SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number: 1-12216
CROWN AMERICAN REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
25-1713733
(IRS Employer Identification No.)
Pasquerilla Plaza, Johnstown, Pennsylvania 15901
(Address of principal executive offices)
(814) 536-4441
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $.01 per share
11.00% Senior Preferred Shares, par value $.01 per share ($50.00 Liquidation
Preference)
(Title of Class)
As of April 15, 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.
New York Stock Exchange
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No
Crown American Realty Trust
Form 10-Q
For the Quarterly Period ended March 31, 1998
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997
Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1997
Consolidated Statement of Shareholders' Equity for the three months
ended March 31, 1998
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II - Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
1998 1997
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 132,020 $ 132,055
Buildings and improvements 858,509 852,674
Deferred leasing and other charges 40,894 39,912
Net 1,031,423 1,024,641
Accumulated depreciation and amortization (324,530) (315,125)
Net 706,893 709,516
Other assets:
Investment in joint venture 5,843 5,808
Cash and cash equivalents 6,735 9,472
Tenant and other receivables 13,953 16,986
Deferred charges and other assets 42,565 44,167
Net $ 775,989 $ 785,949
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 544,731 $ 541,713
Accounts payable and other liabilities 24,176 29,132
Net 568,907 570,845
Minority interest in Operating Partnership 24,021 25,334
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11%
cumulative,
$.01 par value, 2,500,000 shares issued and 25 25
outstanding
Common shares, par value $.01 per share,
120,000,000 shares
authorized, 27,727,212 shares issued at both
March 31, 1998 and December 31, 1997 277 277
Additional paid-in capital 308,385 308,571
Accumulated deficit (113,404) (106,881)
Net 195,283 201,992
Less common shares held in treasury at cost,
1,251,898 shares at both March 31, 1998 and
December 31, 1997 (12,222) (12,222)
Net 183,061 189,770
Net $ 775,989 $ 785,949
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
1998 1997
(in thousands, except per
share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 21,590 $ 19,744
Percentage rent 1,712 1,478
Property operating cost recoveries 8,086 7,139
Temporary and promotional leasing 1,810 1,655
Net utility income 896 732
Miscellaneous income 214 125
Net 34,308 30,873
Property operating costs:
Recoverable operating costs 10,831 9,537
Property administrative costs 610 577
Other operating costs 506 439
Depreciation and amortization 9,755 9,804
Net 21,702 20,357
12,606 10,516
Other expenses:
General and administrative 1,222 1,155
Interest 10,255 11,360
Net 11,477 12,515
Net 1,129 (1,999)
Property sales, and adjustments:
Gain on sale of outparcel land 619 296
Net 619 296
Income (loss) before minority interest in Operating
Partnership 1,748 (1,703)
Minority interest in (income) loss of Operating 462 434
Partnership
Net income (loss) 2,210 (1,269)
Dividends on preferred shares (3,438)
Net (loss) applicable to common shares $ (1,228) $ (1,269)
Per common share data:
Basic EPS:
Net income (loss) $ (.05) $ (.05)
Weighted average shares outstanding 26,475 27,629
Diluted EPS:
Net income (loss) $ (.05) $ (.05)
Weighted average shares outstanding 26,475 27,629
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statement of Shareholders' Equity
(Unaudited)
Common
Shares Senior
Issued and Preferred Common
Outstanding Shares Shares
(in thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1997 26,475 $ 25 $ 277
Transfer in (out) of limited
partner's interest in the
Operating Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support
Net income
Dividends paid and accrued
Balance, March 31, 1998 26,475 $ 25 $ 277
Common
Additional Shares
Paid in Accumulated Held in
Capital Deficit Treasury Total
(in thousands)
Balance, December 31, 1997 $ 308,571 $ (106,881) $ (12,222) $ 189,770
Transfer in (out) of limited
partner's interest in the
Operating Partnership (908) (908)
Capital contributions from
Crown Investments Trust:
Cash flow support 722 722
Net income 2,210 2,210
Dividends paid and accrued (8,733) (8,733)
Balance, March 31, 1998 $ 308,385 $ (113,404) $ (12,222) $ 183,061
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,210 $ (1,269)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest in Operating Partnership (462) (434)
Equity earnings in joint venture (127) (127)
Depreciation and amortization 11,599 11,738
Net changes in:
Tenant and other receivables 4,025 4,302
Deferred charges and other assets (313) (1,082)
Accounts payable and other liabilities (4,956) (3,235)
Net cash provided by operating activities 11,976 9,893
Cash flows from investing activities:
Investment in income-producing properties (7,043) (5,048)
Distributions from joint venture 100
Net cash (used in) investing activities (7,043) (4,948)
Cash flows from financing activities:
Net proceeds from issuance of common shares under 430
dividend reinvestment plan
Proceeds from issuance of debt, net of issuance cost 12,722 5,436
Debt repayments (9,684) (5,169)
Dividends and distributions paid on common shares and (7,270) (7,414)
partnership units
Dividends paid on senior preferred shares (3,438)
Net cash (used in) financing activities (7,670) (6,717)
Net (decrease) in cash and cash equivalents (2,737) (1,772)
Cash and cash equivalents, beginning of period 9,472 6,746
Cash and cash equivalents, end of period $ 6,735 $ 4,974
Interest paid (net of capitalized amounts) $ 9,396 $ 10,511
Interest capitalized $ 550 $ 609
Non-cash financing activities:
Cash flow support credited to minority interest and paid
in capital that was prefunded in 1995. $ $ 790
The accompanying notes are an integral part of these statements.
</TABLE>
CROWN AMERICAN REALTY TRUST
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Crown American Realty Trust (the "Company") was formed on May 14, 1993 as a
Maryland real estate investment trust (a "REIT") to acquire and operate
substantially all of the enclosed shopping mall properties and two office
buildings (the "Properties") owned by Crown American Associates ("Crown
Associates"), formerly Crown American Corporation. Crown Associates is a wholly
owned subsidiary of Crown Holding Company ("Crown Holding"). Crown Associates,
which was founded in 1950, was engaged principally in the development,
acquisition, ownership and management of enclosed shopping malls and, to a
lesser extent, strip shopping centers, hotels and office buildings. The Company
raised approximately $405 million in equity through an initial public offering
of approximately 25.5 million shares, which occurred on August 17, 1993, and
used the proceeds to purchase an initial 78% general partnership interest in
Crown American Properties, L.P. (the "Operating Partnership"), a partnership
which was formed just prior to consummation of the offering to own and operate
the Properties. The proceeds were used by the Operating Partnership to retire
debt related to the Properties.
Simultaneously with the public offering, Crown Associates and an affiliate
transferred the Properties and the management operations into either the
Company, the Operating Partnership, or Crown American Financing Partnership (the
"Financing Partnership"), a partnership which is 99.5% owned by the Operating
Partnership and 0.5% owned by the Company.
The limited partnership interest in the Operating Partnership and the 1.6
million shares in the Company received for two malls transferred in 1993 are
currently held by Crown Investments Trust ("Crown Investments"), by Crown
American Investment Company (a subsidiary of Crown Investments), and by members
of the Pasquerilla family. Subsequently, three additional malls have been
acquired by the Company: two in 1995 and one in 1997.
Simultaneously with the above transactions, the Financing Partnership borrowed
approximately $300 million of mortgage debt (the "Mortgage Loans") secured by
its 15 (now 14) enclosed shopping malls (see Note 3). The $300 million of
mortgage debt together with the proceeds of the equity offering were used to
retire existing debt contributed with the Properties.
As further described in Note 2, 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.
The Properties currently consist of: (1) 25 enclosed shopping malls (together
with adjoining outparcels and undeveloped land) located in Pennsylvania, New
Jersey, Maryland, Tennessee, West Virginia, Virginia and Georgia, (2) a 50%
general partnership interest in Palmer Park Mall Venture, which owns Palmer Park
Mall located in Easton, Pennsylvania, (3) Pasquerilla Plaza, an office building
in Johnstown, Pennsylvania, which serves as the headquarters of the Company and
is partially leased to other parties, and (4) a parcel of land and building
improvements located in Pennsylvania (under ground lease with a purchase option)
sub-leased to a department store chain.
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 interim 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
5) and Crown American WL Associates, L.P. (see Note 3), 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 March 31, 1998, the Company held 100% of the
preferred partnership interests (see Note 2) and 72.83% of the common
partnership interests. All significant intercompany amounts have been
eliminated.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments of a normal recurring nature necessary for a
fair presentation of the financial position and results of operations of the
Company. These consolidated interim financial statements and the accompanying
notes should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 31, 1997, which are
included in its Annual Report on Form 10-K. The results of operations for
interim periods are not necessarily indicative of results to be expected for the
year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - PREFERRED SHARE OFFERING
The Company completed an offering of 2,500,000 11.00% non-convertible senior
preferred shares on July 3, 1997. The initial offering price was $50.00 per
share and the preferred shares are listed on the New York Stock Exchange. 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 to the Company were $118.7 million after underwriter's
commission and other offering expenses. 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 for $32 million. 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 and March 31, 1998, 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 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 March 31,
1998, is 5.7 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 (as defined) on an annualized basis for the first quarter with
respect to which an additional dividend is due. For each quarter thereafter
that the Company continues to exceed the permitted Leverage Ratio, the
additional dividend will increase by an amount per 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.
NOTE 3 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
March 31, 1998 December 31, 1997
Mortgage loans $ 280,637 $ 280,637
Permanent loans 222,733 229,417
Construction loans 1,861 1,659
Secured term loans and lines of credit 39,500 30,000
$ 544,731 $ 541,713
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 incurred.
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% as of March 31, 1998 and December 31,
1997. Repayment of the Mortgage Loans is secured by separate first mortgage
liens and second mortgage liens (each a "Mortgage") on the 14 malls owned by the
Financing Partnership and by assignments of all of the Financing Partnership's
interest in the rents and the leases at each of such mortgaged properties. In
order to maintain certain tax bases, Crown Investments guaranteed approximately
$250 million of such indebtedness. Each Mortgage contains a cross-default
provision allowing the Lender to declare a default under any or all of the
Mortgages if the Financing Partnership fails to make any payment of principal,
interest, premium or any other sum due under any Mortgage Loan or another event
of default occurs under the mortgage documents. The Mortgage Loans allow the
Financing Partnership to borrow up to $10 million from other parties, either
unsecured or secured by a qualifying subordinate lien, provided the proceeds are
used solely to finance tenant improvements or leasing costs. No such amounts
are borrowed as of March 31, 1998.
The $80.6 million mandatory principal payment due in August 1998 may be prepaid
with no 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 March 31, 1998, $1.2 million of restricted cash
was held for this purpose and is included in deferred charges and other assets.
Permanent Loans
At March 31, 1998, permanent loans consisted of eight loans secured by eight
properties held by the Operating Partnership with various maturities from
December 1998 through January 2008. Included in permanent loans are (1) a $3.1
million interest free Urban Development Action Grant loan with the City of
Johnstown, Pennsylvania, secured by an office building and due October 2006, and
(2) a 4.5% Industrial Development Bond secured with a $1.3 million letter of
credit. This letter of credit expires on April 30, 1999. Crown Holding has
guaranteed one loan with a balance of $11.2 million as of March 31, 1998.
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 theatre 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%.
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. 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 March 31, 1998, $9.5 million was outstanding under the
working capital line. 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 March 31, 1998, the Company had one secured term loan outstanding totaling
$30.0 million, which matures in September 1998. At March 31, 1998, the Company
had $165.6 million in available revolving lines of credit, which includes the
$150.0 million credit facility with GECRE described above, of which $9.5 million
and $0.0 million were outstanding at March 31, 1998 and December 31, 1997,
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. 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 period ended March 31, 1998.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and seven of the
permanent loans related to six of the Operating Partnership properties
(aggregate principal outstanding of $393.4 million at March 31, 1998) have fixed
interest rates ranging from 0% to 9.625%. The weighted average interest rate on
this fixed-rate debt at March 31, 1998 and 1997 was 7.51% and 7.83%,
respectively. The weighted average interest rate during the three months ended
March 31, 1998 and 1997 was 7.52% and 7.83%, respectively.
All of the remaining loans (aggregate principal outstanding of $151.3 million at
March 31, 1998) have variable rated debt based on spreads ranging from 1.60% to
2.25% above 30 day LIBOR. The weighted average interest rate on the variable
rated debt at March 31, 1998, and 1997 was 7.44%, and 7.93%, respectively. The
weighted average interest rate during the three months ended March 31, 1998 and
1997 was 7.42% and 7.89%, respectively.
Debt Maturities
As of March 31, 1998, the scheduled principal payments on all debt, including
extensions available at the Company's option provided the debt is not in default
at the extension dates, are as follows (in thousands):
Period/Year Ending
December 31,
1998 (nine months) $ 114,403
1999 (year) 121,820
2000 (year) 103,511
2001 (year) 3,783
2002 (year) 27,706
Thereafter 173,508
Net $ 544,731
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. FAS No.130 has no impact
on the Company's financial statements, as the Company's comprehensive income is
equal to its net income at March 31, 1998.
The Company will adopt FAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" and FAS No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits" in the fourth quarter of 1998. None of these
new standards is expected to have a material effect on the Company's
consolidated financial statements.
NOTE 5 - 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 2).
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.
Also, with respect to Middletown Mall, a property acquired by the Company on
February 1, 1995 from Crown Associates, additional contingent consideration, in
the form of 437,888 common Partnership Units, was paid to Crown Investments
Trust effective as of January 1, 1998, as consideration for the contribution of
Middletown Mall to the Operating Partnership. The 437,888 units represent
approximately 1.2% of the total common Partnership Units outstanding prior to
the issuance of the new units. The Company currently is under contract to sell
Middletown Mall and adjacent vacant outparcel land to a third party purchaser.
The estimated net sales proceeds are approximately $12 million which is expected
to result in an overall net gain upon sale.
NOTE 6 - SUBSEQUENT EVENTS
The Company is under contract to acquire two regional shopping malls:
Jacksonville Mall in Jacksonville, North Carolina, and Crossroads Mall in
Beckley, West Virginia. The two malls include gross leasable area of 384,000
and 456,000 square feet, respectively. Sears, JCPenney and Belk Stores anchor
both malls. The total purchase price will be approximately $61 million, which
includes 10 acres of vacant land available for future development. The purchase
will be funded from existing credit lines and also from assumption of debt
related to one of the properties. The malls are currently under common ownership
and the combined acquisition is expected to occur in the second quarter.
In addition, the Company will acquire from Crown American Associates (a related
party) a 165,000 square foot shopping center located in Lewistown, Pennsylvania,
for approximately $4.5 million. The Company has managed this property since its
inception. The major tenants include a Weis Markets and a small JCPenney unit.
The purchase will be funded through assumption of an existing mortgage of
approximately $3.7 million and remainder from issuance of approximately 80,000
Operating Partnership units.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain of the following comments contain forward looking statements that
involve risk and uncertainties. Factors that could cause actual results to
differ materially include: overall economic conditions, local economic
conditions in the market areas surrounding each property, consumer buying
trends, expansion and development plans of retailers and other current and
potential tenants, the impact of competition, weather patterns and related
impact on consumer spending, changing interest rates and financing conditions,
and other risk factors listed from time to time in the Company's SEC reports,
including this report on Form 10-Q for the quarter ended March 31, 1998.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three months ended March 31, 1998 and 1997. Management's
discussion and analysis of financial condition and results of operations should
be read in conjunction with this table and the interim consolidated financial
statements on pages 3 to 12.
Performance Measurement
Management believes that there are several important factors that contribute to
the ability of the Company to increase rent and improve profitability of its
enclosed shopping malls and other income properties, including aggregate anchor
tenant and mall shop tenant sales volume, mall shop retail tenant sales per
square foot and occupancy levels. Each of these factors has a significant
effect on Funds from Operations and EBITDA.
Funds from Operations (FFO) is a recognized industry performance measure for
real estate investment trusts (REIT's) and as defined by the National
Association of Real Estate Investment Trusts (NAREIT) generally represents net
income or loss (computed in accordance with generally accepted accounting
principles) before minority interest, real estate depreciation and amortization
(as defined) and extraordinary and unusual non-recurring items, and additionally
includes earned cash flow support (see Note 8 to the financial statements
included in the Company's 1997 Form 10-K). Funds from Operations is used in the
real estate industry as a measure of operating performance because reductions
for real estate depreciation and amortization charges are not meaningful in
evaluating the operating results of real estate, which have historically been
appreciating assets. Gain on sales of outparcel land have been included in this
supplemental measure of performance. Gain on sales of properties and anchor
store locations, adjustments to carrying values of assets to be disposed of, and
extraordinary items are excluded from FFO because such transactions are uncommon
and not a part of ongoing operations.
EBITDA is defined as revenues and gain on sale of outparcel land, less operating
costs, including general and administrative expenses, before interest, and all
depreciation and amortization; EBITDA also excludes gain on sales of properties
and anchor store locations, adjustments to carrying values of assets to be
disposed of, and extraordinary items because such items are uncommon and not a
part of ongoing operations. Management believes EBITDA, as defined, provides
the clearest indicator of operating performance for the following reasons: (i)
it is industry practice to evaluate the performance of real estate properties
based on net operating income (or NOI), which is generally equivalent to EBITDA;
and (ii) both NOI and EBITDA are unaffected by the debt and equity structure of
the property owner.
Funds from Operations and EBITDA (i) do not represent cash flow from operations
as defined by generally accepted accounting principles, (ii) are not
necessarily indicative of cash available to fund all cash flow needs and (iii)
should not be considered as an alternative to net income for purposes of
evaluating the Company's operating performance.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the Selected Financial Data and
the accompanying consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
<S> <C> <C>
Selected Financial Data:
EBITDA (1 & 3) $ 22,794 $ 20,654
Funds from Operations (FFO) (2 & 3):
Net Income (loss) $ 2,210 $ (1,269)
Adjustments:
Minority interest in Operating Partnership (462) (434)
Depreciation and amortization - real estate 10,069 10,192
Operating covenant amortization 658 658
Cash flow support 992 790
Funds from Operations, before allocations to
minority interests and preferred shares 13,467 9,937
Less:
Amount allocable to preferred shares 3,438
Amount allocable to minority interest 2,725 2,530
Funds from Operations applicable to common shares $ 7,304 $ 7,407
Average common shares outstanding (000) 26,475 27,629
Cash Flows:
Net cash provided by operating activities $ 11,976 $ 9,893
Net cash (used in) investing activities $ (7,043) $ (4,948)
Net cash (used in) financing activities $ (7,670) $ (6,717)
(1) EBITDA represents revenues and gain on sale of outparcel land, less
operating costs, including general and administrative expenses, before
interest, and all depreciation and amortization; EBITDA also excludes gain
on sales of properties and anchor store locations, adjustments to carrying
values of assets to be disposed of, and extraordinary items because such
items are uncommon and not a part of ongoing operations.
(2) Funds from Operations represents net income before minority interest and
before depreciation and amortization plus earned cash flow support and
adjustment for certain unusual items.
(3) EBITDA and Funds from Operations (i) do not represent cash flow from
operations as defined by generally accepted accounting principles, (ii) are
not necessarily indicative of cash available to fund all cash flow needs
and (iii) should not be considered as an alternative to net income for
purposes of evaluating the Company's operating performance.
</TABLE>
Comparison of Three Months Ended March 31, 1998 to the corresponding period
in 1997
- - Revenues
Total revenues for the first quarter of 1998 were $34.3 million up 11% from
$30.9 million for the same period in 1997; Valley Mall, which was acquired in
November 1997, accounted for $1.5 million of the $3.4 million increase.
Excluding the effects of Valley Mall, small shop base and percentage rents were
up $1.0 million, while anchor base and percentage rents were relatively flat.
Recovery income was better than last year by $0.6 million, due to higher
recoverable costs.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the first quarter
of 1998 were $11.9 million, up $1.4 million from the corresponding period in
1997; Valley Mall accounted for $0.4 million of the total increase. The
remaining $1.0 million increase was primarily due to higher insurance costs and
a refund of business franchise taxes in 1997.
Depreciation and amortization expense for the first quarter of 1998 was $9.8
million, substantially unchanged from the first quarter of 1997. Valley Mall
contributed $0.4 million in depreciation, while the other properties had $0.4
million less depreciation due to fewer writeoffs associated with tenant
closings.
- - General, Administrative and Interest Expenses:
For the first quarter of 1998, general and administrative expenses were
approximately $1.2 million, an increase of $0.1 million from 1997, due mainly to
higher net leasing costs. Interest expense decreased by $1.1 million in the
first quarter of 1998 compared to 1997. This decrease was primarily attributable
to lower interest expense due to the paydown of approximately $58.3 million of
debt (see Note 2).
- - Gain on Property Sales and Disposals:
The gain on the sale of outparcel land was $0.6 million for the first quarter of
1998, an increase of $0.3 million from the corresponding period of 1997, due to
more sale closings.
- - Net Income (loss):
The net income for the first quarter of 1998 was $2.2 million, compared with a
net loss of $1.3 million, for the first quarter of 1997. After deducting
dividends on preferred shares, the first quarter of 1998 produced a net loss of
$1.2 million applicable to common shares compared to $1.3 million in 1997.
- - Funds from Operations:
For the quarter ended March 31, 1998, Funds from Operations ("FFO") before
allocations to minority interest and to preferred dividends was $13.5 million,
up from $9.9 million in the same quarter of 1997. FFO allocable to common
shares (after minority interest and preferred dividends) was $7.3 million,
compared to $7.4 million, in the same quarter of 1997. The increase in total
FFO during the first quarter was mainly due to the following; FFO contributed
from core mall operations was up $2.0 million or 9.2 percent; Valley Mall which
was acquired in November 1997 accounted for approximately half of this increase.
Interest expense was lower by $1.1 million due to lower average debt balances
and lower average rates. Gain on outparcel land sales was higher by $0.3
million. These increases were offset by preferred share dividends of $3.4
million; there were no preferred dividends in the first quarter of 1997.
EBITDA
For the quarter ended March 31, 1998, EBITDA was $22.8 million compared to $20.7
million in 1997, an increase of 10%. EBITDA was largely impacted by the same
factors as FFO above, except for interest costs and preferred stock dividends,
which are not included in EBITDA.
Liquidity and Capital Resources
The Company believes that its cash generated from property operations and funds
obtained from property financings will provide the necessary funds on a short-
term and long-term basis for its operating expenses, interest expense on
outstanding indebtedness and recurring capital expenditures and tenant
allowances, and dividends to shareholders in amounts that would be necessary to
satisfy the REIT requirements under the Internal Revenue Code. The Company
intends to pay regular quarterly dividends to its shareholders. However, the
Company's ability to pay dividends is affected by several factors, including
cash flow from operations and capital expenditures and its ability to refinance
its maturing debt as described below. Dividends by the Company will be at the
discretion of the Board of Trustees and will depend on the cash available to the
Company, its financial condition, investment needs and opportunities, capital
and other requirements, and such other factors as the Trustees may consider.
Sources of capital for non-recurring capital expenditures, such as major
building renovations and expansions, as well as for scheduled principal
payments, including balloon payments on the outstanding indebtedness, are
expected to be obtained from additional Company or property financings and
refinancings, sale of non-strategic assets, additional common or preferred
equity raised in the public or private markets, and from retained internally
generated cash flows, or from combinations thereof.
As further described in Note 2 to the interim consolidated financial statements
included herein, on July 3, 1997 the Company completed an offering of 11.00%
senior preferred shares for an aggregate of $118.7 million after underwriter's
commission and other offering expenses.
As of March 31, 1998 the scheduled principal payments on all debt are as
follows: $114.4 million for the nine months ending December 31, 1998, and
$121.8 million; $103.5 million; $3.8 million; and $27.7 million in the years
ending December 31, 1999 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
mortgage loans on those properties having the maturing loans. The Company's
ability to refinance or extend these loans on or before their due dates depends
on the level of income generated by the properties, prevailing interest rates,
credit market trends, and other factors that may be in affect at the time of
such refinancings or extensions and there is no assurance that such refinancings
or extensions will be executed. The ratios of the Company's EBITDA to 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.
Part II - Other Information
Item 1: Legal Proceedings
The Company from time to time is involved in litigation incidental to its
business. Except as described below, neither the Company, the Operating
Partnership nor the Financing Partnership are currently involved in any material
litigation and, to the best of the Company's knowledge, there is no material
litigation currently threatened against the Company, the Operating Partnership,
the Financing Partnership or the Properties, other than routine litigation
arising in the ordinary course of business, most of which is expected to be
covered by liability insurance or established reserves.
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.
Dillard's Virginia, Inc. has filed suit alleging that the Company and The May
Department Stores Company ("May") have conspired and agreed in restraint of
trade in violation of the antitrust laws of the United States and Commonwealth
of Virginia. This action arises out of the Company's termination of a lease at
Patrick Henry Mall that had been held by Proffitt's department stores.
In December 1996, Proffitt's advised the Company that it was selling its stores
in the Tidewater region of Virginia to Dillard Department Stores, Inc. and would
therefore be assigning its interest in the Lease to Dillard. 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 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. In
response to the Company's Complaint, Dillard filed a Motion to Dismiss which was
summarily denied by the state court.
In August of 1997, Dillard filed the instant case in the United States District
Court for the Eastern District of Virginia. This Complaint initially asserted
one count against the Company for breach of contract claim against the Company
and two counts against May for violation of federal and state antitrust laws.
On September 18, 1997, Dillard moved to amend its Complaint to include the
Company as a defendant with respect to the antitrust claims previously asserted
against May.
In conjunction with its Complaint, Dillard sought a preliminary injunction to
enjoin the Company from leasing or otherwise conveying certain premises at the
Patrick Henry Mall to May. During a hearing on October 8, 1997, Dillard's
request for a preliminary injunction was denied. In addition, the court
declined to exercise supplementary jurisdiction over Dillard's breach of
contract claim against the Company. That claim was dismissed by the court
without prejudice to be pursued by Dillard in the state courts. To date, no
action has been taken by Dillard to pursue that action in the state court.
While the final resolution of this litigation cannot be presently determined,
management does not believe that it will have a material adverse affect on the
Company's results of operations or financial condition.
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
On April 29, 1998, the Company issued its regular quarterly earnings
release and its First Quarter 1998 Supplemental Financial and Operational
Information Package for analysts and investors. Copies of these documents are
hereby filed as Exhibits to the Form 10-Q.
Exhibit 99 (a) - Press release dated April 29, 1998
Exhibit 99 (b) - First Quarter 1998 Supplemental Financial and Operational
Information Package
Item 6: Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 5, 1998 CROWN AMERICAN REALTY TRUST
/s/ Frank J. Pasquerilla
Frank J. Pasquerilla
Chairman of the Board
of Trustees and Chief Executive Officer
(Authorized Officer of the Registrant
and Principal Executive Officer)
Date: May 5, 1998 CROWN AMERICAN REALTY TRUST
/s/ Mark E. Pasquerilla
Mark E. Pasquerilla
President
(Authorized Officer of the Registrant
and Principal Operating Officer)
Date: May 5, 1998 CROWN AMERICAN REALTY TRUST
/s/ John M. Kriak
John M. Kriak
Executive Vice-President and
Chief Financial Officer
(Authorized Officer of the Registrant
and Principal Financial Officer)
Date: May 5, 1998 CROWN AMERICAN REALTY TRUST
/s/ Terry L. Stevens
Terry L. Stevens
Senior Vice President and
Chief Accounting Officer
(Authorized Officer of the Registrant
and Principal Accounting Officer)
EXHIBIT 99 (a)
NEWS FROM:
C R O W N A M E R I C A N R E A L T Y T R U S T
CONTACT: Media: Christine Menna 814-536-9520
Investors: Frank Pasquerilla 814-535-9347
Mark Pasquerilla 814-535-9364
Internet: http://www.crownam.com
IMMEDIATE RELEASE: Wednesday, April 29, 1998
CORE MALL OPERATING RESULTS INCREASE BY 9.2 PERCENT
TRANSFORMED MALL PORTFOLIO PRODUCES POSITIVE RESULTS
CROWN AMERICAN REALTY TRUST REPORTS
HIGHER FFO PER SHARE FOR THE FIRST QUARTER
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the quarter ended March 31, 1998. The Board of Trustees also declared
regular quarterly dividends on its common and senior preferred shares.
_______________________
"The transformation of our properties that we have effected during the last
several years is beginning to bear fruit - with higher earnings and, more
importantly, a higher quality of earnings," stated Crown American Realty Trust
President, Mark E. Pasquerilla. "After factoring in higher dividends from our
July 1997 preferred share offering of $3.4 million, or $0.095 per share, Funds
from Operations ("FFO") per common share were up $0.01 to $0.28 per share in the
first quarter compared to $0.27 per share in the same quarter of 1997. Compared
to the first quarter of 1997, FFO contributed from core mall operations (before
interest, land sales, and non-recurring items) was up 9.2 percent including
Valley Mall, which we acquired in November 1997, and up 4.4 percent from
comparable properties. Included in these improved core mall operations was
higher mall shop percentage rent, up 25% in the quarter for comparable
properties. Mall shop occupancy was 79 percent at the end of the first quarter,
which is historically the low point for mall shop occupancy due to tenant
closings after the Christmas season, and up from 75% reported at March 31, 1997.
Mall shop occupancy was positively affected by continued strong leasing results
and from 62 percent lower tenant closings in the first quarter."
Pasquerilla continued, "Mall shop tenant sales for the quarter were up 6.0
percent, which contributed to a 25 percent increase in mall shop percentage rent
income. Average base rents at the end of the quarter were $16.94 per square
foot, up six percent from a year ago, and represents our 18th consecutive
quarterly increase. Leasing results continue to show positive momentum, with
$9.5 million in annualized income from new and renewal leasing for mall shops
and theaters during the quarter, compared with $4.4 million last year."
Pasquerilla concluded, "We are very pleased with the first quarter results.
These results reflect the positive momentum that began over a year ago in
internal growth from leasing, plus the contribution from our 1997 acquisition,
Valley Mall. We see the internal growth trends continuing, and with the pending
acquisitions of two malls, we continue to expect full year FFO for 1998 to be
modestly ahead of 1997."
Dividend Information
For the quarter ended March 31, 1998, the Board of Trustees declared
regular quarterly dividends of $.20 per common share and $1.375 per senior
preferred share. Both dividends are payable June 12, 1998 to shareholders of
record on May 29, 1998.
Financial Information
For the quarter ended March 31, 1998, the Company reports that Funds from
Operations ("FFO") before allocations to minority interest and to preferred
dividends was $13.5 million, up from $9.9 million in the same quarter of 1997.
FFO allocable to common shares (after minority interest and preferred dividends)
was $7.3 million, or $0.28 per share, compared to $7.4 million, or $0.27 per
share, in the same quarter of 1997. The increase in total FFO during the first
quarter was mainly due to the following. FFO contributed from core mall
operations was up $2.0 million ($0.05 per share), or 9.2 percent; Valley Mall
which was acquired in November 1997 accounted for approximately half of this
increase. Interest expense was lower by $1.1 million ($0.03 per share) due to
lower average debt balances and lower average rates. Gain on outparcel land
sales was higher by $0.3 million ($0.01 per share). FFO per share was also
positively impacted by $0.01 due mostly to fewer outstanding shares as a result
of the buyback of common shares in the second half of 1997. These increases
were offset by preferred share dividends of $3.4 million ($0.09 per share);
there were no preferred dividends in the first quarter of 1997.
Total revenues for the first quarter of 1998 were $34.3 million, up 11%
from $30.9 million for the same period in 1997; Valley Mall accounted for $1.5
million of the $3.4 million increase. Excluding the effects of Valley Mall,
small shop base and percentage rents were up $1.0 million, while anchor base and
percentage rents were relatively flat. Recovery income was better than last
year by $0.6 million, due to higher recoverable costs.
For the first quarter of 1998 the Company reported net income of $2.2
million. After deducting preferred dividends, there was a net loss applicable
to common shares of $1.2 million, or $0.05 per share. This compares to a net
loss of $1.3 million, or $0.05 per share, for the first quarter of 1997.
Operating Information
During the first quarter of 1998, leases for 214,000 square feet of mall
shops were signed resulting in $4.4 million in annual base rental income.
This compares to 210,000 square feet for $4.3 million during the same
period in 1997, a two percent increase based on annual rental income. A
total of 130 leases were signed, which included 75 renewals and 55 new
leases. The average rent for leases signed was $20.53 per square foot
compared to $20.68 on leases signed in the first quarter of 1997. The
$20.53 per square foot average for the first quarter of 1998 includes
$22.34 per square foot for new leases and $19.36 per square foot for
renewals.
The average mall shop base rent of the portfolio at March 31, 1998 was
$16.94 per square foot. This is a six- percent increase from $15.96 per
square foot at March 31, 1997, and the 18th consecutive quarter that
average base rent has increased.
Mall shop occupancy was 79 percent at March 31, 1998, up from 75 percent
reported at March 31, 1997. Anchor occupancy was 95% at March 31, 1998, up
one-percent during the quarter.
Comparable mall shop sales for the first quarter of 1998 were $48.05 per
square foot, a six- percent increase over the $45.35 per square foot
reported for the first quarter of 1997.
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 March 31, 1998, as compared to 10.8 percent as of March 31, 1997.
Seasonal and temporary leasing income for the first quarter of 1998
amounted to $1.8 million,
a six-percent increase over the $1.7 million for the same period in 1997.
Acquisitions
As reported in a separate release issued today, the Company also announced
that it is under contract to acquire two regional shopping malls:
Jacksonville Mall in Jacksonville, North Carolina, and Crossroads Mall in
Beckley, West Virginia. The two malls include gross leasable area of
384,000 and 456,000 square feet, respectively. Sears, JCPenney and Belk
Stores anchor both malls. The total purchase price will be approximately
$61 million, which includes 10 acres of vacant land available for future
development. The purchase will be funded from existing credit lines and
also from assumption of debt related to one of the properties, and is
expected to be modestly accretive to FFO in 1998. The malls are currently
under common ownership and the combined acquisition is expected to occur
within several weeks.
Expansion/Renovations
Work is underway on a major expansion at Patrick Henry Mall (Newport News,
Va.). Belk Stores has begun expanding their location by 35,000 square feet
while The May Department Stores Company is adding a new 140,000 square foot
Hecht's department store. Both department stores are responsible for the
cost of their construction. In addition, Dillards department store opened
in March. The mall expansion will also include 29,000 square feet of
additional mall shop space that has been all pre-leased. The project is
expected to be completed this fall.
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 is expected to open in November 1998. Kaufmann's is
replacing Value City.
At Martinsburg Mall (Martinsburg, WV) work is underway to more than double
the Wal-Mart store. The existing 90,000 square foot store will grow to a
204,000 square foot Wal-Mart super-center. Wal-Mart is responsible for the
construction costs of this project.
At Valley Mall (Hagerstown, MD) The May Department Stores Company has
signed a letter of intent to construct a new 120,000 square foot Hecht's
department store. Hecht's, who will become the mall's fourth anchor, will
be responsible for cost of constructing their store, which is expected to
open in 1999. The project will also include adding 116,000 square feet of
mall space for a multi-screen theater, a food court and mall shops.
Multi-Screen Theater and Other Additions
Hollywood Theaters has signed a lease to open a 14-screen, 58,000 square
foot theater at Franklin Mall (Washington, Pa.). They will be located at
the site of the former Hess's department store. A spring 1999 opening is
planned.
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.
_______________________
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 through various affiliates and subsidiaries
owns, acquires, operates and develops regional shopping malls in Pennsylvania,
Maryland, West Virginia, Virginia, New Jersey, Tennessee and Georgia. The
current portfolio includes 26 regional shopping malls.
A copy of the Company's Supplemental Financial and Operational Information
Package for the first quarter of 1998 follows.
- 30 -
EXHIBIT 99(b)
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 1998
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Quarter Ended
March 31,
FINANCIAL AND ANALYTICAL DATA: 1998 vs. 1997
<S> <C> <C>
Total FFO - Incr (decr) - 1998 compared to 1997: $000 $per share
Base and percentage rents from anchors and mall shops $ 993 $ 0.027
Temporary and promotional leasing income 62 0.002
Mall operating costs, net of tenant recovery income (340) (0.009)
Utility income, miscellaneous mall income, equity in joint 123 0.003
venture
Straight line rental income 121 0.003
Core mall operations--same properties 959 0.026
Impact of Valley Mall 1,029 0.028
Core mall operations - all properties 1,988 0.054
Property admin. and general & admin. expenses; other (126) (0.003)
Cash flow support earned 202 0.006
Interest expense 1,105 0.030
Gain on sale of outparcel land 323 0.009
Fee income on sales of non-company properties 46 0.001
Lease buyout income (8) -
Impact on per share amount from common share repurchases - 0.005
and other changes in common shares and Partnership units
outstanding
Change in FFO before preferred div's and minority interest 3,530 0.102
Allocation to preferred shareholders (preferred dividends) (3,438) (0.095)
Allocation to minority interest in Operating Partnership (195) 0.000
Rounding to whole cents - 0.003
Change in FFO allocable to common shareholders $ (103) $ 0.010
Quarter Ended
March 31,
1998 1997
Funds from Operations ($000 except per share data):
Net income (loss) $ 2,210 $ (1,269)
Adjustments:
Minority Interest in Operating Partnership (462) (434)
Gain on asset sales - -
Depreciation and amortization - real estate 10,069 10,192
Operating covenant amortization 658 658
Cash flow support amounts 992 790
FFO before allocations to minority interest and preferred 13,467 9,937
shares
Less preferred share dividends (3,438) -
Less portion of FFO allocable to minority interest (2,725) (2,530)
FFO allocable to common shares $ 7,304 $ 7,407
FFO per common share $ 0.28 $ 0.27
Average common shares outstanding during the period 26,475 27,629
Common shares outstanding at period end 26,475 27,668
Avg. partnership units and common shares outstanding 36,351 37,068
during the period
Partnership units and common shares outstanding at period 36,351 37,107
end
Components of Minimum Rents:
Anchor - contractual or base rents $ 5,647 $ 5,512
Mall shops - contractual or base rents 16,074 14,577
Straight line rental income 90 (71)
Ground leases - contractual or base rents 437 376
Lease buyout income - 8
Operating covenant amortization (658) (658)
Total minimum rents $ 21,590 $ 19,744
Components of Percentage Rents:
Anchors $ 803 $ 779
Mall shops and ground leases 909 699
Net $ 1,712 $ 1,478
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 1998
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Quarter Ended
March 31,
1998 1997
<S> <C> <C>
EBITDA: earnings (including gain on sale of outparcel
land) before interest, taxes and all depreciation and $ 22,794 $ 20,654
amortization
Debt and Interest:
Fixed rate debt at period end $ 393,370 $ 395,452
Variable rate debt at period end 151,361 173,735
Total debt at period end $ 544,731 $ 569,187
Weighted avg. interest rate on fixed rate debt for the 7.5 % 7.8 %
period
Weighted avg. interest rate on variable rate debt for 7.4 % 7.9 %
the period
Total interest expense for period $ 10,255 $ 11,360
Amort. of deferred debt cost for period (incl. in 859 849
interest exp)
Capitalized interest costs during period 551 609
Capital Expenditures Incurred:
Allowances for anchors tenants $ - $ 275
Allowances for mall shop tenants 2,359 854
Leasing costs and commissions 1,158 438
Expansions and major renovations,including escrow 3,526 3,481
deposits
All other capital expenditures (included in Other 397 99
Assets)
Total Capital Expenditures during the period $ 7,440 $ 5,147
OPERATING DATA:
Mall shop GLA at period end (000 sq. ft.) 5,539 5,307
Occupancy percentage at period end 79 % 75 %
Comp. Store Mall shop sales - 3 months ( $ per sq. $ 48.05 $ 45.35
ft.)
Mall shop occupancy cost percentage at period end 10.4 % 10.8 %
Average mall shop base rent at period end ($ per sq. $ 16.94 $ 15.96
ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 84 93
New leases - $ per sq. ft. $ 22.34 $ 22.88
Number of new leases signed. 55 57
Renewal leases - sq. feet (000) 130 117
Renewal leases - $ per sq. ft. $ 19.36 $ 18.93
Number of renewal leases signed. 75 56
Tenant Allowances for leases signed during the period:
First Generation Space - per sq. ft. $ 18.93 $ 10.29
Second Generation Space - per sq. ft. $ 9.68 $ 4.68
Leases Signed during the period by:
First Generation Space - sq. feet (000) 6 16
Second Generation Space - sq. feet (000) 208 194
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements Of Operations
Three Months Ended March 31,
1998 1997
(Unaudited)
(in thousands, except per share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 21,590 $ 19,744
Percentage rent 1,712 1,478
Property operating cost recoveries 8,086 7,139
Temporary and promotional leasing 1,810 1,655
Net utility income 896 732
Miscellaneous income 214 125
Net 34,308 30,873
Property operating costs:
Recoverable operating costs 10,831 9,537
Property administrative costs 610 577
Other operating costs 506 439
Depreciation and amortization 9,755 9,804
Net 21,702 20,357
Net 12,606 10,516
Other expenses:
General and administrative 1,222 1,155
Interest 10,255 11,360
Net 11,477 12,515
Net 1,129 (1,999)
Property sales and adjustments:
Gain on sale of outparcel land 619 296
Net 619 296
Income(loss) before minority interest
in Operating Partnership 1,748 (1,703)
Minority interest in (income) loss of
Operating Partnership 462 434
Net income (loss) 2,210 (1,269)
Dividends on preferred shareholders (3,438) -
Net (loss) applicable to
common shareholders $ (1,228) $ (1,269)
Per common share information:
Basic EPS:
Net (loss) $ (0.05) $ (0.05)
Weighted average shares outstanding 26,475 27,629
(000)
Diluted EPS:
Net (loss) $ (0.05) $ (0.05)
Weighted average shares outstanding 26,475 27,629
(000)
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
1998 1997
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 132,020 $ 132,055
Buildings and improvements 858,509 852,674
Deferred leasing and other charges 40,894 39,912
Net 1,031,423 1,024,641
Accumulated depreciation and amortization (324,530) (315,125)
Net 706,893 709,516
Investment in joint venture 5,843 5,808
Cash and cash equivalents 6,735 9,472
Tenant and other receivables 13,953 16,986
Deferred charges and other assets 42,565 44,167
Net $ 775,989 $ 785,949
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 544,731 $ 541,713
Accounts payable and other liabilities 24,176 29,132
Net 568,907 570,845
Minority interest in Operating Partnership 24,021 25,334
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11%
cumulative, $.01 par value, 2,500,000 shares
issued and outstanding 25 25
Common shares, par value $.01 per share,
120,000,000 shares authorized, 27,727,212 shares
issued at both March 31, 1998 and December 31, 1997 277 277
Additional paid-in capital 308,385 308,571
Accumulated deficit (113,404) (106,881)
Net 195,283 201,992
Less common shares held in treasury at cost;
1,251,898 shares at both March 31, 1998 and
December 31, 1997 (12,222) (12,222)
Net 183,061 189,770
Net $ 775,989 $ 785,949
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Quarter Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,210 $ (1,269)
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Minority interest in Operating Partnership (462) (434)
Equity earnings in joint venture (127) (127)
Depreciation and amortization 11,599 11,738
Net changes in:
Tenant and other receivables 4,025 4,302
Deferred charges and other assets (313) (1,082)
Accounts payable and other liabilities (4,956) (3,235)
Net cash provided by operating activities 11,976 9,893
Cash flows from investing activities:
Investment in income-producing properties (7,043) (5,048)
Distributions from joint venture - 100
Net cash (used in) investing activities (7,043) (4,948)
Cash flows from financing activities:
Net proceeds from sale of common shares and from dividend - 430
reinvestment plan
Proceeds from issuance or assumption of debt, net of 12,722 5,571
deposits
Cost of issuance of debt - (135)
Debt repayments (9,684) (5,169)
Dividends and distributions paid on common shares and (7,270) (7,414)
partnership units
Dividends paid on senior preferred shares (3,438) 0
Net cash (used in) financing activities (7,670) (6,717)
Net decrease in cash and cash equivalents (2,737) (1,772)
Cash and cash equivalents, beginning of period 9,472 6,746
Cash and cash equivalents, end of period $ 6,735 $ 4,974
Interest paid (net of capitalized amounts) $ 9,396 $ 10,511
Interest capitalized $ 550 $ 609
Non-cash financing activities:
Cash flow support credited to minority interest and
paid-in capital that was prefunded in 1995. $ - $ 790
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,735
<SECURITIES> 0
<RECEIVABLES> 13,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,031,423
<DEPRECIATION> 324,530
<TOTAL-ASSETS> 775,989
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 182,759
<TOTAL-LIABILITY-AND-EQUITY> 775,989
<SALES> 0
<TOTAL-REVENUES> 34,308
<CGS> 0
<TOTAL-COSTS> 21,702
<OTHER-EXPENSES> 1,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,255
<INCOME-PRETAX> 1,748
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,210
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
