SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 15, 1998, 26,207,144 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 September 30, 1998
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997
Consolidated Statements of Operations for the three and
nine months ended September 30, 1998 and 1997
Consolidated Statement of Shareholders' Equity for the
nine months ended September 30, 1998
Consolidated Statements of Cash Flows for the nine months
ended September 30, 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
September 30, December 31,
1998 1997
(Unaudited)
(in thousands, except share
and per share data)
<S>
Assets <C> <C>
Income-producing properties:
Land $ 145,773 $ 132,055
Buildings and improvements 926,102 852,674
Deferred leasing and other charges 42,065 39,912
Net 1,113,940 1,024,641
Accumulated depreciation and amortization (337,776) (315,125)
Net 776,164 709,516
Other assets:
Investment in joint venture 5,914 5,808
Cash and cash equivalents, non-restricted 5,006 9,472
Restricted cash and escrow deposits 22,699 14,237
Tenant and other receivables 13,617 16,986
Deferred charges and other assets 33,487 29,930
Net $ 856,887 $ 785,949
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 658,604 $ 541,713
Accounts payable and other liabilities 31,028 29,132
Net 689,632 570,845
Minority interest in Operating Partnership 13,376 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, 27,741,542
and 27,727,212 shares issued at
September 30, 1998 and December 31, 1997,
respectively 277 277
Additional paid-in capital 313,635 308,571
Accumulated deficit (145,406) (106,881)
Net 168,531 201,992
Less common shares held in treasury at cost,
1,534,398 and 1,251,898 shares at September 30,
1998 and December 31, 1997, respectively (14,652) (12,222)
Net 153,879 189,770
Net $ 856,887 $ 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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 23,688 $ 20,025 $ 68,669 $ 59,845
Percentage rent 1,333 1,290 4,389 3,898
Property operating cost 8,362 7,047 24,382 21,484
recoveries
Temporary and promotional leasing 1,715 1,613 5,110 4,875
Net utility income 633 601 2,224 2,014
Miscellaneous income 221 165 749 484
Net 35,952 30,741 105,523 92,600
Property operating costs:
Recoverable operating costs 10,969 9,681 32,437 28,536
Property administrative costs 548 502 1,728 1,526
Other operating costs 539 457 1,646 1,381
Depreciation and amortization 11,038 9,396 30,835 28,530
Net 23,094 20,036 66,646 59,973
Net 12,858 10,705 38,877 32,627
Other expenses:
General and administrative 1,098 1,003 3,457 3,052
Interest 11,780 9,644 32,941 32,464
Net 12,878 10,647 36,398 35,516
Net (20) 58 2,479 (2,889)
Gain on sale of outparcel land 399 934 968
Income (loss) before
extraordinary item,minority
interest, and cumulative effect
of a change in accounting method (20) 457 3,413 (1,921)
Extraordinary loss on early
extinguishment of debt (22,512) (631) (22,512) (1,363)
Cumulative effect on prior years
(to December 31, 1997) of a change
in accounting method (1,703)
Income (loss) before minority (22,532) (174 (20,802) (3,284)
interest
Minority interest in loss of 7,052 862 8,463 1,655
Operating Partnership
Net income (loss) (15,480) 688 (12,339) (1,629)
Dividends on preferred shares (3,438) (3,208) (10,313) (3,208)
Net (loss) applicable to common $ (18,918) $ (2,520) $ (22,652) $ (4,837)
shares
Per common share data:
Basic EPS:
Income (loss) before $ (0.10) $ (0.08) $ (0.19) $ (0.14)
extraordinary item
Extraordinary item (0.62) (0.02) (0.62) (0.04)
Cumulative effect on prior years
of a change in accounting method (0.05)
Net income (loss) $ (0.72) $ (0.10) $ (0.86) $ (0.18)
Diluted EPS:
Income (loss) before $ (0.10) $ (0.08) $ (0.19) $ (0.14)
extraordinary item
Extraordinary item (0.62) (0.02) (0.62) (0.04)
Cumulative effect on prior years
of a change in accounting method (0.05)
Net income (loss) $ (0.72) $ (0.10) $ (0.86) $ (0.18)
Basic & Diluted:
Weighted average shares 26,418 27,092 26,456 27,467
outstanding
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
Net proceeds from exercise of 14
stock options and dividend
reinvestment plan
Transfer in of limited
partner's interest in the
Operating Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support
Purchase of common shares held (282)
in treasury
Net income (loss)
Cumulative effect of a change
in accounting method
Dividends paid and accrued
Balance, September 30, 1998 26,207 $ 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
Net proceeds from exercise of
stock options and dividend
reinvestment plan 132 132
Transfer in of limited
partner's interest in the
Operating Partnership 2,806 2,806
Capital contributions from
Crown Investments Trust:
Cash flow support 2,126 2,126
Purchase of common shares held
in treasury (2,430) (2,430)
Net income (11,099) (11,099)
Cumulative effect of a change
in accounting method (1,240) (1,240)
Dividends paid and accrued (26,186) (26,186)
Balance, September 30, 1998 $ 313,635 $ (145,406) $ (14,652) $ 153,879
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (12,339) $ (1,629)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority interest in Operating Partnership (8,463) (1,655)
Gain on sale of office building
Equity earnings in joint venture (382) (383)
Depreciation and amortization 36,233 34,200
Extraordinary loss on early extinguishment of debt 22,512 1,363
Cumulative effect of a change in accounting method 1,703
Net changes in:
Tenant and other receivables 1,675 3,081
Deferred charges and other assets (9,319) (9,388)
Accounts payable and other liabilities 4,530 (5,653)
Net cash provided by operating activities 36,150 19,936
Cash flows from investing activities:
Investment in income properties (34,626) (27,082)
Acquisitions of operating properties (64,972)
Proceeds from sale of Middletown Mall 8,148
Distributions from joint venture 150
Net cash (used in) investing activities (91,450) (26,932)
Cash flows from financing activities:
Net proceeds from issuance of senior preferred 118,723
shares
Net proceeds from exercise of stock options and
dividend reinvestment plan 132 921
Purchase of common shares held in treasury (2,430) (11,237)
Proceeds from issuance of debt, net of issuance 551,535 81,282
cost
Debt repayments (469,176) (120,832)
Dividends and distributions paid on common shares
and partnership units (21,830) (22,096)
Dividends paid on senior preferred shares (10,313) (2,483)
Cash flow support payments 2,916
Net cash provided by financing activities 50,834 44,278
Net increase (decrease) in cash and cash (4,466) 37,282
equivalents
Cash and cash equivalents, beginning of period 9,472 6,746
Cash and cash equivalents, end of period $ 5,006 $ 44,028
Supplemental Cash Flow Information:
Interest paid (net of capitalized amounts) $ 30,547 $ 30,965
Interest capitalized $ 1,812 $ 1,982
Non-cash financing activities:
Cash flow support credited to minority interest and
paid in capital that was prefunded in 1995. $ $ 2,742
Preferred dividends accrued, but unpaid as of $ $ 725
period end
Issuance of partnership units related to Middletown
Mall and Greater Lewistown acquisitions $ 4,479 $
Assumption of debt related to Greater Lewistown and $ 14,718 $
Crossroads acquisitions
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, five additional enclosed malls have
been acquired by the Company: two in 1995, one in 1997, and two in 1998. In
addition a strip shopping center, which had been managed by the Company, was
acquired by the Company in May 1998.
Simultaneously with the above transactions, the Financing Partnership borrowed
through Kidder approximately $300 million of mortgage debt (the "Kidder Mortgage
Loans") secured by its 15 enclosed shopping malls (see Note 4). The proceeds
from $300 million of mortgage debt together with the proceeds of the equity
offering were used to retire existing debt contributed with the Properties (see
Note 4). As described in Note 4, in August 1998 the Kidder Mortgage Loans were
refinanced in their entirety.
As further described in Note 3, 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.
As of September 30, 1998, the Properties consist of: (1) 26 enclosed shopping
malls (together with adjoining outparcels and undeveloped land) located in
Pennsylvania, New Jersey, Maryland, Tennessee, North Carolina, 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, and other special purpose partnerships or limited
liabilities entities formed to hold acquired properties or for financing
purposes (see Notes 4 and 6). The Company is the sole general partner in the
Operating Partnership, and at September 30, 1998, the Company held 100% of the
preferred partnership interests (see Note 3) and 72.47% of the common
partnership interests. All significant intercompany amounts have been
eliminated. Certain prior year balances have been reclassified to conform to
the current year presentation.
In the opinion of management, the accompanying unaudited consolidated interim
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 - CHANGE IN ACCOUNTING METHOD
On May 21, 1998 the Emerging Issues Task Force ("EITF") discussed Issue 98-9
"Accounting for Contingent Rent" and reached a consensus that lessors should
defer the accounting recognition of contingent rent, such as percentage rent,
until the specific tenant sales breakpoint target is achieved. The Company's
previous accounting method, which was fully acceptable under Generally Accepted
Accounting Principles ("GAAP"), recognized percentage rent on a pro-rata basis
when a tenant's achievement of its sales breakpoint was considered probable.
This EITF consensus can be implemented on a prospective basis, or retroactively
as a change in accounting method.
During the third quarter of 1998, the Company implemented the EITF consensus as
a change in accounting method and accordingly recorded as of January 1, 1998 a
$1.7 million cumulative effect adjustment representing the change on prior
years' percentage rent income of the new method of accounting. The impact on
percentage rent income of the new method for the nine months ended September 30,
1998 was a reduction of percentage rents of about $80,000 from what would have
been reported under the Company's previous method of accounting. This current
year impact was recorded in the third quarter; the impact on the previously
reported first and second quarters was immaterial.
NOTE 3 - PREFERRED SHARE OFFERING
On July 3, 1997, the Company completed an offering of 2,500,000 11.00% non-
convertible senior preferred shares. 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 30, 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 September 30, 1998, the Company had
repurchased 1,251,898 and 1,534,398 common shares, respectively, for an
aggregate purchase price of $12.2 million and $14.7 million, respectively; 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 965,602 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 September 30,
1998, is 5.7 to 1 and accordingly no additional dividends were payable. 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 4 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
September 30, 1998 December 31, 1997
Mortgage loans $ 465,000 $ 280,637
Permanent loans 128,852 229,417
Construction loans 4,608 1,659
Secured term loans and lines of credit 60,144 30,000
$ 658,604 $ 541,713
Mortgage Loans
Concurrently with the offering of shares of the Company in 1993, the Financing
Partnership borrowed an aggregate $300 million in mortgage debt through Kidder
Peabody Mortgage Capital Corporation (collectively, the "Kidder Mortgage
Loans"). 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 Kidder Mortgage Loans in order to release the Logan Valley Mall from the
Kidder Mortgage Loans and Financing Partnership. No prepayment penalty was
incurred. On August 28, 1998, the Company closed a $465 million 10-year
mortgage with GE Capital Real Estate ("GECRE"). The gross proceeds from the new
loan (the "GECRE Mortgage Loan") were used to refinance the $280.6 million
Kidder Mortgage Loans, the $110.0 million interim mortgage loan (see below), and
the $30.0 million secured term loan. The remaining proceeds were used largely
to establish escrows to fund the remaining expansion and redevelopment costs of
Patrick Henry Mall and Nittany Mall, and to fund closing costs, initial loan
reserves and prepayment penalties with respect to $200.0 million of the Kidder
Mortgage Loans and the $30.0 million secured term loan that were pre-paid prior
to their maturity dates. The prepayment penalties for the Kidder Mortgage Loans
and the $30 million term loan were approximately $16.6 million. In addition,
approximately $5.9 million of unamortized deferred financing costs related to
the Kidder Mortgage Loans and the $110 million interim mortgage loan were
written off. Both of these items were accounted for as an extraordinary loss on
early extinguishment of debt. The GECRE Mortgage Loan has a fixed stated
interest rate of 7.43% and is secured by cross-collateralized mortgages on 15 of
the malls. In connection with the GECRE Mortgage Loan, in November 1997, the
Company made a $6.0 million interest-bearing good-faith deposit with GECRE, and
in July and August 1998, the Company made $12.2 million in non-interest bearing
rate lock deposits with GECRE. These deposits were refunded at closing.
Financing Transactions with GE Capital Real Estate
In November 1997 the Company closed a $110 million interim mortgage loan and a
$150 million secured credit facility with GECRE. The $110 million mortgage loan
was placed through a new subsidiary, Crown American W L Associates, L.P., and
was secured by Logan Valley and Wyoming Valley malls and bore interest at LIBOR
plus 1.60%. The interim 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 interim
mortgage loan was repaid as part of the refinancing in August 1998, as noted
above.
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 September 30, 1998, $56.6 million was outstanding under these
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.
Permanent Loans
At September 30, 1998, permanent loans consisted of eight loans secured by seven
properties with various maturities from October 1998 through June 2008. Included
in permanent loans are (1) a $2.9 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 $11.0
million as of September 30, 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 eighteen month
construction loan facility that will convert to a three and one-half year
permanent loan in 1999. 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%.
Secured Term Loans and Lines of Credit
At September 30, 1998, the Company had $155.6 million in available revolving
lines of credit, which includes the $150.0 million credit facility with GECRE
described above. The total amounts outstanding under the lines were $60.1
million and $0.0 million at September 30, 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 $55.6 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 (of which $28.6 million is
outstanding at September 30, 1998), and (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 (of which $3.5 million is outstanding at
September 30, 1998). Amounts may be borrowed under the $55.6 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 September 30, 1998. Twenty of the
Company's malls are mortgaged under the GECRE Mortgage Loan and the GECRE lines
of credit. All of these malls are owned by special purpose subsidiaries of the
Company. The sole business purpose of these subsidiaries, as an ongoing
covenant under the related loan agreements, is the ownership and operation of
the properties. The mortgaged malls and related assets owned by these
subsidiary entities are restricted under the loan agreements for the payment of
the related mortgage loans and are not available to pay other debts of the
consolidated Company. However, so long as the loans are not under an event of
default, as defined in the loan agreements, the cash flows from these
properties, after debt service and reserve payments are made, are available for
the general use of the consolidated Company.
Interest Rates
The Mortgage Loans and eight of the permanent loans (aggregate principal
outstanding of $593.8 million at September 30, 1998) have fixed interest rates
ranging from 0% to 9.625%. The weighted average interest rate on this fixed-
rate debt at September 30, 1998 and 1997 was 7.65% and 7.66%, respectively. The
weighted average interest rate during the three months ended September 30, 1998
and 1997 was 7.56% and 7.67%, respectively.
All of the remaining loans (aggregate principal outstanding of $64.8 million at
September 30, 1998) have variable rated debt based on spreads ranging from 1.95%
to 2.35% above 30 day LIBOR. The weighted average interest rate on the variable
rated debt at September 30, 1998, and 1997 was 7.60%, and 7.77%, respectively.
The weighted average interest rate during the three months ended September 30,
1998 and 1997 was 7.58% and 7.80%, respectively.
Debt Maturities
As of September 30, 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 (three months) $ 594
1999 (year) 9,684
2000 (year) 5,200
2001 (year) 66,992
2002 (year) 39,048
Thereafter 537,086
Net $ 658,604
NOTE 5 - 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 September 30, 1998. The Company will adopt FAS No.
131, "Disclosures About Segments of an Enterprise and Related Information" in
the fourth quarter of 1998. This new standard is not expected to have a
material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. Statement 133
is effective for fiscal years beginning after June 15, 1999. The impact of FAS
No. 133 on the Company's results of operations at September 30, 1998 is
immaterial.
NOTE 6 - MALL ACQUISITIONS AND DISPOSITIONS
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 3).
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.
In May 1998 the Company acquired, in a single transaction, 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 was approximately $61 million, which
includes 10 acres of vacant land available for future development. The purchase
was funded from existing credit lines and also from assumption of debt related
to one of the properties.
In addition, in May 1998 the Company acquired a 171,695 square foot shopping
center located in Lewistown, Pennsylvania, for $4.5 million from Crown American
Enterprises (a related party). The Company has managed this property since its
inception. The major tenants include a Weis Markets and a small JCPenney unit.
The purchase was funded through assumption of an existing mortgage of
approximately $3.7 million and the remainder from the issuance of approximately
80,000 Operating Partnership units.
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. In July 1998 the Company sold Middletown Mall,
together with approximately 60 acres of undeveloped outparcels and vacant land,
to an unrelated third party. The aggregate purchase price was $12.2 million.
The Company received $8.5 million in cash, net of closing costs, and received a
$3.5 million one-year 9.5% mortgage from the purchaser, secured by a first
mortgage on all the undeveloped land and outparcels and by a second mortgage on
the mall. Gain on the sale of approximately $1.3 million has been deferred
until all conditions for profit recognition under FASB 66 are satisfied.
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 September 30, 1998.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three and nine months ended September 30, 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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands)
Selected Financial Data:
<S> <C> <C> <C> <C>
EBITDA (1 & 3) $ 23,875 $ 20,579 $ 70,339 $ 62,371
Funds from Operations (FFO)
2 & 3):
Net Income (loss) $ (15,480) $ 688 $ (12,339) $ (1,629)
Adjustments:
Minority interest in Operating (7,052) (862) (8,463) (1,655)
Partnership
Depreciation and amortization - 11,380 9,704 31,803 29,519
real estate
Operating covenant amortization 658 658 1,973 1,973
Cash flow support 1,000 1,066 2,926 2,742
Cumulative effect of a change in 1,703
accounting method
Extraordinary loss on early 22,512 631 22,512 1,363
extinguishment of debt
Funds from Operations, before 13,018 11,885 40,115 32,313
allocations to minority
interests and preferred shares
Less:
Amount allocable to preferred 3,438 3,208 10,313 3,208
shares
Amount allocable to minority 2,622 2,246 8,122 7,444
interest
Funds from Operations applicable $ 6,958 $ 6,431 $ 21,680 $ 21,661
to common shares
Weighted average common shares 26,418 27,092 26,456 27,467
outstanding (000)
Cash Flows:
Net cash provided by operating $ 16,330 $ 7,679 $ 36,150 $ 19,936
activities
Net cash used in investing $ (21,236) $ (9,248) $ (91,450) $ (26,932)
activities
Net cash provided by financing $ 5,533 $ 42,873 $ 50,834 $ 44,278
activities
(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 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 and Nine Months Ended September 30, 1998 to the
corresponding periods in 1997
- - Revenues
For the first nine months of 1998, revenues totaled $105.5 million, an increase
of 14 percent, compared to $92.6 million for the same period of 1997. Of the
total revenue increase of $12.9 million, $8.0 million came from the four
recently-acquired properties (Valley, Crossroads, and Jacksonville Malls and
Greater Lewistown Plaza) and $4.9 million was attributed to existing properties,
primarily from higher mall shop base and percentage rent and recovery income.
Total revenues for the third quarter of 1998 were $36.0 million, up $5.3
million, or 17 percent, from $30.7 million in the same period of 1997. The four
recently acquired properties (noted above) accounted for $3.9 million of the
total increase, with $1.7 million arising from the existing properties, offset
by $0.3 million lower revenues due to the sale of Middletown Mall in July 1998.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the first nine
months of 1998 were $35.8 million, or $4.4 million higher than the corresponding
period in 1997. This increase primarily consisted of $2.2 million of operating
costs associated with the recently acquired properties and $0.7 million of
increased real estate tax expense from existing properties. Depreciation and
amortization expense increased by $2.3 million in the first nine months of 1998
compared to 1997, primarily due to the addition of the four newly acquired
properties.
Recoverable and non-recoverable mall operating costs for the third quarter of
1998 were $12.0 million compared to $10.6 million for the third quarter of 1997,
an increase of $1.4 million. $1.1 million of this increase was due to the four
recently acquired properties and $0.1 million was due to increased real estate
taxes.
- - General, Administrative and Interest Expenses:
For the first nine months of 1998, general and administrative expenses totaled
$3.5 million, or $0.4 million higher than the same period in 1997. This
increase was primarily due to higher net leasing costs. Interest expense
increased by $0.5 million in the first nine months of 1998 compared to 1997
primarily as a result of higher borrowing levels.
General and administrative costs for the third quarter of 1998 totaled $1.1
million, an increase of $0.1 million over the second quarter of 1997. Interest
expense for the third quarter of 1998 was $11.8 million, approximately $2.1
million higher than the corresponding period of 1997 due to higher debt levels
outstanding.
- - Gain on Property Sales and Disposals:
The gain on the sale of outparcel land was $0.9 million for the first nine
months of 1998, or even with the first nine months of 1997. For the third
quarter of 1998, there were no land sales compared with $0.4 million in the
third quarter of 1997.
- - Net Income (loss):
For the first nine months of 1998, the Company reported a net loss of $12.3
million compared to a net loss of $1.6 million for the first nine months of
1997. 1998's results include a loss on the early extinguishment of debt related
to the GECRE financing of $22.5 million (see Note 4) and a $1.7 million
cumulative effect write-off due to a change in accounting method (see Note 2).
The 1997 net loss includes a loss on the early extinguishment of debt in the
amount of $1.4 million. After deducting preferred dividends, there was a net
loss applicable to common shares for the first nine months of 1998 of $22.7
million versus a net loss of $4.8 million for the first nine months of 1997.
For the third quarter of 1998, the Company's net loss was $15.5 million compared
to a net income in the third quarter of 1997 of $0.7 million. The third quarter
of 1998 was impacted by the loss on early extinguishment of debt mentioned in
the preceding paragraph. After deducting preferred dividends, there was a net
loss applicable to common shareholders of $18.9 million in the third quarter of
1998 compared to a net loss of $2.5 million in the third quarter of 1997.
- - Funds from Operations:
For the first nine months of 1998, Funds from Operations ("FFO") before
allocations to minority interest and to preferred dividends was $40.1 million
compared to $32.3 million in the first nine months of 1997. FFO allocable to
common shares (after minority interest and preferred dividends) was $21.7
million or even with the first nine months of 1997. The increase in FFO before
allocations to minority interest and preferred dividends during the first nine
months was mainly due to the following: FFO contributed from core mall
operations was up $8.9 million, or 13.7 percent; the four recently acquired
properties accounted for $5.7 million of this increase. These increases were
offset by higher general and administrative expenses of $0.6 million, and by
higher interest expense of $0.5 million. Preferred dividends were higher in
1998 by $7.1 million.
For the quarter ended September 30, 1998, FFO before allocations to minority
interest and to preferred dividends was $13.0 million, up from $11.9 million in
the third quarter of 1997. FFO allocable to common shares was $7.0 million
compared with $6.4 million for the third quarter of 1997. The increase in FFO
before allocations to minority interest and to preferred dividends was due
primarily to $1.3 million in higher mall shop and anchor base and percentage
rents from the existing mall portfolio arising from increased occupancy and
higher rental rates and $2.7 million in operating income from properties
acquired since the third quarter of 1997. The increases were partially offset
by $2.1 million in higher net interest expense mainly from higher average
outstanding debt, $0.4 million from lower gain on land sales, and $0.2 million
in higher preferred dividends.
EBITDA
For the nine months ended September 30, 1998, EBITDA was $70.3 million compared
to $62.4 million for the same period in 1997, an increase of 13%.
For the third quarter of 1998, EBITDA was $23.9 million compared to $20.6
million in 1997, an increase of 16%. 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 3 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 September 30, 1998 the scheduled principal payments on all debt are as
follows: $0.6 million for the three months ending December 31, 1998, and $9.7
million; $5.2 million; $67.0 million; and $39.0 million in the years ending
December 31, 1999 through 2002, respectively, and $537.1 million thereafter. The
Company expects to refinance or extend the majority of the maturities over the
next five years through additional Company financings and mortgage loans on
those properties having the maturing loans. The Company's ability to refinance
or extend these loans on or before their due dates depends on the level of
income generated by the properties, prevailing interest rates, the ability to
access capital in the current market environment, 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.
Year 2000
Management of the Company has made a preliminary and partial assessment of the
so-called "Year 2000 problem" which relates to the ability of electronic
equipment, computer hardware and software to properly recognize date sensitive
information on or after January 1, 2000. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Company's assessment and corrective action efforts to date have focused
primarily on internal equipment and software used by the Company. Based on
this preliminary assessment, the Company believes that the cost to replace
certain electronic and computer equipment and to reprogram certain software will
not be material to the Company's results of operations. Beginning in 1994, the
Company has made significant investments in upgraded computer hardware and
third-party software operating and financial systems; management
believes such new systems are Year 2000 capable based on communications with the
hardware and software vendors and on limited testing. Management also believes
that the potential impact and disruption of Year 2000 on equipment and
software, to the extent not replaced or repaired by 2000, should not result
in direct material adverse effects on the Company's ability to operate.
Contributing to this preliminary assessment is the relatively passive nature of
the Company's business of leasing space to retailers.
However, the Company may be impacted in a number of direct and indirect ways if
its suppliers and customers (tenants and the ultimate consumers), or if the
general United States or world economies, are disrupted from the impact of Year
2000. Such effects could include, for example, temporary loss of utilities and
telecommunications services which could prevent the shopping malls or tenants
from maintaining normal sales hours, disruption of financial services such as
processing of checks or credit card transactions, adverse effects on the
manufacture and delivery of goods to tenants to be sold in the Company's mall
properties (many such goods are produced outside the United States), and
the inability of tenants' systems to process sales and control inventories.
It is possible that these effects could reduce tenant sales and thus
reduce percentage rents received by the Company. It is also possible that
some tenants may be unable to remain in business and thus cease paying rents.
Some commentators on Year 2000 have suggested that Year 2000 issues could
cause, or contribute to, an economic recession which could affect the overall
levels of tenant sales, future leasing activity, interest rates, and other
general economic factors that could adversely impact the Company. While
management of the Company is unable to estimate the magnitude of all these
effects, they could have a material adverse effect on the future results
of operations and financial condition of the Company.
Management is continuing to complete its efforts to identify non-complaint
equipment and systems, and to correct and/or replace such systems. Management
is also beginning to develop contingency plans for both its headquarters and
mall properties should these efforts not result in 100% compliance by January 1,
2000. These contingency plans will also address certain potential external
effects on the Company, including possible loss of utilities. No assurance can
be given that these contingency plans will be sufficient to mitigate all Year
2000 effects that could impact the Company.
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 July 30, 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 actions. 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 both the consolidated action and
the Warden action. On October 15, 1998 the Court in the warden action granted
the Company's motion to dismiss and permitted the plaintiffs to file a third
amended complaint on or before November 18, 1998. The Company anticipates the
filing of a motion to dismiss any third amended complaint in 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.
On November 2, 1998, the Court granted in part and denied in part the Company's
motion to dismiss the second amended complaint in the consolidated action. In
its ruling, the Court dismissed the Company as a defendant and dismissed all of
the plaintiffs' claims with prejudice, except for a narrow set of allegations
relating to projections of the 1995 dividend at a March, 1995 REIT conference
and in the 1994 annual report. As a result of the Court's ruling, the
plaintiffs in the consolidated action must file a third amended complaint on or
before November 30, 1998.
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 is scheduled for argument on December 8, 1998. 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 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
On October 29, 1998, the Company issued its regular quarterly
earnings release and its Third 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 October 29, 1998
Exhibit 99 (b) - Third 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: November 12, 1998 CROWN AMERICAN REALTY TRUST
/s/ Terry L. Stevens
Terry L. Stevens
Senior Vice President and
Chief Financial Officer
(Authorized Officer of the Registrant
and Principal Financial 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: Thursday, October 29, 1998
CROWN AMERICAN REALTY TRUST REPORTS
THIRD QUARTER FFO PER SHARE UP 8.3% COMPARED TO 1997
THIRD QUARTER CORE MALL OPERATIONS UP
18.6% WITH ACQUISITIONS
$465 MILLION REFINANCING WITH GE CAPITAL REAL ESTATE COMPLETED IN THIRD QUARTER
-------------------------------------------
CROWN AMERICAN REALTY TRUST ANNOUNCES
THIRD QUARTER RESULTS AND DECLARES DIVIDENDS
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the third quarter and for the nine months ended September 30, 1998. The
Board of Trustees also declared regular quarterly dividends on its common and
senior preferred shares.
_______________________________
"The transformation of our mall portfolio continued to produce positive
operating results in the third quarter, and the recent $465 million mortgage
loan refinancing significantly improved our future debt maturities and balance
sheet," stated Crown American Realty Trust President, Mark E. Pasquerilla.
"Funds from Operations ("FFO") was $0.26 per share, up 8.3% from the $0.24 per
share reported for the third quarter of 1997, and in line with consensus analyst
expectations for the quarter. The transformation of our malls was evident by
the growing contribution to FFO from core mall operations (before interest, land
sales, G&A, and non-recurring items) which was up $3.9 million ($0.108 per
share) or 18.6% in the third quarter compared to 1997, of which $1.2 million was
from existing properties and $2.7 million was from recently acquired properties.
Other positive trends include signed mall shop leases which for the first nine
months were 69% higher than the same period in 1997, and leases out-for-
signature, our "leasing pipeline", which were up 49% in the same period. Mall
shop occupancy at September 30, 1998 was 81% compared to 77% a year ago, and
comparable mall shop tenant sales for the nine months were up 7.2% from 1997.
Turning to our capital structure, the $465 million fixed rate mortgage loan
refinancing completed earlier this quarter strengthened the Company by
eliminating $140 million of floating rate debt and by reducing the amount of
debt maturities by $425 million through December 31, 2003 compared with the
previous loan maturity schedule.
Pasquerilla concluded, "We are pleased with the higher revenues and FFO
results in the third quarter and first nine months of 1998 and we remain
positive for 1999. For the remainder of 1998, we are somewhat more cautious in
our outlook. We expect fourth quarter FFO to range from $0.34 to $0.36 per
share, which would result in full year FFO per share for 1998 up modestly over
1997, which would mark the first annual FFO increase since 1994. The increase
in expected fourth quarter FFO over the third quarter would be consistent with
the $0.07 to $0.10 per share fourth quarter increase that normally occurs from
seasonal factors. Last year we achieved $0.36 per share in the fourth quarter.
The slightly lower to flat performance expected for the fourth quarter compared
to 1997 relates to several items including: opening delays on some of the new
tenant leases signed in the first half of this year; expected lower temporary
and seasonal leasing income at existing properties due mainly to less available
space for seasonal tenants; higher interest costs from higher borrowing levels;
and finally, last year's fourth quarter was boosted by unusually low snow
removal costs, and by higher recovery income from year-end adjustments to
interim period CAM estimates. For 1999 our current expectation is for near
double-digit FFO growth, with full year FFO per share in the mid to upper
$1.20's; however, our projections are contingent on generally stable market and
economic conditions in 1999. In summary, the transformation of our malls and
the continuing strong leasing results and leasing pipeline occurring this year
should have continuing positive impacts on 1999 revenues and FFO; 1999 will also
benefit from the full-year impact of the acquisitions completed in the second
quarter of this year."
Dividend Information
The Board of Trustees declared a regular quarterly dividend of $.20 per
common share and $1.375 per senior preferred share. Both dividends are payable
on December 11, 1998 to shareholders of record on November 27, 1998.
Financial Information - Third Quarter
For the quarter ended September 30, 1998, the Company reports that Funds
from Operations (FFO) before allocations to minority interest and to preferred
dividends was $13.0 million, up from $11.9 million in the third quarter of 1997.
FFO allocable to common shares was $7.0 million, or $0.26 per common share,
compared with $6.4 million, or $0.24 per common share, for the third quarter of
1997. The increase in FFO before allocations to minority interest and to
preferred dividends was due primarily to $1.3 million ($0.036 per share) in
higher mall shop and anchor base and percentage rents from the existing mall
portfolio arising from increased occupancy and higher rental rates and $2.7
million ($0.074 per share) in operating income from properties acquired since
the third quarter of 1997 (Valley Mall, Jacksonville Mall, Crossroads Mall, and
Greater Lewistown center). The increases were partially offset by $2.1 million
($0.059 per share) in higher net interest expense mainly from higher average
outstanding debt, $0.4 million ($0.011 per share) from lower gain on land sales,
and $0.2 million ($0.006 per share) in higher preferred dividends. Compared to
the immediately preceding second quarter of 1998, FFO was lower by $0.5 million
($0.020 per share) due to $0.3 million lower gain on land sales, $0.9 million
higher net interest expense due to higher average borrowings, offset by $0.4
million higher property operating income.
Total revenues for the third quarter were $36.0 million, up $5.3 million or
17% from $30.7 million in the third quarter of 1997. Revenues in the quarter
were favorably impacted by $3.9 million from the acquired properties and $1.7
million from increases in the existing portfolio, offset by $0.3 million lower
revenues due to the sale of Middletown Mall in July 1998.
As previously announced, in connection with the $465 million mortgage loan
refinancing that occurred in August 1998, the Company incurred a $22.5 million
extraordinary loss on early extinguishment of debt which included $16.6 million
in prepayment penalties and $5.9 from a write-off of unamortized deferred
financing costs related to the refinanced debt. In addition, as also previously
disclosed, during the third quarter the Company changed its method of accounting
for percentage (contingent) rent as required by the Emerging Issues Task Force,
Issue No. 98-9. The Company implemented the new accounting method as a change
in accounting method and accordingly recorded a $1.7 million retroactive
cumulative catch-up adjustment as of January 1, 1998 representing the cumulative
effect of the change on prior years' percentage rent income. The impact on
percentage rent income of the new method for the nine months ended September 30,
1998 was a reduction of percentage rents of about $80,000 from what would have
been reported under the Company's previous method of accounting. This current
year impact was recorded in the third quarter; the impact on the previously
reported first and second quarters was immaterial. As a result of the
extraordinary loss on early extinguishment of debt and the cumulative effect of
the change in accounting, the Company reported a net loss for the third quarter
of 1998 of $15.5 million. After deducting preferred dividends, there was a net
loss applicable to common shares of $18.9 million, or $0.72 per common share.
This compares to $2.5 million net loss applicable to common shares, or $0.10 per
share, in the third quarter of 1997.
For the first nine months of 1998, FFO before allocations to minority
interest and to preferred dividends was $40.1 million ($0.82 per common share)
compared to $32.3 million ($0.79 per share) for the same period of 1997. Total
revenues for the nine months were $105.5 million compared to $92.6 million in
1997, of which $7.6 million related to the acquired properties.
Operating Information
During the third quarter of 1998, leases for 120,000 square feet of mall shops
were signed resulting in $3.1 million in annual base rental income. This
compares to 213,000 square feet for $3.6 million during the same period in 1997.
A total of 79 leases were signed, which included 31 renewals and 48 new leases.
Annualized revenues from new and renewal signed mall shop leases during the nine
months were $19.6 million, 69 percent higher than the same period in 1997.
For the nine months ended September 30, 1998, the average rent for mall shop
leases signed was $19.18 per square foot compared with $19.23 for the same
period in 1997. The average rents per square foot were $20.14 for new leases
and $18.21 for renewals in the first nine months of 1998, compared with $21.55
and $17.20, respectively, in 1997.
Also during the third quarter of 1998, leases for 25,000 square feet in non-mall
shop and/or freestanding locations were signed resulting in $262,000 in annual
base rental income. For the nine months ended September 30, 1998, the Company
has signed leases on 128,000 square feet resulting in $1.3 million in annual
base rental income.
The average base rent of the portfolio as of September 30, 1998 was $17.30 per
square foot. This is a 3.7 percent increase from $16.69 per square foot as of
September 30, 1997, and the 20th consecutive quarter that average base rent has
increased.
Overall, mall shop occupancy was 81 percent as of September 30, 1998. This
compares to 77 percent as of September 30, 1997. Mall shop occupancy is
unchanged from June 30, 1998 as new tenant leases signed during the quarter were
offset by mall shop tenant closings, the pace of which picked up modestly in the
third quarter. However, for the full nine months, mall shop tenant closings
were 31% lower than the comparable period of 1997.
Mall shop comparable sales for the nine months ended September 30, 1998 were
$153.97 per square foot. This is a 7.2 percent increase over the $143.67
reported for September 30, 1997.
Occupancy costs, that is, base rent, percentage rent and expense recoveries as a
percentage of mall shop sales at all properties, were 10.2 percent as of
September 30, 1998, as compared to 10.7 percent as of September 30, 1997.
Temporary and promotional leasing income for the first nine months of 1998
amounted to $5.1 million, as compared to $4.9 million for the same period in
1997.
Expansion/Renovation Projects
Work on a major expansion at Patrick Henry Mall (Newport News, Va.) is nearly
complete. A new 140,000 square foot May Company (Hecht's) department store is
scheduled to open November 11. On that same day, Dillard's will also mark the
completion of the expansion and renovation of their store. In addition, 29,000
square feet of mall shop space is being added as part of the project, all of
which is pre-leased and about 22,000 square feet of which is currently open.
Construction is continuing at Washington Crown Center (formerly Franklin Mall,
Washington, Pa.). This project includes the addition of a new 140,000 square
foot May Company (Kaufmann's) department store, a new 14-screen Hollywood
Theater, a relocation of the food court and a complete mall renovation. A Fall
1999 completion is expected.
At Valley Mall (Hagerstown, Md.) work is continuing on a mall expansion that is
to include a new, 120,000 square foot May Company (Hecht's) department store, a
16-screen R/C Theatres complex, a new Gardenside Cafe food court and additional
mall shop space. A Fall 1999 completion is scheduled.
Work on a 95,000 square foot May Company (Kaufmann's) department store is
underway at Nittany Mall (State College, Pa.). Kaufmann's is replacing Value
City at this location and is expected to open in Spring 1999. The May
Department Stores Company is responsible for the construction of their new
Kaufmann's unit.
The major expansion of the Wal-Mart location at Martinsburg Mall (Martinsburg,
WV) was recently completed. The project increased the size of Wal-Mart from
90,000 square feet to 204,000 square feet. Wal-Mart was responsible for nearly
all construction costs on this project.
Multi-Screen Theaters and Other Additions
In August, a 13 screen Regal Cinema opened at West Manchester Mall (York, Pa.).
The 43,400 square foot theater features stadium seating and state-of-the-art
sound systems.
Construction is nearing completion on a new 14-screen Cinemark Theater at Oak
Ridge Mall (Oak Ridge, Tenn.). This 50,000 square foot theater will open later
this year.
In October, Crown American announced that an agreement has been finalized with
Hollywood Theatres to open a 14-screen, 58,656 square foot theater at North
Hanover Mall (Hanover, Pa.). Construction is expected to begin in early 1999
with a late 1999 opening planned.
At Schuylkill Mall (Frackville, Pa.) a 53,000 square foot U.S. Factory Outlet
store will open in early November in the former Hess's department store
location. This is the first Pennsylvania unit for the New York City-based
retailer.
Financings
In October, Moody's Investors Services issued a release revising their Ratings
Outlook relative to the Company's senior preferred shares to positive from
stable. The release stated that the change reflects the Company's progress in
redeveloping its malls, in expanding occupancy and rental levels, and in
improving its financial stability, including reducing future debt refinancing
risk as a result of the new $465 million mortgage loan completed in August.
As previously announced on August 31, the Company completed a $465 million ten-
year mortgage loan refinancing with GE Capital Real Estate. The new loan is
secured by cross-collateralized mortgages on fifteen of the Company's regional
malls. The loan bears a stated interest rate of 7.43% and is payable monthly,
interest only during the first two years, and then amortizing during the last
eight years based on a 25 year amortization schedule. While the all-in interest
cost is lower that the debt that was refinanced, the increase in overall debt
levels after the refinancing will offset the lower all-in rate.
During the third quarter the Company acquired 282,500 common shares under a
common share buyback program announced on September 1. The shares were acquired
at an average price of $8.602 per share and are held as treasury shares.
Acquisitions and Dispositions
As previously announced, in July the Company sold Middletown Mall in Fairmont,
West Virginia, together with about 60 acres of adjacent undeveloped land and
outparcels, to an unrelated third party. The aggregate purchase price was $12.25
million. The Company received $8.5 million in cash, less closing costs, and
received a $3.5 million one-year 9.5 percent mortgage from the purchaser,
secured by a first mortgage on the outparcels and vacant land and a second
mortgage on the mall. Gain of approximately $1.3 million has been deferred
until all conditions for profit recognition under FASB 66 are satisfied.
___________________________________________________
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,
North Carolina, Tennessee and Georgia. The current portfolio includes 27
regional shopping malls.
This news release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements are based on assumptions and expectations, which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy. Future events and actual results, financial and
otherwise, may differ from the results discussed in the forward-looking
statements. Risk and other factors that might cause differences, some of which
could be material,include, but are not limited to, economic and credit market
conditions, the ability to refinance maturing indebtedness, the impact of
competition, consumer buying trends, financing and development risks,
construction and lease-up delays, cost overruns, the level and volatility of
interest rates, the rate of revenue increases versus expenses increases and
financial stability of tenants within the retail industry, as well as other
risks listed from time to time in the Company's reports filed with the
Securities and Exchange Commission or otherwise publicly disseminated by the
Company.
A copy of the Company's Supplemental Financial and Operational Information
Package is attached. For additional information, please call Investor Relations
at 1-800-860-2011.
- 30 -
EXHIBIT 99(b)
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
THIRD QUARTER 1998
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 vs. 1997 1998 vs. 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
FINANCIAL AND ANALYTICAL DATA:
Total FFO - Incr (decr) - 1998 $000 $ per share $ 000 $ per share
compared to 1997:
Base and percentage rents from anchors $ 1,282 $ 0.036 $ 3,857 $ 0.107
and mall shops
Temporary and promotional leasing (94) (0.003) (160) (0.004)
income
Mall operating costs, net of tenant (19) (0.001) (1,063) (0.029)
recovery income
Utility and misc. mall income, equity 57 0.002 266 0.007
in joint venture
Straight line rental income 17 0.000 261 0.007
Core mall operations--same properties 1,243 0.034 3,161 0.088
Impact of Valley, Jacksonville, 2,683 0.074 5,689 0.157
Crossroads, and Lewistown
Core mall operations - all properties 3,926 0.108 8,850 0.245
Property admin. and general & admin. (121) (0.003) (642) (0.018)
expenses
Cash flow support earned (66) (0.002) 184 0.005
Interest expense (2,136) (0.059) (477) (0.013)
Gain on sale of outparcel land (399) (0.011) (34) (0.001)
Fee income on sales of non-company 18 0.000 94 0.003
properties
Lease buyout income (90) (0.002) (174) (0.005)
Impact on per share amount from
changes in the number of common shares
and units outstanding 0.000 0.005 0.000 0.015
Change before pref'd div's and 1,132 0.036 7,801 0.231
minority interest
Allocation to preferred shareholders (230) (0.006) (7,105) (0.195)
(preferred dividends)
Allocation to minority interest in (375) 0.000 (677) 0.000
Operating Partnership
Rounding to whole cents 0.000 (0.010) 0.000 (0.006)
Change in FFO allocable to common $ 527 $ 0.020 $ 19 $ 0.030
shareholders
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Funds from Operations ($000
except per share data):
Net income (loss) $ (15,480) $ 688 $ (12,339) $ (1,629)
Adjustments:
Minority Interest in (7,052) (862) (8,463) (1,655)
Operating
Partnership
Depreciation and amortization 11,380 9,704 31,803 29,519
- - real estate
Operating covenant 658 658 1,973 1,973
amortization
Cash flow support amounts 1,000 1,066 2,926 2,742
Cumulative effect of a change 0 0 1,703 0
in accounting method
Extraordinary loss on early 22,512 631 22,512 1,363
extinguishment of debt
FFO before allocations to 13,018 11,885 40,115 32,313
minority interest and pref'd
shares
Allocation to preferred (3,438) (3,208) (10,313) (3,208)
shareholders (preferred
dividends)
Allocation to minority (2,622) (2,246) (8,122) (7,444)
Interest in Operating
Partnership
FFO allocable to common $ 6,958 $ 6,431 $ 21,680 $ 21,661
shares
FFO per common share $ 0.26 $ 0.24 $ 0.82 $ 0.79
Average shares outstanding 26,418 27,092 26,456 27,467
during the period
Shares outstanding at period 26,207 26,557 26,207 26,557
end
Avg. partnership units and 36,369 36,530 36,367 36,905
shares outstanding during
period
Partnership units and shares 36,156 35,996 36,156 35,996
outstanding at period end
Components of Minimum Rents:
Anchor - contractual or base $ 5,885 $ 5,403 $ 17,523 $ 16,638
rents
Mall shops - contractual or 17,882 14,793 51,278 43,933
base rents
Straight line rental income 111 15 383 (63)
Ground lease - contractual or 464 378 1,450 1,128
base rents
Lease buyout income 4 94 8 182
Operating covenant (658) (658) (1,973) (1,973)
amortization
Total minimum rents $ 23,688 $ 20,025 $ 68,669 $ 59,845
Components of Percentage
Rents:
Anchors $ 685 $ 612 $ 2,176 $ 2,017
Mall shops and ground leases 648 678 2,213 1,881
$ 1,333 $ 1,290 $ 4,389 $ 3,898
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
THIRD QUARTER 1998
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except as noted)
<S> <C> <C> <C> <C>
EBITDA: earnings (including gain
on sale of outparcel land)
before interest, taxes, all
depreciation and amortization
and extraordinary items $ 23,875 $ 20,579 $ 70,339 $ 62,371
Debt and Interest:
Fixed rate debt at period end $ 593,852 $ 400,538 $ 593,852 $ 400,538
Variable rate debt at period end 64,752 131,362 64,752 131,362
Total debt at period end $ 658,604 $ 531,900 $ 658,604 $ 531,900
Weighted avg. interest rate on 7.6% 7.7% 7.5% 7.7%
fixed rate debt for the period
Weighted avg. interest rate on 7.6% 7.8% 7.5% 7.9%
variable rate debt for the period
Total interest expense for period $ 11,780 $ 9,644 $ 32,941 $ 32,464
Amort. of deferred debt cost for 667 813 2,394 2,498
period (incl. in interest exp)
Capitalized interest costs during 517 716 1,812 1,982
period
Capital Expenditures Incurred:
Allowances for mall shop tenants $ 5,003 $ 100 $ 11,516 $ 2,973
Allowances for anchor tenants 572 2,059 572 4,714
Leasing costs and commissions 1,518 591 3,864 2,152
Expansions and major renovations * 22,291 6,498 33,391 17,243
Acquisition of operating properties 0 0 64,973 0
All other capital expenditures 464 975 1,530 1,245
(included in Other Assets)
Total Capital Expenditures during $ 29,848 $ 10,223 $ 115,846 $ 28,327
the period
* 1998 data includes approximately
$11 million in deposits to
expansion construction and related
escrows under the new GECC mortgage
loan.
OPERATING DATA:
Mall shop GLA at period end (000 5,706 5,349
sq. ft.)
Occupancy percentage at period end 81% 77%
Comp. Store Mall shop sales - 9 $ 153.97 $ 143.67
months (per sq. ft.)
Mall shop occupancy cost percentage 10.2% 10.7%
at period end
Average mall shop base rent at $ 17.30 $ 16.69
period end (per sq. ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 70 108 512 282
New leases - $ per sq. ft. $ 25.45 $ 18.95 $ 20.14 $ 21.55
Number of new leases signed. 48 46 236 151
Renewal leases - sq. feet (000) 50 105 508 323
Renewal leases - $ per sq. ft. $ 25.81 $ 14.65 $ 18.21 $ 17.20
Number of renewal leases signed. 31 42 237 146
Tenant Allowances for leases signed
during the period:
First Generation Space - per $ 0.00 $ 46.34 $ 20.04 $ 36.30
sq. ft.
Second Generation Space - per $ 8.28 $ 7.83 $ 12.34 $ 6.58
sq. ft.
Leases Signed during the period by:
First Generation Space - sq. 5 20 37 75
feet (000)
Second Generation Space - sq. 115 193 983 530
feet (000)
Theater and free-standing leasing
for the period:
New leases- sq. feet (000) 25 4 128 220
New leases-$ per sq. ft. $ 10.29 $ 9.17 $ 10.16 $ 10.11
Tenant allowances - $ per sq. ft. $ 16.76 $ 0.00 $ 29.76 $ 20.37
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 23,688 $ 20,025 $ 68,669 $ 59,845
Percentage rent 1,333 1,290 4,389 3,898
Property operating cost 8,362 7,047 24,382 21,484
recoveries
Temporary and promotional 1,715 1,613 5,110 4,875
leasing
Net utility income 633 601 2,224 2,014
Miscellaneous income 221 165 749 484
Net 35,952 30,741 105,523 92,600
Property operating costs:
Recoverable operating costs 10,969 9,681 32,437 28,536
Property administrative costs 548 502 1,728 1,526
Other operating costs 539 457 1,646 1,381
Depreciation and amortization 11,038 9,396 30,835 28,530
Net 23,094 20,036 66,646 59,973
Net 12,858 10,705 38,877 32,627
Other expenses:
General and administrative 1,098 1,003 3,457 3,052
Interest 11,780 9,644 32,941 32,464
Net 12,878 10,647 36,398 35,516
Net (20) 58 2,479 (2,889)
Property sales, disposals and
adjustments:
Gain on sale of outparcel land 0 399 934 968
Income (loss) before
extraordinary items,
minority interest, and
cumulative effect
of a change in accounting (20) 457 3,413 (1,921)
method
Extraordinary loss on early (22,512) (631) (22,512) (1,363)
extinguishment of debt
Cumulative effect on prior
years (to December 31, 1997)
of a change in accounting 0 0 (1,703) 0
method
Income (loss) before minority (22,532) (174) (20,802) (3,284)
interest
Minority interest in (income)
loss of Operating Partnership 7,052 862 8,463 1,655
Net income (loss) (15,480) 688 (12,339) (1,629)
Dividends on preferred shares (3,438) (3,208) (10,313) (3,208)
Net income (loss) applicable to
common shareholders $ (18,918) $ (2,520) $ (22,652) $(4,837)
Per common share information:
Basic and Diluted EPS:
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting method $ (0.10) $ (0.08) $ (0.19) $ (0.14)
Extraordinary item (0.62) (0.02) (0.62) (0.04)
Cumulative effect on prior
years of a change in accounting 0 0 (0.05) 0
method
Net (loss) $ (0.72) $ (0.10) $ (0.86) $ (0.18)
Weighted average shares 26,418 27,092 26,456 27,467
outstanding (000)
FFO per share $ 0.26 $ 0.24 $ 0.82 $ 0.79
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 145,773 $ 132,055
Buildings and improvements 926,102 852,674
Deferred leasing and other charges 42,065 39,912
Net 1,113,940 1,024,641
Accumulated depreciation and amortization (337,776) (315,125)
Net 776,164 709,516
Investment in joint venture 5,914 5,808
Cash and cash equivalents, non-restricted 5,006 9,472
Restricted cash and escrow deposits 22,699 14,237
Tenant and other receivables 13,617 16,986
Deferred charges and other assets 33,487 29,930
Net $ 856,887 $ 785,949
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 658,604 $ 541,713
Accounts payable and other liabilities 31,028 29,132
Net 689,632 570,845
Minority interest in Operating Partnership 13,376 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, 27,741,542
and 27,727,212 shares issued at
September 30, 1998 and December 31, 1997, 277 277
respectively
Additional paid-in capital 313,439 308,571
Accumulated deficit (145,210) (106,881)
Net 168,531 201,992
Less common shares held in treasury at cost;
1,534,398 and 1,251,898 shares at September 30,
1998 and December 31, 1997, respectively. (14,652) (12,222)
Net 153,879 189,770
Net $ 856,887 $ 785,949
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (12,339) $ (1,629)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority interest in Operating Partnership (8,463) (1,655)
Equity earnings in joint venture (382) (383)
Depreciation and amortization 36,233 34,200
Extraordinary loss on early extinguishment of debt 22,512 1,363
Cumulative effect of a change in accounting method 1,703 0
Net changes in:
Tenant and other receivables 1,675 3,081
Deferred charges and other assets (9,319) (9,388)
Accounts payable and other liabilities 4,530 (5,653)
Net cash provided by operating activities 36,150 19,936
Cash flows from investing activities:
Investment in income properties and related escrow (34,626) (27,082)
deposits
Acquisition of enclosed malls (64,972) 0
Proceeds from sale of Middletown Mall 8,148 0
Distributions from joint venture 0 150
Net cash (used in) investing activities (91,450) (26,932)
Cash flows from financing activities:
Net proceeds from issuance of senior preferred 0 118,723
shares
Net proceeds from exercise of stock options and 132 921
dividend reinvestment plan
Proceeds from issuance of debt, net of issuance cost 551,535 81,282
Debt repayments (469,176) (120,832)
Dividends and distributions paid on common shares (21,830) (22,096)
and partnership units
Dividends paid on senior preferred shares (10,313) (2,483)
Purchase of common shares held in treasury (2,430) (11,237)
Cash flow support payments 2,916 0
Net cash provided by financing activities 50,834 44,278
Net (decrease) increase in cash and cash equivalents (4,466) 37,282
Cash and cash equivalents, beginning of period 9,472 6,746
Cash and cash equivalents, end of period $ 5,006 $ 44,028
Interest paid (net of capitalized amounts) $ 30,547 $ 30,965
Interest capitalized $ 1,812 $ 1,982
Non-cash financing activities:
Cash flow support credited to minority interest and
paid-in capital that was prefunded in 1995. $ 0 $ 2,742
Issuance of partnership units related to Middletown
Mall and Greater Lewistown acquisitions $ 4,479 $ 0
Assumption of debt related to Greater Lewistown and
Crossroads acquisitions $ 14,718 $ 0
Preferred dividends accrued, but unpaid as of period $ 0 $ 725
end
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