieved. The Company intends to continue to monitor
opportunities for expansion and reconfiguration and to capitalize on such
opportunities in part through utilizing its relationships with existing tenants
and its extensive contacts with the retailing community. The Company intends to
undertake development activities as opportunities arise. The Company's primary
acquisition strategy is to purchase under-performing shopping centers in
desirable areas and to improve their performance through a comprehensive program
of renovation, expansion, reconfiguration, and re-merchandising. The Company
may acquire shopping centers in different regional markets to facilitate
geographic diversification of its real estate holdings. The acquisition of
larger properties, or a group of properties, may be undertaken with an
institutional or joint venture partner.
Because the Company's revenues are subject to a variety of factors,
many of which (such as local and national economic conditions, interest rates
and the financial performance of the Company's tenants) are beyond the Company's
control, there can be no assurance that the Company's management, leasing and
acquisition strategies will achieve the Company's growth objectives.
Competitive Position
The Malls are generally located in middle markets where there are
relatively few other enclosed malls, making most of them the dominant enclosed
mall in their respective trade areas; 22 Malls are the largest enclosed malls in
their trade areas, of which 15 are the only enclosed mall in their trade areas.
Sixteen Malls are located in the state of Pennsylvania and one is
located in New Jersey near the Pennsylvania border, approximately 25 miles from
Allentown. Two of the Malls are located in Virginia, two in Maryland, two in
West Virginia, two in eastern Tennessee and one in northwestern Georgia.
CAA had continually expanded and renovated its Malls to maintain their
competitive position. 20 of the Malls have undergone an expansion or renovation
since they were completed, and 18 of the Malls have been expanded more than
once. Management of the Company intends to utilize the approximately 1.9 million
square feet of remaining expansion capacity to maintain and enhance the quality
of the Malls and their competitive position in their trade areas.
Although management believes the Malls can compete effectively within
their trade areas, the Company must also compete with other owners, managers and
developers of retail shopping centers and malls. Many of its competitors may be
at an advantage to the extent they can utilize working capital and retained
earnings to finance projects while the Company is required to satisfy the REIT
qualification requirements under the Internal Revenue Code of 1986 (the "Code"),
which include a requirement to distribute specified amounts of its annual
taxable income, as defined in the Code (See Income Taxes section following for
additional information). In addition, retailers at the Malls face increasing
competition from discount shopping centers, outlet malls, shopping clubs, direct
mail, telemarketing, and home shopping television networks.
Employees
At the time of the initial public offering, all of the executive,
property and asset management, leasing, construction, financial, legal services,
development and administrative personnel of CAA relating to its regional mall
and shopping center business became employees of the Operating Partnership. As
of December 31, 1997, the Operating Partnership has approximately 430 full-time
employees in the following operational areas:
Number of
Employees
Asset and property management (including on-site) 303
Leasing and lease administration 26
Development and construction services 23
Financial, accounting, MIS and legal services 53
Executive management and corporate administration 25
Total 430
None of the Operating Partnership's employees are currently
represented by any union. The Company, the Financing Partnership and other
partnerships do not have any paid employees, but officers of the Operating
Partnership are also officers of the Company and the other partnerships. The
Company's management considers its relations with the employees of the Operating
Partnership to be satisfactory.
Business Issues
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, bankruptcy of tenants, 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
indebtedness, and trends in the national and local economy, including income tax
laws, governmental regulations and legislation and population trends.
Income Taxes
The Company elected to be taxed as a Real Estate Investment Trust
(REIT) under Sections 856 through 860 of the Code, commencing with its first
taxable year ended December 31, 1993, and intends to conduct its operations so
as to continue to qualify as a REIT under the Code. As a REIT, the Company
generally will not be subject to Federal and state income taxes on its net
taxable income that it currently distributes to shareholders. Qualification
and taxation as a REIT depends on the Company's ability to meet certain dividend
distribution tests, share ownership requirements and various qualification tests
prescribed in the Code.
If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to Federal and state income taxes (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain state and local taxes on its income and property and to
Federal income and excise taxes on its undistributed income.
Environmental Matters
The Company believes that the Properties are in compliance in all
material respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances. The Company is not aware of any
environmental condition which the Company believes would have a material adverse
effect on the Company's business, assets or results of operations (before
consideration of any potential insurance coverage). Nevertheless, it is possible
that there are material environmental liabilities of which the Company is
unaware. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties have not been or will not be
affected by tenants and occupants of the Properties, by the condition of
properties in the vicinity of the Properties or by third parties unrelated to
the Company.
Many of the Malls contain, or at one time contained, underground
and/or above ground storage tanks used to store waste oils or other petroleum
products primarily related to the operation of auto service center
establishments at such Malls, and one Mall was constructed on a site a portion
of which had been previously used as a municipal landfill. In some cases,
underground storage tanks have been abandoned in place, filled in with inert
materials or removed and replaced with above ground tanks. Historical records
indicate that soil and groundwater contamination from underground tanks and, in
one case, a hydraulic lift, requiring remediation has occurred at five of the
Properties, and subsurface investigations (Phase II assessments) and remediation
work are either ongoing or scheduled to be conducted by the Company at such
Properties. The costs of remediation with respect to such matters have not been
and are not expected to be material.
There are also minor amounts of asbestos-containing materials ("ACM")
in most of the Properties, primarily in the form of floor tiles, mastics and
roofing materials, which are generally in good condition. Fireproofing and
insulation containing asbestos is also present in certain Properties in
non-public areas, such as mechanical rooms. The Company believes that the
presence of these ACM does not violate current law. In addition, the Company
has an ongoing program of reviewing spaces that have been vacated by tenants and
occupants of the Properties for the presence of ACM, and removing any ACM
discovered in such spaces before reletting the same to new tenants or occupants.
Two Malls also contain waste water treatment facilities which treat
waste water at the Malls before discharge into local streams. Operation of such
facilities is subject to federal and state regulation. All necessary permits
have been obtained and the Company's management believes such facilities are in
compliance with current law.
Item 2. Properties.
(a) The Malls
Through its ownership interests in the Partnerships, the Company owns
the Malls, which consist of 26 enclosed shopping malls, which include a 50%
partnership interest in Palmer Park Mall (an enclosed shopping mall). All of
the Malls have department stores as anchor tenants (the "Anchors"), as described
in the table on the following pages. All of the Malls have numerous diversified
retail store, and in some instances a few office or non-retail tenants (the
"Mall Stores"), which are located along enclosed malls connecting the Anchors.
Additional freestanding retail stores (the "Freestanding Stores") are located
along the perimeter of the parking areas at 18 of the Malls. Unless otherwise
indicated, the information provided in this Item 2 is stated as of December 31,
1997.
The Company, through the Partnerships, owns all of the Malls in fee,
except Palmer Park Mall, Shenango Valley Mall and Uniontown Mall. Palmer Park
Mall Venture, in which the Company has a 50% general partnership interest, holds
title in fee to Palmer Park Mall. Shenango Valley Mall is subject to a third-
party ground lease, and Uniontown Mall is subject to two third-party ground
leases.
The total gross leasable area ("GLA") of all 26 Malls is approximately
15.0 million square feet, including Anchors, Mall Stores and Freestanding
Stores. As used herein, GLA of a Mall includes the GLA attributable to all
Anchors, including seven anchor locations owned by their occupants or other
entities. Anchors, Mall Stores and Freestanding Stores account for
approximately 58%, 37% and 5%, respectively, of the total GLA of the Malls.
Excluding Freestanding Stores, the Malls range in size from approximately
300,000 to 820,000 square feet of GLA with an average size of approximately
546,000 square feet of GLA. Each Mall has ample surface parking with 23 of the
Malls having parking ratios above 5.0 per 1,000 square feet of GLA.
At December 31, 1997, 94% of the Company-owned anchor GLA was leased
and occupied, and all of the seven non-owned anchor stores were occupied. The
vacant anchor premises consist of (a) two former Kmart locations (North Hanover
Mall and Carlisle Mall) bought-out by Kmart in late 1996 for a $1.4 million cash
payment, (b) three former temporary Bon-Ton store locations (Schuylkill Mall,
Franklin Mall and Middletown Mall - see Note 8 to the Consolidated Financial
Statements concerning the sale of Hess's in 1994 to the Bon-Ton), (c) one
additional anchor location in Middletown Mall, and (d) a former Clover store
(Palmer Park Mall). In addition, shortly after December 31, 1997, the J.C.
Penney store at Carlisle closed although rental payments will continue through
March 1999. The Company also bought-out the Value City lease at Nittany Mall in
early January 1998 in connection with a planned anchor replacement.
The Company is in discussions with department store chains and other
tenants as replacements for the vacant anchor store locations. Mall Store GLA,
excluding Middletown Mall and Valley Mall (purchased in November 1997), was 79%
leased at December 31, 1997. All references herein to occupancy rates and to
leased space for mall shop tenants include signed leases with tenants that have
not yet taken occupancy.
On December 16, 1994 a fire occurred at the Logan Valley Mall located
in Altoona, Pennsylvania. The fire destroyed 44 small shops aggregating 148,800
square feet of gross leasable space as well as affecting three additional small
shops containing approximately 18,000 square feet of gross leasable space. The
net book value of the destroyed assets approximated $3.5 million. The Company
settled the property damage insurance claim with its insurance company in the
third quarter of 1995 for $15.9 million. The difference between the amount
received and the net book value of destroyed assets and the related demolition
and clean up costs is $11.2 million, which has been recorded as an extraordinary
gain in 1995. During 1995 and 1996 the Company also recorded $1.9 million and
$0.8 million, respectively, in business interruption insurance, which is
included in revenues. Because of the business interruption insurance coverage,
the fire had no material impact on 1996, 1995 and 1994 results of operations.
The reconstruction and expansion of the fire-damaged mall was completed in
August 1997 at a cost of approximately $68 million, including capitalized
interest and tenant allowances for new tenants. The construction costs were
financed with a construction loan obtained from a bank lending consortium. In
November 1997 the construction loan was refinanced as more fully described in
Note 5 to the Consolidated Financial Statements.
There are several types of retail shopping centers, varying primarily
by size and marketing strategy. Retail shopping centers of 100,000 square feet
to 400,000 square feet of GLA, are considered "community" shopping centers,
those in excess of 400,000 square feet of GLA are considered "regional" shopping
centers, while those having in excess of 800,000 square feet of GLA are
considered "super-regional" shopping centers. Twenty two of the Malls are
considered regional shopping centers and four are community shopping centers.
The Malls generally are located in middle markets where there are
relatively few other enclosed shopping malls. The Company's management believes
that the Malls have strong competitive positions because 22 are the largest, of
which 15 are the only, enclosed regional shopping malls in their respective
trade areas. No one Mall accounted for more than 6.1% of the total GLA of the
Malls or 7.7% of total revenues for the year ended December 31, 1997.
A substantial portion of the income from the Malls consists of rent
received under long-term leases. Generally, the leases provide for tenants to
pay rent comprised of two elements. The first element is fixed base rent, often
subject to increases according to a schedule agreed upon at the time of lease
inception. The second element is percentage rent, which is based on a
percentage of gross sales in excess of a specified minimum annual amount. In
some cases tenants only pay fixed base rent and, in a few cases, tenants only
pay percentage rent.
Virtually all of the leases for Mall Stores contain provisions
allowing the Malls to recover certain costs for common area maintenance,
property taxes and other expenditures related to the day-to-day operations of
the Malls. In addition, most of the Mall Store leases include provisions that
allow the Malls to recover costs associated with roof and parking lot repairs
and other capital expenditures. Most Anchors also contribute to certain of
these costs.
Unless otherwise noted, the following table sets forth certain
information regarding the Malls as of December 31, 1997:
<TABLE>
<CAPTION>
% of Owned/ Lease
Anchor/Mall or
Store GLA Ease-
Leased as ment
of Dec. 31, Expir-
Property Square Feet of GLA(1) 1997 (2) Anchors ation
<S> <C> <C> <C> <C> <C>
Pennsylvania
Capital City Mall Mall 238,470 100/85% Sears 2000
Camp Hill, PA Anchor 322,512 Hecht's (3) 2093
Freestanding 46,158 J.C. Penney 2010
Total GLA 607,140
Carlisle Plaza Mall Mall 121,263 64/67% J.C. Penney (4) 1999
Carlisle, PA Anchor 154,335 Bon-Ton 2002
Freestanding 69,146 Vacant -
Total GLA 344,744
Chambersburg Mall Mall 215,522 100/78% Sears 2010
Chambersburg, PA Anchor 240,948 J.C. Penney 2012
Total GLA 456,470 Value City 2007
Bon-Ton 2005
Franklin Mall Mall 238,687 79/52% Sears 1999
Washington, PA Anchor 310,401 Hills 2006
Freestanding 3,132 Bon-Ton 2000
Total GLA 552,220 Vacant -
Logan Valley Mall Mall 327,281 100/81% Kaufmann's 2005
Altoona, PA Anchor 453,643 Sears 2016
Total GLA 780,924 J.C. Penney 2017
Lycoming Mall Mall 317,717 100/83% Sears 2008
Williamsport, PA Anchor 453,936 J.C. Penney 2005
Freestanding 25,857 Bon-Ton 2006
Total GLA 797,510 Kaufmann's (3) 2093
Value City 2008
Nittany Mall Mall 222,373 100/86% Sears 2005
State College, PA Anchor 298,489 J.C. Penney 2005
Freestanding 4,168 Value City (5) 1997
Total GLA 525,030 Bon-Ton 2003
North Hanover Mall Mall 132,985 78/85% Sears 2000
Hanover, PA Anchor 286,596 J.C. Penney 2001
Freestanding 29,027 Bon-Ton 2001
Total GLA 448,608 Vacant -
Palmer Park Mall Mall 143,556 58/79% Bon-Ton 1999
Easton, PA Anchor 197,516 Vacant (7) -
Freestanding 684
Total GLA 341,756
Schuylkill Mall Mall 277,533 100/62% Sears 2005
Frackville, PA Anchor 409,122 Kmart 2005
Freestanding 45,773 Bon-Ton (10) 2032
Total GLA 732,428 Phar-Mor 2006
Vacant -
Shenango Valley Mall Mall 105,875 100/82% Sears 2000
Sharon, PA Anchor 356,226 J.C. Penney 1999
Freestanding 50,466 Kaufmann's 2001
Total GLA 512,567
South Mall Mall 123,510 100/92% Bon-Ton 2005
Allentown, PA Anchor 229,985 Stein Mart 2006
Freestanding 30,519 Phar-Mor 2006
Total GLA 384,014
Uniontown Mall Mall 245,381 100/82% Sears 2000
Uniontown, PA Anchor 411,381 J.C. Penney 2005
Freestanding 32,978 Bon-Ton 2005
Total GLA 689,740 Value City 1997
Teletech (6) 2005
Freight
Liquidators 2005
Viewmont Mall Mall 206,930 100/94% Sears 2005
Scranton, PA Anchor 532,058 J.C. Penney 2000
Freestanding 31,029 Kaufmann's (3) 2093
Total GLA 770,017
West Manchester Mall Mall 295,932 100/70% Value City 2011
York, PA Anchor 407,366 Bon-Ton 2001
Total GLA 703,298 Wal-Mart 2014
Hecht's (3) 2094
Wyoming Valley Mall Mall 235,505 100/96% Sears 2001
Wilkes-Barre, PA Anchor 585,676 J.C. Penney 2002
Freestanding 94,315 Bon-Ton 2002
Total GLA 915,496 Kaufmann's (8) 2002
Kaufmann's (8) 2002
Maryland
Francis Scott Key Mall Mall 276,168 100/92% Sears 2003
Frederick, MD Anchor 435,347 J.C. Penney 2001
Freestanding 2,417 Value City 2010
Total GLA 713,932 Hecht's (10) 2044
Valley Mall Mall 228,408 100/73% J.C. Penney 2004
Hagerstown, MD Anchor 387,748 Bon-Ton 1999
Freestanding 48,762 Montgomery
Total GLA 664,918 Ward (10) 2044
New Jersey
Phillipsburg Mall Mall 212,905 100/58% Bon-Ton 2010
Phillipsburg, NJ Anchor 306,541 J.C. Penney 2010
Freestanding 18,073 Kmart 2015
Total GLA 537,519 Sears 2004
Virginia
New River Valley Mall Mall 182,740 100/74% Sears 2008
Christiansburg, VA Anchor 240,753 J.C. Penney 2008
Total GLA 423,493 Belks 2008
Peebles 2009
Patrick Henry Mall Mall 208,302 100/91% Upton's 2007
Newport News, VA Anchor 232,618 Dillards (9) 2008
Total GLA 440,920 Belks (9) 2009
Georgia
Mount Berry Square Mall 208,766 100/75% Sears 2011
Rome, GA Anchor 269,868 J.C. Penney 2006
Total GLA 478,634 Proffitt's 2012
Belk-Rhodes 2011
Tennessee
Bradley Square Mall 155,186 100/63% Sears 2005
Cleveland, TN Anchor 231,014 J.C. Penney 2006
Total GLA 386,200 Proffitt's 2011
Kmart 2012
Oak Ridge Mall Mall 262,649 100/45% Sears 2005
Oak Ridge, TN Anchor 368,272 J.C. Penney 2007
Freestanding 234,402 Wal-Mart 2008
Total GLA 865,323 Proffitt's (8) 1999
Proffitt's (8) 2013
West Virginia
Martinsburg Mall Mall 166,561 100/69% Sears 2011
Martinsburg, WV Anchor 284,089 Wal-Mart 2011
Total GLA 450,650 J.C. Penney 2011
Bon -Ton 2012
Middletown Mall Mall 188,652 66/33% (11) Hills 2011
Fairmont, WV Anchor 257,411 Office
Freestanding 28,926 Facility (11) 1998
Total GLA 474,989 Vacant (two
locations)
Totals for all Mall Stores 5,538,857 94%/79% (11)
Malls Anchor 8,663,851 (12)
Freestanding 795,832
Total GLA 14,998,540
</TABLE>
(1) GLA includes the total square footage of the Anchors, Mall Stores and
Freestanding Stores.
(2) Mall Store occupancy includes both tenants in occupancy and tenants that
have signed leases but have not yet taken occupancy as of December 31,
1997.
(3) Tenant currently holds a 99 year ground lease with nominal purchase option.
See Note 8 to the Consolidated Financial Statements. These locations are
deemed owned by their anchor occupants as they only pay a nominal rent.
(4) The J.C. Penney closed its 38,000 square foot store at Carlisle Mall in
January 1998 but remains obligated for monthly rental payments through
March 1999 when the lease expires. The Company is currently negotiating
with a potential replacement tenant.
(5) The Value City lease at Nittany Mall was bought-out by the Company for a
payment of $1.1 million on
January 5, 1998 in connection with a planned anchor replacement.
(6) Teletech Holdings, Inc. is an office tenant that has leased the temporary
Bon-Ton location vacated in January 1996. This location had been occupied
since 1996 by Freight Liquidators, a furniture store, which is relocating
into vacant mall shop space under a seven year lease.
(7) The former tenant owned its store and the land under the store and operated
under a reciprocal easement agreement. The former tenant closed this store
in 1996 and the store and land were purchased by the Palmer Park Mall
Venture in 1997. A new lease with replacement anchor has been signed by
the tenant and the other joint venture partner and is planned to be signed
by the Company in March 1998. The new lease has an initial term of
20 years.
(8) Proffitt's operates two stores at Oak Ridge Mall, one is a children's and
men's store and one is a women's and home furnishings store.
Kaufmann's (a division of May Department Stores) operates two stores at
Wyoming Valley Mall; one for women's and children's apparel and home
furnishings and one for men's apparel.
(9) Dillards will open by spring 1998 in the space formerly occupied by
Proffitts. Belks is expanding their premises by 35,026 square feet with a
fall 1998 opening date for the expanded space. The May Company is building
a new 140,000 square foot store, also expected to open in fall 1998, which
will become the fourth anchor at this mall. In addition to the anchor
changes, the Company is also adding 29,000 square feet of additional mall
shop space that will be available for tenant openings in the fall of 1998.
(10) Tenant owns its store and the land under the store and operates under a
reciprocal easement agreement. The lease expiration date reflects the
expiration of the agreement.
(11) A former anchor store location has been leased for several years as an
office facility to The Federal Bureau of Investigation. There are also two
vacant anchor stores at this mall. As more fully described in Note 15 to
the Consolidated Financial Statements, the Company has nearly finalized
an agreement of sale for Middletown for approximately $12 million. The
agreement is non-binding until the purchaser completes its due diligence.
Accordingly, Middletown has been excluded from the aggregate occupancy
calculations.
(12) Includes 823,346 square feet of space related to 7 stores that are owned
by their anchor occupants.
(b) Other Properties
The Company also has ownership interests in Pasquerilla Plaza and the
Anchor Pad, as described below, and also owns approximately 160 acres of
undeveloped land adjacent to most of the Malls which is available for
development, lease or sale to tenants or others.
Pasquerilla Plaza is a five-story building located in Johnstown,
Pennsylvania, built in 1989, and contains 102,500 square feet of gross leasable
area. The Company, as owner of Pasquerilla Plaza, uses approximately 73,000
square feet as its headquarters space and leases approximately 12,400 square
feet to CAA and affiliates for annual base rent of $236,000. Approximately
16,900 square feet is currently leased to third parties. Net rental revenue from
Pasquerilla Plaza from tenants other than CAA was $241,000 for the year ended
December 31, 1997.
The Anchor Pad. The Anchor Pad is located at Westgate Mall in
Bethlehem, Pennsylvania. Westgate Mall is owned by a third party unaffiliated
with the Company and the Anchor Pad is ground leased by such third party to the
Company. The site encompasses 10 acres with an approximately 107,000 gross
square foot anchor store and a detached freestanding building of 5,000 square
feet. Bon-Ton subleases the anchor store and the freestanding building from
the Company. The ground lease and the sublease expire on November 22, 2000, at
which time the Company has an option to purchase the land fee interest for
$500,000. Rental revenue from the Anchor sublease was $307,000 in 1997.
(c) Property Insurance
The Company's management believes that all Properties described
under Items 2(a) and 2(b) which are owned by the Company, in whole or in part,
are adequately covered by insurance.
Item 3. Legal Proceedings
The Company from time to time is involved in litigation incidental to
its business. Except as described below, neither the Company nor any of the
Partnerships 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 or the Partnerships, 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.
Shareholder litigation
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 the reduction of the Company's quarterly dividend to increase
its levels of retained internal cash flow and the planned sale of certain assets
that at the time did not fit the Company's growth strategy. The complaints in
these three cases were consolidated by the Court and a consolidated amended
complaint was filed on February 23, 1996. The consolidated amended complaint
asserts a class period extending from March 1, 1995 to August 8, 1995,
inclusive.
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 the United States District Court for the Eastern
District of Pennsylvania (the Warden action). This action was subsequently
transferred to the Western District of Pennsylvania. While this Complaint is
substantially similar to the previous Complaints, it alleged a class period
extending from August 17, 1993 (the IPO Date) to August 8, 1995.
The Company filed a motion seeking to dismiss the consolidated action
and negotiated a stay of the Warden action pending resolution of the motion to
dismiss the consolidated action. On September 15, 1997 the Court issued an
opinion dismissing the consolidated amended complaint. In its ruling, the Court
dismissed certain allegations with prejudice and others with an opportunity to
amend. On October 10, 1997 the Plaintiffs filed a second amended complaint in
the consolidated action. On December 2, 1997 the court entered an order
consolidating the cases for pretrial purposes. On December 16, 1997 the
Plaintiff in the Warden action filed a second amended complaint, which changed
the end of the putative class period to February 28, 1995. On January 16, 1998
the Company filed motions seeking dismissal of the consolidated action and the
Warden action.
The consolidated legal action and the Warden action are in a very
preliminary stage. However, the Company believes, based on the 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 actions.
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 effect on the
Company's results of operations or financial condition.
Logan Valley Mall fire litigation
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
filed lawsuits against the Company for damages to property and for interruption
of business. In August 1997 all of these above-referenced lawsuits were
settled within the coverage limits of the applicable insurance policies. The
settlements had no material adverse effect on the Company's results of
operations or financial condition.
Tenant litigation
In July 1997 The Bon-Ton Department Stores, Inc. filed suit in a
Pennsylvania state court against Crown American Financing Partnership and The
May Department Stores seeking to enjoin the development of a Kaufmann's
Department Store at Nittany Mall. Bon-Ton claimed that the proposed Kaufmann's
store would violate a restrictive covenant in Bon-Ton's lease with Crown. Crown
and May disputed Bon-Ton's position and filed a counterclaim seeking a
declaratory judgment that the proposed transaction did not violate the
restrictive covenant. The parties stipulated to a trial of all issues (except
the availability of damages to Bon-Ton should it establish liability but not the
entitlement to injunctive relief). After this trial, the Court ruled in favor
of Crown and May, denying Bon-Ton's request for injunctive relief and granting
Crown and May's motion for declaratory judgment. Bon-Ton has appealed to the
Pennsylvania Superior Court. The appeal is pending and has not yet been briefed
or argued. While the final resolution of this litigation cannot be presently
determined, management does not believe that it will have a material adverse
effect on the Company's results of operations or financial condition.
In December 1996 the Company was advised by Proffitt's, a tenant at
the Company's Patrick Henry Mall in Newport News, Virginia, that it was selling
its stores in the Tidewater region of Virginia to Dillard's, Inc. Pursuant to
the Lease between the Company and Proffitt's, the Company had the right to
terminate its Lease with Proffitt's in the event of an assignment to a third
party. The Company exercised its right of termination. In conjunction with its
termination of the Lease, the Company filed a declaratory judgment action in the
state court of Virginia seeking a judicial affirmation of the lease termination.
On December 29, 1997 the state court granted summary judgment in favor of the
Company, ruling that the termination of the Lease by the Company was proper. In
August 1997 Dillard's, Inc. and Dillard's Virginia, Inc. filed suit against the
Company and May Department Stores, alleging that the Company and May conspired
and agreed in restraint of trade in violation of the antitrust laws of the
United States and Commonwealth of Virginia to preclude Dillard's from entering
the Patrick Henry Mall. In January 1998 this lawsuit was settled by the
parties. The settlement had no material adverse effect on the Company's results
of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the Company
during the fiscal quarter ended December 31, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
five executive officers of the Company as of February 17, 1998.
Name Age Office with the Company
Frank J. Pasquerilla 71 Trustee, Chairman of the Board of Trustees and
Chief Executive Officer
Mark E. Pasquerilla 38 Trustee and President
John M. Kriak 50 Trustee, Executive Vice President and Chief
Financial Officer
Nicholas O. Antonazzo 60 Executive Vice President, Real Estate
Development
Thomas Stephenson 56 Executive Vice President, Asset Management
Frank J. Pasquerilla became Chairman and Chief Executive Officer of
the Company upon its formation. Mr. Pasquerilla directs all financial and
development activities, establishes corporate policy and provides overall
strategic direction for the Company. He joined CAA within a year of its
founding in 1950 and became president in 1953. Mr. Pasquerilla became CAA's
sole owner in 1961 and has served as its Chairman and Chief Executive Officer.
He is a Trustee of the University of Notre Dame, a member of the Board of
Directors of Georgetown University and was a Trustee of the International
Council of Shopping Centers.
Mark E. Pasquerilla became President of the Company upon its
formation. Mr. Pasquerilla directs asset management, project construction and
the general administration of the Company and also assists the Chief Executive
Officer with strategic planning and the establishment of corporate policy. He
has also served as President of CAA since 1990, and was Executive Vice President
of Operations of CAA from 1987 to 1990. Mr. Pasquerilla was a member of the
Governor of Pennsylvania's Economic Development Partnership Council from 1987 to
1995, and is a former Fulbright-Hays Scholar. In addition, Mr. Pasquerilla is a
member of the Board of Directors and the Executive and Discount Committees of
USBANCORP, INC. Mark E. Pasquerilla is the son of Frank J. Pasquerilla.
John M. Kriak became Executive Vice President and Chief Financial
Officer of the Company on May 3, 1995. Mr. Kriak is responsible for financial
services, with emphasis on corporate and project financing, financial reporting,
and management information systems. Mr. Kriak has been Executive Vice President
of Crown Holding Company, the parent of Crown Investments Trust, since May 1993.
He was formerly the Chief Financial Officer, Vice President, Secretary, and
Treasurer of Penn Traffic Company, a food retailer and supermarket operator,
from 1976 until May 1993. Mr. Kriak is a CPA, CMA and CFM.
Nicholas O. Antonazzo became Executive Vice President, Real Estate
Development, of the Company upon its formation. Mr. Antonazzo directs the
expansion and redevelopment of regional malls, anchor department store
relations, build-to-suit development, value-added tenant relations and
peripheral land sales. He has also served as Executive Vice President of
Development of CAA from 1987 to August 16, 1993. Mr. Antonazzo is a former
state director for the International Council of Shopping Centers and is admitted
to practice law before the Pennsylvania Supreme and Superior Courts.
Thomas Stephenson became Executive Vice President, Asset Management of
the Company in April 1994. Mr. Stephenson is responsible for strategic planning
as well as directing the operations of the Company's regional shopping mall
portfolio. He served as Senior Vice President of Operations for The Hahn
Company (a shopping center developer and manager) from 1987 to 1994 and as Vice
President of Operations from 1983 to 1987. Previously, he was with Trizec
Corporation, Ltd. ( a shopping center developer and manager) from 1971 to 1983
as Vice President of Operations. Mr. Stephenson is a CPA.
The executive officers are elected annually by the Board of Trustees
at an organization meeting which is held immediately after each Annual Meeting
of Shareholders. The executive officers of the Company serve in the identical
offices in each of the Partnerships.
PART II
Item 5. Market for Registrant's Common Shares of Beneficial Interest and
Related Shareholder Matters
The shares are listed on the New York Stock Exchange (symbol: CWN).
As of February 17, 1998, there were 26,475,314 common shares issued and
outstanding, held by 1,127 holders of record. The high and low sales price of
the common shares and dividends paid per common share during each quarter in the
period January 1, 1996 through December 31, 1997 were as follows:
1996 1997
High Low Dividend High Low Dividend
Quarter ended March 31 $8 3/8 $7 3/8 $0.20 $8 3/8 $7 3/8 $0.20
Quarter ended June 30 $7 7/8 $7 3/8 $0.20 $9 3/8 $7 1/2 $0.20
Quarter ended September 30 $8 5/8 $7 5/8 $0.20 $9 15/16 $9 3/16 $0.20
Quarter ended December 31 $8 $7 1/4 $0.20 $9 11/16 $8 1/8 $0.20
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data
for the Company, its wholly-owned subsidiaries, and its majority-owned
subsidiary, the Operating Partnership. The Company is sole general partner in
the Operating Partnership, and as of December 31, 1997 holds 100% of the
preferred partnership interests (see Note 6 to the Consolidated Financial
Statements) and 73.72% of the common partnership interests. The Operating
Partnership in turn holds a 99.5% general partnership interest in the
Financing Partnership, and holds 99.5% imited partnership interests in Crown
American WL Associates, L.P. and Crown American Acquisition Associates I,
L.P. (see Note 5 and Note 14 to the Consolidated Financial Statements),
with 0.5% general partnership interests in each entity owned by the Company
through its wholly-owned subsidiaries. The combined financial data of Crown
American Realty Properties (the "Predecessor") which includes all the
assets, liabilities and results of operations identified with the Properties and
pro forma consolidated data as if the formation of the Company had occurred on
January 1, 1993. The financial data should be read in conjunction with the
Consolidated Financial Statements and Notes in Item 8 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
in Item 7. (See Item 1 in this Annual Report on Form 10-K for a discussion
of the business combination completed on August 17, 1993).
Per share data are reflected only for the Company for the period from
its inception to December 31, 1997 and for the pro forma financial data for the
year ended December 31, 1993. (See Note 2 to the Consolidated Financial
Statements in Item 8 hereto.) Per share data are not relevant for the
historical combined financial data of the Predecessor since it did not operate
as a separate legal entity. Historical operating results, including net income
or loss, may not be comparable to future operating results because of the
historically greater debt leverage of the Predecessor.
Industry analysts generally consider Funds from Operations ("FFO") an
appropriate measure of performance for an equity REIT. Funds from Operations
means net income (computed in accordance with generally accepted accounting
principles - "GAAP") before minority interest, real estate depreciation and
amortization, and extraordinary and unusual non-recurring items, and
additionally includes earned cash flow support. 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. Gains on sales of outparcel land are
included in this measure of performance. Gains on sales of anchor store
locations are excluded from FFO because such transactions are uncommon and not a
part of ongoing operations.
Beginning in 1996 the Company adopted a change in the definition of
FFO as promulgated by The National Association of Real Estate Investment Trusts
(NAREIT). Under the new definition, amortization of deferred financing costs
and depreciation of non-real estate assets, as defined, are not adjustments to
GAAP income in the calculation of FFO. All prior periods' FFO results have been
retroactively restated. The revised definition resulted in reductions of 1996,
1995, and 1994 total FFO of $4.6 million, $4.5 million, and $3.9 million,
respectively.
EBITDA is defined as revenues and gain on sales of outparcel land,
less operating costs and general and administrative expenses, but before
interest, depreciation and amortization. Management believes this measure
provides the clearest indicator of property 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 capital 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.
Other data that management believes is important in understanding
trends in its business and properties are also included in the following table.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data (continued)
Crown American Realty Trust
Year Ended December 31,
1997 1996 1995 1994
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Data:
Total revenues $130,994 $ 133,972 $ 132,248 $ 119,859
Operating costs:
Property operating costs 43,779 46,457 45,408 39,368
Depreciation and amortization 38,311 35,315 34,634 29,171
General and administrative 4,698 4,135 4,420 2,622
expenses
Operating income before interest 44,206 48,065 47,786 48,698
Interest 42,663 45,337 42,923 36,240
Adjustment to carrying value (35,000)
of assets
Gain on sale of property 1,051 5,776 3,492 6,591
Income (loss) before minority
interest and extraordinary items 2,594 8,504 (26,645) 19,049
Minority interest in 1,644 (1,979) 4,205 (4,192)
Operating Partnership
Extraordinary gain on fire 11,244
insurance claim
Extraordinary loss on early (2,331) (718) (765)
extinguishment of debt
Net income (loss) 1,907 5,807 (11,961) 14,857
Dividends on preferred (6,646)
shares
Net income (loss) applicable $ (4,739) $ 5,807 $ (11,961) $ 14,857
to common shares
Per share data (after
minority interest): (2)
Basic EPS:
Income (loss) before $ (0.11) $ 0.23 $ (0.72) $ 0.55
extraordinary items
Extraordinary items (0.06) (0.02) 0.29
Net income (loss) $ (0.17) $ 0.21 $ (0.43) $ 0.55
Diluted EPS:
Income (loss) before $ (0.11) $ 0.23 $ (0.72) $ 0.55
extraordinary items
Extraordinary items (0.06) (0.02) 0.29
Net income (loss) $ (0.17) $ 0.21 $ (0.43) $ 0.55
Other Data:
EBITDA (3 & 5) $ 88,028 $ 91,514 $ 91,269 $ 84,876
Funds from Operations (FFO):
(4, 5, & 6)
Net income (loss) $ 1,907 $ 5,807 $ (11,961) $ 14,857
Adjustments:
Minority interest in (1,644) 1,979 (4,205) 4,192
Operating Partnership
Adjustment to carrying value 35,000
of assets
Less gain on asset sales (2,351) (4,498)
Depreciation and amortization 39,682 36,678 36,417 30,859
- - real estate
Operating covenant 2,630 2,630 2,685 2,592
amortization
Cash flow support earned 3,733 2,889 2,591 3,703
Extraordinary gain on fire (11,244)
insurance claim
Extraordinary loss on early 2,331 718 765
extinguishment of debt
Funds from Operations before 48,639 48,350 50,048 51,705
allocations to minority interest
and preferred shares
Less:
Amounts allocable to 6,646
preferred shares
Amounts allocable to minority 10,810 12,287 12,653 11,379
interest
Funds from Operations $ 31,183 $ 36,063 $ 37,395 $ 40,326
applicable to common shares
Weighted average common 27,228 27,515 27,372 27,119
shares outstanding (000)
Weighted average common 36,667 36,956 36,668 34,772
shares and Operating
Partnership units outstanding
(000)
Cash Flows:
Net cash provided by $ 38,747 $ 44,848 $ 57,174 $ 50,489
operating activities
Net cash (used in) investing (70,983) (41,730) (100,238) (20,031)
activities
Net cash provided by (used 34,962 (2,408) 46,964 (34,136)
in) financing activities
Crown American Crown American
Realty Trust Realty Properties
August Pro February
17, Forma(1) 1,
1993 Twelve 1993 Year
to Months to Ended
December December August January
31, 31, 16, 31,
1993 1993 1993 1993
Operating Data:
Total revenues $ 45,370 $ 113,404 $ 58,940 $ 107,521
Operating costs:
Property operating costs 14,225 38,168 21,131 34,123
Depreciation and amortization 10,674 29,818 16,809 27,815
General and administrative 651 2,310 1,861 2,184
expenses
Operating income before 19,820 43,108 19,139 43,399
interest
Interest 13,453 36,555 40,454 75,440
Adjustment to carrying value
of assets
Gain on sale of property 836 4,154 3,202 1,393
Income (loss) before minority
interest and
extraordinary items 7,203 10,707 (18,113) (30,648)
Minority interest in (1,585) (2,355)
Operating Partnership
Extraordinary gain on fire
insurance claim
Extraordinary loss on early (13,960)
extinguishment of debt
Net income (loss) 5,618 8,352 (32,073) (30,648)
Income allocated to preferred
shares
Net income (loss) applicable $ 5,618 $ 8,352 $(32,073) $(30,648)
to common shares
Per share data (after
minority interest): (2)
Basic EPS:
Income (loss) before $ 0.21 $ 0.31
extraordinary items
Extraordinary items
Net income (loss) $ 0.21 $ 0.31
Diluted EPS:
Net income (loss) before $ 0.21 $ 0.31
extraordinary items
Extraordinary items
Net income (loss) $ 0.21 $ 0.31
Other Data:
EBITDA (3 & 5) $ 32,633 $ 78,014 $ 41,033 $ 75,349
Funds from Operations (FFO):
(4, 5, & 6)
Net income (loss) $ 5,618 $ 8,352
Adjustments:
Minority interest in 1,585 2,355
Operating Partnership
Adjustment to carrying value
of assets
Less gain on asset sales (2,480)
Depreciation and amortization 10,755 30,178
- - real estate
Operating covenant 971 2,590
amortization
Cash flow support earned 1,365 3,947
Extraordinary gain on fire
insurance claim
Extraordinary loss on early
extinguishment of debt
Funds from Operations before 20,294 44,942
allocations to minority
interest and preferred shares
Less:
Amounts allocable to
preferred shares
Amounts allocable to minority 4,465 9,891
interest
Funds from Operations $ 15,829 $ 35,051
applicable to
common shares
Weighted average common 26,901 27,119
shares outstanding (000)
Weighted average common 34,564 34,772
shares and Operating
Partnership units outstanding
(000)
Cash Flows:
Net cash provided by $ 5,296 N/A
operating activities
Net cash (used in) investing (12,500) N/A
activities
Net cash provided by (used 13,018 N/A
in) financing activities
(1) Pro forma operating data represents the results of operations as if the
formation of Crown American Realty Trust had occurred on January 1, 1993.
The pro forma operating data for the twelve months ended December 31, 1993
represents the results of operations of Crown American Realty Trust for the
period August 17, 1993 to December 31, 1993, plus the pro forma results of
operations of Crown American Realty Properties for the period
February 1, 1993 to August 16, 1993 and an estimate for January 1993, based
primarily on one-twelfth of the pro forma year ended January 31, 1993.
(2) All per share data are based on the weighted average common shares
outstanding shown for the respective periods.
(3) EBITDA represents earnings before interest, depreciation and amortization,
and unusual items. As a REIT, the Company is generally not subject to
federal income taxes.
(4) Funds from Operations represents net income before minority interest, real
estate depreciation and amortization, plus earned cash flow support
and adjusted for certain unusual and non-recurring items.
(5), (6) - See page 20 for explanation
</TABLE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data (continued)
December 31,
Balance Sheet Data: 1997 1996 1995 1994 1993
(in thousands)
<S> <C> <C> <C> <C> <C>
Income-producing properties
(before accumulated
depreciation and amortization) $1,024,641 $960,692 $933,220 $856,213 $836,451
Total assets 785,949 740,638 737,518 701,409 701,485
Total debt and liabilities 570,845 600,986 580,234 502,856 481,813
Minority interest 25,334 35,576 39,873 43,670 48,345
Shareholders' equity 189,770 104,076 117,411 154,883 171,327
December 31,
Portfolio Property Data (7): 1997 1996 1995 1994 1993
Number of malls at end of year 26 25 25 23 23
Mall shop GLA at end of year 5,539 5,355 5,221 4,895 4,987
(000 sq. ft.) (8)
Comparable store mall shop $ 228 $ 217 $ 206 $ 204 $ 206
tenant sales per square foot
(9), (11)
Occupancy percentage at year 79% 76% 82% 84% 80%
end (10), (11)
(5) 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.
(6) As noted in the narrative preceding the above table, beginning in 1996, the
Company adopted a revised definition of FFO as promulgated by NAREIT.
FFO for all prior periods has been restated.
(7) The data prior to 1995 excludes Wyoming Valley Mall and Middletown Mall
which were acquired by the Company in 1995. The data for 1997 includes
the impact of the Valley Mall acquisition completed in November 1997
(see Note 14 to the Consolidated Financial Statements).
(8) All periods shown exclude anchor store GLA and freestanding GLA which
approximate 8.7 million square feet and 0.8 million square feet,
respectively, at December 31, 1997.
(9) Total sales for all mall shop tenants, excluding freestanding space, movie
theaters, and supermarkets, amounted to $721 million, $719 million,
$715 million, and $700 million for 1997, 1996, 1995 and 1994,
respectively. Sales reported in 1997, 1996, 1995, and 1994 for all
owned anchor stores were $1,132 million, $1,112 million, $962 million
and $922 million, respectively. The Company owns 93 of 100 anchor store
premises as of December 31, 1997.
(10) Includes both tenants in occupancy and tenants that have signed leases but
have not yet taken occupancy as of the dates indicated.
(11) Comparable mall shop tenant sales and year-end occupancy statistics
exclude Middletown Mall (see Note 11 to the table in Item 2 (a)) and
Valley Mall which was acquired in November 1997.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements and Notes
thereto in Item 8 in this Annual Report on Form 10-K. The Note references in
this item can be found on pages 35 to 52. Historical results set forth in the
Selected Financial Data and the Consolidated Financial Statements of Crown
American Realty Trust (the "Company") are not necessarily indicative of future
financial position and results of operations of the Company.
(a) General Background and Performance Measurement
Organization
Crown American Realty Trust (the "Company") was formed in 1993 to
acquire interests in 23 enclosed shopping malls and certain other real estate
(collectively the "Properties") then currently owned by Crown American
Corporation, a wholly-owned subsidiary of Crown Holding Company ("Crown
Holding"). The Company is a real estate investment trust under the Internal
Revenue Code of 1986, as amended. On August 17, 1993 the Company completed its
initial public offering and raised net proceeds of approximately $405 million in
equity from issuing approximately 25.5 million shares, including the subsequent
exercise of the underwriters' over-allotment option. The Company 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 referred to above and is the
successor entity of Crown American Realty Properties (the "Predecessor"). The
minority limited partnership interests are currently held by Crown Investments
Trust and by Crown American Investment Company, a wholly-owned subsidiary of
Crown Investments Trust, both of which are affiliates of Crown American
Associates ("Crown Associates") which was also formed in 1993 as a wholly-owned
subsidiary of Crown Holding and as "Successor to Crown American Corporation".
The funds were used by the Operating Partnership to retire debt related to the
Properties.
Simultaneous with the 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. As a result of these transactions,
the Company is engaged primarily in the ownership, operation, management,
leasing, acquisition, expansion, development and financing of shopping malls.
In addition, simultaneous with the above transaction, the Financing Partnership
borrowed $300 million of mortgage debt initially secured by 15 properties (now
14 properties). The $300 million was used to retire existing debt contributed
by the Predecessor.
The properties held by the Company at December 31, 1997 consist of:
(1) 25 enclosed shopping malls (together with approximately 160 acres of
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 (under ground lease
with purchase option) improved with a building leased to a department store
chain.
(b) Funds from Operations
As further discussed under Item 6, Selected Financial Data, in this
Form 10-K, the Company adopted a change in the definition of Funds From
Operations (FFO) beginning January 1, 1996, and has retroactively restated all
prior periods for consistent basis of presentation.
Year ended December 31, 1997 versus year ended December 31, 1996
FFO applicable to common shareholders for the year ended December 31,
1997 was $31.2 million, compared to $36.1 million for the year ended December
31, 1996. Total 1997 FFO before allocations to minority interests and preferred
shareholders was $48.6 million compared to $48.4 million in 1996.
FFO contribution from the Company's core property operations (i.e.,
anchor and mall shop rents, percentage rents, straight-line rents, operating
costs net of tenant recoveries, temporary and seasonal leasing, and mis-
cellaneous mall revenues) increased $3.5 million over 1996. The $3.6 million
improvement in property operations includes $2.5 million from lower operating
costs, net of tenant recoveries, $0.8 million higher temporary and seasonal
leasing income reflecting increased emphasis on this area to mitigate the
lower mall shop occupancy, $0.5 million higher straight-line rental income,
and $0.5 million contributed from Valley Mall which was acquired in November
1997, offset by $0.2 million lower small shop base and percentage rents from
lower average occupancy partially offset by higher average base rents, and $0.8
million from lower anchor base and percentage rents due largely to higher
anchor vacancies in 1997. Other positive impacts on total 1997 FFO included: a)
a decrease in net interest costs of $2.7 million of which $3.3 million is the
effect of the paydown of debt and increased short-term investments associated
with the July 1997 preferred share offering offset by $0.6 million higher
interest from increased borrowings and less capitalized interest, mainly
related to the Logan Valley Mall reconstruction, and b) an increase in Cash
Flow Support (see Note 8) by $0.8 million. Negative impacts on total 1997 FFO
included: a) a decrease in gain on land sales of $2.4 million, b) a
decrease in lease buyout income of $2.3 million, c) lower business
interruption income from the Logan Valley fire of $0.8 million, d) lower
fees on sales of non-REIT assets of $0.4 million, and e) higher
general and administrative costs in the amount of $0.8 million.
Year ended December 31, 1996 versus year ended December 31, 1995
FFO applicable to common shareholders for the year ended December 31,
1996 was $36.1 million, compared to $37.4 million for the year ended December
31, 1995. Total 1996 FFO before allocations to minority interest and preferred
shareholders was $48.4 million compared to $50.0 million in 1995.
Positive impacts on total 1996 FFO included: (a) one additional
month's contribution from the two malls purchased in early 1995 of $0.3 million
which is net of $0.4 million of interest for the extra month, (b) $1.6 million
in higher temporary leasing and promotional income resulting from increased
emphasis on temporary and seasonal leasing to offset the decline in permanent
tenant mall shop occupancy in 1996, (c) $0.4 million in lower property and
general administrative costs, (d) $1.6 million in higher lease buyout income
including $1.4 million from two Kmart stores that had been closed but still
paying rent, and (e) $0.3 million in higher cash flow support earned under the
Cash Flow Support Agreement. Negative impacts on total 1996 FFO included: (a)
$2.0 million in higher net interest costs as explained further below, (b) $1.0
million in lower business interruption insurance related to the Logan Valley
Mall fire that occurred in late 1994, (c) $1.5 million in lower straight-line
rental income primarily from write-offs of accrued straight-line rent
receivables related to tenants that vacated early, (d) $0.6 million from lower
base and percentage rents due to lower mall shop occupancy partially offset by
higher average rental rates, and (e) $0.4 million from lower miscellaneous
income, principally fee and broker income.
(c) EBITDA - Earnings before Interest, Taxes, Depreciation and
Amortization
Year ended December 31, 1997 versus year ended December 31, 1996
Total EBITDA for the year ended December 31, 1997 was $88.0 million, a
decrease of $3.5 million from 1996's $91.5 million. The principal factors
impacting EBITDA in 1997 were: a) $2.3 million lower lease buyout income, b)
$0.8 million lower business interruption income from the 1994 fire at Logan
Valley Mall, c) $2.4 million lower gain on land sales, offset by d) $2.1
million lower net property operating costs and administrative costs.
Year ended December 31, 1996 versus year ended December 31, 1995
Total EBITDA for the year ended December 31, 1996 was $91.5 million,
up $0.2 million from 1995's $91.3 million. The principal factors impacting
EBITDA in 1996 were: (a) higher total revenues of $1.7 million offset by $1.4
million in net higher property operating costs and administrative costs.
(d) Property Operating Results and Trends
Aggregate Tenant Sales Volume
Over the long term, the level of anchor and mall shop tenant sales is the
single most important determinant of revenues of the Company as anchor and mall
shop tenants provide over 90% of total revenues and because tenant sales
determine the amount of rent, percentage rent and recoverable expenses
(together, total occupancy costs) that tenants can afford to pay. However,
levels of tenant sales are considerably more volatile in the short run than
total occupancy costs.
In a period of rapidly increasing sales, rents on new leases will tend
to rise as tenants' expectations of future growth become more optimistic. In
periods of declining sales, rents on new leases tend to grow more slowly.
However, revenues generally increase as older leases roll over or are terminated
early and replaced with new leases negotiated at current rental rates that are
usually higher than the average rates for existing leases.
Average base rents per square foot for mall shop tenants at quarter
end for the last three years as shown below. The increase in average base rent
during these three years results primarily from renewing existing leases at
higher base rents, from leasing vacant space at higher base rents, and from
elimination of lower paying tenants that closed during this period.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
March 31 $ 15.96 $ 15.42 $ 14.79
June 30 16.13 15.56 14.86
September 30 16.69 15.71 15.07
December 31 16.82 15.85 15.10
</TABLE>
Total reported sales for all tenants that reported sales for the
applicable years are shown below ($ in millions):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Anchors (owned locations) $ 1,132 $ 1,112 $ 962
Mall shop tenants, excluding 721 719 715
freestanding, theater, and
supermarkets
</TABLE>
The above data excludes sales from all seasonal and temporary tenants
who generally do not report their sales to the Company. The growth in total
anchor sales for 1997 was mitigated because of (1) the two Kmart stores that
were bought out in late 1996 and which were vacant in 1997 and (2) two temporary
Bon-Ton stores that closed in early 1997 and which were vacant during the
remainder of the year. The Company owned 93 of 100 anchor store locations at
December 31, 1997.
Comparable Mall Store Sales and Occupancy Cost
Management believes that over long periods of time the ability of
tenants to pay occupancy costs and earn profits increases as sales per square
foot increase, whether through inflation or real growth in customer spending.
Because most mall shop tenants have certain fixed expenses, the occupancy costs
(base fixed rents, percentage rents, and expense recoveries - pro rata share of
real estate taxes and common area maintenance and other costs pertaining to the
property) that they can afford to pay and still be profitable is a higher
percentage of sales at higher sales per square foot. While such increased
occupancy costs as a percentage of sales cannot grow indefinitely for any one
tenant, management believes that it is possible to increase the percentage paid
by all tenants as a group by aggressively working to replace under-performing
tenants with better performing ones.
Comparable mall store sales per square foot in each reporting period
is based on sales reported by mall store tenants (excludes anchors and certain
other large space users) that occupied space in both the current and immediately
preceding reporting period. Comparable mall store sales per square foot for the
last three years are set out below. Also shown below is the percentage of mall
shop tenants' occupancy costs as a percentage of their annual sales.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Comparable mall store sales per square foot $ 228 $ 217 $ 206
Occupancy cost percentage at period end 10.4% 10.6% 11.1%
</TABLE>
Seasonality and Occupancy
The enclosed shopping mall industry is seasonal in nature, with anchor
and mall shop tenant sales highest in the fourth quarter due to the Christmas
season, and with lesser, though still significant, sales fluctuations associated
with the Easter holiday and back-to-school events. While minimum rents and
expense recoveries are generally not subject to seasonal factors, many leases
are scheduled to expire in the first calendar quarter, and the majority of new
stores open in the second half of the year in anticipation of the Christmas
selling season. Accordingly, revenues and occupancy levels are generally lowest
in the first quarter and highest in the fourth quarter.
The aggregate occupancy percentage, defined as the ratio of total mall
shop space that is leased (including both tenants occupying space and tenants
that have signed leases but have not yet taken occupancy) to the total mall shop
space gross leasable area ("GLA") at quarter-end for the last three years is set
out below.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
March 31 75% 79% 82%
June 30 77% 77% 81%
September 30 77% 77% 81%
December 31 79% 76% 82%
</TABLE>
The decline in occupancy in 1996 and early 1997 occurred due to a
higher than normal number of tenant bankruptcies and early closings,
particularly in the first and second quarters of 1996, and, to a lesser extent,
from slower leasing activity in 1996. Occupancy at December 31, 1997 does not
include Valley Mall which was purchased in November 1997. As described in Note
11 to the table in Item 2 (a), Middletown Mall and Valley Mall have been
excluded from occupancy in all periods.
(e) Results of Operations
Comparison of Year Ended December 31, 1997, versus Year Ended December
31, 1996
Total 1997 revenues were $131.0 million compared to $134.0 million in 1996.
Contributing to the decrease in revenues were: $0.8 million lower business
interruption insurance, $0.6 lower cost recovery income due to lower recoverable
costs at the properties, $2.3 million lower lease buyout income due mainly to
two Kmart anchor lease buyouts in the third and fourth quarters of 1996, $0.2
million lower small shop base and percentage rents due to lower occupancy
earlier in the year partially offset by higher average base rent per foot, $0.6
million lower anchor base and percentage rents from higher anchor vacancies in
1997, and $0.4 million lower fees and commissions from sales of non-Company
properties (included in miscellaneous income). Offsetting these decreases were:
$0.9 million in higher temporary and promotional income, $0.2 million higher net
utility income, $0.5 million higher straight-line rental income, and $0.7
million in revenues from Valley Mall purchased in mid November 1997. Of the
total $3.0 million decrease in revenues for 1997, $2.5 million occurred in the
first six months.
Property operating and administrative costs, excluding depreciation and
amortization, decreased by $2.7 million in 1997 compared to 1996. Factors
contributing to this decrease were lower snow removal costs, lower insurance
costs and real estate tax expense due mainly to adjustments in assessed values,
and lower consulting fees and non-recoverable mall repairs. Depreciation and
amortization expense increased by $3.0 million in 1997 due primarily to an
increased level of real estate assets, including Logan Valley Mall, and to a
cessation of depreciation in the first half 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.
General and administrative expenses were approximately $0.6 million
higher in 1997 compared to 1996. This increase was primarily attributable to
higher compensation and travel costs associated with income generating
activities, principally leasing and acquisitions. Interest expense decreased by
$2.7 million in 1997 compared to 1996, of which $3.3 million resulted from the
paydown of $58.3 million of debt from the proceeds of the July 1997 preferred
share offering and interest income from temporary short-term investment of the
proceeds from the preferred shares, offset by $0.6 million from higher
borrowings and lower capitalized interest mainly from the Logan Valley Mall
reconstruction.
The gain on the sale of outparcel land was $1.1 million in 1997, a
decrease of $2.4 million compared to 1996 due to fewer sale transactions. In
addition, in September 1996, the Company sold its Patrick Henry Corporate
Center, an office building located in Newport News, Virginia to an insurance
company. The net gain from this transaction of $2.4 million is shown as a gain
on asset sales.
During 1997 the Company recorded $2.3 million in extraordinary losses
on the early extinguishment of debt. These losses result from writing off
unamortized deferred financing costs and from prepayment penalties associated
with certain loans that were prepaid. Similarly, during 1996 the Company
recorded $0.7 million in extraordinary losses representing the early
extinguishment of debt related to the sale of the Patrick Henry Corporate Center
and to the refinancing of two loans.
Comparison of Year Ended December 31, 1996, versus Year Ended December
31, 1995
Total revenues increased by $1.7 million in 1996 compared to 1995, of
which $1.0 million relates to one additional month of operations in 1996 from
the two malls purchased in early 1995. The $0.7 million increase in revenues
from comparable properties is due to $1.6 million in higher lease buyout income
from tenants, $0.9 million from higher cost recovery income caused by higher
recoverable costs, $1.6 million in higher temporary and seasonal leasing, offset
by $1.5 million in lower straight-line rental income due partly to write-offs of
accrued straight-line receivables from tenants that vacated early, $1.0 million
in lower business interruption insurance from the Logan Valley Mall fire, $0.5
million in lower base and percentage rents due to lower mall shop occupancy
partially offset by higher base rental rates, and $0.4 million in lower
miscellaneous income, primarily fee and broker income.
Property operating and administrative costs including depreciation and
amortization increased $1.7 million in 1996 compared to 1995; $0.6 million of
the increase relates to the extra month of operations from the two malls
purchased in early 1995. Of the remaining $1.1 million increase, $1.9 million
is due to higher property taxes from increased tax rates and assessments, $0.4
million in higher depreciation from higher depreciable assets, offset by $1.2
million in lower operating costs, both recoverable and non-recoverable.
General and administrative expenses in 1996 were lower than 1995 by
$0.3 million due to lower overall spending. Interest expense for 1996 was $2.4
million higher than 1995, of which $0.4 million relates to the extra month of
financing for the two malls purchased in early 1995. The remaining $2.0 million
increase is comprised of $1.7 million from higher average debt balances
outstanding during the year, $0.9 million from higher financing costs offset by
$0.2 million from lower effective interest rates and $0.4 million from higher
capitalized interest on construction projects, primarily the Logan Valley Mall
reconstruction.
Property sales and adjustments contributed $5.8 million to net income
in 1996 compared to $31.5 million reduction in net income in 1995. The 1995
amount includes a $35 million non-cash adjustment to the carrying value of a
property as further described in Note 15 to the Consolidated Financial
Statements. The 1996 amounts includes $2.4 million from the sale of Patrick
Henry Corporate Center, an office building located in Newport News, Virginia, as
also discussed in Note 15, and $3.4 million from sale of certain land out-
parcels located adjacent to the Company's mall properties.
The extraordinary loss in 1996 represents $0.7 million from early
extinguishment of debt related to the sale of Patrick Henry Corporate Center and
to refinancing of two loans in 1996. The amounts for 1995 relate to $11.2
million extraordinary gain on fire insurance from the Logan Valley Mall fire as
further described in Note 4 to the Consolidated Financial Statements and $0.8
million extraordinary loss on early extinguishment of debt on Logan Valley Mall
that was repaid in 1995.
(f) Cash Flows, Liquidity and Capital Resources
For the years ended December 31, 1997, 1996, and 1995, the Company
generated $38.7 million, $44.8 million, and $57.2 million, respectively, in cash
from operating activities, as shown in the accompanying Consolidated Statements
of Cash Flows in Item 8 hereto.
1997 Cash Flows
During 1997 the Company generated $38.7 million in cash from operating
activities, which is net of $9.2 million negative impact from changes in
receivables, deferred charges and other assets, and payables and other
liabilities. The Company invested $39.2 million in its existing properties and
related escrows; this included $15.3 million to complete Logan Valley mall
reconstruction and related tenant allowances, $5.3 in mall shop and anchor
tenant allowances other than Logan Valley, and $2.4 million in capitalized lease
acquisition costs. The Company also purchased Valley Mall in Hagerstown,
Maryland for $32.0 million as described in Note 14 to the Consolidated Financial
Statements. The Company generated $35.0 million from financing activities,
which included (1) $118.7 million net proceeds from the issuance of senior
preferred shares in July 1997 (see Note 6), (2) $33.3 million net reduction in
debt, plus $4.8 in debt issuance costs (3) $35.2 million of cash dividends and
distributions paid, and (4) $12.2 million to repurchase common shares held in
treasury. The $33.3 million net reduction in debt during 1997 consisted of:
$171.0 million new borrowings, less $6.2 million in related loan deposits and
reserves, from refinancing $161.8 million in existing loans on four malls; $17.1
million drawn under construction loans, primarily for Logan Valley Mall; $49.8
million in borrowings under lines of credit and $42.3 million repayments under
lines of credit; use of the preferred share proceeds to pay-off $42.2
million of mortgages on three properties, $13.1 million in line of
credit borrowings and $3.0 million partial reduction of another mortgage loan;
and $2.6 million of scheduled principal amortization.
1996 Cash Flows
During 1996 the Company generated $44.8 million in cash from operating
activities, which is net of $4.4 million negative impact from changes in
accounts receivables, other assets, and accounts payable, $9.5 million in
proceeds from asset sales, $1.3 million from issuance of new shares under the
Dividend Reinvestment Plan, and $25.9 million in borrowings net of repayments
and debt issuance costs. The Company invested $51.5 million in its properties
which included $31.9 million for the Logan Valley Mall reconstruction and
expansion project and related tenant allowances, $4.4 million for anchor
allowances and expansions and $5.6 million for mall shop tenant allowances other
than Logan Valley, $2.2 million for leasing costs and commissions, and $7.4
million for other capitalized costs. The Company also paid $29.6 million in
dividends and distributions on its outstanding common shares and Operating
Partnership units at an annual rate of $0.80 per common share or Operating
Partnership unit. The $25.9 million of net borrowings in 1996 was comprised of
$30.7 million in borrowings under the Logan Valley Mall construction loan that
was obtained in 1995, $53.8 million in three refinancings, and $3.9 million in
draws under other loan or line of credit facilities; these increases were offset
by $3.2 million in scheduled debt amortization, $51.3 million repayments on the
refinanced debt, and $6.2 million of debt repaid related to the sale of Patrick
Henry Corporate Center and certain land out-parcels.
1995 Cash Flows
During 1995, the Company invested $109.0 million in income-producing
properties. This includes: (1) $62.0 million for two malls (see Note 14 to the
Consolidated Financial Statements) of which $8.1 million related to the assigned
value of approximately 1.8 million of common Operating Partnership units issued
in connection with the purchase of Wyoming Valley Mall; (2) $10.5 million for
mall shop tenant allowances, which includes $2.8 million at Viewmont Mall in
connection with the 90,000 square foot expansion that opened in 1995; (3) $4.9
million in anchor allowances, which includes $3.0 million for The May Company
store at West Manchester Mall; (4) $2.4 million for leasing and related costs;
(5) $16.2 million for the reconstruction of Logan Valley Mall; and (6) $13.0
million for other expansion and renovation projects, including the Viewmont Mall
expansion and the West Manchester Mall renovation. These investments were
funded by $96.1 million of issued and assumed debt, $8.1 million in Operating
Partnership units issued for Wyoming Valley Mall, and the remainder from net
operating and other net financing cash flows. As further described under
"Liquidity and Capital Resources", in 1995 the Company reduced its quarterly
dividend and retained on an annual basis an additional $22 million for
investment purposes. The other major uses of cash during 1995 were (1)
repayment of $35.1 million in debt, of which $14.8 million was funded by fire
insurance proceeds related to Logan Valley Mall, and (2) $39.6 million in
dividends and distributions on the outstanding shares and on the minority
interest in the Operating Partnership. The Company also sold 250,000 shares for
$3.0 million in 1995 and received $0.7 million under its dividend reinvestment
plan. The Company also received an advance from an affiliate of $4.4 million
(see Note 8).
Liquidity and Capital Resources
The Company believes that its cash generated from property operations
and funds obtained from property financings and general corporate borrowings
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 all dividends to the
shareholders necessary to satisfy the REIT dividend distribution requirements
under the Internal Revenue Code (see Note 2 to the Consolidated Financial
Statements). 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, 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, capital and other
requirements, and such other factors as the Trustees may consider. During 1995
the Board of Trustees determined that the Company should retain more of its
internally generated cash flows to supplement other expected financing sources
in order to make investments in certain mall expansion and renovations
(including the Logan Valley Mall reconstruction) and in various other investment
opportunities. Accordingly, the Company's quarterly dividend of $.35 per share
was reduced to $.20 per share beginning with the dividend paid in September
1995. The annual amount of additional cash retained is approximately $22
million.
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.
Also, as more fully described in Note 5 to the Consolidated
Financial Statements, in 1997 the Company obtained a $50 million working capital
line of credit and a $100 million acquisition line of credit from GE Capital
Real Estate ("GECRE"); no amounts were outstanding under either line of credit
at December 31, 1997. On February 24, 1998 GECRE advised the Company that it
had completed sufficient due diligence relating to a planned 10 year mortgage
loan to the Company and was now committed to proceed with the financing pursuant
to the terms and conditions outlined in a summary of terms agreement signed by
GECRE and the Company in September 1997. The gross proceeds from the new loan
(the "Permanent Loan") are expected to be near $450 million and will be used to
refinance the $280.6 million Mortgage Loans, the $110.0 million GECRE mortgage
loan, and a $30.0 million term loan. The remaining proceeds will be used
largely to fund closing costs, initial loan reserves and a prepayment penalty
with respect to $200.0 million of the Mortgage Loans that would be pre-paid
prior to their maturity date. The prepayment penalty will be calculated using
interest rates in effect at the time of the prepayment; based on current
interest rates the prepayment penalty would be approximately $15 million. In
addition approximately $4.4 million of unamortized deferred financing costs
related to the existing Mortgage Loans would be written off. Both of these
items would be accounted for as an extraordinary loss on early extinguishment of
debt. The Permanent Loan will have a fixed interest rate established at closing
and will be secured by cross-collateralized mortgages on up to 14 of the malls
securing the Mortgage Loans and the two malls securing the $110.0 million GECRE
mortgage loan. Closing of this planned Permanent Loan is expected to occur on
or about September 1, 1998. The ultimate interest rate and the amount of the
Permanent Loan will depend of several factors, including the level of interest
rates, the net operating income of the secured properties, and prescribed rating
agency criteria at the time of closing. Based on current conditions, the
interest rate on the new loan is expected to be lower than the average rate on
the indebtedness that will be refinanced. In connection with the Permanent
Loan, in November 1997 the Company made a $6.0 million interest-bearing good-
faith deposit with GECRE that, subject to certain conditions and limitations,
could be forfeited should the Company decide not to consummate the Permanent
Loan with GECRE.
On December 16, 1994 a fire occurred at the Logan Valley Mall located in
Altoona, Pennsylvania. The fire destroyed 44 small shops aggregating 148,800
square feet of gross leasable space and also affected three additional small
shops containing approximately 18,000 square feet of gross leasable space. The
net book value of the destroyed assets approximated $3.5 million. The Company
settled the property damage insurance claim with its insurance company in the
third quarter of 1995 for $15.9 million. The difference between the amount
received and the net book value of destroyed assets and the related demolition
and clean up costs is $11.2 million, which has been recorded as an extraordinary
gain in 1995. The Company also recorded $0.8 million and $1.9 million in
business interruption insurance, during the years ended December 31, 1996 and
1995, respectively, which is included in revenues. The business interruption
insurance coverage expired in May 1996. Because of the business interruption
insurance coverage, the fire had no material impact on 1996, 1995 and 1994
results of operations. During 1995 the Company started the reconstruction and
expansion of the fire-damaged mall; the entire construction project was
completed in August 1997 and cost approximately $68 million, including tenant
allowances. The project costs were partially funded from a construction loan
obtained from a bank consortium, which aggregated $51.4 million by November 1997
when it was refinanced with a new loan with GECRE (see Note 5 to the
Consolidated Financial Statements).
As of December 31, 1997 the scheduled principal payments on all debt
are $120.9 million, $112.3 million, $103.5 million, $3.8 million, and $27.7
million for the years ended December 31, 1998 through 2002, respectively, and
$173.5 million thereafter. The Company expects to refinance or extend the
majority of the maturities over the next five years through additional Company
financings and from refinancing the maturing loans, including through the
planned GECRE permanent loan financing more fully described in Note 5 to the
Consolidated Financial Statements. 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 effect 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 interest paid on total
indebtedness (exclusive of capitalized interest and interest income) for the
years ended December 31, 1997, 1996, and 1995 were 2.04 to 1, 2.08 to 1, and
2.13 to 1, respectively.
As further described in Note 8 to the Consolidated Financial
Statements, Crown Investments and its subsidiary have been granted rights,
subject to certain restrictions, whereby they may redeem part or all of their
partnership units for shares, on a one-to-one basis, or cash at a price equal to
the value of the Company's common shares. Crown Investments has pledged a
portion of its limited partnership units as collateral for a loan it has
received from an unrelated third party.
(g) Economic Trends
Because inflation has remained relatively low during the last three
years it has had little impact on the operations of the Company during this
period. Tenant leases also provide, in part, a mechanism to help protect the
Company during highly inflationary periods. As operating costs increase, leases
permit a pass-through of the common area maintenance and other operating costs,
including real estate taxes and insurance, to the tenants and therefore, the
tenants will absorb part of this increased operating cost. Most of the leases
provide for percentage rent after a certain minimum sales level is achieved.
Thus, during highly inflationary periods, when retail sales at the Malls
increase, the Company should receive additional rental income through percentage
rent increases, partially offsetting the effect of inflation.
The Company has made a preliminary assessment of its exposure to the
so-called "Year 2000 problem" which relates to the ability of electronic
equipment, computer hardware and software to properly handle dates on or after
January 1, 2000. Based on its preliminary assessment, the Company believes that
the cost to replace certain computer equipment and software or to reprogram
certain software will not be material to its results of operations.
As more fully described in Note 2 to the Consolidated Financial
Statements, the Financial Accounting Standards Board has issued three new
accounting pronouncements relating to disclosure matters that will become
effective in 1998, none of which is expected to have a significant effect on
the Company's disclosures.
(h) Forward Looking Statements
Certain of the preceding comments in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, contain forward
looking statements that involve risk and uncertainties, including overall
economic and credit market conditions, the ability to refinance matrity
indebtedness, the impact of competition, consumer buying trends, weather
conditions, financial market conditions, and other factors.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees and Shareholders of
Crown American Realty Trust:
We have audited the accompanying consolidated balance sheets of Crown American
Realty Trust (a Maryland real estate investment trust) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements and
the schedules referred to below are the responsibility of the management of
Crown American Realty Trust. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crown American Realty Trust and
subsidiaries, as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audit of Crown American Realty Trust and subsidiaries was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedules listed in the index of financial statements are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
February 25, 1998
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
Year Ended December 31,
1997 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 81,044 $ 83,441 $ 83,167
Percentage rent 6,544 6,489 6,536
Property operating cost recoveries 30,513 30,975 29,801
Temporary and promotional leasing 9,312 8,411 6,831
Net utility income 2,806 2,559 2,386
Business interruption insurance 830 1,870
Miscellaneous income 775 1,267 1,657
Net 130,994 133,972 132,248
Property operating costs:
Recoverable operating costs 39,467 41,324 40,045
Property administrative costs 2,349 2,068 2,210
Other operating costs 1,963 3,065 3,153
Depreciation and amortization 38,311 35,315 34,634
Net 82,090 81,772 80,042
Net 48,904 52,200 52,206
Other expenses:
General and administrative 4,698 4,135 4,420
Interest 42,663 45,337 42,923
Net 47,361 49,472 47,343
Net 1,543 2,728 4,863
Property sales and adjustments:
Adjustment to carrying value of assets (35,000)
Gain on sale of outparcel land 1,051 3,425 3,492
Gain on asset sales 2,351
Net 1,051 5,776 (31,508)
Income (loss) before extraordinary
items and minority interest 2,594 8,504 (26,645)
Extraordinary loss on early
extinguishment of debt (2,331) (718) (765)
Extraordinary gain on fire insurance
claim 11,244
Income (loss) before minority interest
in Operating Partnership 263 7,786 (16,166)
Minority interest in (income) loss of
Operating Partnership 1,644 (1,979) 4,205
Net income (loss) 1,907 5,807 (11,961)
Dividends on preferred shares (6,646)
Net income (loss) applicable to common
shares $ (4,739) $ 5,807 $(11,961)
Per common share information:
Basic EPS
Income (loss) before extraordinary
items $ (0.11) $ 0.23 $ (0.72)
Extraordinary items (0.06) (0.02) 0.29
Net income (loss) $ (0.17) $ 0.21 $ (0.43)
Weighted average shares outstanding
(000) 27,228 27,515 27,372
Diluted EPS
Income (loss before extraordinary items $ (0.11) $ 0.23 $ (0.72)
Extraordinary items (0.06) (0.02) 0.29
Net income (loss) $ (0.17) $ 0.21 $ (0.43)
Weighted average shares outstanding
(000) 27,228 27,519 27,372
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
December 31,
1997 1996
(in thousands, except share
and per share data)
Assets
<S> <C> <C>
Income-producing properties:
Land $ 132,055 $ 120,999
Buildings and improvements 852,674 798,470
Deferred leasing and other charges 39,912 41,223
Net 1,024,641 960,692
Accumulated depreciation and amortization (315,125) (281,478)
Net 709,516 679,214
Other Assets:
Investment in joint venture 5,808 5,799
Cash and cash equivalents 9,472 6,746
Tenant and other receivables 16,986 16,516
Deferred charges and other assets 44,167 32,363
Net $ 785,949 $ 740,638
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 541,713 $ 568,785
Accounts payable and other liabilities 29,132 32,201
Net 570,845 600,986
Minority interest in Operating Partnership 25,334 35,576
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11.00%
cumulative, $.01 par value, 2,500,000 shares issued
and outstanding 25
Common shares, par value $.01 per share, 120,000,000
shares authorized, 27,727,212 and 27,612,756 shares
issued at December 31, 1997 and 1996, respectively 277 276
Additional paid-in capital 308,571 184,205
Accumulated deficit (106,881) (80,405)
Net 201,992 104,076
Less common shares held in treasury at cost, 1,251,898
shares at December 31, 1997, respectively (12,222)
Net 189,770 104,076
Net $ 785,949 $ 740,638
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
Year Ended December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,907 $ 5,807 $(11,961)
Adjustments to reconcile net income (loss)
to net cash
provided by operating activities:
Minority interest in Operating Partnership (1,644) 1,979 (4,205)
Adjustment to carrying value of assets 35,000
Equity earnings in joint venture (528) (575) (624)
Depreciation and amortization 45,886 43,713 43,419
Gain on asset sales (2,351)
Extraordinary loss on early extinguishment 2,331 718 765
of debt
Extraordinary gain on fire insurance claim (11,244)
Net changes in:
Tenant and other receivables 520 (1,386) (167)
Deferred charges and other assets (7,857) 1,309 (4,221)
Accounts payable and other liabilites (1,868) (4,366) 10,412
Net cash provided by operating activities 38,747 44,848 57,174
Cash flows from investing activities:
Investment in income properties (39,152) (51,482) (46,938)
Acquisitions of enclosed malls (31,981) (53,900)
Proceeds from asset sales 9,452
Distributions from joint venture 150 300 600
Net cash (used in) investing activities (70,983) (41,730) (100,238)
Cash flows from financing activities:
Net proceeds from issuance of senior 118,671
preferred shares
Net proceeds from sale of common shares and
from dividend reinvestment plan 921 1,257 3,702
Proceeds from issuance or assumption of 231,723 88,499 97,706
debt, net of deposits
Cost of issuance of debt (4,774) (1,804) (1,591)
Debt repayments (265,002) (60,796) (35,091)
Fire insurance proceeds, net of clean up 14,823
costs
Dividends and distributions paid on common
shares and partnership units (29,287) (29,564) (39,552)
Dividends paid on senior preferred shares (5,921)
Advance from affiliate 4,376
Purchase of common shares held in treasury (12,222)
Cash flow support payments 853 2,591
Net cash provided by (used in) financing 34,962 (2,408) 46,964
activities
Net increase in cash and cash equivalents 2,726 710 3,900
Cash and cash equivalents, beginning of 6,746 6,036 2,136
period
Cash and cash equivalents, end of period $ 9,472 $ 6,746 $ 6,036
Interest paid (net of amounts capitalized) $ 39,351 $ 41,480 $ 39,307
Interest cost capitalized $ 2,463 $ 2,943 $ 2,580
Non-cash financing activities:
Tenant improvements funded by Crown $ $ $ 82
Investments Trust, including $0, $0, and
$21 allocated to minority interest $ $ $ 8,074
Issuance of partnership units related to
Wyoming Valley acquisition
Cash flow support credited to minority $ 1,889 $ 2,889 $
interest and paid-in capital
that was prefunded in 1995
Preferred dividends accrued but unpaid as of $ 725 $ $
year end
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Shareholders' Equity
Common
Shares Senior Additional
Out- Preferred Common Paid-in
standing Shares Shares Capital
(in thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1994 27,128 $ $ 271 $ 176,849
Shares issued for cash 250 2 2,973
Shares issued under dividend
reinvestment plan 72 1 538
Capital contributions from
Crown
Investments Trust:
Cash flow support payments 1,932
Tenant allowances funded 61
Transfer in (out) of limited
partner's interest in the
Operating Partnership (1,016)
Net (loss)
Dividends paid
Balance, December 31, 1995 27,450 274 181,337
Shares issued under dividend
reinvestment plan 163 2 1,255
Capital contributions from
Crown Investments Trust:
Cash flow support payments 2,152
Transfer in (out) of limited
partner's interest in the Operating (539)
Partnership
Net income
Dividends paid
Balance, December 31, 1996 27,613 276 184,205
Issuance of Preferred Shares 25 118,646
Common Shares issued under
dividend reinvestment plan 114 1 920
Common Shares purchased and
held in treasury (1,252)
Transfer in (out) of limited
partners'interest in the Operating 2,029
Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support 2,771
Net income
Dividends paid and accrued
Balance, December 31, 1997 26,475 $ 25 $ 277 $ 308,571
Retained
Earnings Common
(Accumu- Shares
lated) Held in
Deficit) Treasury Total
Balance, December 31, 1994 $ (22,237) $ $ 154,883
Shares issued for cash 2,975
Shares issued under dividend
reinvestment plan 539
Capital contributions from
Crown Investments Trust:
Cash flow support payments 1,932
Tenant allowances funded 61
Transfer in (out) of limited
partner's interest in the
Operating Partnership (1,016)
Net (loss) (11,961) (11,961)
Dividends paid (30,002) (30,002)
Balance, December 31, 1995 (64,200) 117,411
Shares issued under dividend
reinvestment plan 1,257
Capital contributions from
Crown Investments Trust:
Cash flow support payments 2,152
Transfer in (out) of limited
partner's interest in the
Operating Partnership (539)
Net income 5,807 5,807
Dividends paid (22,012) (22,012)
Balance, December 31, 1996 (80,405) 104,076
Issuance of Preferred Shares 118,671
Common Shares issued under
dividend reinvestment plan 921
Common Shares purchased and
held in treasury (12,222) (12,222)
Transfer in (out) of limited
partners'
interest in the Operating 2,029
Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support 2,771
Net income 1,907 1,907
Dividends paid and accrued (28,383) (28,383)
Balance, December 31, 1997 $ (106,881) $ (12,222) $ 189,770
The accompanying notes are an integral part of these statements.
</TABLE>
CROWN AMERICAN REALTY TRUST
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION, NATURE OF OPERATIONS, 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. As described in Note 14, the Company acquired two
additional malls in 1995 and one additional mall in 1997.
Simultaneously with the above transactions, the Financing Partnership borrowed
approximately $300 million of mortgage debt (the "Mortgage Loans") then secured
by 15 (now 14) enclosed shopping malls (see Note 5). The net proceeds from the
Mortgage Loans together with the proceeds of the equity offering were used to
retire existing debt contributed with the Properties.
As further described in Note 6, on July 3, 1997 the Company completed an
offering of 2,500,000 11.00% non-convertible senior preferred shares at an
initial offering price of $50.00 per share.
Nature of Operations
The Company is a fully-integrated real estate company primarily engaged in the
ownership, operation, management, leasing, acquisition, development,
redevelopment, expansion, renovation and financing of enclosed shopping malls.
The Company's revenues are primarily derived under real estate leases with
national, regional and local department store and other retailing companies.
The Company's top five tenants in terms of total revenues are as follows:
Percent of Total Revenues
1997 1996
Sears Roebuck and Co. 7.5% 6.6%
J C Penney, Inc. 5.2% 4.1%
The Limited Stores, Inc. 4.6% 4.5%
F. W. Woolworth 3.8% 3.7%
The Bon-Ton Stores, Inc. 3.4% 3.1%
The amounts for The Bon-Ton Stores, Inc. ("Bon-Ton") exclude $0.1 million and
$1.1 million, respectively, of revenues for locations under temporary leases -
see Note 8. Amounts for F.W. Woolworth relate to Woolworth, Afterthoughts,
Kinney, Footlocker, Lady Footlocker, Champs, Northern Reflections, and Foot
Quarters.
The Properties currently consist of: (1) 25 enclosed shopping malls 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 and building improvements located in Pennsylvania (under ground
lease with a purchase option) sub-leased to a department store chain. The
Company also owns approximately 160 acres of land adjacent to a number of the
mall properties which are held for development, ground lease, or sale to third
parties.
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, its wholly-owned subsidiaries, and its majority-owned
subsidiary, the Operating Partnership, which in turn includes the Financing
Partnership, Crown American Acquisition Associates I, L.P. (See Note 14) and
Crown American WL Associates, L.P. (see Note 5), all of which are 99.5% owned by
the Operating Partnership and 0.5% by the Company through separate wholly-owned
subsidiaries. The Company is the sole general partner in the Operating
Partnership, and at December 31, 1997 the Company held 100% of the preferred
partnership interests (see Note 6) and 73.72% of the common partnership
interests. All significant intercompany amounts have been eliminated.
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 - SIGNIFICANT ACCOUNTING POLICIES
Income-Producing Properties
Income-producing properties are recorded at the lower of cost or net realizable
value. Included in such costs are acquisition, development, construction,
tenant improvements, interest incurred during construction, certain capitalized
improvements and replacements and certain allocated overhead. Allocated
overhead is computed primarily on the basis of time spent by certain departments
in various operations and represents costs which meet the definition of
"indirect costs" in Statement of Financial Accounting Standards No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects."
Depreciation on buildings and improvements is provided utilizing the
straight-line method over estimated useful lives of 10 to 45 years resulting in
an average composite life of approximately 30 years. Depreciation on tenant
improvements is provided utilizing the straight-line method over the life of the
related leases.
With respect to assets held for the long-term production of income, the Company
assesses impairment based on whether the estimated future net cash flows
expected to be generated by the asset (undiscounted and without interest) is in
excess of the net book value of the asset. If a property held for long term
production of income is impaired, its basis is adjusted to fair value. With
respect to assets held for sale, the Company assesses impairment based on
whether the net realizable value (estimated fair value sales price less direct
cost to sell) is in excess of the net book value of the asset. If a property
held for sale is impaired, its net book value is adjusted to fair value less
estimated direct cost to sell.
Certain improvements and replacements are capitalized when they extend the
useful life, increase capacity, or improve the efficiency of the asset. All
other repair and maintenance items are expensed as incurred. Total repairs and
maintenance expenses were $8.5 million, $9.2 million, and $9.3 million for the
years ended December 31, 1997, 1996, and 1995, respectively.
Leasing charges, including tenant construction allowances and direct costs
incurred by the Company to obtain a lease, are deferred and amortized over the
related leases or terms appropriate to the expenditure. Substantially all of
the income-producing properties have been pledged to secure the Company's
currently outstanding debt and the $55.6 million in lines of credit (no
amounts borrowed under the lines of credit as of December 31, 1997).
Interest and Financing Costs
Interest costs are capitalized related to income-producing properties under
construction, to the extent such assets qualify for capitalization. Total
interest capitalized was $2.5 million, $2.9 million, and $2.6 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Interest expense
includes costs of any financings that are not completed, amortization of
deferred financing costs related to completed financings (see Note 3) and is net
of miscellaneous interest income on cash and escrow deposit balances aggregating
$1.5 million, $0.5 million, and $1.0 million for the years ended December 31,
1997, 1996 and 1995, respectively. Financing costs are based on actual costs
incurred in obtaining the financing and are deferred and amortized as part of
interest expense over the term of the related debt instrument. Costs incurred
for financings which are not completed are expensed as part of interest costs.
Unamortized financing costs related to debt that is extinguished early is
written off as an extraordinary item.
Revenue Recognition
The Company, as a lessor, has retained substantially all of the risks and
benefits of ownership and accounts for its leases as operating leases. Minimum
rents are recognized on a straight-line basis; as such, the rental revenues for
leases which contain rent abatements and contractual increases are recognized on
a straight-line basis over the initial term of the related lease. Property
operating cost recoveries from tenants of common area maintenance, real estate
taxes, and other recoverable costs are recognized in the period the expenses are
incurred. These recoveries also include certain capital expenditures that are
recovered from the tenants in the period the depreciation is recognized.
Income Taxes
The Company elected to be taxed as a Real Estate Investment Trust (REIT) under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"),
commencing with its first taxable year ended December 31, 1993, and intends to
conduct its operations so as to continue to qualify as a REIT under the Code.
As a REIT, the Company generally will not be subject to Federal or state income
tax on its net income that it currently distributes to shareholders.
Qualification and taxation as a REIT depends on the Company's ability to meet
certain dividend distribution tests, share ownership requirements, and various
qualification tests prescribed in the Code.
The Company's taxable income (before the dividends paid deduction) for the years
ended December 31, 1997, 1996, 1995 was approximately $2.3 million, $2.1
million, and $2.8 million, respectively. These amounts differ significantly
from net income (loss) as reported in the Company's consolidated financial
statements for the same periods. In order to maintain REIT status, the Company
must distribute to its shareholders at least 95% of its taxable income in the
form of deductible dividends. This required distribution is significantly less
than the amounts actually distributed each year since the Company elected REIT
status in 1993.
If the Company fails to qualify as a REIT in any taxable year, the Company will
be subject to Federal and state income taxes (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates. Even
if the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and to Federal income
and excise taxes on its undistributed income.
The annual amount and the federal tax treatment of dividends paid on common
shares were as follows:
<TABLE>
<CAPTION>
Total Paid Current
Per Common Taxable Non-Taxable
Share Dividends Return of Capital
<S> <C> <C> <C>
Year ended December 31, 1997 $0.80 0% 100%
Year ended December 31, 1996 $0.80 44% 56%
Year ended December 31, 1995 $1.10 35% 65%
</TABLE>
The decrease in the taxable portion of the 1997 dividends results from the
allocation of taxable income first to the preferred share dividends with any
remainder allocable to the common share dividends. During the year ended
December 31, 1997 the Company paid dividends of $2.3681 per preferred share, all
of which was currently taxable income.
Investment in Joint Venture
The Company's 50% joint venture investment in Palmer Park Mall Venture, which
owns Palmer Park Mall (not managed by the Company), is accounted for under the
equity method. As such, earnings of the joint venture are reflected in
miscellaneous income in the period earned and distributions of the joint venture
are reflected as a reduction in the carrying amount of the investment. The
investment amount in excess of the underlying net assets, net of accumulated
amortization, is $4.6 million at December 31, 1997, with a remaining
amortization period of approximately 13 years. The Company and the other 50%
owner have guaranteed $1.1 million of debt owed by the joint venture.
Cash and Cash Equivalents
Cash and cash equivalents includes all unrestricted cash and cash equivalent
investments with original maturities of three months or less. Restricted cash
and cash equivalent investments are included in deferred charges and other
assets (see Note 3).
Net Income (Loss) Per Share
During 1997 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." Under SFAS No. 128, basic income (loss)
per common share is computed by dividing net income (loss) applicable to common
shares, as shown in the Consolidated Statements of Operations, by the weighted
average number of common shares outstanding for the year. Diluted income (loss)
per share is computed the same way except that the weighted average number of
common shares outstanding is increased, using the treasury stock method, for the
assumed exercise of options under the Company's share incentive plans, which are
the Company's only dilutive securities. Because no anti-dilution is permitted
under SFAS No. 128, diluted and basic EPS for 1997 and 1995 are identical.
Below is the computation of basic and diluted EPS for the year ended December
31, 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Common Per Share
Income Shares Amount
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $ 5,807 27,515 $ .21
Effect of Dilutive Securities:
Stock Options - 4 .00
Diluted EPS:
Income available to common shareholders $ 5,807 27,519 $ .21
</TABLE>
The calculation of diluted earnings per share for 1997 would have
included approximately 68,000 shares, respectively, for the assumed
exercise of options under the Company's share incentive plans, except
that no anti-dilution is permitted under SFAS No. 128
New Accounting Pronouncements
During 1997 and early 1998, three accounting pronouncements were issued by the
Financial Accounting Standards Board that apply to the Company: Statements of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." All three new standards are effective for the
Company's 1998 fiscal year. SFAS No. 130 establishes standards for reporting and
display of comprehensive income (defined as the total of net income and all
other non-owner changes in equity) and its components in a full set of general
purpose financial statements. SFAS No. 131 introduces a new model for segment
reporting called the "management approach". The management approach is based on
the way the chief operating decision-maker organizes segments within a company
for making operating decisions and assessing performance. SFAS No. 132
standardizes disclosures and requires additional disclosures for pension and
postretirement benefits. Implementation of the new pronouncements is not
expected to have a significant effect on the Company's disclosures.
NOTE 3 - DEFERRED CHARGES AND OTHER ASSETS
Deferred charges, net of amortization, and other assets are summarized as
follows (in thousands):
December 31, 1997 December 31, 1996
Deferred operating covenant costs $ 7,883 $ 10,513
Deferred financing costs 10,667 10,860
Restricted cash and escrow deposits
(primarily in interest bearing
accounts) 14,237 3,223
Prepaid expenses and miscellaneous
receivables 7,278 3,793
Furniture, fixtures, equipment, and other 4,102 3,974
Total $ 44,167 $ 32,363
Deferred Operating Covenant Costs
During fiscal year 1991, approximately $23 million was paid to three anchor
tenants with respect to leases at ten of the malls and in 1992 an additional $4
million was paid in order to obtain operating covenants (a covenant requiring
the anchor, among other things, to maintain operations in certain of the
Properties for the duration of the lease period) and to extend the terms of
their leases beyond fiscal year 2000. In April 1993, an additional $0.2 million
was paid to another tenant to obtain similar rights. These costs were
capitalized and are being amortized over the life of the operating covenants
with the amortization recorded as a reduction of minimum rent. Amortization
was $2.6 million, $2.6 million, and $2.7 million, for the years ended December
31, 1997, 1996, and 1995, respectively.
In addition, one of these tenants has exercised its option to require the
Company to expand and renovate certain of the leased premises, at the Company's
expense, and to reimburse the tenant for fixtures allowances, which together
aggregate approximately $9.0 million. As of December 31, 1997, $8.1 million of
these costs have been incurred and capitalized in the financial statements
with the remainder expected to be incurred in 1998 and 1999.
Deferred Financing Costs
Deferred financing costs, net of accumulated amortization, at December 31, 1997,
consists of approximately $5.9 million related to the $300 million mortgage debt
secured as part of the organization of the Company in 1993, $0.1 million related
to debt contributed with the Properties in 1993 and not retired by the Company,
and $4.7 million for new debt obtained after the formation of the Company.
Amortization of deferred financing costs was $3.3 million, $3.9 million, and
$3.6 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Deferred financing costs written off as part of extraordinary losses on early
extinguishment of debt were $1.6 million, $0.4 million, and $0.8 million for the
years ended December 31, 1997, 1996, and 1995, respectively. Deferred financing
costs incurred and capitalized were $4.8 million, $1.8 million, and $1.6 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 4 - INSURED FIRE AT MALL
On December 16, 1994 a fire occurred at the Logan Valley Mall located in
Altoona, Pennsylvania. The fire destroyed 44 small shops aggregating 148,800
square feet of gross leasable space and also affected three additional small
shops containing approximately 18,000 square feet of gross leasable space. The
net book value of the destroyed assets approximated $3.5 million. The Company
settled the property damage insurance claim with its insurance company in the
third quarter of 1995 for $15.9 million. The difference between the amount
received and the net book value of destroyed assets and the related demolition
and clean up costs was $11.2 million, which was recorded as an extraordinary
gain in 1995. The Company also recorded $0.8 million and $1.9 million in
business interruption insurance, during the years ended December 31, 1996 and
1995, respectively, which is included in revenues. The business interruption
insurance coverage expired in May 1996. Because of the business interruption
insurance coverage, the fire had no material impact on 1996, 1995 and 1994
results of operations. During 1995 the Company started the reconstruction and
expansion of the fire-damaged mall; the entire construction project was
completed in August 1997 and cost approximately $68 million, including tenant
allowances. The project costs were partially funded from a construction loan
obtained from a bank consortium, which aggregated $51.4 million by November 1997
when it was refinanced with a new loan with GE Capital Real Estate (see Note 5
to the Consolidated Financial Statements).
NOTE 5 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
December 31, 1997 December 31, 1996
Mortgage loans $ 280,637 $ 280,637
Permanent loans 229,417 165,134
Construction loans 1,659 87,389
Secured term loans 30,000 35,625
$ 541,713 $ 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 1997 and 1996 and 7.20% during
1995. The average rate as of December 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 were borrowed as of
December 31, 1997.
The $80.6 million mandatory principal payment due in August 1998 may be prepaid
after March 1, 1998 without penalty. 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 December 31, 1997, $1.2 million of restricted
cash was held for this purpose and is included in deferred charges and other
assets.
Permanent Loans
At December 31, 1997, permanent loans consisted of nine loans secured by seven
properties held by the Operating Partnership. Included in permanent loans is 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. A
$1.3 million loan related to Carlisle Plaza Mall is an Industrial Development
Bond secured with a $1.3 million letter of credit, which expires in April 1999.
Crown Holding has guaranteed one of the permanent loans with a current
outstanding balance of $11.3 million.
Construction Loans
In June 1997 the Company refinanced one construction loan with a new five-year
permanent loan with a bank lender, together with a $6.0 million one-year
construction loan facility that will convert to a four-year permanent loan in
1998. This new construction loan relates to a theater and other expansion
construction at one of the Company's malls. The permanent loan bears fixed
interest at 8.12% and the construction loan bears interest at LIBOR plus 2.00%.
During July 1997 the Company repaid two of its outstanding construction loans
from the proceeds of the senior preferred shares (see Note 6) and in November
1997 refinanced the Logan Valley construction loan as described further below.
Financing Transactions with GE Capital Real Estate
In November 1997 the Company closed a $110 million mortgage loan and a $150
million secured credit facility with GE Capital Real Estate ("GECRE"). The $110
million mortgage loan was placed through a new subsidiary, Crown American W L
Associates, L.P., and is secured by Logan Valley and Wyoming Valley malls and
bears interest at LIBOR plus 1.60%. The new mortgage loan proceeds were
primarily used to repay in full the existing $51.4 million construction loan on
Logan Valley Mall and the existing $50.0 million mortgage loan on Wyoming Valley
Mall. These two loans bore interest at LIBOR plus 2.375% and 1.75%,
respectively. In connection with the early extinguishment of these two loans,
an extraordinary non-cash loss of $1.0 million was recorded in the fourth
quarter representing the write-off of the remaining unamortized balance of
deferred financing costs on the previous loans. The new mortgage loan is a
bridge facility with a minimum initial term ending October 15, 1998 and also
provides both Crown and GECRE with options to extend the loan to April 15, 1999
or October 15, 2008, respectively, under certain conditions. However, the loan
is expected to be incorporated into a new permanent loan, as noted below.
The $150 million secured credit facility consists of a $100 million acquisition
line of credit and a $50 million working capital line of credit. The
acquisition line is restricted solely for new property acquisitions and will be
secured by mortgages on any properties acquired under the facility. The $50
million working capital line is secured by mortgages on four existing mall
properties. As of December 31, 1997 no amounts were outstanding under either
the acquisition or working capital lines. Both lines have a 0.125% per annum
commitment fee based on the unused amounts of the line, payable monthly; amounts
borrowed will bear interest at LIBOR plus 2.35% and 1.95%, respectively,
including servicing fee, with no required principal amortization. Both lines
have a minimum initial term ending April 15, 1999 and can be extended to
November 17, 2001 under renewal provisions so long as certain conditions are
satisfied. The $110 million loan and the $150 million credit facility are cross-
collateralized and cross-defaulted.
On February 24, 1998 GECRE advised the Company that it had completed sufficient
due diligence relating to a planned 10 year mortgage loan to the Company and was
now committed to proceed with the financing pursuant to the terms and conditions
outlined in a summary of terms agreement signed by GECRE and the Company in
September 1997. The gross proceeds from the new loan (the "Permanent Loan") are
expected to be near $450 million and will be used to refinance the $280.6
million Mortgage Loans, the $110.0 million GECRE mortgage loan, and the $30.0
million secured term loan. The remaining proceeds will be used largely to fund
closing costs, initial loan reserves and a prepayment penalty with respect to
$200.0 million of the Mortgage Loans that would be pre-paid prior to their
maturity date. The prepayment penalty will be calculated using interest rates
in effect at the time of the prepayment; based on current interest rates the
prepayment penalty would be approximately $15 million. In addition
approximately $4.4 million of unamortized deferred financing costs related to
the existing Mortgage Loans would be written off. Both of these items would be
accounted for as an extraordinary loss on early extinguishment of debt. The
Permanent Loan will have a fixed interest rate established at closing and will
be secured by cross-collateralized mortgages on up to 14 of the malls securing
the Mortgage Loans and the two malls securing the $110.0 million GECRE mortgage
loan. Closing of this planned Permanent Loan is expected to occur on or about
September 1, 1998. The ultimate interest rate and the amount of the Permanent
Loan will depend of several factors, including the level of interest rates, the
net operating income of the secured properties, and prescribed rating agency
criteria at the time of closing. Based on current conditions, the interest rate
on the new loan is expected to be lower than the average rate on the
indebtedness that will be refinanced. In connection with the Permanent Loan, in
November 1997 the Company made a $6.0 million interest-bearing good-faith
deposit with GECRE that, subject to certain conditions and limitations, could be
forfeited should the Company decide not to consummate the Permanent Loan with
GECRE.
Secured Term Loans and Lines of Credit
At December 31, 1997, the Company had one secured term loan outstanding totaling
$30.0 million, which matures in September 1998. At December 31, 1997 the
Company had $165.6 million in available revolving lines of credit, which
includes the $150.0 million credit facility with GECRE described above. Amounts
outstanding under lines of credit at December 31, 1997, 1996 and 1995 were $0.0
million, $5.6 million and $2.6 million, respectively. Of the total lines
available, $100 million is restricted for real estate acquisitions as may be
approved by the lender in amounts up to 75% of the value of the acquired
properties. Any properties so acquired will be mortgaged to secure the
borrowings under this line. The remaining $65.6 million in credit lines
consists of (i) a $50.0 million line secured by cross collateralized mortgages
on four of the Company's mall properties, (ii) a $5.6 million line with a bank
secured by a mortgage on the Company's headquarters office building and which is
renewable annually on April 30, and (iii) a $10.0 million unsecured line of
credit with a related party as more fully described in Note 8. Amounts may be
borrowed under the $65.6 million credit lines for general corporate purposes.
Covenants and Restrictions
Various of the above loans and lines of credit contain certain financial
covenants and other restrictions, including limitations on the ratios, as
defined, of total Company debt to EBITDA, EBITDA to fixed charges, and floating
rate debt to total debt. The Company was in compliance with all such loan
covenants as of and during the year ended December 31, 1997.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and eight of the
permanent loans with an aggregate principal balance of $400.0 million at
December 31, 1997 have fixed interest rates ranging from 0% to 9.625%. The
weighted average interest rate on this fixed-rate debt at December 31, 1997 and
1996 was 7.53% and 7.82%, respectively. The weighted average interest rate
during the years ended December 31, 1997, 1996 and 1995 was 7.73%, 7.87%, and
7.77%, respectively. All of the remaining loans with an aggregate principal
balance of $141.7 million at December 31, 1997 have variable interest rates
based on spreads ranging from 1.60% to 2.25% above 30 day LIBOR. The weighted
average interest rate on the variable rate debt at December 31, 1997 and
1996 was 7.37% and 8.14%, respectively. The weighted average interest
rate during the years ended December 31, 1997, 1996 and 1995 was 7.93%,
7.93%, and 8.48%, respectively.
Debt Maturities
As of December 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):
Year Ending
December 31,
1998 $ 120,885
1999 112,320
2000 103,511
2001 3,783
2002 27,706
Thereafter 173,508
Total $ 541,713
Assuming that the planned financing under the GECRE commitment is consummated as
described above, the debt maturities including scheduled amortization as of
December 31, 1997 would be $10.2 million, $2.3 million, $5.8 million, $11.0
million and $35.4 million in each of the five years ending December 31, 1998 to
2002, respectively.
NOTE 6 - PREFERRED SHARE OFFERING
The Company completed an offering of 2,500,000 11.00% non-convertible senior
preferred shares on July 3, 1997. The initial offering price was $50.00 per
share. The preferred 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 preferred 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 $118.7 million after underwriter's
commission and other offering expenses. The proceeds have been used primarily to
repay $58.3 million of debt in early July, to repurchase $12.2 million of common
shares held in treasury under a common share repurchase program approved by the
Board of Trustees, and to acquire Valley Mall for $32.0 million in November
1997.
As stipulated in the Prospectus Supplement, additional dividends shall be paid
quarterly to the holders of the preferred 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 preferred
shares outstanding at the time. The Leverage Ratio computed as of December 31,
1997, is 5.92 to 1. If required to be paid, additional dividends will be for an
amount per preferred share equal to 0.25% of the Preferred Liquidation
Preference Amount (defined below) 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 preferred share equal to
an additional 0.25% of the Preferred Liquidation Preference Amount on an
annualized basis. However, the maximum total dividend on the preferred shares,
including any additional dividends, will not at any time exceed 13.00% of the
Preferred Liquidation Preference Amount per annum. The Preferred Liquidation
Preference Amount is equal to the sum of $50.00 per share plus an amount equal
to any accrued and unpaid dividends thereon (including any additional dividends)
and whether or not earned or declared to the date of payment.
NOTE 7 - LEASING ACTIVITIES
The Company is primarily a lessor of shopping malls with some office space
included in its portfolio. However, the concentration of tenants are in the
retail industry. Leases are generally noncancelable and expire on various dates
through approximately the year 2021. The future minimum lease payments to be
received under existing leases as of December 31, 1997, are as follows (in
thousands):
Year Ending
December 31,
1998 $ 83,349
1999 76,560
2000 69,390
2001 61,137
2002 52,037
Thereafter 209,348
Total $ 551,821
The future minimum lease payments above do not include payments from tenants
which are due based upon a percentage of their gross sales or payments for the
tenants' share of common area maintenance costs and real estate taxes.
Total direct costs incurred by the Company to obtain leases, which are deferred
and amortized over the life of the lease, are as follows (in thousands):
<TABLE>
<CAPTION>
Beginning Ending
Year Ended Balance Additions Amortization Other Balance
<S> <C> <C> <C> <C> <C>
December 31, 1997 $ 17,914 $ 2,398 $ 3,964 $ - $ 16,348
December 31, 1996 20,041 2,156 4,015 (268) 17,914
December 31, 1995 19,164 2,410 4,380 2,847 20,041
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
Crown Rights
Pursuant to the Operating Partnership Agreement, Crown Investments and its
subsidiary, Crown American Investment Company, received certain rights (the
"Crown Rights"), which enable them to require the Operating Partnership to
redeem part or all of their Partnership Units for a price equal to the
equivalent value of the shares of the Company (on a one-for-one basis). Crown
Investments currently owns 7,652,500 common Partnership Units and Crown
American Investment Company owns 1,786,459 common Partnership Units.
The obligation to redeem these Partnership Units may be assumed by the Company
in exchange for, at the Company's election, either shares (on a one-for-one
basis) or the cash equivalent thereof, provided that the Company may not pay for
such redemption with shares to the extent that it would result in Crown
Investments and its affiliates beneficially or constructively owning more than
9.8% of the outstanding shares. Crown Investments and its affiliates may
require the Company to assume the obligation to pay for such redemption with
shares to the extent that Crown Investments and its affiliates own less than
9.8% of the outstanding shares. Crown Investments has pledged substantially all
its Partnership Units (the "Pledged Units") as collateral for a loan
made by an unrelated third party. In June 1995 the Company filed a Registration
Statement on Form S-3 with the Securities and Exchange Commission relating to
the Pledged Units. If at the time of any such permitted exchange the Shelf
Registration is not effective, the Company is obligated to purchase a specified
portion of the Pledged Units. The Company also has the right to purchase the
Pledged Units in lieu of effecting an exchange.
Management Agreements
Crown Associates retained certain properties that the Company has agreed to
manage pursuant to a management agreement. Certain of these properties were
transferred to an affiliate of Crown Associates in 1995 and 1996. For its
services, the Company receives management and leasing fees which amounted to
$0.2 million, $0.1 million, and $0.2 million, for the years ended December 31,
1997, 1996 and 1995, respectively.
In addition, Crown Investments, Crown Associates, and their affiliates have
agreed to pay the Company sales commissions up to 15% of the net sales price for
its services in selling certain land and other assets owned by these parties.
Total commissions earned were $0.0 million, $0.4 million, and $0.7 million, for
the years ended December 31, 1997, 1996 and 1995, respectively, and are included
in miscellaneous income.
Support Agreement
In connection with the Company's formation and the consummation of the
offerings, Crown Investments entered into a cash flow support agreement (the
"Support Agreement"), which was subsequently amended in 1997 and 1994, with the
Operating Partnership and the Financing Partnership with respect to Mount Berry
Square, Martinsburg Mall, Oak Ridge Mall and Bradley Square, all of which were
opened in 1991 and were in various stages of initial lease-up, with mall store
occupancy rates below 75%.
The Support Agreement provides that Crown Investments will guarantee, on a
quarterly basis, up to a maximum of $1.0 million per quarter, that each of these
four malls will generate a stipulated aggregate amount of base rents from each
such mall. The quarterly amounts due under the Support Agreement are calculated
as the difference between the aggregate amount of actual base rents earned in
the quarter at each mall and the stipulated aggregate amount of base rents. The
1997 amendment provided that the quarterly support amounts after 1997 shall be
reduced by 2.5% of the gross sales price of any sales of outparcel land that
occur after 1997, which is intended to approximate the base rents that could
have been earned had such outparcel land been leased or developed, rather than
sold. Crown Investments was also obligated to fund any tenant improvement and
leasing costs associated with a fixed amount of shortfall space, as defined.
The obligations of Crown Investments under the Support Agreement presently
continue as to all four malls and will terminate as to a mall when the aggregate
base rents at such mall achieve the stipulated amount over four consecutive
quarters (as determined by the independent trustees of the Company).
Total cash flow support earned by the Company was $3.7 million, $2.9 million,
and $2.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively. In addition, Crown Investments agreed to fund certain tenant
improvement costs incurred for signed leases as of June 30, 1993 scheduled to
commence subsequent thereto. These tenant improvement costs were funded in 1993
and 1994 and have been insignificant thereafter. During 1995 Crown Holding
advanced $6.4 million to the Company primarily to pre-fund future payments under
the Support Agreement. This pre-funding did not change or terminate the Support
Agreement, and additional funding recommenced in 1997. Earned support payments
and funded tenant improvements under the Support Agreement are accounted for as
capital contributions made by the minority owner in the Operating Partnership
and are credited to minority interest (as to the minority ownership percentage)
with the remainder to the Company's paid-in capital. As a result of the above
transactions, the Company had a receivable of $1.0 million from Crown
Investments at December 31, 1997.
Crown Associates Lease at Pasquerilla Plaza
Approximately 12,200 square feet of Pasquerilla Plaza is leased to Crown
Associates for annual base rent of $226,613 under a lease with a term ending
July 31, 2003. The rent was determined based on rental rates being paid by
existing third party tenants and on the fact that Crown Associates' lease
includes certain furnishings and equipment and allows Crown Associates use of
certain facilities in the building not available to other third party tenants.
The lease includes a five-year renewal option at then market rents. Total rent
earned by the Company for the years ended December 31, 1997, 1996 and 1995 was
$245,500, $204,500, and $200,000, respectively.
Line of Credit with Crown Financing Company
In December 1996 the Board of Trustees approved the terms of a $10 million
standby line of credit with Crown Financing Company, a wholly-owned subsidiary
of Crown Holding Company. Under this unsecured facility, which was executed in
January 1997, the Company may borrow up to $10 million with interest based on
the prime rate plus 1 5/8%. Interest on amounts borrowed will accrue and be
payable on the maturity date, which will be when the first tranche of the
Mortgage Bonds (see Note 5) are paid or prepaid but not later than December 31,
1998. Amounts borrowed under the line are due at the maturity date and may be
prepaid at any time without penalty. During 1997 $7.5 million was outstanding
under this line of credit for approximately 13 days, when it was repaid in full;
no amounts are outstanding at December 31, 1997.
Amounts due to or from Crown Associates and Crown Investments
In addition to the above items, the Company allocates a portion of the costs
related to its construction, development, MIS, legal, and risk management
departments to Crown Associates based on estimated usage. These allocated costs
aggregated $0.5 million, $0.5 million, and $0.5 million for the years ended
December 31, 1997, 1996, and 1995, respectively. Conversely, Crown Associates
and its affiliates charge the Company for use of their corporate aircraft, hotel
and dining services. Such costs totaled $0.1 million for 1997 and were de
minimus for 1996 and 1995. As a result of the above transactions, the Company
had a net receivable from Crown Associates and Crown Holding at December 31,
1997 of $0.1 million.
Acquisition of Wyoming Valley and Middletown Malls
As described above and in Note 14, in 1995 the Company acquired the Wyoming
Valley and Middletown Malls. These malls had been jointly owned by Crown
Associates and an unrelated third party.
Hess's Department Stores, Inc.
Hess's Department Stores, Inc. ("Hess's") was a wholly-owned indirect subsidiary
of Crown Holding until November 1994 when all of Hess's operations were sold.
Hess's was a tenant in 13 of the income-producing properties and also was a
tenant in the joint venture's enclosed shopping mall. At a special meeting of
the Company's shareholders held on September 9, 1994, the shareholders approved
modifications of leases with Hess's in connection with the sale by Hess's of its
store locations at Company properties to The May Department Stores Company
("May") and The Bon-Ton Stores, Inc. ("Bon-Ton").
Under the transaction with Bon-Ton, which closed in September 1994, Bon-Ton
assumed leases and agreed to operate six Hess's stores, and also agreed to
temporarily operate five Hess's stores through January 1996 (two stores) and
January 1997 (three stores). The Company has begun discussions with department
store chains and other tenants for replacements in those five malls. A J.C.
Penney store has opened in March 1997 in one of the temporary locations, and the
Company has leased a second location to a telecommunications service company.
In January 1997 Bon-Ton vacated the remaining three locations.
Under the transaction with May, which closed in November 1994, May purchased
(pursuant to 99 year ground leases with nominal purchase options) three Hess's
store locations from the Company for $17.6 million and leased the Hess's store
at two other locations. One of the leased locations is subject to a purchase
option by May in the amount of $3.5 million. In 1994 the Company recorded a
gain of $4.5 million on the sale of the three store locations. The Company also
committed to renovate the mall where one of the leased stores is located, which
was done in 1995. During 1995 May expanded the stores at all five of these
locations. In 1994 the Company also received $2.4 million from Hess's relating
to one of the stores that May is leasing to make up the difference between the
rent formerly paid by Hess's and rent being paid by May. This amount was
recorded as deferred income and is being amortized over the remaining lease term
(10 years). Hess's also paid $0.8 million to the Company in 1995 for lost or
reduced rents from mall shop tenants that occurred during the construction
period when the former Hess's locations were being expanded.
NOTE 9 - LEASES
The Company is the lessee under a ground lease with a third party for Shenango
Valley Mall and is the lessee under two ground leases with third parties for
Uniontown Mall. The Shenango Valley Mall lease expires on July 24, 2017. One
lease for Uniontown Mall expires on March 30, 2018 with up to eleven five-year
renewal options and the other lease expires on April 30, 2009 with up to ten
five-year renewal options. All three leases require fixed annual payments.
Fixed rental expense related to these leases for the years ended December 31,
1997, 1996 and 1995, was $153,000 in each year. Future minimum lease payments
on these leases are $153,000 per year through 2002 and $963,000 for all years
thereafter.
Under the Uniontown Mall leases additional rents are paid based on mall tenant
percentage rents. These additional rents were $58,000, $56,000, and $65,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
Capital Leases
Assets under capital leases, primarily office and mall equipment, are
capitalized using interest rates appropriate at the inception of each lease.
Capital lease obligations amounted to $1.0 million and $1.7 million at December
31, 1997 and 1996, respectively, and are included in accounts payable and other
liabilities.
NOTE 10 - RETIREMENT SAVINGS AND SHARE INCENTIVE PLANS
Retirement Savings Plan and Savings Restoration Plan
The Company established the Crown American Realty Trust Retirement Savings Plan
(the "Retirement Savings Plan") pursuant to Section 401(k) of the Internal
Revenue Code to cover employees of the Operating Partnership. Employees who
have completed at least one year of service, working 1,000 hours per year, and
have attained age 21 are eligible to participate in the Retirement Savings Plan.
The Operating Partnership contributes a percentage of each eligible employee's
base pay (the "Supplemental Employer Contribution") to the Retirement Savings
Plan on behalf of each eligible employee. The Supplemental Employer
Contribution is 2% of base pay if the employee is under 35 years of age, 3% if
35 to 49 years of age, and 5% if 50 years of age or older. In addition,
participants may elect to contribute between 1% and (subject to certain
restrictions) 15%. Employee contributions are matched (the "Matching
Contribution") by the Company up to 50% of the first 3% of the participant's
compensation.
The receipt of benefits attributable to the Operating Partnership's Matching
Contribution and Supplemental Employer Contribution is subject to the vesting
and forfeiture provisions of the Retirement Savings Plan. Supplemental Employer
Contributions become 100% vested after five years of service is credited to the
employee. Matching Contributions become vested 20% after two years of service
and an additional 20% becomes vested per year thereafter. Years of service
include service with Crown American Corporation. Other amounts are fully vested
at all times.
Total plan costs for the years ended December 31, 1997, 1996 and 1995 were
$512,000, $465,000, and $394,000, respectively. The plans of predecessor
affiliated entities were terminated upon the formation of the Company.
In late 1996 the Company adopted The Savings Restoration Plan which is designed
to allow eligible employees to defer current compensation in amounts that exceed
the limits that can be deferred under The Retirement Savings Plan. The plan
became effective January 1, 1997 and $114,000 was deferred in 1997 under the
plan. Amounts deferred are charged to expense in the current period; as such,
all compensation expense under the above plans is being fully recognized as it
is earned.
Share Incentive Plans
Prior to the initial public offering, the shareholders of the Company approved
the 1993 Crown American Realty Option Plan (the "Employee Option Plan"), and the
1993 Crown American Realty Trustees' Option Plan (the "Trustees' Option Plan").
Under the Employee Option Plan, options to purchase a total of 1,200,000 common
Partnership "Units" of the Operating Partnership are available for grant to
officers and key employees; the Chairman and President currently do not
participate in any share incentive plan. Under the Employee Option Plan,
options are to be granted at not less than the market value of the common
shares on the date of grant. In certain circumstances, option holders may
redeem the Units for cash or Shares (at the option of the Company).
Currently, all the Employee Option Agreements except one provide that an option
may only be exercised after the optionee has completed two years of employment
with the Operating Partnership after the date of the grant of the option. Under
such Option Agreements, an option first becomes exercisable to the extent of 20%
of the total number of Units subject to the option on each of the second, third,
fourth, fifth and sixth anniversaries of the date of the grant of the option.
One Option Agreement provides for full vesting of the options granted thereunder
three years after the date of grant. If employment is terminated after the
option has partially or fully vested, the option may be exercised to the extent
it was exercisable at the time of termination of employment. There are certain
limitations on the timing of exercise of the option after termination of
employment. Currently, all the Option Agreements provide that options expire
five years after the date they first become exercisable. Effective on January
3, 1996, the Board of Trustees canceled all then outstanding options (except for
30,000 options that were granted in November 1995) and issued 968,000 new
options at the then current market price of $8.00 per share, pursuant to the
terms described above.
Option transactions under the Employee Option Plan are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Weighted Weighted Weighted
Number Average Number Average Average
of Exercise of Exercise of Exercise
Units Price Units Price Units Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period 1,036,000 $8.00 998,000 $15.78 972,000 $16.63
Granted 90,000 9.53 1,062,000 8.00 170,000 11.71
Canceled (1,024,000) 15.59 (144,000) 16.23
Exercised
Options outstanding, end of
period 1,126 ,000 $8.13 1,036,000 $ 8.00 998,000 $15.78
Range of option exercise $7.50 to $7.50 to $7.75 to
prices $ 9.75 $ 8.50 $ 17.25
Weighted average fair value
of options granted during
the year $ 0.59 $ 0.54 $ 1.61
Weighted average contractual
life at end of period
(in years) 7.1 8.0 7.3
Options exercisable at
period end 2,000 0 92,000
Total compensation expense
recognized during the period $ 0 $ 0 $ 0
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend
yield of 8.40%, 10.0%, and 11.0%; expected volatility of 17%, 23%, and 35%;
risk-free interest rates of 6.3%, 6.6%, and 7.0%; and expected lives of 9 years
for all options.
The Trustees' Option Plan was amended and restated effective as of December 30,
1997. As amended, options to purchase a total of 125,000 common shares of
beneficial interest of the Company are available to non-employee Trustees. Each
non-employee Trustee automatically is granted on December 31 of each year an
option to purchase 5,000 common shares having an exercise price equal to 100% of
the fair market value of the shares at the date of grant. Previously, the plan
provided for annual grants of 500 shares. On December 31,1997 each of the four
non-employee trustees were granted options to purchase 5,000 common shares at an
exercise price of $9.313. On December 31, 1996, 1995 and 1994, each of the four
non-employee trustees was granted an option to purchase 500 shares at an
exercise price of $7.50, $7.875, and $13.50, respectively. The amended
Trustees' Option Plan also provides for an automatic grant of 5,000 options to
purchase common shares with an exercise price equal to 100% of the fair market
value of the shares at the date of grant upon the appointment or election of
each new non-employee Trustee to the Board. Previously, the Company awarded
options to purchase 500 common shares at an exercise price of $17.25 per share
(the initial public offering price of the common shares) to each of the four
non-employee Trustees upon their initial election to the Board in August 1993.
As of December 31, 1997 there were 30,000 options to purchase common shares held
by the Trustees. To date, all options granted to the Trustees under the
Trustees' Option Plan have been exercisable immediately upon grant, but as of
December 31, 1997 none had been exercised.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its option
plans. Had compensation cost for the Company's option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net income for the
years ended December 31, 1997, 1996 and 1995 would have been reduced by
approximately $0.13 million, $0.12 million, and $0.17 million, respectively, or
$0.005, $0.004, and $0.006 per share, respectively.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Fair Value of Financial
Instruments" requires disclosures about fair value for all financial
instruments. Based on the borrowing rates currently available to the Company,
the carrying amount of the Company's $400.0 million of fixed rate debt has an
estimated fair value of $410 million at December 31, 1997. The remaining $141.7
million of debt is at floating interest rates which approximate current rates
available to the Company for such debt, and accordingly the fair value of such
floating rate debt approximates the current carrying amount.
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is shown below (in
thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Year ended December 31, 1997:
<S> <C> <C> <C> <C>
Revenues $ 30,873 $ 30,986 $ 30,741 $ 38,394
Operating income before interest,
asset sales and adjustments, and
extraordinary items 9,361 10,512 9,702 14,631
Extraordinary gains (losses) (732) (631) (968)
Income (loss) before minority
interest in Operating Partnership (1,703) (1,407) (174) 3,547
Net income (loss) allocated
to common shares $ (1,269) $ (1,048) $ (2,520) $ 98
Net income (loss) per share:
Basic EPS $ (.05) $ (.04) $ (.09) $ .00
Diluted EPS $ (.05) $ (.04) $ (.09) $ .00
Year ended December 31, 1996:
Revenues $ 33,417 $ 30,939 $ 31,784 $ 37,832
Operating income before interest,
asset sales and adjustments, and
extraordinary items 12,823 10,053 10,652 14,537
Extraordinary (losses) (120) (598)
Income before minority interest
in Operating Partnership 2,420 602 1,595 3,169
Net income 1,804 451 1,189 2,363
Net income per share:
Basic EPS $ .07 $ .01 $ .04 $ .09
Diluted EPS $ .07 $ .01 $ .04 $ .09
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company obtains insurance for worker's compensation, automobile, general
liability, property damage, and medical claims. However, the Company has
elected to retain a portion of expected losses for property damage, and general
liability through the use of deductibles which generally range up to $250,000
per claim with certain maximum aggregate policy limits per year. Provisions for
losses expected under these programs are recorded based on estimates,
provided by consulting actuaries who utilize the Company's claims experience
and actuarial assumptions, of the aggregate liability for claims incurred
and claims incurred but not reported. The total estimated liability for
these losses at December 31, 1997 and 1996 was $3.8 million and $4.5
million, respectively, and is included in accounts payable and other
liabilities.
Based on environmental studies completed on the Properties, management believes
any exposure related to environmental clean-up will be immaterial.
The Company from time to time is involved in litigation incidental to its
business. Except as described below, neither the Company nor any of the
Partnerships 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 or the Partnerships, 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.
Shareholder litigation
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 the reduction of the Company's quarterly dividend to increase
its levels of retained internal cash flow and the planned sale of certain assets
that at the time did not fit the Company's growth strategy. The complaints in
these three cases were consolidated by the Court and a consolidated amended
complaint was filed on February 23, 1996. The consolidated amended complaint
asserts a class period extending from March 1, 1995 to August 8, 1995,
inclusive.
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 the United States District Court for the Eastern District of
Pennsylvania (the Warden action). This action was subsequently transferred to
the Western District of Pennsylvania. While this Complaint is substantially
similar to the previous Complaints, it alleged a class period extending from
August 17, 1993 (the IPO Date) to August 8, 1995.
The Company filed a motion seeking to dismiss the consolidated action and
negotiated a stay of the Warden action pending resolution of the motion to
dismiss the consolidated action. On September 15, 1997 the Court issued an
opinion dismissing the consolidated amended complaint. In its ruling, the Court
dismissed certain allegations with prejudice and others with an opportunity to
amend. On October 10, 1997 the Plaintiffs filed a second amended complaint in
the consolidated action. On December 2, 1997 the court entered an order
consolidating the cases for pretrial purposes. On December 16, 1997 the
Plaintiff in the Warden action filed a second amended complaint, which changed
the end of the putative class period to February 28, 1995. On January 16, 1998
the Company filed motions seeking dismissal of the consolidated action and the
Warden action.
The consolidated legal action and the Warden action are in a very preliminary
stage. However, the Company believes, based on the 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 actions. 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 effect on the Company's results
of operations or financial condition.
Logan Valley Mall fire litigation
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 filed
lawsuits against the Company for damages to property and for interruption of
business. In August 1997, all of these above-referenced lawsuits were settled
within the coverage limits of the applicable insurance policies. The
settlements had no material adverse effect on the Company's results of
operations or financial condition.
Tenant litigation
In July 1997 The Bon-Ton Department Stores, Inc. filed suit in a Pennsylvania
state court against Crown American Financing Partnership and The May Department
Stores seeking to enjoin the development of a Kaufmann's Department Store at
Nittany Mall. Bon-Ton claimed that the proposed Kaufmann's store would violate
a restrictive covenant in Bon-Ton's lease with Crown. Crown and May disputed
Bon-Ton's position and filed a counterclaim seeking a declaratory judgment that
the proposed transaction did not violate the restrictive covenant. The parties
stipulated to a trial of all issues (except the availability of damages to Bon-
Ton should it establish liability but not the entitlement to injunctive relief).
After this trial, the Court ruled in favor of Crown and May, denying Bon-Ton's
request for injunctive relief and granting Crown and May's motion for
declaratory judgment. Bon-Ton has appealed to the Pennsylvania Superior Court.
The appeal is pending and has not yet been briefed or argued. While the final
resolution of this litigation cannot be presently determined, management does
not believe that it will have a material adverse effect on the Company's results
of operations or financial condition.
In December 1996 the Company was advised by Proffitt's, a tenant at the
Company's Patrick Henry Mall in Newport News, Virginia, that it was selling its
stores in the Tidewater region of Virginia to Dillard's, Inc. Pursuant to the
Lease between the Company and Proffitt's, the Company had the right to terminate
its Lease with Proffitt's in the event of an assignment to a third party. The
Company exercised its right of termination. In conjunction with its termination
of the Lease, the Company filed a declaratory judgment action in the state court
of Virginia seeking a judicial affirmation of the lease termination. On
December 29, 1997 the state court granted summary judgment in favor of the
Company, ruling that the termination of the Lease by the Company was proper. In
August 1997 Dillard's, Inc. and Dillard's Virginia, Inc. filed suit against the
Company and May Department Stores, alleging that the Company and May conspired
and agreed in restraint of trade in violation of the antitrust laws of the
United States and Commonwealth of Virginia to preclude Dillard's from entering
the Patrick Henry Mall. In January 1998 this lawsuit was settled by the
parties. The settlement had no material adverse effect on the Company's results
of operations or financial condition.
NOTE 14 - MALL ACQUISITIONS
On November 17, 1997 the Company, through a new subsidiary, Crown American
Acquisitions I, L.P., acquired Valley Mall located in Hagerstown, Maryland for
$31.7 million in cash, plus $0.4 million in transaction costs. The purchase was
funded entirely from the proceeds of the Preferred Share Offering (See Note 6).
Valley Mall is an enclosed regional mall consisting of approximately 616,000
square feet of gross leasable area ("GLA"), of which 123,400 square feet is
owned by the current department store occupant. In addition, the purchase
included 48,762 square feet of outparcel GLA and 30.8 acres of additional
adjacent undeveloped land. One and one-half months of operations of Valley Mall
are included in the 1997 consolidated results of operations, producing $0.7
million in revenues and $0.3 million in net income before minority interest.
At the time of the Company's formation in 1993, Crown Associates retained (i) a
50% tenancy-in-common interest in the fee title to two enclosed shopping malls
(Wyoming Valley Mall located in Wilkes-Barre, Pennsylvania, and Middletown Mall
located in Fairmont, West Virginia) and (ii) related ground leasehold interests
pursuant to long-term ground leases of each of such undivided interests. The
other 50% tenancy-in-common interests in both properties were held by an
unrelated third party, which at the time objected to purchase of the properties
by the Company.
In 1994 the Company, Crown Associates and the unrelated third party entered into
agreements, approved by the Independent Trustees, under which the Company
purchased all interests in the two malls together with the related working
capital. The transactions closed effective as of January 31, 1995 (Wyoming
Valley Mall) and February 1, 1995 (Middletown Mall). The aggregate purchase
price paid for the two malls consisted of $45.2 million in cash, assumption of
debt aggregating $7.8 million, of which $6.0 million is a non-recourse note
related to Middletown Mall due January 1998, and, for Wyoming Valley Mall, an
additional 5.1% partnership interest in the Operating Partnership, issued to
Crown American Investment Company ("CAIC"), a wholly-owned subsidiary of Crown
Investments. The Company also incurred $1.4 million in transaction costs,
including transfer taxes, debt issuance costs, and legal fees. The funds to pay
the purchase price and transaction costs were obtained through a $45.3 million
term loan from a bank (subsequently increased to $50.0 million during 1995).
The loan bore interest at a variable interest rate indexed to the LIBOR rate and
was repaid in November 1997 as part of the GECRE financing (see Note 5).
The portion of the purchase price paid to the unrelated third party (who held a
50% interest in the malls) was accounted for using the purchase method and
resulted in a step-up in basis. In addition, the monetary consideration paid to
the predecessor (46% of the total value) was recorded at step-up basis, while
the remaining 54% was recorded at the predecessor's carryover basis, consistent
with SAB 48 and the Initial Public Offering (IPO) Accounting.
There is additional contingent consideration to CAA and/or its affiliates
with respect to Middletown Mall, to be paid in partnership units, based
on this mall's operating performance during the year ended December 31,
1997. Approximately 400,000 additional common Partnership Units are expected
to be issued, effective as of January 1, 1998, as consideration for the con-
tribution of Middletown Mall to the Operating Partnership, subject to final
determination and approval by the Independent Trustees. The 400,000 units
would represent approximately 1.1% of the total common Partnership Units
outstanding prior to the issuance of the new units. If Middletown Mall is held
for redevelopment during 1998, there may be additional common Partnership Units
issued to CAA and/or its affiliates in 1999 if such redevelopment and
leasing activities result in enhanced Funds from Operations, as defined,
during 1998.
Eleven months of operating activities of the two malls are included in the 1995
consolidated results of operations. In 1995 the two malls contributed $11.5
million in revenues and $0.5 million of income before minority interest.
NOTE 15 - PROPERTY SALES, DISPOSALS, AND ADJUSTMENTS
The Company has nearly finalized an agreement of sale with an unrelated third
party with respect to Middletown Mall and the adjacent outparcel land under
which the purchaser has 30 days to complete its due diligence and can cancel the
agreement for any reason during this period. The purchase price is
approximately $12 million which would result in a gain. Additional consider-
ation may also be due to CAA and/or its affiliates if such sale is consum-
mated, the amount of which will be dependent on net proceeds received. For
the year ended December 31, 1997 Middletown contributed $2.2 million in
revenues and $0.2 million in income before minority interest.
In September 1996, the Company sold its 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 unamoritzed deferred
financing costs.
As part of the Company's ongoing strategic evaluation of its portfolio of
assets, the Trustees of the Company authorized management in August 1995 to
pursue the sale of certain malls and other assets that were not considered at
that time to be fully consistent with or essential to the Company's long-term
strategies. Under generally accepted accounting principles ("GAAP"), assets
held for the long-term production of income are recorded at the lower of cost or
net realizable value (generally defined as the future net cash flows expected to
be generated by the asset, undiscounted and without interest charges). However,
when a decision is made to dispose of long-lived assets, the carrying value of
those assets is computed using their fair value (generally defined as the amount
at which the asset could be bought or sold in a current transaction other than a
forced or liquidation sale) less selling costs. Accordingly, in the second
quarter of 1995 the Company recorded a $35.0 million adjustment to the carrying
value of one of the assets then held for sale as required under GAAP. This non-
cash adjustment was charged to operations and represents the difference between
the estimated fair value (less direct costs to sell) and net book value of that
asset. Assets that had been held for sale are no longer being offered due to
new development opportunities that have arisen, current market conditions, and
other reasons.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable
PART III
Items 10 through 13.
In accordance with the provisions of General Instruction G (3)
to Form 10-K, the information required by Item 10 (Directors and Executive
Officers of the Registrant), Item 11 (Executive Compensation), Item 12
(Security Ownership of Certain Beneficial Owners and Management) and
Item 13 (Certain Relationships and Related Transactions) is not set forth herein
(except for the information concerning "Executive Officers of the Company" which
appears at the end of Part I hereof) because the Company's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on April 29, 1998,
which includes such information, will be filed with the Commission not later
than 120 days after the end of the fiscal year covered by this annual report.
Such information is incorporated in this annual report by reference, except for
the information required to be included in the Proxy Statement by paragraphs (k)
and (l) of Item 402 of Regulation S-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The financial statements, financial statement schedules and exhibits listed
below are filed as part of this annual report:
Page No.
(a) (1) Financial Statements
Report of Independent Public Accountants 30
Consolidated Statement of Operations of Crown
American Realty Trust for the years ended
December 31, 1997, 1996 and 1995. 31
Consolidated Balance Sheets of Crown American
Realty Trust as of December 31, 1997, and 1996. 32
Consolidated Statements of Cash Flows of Crown
American Realty Trust for the years ended
December 31, 1997, 1996 and 1995. 33
Consolidated Statements of Shareholders' Equity of
Crown American Realty Trust for the years ended
December 31, 1997, 1996 and 1995. 34
Notes to Consolidated Financial Statements 35-52
(2) Financial Statement Schedules
Schedule III - Consolidated Real Estate and
Accumulated Depreciation 57-58
Schedule IV - Valuation and Qualifying Accounts
and Reserves 59
(b) Reports on Form 8-K
No events which resulted in the filing of a current report on Form 8-K occurred
during the fiscal quarter ended December 31, 1997.
(c) Exhibits
3.1 Second Amended and Restated Declaration of Trust of the Company. (c)
3.2 Bylaws of the Company. (c)
4.1 See Second Amended and Restated Declaration of Trust of the Company,
(Exhibit 3.1). (c)
4.2 Articles Supplementary Classifying and Designating a Series of
Preferred Shares (filed as Exhibit 4.4 to the Company's Amendment
No. 2 to Registration Statement on Form S-3, filed on June 27, 1997)
4.3 Form of Preferred Share Certificate (filed as Exhibit 4.5 to the
Company's Amendment No. 2 to Registration Statement on Form S-3,
filed on June 27, 1997
10.1 Amended and Restated Agreement of Limited Partnership of Crown
American Properties, L.P. (b)
10.2 (a) First Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (b)
10.2 (b) Second Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (a)
10.2 (c) Third Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (a)
10.2 (d) Fourth Amendment to Amended and Restated Agreement of Limited
Partnership of Crown American Properties, L.P. (f)
10.3 Amended and Restated Partnership Agreement of Crown American
Financing Partnership. (b)
10.4 Certificate of Incorporation and Bylaws of Crown American Financing
Corporation. (b)
10.5 Real Estate Management Agreements between the Operating Partnership
and the following entities:
(a) Financing Partnership (b)
(b) Crown American Associates (b)
(c) Wyoming Valley Mall, Inc. (b)
(d) Middletown Mall, Inc. (b)
(e) Pasquerilla Partnership (b)
(f) Greater Lewistown Shopping Plaza (b)
(g) The Grandview Company (b)
(h) Crown American WL Associates, L.P. (f)
(i) Crown American Acquisition Associates I, L.P. (f)
10.6 Key Executive Bonus Incentive Plan. (c) #
10.7 Retirement Savings Plan. (c) #
10.8 Sample Indemnification Agreement between the Company and its Trustees
and officers (together with a schedule identifying the other
agreements not being filed and material differences therein). (b)
10.9 Loan Agreement between the Financing Partnership and Kidder Peabody
Mortgage Capital Corporation ("Loan Agreement"). (b)
10.10 Amendment to Loan Agreement. (b)
10.11 Amended and Restated Cash Flow Support Agreement, dated May 9,
1994 (a)
10.11 (a) Amendment dated December 3, 1997, to the Amended and Restated Cash
Flow Support Agreement dated May 9, 1994. (f)
10.12 1993 Crown American Realty Option Plan. (c) #
10.13 Amended and Restated Crown American Realty Trustees' Option Plan, as
of December 30, 1997 (f) #
10.14 Sample Option Agreement for Employees (together with a schedule
identifying the other agreements not being filed and material
differences therein). (b)
#10.15 Sample Option Agreement for Trustees (together with a schedule
identifying the other agreements not being filed and material
differences therein). (b)#
10.16 Option Agreement dated as of April 24, 1995 among CBA Funding, L.L.C.,
Crown American Realty Trust, Crown American Properties, L.P. and
Crown Investments Trust. (d)
10.17 Registration Rights Agreement dated as of April 24, 1995 between Crown
American Realty Trust and CBA Funding, L.L.C., as Agent (d)
10.18 Exchange Agreement dated as of April 24, 1995 among CBA Funding,
L.L.C., as Agent, Crown American Realty Trust, Crown American
Properties, L.P., Crown Investments Trust and Crown American
Investment Company (d)
10.19 Crown American Properties L.P. Savings Restoration Plan (e) #
21 List of subsidiaries of the Company. (f)
23 Consent of Arthur Andersen LLP (f)
24 Powers of Attorney (f)
99(a) Press release dated February 25, 1998 (f)
99(b) Fourth Quarter 1997 Supplemental Financial and Operational Information
Package (f)
(a) Filed as an Exhibit to the Company's Report on Form 10K for the year
ended December 31, 1994.
(b) Filed as an Exhibit to the Company's Report on Form 10K for the period
ended December 31, 1993.
(c) Filed as an Exhibit to the Company's Registration Statement on
Form S-11, effective as of August 9, 1993.
(d) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-3, Registration No. 33-91880, effective as of
June 9, 1995.
(e) Filed as an Exhibit to the Company's report on Form 10K for the year
ended December 31, 1996.
(f) Filed herewith.
# Indicates management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CROWN AMERICAN REALTY TRUST
By /s/ Frank J.Pasquerilla
Frank J. Pasquerilla
Chief Executive Officer
Date: March 6, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company in the
capacities indicated and on the dates indicated.
Signature Title Date
/s/Frank J. Pasquerilla Trustee, Chairman of March 6, 1998
Frank J. Pasquerilla the Board and Chief
Executive Officer
/s/Mark E. Pasquerilla Trustee and President March 6, 1998
Mark E. Pasquerilla
/s/ John M. Kriak Trustee, Executive Vice March 6, 1998
John M. Kriak President and Chief
Financial Officer
(Principal Financial Officer)
/s/ Terry L. Stevens Senior Vice President -
Terry L. Stevens Finance and Chief Accounting March 6, 1998
Officer
* Trustee March 6, 1998
Clifford A. Barton
* Tustee March 6, 1998
Donald F. Mazziotti
* Trustee March 6, 1998
Margaret T. Monaco
* Trustee March 6, 1998
Zachary L. Solomon
*By: /s/ Terry L. Stevens
Terry L. Stevens
as Attorney-in-Fact
<TABLE>
<CAPTION>
Schedule III
CROWN AMERICAN REALTY TRUST
Consolidated Real Estate and Accumulated Depreciation as of December 31, 1997
(Dollars in Thousands)
Costs Capitalized
Initial Cost Subsequent To Acquisition
Buildings Buildings
and Land and
Encum- Improve- Improve- Improve- Carrying
Properties brances Land ments ments ments Costs
(D) (C) (C) (E)
<S> <C> <C> <C> <C> <C> <C>
Carlisle
Carlisle, PA $ 12,484 (A) $ 379 $ 611 $ 9 $ 8,920 $ 139
Logan Valley
Altoona, PA 56,812 (G) 2,138 954 2,086 75,197 6,242
North Hanover
Hanover, PA 16,220 (F) 1,272 1,325 591 14,520 194
Viewmont
Scranton, PA 46,249 (F), 1,696 4,602 6,768 38,657 7,701
(B)
Shenango
Valley
Sharon, PA 0 (H) 0 6,403 22 8,596 151
Nittany
State College, 24,982 (F) 6,683 6,204 95 27,563 5,718
PA
Capital City
Camp Hill, PA 40,748 1,580 11,269 (193) 8,249 216
Franklin
Washington, PA 10,805 (F) 2,977 3,915 43 17,881 233
Uniontown
Uniontown, PA 22,734 (F) 0 6,635 1,384 31,216 2,510
Francis Scott
Key
Frederick, MD 28,037 (F) 3,784 12,170 (636) 19,095 100
Lycoming
Williamsport, PA 32,361 (F) 2,110 14,204 (24) 15,769 638
Schuylkill
Frackville, PA 36,896 10,332 24,843 165 8,141 5
West Manchester
York, PA 24,123 (F) 7,694 24,122 2,455 16,903 665
Chambersburg
Chambersburg, 18,077 (F) 2,363 14,063 38 11,491 271
PA
South
Allentown, PA 8,705 (F) 3,465 2,331 23 13,429 0
Phillipsburg
Phillipsburg, 23,708 (F) 11,169 50,368 36 3,363 0
NJ
Patrick Henry
Newport News, 29,838 (F) 3,953 22,432 14 7,561 98
VA
New River Valley
Christiansburg, 12,999 (F) 3,923 27,094 38 5,366 0
VA
Martinsburg
Martinsburg,WV 11,800 (F) 8,375 37,547 (653) 2,224 22
Bradley Square
Cleveland, TN 0 (H) 7,012 29,385 (198) 2,574 0
Mt. Berry Square
Rome, GA 0 (H) 6,260 37,434 (24) 3,683 0
Oak Ridge
Oak Ridge, TN 21,492 9,393 31,323 (230) 5,567 1,210
Wyoming Valley
Wilkes-Barre, 53,188 (G) 6,825 52,057 (90) 1,965 12
PA
Middletown
Fairmont, WV 6,490 1,610 10,359 15 253 1
Pasquerilla
Plaza
Johnstown, PA 2,965 3,289 23,010 3 541 0
Westgate
Anchor Pad
Bethlehem, PA 3,219 0 0 0
Valley Mall 0 (H) 12,036 19,945 0 0 0
Hagerstown, MD
Total $541,713 $120,318 $477,824 $11,737 $348,724 $ 26,126
See following page for note references (A) to (H).
</TABLE>
<TABLE>
<CAPTION>
Schedule III
CROWN AMERICAN REALTY TRUST
Consolidated Real Estate and Accumulated
Depreciation as of December 31, 1997
(Dollars in Thousands)
Gross Amounts at Which Carried
at Close of Period
Buildings Accumu-
and lated Date of
Improve- Depre- Construc- Date
Properties Land ments Total ciaton tion Acquired
<S> <C> <C> <C> <C> <C> <C>
Carlisle
Carlisle, PA $ 388 $ 9,670 $ 10,058 $ (5,648) 1964
Logan Valley
Altoona, PA 4,224 82,393 86,617 (12,979) 1965,
1995-96
North Hanover
Hanover, PA 1,863 16,039 17,902 (9,989) 1967
Viewmont
Scranton, PA 8,464 50,960 59,424 (13,785) 1968,
1994-95
Shenango
Valley
Sharon, PA 22 15,150 15,172 (7,836) 1967,
1995
Nittany
State College, 6,778 39,485 46,263 (14,470) 1968,
PA 1970,
1991
Capital City
Camp Hill, PA 1,387 19,734 21,121 (10,742) 1974
Franklin
Washington, PA 3,020 22,029 25,049 (11,625) 1969
Uniontown
Uniontown, PA 1,384 40,361 41,745 (17,733) 1969,
1984,
1989
Francis Scott
Key
Frederick, MD 3,148 31,365 34,513 (15,077) 1978
Lycoming
Williamsport, 2,086 30,611 32,697 (14,358) 1978,
PA 1990
Schuylkill
Frackville, PA 10,497 32,989 43,486 (16,965) 1980
West
Manchester
York, PA 10,149 41,690 51,839 (13,407) 1981,
1995
Chambersburg
Chambersburg,PA 2,401 25,825 28,226 (12,397) 1982
South
Allentown, PA 3,488 15,760 19,248 (5,364) 1980
Phillipsburg
Phillipsburg, NJ 11,205 53,731 64,936 (16,662) 1989
Patrick Henry
Newport News, VA 3,967 30,091 34,058 (11,370) 1987
New River
Valley
Christiansburg, VA 3,961 32,460 36,421 (8,603) 1988
Martinsburg
Martinsburg,WV 7,722 39,793 47,515 (10,405) 1991
Bradley Square
Cleveland, TN 6,814 31,959 38,773 (8,780) 1991
Mt. Berry
Square
Rome, GA 6,236 41,117 47,353 (10,786) 1991
Oak Ridge
Oak Ridge, TN 9,163 38,100 47,263 (15,196) 1989
Wyoming Valley
Wilkes-Barre, PA 6,735 54,034 60,769 (14,705) 1995
Middletown
Fairmont, WV 1,625 10,613 12,238 (5,579) 1995
Pasquerilla
Plaza
Johnstown, PA 3,292 23,551 26,843 (6,827) 1989
Westgate
Anchor Pad
Bethlehem, PA 3,219 3,219 (925) 1988
Valley Mall 12,036 19,945 31,981 (162) 1997
Hagerstown, MD
Total $132,055 $852,674 $984,729 $(292,375)
See following page for note references (A) to (H).
</TABLE>
<TABLE>
<CAPTION>
Schedule III (continued)
CROWN AMERICAN REALTY TRUST
Consolidated Real Estate and Accumulated Depreciation as of December 31, 1997
(Dollars in Thousands)
Depreciation and amortization of the Company's investment in buildings and
improvements reflected in the statements of operations are calculated over the
estimated useful lives of the assets as follows:
Base Building 45 years
Building Components 10 - 20 years
Tenant Improvements Terms of Leases
or useful lives,
whichever is shorter
The aggregate cost for Federal income tax purposes was approximately $947
million at December 31, 1997.
The changes in total real estate assets and accumulated depreciation and
amortization for the periods February 1, 1993 to August 16, 1993, and August 17,
1993 to December 31, 1993, and the years ended December 31, 1994, 1995, 1996,
and 1997 are as follows:
Total Real Estate Assets
Years ended December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Balance, beginning of $ 919,469 $ 880,279 $ 799,090 $ 779,184
period
Additions and improvements 34,230 50,245 46,916 39,809
Acquisitions 31,981 70,180
Adjustments to carrying (35,000)
value
Cost of real estate sold (341) (9,612) (907) (19,903)
Other writeoffs (610) (1,443)
Balance, end of period $ 984,729 $ 919,469 $ 880,279 $ 799,090
August 17 February 1
to to
December 31, August 16,
1993 1993
Balance, beginning of $ 767,036 $ 762,186
period
Additions and improvements 12,148 8,974
Acquisitions
Adjustments to carrying
value
Cost of real estate sold (4,124)
Other writeoffs
Balance, end of period $ 779,184 $ 767,036
Accumulated Depreciation & Amortization
Years ended December 31,
1997 1996 1995 1994
Balance, beginning of $ 259,099 $ 232,771 $ 190,379 $ 173,930
period
Depreciation and 33,886 29,987 29,546 24,816
amortization
Acquisitions 12,846
Cost of real estate sold (2,216) (8,367)
Other writeoffs (610) (1,443)
Balance, end of period $ 292,375 $ 259,099 $ 232,771 $ 190,379
August 17 February 1
to to
December 31, August 16,
1993 1993
Balance, beginning of $ 165,183 $ 154,480
period
Depreciation and 8,747 12,119
amortization
Acquisitions
Cost of real estate sold (1,416)
Other writeoffs
Balance, end of period $ 173,930 $ 165,183
(A) Includes $1,250 secured only by a bank letter of credit.
(B) Includes $30,000 secured only by assignment of leases.
(C) Improvements are reported net of dispositions.
(D) Initial cost for constructed malls is cost at end of first complete
fiscal year subsequent to opening and includes carrying costs on
initial construction.
(E) Carrying costs consist of capitalized construction period interest and
taxes on expansions and major renovations subsequent to initial
construction of the mall.
(F) Fourteen malls in the Financing Partnership are cross-defaulted and
cross-collateralized.
(G) Logan Valley and Wyoming Valley are cross-defaulted and
cross-collateralized.
(H) Shenango Valley, Mt. Berry Square, Bradley Square and Valley Mall are
mortgaged to secure the $50.0 million GECRE working capital line of
credit. These four properties are cross-defaulted and
cross-collateralized.
</TABLE>
<TABLE>
<CAPTION>
Schedule IV
CROWN AMERICAN REALTY TRUST
Valuation and Qualifying Accounts and Reserves
(Dollars in Thousands)
Balance
Balance at Additions at
January Charged December
1, to 31,
Description 1997 Expense Other Deductions 1997
<S> <C> <C> <C> <C> <C>
Allowance for doubtful $1,042 $1,101 $ $ (177) $1,966
accounts
Reserve for uninsured risks 4,495 1,002 (1,694) 3,803
</TABLE>
EXHIBIT 10.2 (d)
FOURTH AMENDMENT TO AMENDED
AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF
CROWN AMERICAN PROPERTIES, L.P.
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF CROWN AMERICAN PROPERTIES, L.P. (this "Amendment") is made and
entered into as of July 1, 1997 by and among the undersigned parties.
W I T N E S S E T H:
WHEREAS, Crown American Properties, L.P. (the "Partnership") was
formed as a Delaware limited partnership on July 23, 1993 pursuant to an
Agreement of Limited Partnership dated July 18, 1993, with Crown American Realty
Trust, a Maryland real estate investment trust (the "General Partner"), as
general partner and Crown American Corporation, a Pennsylvania corporation
("CAC"), as limited partner;
WHEREAS, the General Partner, CAC and Crown Investment Trust, a
Delaware business trust, entered into an Amended and Restated Agreement of
Limited Partnership dated as of August 17, 1993, as amended by a First Amendment
dated as of December 31, 1993, a Second Amendment dated as of January 27, 1995,
and a Third Amendment dated as of February 1, 1995, hereinafter referred to as
the "Agreement";
WHEREAS, capitalized terms used herein and not otherwise defined
herein shall have the meanings given them in the Agreement;
WHEREAS, the General Partner intends to issue and sell up to 2,875,000
11.00% Senior Preferred Shares ($50.00 Liquidation Preference) in a public
offering registered under the Securities Act of 1933, as amended, and will
contribute the net proceeds of the offering to the Partnership;
WHEREAS, Section 4.3(b) of the Agreement provides that the General
Partner shall be issued additional Partnership Units upon the issuance of Shares
by the General Partner the net proceeds of which are contributed to the
Partnership; and
WHEREAS, the Agreement does not currently provide for partnership
interests or units relating to preferred shares of the General Partner, and the
Partners deem it advisable for the Agreement to be amended to do so;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Preferred Partnership Interest. The Agreement is hereby amended
to add thereto a new Article IV(A) as follows:
ARTICLE IV(A)
Preferred Partnership Interest
4A.1. Creation of Preferred Partnership Interest and
Preferred Partnership Units. As a result of the General Partner's
public sale of up to 2,875,000 11.00% Senior Preferred Shares ($50.00
Liquidation Preference) (the "Preferred Shares") in July 1997 and the
contribution by the General Partner of the aggregate net proceeds
thereof to the Partnership, there is hereby created in favor of the
General Partner a Preferred Partnership Interest. The Preferred
Partnership Interest shall be in an amount equal to the net proceeds
of the offering contributed to the Partnership by the General Partner
and shall have the rights and attributes set forth in this Article
IV(A). There also is hereby created a class of Preferred Partnership
Units in the Partnership. The number of Preferred Partnership Units
at any time shall equal to the number of Preferred Shares outstanding
at such time. The Preferred Partnership Units shall be issued to the
General Partner.
4A.2. Distributions. The General Partner shall cause the
Partnership to distribute such amounts to the General Partner in
respect of the Preferred Partnership Interest and the Preferred
Partnership Units as the General Partner may determine are necessary
to enable it to pay dividends on the outstanding Preferred Shares
(including any "Additional Dividends" required by the terms of the
Preferred Shares). No payments or distributions (including without
limitation under Section 6.2 or 8.2 of this Agreement) in respect of
any Partnership Interests or Partnership Units other than the
Preferred Partnership Interest and the Preferred Partnership Units
will be made at any time unless full cumulative dividends on the
Preferred Shares for all past dividend periods and the then current
dividend period have been paid or provided for.
4A.3. Redemptions. The General Partner shall cause the
Partnership to distribute such additional amounts to the General
Partner in respect of the Preferred Partnership Interest and the
Preferred Partnership Units as may be required from time to time to
pay the redemption price of the Preferred Shares.
4A.4. Ranking; Liquidation. The Preferred Partnership
Interest and the Preferred Partnership Units shall, with respect to
distribution rights and rights upon liquidation, dissolution or
winding up of the Partnership, rank senior to the other Partnership
Interests in the Partnership. Upon any such liquidation, dissolution
or winding up, the Preferred Partnership Interest and the Preferred
Partnership Units shall be entitled to receive an aggregate
liquidation preference in an amount equal to $50.00 times the number
of Preferred Shares then outstanding prior to the payment or
distribution of any amounts in respect of the other Partnership
Interests or Partnership Units in the Partnership, including without
limitation any such payment pursuant to Section 8.2 of this Agreement.
4A.5. Priority of Article IV(A). The provisions of this
Article IV(A) shall take precedence over and control any other
provisions of this Agreement which may be in conflict with the terms
of this Article IV(A). Accordingly, the other provisions of this
Agreement shall be construed wherever appropriate to give full force
and effect to this Article IV(A).
2. Ratification of Agreement. As amended hereby, the provisions of
the Agreement are hereby ratified and confirmed in all respects.
3. Miscellaneous. This Amendment shall be governed by and construed
in accordance with the laws of the State of Delaware, and shall be binding upon
and shall inure to the benefit of all Partners, and their legal representatives,
heirs, successors and permitted assigns. This Amendment may be executed in
counterparts, each of which shall constitute an original, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
caused this Amendment to be executed as of the day and year first above written.
GENERAL PARTNER:
CROWN AMERICAN REALTY TRUST,
a Maryland real estate investment trust
By: /s/ John M. Kriak
Name: John M. Kriak
Title: Executive Vice-President
INITIAL LIMITED PARTNER:
CROWN INVESTMENTS TRUST,
a Delaware business trust
By: /s/ Ronald P. Rusinak
Name: Ronald P. Rusinak
Title: Vice-President
ADDITIONAL LIMITED PARTNERS:
CROWN AMERICAN INVESTMENT COMPANY,
a Delaware corporation
By: /s/ Ronald J. Hamilton
Name: Ronald J. Hamilton
Title: Vice-President
CROWN AMERICAN ASSOCIATES,
a Pennsylvania business trust
By: /s/ Ronald J. Hamilton
Name: Ronald J. Hamilton
Title: Vice-President
CROWN DELAWARE HOLDING COMPANY,
a Delaware corporation, successor-by-merger to:
MIDDLETOWN MALL, INC.,
a West Virginia corporation
By: /s/ Ronald J. Hamilton
Name: Ronald J. Hamilton
Title: Vice-President
EXHIBIT 10.5 (h)
REAL ESTATE MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 17th day of November, 1997, between Crown
American WL Associates, L.P., a Pennsylvania limited partnership having its
principal address at Pasquerilla Plaza, Johnstown, Pennsylvania 15907 ("Owner"),
and CROWN AMERICAN PROPERTIES, L.P., a Delaware limited partnership, having its
principal address at Pasquerilla Plaza, Johnstown, Pennsylvania 15907
("Agent").
W I T N E S S E T H
In consideration of the mutual Covenants herein contained, and intending to
be legally bound, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT AND AUTHORITY OF AGENT
1.1 Owner owns leasehold interests in certain retail properties identified
on Exhibit A attached hereto and made a part hereof (the "Premises"). Owner
hereby appoints Agent as the exclusive managing and renting agent for the
Premises, and hereby authorizes Agent to exercise such powers with respect to
the Premises as may be necessary for the performance of Agent's obligations
under Article II, and Agent accepts such appointment on the terms and conditions
hereinafter set forth for the term as provided in Article V. Agent shall have
no right or authority, express or implied, to commit or otherwise obligate Owner
in any manner whatsoever except to the extent specifically provided herein and
agrees that it shall not hold itself out as having authority to act on behalf of
Owner in any manner which is beyond the scope of authority granted to Agent in
this Agreement.
ARTICLE II
AGENT'S AGREEEMENT
2.1 Agent, on behalf of Owner, shall implement, or cause to be
implemented, the decisions of Owner and shall conduct the ordinary and usual
business affairs of Owner with respect to the management, operation and leasing
of the Premises as provided in this Agreement. Agent shall at all times conform
to the policies and programs established by Owner and the scope of Agent's
authority shall be limited to said policies. Agent shall act in a fiduciary
capacity with respect to the cash and cash equivalent assets of Owner which are
within the custody or control of Agent. Agent shall deal at arm's length with
all parties and shall serve Owner's interests at all times. All undertakings
incurred by Agent on behalf of Owner in accordance with this Agreement shall be
at the cost and expense of Owner unless otherwise provided for herein. Agent
agrees to use its best efforts in the management and operation of the Premises.
Agent shall perform the following duties in connection with the management and
operation of the Premises:
(a) Contract, for periods not longer than the term of Owner's
leasehold estate, in the name of Owner, for gas, electricity, water and such
other services as are currently being furnished to the Premises. Service
contracts shall be written to include a provision allowing termination by Owner
upon 30 days' notice wherever possible. All service contracts, including those
in effect at the date hereof in respect of the Premises, including the terms
thereof (with cancellation right, if any), the services provided thereunder and
the charges called for thereby, should be detailed in the annual budget package.
No such contract, other than for utilities, including water, which involves an
expenditure in excess of the amount set forth in paragraph 3 of Exhibit A
attached hereto shall hereinafter be entered into by Agent without the prior
approval of Owner. Agent shall also perform the obligations of the Owner under
any utility service agreement and any reciprocal easement agreements.
(b) Select, employ, pay, supervise, direct and discharge all
employees necessary for the proper, safe and economic operation and maintenance
of the Premises, in number and at wages in accordance with industry practices
and the annual budget, carry Worker's Compensation Insurance (and, when required
by law, compulsory Non-Occupational Disability Insurance) covering such
employees, and use reasonable care in the selection, discharge, and supervision
of such employees. Agent will keep bi-weekly time sheets which shall be
available for inspection by Owner. Agent shall prepare or cause to be prepared
and timely filed and paid, all necessary returns, forms and payments in
connection with unemployment insurance, medical and life insurance policies,
pensions, withholding and social security taxes and all other taxes relating to
said employees which are imposed on employees by any federal, state or municipal
authority. Agent shall also provide usual management services in connection
with labor relations and shall prepare, maintain and file all necessary reports
with respect to the Fair Labor Standards Act and all other required statements
and reports pertaining to employees at the Premises. Agent shall use its best
efforts to comply with all laws and regulations and collective bargaining
agreements, if any, affecting such employment. Owner shall have the right to
review and approve all collective bargaining agreements which affect the
Premises prior to their implementation or acceptance by Agent. Agent will be
and will continue throughout the term of this Agreement to be an equal
opportunity employer. All persons employed in connection with the operation and
maintenance of the Premises shall be employees of Agent or employees of
contractors approved by Owner to provide contract services to the Premises.
(c) Keep the Premises in a safe, clean, rentable and sightly
condition and make and contract for all repairs, alterations, replacements, and
installations, do all decorating and landscaping, and purchase all supplies
necessary for the proper operation and maintenance of the Premises and for the
fulfillment of Owner's obligations under any lease, operating agreement or other
agreement or compliance with all governmental and insurance requirements,
provided that, except as provided in Section 2.5 hereof, Agent shall not make
any purchase or do any work, the cost of which shall exceed the approved budget
or the amount set forth in paragraph 3 of Exhibit A attached hereto, without
obtaining in each instance the prior approval of Owner, except in circumstances
which Agent shall deem to constitute an emergency requiring immediate action for
the protection of the Premises or of tenants or other persons or to avoid the
suspension of necessary services or in order to cure any violation or other
condition which would subject Owner or Agent to any criminal penalty or any
civil fine in excess of $5,000.00. Agent shall notify Owner immediately of the
necessity for, the nature of, and the cost of, any such emergency repairs or any
action to cure any such violation or other condition. Agent shall arrange for
and supervise, on behalf of Owner, the performance of all alterations and other
work to prepare or alter space in the Premises for occupancy by tenants thereof.
If Owner shall require, Agent shall submit a list of contractors and
subcontractors performing tenant work, repairs, alterations or services at the
Premises under Agent's direction.
It is understood that Agent shall not be required to undertake the making
or supervision of extensive reconstruction of the Premises or any part thereof
except after written agreement by the parties hereto as to any additional fee to
be paid for such services.
Owner shall receive the benefit of all discounts and rebates obtainable by
Agent in its operation of the Premises. When requested by Owner, Agent agrees
to obtain competitive bids for the performance of any work at the Premises, to
furnish copies of such bids to Owner and to accept such bid as Owner may
direct.
If Agent desires to contract for repair, construction or other service
described in this paragraph (c) (other than work done at the request of a tenant
and at the tenant's sole cost and expense, hereinafter referred to as "Tenant
Work") with a party with respect to which any partner or shareholder of Agent
holds a beneficial interest, or with any subsidiary, affiliate or related
corporation in which Agent shall have a financial interest, such interest shall
be disclosed to, and approved by, Owner before such services are procured. The
cost of any such services shall likewise be at competitive rates,
notwithstanding that tenants of the Premises may be required to pay such costs.
Agent, or a general contractor working under the supervision of Agent is
authorized to make and install Tenant Work, Agent may collect from such tenant
or such general contractor, for its sole account, its charge for supervisory
overhead on all such Tenant Work. Agent shall hold Owner harmless from any
claims which may be advanced by any such tenant in connection with Tenant Work
performed by Agent or under Agent's supervision. Agent, however, shall not
require any tenant to use Agent, its subsidiary, affiliate or related
corporation as its general contractor to perform such Tenant Work.
(d) Handle promptly complaints and requests from tenants and parties
to reciprocal easement and/or operating agreements, notify Owner of any major
complaint made by any such tenant or party and notify owner promptly (together
with copies of supporting documentation) of: the receipt of any notice of
violation of any governmental requirements; any known orders or requirements of
insurers, insurance rating organizations, Board of Fire Underwriters or similar
bodies; any known defect in the Premises; any known fire or other damage to the
Premises, and, in the case of any serious fire or other serious damage to the
Premises, Agent also shall immediately provide telephone notice thereof to
Owner's General Insurance Office, so that an insurance adjuster can view the
damage before repairs are started, and complete customary loss reports in
connection with fire or other damage to the Premises.
(e) Notify Owner's General Liability Insurance carrier and Owner
promptly of any personal injury or property damage known to Agent occurring to
or claimed by any tenant or third party on or with respect to the Premises and
promptly forward to the carrier, completed insurance forms, any summons,
subpoena, or other like legal document served upon Agent relating to actual or
alleged potential liability of Owner, Agent, or the Premises, with copies to
Owner of all such doucments.
(f) Advise Owner of those exceptions in leases, operating agreements
and other agreements executed on or after the date hereof in which the tenants
or parties to such agreements do not agree to hold Owner harmless with respect
to liability from any accidents.
(g) At the option of Owner, or as otherwise provided in the Loan
Documents, as hereinafter defined, receive and collect rent and all other monies
payable to Owner by all tenants and licensees in the Premises and by all other
parties including department stores under ground leases and reciprocal easement
agreements and tenants under leases of free-standing stores. In this
connection, Agent shall calculate all amounts due to Owner from such tenants,
licensees and other parties, including annual or periodic adjustments where
applicable, and shall, when appropriate, submit statements or invoices to such
tenants, licensees and parties. Agent shall deposit the same promptly in the
bank named on Exhibit A attached hereto (the "Bank") in an account with title
including a distinctive portion of Agent's name and such designation as Owner
may direct (the "Bank Account"), which account shall be used exclusively for
such funds. Owner's representative will be a signatory on all bank accounts
maintained by Agent and such representative's signature shall be required on all
checks in excess of $50,000 and for withdrawals in excess of $1,000,000 in any
month. All amounts received by Agent for or on behalf of Owner shall be and
remain the property of Owner. Checks may be drawn on the above-mentioned bank
account only for purposes authorized under this Agreement. No funds of Agent or
others shall be commingled with funds in any such bank account. Owner has the
right to control the types of cash management accounts and dictate the specifics
of said accounts with respect to disbursement and management of funds.
(h) Serve notice of default upon tenants of space in the Premises and
other parties which are in default in performing obligations under their leases,
reciprocal easement agreements or other agreements, with copies sent
simultaneously to Owner, and attempt to cause such defaults to be cured by the
defaulting tenant or other party. Agent shall, subject to Owner's consent with
respect to any tenant who occupies more than 1,000 square feet, utilizing
counsel theretofore approved by Owner, institute all necessary legal action or
proceedings for the collection of rent or other income from the Premises or the
ousting or dispossessing of tenants or other persons therefrom and all other
matters requiring legal attention. Agent agrees to use its best efforts to
collect rent and other charges from tenants in a timely manner and to pursue
Owner's legal remedies for nonpayment of same. Agent shall not terminate tenant
leases in the Premises without Owner's consent. Owner reserves the right to
designate or approve counsel and to control litigation of any character
affecting or arising out of the operation of the Premises and the settlement of
such litigation.
(i) Bond Agent and all of Agent's employees who may handle or be
responsible for monies or property of Owner with a "comprehensive 3-D" or
"Commercial Blanket" bond, in an amount of $500,000.00.
(j) Notify Owner immediately of any known fire, accident or other
casualty, condemnation proceedings, rezoning or other governmental order,
lawsuit or threat thereof involving the Premises; and the receipt of any notice
of violations relative to the leasing, use, repair and maintenance of the
Premises under governmental laws, rules, regulations, ordinances or like
provisions.
(k) If Owner so directs, make timely payment of real estate and
personal property taxes and assessments levied or assessed against the Premises
or personal property used in connection therewith and any other charge that may
become a lien against the Premises. Owner may direct that payment of such taxes
and assessments either be made to the taxing authority or to a mortgage lender
holding an escrow account for such items. Agent shall participate in Owner's
tax review program and check tax assessments and, when so requested, Agent shall
assist Owner in its efforts to reduce such taxes. Agent shall promptly furnish
Owner with copies of all assessment notices and receipt tax bills.
(l) Promptly comply with all present and future laws, ordinances,
orders, rules, regulations and requirements of all Federal, state and local
governments, courts, departments, commissions, boards and offices, any national
or local Board of Fire Underwriters or Insurance Services offices having
jurisdiction, or any other body exercising functions similar to those of any of
the foregoing ("Legal Requirements") which may be applicable to the Premises or
any part thereof or to the leasing, use, repair, operation and management
thereof, but only to the extent that such compliance is reasonably capable of
being carried out by Agent and Agent has available the necessary funds therefor
from collections or advances by Owner. Agent shall give prompt notice to Owner
of any known violation or the receipt of notice of alleged violation of such
laws and Agent shall not bear responsibility for failure of the Premises or the
operation thereof to comply with such laws unless Agent has committed gross
negligence or a willful act of omission in the performance of its obligations
under this Agreement or in the performance of any other duties owed to Owner or
third parties by Agent. As and when directed by Owner, Agent shall institute in
its name, or in the name of Owner using counsel selected by Owner, appropriate
actions or proceedings to contest any such law, ordinance, rule, regulation,
order, determination or requirement.
(m) Promote the Premises and participate as Owner's representative in
any Merchant's Associations or Promotional Organizations (collectively, the
"Promotional Organizations") established to promote the Premises.
(n) Consent to and approve tenant alteration work and installations
which are performed by tenants of space in the Premises and are provided for in
the leases of such tenants and are within such tenant's space. Agent is
authorized to approve tenant alteration work and installations not provided for
in leases if (i) such alteration work and installations are made solely at the
expense of the tenant, and (ii) such alteration work and installations do not
affect the structural integrity or facade of any building. Agent shall
periodically monitor the progress of any tenant alteration work and
installations to confirm that the work is being done in a good and workmanlike
manner and in substantial conformity with any plans and specifications approved
by Owner or Agent, and shall notify Owner of any material deficiencies or
material variations from the approved plans and specifications.
(o) Provide, upon Owner's request in accordance with the provisions
of Section 10 and Section 11 of Exhibit A, general contracting and construction
management services ("Development Services") and consultation to Owner for the
Premises, which shall include, without limitation, the management, supervision
and administration of, and provisions for services for the improvement or
expansion (and in the event of damage or condemnation, the reconstruction) of
the Premises, including advice, expertise and support of Agent provided and/or
retained and/or coordinated by home office and on-site personnel including,
without limitation, executive personnel, design and engineering personnel,
clerical personnel, legal and accounting personnel. Such personnel will perform
consultation and various functions involved with Development Services including,
without limitation, the following: design, planning, architectural,
engineering, acquisition and negotiation, negotiations with department stores
for site acquisition and operation in the Premises; permits and licenses;
preopening advertising and publicity; market research, site work; negotiations
with public authorities; attendance at public hearings; project management and
all other activities necessary to accomplish the improvement, expansion or
reconstruction of the Premises. It is understood that Development Services and
consultation with Owner may or may not involve Agent's in-house personnel; by
mutual agreement of Agent and Owner, outside professionals or other persons may
be engaged to provide Development Services and consultation with Owner, provided
that Agent agrees to require any contractor or subcontractor brought onto the
Premises to have workers' compensation and employers' liability insurance in the
necessity statutory amounts and comprehensive general liability insurance for at
least $1,000,000.00.
(p) If Owner so directs, pay when due (i) all debt service and other
amounts due under any mortgages that encumber the Premises or any part thereof,
and (ii) all rent and other charges payable under any ground lease of land
included in the Premises under which Owner is the tenant and give Owner notice
of the making of each payment.
(q) Carry out and comply with, directly or through a third party, all
requirements on the part of Owner under all such mortgages and ground leases,
all leases of space in the Premises, all ground leases and reciprocal easement
agreements with department stores and all other agreements affecting or relating
to the Premises which are known or made known to Agent, including, without
limitation, the furnishing of all services and utilities called for therein, but
only to the extent that such requirements are at the time reasonably capable of
being carried out by Agent and Agent has available the necessary funds therefor
from collections or advances by Owner, provided that Agent shall promptly notify
Owner if Agent cannot carry out such requirement or has insufficient funds
available to do so. Agent shall notify Owner promptly of any default under any
such mortgage, lease, ground lease, reciprocal easement or other agreement on
the part of Owner, the tenant or other party thereto of which agent becomes
aware.
(r) Use reasonable efforts to comply with and require compliance with
the requirements of leases of space in the Premises, ground leases, reciprocal
easement agreements and all other agreements affecting or relating to the
Premises which are known or made known to Agent on the part of Tenants,
department stores and other parties thereto and enforce compliance with the
rules and regulations, sign criteria and like standards for the Premises adopted
by Owner from time to time.
(s) Upon request, furnish Owner with an executed copy of each lease,
lease renewal, lease amendment, service contract and other agreement entered
into on or after the date of this Agreement in connection with the operation,
management and leasing of the Premises, and use reasonable efforts to secure
from tenants and parties to reciprocal easement agreements, and furnish to
Owner, any certificates of insurance and renewals thereof required to be
furnished by the terms of their leases or agreements. All such executed copies
of leases shall be maintained in Agent's main office, with additional lease
copies together with insurance certificates also maintained at the Agent's
office at the relevant property, if any such office exists.
(t) Inspect the Premises periodically and submit reports of findings
and recommendations to Owner which shall include, without limitation,
recommendations as to required repairs, replacements or maintenance. Agent
shall keep and submit annual written reports of all material alterations made to
the Premises, no matter by whom effected.
(u) Erect barriers or chains for the purpose of blocking access to
the common areas of and buildings included in the Premises as local law may
require, or, as directed in writing by owner, in order to avoid the dedication
of the same for public use and furnish appropriate evidence of same to Owner.
Agent shall give any advance notice of the erection of such barriers or chains
which may be required under reciprocal easement agreements or ground leases with
department stores.
(v) Use its reasonable efforts to obtain from tenants of the Premises
and department stores which are parties to reciprocal easement agreements or
ground leases waivers of their insurers' rights of subrogation in respect to
policies of fire and extended coverage and other property damage insurance
carried by them in favor of Owner, Agent and any department store or tenant for
which Owner is obligated to attempt to obtain such waivers under a ground lease,
reciprocal easement agreement or space lease.
(w) Assist owner in preparing any statements required to be submitted
by Owner under the terms of mortgages, ground leases, reciprocal easement
agreements and leases.
(x) Perform its duties in renting, managing, operating and
maintaining the Premises applying prudent and reasonable business practices
which are consistent with those followed in respect of the Premises prior to the
date of this Agreement, using reasonable care and diligence in carrying out
properly and efficiently its responsibilities under this Agreement. Agent shall
maintain those portions of the common areas of the Premises which are Owners'
obligation to maintain in a clean, safe and attractive condition, use reasonable
efforts to enforce the provisions of applicable leases, ground leases and
reciprocal easement agreements so as to cause tenants and department stores to
maintain their premises and common areas, if any, in similar condition, arrange
for necessary security for the Premises and their common areas and arrange for
cleaning and snow removal for the parking areas and roadways of the Premises.
Agent shall recommend to Owner from time to time such procedures with respect to
the Premises as Agent may deem advisable for the more efficient and economic
management and operation thereof.
(y) Where leasing guidelines or any Legal Requirement (as defined in
paragraph 2.1 (m) hereof) now or hereafter in effect require that tenant
security deposits be maintained, a separate interest-bearing account for such
security deposits (the "Security Deposit Account") shall be opened by Agent at a
bank approved by Owner. The Security Deposit Account shall be maintained in the
name of Agent in accordance with the relevant lease or Legal Requirement, as the
case may be, and shall be used only for tenant security deposits. The bank
shall be informed that the funds in the Security Deposit Account are held in
trust for Owner. Agent shall have the authority to remit to tenants any
interest to which they are entitled on their security deposit, in accordance
with their leases or any Legal Requirement, but Agent shall obtain the written
approval of Owner prior to the return of such deposits or any other security
(including letters of credit) to any tenant when the amount, in any single
instance, exceed $50,000.00.
Owner recognizes and understands that Environmental Service (as hereinafter
defined) are not actions or services that Agent is required to perform under
this Agreement and Owner further recognizes and understands that Agent is not a
consultant or a contractor that performs Environmental Services. Upon Owner's
request, Agent agrees to obtain and coordinate for and on behalf of Owner, such
Environmental Services as Owner may request or require. Owner shall reimburse
Agent for its administrative costs in connection with the coordination of such
Environmental Services as provided in Exhibit A, paragraph 11 of the Agreement.
In addition, Owner shall reimburse Agent for the costs of outside professionals
retained to perform Environmental Services. Environmental Services is defined
to be those acts or actions involving the presence use, exposure, removal,
restoration, or introduction of Hazardous materials (as hereinafter defined) and
the investigation of and compliance with any and all applicable rules, laws, or
regulations of local, state or federal authorities which apply or regulate
Hazardous Materials. Hazardous Materials means any hazardous, radioactive, or
toxic substance, material or waste listed in the United States Department of
Transportation Hazardous Materials Table; or by the Environmental Protection
Agency as hazardous substances; or such substances, materials and waste which
are or become regulated under applicable local, state or federal law including
materials which are petroleum products, asbestos, polychlorinated biphenyls, or
designated as hazardous substances under the Clean Water Act; or defined
hazardous waste under the Resource Conservation and Recovery Act; or defined as
hazardous substances under the Comprehensive Environmental Response,
Compensation and Inability Act.
2.2 Agent agrees, on behalf of Owner and at Owner's expense, to procure
and continue to maintain in force a comprehensive general liability insurance
policy or polices with respect to the Premises. Such policy or policies shall
provide for coverage in the amount and with such insurers as are required of
Owner under the Loan Documents (as defined below), but in any event, not less
than ten million dollars ($10,000,000.00) combined single limit coverage per
occurrence for bodily injury and property damage. The polices shall include
coverage for contractual liabilities assumed with respect to the Premises,
including, but not limited to, the obligations created by the indemnity set
forth in Section 3.3 hereof as used in this Agreement, the term "Loan Documents"
shall refer to that certain Fee and Leasehold Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing (the "Mortgage"); Promissory Note;
Interim Loan Agreement; Assignment of Leases and Rents; Manager's Consent and
Subordination of Management Agreement; each dates as of November 17, 1997,
from Owner to General Electric Capital Corporation ("Lender"), and such other
documents executed or to be executed in connection with the loan (the "Mortgage
Loan") secured by the Mortgage.
Further, at all times during the term of this Agreement, Agent shall keep
or cause to be kept insured, at Owner's cost and expense, all buildings and
improvements on the Premises against loss or damage by fire, windstorm, hail,
explosion, damage from aircraft and vehicles and smoke damage, and such other
risks as are from time to time included in "extended coverage" endorsements in
an amount sufficient to replace said improvements.
All insurance provided for in this Section 2.2 shall be effected under
valid and enforceable polices issued by insurers of recognized responsibility
and shall provide respectively, for the waiver of all rights of subrogation by
Owner or parties claiming through Owner against Agent and its agents and
employees. Owner and Agent hereby waive all rights of recovery as against the
other party hereto arising from loss or damage caused by the perils enumerated
in this Section 2.2 and agree that any policies obtained with respect to such
perils shall be endorsed accordingly, if such endorsements are available. Any
insurance required to be maintained hereunder may be taken out under a blanket
insurance policy or polices covering other properties of the insured. Any
policy required by this Section 2.2 shall provide that such policy shall not be
canceled without at least thirty (30) days' prior notice to Owner and Agent and,
in any event, shall provide that all parties insured thereby shall receive
notice no less than fifteen (15) days prior to the expiration dates of the
expiring policies.
2.3 Agent agrees to render monthly reports relating to the management and
operation of the Premises for the preceding calendar month on or before the
twenty-fifth (25th) day of each month in form as Owner and Agent will mutually
agree. Agent agrees that Owner shall have the right to require the transfer to
Owner at any time of any funds in the Bank Account considered by Owner to be in
excess of an amount reasonably required by Agent for disbursement in connection
with the Premises. Agent agrees to keep records with respect to the management
and operation of the Premises as prescribed by owner, and to retain those
records for periods specified by Owner. Owner shall have the right to inspect
such records and audit the reports required by this Section during business
hours for the life of this Agreement and thereafter during the period such
records are to be retained pursuant to this Section. In addition, Agent agrees
that such records may be examined from time to time during the period aforesaid
by any of the supervisory or regulatory authorities having jurisdiction over
Owner.
2.4 Agent shall ensure such control over accounting and financial
transactions as is reasonably required to protect Owner's assets from loss or
diminution due to gross negligence or willful misconduct on the part of Agent's
associates or employees. Losses caused by gross negligence or willful
misconduct shall be borne by Agent.
2.5 Agent shall establish and prepare, in the form authorized by Owner,
with such additional changes as may be reasonably requested by Owner, operating
and capital improvement budgets for the promotion, operation, repair and
maintenance of the Premises for each calendar year. Preliminary and final
budgets will be due 45 and 30 days, respectively, prior to commencement of the
calendar year to which they relate. Such budgets shall be prepared on both an
accrual basis showing a month-by-month projection of income and expenses and
capital expenditures. At least 30 days prior to the end of each year, Agent
shall meet with Owner to review such budgets for the subsequent year. Upon
receiving Owner's approval, Agent shall use its best efforts to comply with such
final budgets.
(a) Agent shall meet with Owner on a regular basis, not less
frequently than semi-annually and otherwise upon reasonable call by Owner, to
review the operations of the Premises, to review and, if appropriate, revise in
light of actual experience the annual operating and capital improvement budgets
theretofore approved by Owner and to consider other matters which Owner may
raise.
(b) Upon approval of the operating budget by Owner, and unless and
until revoked or revised by Owner, Agent shall have the right, without further
consent or approval by Owner to incur and pay the operating expenses set forth
in the approved operating budget, subject to paragraph 2.1(g) above.
(c) At the request of Owner from time to time Agent shall prepare and
submit to Owner (i) operating projections for the Premises for the ensuing five
(5) years, such projections to be made on a year-by-year basis and to be based
on Agent's best judgment as to the future, taking into consideration known
circumstances and circumstances Agent can reasonably anticipate are likely to
occur, and (ii) a schedule in reasonable detail of capital improvements, repairs
and replacements not provided for in the current capital improvement budget
which Agent reasonably anticipates will be required or should be made in the
foreseeable future, with Agent's opinion as to the relative priority and cost of
each thereof.
2.6 Agent shall also participate in Owner's property review programs to
the extent requested by Owner. Such review shall include asset, investment,
financial and strategy profiles in form satisfactory to Owner. Agent shall
respond, within 10 days, to Owner's management evaluation reports concerning
actions to be taken by Agent to correct or modify its management standards for
the operations, leasing or financial services provided for the Premises. If
Owner shall request that Agent's home office or regional office personnel travel
to the Premises to participate in Owner's property review programs or for any
other reason (unless such reason is for normal supervision), the reasonable cost
of meals, travel and hotel accommodations expenses incurred by such home office
personnel in connection with such travel shall be reimbursed to Agent by Owner.
Agent shall, however, bear the full cost and expenses incurred by its home
office or regional office personnel in connection with their travel to the
Premises to the extent such travel is required by the Agent for the normal
supervision of the management and leasing of the Premises.
2.7 Agent agrees to use its best efforts to have all space within the
Premises rented to desirable tenants, satisfactory to Owner, considering the
nature of the Premises, and in connection therewith:
(a) To negotiate, as the exclusive agent of Owner, all leases and
renewals of leases at the appropriate time, it being understood that all
inquiries to Owner with respect to leasing any portion of the Premises shall be
referred to Agent. Except for license agreements for temporary tenants, all
leases and renewals for lease terms in excess of one (1) year must be prepared
in accordance with Exhibit C by Agent and in accordance with the annual approved
budget and be submitted to Owner's representative for execution by Owner. Agent
is authorized to negotiate and execute license agreements prepared in accordance
with Exhibit C for temporary tenants and/or short term promotional activities.
If Agent shall receive a prospective tenant reference from a property other than
the Premises, which Agent or any subsidiary or affiliate manages, Agent shall
promptly declare its potential conflict of interest to Owner and Owner shall
determine if negotiations with such prospective tenant shall be undertaken by
Agent, Owner, or a third party approved by Owner. References of prospective
tenants, as well as their varying use requirements, shall be investigated
carefully by Agent. Agent also is authorized to negotiate and execute on
Owner's behalf lease amendments which: (i) change a Tenant's commencement date
by sixty (60) days or less (or for such longer period as is approved by Owner);
(ii) change a Tenant's permitted use by allowing the sale of such additional
items as are reasonably related to the Tenant's primary and principal use,
provided Agent has no reason to know of any lease at the center prohibiting such
use; (iii) change a tenant's marketing charge or promotional charge or
advertising obligation.
Owner acknowledges and understands that Agent manages properties for third
parties. Owner further acknowledges and understands that Agent routinely and
customarily negotiates tenant leases from multiple locations involving two or
more properties (one or more of which may be the Premises and one or more of
which may be properties owned by Agent or by others). Agent conducts such
multiple location negotiations in good faith for the benefit and interests of
Owner and other property owners, including Agent. Agent shall be entitled to
assume that such leasing practices are approved and acceptable to Owner, unless
and until Owner specifically disapproves the practice and so notifies Agent.
(b) With Owner's prior approval, to advertise the Premises or
portions thereat for rent, by means of periodicals, signs, plans, brochures and
other means appropriate to the Premises. Owner acknowledges and agrees that the
Premises may be included in brochures or other advertising media of Agent, which
may include other properties being offered for lease by Agent.
(c) In no event shall Agent engage or utilize the services of an
outside broker in connection with any lease without Owner's prior written
consent. In any case in which Owner requests or gives such consent, Agent shall
cause such broker to enter into a written agreement with Owner, on terms
reasonably satisfactory to Owner, with respect to such broker's commission and
Owner shall be responsible for the payment of such commission pursuant to the
terms of said agreement.
(d) Agent will, in each instance, negotiate for the inclusion in all
leases entered into by Owner of a provision to the effect that recourse on such
obligation shall be had only against the property to which such obligation
relates and no recourse shall be sought against Owner or any other person
holding, directly or indirectly, a beneficial interest in the property.
(e) Agent will, upon the request of Owner, undertake to find buyers
for the sale of any of the Owner's outparcels, peripheral land or such other
real estate situate upon the Premises, ("Sale Property"), and, in addition to
any other compensation provided to be paid to Agent under this Agreement, Owner
agrees to pay to Agent as compensation for its services hereunder, a fee at the
rate specified in Paragraph 7(iii) of Exhibit "A", attached hereto. In
performing its duties hereunder, Agent shall perform the following:
(i) Submit to Owner for approval, a pricing schedule on the Sale
Property;
(ii) Upon request, submit to Owner for approval, contract form(s)
to be used in the sale of the Sale Property;
(iii) Upon request, furnish Owner with a written report
regarding its progress in such sale activities;
(iv) Negotiate on behalf of Owner, the sale of the subject Sale
Property; and
(v) Provide legal services, limited to:
(a) Preparation of the Purchase and Sale Agreement;
(b) Deed and Easement(s) preparation;
(c) Preparation and submittal to Owner of the Seller's
closing statement;
(d) Preparation of closing instructions;
(e) Coordination of title work;
(f) Upon approval of Owner, retain local counsel,
whose fees will be reimbursed by Owner; and
(g) Submit to Owner, for final execution, all
documents necessary to consummate the
transaction.
Agent shall pursue these duties and obligations with diligence and in the
best interests of Owner.
2.8 Agent agrees, for itself and all persons retained or employed by Agent
in performing its services, to hold in confidence and not to use or disclose to
others any confidential or proprietary information of Owner heretofore or
hereafter disclosed to Agent ("Confidential Information"), including, but not
limited to, any data, information plans, programs, processes, costs, operations
or the names of any tenants which may come within the knowledge of Agent in the
performance of, or as a result of, its services, except where required by
judicial or administrative order, or where Owner specifically gives Agent
written authorization to disclose any of the foregoing to others or such
disclosure as is required in the direct performance of Agent's duties hereunder.
If Agent is required by a judicial or administrative order to disclose any
Confidential Information, Agent will promptly notify Owner thereof, consult with
Owner on the advisability of taking steps to resist or narrow such request and
cooperate with Owner in any attempt it may make to obtain an order or other
assurance that confidential treatment will be accorded to the Confidential
Information disclosed.
2.9 If at any time there shall be insufficient funds available to Agent
from collections to pay any obligations of Owner required to be paid under this
Agreement, Agent shall promptly notify Owner and Agent shall not be obligated to
pay such obligations unless Owner furnishes Agent with funds therefor.
2.10 Agent assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith, and Owner shall make no
claim against Agent on account of any alleged errors of judgment made in good
faith in connection with Agent's obligations hereunder and with the operation of
the Premises. Agent shall not be liable to Owner or others except by reason of
acts constituting willful misfeasance or gross negligence on the part of Agent,
and Owner agrees to indemnify, defend and hold harmless Agent and its partners
(and the shareholders, trustees and officers thereof)and employees from and
against all claims, actions, causes of action, costs and expenses (including,
but not limited to, reasonable attorney's fees) directly or indirectly arising
from the claims of any third party, except only those claims where liability
arises from acts constituting willful misfeasance or gross negligence on the
part of Agent.
ARTICLE III
OWNER'S AGREEMENTS
3.1 Owner, at its option, may pay directly all taxes, special assessments,
ground rents, insurance premiums and mortgage payments. If Owner makes such
election, Agent shall advise Owner of the due dates of such taxes assessments,
insurance premiums and mortgage payments.
3.2 Owner shall bear the cost of all premiums relating to insurance
procured by Agent for Owner pursuant to Section 2.2 hereof. Owner shall look
solely to such insurance for indemnity against any loss or damage to the
Premises and shall obtain waivers of subrogation against the Agent under such
policies if available at no additional cost to Owner.
3.3 Owner agrees to indemnify and save harmless Agent and its partners
(and the shareholders, trustees and officers thereof) and employees from and
against all claims, losses and liabilities resulting from: (i) damage to
property or injury to, or death of, persons from any cause whatsoever when Agent
is carrying out the provisions of this Agreement or acting under the direction
of Owner in or about the Premises; (ii) claims for defamation and false arrest
when Agent is carrying out the provisions of this Agreement or acting under the
direction of Owner; and (iii) claims occasioned by or in connection with or
arising out of acts or omissions, other than criminal acts, of the Agent when
Agent is carrying out the provisions of this Agreement or acting under the
direction of Owner (except in cases of Agent's willful misconduct or gross
negligence), and to defend or cause to be defended, at no expense to Agent or
such persons, any claim, action or proceeding brought against Agent or such
persons or Agent and Owner, jointly or severally, arising out of the foregoing,
and to hold Agent and such persons harmless from any judgment, loss or
settlement on account thereof.
Notwithstanding the foregoing, Owner shall not be responsible for
indemnifying or defending Agent or such persons in respect of any matter, claim
or liability in respect of which Agent is obligated to indemnify Owner as
provided in the following sentence. Agent agrees to indemnify and save harmless
Owner from and against all claims, losses and liabilities resulting from injury
to, or death of, persons in or about the Premises or for deformation and false
arrest in each case caused in whole or in part by the willful misfeasance or
gross negligence of Agent, and to defend, at no expense to Owner, any claim,
action or proceeding brought against Owner or Owner and Agent, jointly or
severally, arising out of the foregoing, and to hold Owner harmless from any
judgments, loss or settlement on account thereof.
Notwithstanding the foregoing, Agent shall not be responsible for
indemnifying or defending Owner in respect of any matter, claim or liability
which is covered by any public liability insurance policies carried by Owner and
under which Agent is named as an additional insured. The indemnification
obligations of Owner and Agent under this Section 3.3 shall in each case be
conditioned upon (a) prompt notice from the other party after such party learns
of any claim or basis therefor which is covered by such indemnity, (b) such
party's not taking any steps which would bar Owner or Agent, as the case may be,
from obtaining recovery under applicable insurance policies or would prejudice
the defense of the claim in question, and (c) such party's taking of all
necessary steps which if not taken would result in Owner or Agent, as the case
may be, being barred from obtaining recovery under applicable insurance policies
or would prejudice the defense of the claim in question. The provisions of this
Section 3.3 shall survive the expiration or termination of this Agreement.
3.4 Owner shall provide such office space on the Premises as may be
necessary for Agent to properly perform its functions under this Agreement.
Agent shall not be required to pay for utilities, telephone service or rent for
the office area on the Premises occupied by Agent. Agent shall have the right
to use the fixtures, furniture, furnishings and equipment, if any, which are the
property of Owner in said office space. Owner shall also provide space on the
Premises for use as community rooms and information and service centers where
the use of such space is determined by Owner to be in the best interest of the
Premises. All income derived from the utilization and/or operation of such
community rooms and/or information or service centers shall belong to the Owner
and all expenses relating thereto shall be borne by Owner.
3.5 Except as otherwise provided in this Agreement, everything done by
Agent in the performance of its obligations under this Agreement and all
expenses incurred pursuant hereto shall be for and on behalf of Owner and for
its account. Except as otherwise provided herein, all debts and liabilities
incurred to third parties in the ordinary course of business of managing the
Premises as provided herein are and shall be obligations of Owner, and Agent
shall not be liable for any such obligations by reason of its management,
supervision or operation of the Premises for Owner.
ARTICLE IV
COMPENSATION
4.1 In addition to any other compensation provided to be paid to Agent
under this Agreement, Owner agrees to pay to Agent as compensation for its
management services hereunder, a fee at the rate specified in paragraph 5 of
Exhibit A attached hereto. Said fee shall be payable monthly no later than the
twenty-fifth (25th) day of the following month, and shall be based on the
following components of income from the preceding calendar month determined in
accordance with GAAP. It is understood that the management fee shall be
calculated upon the following items: (i) minimum rents from all permanent
tenants (anchor, mall shops, ground leases and all other tenants); (ii) Lease
buyout income; (iii) Percentage rents in lieu of minimum rents; (iv) Percentage
rents; (v) all cost recovery income (CAM, taxes, food court, security, other);
(vi) income from all temporary tenants (initial term of one year or less); (vii)
income from all promotional activity; (viii) miscellaneous mall income such as
payphone commissions, stroller rentals, etc. and (ix) bad debts expense related
to any of the above revenue items. The following items shall not be subject to
management fees: (i) business interruption insurance income; (ii) recoveries
from insurance companies for casualty and other losses; (iii) payments from
tenants for leasehold improvements and related services provided by Agent; (iv)
payments from tenants to Merchants' Associations or to Marketing Funds; (v)
tenant security deposits; (vi) straight line rental income or losses, and (vii)
operating covenant and amortization (classified as a reduction of minimum rent).
Agent shall withdraw said fee from the operating account for the Premises and
shall account for same as provided for in Section 2.3 hereof.
4.2 The following expenses or costs incurred by or on behalf of Agent in
connection with the management and leasing of the Premises shall be the sole
cost and expense of Agent and shall not be reimbursable by Owner and Agent shall
indemnify Owner for such expenses and costs:
(a) cost of gross salary and wages, payroll taxes, insurance,
worker's compensation, pension benefits and any other benefits of Agent's
employees, except that Owner will reimburse Agent for all costs of employees who
provide either full or part time services on-site at any of the Premises.
Within the category of "on-site" personnel, Agent may include the pro-rata costs
for regional personnel performing required services at the Premises on a regular
basis (but which personnel may share time working at other properties managed by
Agent); provided, however, that the costs for any employees who are based at or
work from Agent's home office shall not be included, and provided further that
the pro-rata costs for any such regional personnel are included and identified
as such within the annual operating budget as approved by Owner.
(b) general accounting and reporting services, as such services are
considered to be within the reasonable scope of Agent's responsibility to Owner;
(c) costs of forms, stationery, ledgers, supplies, equipment and
other "general overhead" items used in Agent's home office or regional offices;
(d) cost or pro rata cost of telephone and general office expenses
incurred in the Premises by Agent for the operation and management of properties
not owned by Owner;
(e) cost of all bonuses, incentive compensation, profit sharing, or
any pay advances by Agent to Agent's employees, except such costs pertaining to
employees employed by Agent in accordance with Paragraph 2.1 (b) hereof;
(f) cost attributable to losses arising from criminal acts, gross
negligence or fraud on the part of Agent or Agent's associates or employees;
(g) cost for meals, travel and hotel accommodations for Agent's home
office or regional office personnel who travel to and from the Premises, except
as provided in Section 2.6;
(h) cost of automobile purchase and/or rental, except if furnished or
approved by Owner;
(i) except as otherwise provided in Exhibit A attached hereto,
expenses incurred in connection with the leasing of the Premises, it is being
understood and agreed, however, that Agent shall be reimbursed for advertising
expenses incurred in connection with the leasing of the Premises;
(j) cost of liability or other insurance carried by Agent, except
costs incurred by Agent in satisfaction of its obligations under Section 2.2
hereof; and
(k) cost of bonds purchased pursuant to Section 2.1(i) of this
Agreement.
ARTICLE V
DURATION, TERMINATION, DEFAULT
5.1 This Agreement shall become effective on the date hereof.
5.2 Subject to earlier termination as hereinafter provided, this Agreement
shall have an initial term ending on January 31, 1998. Thereafter, this
Agreement shall continue year-to-year on the same terms and conditions as herein
contained subject to being terminated by either Agent or Owner upon no less than
six (6) months written notice. The Agent may not terminate this Agreement
except in the case of non-payment of management fees for a period of ninety (90)
days after notice of such non-payment to Owner and Lender. In addition, Lender
shall have the right to terminate (or direct Owner to terminate, as applicable)
this Agreement: (i) upon the insolvency of Agent, (ii) the occurrence of an
Event of Default (as defined in the Loan Documents), (iii) the failure of the
Premises to meet the Net Operating Income requirements (as defined in the Loan
Documents), or (iv) pursuant to the provisions of the Manager's Consent and
Subordination of Management Agreement.
5.3 It shall be an Event of Default under this Agreement on the part of
Agent if Agent shall default in any material respect in performing any of its
obligations under this Agreement and such default shall not be cured within 30
days after written notice thereof is given by Owner to Agent (or, if the default
in question is curable but is of such nature that it cannot reasonably be
completely cured within such 30-day period, if Agent does not promptly after
receiving such notice commence to cure such default and thereafter proceed with
reasonable diligence to complete the curing thereof within 180 days after notice
is given by Owner to Agent). If an Event of Default by Agent shall occur, Owner
shall have the right to terminate this Agreement by written notice given to
Agent, and upon the giving of such notice this Agreement and the term hereof
shall terminate without any obligation on the part of Owner to make any payments
to Agent hereunder except as hereinafter provided.
5.4 If at any time during the term of this Agreement any involuntary
petition in bankruptcy or similar proceeding shall be filed against Agent
seeking its reorganization, liquidation or appointment of a receiver, trustee or
liquidator for it or for all or substantially all of its assets, and such
petition shall not be dismissed within 90 days after the filing thereof, or if
Agent shall:
(a) apply for or consent in writing to the appointment of a receiver,
trustee or liquidator of all or substantially all of its assets;
(b) file a voluntary petition in bankruptcy or admit in writing its
inability to pay its debts as they become due;
(c) make a general assignment for the benefit of creditors;
(d) file a petition or an answer seeking reorganization or an
arrangement with creditors or take advantage of any insolvency law; or
(e) file an answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or insolvency proceedings;
then upon the occurrence of any such event, Owner, at its option, may terminate
this Agreement by written notice given to Agent, and upon the giving of such
notice this Agreement and the term hereof shall terminate without any obligation
on the part of Owner to make any payments to Agent hereunder except as
hereinafter provided.
5.5 Owner shall have the additional right to terminate this Agreement on
at least 10 days' written notice to Agent, if Agent without Owner's prior
written consent shall assign or attempt to assign its rights or obligations
under this Agreement or subcontract (except for normal service agreements or as
otherwise specified in this Agreement) any of the services to be performed by
Agent. Owner shall also have the right to terminate this Agreement as to any
property included within the Premises on at least 10 days' written notice to
Agent if (a) such property shall be damaged or destroyed to the extent of 25% or
more by fire or other casualty and Owner elects not to restore or repair such
property or (b) there shall be a condemnation or deed in lieu thereof of 25% or
more of such property.
5.6 Agent acknowledges and agrees that Owner shall have the right to
subordinate and/or assign this agreement in connection with the Loan Documents.
Agent further agrees to execute such further instruments as Owner or Lender
deems necessary to effectuate such subordination, provided that in the event
Lender becomes entitled to possession of the Premises, the Lender shall be
entitled, at its option, to retain Agent to manage the Premises, in which case
the Agent shall be entitled to the compensation set forth in this Agreement
during all periods in which Agent is providing services to the Premises for the
Lender. Moreover, notwithstanding anything to the contrary contained herein,
for so long as any amounts remain outstanding under the Loan Documents, (i) this
Agreement and all fees payable by Owner hereunder shall be subject to and
subordinate to any mortgage liens on the Premises established by the Loan
Documents and (ii) Agent shall comply with any and all applicable provisions of
the Loan Documents and in the event there is a conflict between the terms of
this Agreement and the terms of the Loan Documents, the Loan Documents shall
control.
5.7 Upon any termination of this Agreement pursuant to the provisions of
this Article V, Owner shall remain obligated to pay to Agent fees and other
amounts due to Agent hereunder which accrued prior to the effective date of such
termination. Nothing contained in this Section 5.7 shall be deemed to waive,
affect or impair (a) Owner's rights to seek recourse against Agent for damages
or other relief in the event of the termination of this Agreement by Owner
pursuant to Section 5.3, 5.4 or 5.5 hereof, and (b) Agent's right to seek
recourse against Owner for damages or other relief in the event of the
termination of this Agreement by Agent pursuant to Section 5.2 hereof.
5.8 Upon the expiration or earlier termination of this Agreement, Agent
shall forthwith surrender and deliver to Owner any space in the Premises
occupied by Agent and shall make delivery to Owner or to Owner's designee or
agent, at Agent's home or regional offices or at its offices at the Premises, of
the following:
(a) a final accounting, reflecting the balance of income from and
expenses of the Premises as at the date of expiration or termination of this
Agreement;
(b) any funds of Owner or tenant security or advance rent deposits,
or both, held by agent with respect to the Premises; and
(c) all Confidential Information (in whatever medium stored) and all
other records, contracts, leases, ground leases, reciprocal easement agreements,
receipts for deposits, unpaid bills, lease summaries, canceled checks, bank
statements, paid bills and all other records, papers and documents and any
microfilm and/or computer disk of any of the foregoing which relate to the
Premises and the operation, maintenance, management and leasing thereof; all
such data, information and documents being at all times the property of Owner.
In addition, Agent shall furnish all such information and take all such
action as Owner shall reasonably require to effectuate an orderly and systematic
termination of Agent's duties and activities under this Agreement.
5.9 This Agreement shall terminate at the election of Owner as to any of
the properties set forth in Exhibit A upon thirty (30) days written notice to
the Agent if such properties are sold by Owner to a non-affiliated third party
purchaser or (unless the Lender shall otherwise notify the Agent in writing)
automatically if such properties were acquired on foreclosure of a mortgage
encumbering all or a portion of the Premises. In the event such properties are
sold by Owner to a non-affiliated third party purchaser and this Agreement is
not thereby terminated by Owner, the Agent shall have the right to terminate
this Agreement as to such properties upon sixty (60) days prior written notice
which notice must be given within ninety (90) days after the date of such sale
is consummated. If such properties are sold, Agent will not be entitled to
sales commission unless the Agent has been retained by Owner pursuant to a
separate commission arrangement. This Agreement shall remain in full force and
effect as to all properties not terminated pursuant to this Section 5.9.
5.10 The provisions of this Article V shall survive the expiration or
termination of this Agreement.
ARTICLE VI
ASSIGNMENT
6.1 Agent, except for a transfer to a "Permissible Transferee", shall not
assign its rights or obligations under this Agreement, either directly or by a
transfer of shares of beneficial interest or voting control either voluntarily
or by operation of law. Any change other than to a "Permissible Transferee"
shall constitute a breach of this Agreement by Agent and Owner may terminate
this Agreement in accordance with Section 5.5 A "Permissible Transferee" shall
mean any corporation, partnership, trust or other entity, more than 50% of the
outstanding stock of which, or more than 50% interest in which, is owned or
controlled by Agent.
6.2 In the event of a sale or conveyance of any of the Premises, Owner
shall have the right to cancel or assign this Agreement and its rights and
obligations hereunder to any person or entity to whom or which Owner sells or
conveys such property or properties. Upon such assignment, Owner shall be
relieved of its obligations under this Agreement with respect to such property
or properties that accrue from and after the date of such assignment, provided
that the assignee shall assume the obligations of Owner under this Agreement and
shall agree to perform and be bound by all of the terms and provisions hereof,
effective from and after the date of such assignment and an executed copy of
such assumption agreement shall be delivered to Agent. Agent shall not be
entitled to a "termination fee" in connection with an assignment or cancellation
as set forth in this Section 6.2, but otherwise shall be entitled to collect
from Owner such fees and expenses, including termination and/or relocation
expenses of Agent's full-time employees, if any, as Agent has earned pursuant to
this Agreement prior to the date of such assignment or cancellation.
ARTICLE VII
MISCELLANEOUS
7.1 Owner's representative ("Owner's Representative"), whose name and
address is set forth in paragraph 2 of Exhibit A attached hereto, shall be the
duly authorized representative of Owner for the purpose of this Agreement. Any
statement, notice, recommendation, request, demand, consent or approval under
this Agreement shall be in writing and shall be deemed given by Owner when made
or given by Owner's Representative or any officer of Owner and delivered
personally to an officer of Agent or mailed, addressed to Agent, at his address
first above set forth. Either party may, by notice to the other, designate a
different address for the receipt of the aforementioned communications and Owner
may, by notice to Agent, from time to time, designate a different Owner's
Representative to act as such. All communications mailed by one party to
another shall be sent by first class mail, postage prepaid or Express Mail
Service, or other commercial overnight delivery service, except that notices of
default shall be sent by registered or certified mail, return receipt requested,
postage prepaid, Express Mail Service or other commercial overnight delivery
service with receipt acknowledged in writing. Communications so mailed shall be
deemed given or served on the date mailed. Notwithstanding the foregoing, any
notices, requests, consents, approvals and other communications, other than
notices of default or approvals of annual budgets, and other communications,
approvals or agreements which are required by the express terms of other
provisions of this Agreement to be in writing, may be given by telegram,
telephonic communication or orally in person. Agent and Owner shall furnish to
the other the names and telephone numbers of one or more persons who can be
reached at any time during the term of this Agreement in the event of an
emergency.
7.2 Agent shall, at its own expense, qualify to do business and obtain and
maintain such licenses as may be required for the performance by Agent of its
services.
7.3 Each provision of this Agreement is intended to be severable. If any
term or provision hereof shall be determined by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such provision
shall be severed from this Agreement and shall not affect the validity of the
remainder of this Agreement.
7.4 In the event either of the parties hereto shall institute any action
or proceeding against the other party relating to this Agreement, the
unsuccessful party in such action or proceeding shall reimburse the successful
party for its disbursements incurred in connection therewith and for its
reasonable attorney's fees as fixed by the court.
7.5 No consent or waiver, express or implied, by either party hereto or of
any breach or default by the other party in the performance by the other of its
obligations hereunder shall be valid unless in writing, and no such consent or
waiver shall be deemed or construed to be a consent or waiver to or of any other
breach or default in the performance by such other party of the same or any
other obligations of such party hereunder. Failure on the part of either party
to complain of any act or failure to act of the other party or to declare the
other party in default, irrespective of how long such failure continues, shall
not constitute a waiver by such party of its rights hereunder. The granting of
any consent or approval in any one instance by or on behalf of Owner shall not
be construed to waive or limit the need for such consent in any other or
subsequent instance.
7.6 The venue of any action or proceeding brought by either party against
the other arising out of this Agreement shall be in the state or federal courts
of the Commonwealth of Pennsylvania.
7.7 This Agreement may not be changed or modified except by an agreement
in writing executed by each of the parties hereto and consented to by the
Lender. This Agreement constitutes all of the understandings and agreements
between the parties in connection with the agency herein created.
7.8 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns, but shall not inure
to the benefit of, or be enforceable by, any other person or entity.
7.9 Nothing contained in this Agreement shall be construed as making Owner
and gent partners or joint ventures or as making either of such parties liable
for the debts or obligations of the other, except as in this Agreement is
expressly provided.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CROWN AMERICAN WL ASSOCIATES, L.P.
(Owner)
BY: CROWN AMERICAN WL ASSOCIATES, as sole
general partner
By /s/ Terry L. Stevens
Name: Terry L. Stevens
Title: Sr. Vice President - Finance
Chief Accounting Officer
CROWN AMERICAN PROPERTIES, L.P.
(Agent)
BY: CROWN AMERICAN REALTY TRUST,
as sole general partner
By: /s/ Ronald P. Rusinak
Name: Ronald P. Rusinak
Title: Vice President
EXHIBIT A
1. Premises (1.1):
a. Wyoming Valley Mall
Wilkes-Barre, Pennsylvania;
b. Logan Valley Mall
Altoona, Pennsylvania.
2. Name and Address of Owner's Representative (7.1):
Frank J. Pasquerilla
Pasquerilla Plaza
Johnstown, PA 15907.
3. Limit of amount authorized for non-emergency purchases and repairs (2.1(a)
and (c)):
$50,000.00.
4. Name of Banks (2.1(g)):
PNC Bank, N.A.
5. Management Fees (4.1):
Owner agrees to pay Agent as compensation for its management services
hereunder an amount equal to 5% of the amounts set forth in Section 4.1.
Such management fee shall be payable monthly based on the income earned for
the categories described in Section 4.1, computed in accordance with GAAP.
Agent shall be entitled to receive the management fee on the pro rata
portion of percentage rents received by Owner after the termination of this
Agreement but applicable to time periods prior to the termination of this
Agreement based upon the actual number of days lapsed divided by 365.
6. Legal and Tenant Coordination Expenses:
Owner agrees to pay Agent, to defray in-house legal expenses and tenant
coordination expenses (a) with respect to each new lease and each lease
renewal of mall shops and free-standing buildings (other than a lease
renewal or extension resulting from the exercise of an option contained in
such lease), an amount equal to the Agent's actual costs of providing such
services, limited however to the annual amount which is capitalized as
tenant allowance costs under the Owner's customary accounting practices as
Agent and Owner shall mutually agree and as recorded in the Owner's audited
annual financial statements. Such fees shall be payable monthly in arrears
using estimated fees per square foot, based on the estimated annual fee;
the monthly estimated fees shall be adjusted to a final actual amount
within 90 days after the Owner's fiscal year end. Agent and Owner shall
use their best efforts to estimate the monthly fee per square foot and
shall adjust the amount periodically during the year as mutually agreed
upon.
7. Leasing and Land Sale Fees:
(i) Leasing Commission:
Agent shall be entitled to commissions for leases secured, in addition
to other fees and compensation provided in this Agreement, equal to the
Agent's actual costs of providing leasing services related to permanent
leases (those with an initial term in excess of one year), limited however
to the aggregate amount which is capitalized as lease acquisition costs
under the Owner's customary accounting practices as Agent and Owner shall
mutually agree and as recorded in the Owner's audited annual financial
statements. Such fees shall be payable monthly in arrears using estimated
fees per square foot, based on the estimated annual fee; the monthly
estimated fees shall be adjusted to a final actual amount within 90 days
after the Owner's fiscal year end. Agent and Owner shall use their best
efforts to estimate the monthly fee per square foot and shall adjust the
amount periodically during the year as mutually agreed upon.
(ii) Brokerage Commissions:
Owner and Agent acknowledge that some leasing and land sale
transactions will involve the use of an independent real estate broker or
real estate sales agent, who will be paid a commission for introducing and
bringing a prospective tenant or purchaser to the Premises. Agent may
utilize brokers in connection with carrying out its leasing and land sale
activities, and shall be reimbursed by Owner for the cost of those
Brokerage Commissions in the following circumstances:
(a) Agent was required to recognize the broker or sales agent as the
representative of the prospective tenant or purchaser and was not
allowed or permitted the opportunity to contact or negotiate with
the tenant or purchaser except through the broker or sales agent,
and this fact was disclosed to Owner.
(b) Agent disclosed to Owner the existence of the broker or sales
agent and the brokerage fee at the time the proposed leasing or
land sale transaction was submitted to Owner for approval.
Except as provided in (a) and (b) above, Agent shall assume the sole cost and
responsibility for broker commissions.
(iii) Land Sale Commission:
For services provided pursuant to Section 2.7(e), Owner shall pay the
Agent a sales commission equal to fifteen percent (15%) of the adjusted
sales price ("Sales Commission"), as compensation for overhead associated
with the services of certain employees of Agent. For purposes of the
foregoing "adjusted sales price" shall mean the gross proceeds payable to
Owner less reasonable and necessary development costs paid by Owner in
connection with the transfer. One-half (1/2) of the Sales Commission shall
be due and payable to Agent at the time a mutually binding Agreement of
Sale with respect to any Sale Property is fully-executed, with the
computation of such amount being based on the gross proceeds payable to
Owner. The balance of the Sales Commission shall be paid to Agent at the
time of closing of any such sale.
8. Excluded Services:
Notwithstanding anything to the contrary contained herein, the parties
acknowledge that it is not within the contemplation of this Agreement or
the fee structure included herein that the Agent perform any services with
respect to the following: any "due diligence" or similar efforts relating
to any financing, refinancing or sale or disposition of the Premises;
zoning compliance of the Premises; performing or supervising (including
tenant room build-outs or remodeling) any extensive alteration or
renovation to the Premises; asbestos and/or other environmental studies and
any related abatement or remediation activities for any tenant premises,
site acquisitions of additional ground for the expansion of the Premises;
reconstruction after casualty or condemnation; leasing, management, or
construction relating to any proposed or implemented expansion of the
Premises or work generally classified as "development" work in connection
with the same; renewals or renegation of leases or other agreements with
department stores if such involves substantial changes from existing
documents (including, without limitation, negotiation of new leases,
renewal leases, operating covenants, renovation provisions, expansion
rights, and like matters); or replacement of department stores tenancies.
Owner shall reimburse Agent for all such services rendered equal to the
Agent's actual costs of providing such services, limited however to the
annual amount which is capitalized as tenant allowance or construction
costs under the Owner's customary accounting practices as Agent and Owner
shall mutually agree and as recorded in the Owner's audited annual
financial statements. Such fees shall be payable monthly in arrears using
estimated based on the estimated annual fee; the monthly estimated fees
shall be adjusted to a final actual amount within 90 days after the Owner's
fiscal year end. Agent and Owner shall use their best efforts to estimate
the monthly fees and shall adjust the amount periodically during the year
as mutually agreed upon.
9. Other Requested Services:
If Owner requests Agent to provide its own personnel for non-routine
services which Agent is not obligated elsewhere in this Agreement to
perform the compensation for which is not provided for hereinabove,
unless Owner and Agent otherwise agree to an acceptable fee for such
services, Owner shall pay Agent an amount equal to two and one-half
(2 1/2) times the actual base cost of Agent's departmental personnel, as
computed by Agent, for their time involved in performing such requested
services, plus reimbursement for any out-of-pocket costs incurred
incident to furnishing such requested services. Owner and Agent shall
agree in advance as to the hourly base cost to be applicable for the
specific services to be provided. Such amount or amounts shall be
payable to Agent monthly within ten (10) days after Owner's receipt of
Agent's statement setting for the amount payable to Agent.
EXHIBIT B
INTENTIONALLY OMITTED
EXHIBIT C
Leasing Guidelines
Agent shall use a form or forms of lease; or with respect to temporary
tenants and/or short term promotional activities, a form or forms of license
agreement, which have been prepared and submitted to Owner for Owner's prior
review and approval. Agent will negotiate and make modifications to such forms
as directed by Owner, or as necessary or appropriate with respect to the needs
of the particular transactions, utilizing methods and techniques consistent with
prevailing practices employed in management and leasing of shopping centers.
For all agreements, excepting license agreements for temporary tenants
and/or for short term promotion activities, all essential financial and
business terms and provisions of the lease or agreement, including construction
and improvements of the leasehold, shall be presented for Owner's approval.
Tenant-signed leases presented by Agent for Owner's review and execution shall
be consistent with such terms and conditions previously approved by Owner, or
with such deviations or modifications identified for Owner's review. Execution
of tenant-signed leases that are presented by Agent for Owner's signature will
acknowledge Owner's approval of the lease, its form, its terms and provisions.
No lease or other agreement shall be entered into, modified, canceled or
extended if the consent of any mortgagee or ground lessor is required unless
such consent has been obtained. Agent will notify Owner when consent is
required.
EXHIBIT 10.5 (i)
REAL ESTATE MANAGEMENT AGREEMENT
THIS AGREEMENT, made as of the 18th day of November, 1997, between CROWN
AMERICAN ACQUISITION ASSOCIATES I, L.P., a Pennsylvania limited partnership,
having its principal address at Pasquerilla Plaza, Johnstown, Pennsylvania 15907
("Owner"), and CROWN AMERICAN PROPERTIES, L.P., a Delaware limited partnership,
having its principal address at Pasquerilla Plaza, Johnstown, Pennsylvania
15907 ("Agent").
W I T N E S S E T H
In consideration of the mutual Covenants herein contained, and intending to
be legally bound, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT AND AUTHORITY OF AGENT
1.1 Owner owns leasehold interests in certain retail properties identified
on Exhibit A attached hereto and made a part hereof (the "Premises"). Owner
hereby appoints Agent as the exclusive managing and renting agent for the
Premises, and hereby authorizes Agent to exercise such powers with respect to
the Premises as may be necessary for the performance of Agent's obligations
under Article II, and Agent accepts such appointment on the terms and conditions
hereinafter set forth for the term as provided in Article V. Agent shall have
no right or authority, express or implied, to commit or otherwise obligate Owner
in any manner whatsoever except to the extent specifically provided herein and
agrees that it shall not hold itself out as having authority to act on behalf of
Owner in any manner which is beyond the scope of authority granted to Agent in
this Agreement.
ARTICLE II
AGENT'S AGREEMENT
2.1 Agent, on behalf of Owner, shall implement, or cause to be
implemented, the decisions of Owner and shall conduct the ordinary and usual
business affairs of Owner with respect to the management, operation and leasing
of the Premises as provided in this Agreement. Agent shall at all times conform
to the policies and programs established by Owner and the scope of Agent's
authority shall be limited to said policies. Agent shall act in a fiduciary
capacity with respect to the cash and cash equivalent assets of Owner which are
within the custody or control of Agent. Agent shall deal at arm's length with
all parties and shall serve Owner's interests at all times. All undertakings
incurred by Agent on behalf of Owner in accordance with this Agreement shall be
at the cost and expense of Owner unless otherwise provided for herein. Agent
agrees to use its best efforts in the management and operation of the Premises.
Agent shall perform the following duties in connection with the management and
operation of the Premises:
(a) Contract, for periods not longer than the term of Owner's
leasehold estate, in the name of Owner, for gas, electricity, water and such
other services as are currently being furnished to the Premises. Service
contracts shall be written to include a provision allowing termination by Owner
upon 30 days' notice wherever possible. All service contracts, including those
in effect at the date hereof in respect of the Premises, including the terms
thereof (with cancellation right, if any), the services provided thereunder and
the charges called for thereby, should be detailed in the annual budget package.
No such contract, other than for utilities, including water, which involves an
expenditure in excess of the amount set forth in paragraph 3 of Exhibit A
attached hereto shall hereinafter be entered into by Agent without the prior
approval of Owner. Agent shall also perform the obligations of the Owner under
any utility service agreement and any reciprocal easement agreements.
(b) Select, employ, pay, supervise, direct and discharge all
employees necessary for the proper, safe and economic operation and maintenance
of the Premises, in number and at wages in accordance with industry practices
and the annual budget, carry Worker's Compensation Insurance (and, when required
by law, compulsory Non-Occupational Disability Insurance) covering such
employees, and use reasonable care in the selection, discharge, and supervision
of such employees. Agent will keep bi-weekly time sheets which shall be
available for inspection by Owner. Agent shall prepare or cause to be prepared
and timely filed and paid, all necessary returns, forms and payments in
connection with unemployment insurance, medical and life insurance policies,
pensions, withholding and social security taxes and all other taxes relating to
said employees which are imposed on employees by any federal, state or municipal
authority. Agent shall also provide usual management services in connection
with labor relations and shall prepare, maintain and file all necessary reports
with respect to the Fair Labor Standards Act and all other required statements
and reports pertaining to employees at the Premises. Agent shall use its best
efforts to comply with all laws and regulations and collective bargaining
agreements, if any, affecting such employment. Owner shall have the right to
review and approve all collective bargaining agreements which affect the
Premises prior to their implementation or acceptance by Agent. Agent will be
and will continue throughout the term of this Agreement to be an equal
opportunity employer. All persons employed in connection with the operation and
maintenance of the Premises shall be employees of Agent or employees of
contractors approved by Owner to provide contract services to the Premises.
(c) Keep the Premises in a safe, clean, rentable and sightly
condition and make and contract for all repairs, alterations, replacements, and
installations, do all decorating and landscaping, and purchase all supplies
necessary for the proper operation and maintenance of the Premises and for the
fulfillment of Owner's obligations under any lease, operating agreement or other
agreement or compliance with all governmental and insurance requirements,
provided that, except as provided in Section 2.5 hereof, Agent shall not make
any purchase or do any work, the cost of which shall exceed the approved budget
or the amount set forth in paragraph 3 of Exhibit A attached hereto, without
obtaining in each instance the prior approval of Owner, except in circumstances
which Agent shall deem to constitute an emergency requiring immediate action for
the protection of the Premises or of tenants or other persons or to avoid the
suspension of necessary services or in order to cure any violation or other
condition which would subject Owner or Agent to any criminal penalty or any
civil fine in excess of $5,000.00. Agent shall notify Owner immediately of the
necessity for, the nature of, and the cost of, any such emergency repairs or any
action to cure any such violation or other condition. Agent shall arrange for
and supervise, on behalf of Owner, the performance of all alterations and other
work to prepare or alter space in the Premises for occupancy by tenants thereof.
If Owner shall require, Agent shall submit a list of contractors and
subcontractors performing tenant work, repairs, alterations or services at the
Premises under Agent's direction.
It is understood that Agent shall not be required to undertake the making
or supervision of extensive reconstruction of the Premises or any part thereof
except after written agreement by the parties hereto as to any additional fee to
be paid for such services.
Owner shall receive the benefit of all discounts and rebates obtainable by
Agent in its operation of the Premises. When requested by Owner, Agent agrees
to obtain competitive bids for the performance of any work at the Premises, to
furnish copies of such bids to Owner and to accept such bid as Owner may
direct.
If Agent desires to contract for repair, construction or other service
described in this paragraph (c) (other than work done at the request of a tenant
and at the tenant's sole cost and expense, hereinafter referred to as "Tenant
Work") with a party with respect to which any partner or shareholder of Agent
holds a beneficial interest, or with any subsidiary, affiliate or related
corporation in which Agent shall have a financial interest, such interest shall
be disclosed to, and approved by, Owner before such services are procured. The
cost of any such services shall likewise be at competitive rates,
notwithstanding that tenants of the Premises may be required to pay such costs.
Agent, or a general contractor working under the supervision of Agent is
authorized to make and install Tenant Work, Agent may collect from such tenant
or such general contractor, for its sole account, its charge for supervisory
overhead on all such Tenant Work. Agent shall hold Owner harmless from any
claims which may be advanced by any such tenant in connection with Tenant Work
performed by Agent or under Agent's supervision. Agent, however, shall not
require any tenant to use Agent, its subsidiary, affiliate or related
corporation as its general contractor to perform such Tenant Work.
(d) Handle promptly complaints and requests from tenants and parties
to reciprocal easement and/or operating agreements, notify Owner of any major
complaint made by any such tenant or party and notify owner promptly (together
with copies of supporting documentation) of: the receipt of any notice of
violation of any governmental requirements; any known orders or requirements of
insurers, insurance rating organizations, Board of Fire Underwriters or similar
bodies; any known defect in the Premises; any known fire or other damage to the
Premises, and, in the case of any serious fire or other serious damage to the
Premises, Agent also shall immediately provide telephone notice thereof to
Owner's General Insurance Office, so that an insurance adjuster can view the
damage before repairs are started, and complete customary loss reports in
connection with fire or other damage to the Premises.
(e) Notify Owner's General Liability Insurance carrier and Owner
promptly of any personal injury or property damage known to Agent occurring to
or claimed by any tenant or third party on or with respect to the Premises and
promptly forward to the carrier, completed insurance forms, any summons,
subpoena, or other like legal document served upon Agent relating to actual or
alleged potential liability of Owner, Agent, or the Premises, with copies to
Owner of all such documents.
(f) Advise Owner of those exceptions in leases, operating agreements
and other agreements executed on or after the date hereof in which the tenants
or parties to such agreements do not agree to hold Owner harmless with respect
to liability from any accidents.
(g) At the option of Owner, or as otherwise provided in the Loan
Documents, as hereinafter defined, receive and collect rent and all other monies
payable to Owner by all tenants and licensees in the Premises and by all other
parties including department stores under ground leases and reciprocal easement
agreements and tenants under leases of free-standing stores. In this
connection, Agent shall calculate all amounts due to Owner from such tenants,
licensees and other parties, including annual or periodic adjustments where
applicable, and shall, when appropriate, submit statements or invoices to such
tenants, licensees and parties. Agent shall deposit the same promptly in the
bank named on Exhibit A attached hereto (the "Bank") in an account with title
including a distinctive portion of Agent's name and such designation as Owner
may direct (the "Bank Account"), which account shall be used exclusively for
such funds. Owner's representative will be a signatory on all bank accounts
maintained by Agent and such representative's signature shall be required on all
checks in excess of $50,000 and for withdrawals in excess of $1,000,000 in any
month. All amounts received by Agent for or on behalf of Owner shall be and
remain the property of Owner. Checks may be drawn on the above-mentioned bank
account only for purposes authorized under this Agreement. No funds of Agent or
others shall be commingled with funds in any such bank account. Owner has the
right to control the types of cash management accounts and dictate the specifics
of said accounts with respect to disbursement and management of funds.
(h) Serve notice of default upon tenants of space in the Premises and
other parties which are in default in performing obligations under their leases,
reciprocal easement agreements or other agreements, with copies sent
simultaneously to Owner, and attempt to cause such defaults to be cured by the
defaulting tenant or other party. Agent shall, subject to Owner's consent with
respect to any tenant who occupies more than 1,000 square feet, utilizing
counsel theretofore approved by Owner, institute all necessary legal action or
proceedings for the collection of rent or other income from the Premises or the
ousting or dispossessing of tenants or other persons therefrom and all other
matters requiring legal attention. Agent agrees to use its best efforts to
collect rent and other charges from tenants in a timely manner and to pursue
Owner's legal remedies for nonpayment of same. Agent shall not terminate tenant
leases in the Premises without Owner's consent. Owner reserves the right to
designate or approve counsel and to control litigation of any character
affecting or arising out of the operation of the Premises and the settlement of
such litigation.
(i) Bond Agent and all of Agent's employees who may handle or be
responsible for monies or property of Owner with a "comprehensive 3-D" or
"Commercial Blanket" bond, in an amount of $500,000.00.
(j) Notify Owner immediately of any known fire, accident or other
casualty, condemnation proceedings, rezoning or other governmental order,
lawsuit or threat thereof involving the Premises; and the receipt of any notice
of violations relative to the leasing, use, repair and maintenance of the
Premises under governmental laws, rules, regulations, ordinances or like
provisions.
(k) If Owner so directs, make timely payment of real estate and
personal property taxes and assessments levied or assessed against the Premises
or personal property used in connection therewith and any other charge that may
become a lien against the Premises. Owner may direct that payment of such taxes
and assessments either be made to the taxing authority or to a mortgage lender
holding an escrow account for such items. Agent shall participate in Owner's
tax review program and check tax assessments and, when so requested, Agent shall
assist Owner in its efforts to reduce such taxes. Agent shall promptly furnish
Owner with copies of all assessment notices and receipt tax bills.
(l) Promptly comply with all present and future laws, ordinances,
orders, rules, regulations and requirements of all Federal, state and local
governments, courts, departments, commissions, boards and offices, any national
or local Board of Fire Underwriters or Insurance Services offices having
jurisdiction, or any other body exercising functions similar to those of any of
the foregoing ("Legal Requirements") which may be applicable to the Premises or
any part thereof or to the leasing, use, repair, operation and management
thereof, but only to the extent that such compliance is reasonably capable of
being carried out by Agent and Agent has available the necessary funds therefor
from collections or advances by Owner. Agent shall give prompt notice to Owner
of any known violation or the receipt of notice of alleged violation of such
laws and Agent shall not bear responsibility for failure of the Premises or the
operation thereof to comply with such laws unless Agent has committed gross
negligence or a willful act of omission in the performance of its obligations
under this Agreement or in the performance of any other duties owed to Owner or
third parties by Agent. As and when directed by Owner, Agent shall institute in
its name, or in the name of Owner using counsel selected by Owner, appropriate
actions or proceedings to contest any such law, ordinance, rule, regulation,
order, determination or requirement.
(m) Promote the Premises and participate as Owner's representative in
any Merchant's Associations or Promotional Organizations (collectively, the
"Promotional Organizations") established to promote the Premises.
(n) Consent to and approve tenant alteration work and installations
which are performed by tenants of space in the Premises and are provided for in
the leases of such tenants and are within such tenant's space. Agent is
authorized to approve tenant alteration work and installations not provided for
in leases if (i) such alteration work and installations are made solely at the
expense of the tenant, and (ii) such alteration work and installations do not
affect the structural integrity or facade of any building. Agent shall
periodically monitor the progress of any tenant alteration work and
installations to confirm that the work is being done in a good and workmanlike
manner and in substantial conformity with any plans and specifications approved
by Owner or Agent, and shall notify Owner of any material deficiencies or
material variations from the approved plans and specifications.
(o) Provide, upon Owner's request in accordance with the provisions
of Section 10 and Section 11 of Exhibit A, general contracting and construction
management services ("Development Services") and consultation to Owner for the
Premises, which shall include, without limitation, the management, supervision
and administration of, and provisions for services for the improvement or
expansion (and in the event of damage or condemnation, the reconstruction) of
the Premises, including advice, expertise and support of Agent provided and/or
retained and/or coordinated by home office and on-site personnel including,
without limitation, executive personnel, design and engineering personnel,
clerical personnel, legal and accounting personnel. Such personnel will perform
consultation and various functions involved with Development Services including,
without limitation, the following: design, planning, architectural,
engineering, acquisition and negotiation, negotiations with department stores
for site acquisition and operation in the Premises; permits and licenses;
preopening advertising and publicity; market research, site work; negotiations
with public authorities; attendance at public hearings; project management and
all other activities necessary to accomplish the improvement, expansion or
reconstruction of the Premises. It is understood that Development Services and
consultation with Owner may or may not involve Agent's in-house personnel; by
mutual agreement of Agent and Owner, outside professionals or other persons may
be engaged to provide Development Services and consultation with Owner, provided
that Agent agrees to require any contractor or subcontractor brought onto the
Premises to have workers' compensation and employers' liability insurance in the
necessity statutory amounts and comprehensive general liability insurance for at
least $1,000,000.00.
(p) If Owner so directs, pay when due (i) all debt service and other
amounts due under any mortgages that encumber the Premises or any part thereof,
and (ii) all rent and other charges payable under any ground lease of land
included in the Premises under which Owner is the tenant and give Owner notice
of the making of each payment.
(q) Carry out and comply with, directly or through a third party, all
requirements on the part of Owner under all such mortgages and ground leases,
all leases of space in the Premises, all ground leases and reciprocal easement
agreements with department stores and all other agreements affecting or relating
to the Premises which are known or made known to Agent, including, without
limitation, the furnishing of all services and utilities called for therein, but
only to the extent that such requirements are at the time reasonably capable of
being carried out by Agent and Agent has available the necessary funds therefor
from collections or advances by Owner, provided that Agent shall promptly notify
Owner if Agent cannot carry out such requirement or has insufficient funds
available to do so. Agent shall notify Owner promptly of any default under any
such mortgage, lease, ground lease, reciprocal easement or other agreement on
the part of Owner, the tenant or other party thereto of which agent becomes
aware.
(r) Use reasonable efforts to comply with and require compliance with
the requirements of leases of space in the Premises, ground leases, reciprocal
easement agreements and all other agreements affecting or relating to the
Premises which are known or made known to Agent on the part of Tenants,
department stores and other parties thereto and enforce compliance with the
rules and regulations, sign criteria and like standards for the Premises adopted
by Owner from time to time.
(s) Upon request, furnish Owner with an executed copy of each lease,
lease renewal, lease amendment, service contract and other agreement entered
into on or after the date of this Agreement in connection with the operation,
management and leasing of the Premises, and use reasonable efforts to secure
from tenants and parties to reciprocal easement agreements, and furnish to
Owner, any certificates of insurance and renewals thereof required to be
furnished by the terms of their leases or agreements. All such executed copies
of leases shall be maintained in Agent's main office, with additional lease
copies together with insurance certificates also maintained at the Agent's
office at the relevant property, if any such office exists.
(t) Inspect the Premises periodically and submit reports of findings
and recommendations to Owner which shall include, without limitation,
recommendations as to required repairs, replacements or maintenance. Agent
shall keep and submit annual written reports of all material alterations made to
the Premises, no matter by whom effected.
(u) Erect barriers or chains for the purpose of blocking access to
the common areas of and buildings included in the Premises as local law may
require, or, as directed in writing by owner, in order to avoid the dedication
of the same for public use and furnish appropriate evidence of same to Owner.
Agent shall give any advance notice of the erection of such barriers or chains
which may be required under reciprocal easement agreements or ground leases with
department stores.
(v) Use its reasonable efforts to obtain from tenants of the Premises
and department stores which are parties to reciprocal easement agreements or
ground leases waivers of their insurers' rights of subrogation in respect to
policies of fire and extended coverage and other property damage insurance
carried by them in favor of Owner, Agent and any department store or tenant for
which Owner is obligated to attempt to obtain such waivers under a ground lease,
reciprocal easement agreement or space lease.
(w) Assist owner in preparing any statements required to be submitted
by Owner under the terms of mortgages, ground leases, reciprocal easement
agreements and leases.
(x) Perform its duties in renting, managing, operating and
maintaining the Premises applying prudent and reasonable business practices
which are consistent with those followed in respect of the Premises prior to the
date of this Agreement, using reasonable care and diligence in carrying out
properly and efficiently its responsibilities under this Agreement. Agent shall
maintain those portions of the common areas of the Premises which are Owners'
obligation to maintain in a clean, safe and attractive condition, use reasonable
efforts to enforce the provisions of applicable leases, ground leases and
reciprocal easement agreements so as to cause tenants and department stores to
maintain their premises and common areas, if any, in similar condition, arrange
for necessary security for the Premises and their common areas and arrange for
cleaning and snow removal for the parking areas and roadways of the Premises.
Agent shall recommend to Owner from time to time such procedures with respect to
the Premises as Agent may deem advisable for the more efficient and economic
management and operation thereof.
(y) Where leasing guidelines or any Legal Requirement (as defined in
paragraph 2.1 (m) hereof) now or hereafter in effect require that tenant
security deposits be maintained, a separate interest-bearing account for such
security deposits (the "Security Deposit Account") shall be opened by Agent at a
bank approved by Owner. The Security Deposit Account shall be maintained in the
name of Agent in accordance with the relevant lease or Legal Requirement, as the
case may be, and shall be used only for tenant security deposits. The bank
shall be informed that the funds in the Security Deposit Account are held in
trust for Owner. Agent shall have the authority to remit to tenants any
interest to which they are entitled on their security deposit, in accordance
with their leases or any Legal Requirement, but Agent shall obtain the written
approval of Owner prior to the return of such deposits or any other security
(including letters of credit) to any tenant when the amount, in any single
instance, exceed $50,000.00.
Owner recognizes and understands that Environmental Service (as hereinafter
defined) are not actions or services that Agent is required to perform under
this Agreement and Owner further recognizes and understands that Agent is not a
consultant or a contractor that performs Environmental Services. Upon Owner's
request, Agent agrees to obtain and coordinate for and on behalf of Owner, such
Environmental Services as Owner may request or require. Owner shall reimburse
Agent for its administrative costs in connection with the coordination of such
Environmental Services as provided in Exhibit A, paragraph 11 of the Agreement.
In addition, Owner shall reimburse Agent for the costs of outside professionals
retained to perform Environmental Services. Environmental Services is defined
to be those acts or actions involving the presence use, exposure, removal,
restoration, or introduction of Hazardous materials (as hereinafter defined) and
the investigation of and compliance with any and all applicable rules, laws, or
regulations of local, state or federal authorities which apply or regulate
Hazardous Materials. Hazardous Materials means any hazardous, radioactive, or
toxic substance, material or waste listed in the United States Department of
Transportation Hazardous Materials Table; or by the Environmental Protection
Agency as hazardous substances; or such substances, materials and waste which
are or become regulated under applicable local, state or federal law including
materials which are petroleum products, asbestos, polychlorinated biphenyls, or
designated as hazardous substances under the Clean Water Act; or defined
hazardous waste under the Resource Conservation and Recovery Act; or defined as
hazardous substances under the Comprehensive Environmental Response,
Compensation and Inability Act.
2.2 Agent agrees, on behalf of Owner and at Owner's expense, to procure
and continue to maintain in force a comprehensive general liability insurance
policy or polices with respect to the Premises. Such policy or policies shall
provide for coverage in the amount and with such insurers as are required of
Owner under the Loan Documents (as defined in that certain Credit Agreement
dated as of November 17, 1997, by and between Owner, Agent, and other borrowers,
signatories thereto, as Borrowers, and General Electric Capital Corporation, as
Lender, as may be amended, changed or modified from time to time), but in any
event, not less than ten million dollars ($10,000,000.00) combined single limit
coverage per occurrence for bodily injury and property damage. The polices
shall include coverage for contractual liabilities assumed with respect to the
Premises, including, but not limited to, the obligations created by the
indemnity set forth in Section 3.3 hereof as used in this Agreement.
Further, at all times during the term of this Agreement, Agent shall keep
or cause to be kept insured, at Owner's cost and expense, all buildings and
improvements on the Premises against loss or damage by fire, windstorm, hail,
explosion, damage from aircraft and vehicles and smoke damage, and such other
risks as are from time to time included in "extended coverage" endorsements in
an amount sufficient to replace said improvements.
All insurance provided for in this Section 2.2 shall be effected under
valid and enforceable polices issued by insurers of recognized responsibility
and shall provide respectively, for the waiver of all rights of subrogation by
Owner or parties claiming through Owner against Agent and its agents and
employees. Owner and Agent hereby waive all rights of recovery as against the
other party hereto arising from loss or damage caused by the perils enumerated
in this Section 2.2 and agree that any policies obtained with respect to such
perils shall be endorsed accordingly, if such endorsements are available. Any
insurance required to be maintained hereunder may be taken out under a blanket
insurance policy or polices covering other properties of the insured. Any
policy required by this Section 2.2 shall provide that such policy shall not be
canceled without at least thirty (30) days' prior notice to Owner and Agent and,
in any event, shall provide that all parties insured thereby shall receive
notice no less than fifteen (15) days prior to the expiration dates of the
expiring policies.
2.3 Agent agrees to render monthly reports relating to the management and
operation of the Premises for the preceding calendar month on or before the
twenty-fifth (25th) day of each month in form as Owner and Agent will mutually
agree. Agent agrees that Owner shall have the right to require the transfer to
Owner at any time of any funds in the Bank Account considered by Owner to be in
excess of an amount reasonably required by Agent for disbursement in connection
with the Premises. Agent agrees to keep records with respect to the management
and operation of the Premises as prescribed by owner, and to retain those
records for periods specified by Owner. Owner shall have the right to inspect
such records and audit the reports required by this Section during business
hours for the life of this Agreement and thereafter during the period such
records are to be retained pursuant to this Section. In addition, Agent agrees
that such records may be examined from time to time during the period aforesaid
by any of the supervisory or regulatory authorities having jurisdiction over
Owner.
2.4 Agent shall ensure such control over accounting and financial
transactions as is reasonably required to protect Owner's assets from loss or
diminution due to gross negligence or willful misconduct on the part of Agent's
associates or employees. Losses caused by gross negligence or willful
misconduct shall be borne by Agent.
2.5 Agent shall establish and prepare, in the form authorized by Owner,
with such additional changes as may be reasonably requested by Owner, operating
and capital improvement budgets for the promotion, operation, repair and
maintenance of the Premises for each calendar year. Preliminary and final
budgets will be due 45 and 30 days, respectively, prior to commencement of the
calendar year to which they relate. Such budgets shall be prepared on both an
accrual basis showing a month-by-month projection of income and expenses and
capital expenditures. At least 30 days prior to the end of each year, Agent
shall meet with Owner to review such budgets for the subsequent year. Upon
receiving Owner's approval, Agent shall use its best efforts to comply with such
final budgets.
(a) Agent shall meet with Owner on a regular basis, not less
frequently than semi-annually and otherwise upon reasonable call by Owner, to
review the operations of the Premises, to review and, if appropriate, revise in
light of actual experience the annual operating and capital improvement budgets
theretofore approved by Owner and to consider other matters which Owner may
raise.
(b) Upon approval of the operating budget by Owner, and unless and
until revoked or revised by Owner, Agent shall have the right, without further
consent or approval by Owner to incur and pay the operating expenses set forth
in the approved operating budget, subject to paragraph 2.1(g) above.
(c) At the request of Owner from time to time Agent shall prepare and
submit to Owner (i) operating projections for the Premises for the ensuing five
(5) years, such projections to be made on a year-by-year basis and to be based
on Agent's best judgment as to the future, taking into consideration known
circumstances and circumstances Agent can reasonably anticipate are likely to
occur, and (ii) a schedule in reasonable detail of capital improvements, repairs
and replacements not provided for in the current capital improvement budget
which Agent reasonably anticipates will be required or should be made in the
foreseeable future, with Agent's opinion as to the relative priority and cost of
each thereof.
2.6 Agent shall also participate in Owner's property review programs to
the extent requested by Owner. Such review shall include asset, investment,
financial and strategy profiles in form satisfactory to Owner. Agent shall
respond, within 10 days, to Owner's management evaluation reports concerning
actions to be taken by Agent to correct or modify its management standards for
the operations, leasing or financial services provided for the Premises. If
Owner shall request that Agent's home office or regional office personnel travel
to the Premises to participate in Owner's property review programs or for any
other reason (unless such reason is for normal supervision), the reasonable cost
of meals, travel and hotel accommodations expenses incurred by such home office
personnel in connection with such travel shall be reimbursed to Agent by Owner.
Agent shall, however, bear the full cost and expenses incurred by its home
office or regional office personnel in connection with their travel to the
Premises to the extent such travel is required by the Agent for the normal
supervision of the management and leasing of the Premises.
2.7 Agent agrees to use its best efforts to have all space within the
Premises rented to desirable tenants, satisfactory to Owner, considering the
nature of the Premises, and in connection therewith:
(a) To negotiate, as the exclusive agent of Owner, all leases and
renewals of leases at the appropriate time, it being understood that all
inquiries to Owner with respect to leasing any portion of the Premises shall be
referred to Agent. Except for license agreements for temporary tenants, all
leases and renewals for lease terms in excess of one (1) year must be prepared
in accordance with Exhibit C by Agent and in accordance with the annual approved
budget and be submitted to Owner's representative for execution by Owner. Agent
is authorized to negotiate and execute license agreements prepared in accordance
with Exhibit C for temporary tenants and/or short term promotional activities.
If Agent shall receive a prospective tenant reference from a property other than
the Premises, which Agent or any subsidiary or affiliate manages, Agent shall
promptly declare its potential conflict of interest to Owner and Owner shall
determine if negotiations with such prospective tenant shall be undertaken by
Agent, Owner, or a third party approved by Owner. References of prospective
tenants, as well as their varying use requirements, shall be investigated
carefully by Agent. Agent also is authorized to negotiate and execute on
Owner's behalf lease amendments which: (i) change a Tenant's commencement date
by sixty (60) days or less (or for such longer period as is approved by Owner);
(ii) change a Tenant's permitted use by allowing the sale of such additional
items as are reasonably related to the Tenant's primary and principal use,
provided Agent has no reason to know of any lease at the center prohibiting such
use; (iii) change a tenant's marketing charge or promotional charge or
advertising obligation.
Owner acknowledges and understands that Agent manages properties for third
parties. Owner further acknowledges and understands that Agent routinely and
customarily negotiates tenant leases from multiple locations involving two or
more properties (one or more of which may be the Premises and one or more of
which may be properties owned by Agent or by others). Agent conducts such
multiple location negotiations in good faith for the benefit and interests of
Owner and other property owners, including Agent. Agent shall be entitled to
assume that such leasing practices are approved and acceptable to Owner, unless
and until Owner specifically disapproves the practice and so notifies Agent.
(b) With Owner's prior approval, to advertise the Premises or
portions thereat for rent, by means of periodicals, signs, plans, brochures and
other means appropriate to the Premises. Owner acknowledges and agrees that the
Premises may be included in brochures or other advertising media of Agent, which
may include other properties being offered for lease by Agent.
(c) In no event shall Agent engage or utilize the services of an
outside broker in connection with any lease without Owner's prior written
consent. In any case in which Owner requests or gives such consent, Agent shall
cause such broker to enter into a written agreement with Owner, on terms
reasonably satisfactory to Owner, with respect to such broker's commission and
Owner shall be responsible for the payment of such commission pursuant to the
terms of said agreement.
(d) Agent will, in each instance, negotiate for the inclusion in all
leases entered into by Owner of a provision to the effect that recourse on such
obligation shall be had only against the property to which such obligation
relates and no recourse shall be sought against Owner or any other person
holding, directly or indirectly, a beneficial interest in the property.
(e) Agent will, upon the request of Owner, undertake to find buyers
for the sale of any of the Owner's outparcels, peripheral land or such other
real estate situate upon the Premises, ("Sale Property"), and, in addition to
any other compensation provided to be paid to Agent under this Agreement, Owner
agrees to pay to Agent as compensation for its services hereunder, a fee at the
rate specified in Paragraph 7(iii) of Exhibit "A", attached hereto. In
performing its duties hereunder, Agent shall perform the following:
(i) Submit to Owner for approval, a pricing schedule on the Sale
Property;
(ii) Upon request, submit to Owner for approval, contract form(s)
to be used in the sale of the Sale Property;
(iii) Upon request, furnish Owner with a written report
regarding its progress in such sale activities;
(iv) Negotiate on behalf of Owner, the sale of the subject Sale
Property; and
(v) Provide legal services, limited to:
(a) Preparation of the Purchase and Sale Agreement;
(b) Deed and Easement(s) preparation;
(c) Preparation and submittal to Owner of the Seller's
closing statement;
(d) Preparation of closing instructions;
(e) Coordination of title work;
(f) Upon approval of Owner, retain local counsel,
whose fees will be reimbursed by Owner; and
(g) Submit to Owner, for final execution, all
documents necessary to consummate the
transaction.
Agent shall pursue these duties and obligations with diligence and in the
best interests of Owner.
2.8 Agent agrees, for itself and all persons retained or employed by Agent
in performing its services, to hold in confidence and not to use or disclose to
others any confidential or proprietary information of Owner heretofore or
hereafter disclosed to Agent ("Confidential Information"), including, but not
limited to, any data, information plans, programs, processes, costs, operations
or the names of any tenants which may come within the knowledge of Agent in the
performance of, or as a result of, its services, except where required by
judicial or administrative order, or where Owner specifically gives Agent
written authorization to disclose any of the foregoing to others or such
disclosure as is required in the direct performance of Agent's duties hereunder.
If Agent is required by a judicial or administrative order to disclose any
Confidential Information, Agent will promptly notify Owner thereof, consult with
Owner on the advisability of taking steps to resist or narrow such request and
cooperate with Owner in any attempt it may make to obtain an order or other
assurance that confidential treatment will be accorded to the Confidential
Information disclosed.
2.9 If at any time there shall be insufficient funds available to Agent
from collections to pay any obligations of Owner required to be paid under this
Agreement, Agent shall promptly notify Owner and Agent shall not be obligated to
pay such obligations unless Owner furnishes Agent with funds therefor.
2.10 Agent assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith, and Owner shall make no
claim against Agent on account of any alleged errors of judgment made in good
faith in connection with Agent's obligations hereunder and with the operation of
the Premises. Agent shall not be liable to Owner or others except by reason of
acts constituting willful misfeasance or gross negligence on the part of Agent,
and Owner agrees to indemnify, defend and hold harmless Agent and its partners
(and the shareholders, trustees and officers thereof)and employees from and
against all claims, actions, causes of action, costs and expenses (including,
but not limited to, reasonable attorney's fees) directly or indirectly arising
from the claims of any third party, except only those claims where liability
arises from acts constituting willful misfeasance or gross negligence on the
part of Agent.
ARTICLE III
OWNER'S AGREEMENTS
3.1 Owner, at its option, may pay directly all taxes, special assessments,
ground rents, insurance premiums and mortgage payments. If Owner makes such
election, Agent shall advise Owner of the due dates of such taxes assessments,
insurance premiums and mortgage payments.
3.2 Owner shall bear the cost of all premiums relating to insurance
procured by Agent for Owner pursuant to Section 2.2 hereof. Owner shall look
solely to such insurance for indemnity against any loss or damage to the
Premises and shall obtain waivers of subrogation against the Agent under such
policies if available at no additional cost to Owner.
3.3 Owner agrees to indemnify and save harmless Agent and its partners
(and the shareholders, trustees and officers thereof) and employees from and
against all claims, losses and liabilities resulting from: (i) damage to
property or injury to, or death of, persons from any cause whatsoever when Agent
is carrying out the provisions of this Agreement or acting under the direction
of Owner in or about the Premises; (ii) claims for defamation and false arrest
when Agent is carrying out the provisions of this Agreement or acting under the
direction of Owner; and (iii) claims occasioned by or in connection with or
arising out of acts or omissions, other than criminal acts, of the Agent when
Agent is carrying out the provisions of this Agreement or acting under the
direction of Owner (except in cases of Agent's willful misconduct or gross
negligence), and to defend or cause to be defended, at no expense to Agent or
such persons, any claim, action or proceeding brought against Agent or such
persons or Agent and Owner, jointly or severally, arising out of the foregoing,
and to hold Agent and such persons harmless from any judgment, loss or
settlement on account thereof.
Notwithstanding the foregoing, Owner shall not be responsible for
indemnifying or defending Agent or such persons in respect of any matter, claim
or liability in respect of which Agent is obligated to indemnify Owner as
provided in the following sentence. Agent agrees to indemnify and save harmless
Owner from and against all claims, losses and liabilities resulting from injury
to, or death of, persons in or about the Premises or for deformation and false
arrest in each case caused in whole or in part by the willful misfeasance or
gross negligence of Agent, and to defend, at no expense to Owner, any claim,
action or proceeding brought against Owner or Owner and Agent, jointly or
severally, arising out of the foregoing, and to hold Owner harmless from any
judgments, loss or settlement on account thereof.
Notwithstanding the foregoing, Agent shall not be responsible for
indemnifying or defending Owner in respect of any matter, claim or liability
which is covered by any public liability insurance policies carried by Owner and
under which Agent is named as an additional insured. The indemnification
obligations of Owner and Agent under this Section 3.3 shall in each case be
conditioned upon (a) prompt notice from the other party after such party learns
of any claim or basis therefor which is covered by such indemnity, (b) such
party's not taking any steps which would bar Owner or Agent, as the case may be,
from obtaining recovery under applicable insurance policies or would prejudice
the defense of the claim in question, and (c) such party's taking of all
necessary steps which if not taken would result in Owner or Agent, as the case
may be, being barred from obtaining recovery under applicable insurance policies
or would prejudice the defense of the claim in question. The provisions of this
Section 3.3 shall survive the expiration or termination of this Agreement.
3.4 Owner shall provide such office space on the Premises as may be
necessary for Agent to properly perform its functions under this Agreement.
Agent shall not be required to pay for utilities, telephone service or rent for
the office area on the Premises occupied by Agent. Agent shall have the right
to use the fixtures, furniture, furnishings and equipment, if any, which are the
property of Owner in said office space. Owner shall also provide space on the
Premises for use as community rooms and information and service centers where
the use of such space is determined by Owner to be in the best interest of the
Premises. All income derived from the utilization and/or operation of such
community rooms and/or information or service centers shall belong to the Owner
and all expenses relating thereto shall be borne by Owner.
3.5 Except as otherwise provided in this Agreement, everything done by
Agent in the performance of its obligations under this Agreement and all
expenses incurred pursuant hereto shall be for and on behalf of Owner and for
its account. Except as otherwise provided herein, all debts and liabilities
incurred to third parties in the ordinary course of business of managing the
Premises as provided herein are and shall be obligations of Owner, and Agent
shall not be liable for any such obligations by reason of its management,
supervision or operation of the Premises for Owner.
ARTICLE IV
COMPENSATION
4.1 In addition to any other compensation provided to be paid to Agent
under this Agreement, Owner agrees to pay to Agent as compensation for its
management services hereunder, a fee at the rate specified in paragraph 5 of
Exhibit A attached hereto. Said fee shall be payable monthly no later than the
twenty-fifth (25th) day of the following month, and shall be based on the
following components of income from the preceding calendar month determined in
accordance with GAAP. It is understood that the management fee shall be
calculated upon the following items: (i) minimum rents from all permanent
tenants (anchor, mall shops, ground leases and all other tenants); (ii) Lease
buyout income; (iii) Percentage rents in lieu of minimum rents; (iv) Percentage
rents; (v) all cost recovery income (CAM, taxes, food court, security, other);
(vi) income from all temporary tenants (initial term of one year or less); (vii)
income from all promotional activity; (viii) miscellaneous mall income such as
payphone commissions, stroller rentals, etc. and (ix) bad debts expense related
to any of the above revenue items. The following items shall not be subject to
management fees: (i) business interruption insurance income; (ii) recoveries
from insurance companies for casualty and other losses; (iii) payments from
tenants for leasehold improvements and related services provided by Agent; (iv)
payments from tenants to Merchants' Associations or to Marketing Funds; (v)
tenant security deposits; (vi) straight line rental income or losses, and (vii)
operating covenant and amortization (classified as a reduction of minimum rent).
Agent shall withdraw said fee from the operating account for the Premises and
shall account for same as provided for in Section 2.3 hereof.
4.2 The following expenses or costs incurred by or on behalf of Agent in
connection with the management and leasing of the Premises shall be the sole
cost and expense of Agent and shall not be reimbursable by Owner and Agent shall
indemnify Owner for such expenses and costs:
(a) cost of gross salary and wages, payroll taxes, insurance,
worker's compensation, pension benefits and any other benefits of Agent's
employees, except that Owner will reimburse Agent for all costs of employees who
provide either full or part time services on-site at any of the Premises.
Within the category of "on-site" personnel, Agent may include the pro-rata costs
for regional personnel performing required services at the Premises on a regular
basis (but which personnel may share time working at other properties managed by
Agent); provided, however, that the costs for any employees who are based at or
work from Agent's home office shall not be included, and provided further that
the pro-rata costs for any such regional personnel are included and identified
as such within the annual operating budget as approved by Owner.
(b) general accounting and reporting services, as such services are
considered to be within the reasonable scope of Agent's responsibility to Owner;
(c) costs of forms, stationery, ledgers, supplies, equipment and
other "general overhead" items used in Agent's home office or regional offices;
(d) cost or pro rata cost of telephone and general office expenses
incurred in the Premises by Agent for the operation and management of properties
not owned by Owner;
(e) cost of all bonuses, incentive compensation, profit sharing, or
any pay advances by Agent to Agent's employees, except such costs pertaining to
employees employed by Agent in accordance with Paragraph 2.1 (b) hereof;
(f) cost attributable to losses arising from criminal acts, gross
negligence or fraud on the part of Agent or Agent's associates or employees;
(g) cost for meals, travel and hotel accommodations for Agent's home
office or regional office personnel who travel to and from the Premises, except
as provided in Section 2.6;
(h) cost of automobile purchase and/or rental, except if furnished or
approved by Owner;
(i) except as otherwise provided in Exhibit A attached hereto,
expenses incurred in connection with the leasing of the Premises, it is being
understood and agreed, however, that Agent shall be reimbursed for advertising
expenses incurred in connection with the leasing of the Premises;
(j) cost of liability or other insurance carried by Agent, except
costs incurred by Agent in satisfaction of its obligations under Section 2.2
hereof; and
(k) cost of bonds purchased pursuant to Section 2.1(i) of this
Agreement.
ARTICLE V
DURATION, TERMINATION, DEFAULT
5.1 This Agreement shall become effective on the date hereof.
5.2 Subject to earlier termination as hereinafter provided, this Agreement
shall have an initial term ending on January 31, 1998. Thereafter, this
Agreement shall continue year-to-year on the same terms and conditions as herein
contained subject to being terminated by either Agent or Owner upon no less than
six (6) months written notice. The Agent may not terminate this Agreement
except in the case of non-payment of management fees for a period of ninety (90)
days after notice of such non-payment to Owner and Lender. In addition, Lender
shall have the right to terminate (or direct Owner to terminate, as applicable)
this Agreement: (i) upon the insolvency of Agent, (ii) the occurrence of an
Event of Default (as defined in the Loan Documents), (iii) the failure of the
Premises to meet the Net Operating Income requirements (as defined in the Loan
Documents), or (iv) pursuant to the provisions of the Manager's Consent and
Subordination of Management Agreement.
5.3 It shall be an Event of Default under this Agreement on the part of
Agent if Agent shall default in any material respect in performing any of its
obligations under this Agreement and such default shall not be cured within 30
days after written notice thereof is given by Owner to Agent (or, if the default
in question is curable but is of such nature that it cannot reasonably be
completely cured within such 30-day period, if Agent does not promptly after
receiving such notice commence to cure such default and thereafter proceed with
reasonable diligence to complete the curing thereof within 180 days after notice
is given by Owner to Agent). If an Event of Default by Agent shall occur, Owner
shall have the right to terminate this Agreement by written notice given to
Agent, and upon the giving of such notice this Agreement and the term hereof
shall terminate without any obligation on the part of Owner to make any payments
to Agent hereunder except as hereinafter provided.
5.4 If at any time during the term of this Agreement any involuntary
petition in bankruptcy or similar proceeding shall be filed against Agent
seeking its reorganization, liquidation or appointment of a receiver, trustee or
liquidator for it or for all or substantially all of its assets, and such
petition shall not be dismissed within 90 days after the filing thereof, or if
Agent shall:
(a) apply for or consent in writing to the appointment of a receiver,
trustee or liquidator of all or substantially all of its assets;
(b) file a voluntary petition in bankruptcy or admit in writing its
inability to pay its debts as they become due;
(c) make a general assignment for the benefit of creditors;
(d) file a petition or an answer seeking reorganization or an
arrangement with creditors or take advantage of any insolvency law; or
(e) file an answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or insolvency proceedings;
then upon the occurrence of any such event, Owner, at its option, may terminate
this Agreement by written notice given to Agent, and upon the giving of such
notice this Agreement and the term hereof shall terminate without any obligation
on the part of Owner to make any payments to Agent hereunder except as
hereinafter provided.
5.5 Owner shall have the additional right to terminate this Agreement on
at least 10 days' written notice to Agent, if Agent without Owner's prior
written consent shall assign or attempt to assign its rights or obligations
under this Agreement or subcontract (except for normal service agreements or as
otherwise specified in this Agreement) any of the services to be performed by
Agent. Owner shall also have the right to terminate this Agreement as to any
property included within the Premises on at least 10 days' written notice to
Agent if (a) such property shall be damaged or destroyed to the extent of 25% or
more by fire or other casualty and Owner elects not to restore or repair such
property or (b) there shall be a condemnation or deed in lieu thereof of 25% or
more of such property.
5.6 Agent acknowledges and agrees that Owner shall have the right to
subordinate and/or assign this agreement in connection with the Loan Documents.
Agent further agrees to execute such further instruments as Owner or Lender
deems necessary to effectuate such subordination, provided that in the event
Lender becomes entitled to possession of the Premises, the Lender shall be
entitled, at its option, to retain Agent to manage the Premises, in which case
the Agent shall be entitled to the compensation set forth in this Agreement
during all periods in which Agent is providing services to the Premises for the
Lender. Moreover, notwithstanding anything to the contrary contained herein,
for so long as any amounts remain outstanding under the Loan Documents, (i) this
Agreement and all fees payable by Owner hereunder shall be subject to and
subordinate to any mortgage liens on the Premises established by the Loan
Documents and (ii) Agent shall comply with any and all applicable provisions of
the Loan Documents and in the event there is a conflict between the terms of
this Agreement and the terms of the Loan Documents, the Loan Documents shall
control.
5.7 Upon any termination of this Agreement pursuant to the provisions of
this Article V, Owner shall remain obligated to pay to Agent fees and other
amounts due to Agent hereunder which accrued prior to the effective date of such
termination. Nothing contained in this Section 5.7 shall be deemed to waive,
affect or impair (a) Owner's rights to seek recourse against Agent for damages
or other relief in the event of the termination of this Agreement by Owner
pursuant to Section 5.3, 5.4 or 5.5 hereof, and (b) Agent's right to seek
recourse against Owner for damages or other relief in the event of the
termination of this Agreement by Agent pursuant to Section 5.2 hereof.
5.8 Upon the expiration or earlier termination of this Agreement, Agent
shall forthwith surrender and deliver to Owner any space in the Premises
occupied by Agent and shall make delivery to Owner or to Owner's designee or
agent, at Agent's home or regional offices or at its offices at the Premises, of
the following:
(a) a final accounting, reflecting the balance of income from and
expenses of the Premises as at the date of expiration or termination of this
Agreement;
(b) any funds of Owner or tenant security or advance rent deposits,
or both, held by agent with respect to the Premises; and
(c) all Confidential Information (in whatever medium stored) and all
other records, contracts, leases, ground leases, reciprocal easement agreements,
receipts for deposits, unpaid bills, lease summaries, canceled checks, bank
statements, paid bills and all other records, papers and documents and any
microfilm and/or computer disk of any of the foregoing which relate to the
Premises and the operation, maintenance, management and leasing thereof; all
such data, information and documents being at all times the property of Owner.
In addition, Agent shall furnish all such information and take all such
action as Owner shall reasonably require to effectuate an orderly and systematic
termination of Agent's duties and activities under this Agreement.
5.9 This Agreement shall terminate at the election of Owner as to any of
the properties set forth in Exhibit A upon thirty (30) days written notice to
the Agent if such properties are sold by Owner to a non-affiliated third party
purchaser or (unless the Lender shall otherwise notify the Agent in writing)
automatically if such properties were acquired on foreclosure of a mortgage
encumbering all or a portion of the Premises. In the event such properties are
sold by Owner to a non-affiliated third party purchaser and this Agreement is
not thereby terminated by Owner, the Agent shall have the right to terminate
this Agreement as to such properties upon sixty (60) days prior written notice
which notice must be given within ninety (90) days after the date of such sale
is consummated. If such properties are sold, Agent will not be entitled to
sales commission unless the Agent has been retained by Owner pursuant to a
separate commission arrangement. This Agreement shall remain in full force and
effect as to all properties not terminated pursuant to this Section 5.9.
5.10 The provisions of this Article V shall survive the expiration or
termination of this Agreement.
ARTICLE VI
ASSIGNMENT
6.1 Agent, except for a transfer to a "Permissible Transferee", shall not
assign its rights or obligations under this Agreement, either directly or by a
transfer of shares of beneficial interest or voting control either voluntarily
or by operation of law. Any change other than to a "Permissible Transferee"
shall constitute a breach of this Agreement by Agent and Owner may terminate
this Agreement in accordance with Section 5.5 A "Permissible Transferee" shall
mean any corporation, partnership, trust or other entity, more than 50% of the
outstanding stock of which, or more than 50% interest in which, is owned or
controlled by Agent.
6.2 In the event of a sale or conveyance of any of the Premises, Owner
shall have the right to cancel or assign this Agreement and its rights and
obligations hereunder to any person or entity to whom or which Owner sells or
conveys such property or properties. Upon such assignment, Owner shall be
relieved of its obligations under this Agreement with respect to such property
or properties that accrue from and after the date of such assignment, provided
that the assignee shall assume the obligations of Owner under this Agreement and
shall agree to perform and be bound by all of the terms and provisions hereof,
effective from and after the date of such assignment and an executed copy of
such assumption agreement shall be delivered to Agent. Agent shall not be
entitled to a "termination fee" in connection with an assignment or cancellation
as set forth in this Section 6.2, but otherwise shall be entitled to collect
from Owner such fees and expenses, including termination and/or relocation
expenses of Agent's full-time employees, if any, as Agent has earned pursuant to
this Agreement prior to the date of such assignment or cancellation.
ARTICLE VII
MISCELLANEOUS
7.1 Owner's representative ("Owner's Representative"), whose name and
address is set forth in paragraph 2 of Exhibit A attached hereto, shall be the
duly authorized representative of Owner for the purpose of this Agreement. Any
statement, notice, recommendation, request, demand, consent or approval under
this Agreement shall be in writing and shall be deemed given by Owner when made
or given by Owner's Representative or any officer of Owner and delivered
personally to an officer of Agent or mailed, addressed to Agent, at his address
first above set forth. Either party may, by notice to the other, designate a
different address for the receipt of the aforementioned communications and Owner
may, by notice to Agent, from time to time, designate a different Owner's
Representative to act as such. All communications mailed by one party to
another shall be sent by first class mail, postage prepaid or Express Mail
Service, or other commercial overnight delivery service, except that notices of
default shall be sent by registered or certified mail, return receipt requested,
postage prepaid, Express Mail Service or other commercial overnight delivery
service with receipt acknowledged in writing. Communications so mailed shall be
deemed given or served on the date mailed. Notwithstanding the foregoing, any
notices, requests, consents, approvals and other communications, other than
notices of default or approvals of annual budgets, and other communications,
approvals or agreements which are required by the express terms of other
provisions of this Agreement to be in writing, may be given by telegram,
telephonic communication or orally in person. Agent and Owner shall furnish to
the other the names and telephone numbers of one or more persons who can be
reached at any time during the term of this Agreement in the event of an
emergency.
7.2 Agent shall, at its own expense, qualify to do business and obtain and
maintain such licenses as may be required for the performance by Agent of its
services.
7.3 Each provision of this Agreement is intended to be severable. If any
term or provision hereof shall be determined by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such provision
shall be severed from this Agreement and shall not affect the validity of the
remainder of this Agreement.
7.4 In the event either of the parties hereto shall institute any action
or proceeding against the other party relating to this Agreement, the
unsuccessful party in such action or proceeding shall reimburse the successful
party for its disbursements incurred in connection therewith and for its
reasonable attorney's fees as fixed by the court.
7.5 No consent or waiver, express or implied, by either party hereto or of
any breach or default by the other party in the performance by the other of its
obligations hereunder shall be valid unless in writing, and no such consent or
waiver shall be deemed or construed to be a consent or waiver to or of any other
breach or default in the performance by such other party of the same or any
other obligations of such party hereunder. Failure on the part of either party
to complain of any act or failure to act of the other party or to declare the
other party in default, irrespective of how long such failure continues, shall
not constitute a waiver by such party of its rights hereunder. The granting of
any consent or approval in any one instance by or on behalf of Owner shall not
be construed to waive or limit the need for such consent in any other or
subsequent instance.
7.6 The venue of any action or proceeding brought by either party against
the other arising out of this Agreement shall be in the state or federal courts
of the Commonwealth of Pennsylvania.
7.7 This Agreement may not be changed or modified except by an agreement
in writing executed by each of the parties hereto and consented to by the
Lender. This Agreement constitutes all of the understandings and agreements
between the parties in connection with the agency herein created.
7.8 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns, but shall not inure
to the benefit of, or be enforceable by, any other person or entity.
7.9 Nothing contained in this Agreement shall be construed as making Owner
and gent partners or joint ventures or as making either of such parties liable
for the debts or obligations of the other, except as in this Agreement is
expressly provided.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CROWN AMERICAN ACQUISITION
ASSOCIATES I, L.P.
(Owner)
BY: CROWN AMERICAN ACQUISITION
ASSOCIATES I
as sole general partner
By: /s/ Ronald P. Rusinak
Name: Ronald P. Rusinak
Title: Vice President
CROWN AMERICAN PROPERTIES, L.P.
(Agent)
BY: CROWN AMERICAN REALTY TRUST,
as sole general partner
By: /s/ Ronald P. Rusinak
Name: Ronald P. Rusinak
Title: Vice President
EXHIBIT A
1. Premises (1.1):
a. Valley Mall
Hagerstown, Maryland.
2. Name and Address of Owner's Representative (7.1):
Frank J. Pasquerilla
Pasquerilla Plaza
Johnstown, PA 15907.
3. Limit of amount authorized for non-emergency purchases and repairs (2.1(a)
and (c)):
$50,000.00.
4. Name of Banks (2.1(g)):
PNC Bank, N.A.
5. Management Fees (4.1):
Owner agrees to pay Agent as compensation for its management services
hereunder an amount equal to 5% of the amounts set forth in Section 4.1.
Such management fee shall be payable monthly based on the income earned for
the categories described in Section 4.1, computed in accordance with GAAP.
Agent shall be entitled to receive the management fee on the pro rata
portion of percentage rents received by Owner after the termination of this
Agreement but applicable to time periods prior to the termination of this
Agreement based upon the actual number of days lapsed divided by 365.
6. Legal and Tenant Coordination Expenses:
Owner agrees to pay Agent, to defray in-house legal expenses and tenant
coordination expenses (a) with respect to each new lease and each lease
renewal of mall shops and free-standing buildings (other than a lease
renewal or extension resulting from the exercise of an option contained in
such lease), an amount equal to the Agent's actual costs of providing such
services, limited however to the annual amount which is capitalized as
tenant allowance costs under the Owner's customary accounting practices as
Agent and Owner shall mutually agree and as recorded in the Owner's audited
annual financial statements. Such fees shall be payable monthly in arrears
using estimated fees per square foot, based on the estimated annual fee;
the monthly estimated fees shall be adjusted to a final actual amount
within 90 days after the Owner's fiscal year end. Agent and Owner shall
use their best efforts to estimate the monthly fee per square foot and
shall adjust the amount periodically during the year as mutually agreed
upon.
7. Leasing and Land Sale Fees:
(i) Leasing Commission:
Agent shall be entitled to commissions for leases secured, in addition
to
other fees and compensation provided in this Agreement, equal to the
Agent's actual costs of providing leasing services related to permanent
leases (those with an initial term in excess of one year), limited however
to the aggregate amount which is capitalized as lease acquisition costs
under the Owner's customary accounting practices as Agent and Owner shall
mutually agree and as recorded in the Owner's audited annual financial
statements. Such fees shall be payable monthly in arrears using estimated
fees per square foot, based on the estimated annual fee; the monthly
estimated fees shall be adjusted to a final actual amount within 90 days
after the Owner's fiscal year end. Agent and Owner shall use their best
efforts to estimate the monthly fee per square foot and shall adjust the
amount periodically during the year as mutually agreed upon.
(ii) Brokerage Commissions:
Owner and Agent acknowledge that some leasing and land sale
transactions will involve the use of an independent real estate broker or
real estate sales agent, who will be paid a commission for introducing and
bringing a prospective tenant or purchaser to the Premises. Agent may
utilize brokers in connection with carrying out its leasing and land sale
activities, and shall be reimbursed by Owner for the cost of those
Brokerage Commissions in the following circumstances:
(a) Agent was required to recognize the broker or sales agent as the
representative of the prospective tenant or purchaser and was not
allowed or permitted the opportunity to contact or negotiate with
the tenant or purchaser except through the broker or sales agent,
and this fact was disclosed to Owner.
(b) Agent disclosed to Owner the existence of the broker or sales
agent and the brokerage fee at the time the proposed leasing or
land sale transaction was submitted to Owner for approval.
Except as provided in (a) and (b) above, Agent shall assume the sole cost and
responsibility for broker commissions.
(iii) Land Sale Commission:
For services provided pursuant to Section 2.7(e), Owner shall pay the
Agent a sales commission equal to fifteen percent (15%) of the adjusted
sales price ("Sales Commission"), as compensation for overhead associated
with the services of certain employees of Agent. For purposes of the
foregoing "adjusted sales price" shall mean the gross proceeds payable to
Owner less reasonable and necessary development costs paid by Owner in
connection with the transfer. One-half (1/2) of the Sales Commission shall
be due and payable to Agent at the time a mutually binding Agreement of
Sale with respect to any Sale Property is fully-executed, with the
computation of such amount being based on the gross proceeds payable to
Owner. The balance of the Sales Commission shall be paid to Agent at the
time of closing of any such sale.
8. Excluded Services:
Notwithstanding anything to the contrary contained herein, the parties
acknowledge that it is not within the contemplation of this Agreement or
the fee structure included herein that the Agent perform any services with
respect to the following: any "due diligence" or similar efforts relating
to any financing, refinancing or sale or disposition of the Premises;
zoning compliance of the Premises; performing or supervising (including
tenant room build-outs or remodeling) any extensive alteration or
renovation to the Premises; asbestos and/or other environmental studies and
any related abatement or remediation activities for any tenant premises,
site acquisitions of additional ground for the expansion of the Premises;
reconstruction after casualty or condemnation; leasing, management, or
construction relating to any proposed or implemented expansion of the
Premises or work generally classified as "development" work in connection
with the same; renewals or renegation of leases or other agreements with
department stores if such involves substantial changes from existing
documents (including, without limitation, negotiation of new leases,
renewal leases, operating covenants, renovation provisions, expansion
rights, and like matters); or replacement of department stores tenancies.
Owner shall reimburse Agent for all such services rendered equal to the
Agent's actual costs of providing such services, limited however to the
annual amount which is capitalized as tenant allowance or construction
costs under the Owner's customary accounting practices as Agent and Owner
shall mutually agree and as recorded in the Owner's audited annual
financial statements. Such fees shall be payable monthly in arrears using
estimated based on the estimated annual fee; the monthly estimated fees
shall be adjusted to a final actual amount within 90 days after the Owner's
fiscal year end. Agent and Owner shall use their best efforts to estimate
the monthly fees and shall adjust the amount periodically during the year
as mutually agreed upon.
9. Other Requested Services:
If Owner requests Agent to provide its own personnel for non-routine
services which Agent is not obligated elsewhere in this Agreement to
perform the compensation for which is not provided for hereinabove,
unless Owner and Agent otherwise agree to an acceptable fee for such
services, Owner shall pay Agent an amount equal to two and one-half
(2 1/2) times the actual base cost of Agent's departmental personnel,
as computed by Agent, for their time involved in performing such
requested services, plus reimbursement for any out-of-pocket costs
incurred incident to furnishing such requested services. Owner and
Agent shall agree in advance as to the hourly base cost to be
applicable for the specific services to be provided. Such amount or
amounts shall be payable to Agent monthly within ten (10) days after
Owner's receipt of Agent's statement setting for the amount payable
to Agent.
EXHIBIT B
INTENTIONALLY OMITTED
EXHIBIT C
Leasing Guidelines
Agent shall use a form or forms of lease; or with respect to temporary
tenants and/or short term promotional activities, a form or forms of license
agreement, which have been prepared and submitted to Owner for Owner's prior
review and approval. Agent will negotiate and make modifications to such forms
as directed by Owner, or as necessary or appropriate with respect to the needs
of the particular transactions, utilizing methods and techniques consistent with
prevailing practices employed in management and leasing of shopping centers.
For all agreements, excepting license agreements for temporary tenants
and/or for short term promotion activities, all essential financial and
business terms and provisions of the lease or agreement, including construction
and improvements of the leasehold, shall be presented for Owner's approval.
Tenant-signed leases presented by Agent for Owner's review and execution shall
be consistent with such terms and conditions previously approved by Owner, or
with such deviations or modifications identified for Owner's review. Execution
of tenant-signed leases that are presented by Agent for Owner's signature will
acknowledge Owner's approval of the lease, its form, its terms and provisions.
No lease or other agreement shall be entered into, modified, canceled or
extended if the consent of any mortgagee or ground lessor is required unless
such consent has been obtained. Agent will notify Owner when consent is
required.
EXHIBIT 10.11 (a)
AMENDMENT TO THE
AMENDED AND RESTATED CASH-FLOW SUPPORT AGREEMENT
THIS AMENDMENT TO THE AMENDED AND RESTATED CASH-FLOW SUPPORT AGREEMENT, is
made as of this 3rd day of December, 1997, by and between CROWN INVESTMENTS
TRUST, a Delaware Business Trust (the "Supporting Party"), and CROWN AMERICAN
PROPERTIES, L.P., a Delaware Limited Partnership (the "Operating Partnership")
and CROWN AMERICAN FINANCING PARTNERSHIP, a Delaware General Partnership (the
"Financing Partnership") and together with the Operating Partnership (the
"Partnerships").
WHEREAS, the Supporting Party and the Partnerships previously entered into
an Amended and Restated Cash-Flow Support Agreement, dated as of the 17th day of
August, 1993 ("Agreement").
WHEREAS, the Supporting Party and the Partnerships wish to amend the
Agreement in the manner and to the extent as hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Adjustment of Obligations (Section 4 of the Agreement) shall be
amended by adding the following paragraph to the end thereof:
"b. The amount of the Quarterly Support Amount for any Guaranty
Property shall be reduced by an amount equal to two and one-half percent (2 1/2)
of the gross sales price upon the sale of any outparcel, peripheral land or such
other real estate ("Outparcel") situate at a Guaranty Property ("Quarterly
Support Amount Reduction"), for an annual maximum reduction of ten percent
(10%)."
2. The effective date of this Amendment shall be December 3, 1997.
3. Wilmington Trust Company is executing this Amendment to the Amended
and Restated Cash-Flow Support Agreement solely in its capacity as Trustee of
Crown Investments Trust and, as such, Wilmington Trust Company shall incur no
personal liability in connection herewith.
4. Except as expressly amended herein, the Agreement is hereby ratified
and confirmed and the terms, conditions, agreements, obligations and provisions
thereof are incorporated hereby as if fully set forth herein and the same shall
continue in full force and effect.
5. This Amendment shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, administrators, representatives,
successors, and, to the extent permitted by the terms of the Agreement, their
assignees.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
Address for Notices:
Pasquerilla Plaza CROWN INVESTMENTS TRUST
Johnstown, PA 15907
By: WILMINGTON TRUST COMPANY,
Attn:Frank J. Pasquerilla not in its individual capacity, but
Solely as Trustee
By: /s/ John M. Kriak
Name: John M. Kriak
Title: Vice President
Pasquerilla Plaza CROWN AMERICAN PROPERTIES, L.P.
Johnstown, PA 15907
By: CROWN AMERICAN REALTY
TRUST, Sole General Partner
Attn:John M. Kriak
By: /s/ John M. Kriak
Name: John M. Kriak
Title: Chief Financial Officer
Pasquerilla Plaza CROWN AMERICAN FINANCING PARTNERSHIP
Johnstown, PA 15907
By: CROWN AMERICAN FINANCING
Attn:Frank J. Pasquerilla CORPORATION, Managing
General Partner
By: /s/John M. Kriak
Name: John M. Kriak
Title: Chief Financial Officer
EXHIBIT 10.13
CROWN AMERICAN REALTY TRUST
1993 TRUSTEES' OPTION PLAN
(As amended and restated on December 30, 1997)
The purposes of the 1993 Trustees' Option Plan (as amended and
restated, the "Plan") are to provide for each Trustee of Crown American Realty
Trust (the "REIT") who is not also an employee of the REIT or any of its
subsidiaries (a "non-employee Trustee") to be granted stock options for the
Common Shares of Beneficial Interest, par value $.01 per share, of the REIT (the
"Common Shares") to promote the long-term success of the REIT by creating a
long-term mutuality of interests between the non-employee Trustees and
shareholders of the REIT, to provide an additional inducement for such
non-employee Trustees to remain with the REIT and to provide a means through
which the REIT may attract able persons to serve as Trustees of the REIT.
SECTION 1
Administration
The Plan shall be administered by a Committee (the "Committee")
appointed by the Board of Trustees of the REIT (the "Board") and consisting of
not less than two members of the Board, each of whom at the time of appointment
to the Committee and at all times during service as a member of the Committee
shall be "Non-Employee Directors" as then defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor
Rule. The Committee shall keep records of action taken at its meetings. A
majority of the Committee shall constitute a quorum at any meeting, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all the members of the Committee, shall
be the acts of the Committee.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.
No member of the Board, the Committee or the agents thereof shall be liable for
any action or determination made in good faith with respect to the Plan or any
transaction arising under the Plan.
Notwithstanding the above, the selection of the Trustees to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the vesting
or forfeiture of any stock option, the periods during which any stock option may
be exercised and the term of any stock option shall be as hereinafter provided,
and the Committee shall have no discretion as to such matters.
SECTION 2
Shares Available under the Plan
The aggregate number of shares as to which grants of stock options may
be made under the Plan, effective from the date of amendment and restatement of
the Plan, is 125,000 Common Shares, subject to adjustment and substitution as
set forth in Section 5. If any stock option granted under the Plan is canceled
by mutual consent, is forfeited or terminates or expires for any reason without
having been exercised in full, the number of shares subject thereto shall again
be available for purposes of the Plan. The shares which may be issued or
delivered under the Plan may be either authorized but unissued shares or
reacquired shares or partly each, as shall be determined from time to time by
the Board. If the number of shares then remaining available for the grant of
stock options is not sufficient for each non-employee Trustee entitled to
receive the same to be granted an option for the number of shares, to which such
non-employee Trustee is entitled (or the number of adjusted or substituted
shares pursuant to Section 5), then each non-employee Trustee shall be granted
an option for a number of whole shares equal to the number of shares then
remaining times a percentage obtained by dividing the number of option shares to
which such non-employee Trustee is entitled by the total number of option shares
to be granted to all non-employee Trustees at such time, disregarding any
fractions of a share. Notwithstanding anything in the Plan to the contrary, no
stock option shall be granted to a non-employee Trustee that could cause the
REIT to fail to qualify as a real estate investment trust for federal income tax
purposes.
SECTION 3
Grant of Stock Options
On the date upon which a new non-employee Trustee is elected or
appointed to the Board, such non-employee Trustee, and on each December 31, each
non-employee Trustee then on the Board, shall automatically and without further
action by the Board or the Committee be granted a "nonstatutory stock option"
(i.e., a stock option which does not qualify under Sections 422 or 423 of the
Internal Revenue Code of 1986 (the "Code")) to purchase 5,000 Common Shares,
subject to adjustment and substitution as set forth in Section 5.
SECTION 4
Terms and Conditions of Stock Options
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be one hundred percent (100%) of the fair market
value per Common Share on the date of the grant of such stock option
pursuant to the Plan, determined as provided in Section 4(G).
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order), which may include cash forwarded through
a broker or other agent-sponsored exercise or financing program; provided,
however, that in lieu of such cash the person exercising the stock option
may pay the option price in whole or in part by delivering to the REIT
Common Shares having a fair market value on the date of exercise of the
stock option, determined as provided in Section 4(G), equal to the option
price for the shares being purchased; except that (i) any portion of the
option price representing a fraction of a share shall in any event be paid
in cash and (ii) no Common Shares which have been held for less than one
year may be delivered in payment of the option price of a stock option. If
the person exercising a stock option participates in a broker or other
agent-sponsored exercise or financing program, the REIT will cooperate with
all reasonable procedures of the broker or other agent to permit
participation by the person exercising the stock option in the exercise or
financing program. Notwithstanding any procedure of the broker or other
agent-sponsored exercise or financing program, if the option price is paid
in cash, the exercise of the stock option shall not be deemed to occur and
no Common Shares will be issued or delivered until the REIT has received
full payment in cash (including check, bank draft or money order) for the
option price from the broker or other agent. The date of exercise of a
stock option shall be determined under procedures established by the
Committee, and as of the date of exercise the person exercising the stock
option shall be considered for all purposes to be the owner of the shares
with respect to which the stock option has been exercised. Payment of the
option price with shares shall not increase the number of Common Shares
which may be issued or delivered under the Plan as provided in Section 2.
(C) The stock options granted under the Plan shall vest and become
exercisable immediately upon grant and, subject to the terms of Section
4(E) providing for earlier termination of a stock option, no stock option
shall be exercisable after the expiration of eleven years from the date of
grant. A stock option to the extent exercisable at any time may be
exercised in whole or in part.
(D) No stock option shall be transferable by the grantee otherwise
than by Will or, if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death.
All stock options shall be exercisable during the lifetime of the grantee
only by the grantee or the grantee's guardian or legal representative.
(E) If a grantee ceases to be a Trustee of the REIT, any outstanding
stock options held by the grantee shall terminate according to the
following provisions:
(i) If a grantee ceases to be a non-employee Trustee of the REIT
for any reason other than death or disability, any then outstanding
stock option held by such grantee shall be exercisable by the grantee
at any time prior to the expiration date of such stock option or
within 90 days after the date of leaving the Board, whichever is the
shorter period;
(ii) If a grantee ceases to be a non-employee Trustee due to
disability (within the meaning of Section 22(e)(3) of the Code), any
then outstanding stock option held by such grantee shall be
exercisable by the grantee at any time prior to the expiration date of
such stock option or within one year after the date of leaving the
Board, whichever is the shorter period; and
(iii) Following the death of a grantee, whether during service
as a non-employee Trustee of the REIT or thereafter, any outstanding
stock option held by the grantee at the time of death shall be
exercisable by the person entitled to do so under the Will of the
grantee, or, if the grantee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the legal
representative of the grantee, at any time prior to one year after the
date of death.
(F) All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the REIT by the
Chief Executive Officer (if other than the President), the President or any
Vice President and by the grantee.
(G) Fair market value of the Common Shares shall be the mean between
the following prices, as applicable, for the date as of which fair market
value is to be determined as quoted in The Wall Street Journal (or in such
other reliable publication as the Committee, in its discretion, may
determine to rely upon): (a) if the Common Shares are listed on the New
York Stock Exchange, the highest and lowest sales prices per Common Share
as quoted in the NYSE-Composite Transactions listing for such date, (b) if
the Common Shares are not listed on such exchange, the highest and lowest
sales prices per Common Share for such date on (or on any composite index
including) the principal United States securities exchange registered under
the 1934 Act on which the Common Shares are listed, or (c) if the Common
Shares are not listed on any such exchange, the highest and lowest sales
prices per Common Share for such date on the National Association of
Securities Dealers Automated Quotations System or any successor system then
in use ("NASDAQ"). If there are no such sale price quotations for the date
as of which fair market value is to be determined but there are such sale
price quotations within a reasonable period both before and after such
date, then fair market value shall be determined by taking a weighted
average of the means between the highest and lowest sales prices per Common
Share as so quoted on the nearest date before and the nearest date after
the date as of which fair market value is to be determined. The average
should be weighted inversely by the respective numbers of trading days
between the selling dates and the date as of which fair market value is to
be determined. If there are no such sale price quotations on or within a
reasonable period both before and after the date as of which fair market
value is to be determined, then fair market value of the Common Shares
shall be the mean between the bona fide bid and asked prices per Common
Share as so quoted for such date on NASDAQ, or if none, the weighted
average of the means between such bona fide bid and asked prices on the
nearest trading date before and the nearest trading date after the date as
of which fair market value is to be determined, if both such dates are
within a reasonable period. The average is to be determined in the manner
described above in this Section 4(G). If the fair market value of the
Common Shares cannot be determined on the basis previously set forth in
this Section 4(G) for the date as of which fair market value is to be
determined, the Committee shall in good faith determine the fair market
value of the Common Shares on such date. Fair market value shall be
determined without regard to any restriction other than a restriction
which, by its terms, will never lapse.
(H) The obligation of the REIT to issue or deliver Common Shares
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to
such shares, if deemed necessary or appropriate by counsel for the REIT,
(ii) the condition that the shares shall have been listed (or authorized
for listing upon official notice of issuance) upon each stock exchange, if
any, on which the Common Shares may then be listed and (iii) all other
applicable laws, regulations, rules and orders which may then be in effect.
Subject to the foregoing provisions of this Section 4 and the other
provisions of the Plan, any stock option granted under the Plan may be subject
to such restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Committee and set forth in the agreement
referred to in Section 4(F), or an amendment thereto.
SECTION 5
Adjustment and Substitution of Shares
If a dividend or other distribution payable in Common Shares shall be
declared upon the Common Shares, the number of Common Shares set forth in
Section 2, the number of Common Shares then subject to any outstanding stock
options and the number of Common Shares which may be issued or delivered under
the Plan but are not then subject to outstanding stock options shall be adjusted
by adding thereto the number of Common Shares which would have been
distributable thereon if such shares had been outstanding on the date fixed for
determining the shareholders entitled to receive such stock dividend or
distribution.
If the outstanding Common Shares shall be changed into or exchangeable
for a different number or kind of shares of stock or other securities of the
REIT or another corporation, whether through reorganization, reclassification,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each Common Share set forth
in Section 2, for each Common Share subject to any then outstanding stock
option, and for each Common Share which may be issued or delivered under the
Plan but which is not then subject to any outstanding stock option, the number
and kind of shares of stock or other securities into which each outstanding
Common Share shall be so changed or for which each such share shall be
exchangeable.
In case of any adjustment or substitution as provided for in this
Section 5, the aggregate option price for all shares subject to each then
outstanding stock option prior to such adjustment or substitution shall be the
aggregate option price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares. Any new option price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
If the outstanding Common Shares shall be changed in value by reason
of spin-off, split-off, or dividend in partial liquidation, dividend in property
other than cash or extraordinary distribution to holders of the Common Shares,
the Committee shall make any adjustments to any then outstanding stock option
which it determines are equitably required to prevent dilution or enlargement of
the rights of grantees which would otherwise result from any such transaction.
No adjustment or substitution provided for in this Section 5 shall
require the REIT to issue or deliver or sell a fraction of a share or other
security. Accordingly, all fractional shares or other securities which result
from any such adjustment or substitution shall be eliminated and not carried
forward to any subsequent adjustment or substitution.
Except as provided in this Section 5, a grantee shall have no rights
by reason of any issue by the REIT of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payments of any stock dividends or any other increase
or decrease in the number of shares of stock of any class.
SECTION 6
Effect of the Plan on the Rights of REIT and Shareholders
Nothing in the Plan, in any stock option granted under the Plan, or in
any stock option agreement shall confer any right to any person to continue as a
Trustee of the REIT or interfere in any way with the rights of the shareholders
of the REIT or the Board to elect and remove Trustees.
SECTION 7
Amendment and Termination
The right to amend the Plan at any time and from time to time and the
right to terminate the Plan at any time are hereby specifically reserved to the
Board; provided, that no such termination shall terminate any outstanding stock
options granted under the Plan; and provided, further, that no amendment of the
Plan shall (a) be made without shareholder approval if shareholder approval of
the amendment is at the time required for stock options under the Plan to
qualify for the exemption from Section 16(b) of the 1934 Act provided by Rule
16b-3 or by the rules of the New York Stock Exchange or any other stock exchange
on which the Common Shares may then be listed, (b) amend more than once every
six months the provisions of the Plan relating to the selection of the Trustees
to whom stock options are to be granted, the timing of such issuance or grants,
the number of shares subject to any issuance or stock option, the exercise price
of any stock option, the periods during which any stock option may be exercised
and the term of any stock option other than to comport with changes in the Code
or the rules and regulations thereunder or (c) otherwise amend the Plan in any
manner that would cause stock options under the Plan not to qualify for the
exemption provided by Rule 16b-3. No amendment or termination of the Plan
shall, without the written consent of the holder of a stock option theretofore
awarded under the Plan, adversely affect the rights of such holder with respect
thereto.
Notwithstanding anything contained in the preceding paragraph or any
other provision of the Plan or any stock option agreement, the Board shall have
the power to amend the Plan in any manner deemed necessary or advisable for
stock options granted under the Plan to qualify for the exemption provided by
Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of
the 1934 Act), and any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding stock options
theretofore granted under the Plan notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability of such
option, execute a conforming amendment in the form prescribed by the Committee
to the stock option agreement referred to in Section 4(F) within such reasonable
time as the Committee shall specify in such request.
SECTION 8
Effective Date and Duration of Plan
The effective date and date of adoption of the amendment and
restatement of the Plan shall be December 30, 1997, the date of the amendment
and restatement of the Plan by the Board. No stock option may be granted under
the Plan subsequent to January 1, 2008.
EXHIBIT 21
CROWN AMERICAN REALTY TRUST
LIST OF SUBISIDIARIES AS OF DECEMBER 31, 1997
Following are the subsidiaries of Crown American Realty Trust and of Crown
American Properties, L.P. as of December 31, 1997 together with their ownership
interests as of that date.
Crown American Realty Trust:
Subsidiary: Ownership Interest
Crown American Properties, L.P. 73.72% common interest
100.00% preferred interest
Crown American Financing Corporation 100.00%
Crown Wyoming Associates 100.00%
Crown Lycoming Service Associates 100.00%
Crown American WL Associates 100.00%
Crown American Acquisition Associates I 100.00%
Crown American Acquisition Associates II 100.00%
Crown American Acquisition Associates III 100.00%
Crown American Acquisition Associates IV 100.00%
Crown American Acquisition Associates V 100.00%
Crown American Acquisition Associates VI 100.00%
Crown American Acquisition Associates VII 100.00%
Crown American Acquisition Associates VIII 100.00%
Crown American Acquisition Associates IX 100.00%
Crown American Acquisition Associates X 100.00%
Crown American Properties, L.P.
Subsidiary Ownership Interest
Crown American Financing Partnership 99.5% *
Crown Wyoming Associates 99.5% *
Crown American WL Associates, L.P. 99.5% *
Crown American Acquisition Associates I, L.P. 99.5% *
Crown American Acquisition Associates II, L.P. 99.5% *
Crown American Acquisition Associates III, L.P. 99.5% *
Crown American Acquisition Associates IV, L.P. 99.5% *
Crown American Acquisition Associates V, L.P. 99.5% *
Crown American Acquisition Associates VI, L.P. 99.5% *
Crown American Acquisition Associates VII, L.P. 99.5% *
Crown American Acquisition Associates VIII, L.P. 99.5% *
Crown American Acquisition Associates IX, L.P. 99.5% *
Crown American Acquisition Associates X, L.P. 99.5% *
* The remaining 0.5% interest in each of these entities is held by Crown
American Realty Trust or by one of its wholly-owned subsidiaries.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 25, 1998, included in the Crown American
Realty Trust 1997 Form 10-K, into Crown American Realty Trust's previously
filed Registration Statements on Form S-3 dated August 18, 1994, Form S-3 dated
May 4, 1995 and Form S-3 dated June 27, 1997.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 6, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Clifford A. Barton, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 25, 1998 /s/ Clifford A. Barton
Date (Name) Clifford A. Barton
Title: Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Donald F. Mazziotti, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 25, 1998 /s/ Donald F. Mazziotti
Date (Name) Donald F. Mazziotti
Title: Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Zachary L. Solomon, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 25, 1998 /s/ Zachary L. Solomon
Date (Name) Zachary L. Solomon
Title: Trustee
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Margaret T. Monaco, Trustee of
Crown American Realty Trust (the "Company") whose signature appears below
constitutes and appoints Terry L. Stevens and Ronald P. Rusinak, and each of
them, her true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for her and in her name, place and stead, in any
and all capacities, to sign the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes ass he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
February 25, 1998 /s/ Margaret T. Monaco
Date (Name) Margaret T. Monaco
Title: Trustee
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, February 25, 1998
CROWN AMERICAN REALTY TRUST LED
ENCLOSED MALL PEER GROUP IN TOTAL 1997 SHAREHOLDER RETURNS
FOURTH QUARTER CORE MALL OPERATING RESULTS ROSE 8.6 PERCENT
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the fourth quarter and for the year ended December 31, 1997. The Board of
Trustees also declared regular quarterly dividends on its common and senior
preferred shares.
_______________________________
"Total leasing results for 1997 were a Company record with 748,000 square
feet of mall shop space leased" stated Crown American Realty Trust President,
Mark E. Pasquerilla. "Our strong leasing performance, our successful preferred
share offering completed in July, the 1.2 million common share buyback program,
and the new financial partnership with GECC all contributed to investor
confidence in Crown's long-term prospects. The result was 34.8% in total
shareholder return for 1997, the highest in the enclosed mall peer group."
Pasquerilla continued, "FFO (Funds From Operations) contributed from our
`core' mall operations was up 8.6 percent in the fourth quarter and 3.4 percent
for the full year compared to the corresponding periods of 1996. Core mall
operations include minimum, percentage and straight-line rents, net mall
operating costs (after tenant recoveries), temporary and promotional leasing,
and miscellaneous mall and net utility income. Fourth quarter results were
further enhanced by the acquisition of Valley Mall in Hagerstown, Maryland, in
mid-November."
"FFO per share for the fourth quarter of 1997 was $0.36, which slightly
exceeded analysts' expectations. This compares to $0.37 per share for the fourth
quarter of 1996. This $0.01 per share decline was caused by high non-recurring
lease buyout income in the fourth quarter of 1996 and the temporary dilutive
impact of the July 1997 preferred share offering completed in July 1997, which
offset the positive mall operating results."
"The fundamental operating trends in the portfolio continue to be
positive," Pasquerilla continued. "Comparable small shop sales increased by 5.1
percent. Annualized revenues from new and renewal signed small shop leases
during 1997 were $14.9 million, 75 percent higher than 1996. Also, in 1997, we
signed theater and freestanding leases having annual revenues of $2.7 million.
Based on these trends, we expect modest growth in FFO per share in 1998 compared
to 1997. The 1998 FFO growth should be concentrated in the second half when
many of the new tenants open their stores. The expected increase in 1998 FFO
should be the first increase we have had during the last three years when our
malls have been undergoing a positive transformation of anchor enhancements and
improved quality of mall shop tenants."
Pasquerilla concluded, "Management continues to focus on the positive
transformation of its existing portfolio. The positive momentum that we have
achieved is expediting the attainment of our internal growth objectives - to
increase mall shop occupancy while increasing average base rents. Mall shop
occupancy increased in 1997 and is expected to increase again in 1998. With the
completion of the preferred share offering in July of this year, the Company has
reduced its debt leverage. The new partnership with GECC provided the company
with $150 million in credit lines for acquisitions and general working capital
purposes, thus positioning the Company to pursue additional external growth
opportunities. We have already completed one accretive mall acquisition and are
actively pursuing other mall acquisitions. In addition, we are working on a
planned early refinancing of our $280 million REMIC and other debt in mid-1998
to take advantage of the favorable rate environment and to provide further
financial flexibility and funds for future expansions and acquisitions."
Dividend Information
The Board of Trustees declared regular quarterly dividends of $.20 per
common share and $1.375 per senior preferred share. Both dividends are payable
March 20, 1998 to shareholders of record on March 9, 1998.
Financial Information - Fourth Quarter
For the quarter ended December 31, 1997, the Company reports that Funds
from Operations (FFO) allocable to common shares was $9.5 million, or $0.36 per
common share, compared with $10.3 million, or $0.37 per common share, for the
fourth quarter of 1996. During the fourth quarter, FFO from core mall
operations, excluding the recently acquired Valley Mall, increased by $0.06 per
share. This increase was offset by $0.03 in lower lease buyout income, $0.02 in
higher net general and administrative expenses, $0.01 per share in lower gain on
outparcel land sales, $0.01 per share in higher cash flow support, and $0.02
from the various temporary net dilutive effects of the preferred share offering
completed in July 1997. The $0.02 per share net dilutive impact of the
preferred reflects the $3.4 million in preferred dividends, offset by $1.6
million lower interest expense from the $58.3 million in debt paid-down from the
preferred share proceeds and from interest income on temporary short-term
investments, mitigated by $0.5 million contribution from Valley Mall purchased
with preferred share proceeds and by lower average common shares outstanding due
to the common share buyback program also funded from the preferred share
proceeds. Through December 31, 1997, the Company had acquired 1.25 million
common shares under the previously announced buyback program; the Board of
Trustees has authorized the repurchase of up to 2.5 million common shares.
Total revenues for the fourth quarter were $38.4 million, as compared to
$37.8 for the fourth quarter of 1996. This $0.6 million increase is primarily
due to $0.7 million higher mall shop base and percentage rents, $0.3 million in
higher temporary and seasonal leasing income, $0.7 million in total revenues
from Valley Mall, offset by $1.0 million in lower lease buyout income (included
in minimum rent) and $0.1 million in lower anchor base and percentage rents.
For the fourth quarter of 1997, the Company achieved net income of $3.5
million. After deducting preferred dividends, there was $0.1 million net income
allocable to common shares, or $0.00 per share. This compares to $2.4 million
net income allocable to common shares, or $0.09 per share, in the fourth quarter
of 1996.
Financial Information - Twelve Months
For the year ended December 31, 1997, FFO allocable to common shares was
$31.2 million or $1.15 per common share, compared to $36.1 million, or $1.31 per
common share, in 1996. FFO per share from core mall operations was $0.08 higher
than 1996. However, this increase was offset by $0.06 from the various
temporary net dilutive effects of the July 1997 preferred share offering, $0.06
from lower lease buyout income, $0.06 from lower gain on outparcel land sales,
and $0.06 from a combination of higher net general and administrative expenses,
higher interest expense, higher earned cash flow support, lower fee income, and
lower business interruption insurance income.
Total 1997 revenues were $131.0 million compared to $134.0 million in 1996.
Contributing to the decrease in revenues were: $0.8 million lower business
interruption insurance, $0.6 lower cost recovery income due to lower recoverable
costs at the properties, $2.3 million lower lease buyout income due mainly to
two Kmart anchor lease buyouts in the third and fourth quarters of 1996, $0.2
million lower small shop base and percentage rents due to lower occupancy
earlier in the year partially offset by higher average base rent per foot, $0.8
million lower anchor base and percentage rents from higher anchor vacancies in
1997, and $0.4 million lower fees and commissions from sales of non-Company
properties (included in miscellaneous income). Offsetting these decreases were:
$0.8 million in higher temporary and promotional income, $0.2 million higher net
utility income, $0.5 million higher straight-line rental income, and $0.7
million in revenues from Valley Mall purchased in mid November 1997. Of the
total $3.0 million decrease in revenues for 1997, $2.5 million occurred in the
first six months.
For the year ended December 31, 1997, the Company had net income of $1.9
million. After deducting preferred dividends, there was a net loss allocable to
common shares of $4.7 million, or $0.17 per common share, compared to $5.8
million net income, or $0.21 per common share, for 1996.
Operating Information
The following operating information excludes the effects of Valley Mall
which was acquired by the Company in mid-November 1997.
During the fourth quarter of 1997, leases for 143,000 square feet of mall
shops were signed resulting in $3.3 million in annual base rental income. This
compares to 91,000 square feet for $1.8 million during the same period in 1996.
A total of 74 leases were signed, which included 24 renewals and 50 new leases.
The average rent for leases signed in the fourth quarter was $23.15 per square
foot, including $25.33 for new leases and $19.46 for renewals.
For all of 1997, leases for 748,000 square feet of mall shops were signed
for $14.9 million in annual base rental income. A total of 371 leases were
signed, including 170 renewals and 201 new leases. Average rent per square foot
for 1997 was $19.98, which includes $22.47 per square foot for new space and
$17.52 per square foot for renewals. The $22.47 average base rent on all new
leases in 1997 was 94% higher than the average base rent for all tenants that
closed in 1997.
The average base rent of the portfolio as of December 31, 1997 was $16.82
per square foot. This is a six- percent increase from $15.85 per square foot as
of December 31, 1996, and the 17th consecutive quarter that average base rent
has increased.
Overall, mall shop occupancy was 79 percent as of December 31, 1997, a
three percent increase from 76 percent as of December 31, 1996. The 79 percent
excludes Valley Mall which was acquired in November 1997.
Mall shop comparable sales for 1997 were $228 per square foot. This is a
5.1 percent increase over the $217 per square foot reported for 1996 and
considerably higher than the 1.5 percent increase for the country as reported by
the International Council of Shopping Centers (ICSC).
Occupancy costs, that is, base rent, percentage rent and expense recoveries
as a percentage of mall shop sales at all properties, were 10.4 percent as of
December 31, 1997, as compared to 10.6 percent as of December 31, 1996. This is
the lowest level since the Company's August 1993 IPO and is a positive indicator
of the affordability of Crown malls for specialty retailers.
Seasonal and promotional leasing income for 1997 amounted to $9.2 million,
a 9.5 percent increase over the $8.4 million recorded in 1996.
Acquisition
In November 1997 the Company acquired the 665,000 square foot Valley Mall
in Hagerstown, Maryland. The $32 million transaction is immediately accretive
to FFO and was funded in cash from proceeds of the preferred share offering.
The purchase also included 31 acres of land adjacent to the mall for future
expansion. The mall is currently anchored by JCPenney and The Bon-Ton who lease
their facilities and Montgomery Ward who owns its location. Valley Mall opened
in 1974 and was extensively renovated in 1995.
Expansions/Renovations
In August, the 2 1/2-year expansion and reconstruction of Logan Valley Mall
(Altoona, Pa.) was completed. The mall had been damaged in a December 1994
fire. The project, whose total cost approximates $68 million, included
expanding a new Kaufmann's location, expanding and renovating Sears, relocating
JCPenney into a new location, building a new eight-screen theater complex,
building a new two-story mall shop area and completely renovating the existing
mall. The mall was also completely remerchandised and currently has mall shop
sales trending toward $300 per square foot with occupancy expected to approach
90 percent this Spring.
A $1.5 million interior renovation at Capital City Mall (Harrisburg, Pa.)
was completed in November. The project included adding skylights and new
ceiling treatments to the common area and food court.
In April, a $4 million renovation was completed at Shenango Valley Mall
(Sharon, Pa.), which included skylights, new ceiling treatments, exterior
enhancements and parking lot improvements.
Work is underway for a major expansion at Patrick Henry Mall (Newport News,
Va.). Belk Stores has begun a major 35,000 square foot expansion of its facility
while The May Department Stores Company is adding a new 140,000 square foot
Hecht's department store. Both department stores will be responsible for the
costs of their own construction. In addition, Dillards will be replacing the
Proffitt's department store and will be opening this Spring. Crown American
will also be adding 29,102 square feet of new mall shop space. The project is
expected to be completed this Fall.
New Department Stores
In 1997, Crown American added three new JCPenney department stores to the
portfolio. They include:
A 145,000 square foot JCPenney opened in January at Logan Valley Mall
(Altoona, Pa.), replacing the former store that was converted into mall
shop space.
A 101,000 square foot JCPenney replaced Leggett's at Francis Scott Key
Mall (Frederick, Md.) in March.
At Chambersburg Mall (Chambersburg, Pa.) a 60,000 square foot JCPenney
replaced Hess's/Bon-Ton in March.
Wal-Mart is more than doubling its size at Martinsburg Mall (Martinsburg,
WV). The existing 90,000 square foot store will grow to a 204,000 square foot
Wal-Mart super-center. Wal-Mart is primarily responsible for the construction
costs of this project.
Construction is underway at Nittany Mall (State College, Pa.) where The May
Department Stores Company is building a 95,000 square foot Kaufmann's department
store that will open in November 1998. The project also includes relocating the
Sears Auto Center.
Multi-Screen Theater and Other Additions
At West Manchester Mall (York, Pa.) construction is continuing on the
addition of a 13 screen Regal Cinema. The 43,400 square foot theater is
expected to open this Summer.
Construction is continuing at Oak Ridge Mall (Oak Ridge, Tenn.) where
Goody's is relocating from an adjacent strip center outside the mall to a
22,000 square foot location inside the mall. Goody's is being relocated in
order to build a new 14-screen 50,000 square foot Cinemark theater.
At Uniontown Mall (Uniontown, Pa.) Teletech Holdings, Inc. has signed a
lease to occupy a 65,000 square foot customer call center in the space that
formerly housed the Hess's/Bon-Ton department store. Teletech will begin
operations this Spring and will employ 600 people.
___________________________________________________
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 majority
owner of Crown American Properties, L.P. (the "Operating Partnership") and Crown
American Properties, L.P. is general partner of Crown American Financing
Partnership and other partnerships, which own, acquire, operate and develop
regional shopping malls. Currently, the Crown American portfolio consists of 26
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 twelve months ended December 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>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FOURTH QUARTER 1997
OTHER FINANCIAL AND OPERATIONAL DATA (unaudited)
Three Months Ended Year Ended
Dec. 31, Dec. 31,
FINANCIAL AND ANALYTICAL 1997 vs. 1996 1997 vs. 1996
DATA:
(inthousands, except as noted)
Total FFO - Incr (decr) - 1997 $ 000 $ per $ 000 $ per
compared to 1996: share share
<S> <C> <C> <C> <C>
Base and percentage rents from anchors $ 511 $ 0.014 $ (1,003) $ (0.027)
and mall shops
Temporary and promotional leasing 304 0.008 807 0.022
income
Mall operating costs, net of tenant 1,062 0.029 2,530 0.068
recovery income
Utility income, miscellaneous mall 116 0.003 103 0.003
income, equity in joint venture
Straight line rental income 145 0.004 532 0.014
Core mall operations--same properties 2,138 0.058 2,969 0.080
Impact of Valley Mall 527 0.014 527 0.014
Core mall operations--all properties 2,665 0.072 3,496 0.094
Lease buyout income (967) (0.026) (2,297) (0.062)
Business interruption insurance from 0 0.000 (830) (0.022)
Logan Valley Fire
Property admin. and general & admin. (823) (0.023) (836) (0.023)
expenses; other
Cash flow support earned 311 0.009 844 0.023
Interest expense, before impact from 63 0.002 (622) (0.017)
preferred shares
Impact of preferred shares on net 1,576 0.044 3,296 0.089
interest expense
Gain on sale of outparcel land (387) (0.010) (2,374) (0.064)
Fee income on sales of non-company (38) (0.001) (388) (0.010)
properties
Impact on per share amount from common 0.015 0.020
share repurchases
Change in FFO before preferred div's 2,400 0.082 289 0.028
and
minority interest
Allocation to preferred shareholders (3,438) (0.096) (6,646) (0.182)
(preferred dividends)
Allocation to minority interest in 222 0.000 1,477 0.000
Operating Partnership
Rounding to whole cents 0.004 (0.006)
Change in FFO allocable to common $ (816) $ (0.010) $ (4,880) $ (0.160)
shareholders
Three Months Ended Year Ended
Dec. 31, Dec. 31,
1997 1996 1997 1996
Funds from Operations ($000 except per
share data):
Net income (loss) $ 3,524 $ 2,363 $ 1,907 $ 5,807
Adjustments:
Minority Interest in Operating 23 806 (1,644) 1,979
Partnership
Gain on asset sales (2,351)
Depreciation and amortization - 10,163 9,420 39,682 36,678
real estate
Operating covenant amortization 657 657 2,630 2,630
Cash flow support amounts 991 680 3,733 2,889
Extraordinary loss on early 968 2,331 718
extinguishment of debt
FFO before allocations to minority 16,326 13,926 48,639 48,350
interest and preferred shares
Less preferred share dividends (3,438) (6,646)
Less portion of FFO allocable to (3,366) (3,588) (10,810) (12,287)
minority interest
FFO allocable to common shares $ 9,522 $ 10,338 $ 31,183 $ 36,063
FFO per common share $ 0.36 $ 0.37 $ 1.15 $ 1.31
Average shares outstanding during the 26,519 27,576 27,228 27,515
period
Shares outstanding at period end 26,475 27,613 26,475 27,613
Avg. partnership units and shares 35,958 37,020 36,667 36,956
outstanding during the period
Partnership units and shares 35,914 37,052 35,914 37,052
outstanding at period end
Components of Minimum Rents:
Anchor - contractual or base rents $ 5,575 $ 5,603 $ 22,213 $ 22,624
Mall shops - contractual or base rents 15,715 14,830 59,648 59,885
Straight line rental income 152 (7) 89 (457)
Ground lease - contractual or base 414 385 1,542 1,540
rents
Lease buyout income 967 182 2,479
Operating covenant amortization (657) (657) (2,630) (2,630)
Total minimum rents $ 21,199 $ 21,121 $ 81,044 $ 83,441
Components of Percentage Rents:
Anchors $ 1,437 $ 1,483 $ 3,454 $ 3,763
Mall shops and ground leases 1,209 1,126 3,090 2,726
Net $ 2,646 $ 2,609 $ 6,544 $ 6,489
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FOURTH QUARTER 1997
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Year Ended
Dec. 31, Dec. 31,
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 $ 25,657 $ 25,253 $ 88,028 $ 91,514
depreciation and amortization
Debt and Interest:
Fixed rate debt at period end $400,054 $ 395,771 $400,054 $395,771
Variable rate debt at period end 141,659 173,014 141,659 173,014
Total debt at period end $541,713 $ 568,785 $541,713 $568,785
Weighted avg. interest rate on fixed 7.7 % 7.8 % 7.7 % 7.9 %
rate debt for the period
Weighted avg. interest rate on 7.7 % 7.7 % 7.9 % 7.9 %
variable rate debt for the period
Total interest expense for period $ 10,199 $ 11,838 $ 42,663 $ 45,337
Amort. of deferred debt cost for 813 774 3,311 3,857
period (incl. in interest exp)
Capitalized interest costs during 481 671 2,463 2,943
period
Capital Expenditures Incurred:
Allowances for anchors tenants $ 90 $ 1,719 $ 3,063 $ 5,162
Allowances for mall shop tenants 3,901 1,320 8,615 7,326
Leasing costs and commissions 246 691 2,398 2,160
Expansions and major renovations, 7,833 6,241 25,076 36,834
including escrow deposits
Acquired properties 31,981 31,981
All other capital expenditures 479 631 1,724 1,766
(included in Other Assets)
Total Capital Expenditures during $ 44,530 $ 10,602 $ 72,857 $ 53,248
the period
OPERATING DATA:
Mall shop GLA at period end
(000 sq. ft) 5,539 5,355
Occupancy percentage at period end 79.0 % 76.0 %
Comp. Store Mall shop sales - 12 $ 228.17 $ 216.90
months ( $ per sq. ft.)
Mall shop occupancy cost percentage 10.4 % 10.6 %
at period end
Average mall shop base rent at $ 16.82 $ 15.85
period end ($ per sq. ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 90 24 372 244
New leases - $ per sq. ft. $ 25.33 $ 33.01 $ 22.47 $ 21.62
Number of new leases signed. 50 27 201 143
Renewal leases - sq. feet (000) 53 67 376 179
Renewal leases - $ per sq. ft. $ 19.46 $ 15.65 $ 17.52 $ 18.10
Number of renewal leases signed. 24 30 170 104
Tenant Allowances for leases signed
during the period:
First Generation Space - per sq. ft. $ 16.40 $ 9.04 $ 32.09 $ 30.82
Second Generation Space - per sq. $ 13.52 $ 2.32 $ 7.89 $ 9.14
ft.
Leases Signed during the period by:
First Generation Space - sq. feet 20 5 95 70
(000)
Second Generation Space - sq. feet 123 86 653 353
(000)
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
TOP 25 REVENUE-GENERATING TENANTS
LISTED IN ORDER OF SQUARE FEET OCCUPIED
FOR THE YEAR ENDED DECEMBER 31, 1997
PERCENT TOTAL
OF NUMBER
TOTAL STORES SQ FT
TENANT NOTES REVENUES OF OCCUPIED
<S> <C> <C> <C> <C>
SEARS, ROEBUCK AND CO. 7.5% 19 1,920,461
J C PENNEY INC. (1) 5.2% 26 1,696,906
THE BON-TON 3.4% 17 1,182,922
MAY DEPARTMENT STORES CO. (2) 1.9% 8 991,380
VALUE CITY DEPARTMENT 1.5% 6 441,665
STORES
THE LIMITED STORES INC. (3) 4.6% 51 382,640
PROFFITTS, INC. 0.9% 5 318,989
WAL-MART STORES 1.3% 3 302,204
K-MART CORPORATION 1.0% 3 259,517
F.W. WOOLWORTH (4) 3.8% 78 249,466
CHARMING SHOPS 1.7% 22 193,843
SHOE SHOW OF ROCKY MT. 1.4% 22 95,824
INC.
HALLMARK-OWNED STORES 1.6% 26 92,794
DEB SHOPS, INC. 1.1% 15 91,447
INTIMATE BRANDS, INC. (5) 1.5% 27 85,462
WALDEN BOOK CO., INC. 1.5% 21 75,509
THE WALL MUSIC INC. 1.5% 20 73,903
PAYLESS SHOESOURCE INC. 1.2% 22 72,222
CONSOLIDATED STORES (6) 1.3% 22 71,247
TANDY CORPORATION 1.0% 25 61,746
MORAY INC. (7) 0.9% 15 58,164
DOLLAR TREE (8) 0.7% 17 42,236
THE GAP 0.9% 10 41,236
GENERAL NUTRITION INC. 0.8% 23 35,312
STERLING 0.8% 18 20,061
TOTALS 49.0% 8,857,156
Notes:
(1) Includes 18 J.C. Penney department stores and 8 Eckerd stores.
(2) May Co. owns 5 of 8 stores totaling 619,101 square feet.
(3) Includes Limited Express, Lane Bryant, Lerner Shops, The Limited (core
division), and Structures.
(4) Includes Woolworth, Afterthoughts, Kinney, Footlocker, Lady Footlocker,
Champs, and Northern Reflections.
(5) Spun off by the Limited. Includes Victoria Secrets and Bath & Body.
(6) Includes Kay-Bee Toys which it recently purchased from Melville Realty Co.
(7) Operates as B. Moss
(8) 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
Three Months Twelve Months
Ended Dec. 31, Ended Dec. 31,
1997 1996 1997 1996
(Unaudited)
(in thousands, except per share data)
<S>
Rental operations: <C> <C> <C> <C>
Revenues:
Minimum rent $ 21,199 $ 21,121 $ 81,044 $ 83,441
Percentage rent 2,646 2,609 6,544 6,489
Property operating cost recoveries 9,029 9,098 30,513 30,975
Temporary and promotional leasing 4,437 4,039 9,312 8,411
Net utility income 792 725 2,806 2,559
Business interruption insurance 830
Miscellaneous income 291 240 775 1,267
Net 38,394 37,832 130,994 133,972
Property operating costs:
Recoverable operating costs 10,931 11,604 39,467 41,324
Property administrative costs 823 556 2,349 2,068
Other operating costs 582 1,007 1,963 3,065
Depreciation and amortization 9,781 9,016 38,311 35,315
Net 22,117 22,183 82,090 81,772
Net 16,277 15,649 48,904 52,200
Other expenses:
General and administrative 1,646 1,112 4,698 4,135
Interest 10,199 11,838 42,663 45,337
Net 11,845 12,950 47,361 49,472
Net 4,432 2,699 1,543 2,728
Property sales and adjustments:
Gain on asset sales 2,351
Gain on sale of outparcel land 83 470 1,051 3,425
Net 83 470 1,051 5,776
Income before extraordinary items
and minority interest 4,515 3,169 2,594 8,504
Extraordinary loss on early
extinguishment
of debt (968) (2,331) (718)
Income before minority interest in
Operating Partnership 3,547 3,169 263 7,786
Minority interest in (income) loss
of Operating Partnership (23) (806) 1,644 (1,979)
Net income 3,524 2,363 1,907 5,807
Dividends on preferred shareholders (3,438) (6,646)
Net income (loss) applicable to
common shareholders $ 86 $ 2,363 $ (4,739) $ 5,807
Per common share information:
Basic EPS:
Income (loss) before extraordinary $ 0.03 $ 0.09 $ (0.11) $ 0.23
items
Net income (loss) $ 0.00 $ 0.09 $ (0.17) $ 0.21
Weighted average shares outstanding 26,505 27,576 27,228 27,515
(000)
Diluted EPS:
Income (loss) before extraordinary $ 0.03 $ 0.09 $ (0.11) $ 0.23
items
Net income (loss) $ 0.00 $ 0.09 $ (0.17) $ 0.21
Weighted average shares outstanding 26,505 27,576 27,228 27,515
(000)
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
December 31,
1997 1996
(in thousands, except share
and per share data)
Assets
<S> <C> <C>
Income-producing properties:
Land $ 132,055 $ 120,999
Buildings and improvements 852,674 798,470
Deferred leasing and other charges 39,912 41,223
Net 1,024,641 960,692
Accumulated depreciation and amortization (315,125) (281,478)
Net 709,516 679,214
Investment in joint venture 5,808 5,799
Cash and cash equivalents 9,472 6,746
Tenant and other receivables 16,986 16,516
Deferred charges and other assets 44,167 32,363
Net $ 785,949 $ 740,638
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 541,713 $ 568,785
Accounts payable and other liabilities 29,132 32,201
Net 570,845 600,986
Minority interest in Operating Partnership 25,334 35,576
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11%
cumulative, $.01 par value, 2,500,000 shares
issued and outstanding 25
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,727,212 and
27,612,756 shares issued at December 31, 1997
and 1996, respectively 277 276
Additional paid-in capital 308,571 184,205
Accumulated deficit (106,881) (80,405)
Net 201,992 104,076
Less common shares held in treasury at cost;
1,251,898 and 0 shares at December 31, 1997
and 1996, respectively (12,222)
Net 189,770 104,076
Net $ 785,949 $ 740,638
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
Year Ended December 31,
1997 1996
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,907 $ 5,807
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in Operating Partnership (1,644) 1,979
Gain on asset sales (2,351)
Equity earnings in joint venture (528) (575)
Depreciation and amortization 45,886 43,713
Extraordinary loss on early extinguishment of debt 2,331 718
Net changes in:
Tenant and other receivables 520 (1,386)
Deferred charges and other assets (7,857) 1,309
Accounts payable and other liabilities (1,868) (4,366)
Net cash provided by operating activities 38,747 44,848
Cash flows from investing activities:
Investment in income properties (39,152) (51,482)
Acquisitions of enclosed malls (31,981)
-
Distributions from joint venture 150 300
Proceeds from asset sales 9,452
Net cash (used in) investing activities (70,983) (41,730)
Cash flows from financing activities:
Net proceeds from issuance of senior preferred shares 118,671
-
Net proceeds from sale of common shares and from 921 1,257
dividend reinvestment plan
Proceeds from issuance or assumption of debt, net of 231,723 88,499
deposits
Cost of issuance of debt (4,774) (1,804)
Debt repayments (265,002) (60,796)
Dividends and distributions paid on common shares and (29,287) (29,564)
partnership units
Dividends paid on senior preferred shares
(5,921) -
Buyback of treasury stock
(12,222) -
Cash flow support payments
853 -
Net cash (used in) provided by financing activities 34,962 (2,408)
Net increase in cash and cash equivalents 2,726 710
Cash and cash equivalents, beginning of period 6,746 6,036
Cash and cash equivalents, end of period $ 9,472 $ 6,746
Interest paid (net of capitalized amounts) $ 39,351 $ 41,480
Interest capitalized $ 2,463 $ 2,943
Non-cash financing activities:
Preferred dividends accrued but unpaid as of year end. $ 725 $
Cash flow support credited to minority interest and
paid-in capital that was prefunded in 1995. $ 2,879 $ 2,889
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,472
<SECURITIES> 0
<RECEIVABLES> 16,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,024,641
<DEPRECIATION> 315,125
<TOTAL-ASSETS> 785,949
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 189,468
<TOTAL-LIABILITY-AND-EQUITY> 785,949
<SALES> 0
<TOTAL-REVENUES> 130,994
<CGS> 0
<TOTAL-COSTS> 82,090
<OTHER-EXPENSES> 4,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,663
<INCOME-PRETAX> 2,594
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,594
<DISCONTINUED> 0
<EXTRAORDINARY> (2,331)
<CHANGES> 0
<NET-INCOME> 1,907
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
