SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 15, 1998, 26,489,644 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 June 30, 1998
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997
Consolidated Statements of Operations for the three and
six months ended June 30, 1998 and 1997
Consolidated Statement of Shareholders' Equity for the six
months ended June 30, 1998
Consolidated Statements of Cash Flows for the six months
ended June 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
June 30, December 31,
1998 1997
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 146,873 $ 132,055
Buildings and improvements 924,687 852,674
Deferred leasing and other charges 41,961 39,912
Net 1,113,521 1,024,641
Accumulated depreciation and amortization (334,112) (315,125)
Net 779,409 709,516
Other assets:
Investment in joint venture 5,878 5,808
Cash and cash equivalents, non-restricted 4,379 9,472
Restricted cash and escrow deposits 18,050 14,237
Tenant and other receivables 16,104 16,986
Deferred charges and other assets 28,007 29,930
Net $ 851,827 $ 785,949
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 624,342 $ 541,713
Accounts payable and other liabilities 23,954 29,132
Net 648,296 570,845
Minority interest in Operating Partnership 23,191 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, 27,728,342 and
27,727,212 shares issued at June 30, 1998 and
December 31, 1997, respectively 277 277
Additional paid-in capital 312,210 308,571
Accumulated deficit (119,950) (106,881)
Net 192,562 201,992
Less common shares held in treasury at cost,
1,251,898 shares at both June 30, 1998 and
December 31, 1997 (12,222) (12,222)
Net 180,340 189,770
Net $ 851,827 $ 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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 23,391 $ 20,076 $ 44,981 $ 39,820
Percentage rent 1,344 1,130 3,056 2,608
Property operating cost recoveries 7,934 7,298 16,020 14,437
Temporary and promotional leasing 1,585 1,607 3,395 3,262
Net utility income 695 681 1,591 1,413
Miscellaneous income 314 194 528 319
Net 35,263 30,986 69,571 61,859
Property operating costs:
Recoverable operating costs 10,637 9,318 21,468 18,855
Property administrative costs 570 447 1,180 1,024
Other operating costs 601 485 1,107 924
Depreciation and amortization 10,042 9,330 19,797 19,134
Net 21,850 19,580 43,552 39,937
Net 13,413 11,406 26,019 21,922
Other expenses:
General and administrative 1,137 894 2,359 2,049
Interest 10,906 11,460 21,161 22,820
Net 12,043 12,354 23,520 24,869
Net 1,370 (948) 2,499 (2,947)
Gain on sale of outparcel land 315 273 934 569
Income (loss) before extraordinary
item and minority interest
in Operating Partnership 1,685 (675) 3,433 (2,378)
Extraordinary loss on early (732) (732)
extinguishment of debt
Income (loss) before minority interest 1,685 (1,407) 3,433 (3,110)
Minority interest in Operating 486 359 948 793
Partnership
Net income (loss) 2,171 (1,048) 4,381 (2,317)
Dividends on preferred shares (3,437) (6,875)
Net (loss) applicable to common shares $ (1,266) $ (1,048) $(2,494) $ (2,317)
Per common share data:
Basic EPS:
Income (loss) before extraordinary $ (0.05) $ (0.01) $ (0.09) $ (0.06)
item
Extraordinary item (0.02) (0.02)
Net income (loss) $ (0.05) $ (0.03) $ (0.09) $ (0.08)
Weighted average shares outstanding 26,476 27,685 26,476 27,657
Diluted EPS:
Income (loss) before extraordinary $ (0.05) $ (0.01) $ (0.09) $ (0.06)
item
Extraordinary item (0.02) (0.02)
Net income (loss) $ (0.05) $ (0.03) $ (0.09) $ (0.08)
Weighted average shares outstanding 26,476 27,685 26,476 27,657
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>
Balance, December 31, 1997 26,475 $ 25 $ 277
Net proceeds from exercise of 1
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
Net income
Dividends paid and accrued
Balance, June 30, 1998 26,476 $ 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 8
Transfer in (out) of limited
partner's interest in the
Operating Partnership 2,231 2,231
Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support 1,400 1,400
Net income 4,381 4,381
Dividends paid and accrued (17,450) (17,450)
Balance, June 30, 1998 $ 312,210 $ (119,950) $ (12,222) $ 180,340
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,381 $ (2,317)
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Minority interest in Operating Partnership (948) (793)
Equity earnings in joint venture (255) (255)
Depreciation and amortization 23,499 22,897
Extraordinary loss on early extinguishment of debt 732
Net changes in:
Tenant and other receivables 2,807 3,314
Deferred charges and other assets (4,486) (3,277)
Accounts payable and other liabilities (5,178) (8,044)
Net cash provided by operating activities 19,820 12,257
Cash flows from investing activities:
Investment in income-producing properties (19,960) (17,834)
Acquisition of operating properties (50,254)
Distributions from joint venture 150
Net cash (used in) investing activities (70,214) (17,684)
Cash flows from financing activities:
Net proceeds from exercise of stock options and 8 858
dividend reinvestment plan
Proceeds from issuance of debt, net of issuance cost 79,497 77,435
Debt repayments (12,788) (62,049)
Dividends and distributions paid on common shares and (14,541) (14,839)
partnership units
Dividends paid on senior preferred shares (6,875)
Net cash provided by financing activities 45,301 1,405
Net (decrease) in cash and cash equivalents (5,093) (4,022)
Cash and cash equivalents, beginning of period 9,472 6,746
Cash and cash equivalents, end of period $ 4,379 $ 2,724
Interest paid (net of capitalized amounts) $ 19,434 $ 21,135
Interest capitalized $ 1,295 $ 1,265
Non-cash financing activities:
Cash flow support credited to minority interest and
paid in capital that was prefunded in 1995. $ $ 1,676
Issuance of partnership units related to Middletown
Mall and Greater Lewistown acquisitions $ 4,521 $
Assumption of debt related to Greater Lewistown and
Crossroads Acquisitions $ 14,718 $
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
approximately $300 million of mortgage debt (the "Mortgage Loans") secured by
its 15 (now 14) enclosed shopping malls (see Note 3). The $300 million of
mortgage debt together with the proceeds of the equity offering were used to
retire existing debt contributed with the Properties.
As further described in Note 2, on July 3, 1997 the Company completed an
offering of 2,500,000 11.00% non-convertible senior preferred shares at an
initial offering price of $50.00 per share.
As of June 30, 1998, the Properties consist of: (1) 27 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 3 and 5). The Company is the sole general partner in the
Operating Partnership, and at June 30, 1998, the Company held 100% of the
preferred partnership interests (see Note 2) and 72.67% 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 financial
statements include all adjustments of a normal recurring nature necessary for a
fair presentation of the financial position and results of operations of the
Company. These consolidated interim financial statements and the accompanying
notes should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 31, 1997, which are
included in its Annual Report on Form 10-K. The results of operations for
interim periods are not necessarily indicative of results to be expected for the
year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - PREFERRED SHARE OFFERING
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 June 30, 1998, the Company had
repurchased 1,251,898 common shares for an aggregate purchase price of $12.2
million; these shares are currently held as treasury shares. Under the current
Board resolution, the Company is authorized, but not obligated, to repurchase up
to an additional 1,248,102 common shares. In connection with such repurchases,
the Operating Partnership redeemed from the Company an equivalent number of
common Partnership Units for the equivalent repurchase cost, thus maintaining a
1.0 to 1.0 relationship between the number of the Company's outstanding common
shares of beneficial interest and the number of common Partnership Units in the
Operating Partnership that are owned by the Company.
As stipulated in the Prospectus Supplement, additional dividends shall be paid
quarterly to the holders of the preferred shares if the Company's total debt (as
defined) exceeds the product of 6.5 times EDITDA (as defined) (the "Leverage
Ratio") without the consent of the holders of at least 50% of the preferred
shares outstanding at the time. The leverage ratio computed as of June 30,
1998, is 5.6 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 3 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
<S> <C> <C>
Mortgage loans $ 280,637 $ 280,637
Permanent loans 239,697 229,417
Construction loans 4,608 1,659
Secured term loans and lines of credit 99,400 30,000
$ 624,342 $ 541,713
</TABLE>
Mortgage Loans
Concurrently with the offering of shares of the Company in 1993, the Financing
Partnership borrowed an aggregate principal amount of $300 million
(collectively, the "Mortgage Loans") through Kidder Peabody Mortgage Capital
Corporation (the "Lender").
In connection with obtaining a construction loan for rebuilding and expanding
Logan Valley Mall, in December 1995 the Company repaid $19.4 million of the
Mortgage Loans in order to release the Logan Valley Mall from the Mortgage Loans
and Financing Partnership. No prepayment penalty was incurred.
The Mortgage Loans are non-recourse to the Financing Partnership and are
evidenced by 14 separate notes requiring aggregate principal payments of $80.6
million in August 1998 and $100 million each in August of 2000 and 2003, subject
to optional prepayment. The notes bear fixed interest, payable monthly, at
rates of 6.55%, 7.20% and 7.85% for the loans due in 1998, 2000, and 2003,
respectively, for an average rate of 7.24% as of June 30, 1998 and December 31,
1997. Repayment of the Mortgage Loans is secured by separate first mortgage
liens and second mortgage liens (each a "Mortgage") on the 14 malls owned by the
Financing Partnership and by assignments of all of the Financing Partnership's
interest in the rents and the leases at each of such mortgaged properties. In
order to maintain certain tax bases, Crown Investments guaranteed approximately
$250 million of such indebtedness. Each Mortgage contains a cross-default
provision allowing the Lender to declare a default under any or all of the
Mortgages if the Financing Partnership fails to make any payment of principal,
interest, premium or any other sum due under any Mortgage Loan or another event
of default occurs under the mortgage documents. The Mortgage Loans allow the
Financing Partnership to borrow up to $10 million from other parties, either
unsecured or secured by a qualifying subordinate lien, provided the proceeds are
used solely to finance tenant improvements or leasing costs. No such amounts
are borrowed as of June 30, 1998.
The $80.6 million mandatory principal payment due in August 1998 may be prepaid
with no penalty. After August 1998 voluntary prepayments of the remaining two
tranches can be made in whole or in part on any monthly interest payment date,
subject to the payment of a yield maintenance charge; however, six months prior
to the due dates of the remaining two tranches, prepayment of that tranche may
be made without penalty. Principal of the Mortgage Loans is subject to
mandatory prepayment as a result of certain events of casualty or condemnation
at the Mortgaged Properties as provided in the respective Mortgages.
The Company is currently required to deposit $450,000 each quarter to a
restricted cash account for capital plan reserves and renovation reserves.
Amounts may be withdrawn from this account to reimburse the Company for incurred
qualifying expenditures. As of June 30, 1998, $1.0 million of restricted cash
was held for this purpose and is included in deferred charges and other assets.
Permanent Loans
At June 30, 1998, permanent loans consisted of ten loans secured by nine
properties held by the Operating Partnership 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 $11.1 million as of June 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 one-year
construction loan facility that will convert to a four-year permanent loan in
1998. This new construction loan relates to a theatre and other expansion
construction at one of the Company's malls. The permanent loan bears fixed
interest at 8.12% and the construction loan bears interest at LIBOR plus 2.00%.
Financing Transactions with GE Capital Real Estate
In November 1997 the Company closed a $110 million mortgage loan and a $150
million secured credit facility with GE Capital Real Estate ("GECRE"). The $110
million mortgage loan was placed through a new subsidiary, Crown American W L
Associates, L.P., and is secured by Logan Valley and Wyoming Valley malls and
bears interest at LIBOR plus 1.60%. The new mortgage loan proceeds were
primarily used to repay in full the existing $51.4 million construction loan on
Logan Valley Mall and the existing $50.0 million mortgage loan on Wyoming Valley
Mall. These two loans bore interest at LIBOR plus 2.375% and 1.75%,
respectively. The new mortgage loan is a bridge facility with a minimum initial
term ending October 15, 1998 and also provides both Crown and GECRE with options
to extend the loan to April 15, 1999 or October 15, 2008, respectively, under
certain conditions. However, the loan is expected to be incorporated into a new
permanent loan in August 1998, as noted below.
The $150 million secured credit facility consists of a $100 million acquisition
line of credit and a $50 million working capital line of credit. The
acquisition line is restricted solely for new property acquisitions and will be
secured by mortgages on any properties acquired under the facility. The $50
million working capital line is secured by mortgages on four existing mall
properties. As of June 30, 1998, $68.4 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. The $110 million loan and the $150
million credit facility are cross-collateralized and cross-defaulted.
On July 29, 1998, GECRE advised the Company that it had completed sufficient due
diligence relating to a planned 10-year mortgage loan to the Company and was now
committed to proceed with the financing pursuant to the terms and conditions
outlined in a summary of terms agreement signed by GECRE and the Company in
September 1997. The gross proceeds from the new loan (the "Permanent Loan")
will be $465 million and will be used to refinance the $280.6 million Mortgage
Loans, the $110.0 million GECRE mortgage loan, and the $30.0 million secured
term loan. The remaining proceeds will be used largely to pay for the expansion
and redevelopment 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 Mortgage Loans and the $30.0 million secured term loan that would
be pre-paid prior to their maturity dates. The prepayment penalty for the
Mortgage Loans will be calculated using interest rates in effect at the time of
the prepayment; based on current interest rates, the prepayment penalty would be
approximately $15 million. In addition, approximately $5.7 million of
unamortized deferred financing costs related to the existing Mortgage Loans and
the Interim Loan will be written off. Both of these items will be accounted for
as an extraordinary loss on early extinguishment of debt. The Permanent Loan
will have a fixed interest rate established at closing and will be secured by
cross-collateralized mortgages on up to 14 of the malls securing the Mortgage
Loans and the two malls securing the $110.0 million GECRE mortgage loan.
Closing of this planned Permanent Loan is expected to occur on or about August
28, 1998. The interest rate on the new permanent loan will be set within one
week of closing and will be based on certain market conditions at that time.
Based on current market conditions the effective interest rate on the new loan,
including amortization of deferred financing costs, would be lower than the
average effective interest rate on the loans that are being repaid. In
connection with the Permanent 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 are refundable at closing; however, subject to
certain conditions and limitations, the deposits could be forfeited should the
Company not consummate the Permanent Loan with GECRE.
Secured Term Loans and Lines of Credit
At June 30, 1998, the Company had one secured term loan outstanding totaling
$30.0 million, which matures in September 1998. At June 30, 1998, the Company
had $165.6 million in available revolving lines of credit, which includes the
$150.0 million credit facility with GECRE described above, of which $69.4
million and $0.0 million were outstanding at June 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 $65.6 million
in credit lines consists of (i) a $50.0 million line secured by cross
collateralized mortgages on four of the Company's mall properties, (ii) a $5.6
million line with a bank secured by a mortgage on the Company's headquarters
office building and which is renewable annually on April 30, and (iii) a $10.0
million unsecured line of credit with a related party. Amounts may be borrowed
under the $65.6 million credit lines for general corporate purposes.
Covenants and Restrictions
Various of the above loans and lines of credit contain certain financial
covenants and other restrictions, including limitations on the ratios, as
defined, of total Company debt to EBITDA, EBITDA to fixed charges, and floating
rate debt to total debt. The Company was in compliance with all such loan
covenants as of and during the period ended June 30, 1998.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and nine of the
permanent loans related to eight of the Operating Partnership properties
(aggregate principal outstanding of $410.3 million at June 30, 1998) have fixed
interest rates ranging from 0% to 9.625%. The weighted average interest rate on
this fixed-rate debt at June 30, 1998 and 1997 was 7.51% and 7.70%,
respectively. The weighted average interest rate during the three months ended
June 30, 1998 and 1997 was 7.53% and 7.82%, respectively.
All of the remaining loans (aggregate principal outstanding of $214.0 million at
June 30, 1998) have variable rated debt based on spreads ranging from 1.60% to
2.25% above 30 day LIBOR. The weighted average interest rate on the variable
rated debt at June 30, 1998, and 1997 was 7.53%, and 8.05%, respectively. The
weighted average interest rate during the three months ended June 30, 1998 and
1997 was 7.49% and 8.01%, respectively.
Debt Maturities
As of June 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 (six months) $ 115,702
1999 (year) 113,552
2000 (year) 103,759
2001 (year) 72,453
2002 (year) 32,314
Thereafter 186,562
Net $ 624,342
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income", which
requires companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. FAS No.130 has no impact
on the Company's financial statements, as the Company's comprehensive income is
equal to its net income at June 30, 1998. The Company will adopt FAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" and FAS
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" in the fourth quarter of 1998. Neither of these new standards is
expected to have a material effect on the Company's consolidated financial
statements.
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
current accounting method, which was fully acceptable under GAAP, recognizes
percentage rent when a tenant's achievement of its sales breakpoint is
considered probable. This EITF consensus can be implemented on a prospective
basis, or retroactively as a change in accounting method. The Company's
adoption of the consensus on a prospective basis for the quarter ended June 30,
1998 was not material. However, the Company is evaluating the effect of EITF 98-
9 as a change in accounting method and plans to implement the EITF consensus as
a change in accounting method in the quarter ending September 30, 1998.
Excluding a one-time cumulative catch-up adjustment, the new accounting method
is not expected to materially effect the amount of percentage rent income on an
annual basis but may impact the recognition of percentage rent income on an
interim quarterly basis.
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. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Statement 133 is effective for fiscal years
beginning after June 15, 1999. A company may also implement the Statement as of
the beginning of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1998 and thereafter). Statement 133 cannot be applied
retroactively. Statement 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997 (and, at the
company's election, before January 1, 1998). The impact of FAS No. 133 on the
Company's results of operations at June 30, 1998 is immaterial.
NOTE 5 - 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 2).
Valley Mall is an enclosed regional mall consisting of approximately 616,000
square feet of gross leasable area ("GLA"), of which 123,400 square feet is
owned by the current department store occupant. In addition, the purchase
included 48,762 square feet of outparcel GLA and 30.8 acres of additional
adjacent undeveloped land.
Also, with respect to Middletown Mall, a property acquired by the Company on
February 1, 1995 from Crown Associates, additional contingent consideration, in
the form of 437,888 common Partnership Units, was paid to Crown Investments
Trust effective as of January 1, 1998, as consideration for the contribution of
Middletown Mall to the Operating Partnership. The 437,888 units represent
approximately 1.2% of the total common Partnership Units outstanding prior to
the issuance of the new units. 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 issued a
$3.5 million one-year 9.5% mortgage to 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.
The Company acquired two regional shopping malls in May 1998: 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.
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 June 30, 1998.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three and six months ended June 30, 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 13.
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Selected Financial Data:
EBITDA (1 & 3) $ 23,670 $ 21,138 $ 46,464 $ 41,792
Funds from Operations (FFO)
(2 & 3):
Net Income (loss) $ 2,171 $ (1,048) $ 4,381 $ (2,317)
Adjustments:
Minority interest in Operating (486) (359) (948) (793)
Partnership
Depreciation and amortization - 10,354 9,623 20,423 19,815
real estate
Operating covenant amortization 657 657 1,315 1,315
Cash flow support 934 886 1,926 1,676
Extraordinary loss on early 732 732
extinguishment of debt
Funds from Operations, before 13,630 10,491 27,097 20,428
allocations to minority
interests and preferred shares
Less:
Amount allocable to preferred 3,437 6,875
shares
Amount allocable to minority 2,775 2,667 5,500 5,198
interest
Funds from Operations applicable $ 7,418 $ 7,824 $ 14,722 $ 15,230
to common shares
Average common shares outstanding 26,476 27,685 26,476 27,657
(000)
Cash Flows:
Net cash provided by operating $ 7,844 $ 2,364 $ 19,820 $ 12,257
activities
Net cash (used in) investing $(63,171) $(12,736) $ (70,214) $ (17,684)
activities
Net cash provided by financing $ 52,971 $ 8,122 $ 45,301 $ 1,405
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 and not a part of ongoing operations.
(2) Funds from Operations represents net income before minority interest and
before depreciation and amortization plus earned cash flow support and
adjustment for certain unusual items.
(3) EBITDA and Funds from Operations (i) do not represent cash flow from
operations as defined by generally accepted accounting principles, (ii)
are not necessarily indicative of cash available to fund all cash flow
needs and (iii) should not be considered as an alternative to net income
for purposes of evaluating the Company's operating performance.
</TABLE>
Comparison of Six and Three Months Ended June 30, 1998 to the corresponding
periods in 1997
- - Revenues
For the first six months of 1998, revenues totaled $69.6 million, an increase of
12 percent, compared to $61.9 million for the same period of 1997. Of the total
revenue increase of $7.7 million, $4.1 million came from the four acquisitions
(noted below) and $3.6 million was attributed to existing properties, primarily
in mall shop base and percentage rent.
Total revenues for the second quarter of 1998 were $35.3 million, up $4.3
million, or 14 percent, from $31.0 million in the same period of 1997. The four
recently acquired properties - Valley Mall (acquired in November 1997) and
Jacksonville, Crossroads, and Greater Lewistown (all acquired in May 1998)
accounted for $2.6 million of the total increase, with $1.7 million arising from
the existing properties, mainly in mall shop base and percentage rent.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the first six
months of 1998 were $23.8 million, or $3.0 million higher than the corresponding
period in 1997. This increase primarily consisted of $1.1 million of operating
costs associated with the recently acquired properties and $0.9 million of
increased real estate tax expense. Depreciation and amortization expense
increased by $0.7 million in the first six 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 second quarter of
1998 were $11.8 million compared to $10.3 million for the second quarter of
1997, an increase of $1.5 million. $0.7 million of this increase was due to the
four recently acquired properties and $0.7 million was due to increased real
estate taxes.
- - General, Administrative and Interest Expenses:
For the first six months of 1998, general and administrative expenses totaled
$2.4 million, or $0.3 million higher than the same period in 1997. This
increase was primarily due to higher net leasing costs. Interest expense
decreased by $1.7 million in the first six months of 1998 compared to 1997
primarily as a result of the paydown of debt associated with the preferred share
offering in the third quarter of 1997 (see Note 2).
General and administrative costs for the second quarter of 1998 totaled $1.1
million, an increase of $0.2 million over the second quarter of 1997. Interest
expense for the second quarter of 1998 was $10.9 million, approximately $0.6
million lower than the corresponding period of 1997.
- - Gain on Property Sales and Disposals:
The gain on the sale of outparcel land was $0.9 million for the first six months
of 1998, an increase of $0.4 million over the same period of 1997. For the
second quarter of 1998, gain on outparcel sales was $0.3 million, or even with
the second quarter of 1997.
- - Net Income (loss):
For the first six months of 1998, the Company reported net income of $4.4
million compared to a net loss of $2.3 million for the first six months of 1997.
After deducting preferred dividends, there was a net loss applicable to common
shares for the first six months of 1998 of $2.5 million. There were no
preferred dividends in the first six months of 1997.
For the second quarter of 1998, the Company's net income was $2.2 million. This
compares to a net loss of $1.0 million for the second quarter of 1997. After
deducting preferred dividends, there was a net loss in the second quarter
applicable to common shares of $1.3 million.
- - Funds from Operations:
For the first six months of 1998, Funds from Operations ("FFO") before
allocations to minority interest and to preferred dividends was $27.1 million
compared to $20.4 million in the first six months of 1997. FFO allocable to
common shares (after minority interest and preferred dividends) was $14.7
million compared to $15.2 million in the first six months of 1997. The increase
in FFO before allocations to minority interest and preferred dividends during
the first six months was mainly due to the following: FFO contributed from core
mall operations was up $4.9 million, or 13.6 percent; the four recently acquired
properties accounted for $3.0 million of this increase. Interest expense was
lower by $1.7 million due to lower average outstanding balances and lower
average rates. Gain on outparcel land sales was higher by $0.4 million. These
increases were offset by higher general and administrative expenses of $0.3
million and by higher preferred dividends of $6.9 million; the preferred shares
were not outstanding in the first six months of 1997.
For the quarter ended June 30, 1998, FFO before allocations to minority interest
and to preferred dividends was $13.6 million, up from $10.5 million in the same
quarter of 1997. FFO allocable to common shares (after minority interest and
preferred dividends) was $7.4 million compared to $7.8 million in the same
quarter of 1997. The increase in FFO before allocations to minority interest
and preferred dividends during the second quarter was mainly due to the
following: FFO contributed from core mall operations was up $2.9 million, or
13.3 percent; Valley Mall (acquired in November 1997) and Jacksonville Mall,
Crossroads Mall, and Greater Lewistown (all acquired in May 1998) accounted for
$1.9 million of the total increase in core mall operations. Interest expense
was lower by $0.6 million due to lower average balances and lower average rates
compared to the second quarter of 1997. These positive variances were offset by
higher general and administrative expenses of $0.4 million due to increased
costs (primarily for leasing) partially reduced by higher capitalization of
leasing costs, and by higher preferred dividends of $3.4 million as the
preferred shares were not outstanding in the second quarter of 1997.
EBITDA
For the six months ended June 30, 1998, EBITDA was $46.5 million compared to
$41.8 million for the same period in 1997, an increase of 11%.
For the second quarter of 1998, EBITDA was $23.7 million compared to $21.1
million in 1997, an increase of 12%. EBITDA was largely impacted by the same
factors as FFO above, except for interest costs and preferred stock dividends,
which are not included in EBITDA.
Liquidity and Capital Resources
The Company believes that its cash generated from property operations and funds
obtained from property financings will provide the necessary funds on a short-
term and long-term basis for its operating expenses, interest expense on
outstanding indebtedness and recurring capital expenditures and tenant
allowances, and dividends to shareholders in amounts that would be necessary to
satisfy the REIT requirements under the Internal Revenue Code. The Company
intends to pay regular quarterly dividends to its shareholders. However, the
Company's ability to pay dividends is affected by several factors, including
cash flow from operations and capital expenditures and its ability to refinance
its maturing debt as described below. Dividends by the Company will be at the
discretion of the Board of Trustees and will depend on the cash available to the
Company, its financial condition, investment needs and opportunities, capital
and other requirements, and such other factors as the Trustees may consider.
Sources of capital for non-recurring capital expenditures, such as major
building renovations and expansions, as well as for scheduled principal
payments, including balloon payments on the outstanding indebtedness, are
expected to be obtained from additional Company or property financings and
refinancings, sale of non-strategic assets, additional common or preferred
equity raised in the public or private markets, and from retained internally
generated cash flows, or from combinations thereof.
As further described in Note 2 to the interim consolidated financial statements
included herein, on July 3, 1997 the Company completed an offering of 11.00%
senior preferred shares for an aggregate of $118.7 million after underwriter's
commission and other offering expenses.
As of June 30, 1998 the scheduled principal payments on all debt are as follows:
$115.7 million for the six months ending December 31, 1998, and $113.6 million;
$103.8 million; $72.4 million; and $32.3 million in the years ending December
31, 1999 through 2002, respectively, and $186.5 million thereafter. Based on the
planned refinancing with GECRE in August 1998, the pro-forma scheduled principal
payments would be as follows: $5.1 million for the six months ended December 31,
1998; $3.6 million, $6.0 million, $63.1 million, and $39.9 million for the years
ended December 31, 1999 to 2002, respectively; and $534.7 million after December
31, 2002. The total outstanding debt on a pro-forma basis would be $652.3
million. The Company expects to refinance or extend the majority of the
maturities over the next five years through additional Company financings and
mortgage loans on those properties having the maturing loans. The Company's
ability to refinance or extend these loans on or before their due dates depends
on the level of income generated by the properties, prevailing interest rates,
credit market trends, and other factors that may be in affect at the time of
such refinancings or extensions and there is no assurance that such refinancings
or extensions will be executed. The ratios of the Company's EBITDA to interest
paid on total indebtedness (exclusive of capitalized interest and interest
income) for the years ended December 31, 1997, 1996, and 1995 were 2.04 to 1,
2.08 to 1, and 2.13 to 1, respectively.
Management of the Company is continuing to evaluate the Company's exposure to
the Year 2000 issue, which relates to the ability of electronic equipment,
computer hardware and software to properly handle dates on or after January 1,
2000. Management believes that the cost to replace certain electronic and
computer equipment and to reprogram certain software used within the Company
will not be material to the Company's results of operations. However, it is
possible that there could be adverse consequences to the Company as a result of
Year 2000 issues that are outside the Company's control. Management is in the
preliminary stages of evaluating these issues and will be developing contingency
plans. At this point management is unable to estimate the ultimate impact that
the Year 2000 issue will have on the Company's results of operations and
financial condition.
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. These motions have not yet been decided.
The consolidated legal action and the Warden action are in a very preliminary
stage. However, the Company believes, based on the advice of legal counsel,
that it and the named officers have substantial defenses to the Plaintiffs'
claims, and the Company intends to vigorously defend the actions. The Company's
current and former officers that are named in this litigation are covered under
a liability insurance policy paid for by the Company. The Company's officers
also have indemnification agreements with the Company. While the final
resolution of this litigation cannot be presently determined, management does
not believe that it will have a material adverse effect on the Company's results
of operations or financial condition.
Logan Valley Mall fire litigation
As a result of the fire which damaged the Logan Valley Mall in Altoona,
Pennsylvania on December 16, 1994 a number of tenants or their insurers filed
lawsuits against the Company for damages to property and for interruption of
business. In August 1997, all of these above-referenced lawsuits were settled
within the coverage limits of the applicable insurance policies. The
settlements had no material adverse effect on the Company's results of
operations or financial condition.
Tenant litigation
In July 1997 The Bon-Ton Department Stores, Inc. filed suit in a Pennsylvania
state court against Crown American Financing Partnership and The May Department
Stores seeking to enjoin the development of a Kaufmann's Department Store at
Nittany Mall. Bon-Ton claimed that the proposed Kaufmann's store would violate
a restrictive covenant in Bon-Ton's lease with Crown. Crown and May disputed
Bon-Ton's position and filed a counterclaim seeking a declaratory judgment that
the proposed transaction did not violate the restrictive covenant. The parties
stipulated to a trial of all issues (except the availability of damages to Bon-
Ton should it establish liability but not the entitlement to injunctive relief).
After this trial, the Court ruled in favor of Crown and May, denying Bon-Ton's
request for injunctive relief and granting Crown and May's motion for
declaratory judgment. Bon-Ton has appealed to the Pennsylvania Superior Court.
The appeal is pending and has not yet been argued. While the final resolution
of this litigation cannot be presently determined, management does not believe
that it will have a material adverse effect on the Company's results of
operations or financial condition.
In December 1996 the Company was advised by Proffitt's, a tenant at the
Company's Patrick Henry Mall in Newport News, Virginia, that it was selling its
stores in the Tidewater region of Virginia to Dillard's, Inc. Pursuant to the
Lease between the Company and Proffitt's, the Company had the right to terminate
its Lease with Proffitt's in the event of an assignment to a third party. The
Company exercised its right of termination. In conjunction with its termination
of the Lease, the Company filed a declaratory judgment action in the state court
of Virginia seeking a judicial affirmation of the lease termination. On
December 29, 1997 the state court granted summary judgment in favor of the
Company, ruling that the termination of the Lease by the Company was proper. In
August 1997 Dillard's, Inc. and Dillard's Virginia, Inc. filed suit against the
Company and May Department Stores, alleging that the Company and May conspired
and agreed in restraint of trade in violation of the antitrust laws of the
United States and Commonwealth of Virginia to preclude Dillard's from entering
the Patrick Henry Mall. In January 1998 this lawsuit was settled by the
parties. The settlement had no material adverse effect on the Company's results
of operations or financial condition.
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held in Johnstown, Pennsylvania on
April 29, 1998 for the purpose of considering and acting on the following
proposals:
1. Election of persons (Donald F. Mazziotti and John M. Kriak) to serve
as Trustees for a three-year term.
The proposals were described in a proxy statement dated March 30, 1998. A
quorum was present at the meeting, and the two proposals were approved.
The holders of 99% of the Common Shares which were present in person or by
proxy at the Annual Meeting voted for the election of Donald F. Mazziotti and
John M. Kriak as Trustees of the Company for three-year terms expiring at the
annual meeting of shareholders in 2001.
There were no other nominees for election as a Trustee for a three-year
term expiring at the annual meeting of shareholders in 2001. Accordingly,
Donald F. Mazziotti and John M. Kriak were elected as Trustees of the Company
for a three-year term expiring at the annual meeting of shareholders in 2001.
Item 5: Other Information
On July 29, 1998, the Company issued its regular quarterly earnings
release and its Second 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 July 29, 1998
Exhibit 99 (b) - Second 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: August 14, 1998 CROWN AMERICAN REALTY TRUST
/s/ Frank J. Pasquerilla
Frank J. Pasquerilla
Chairman of the Board
of Trustees and Chief Executive Officer
(Authorized Officer of the Registrant
and Principal Executive Officer)
Date: August 14 , 1998 CROWN AMERICAN REALTY TRUST
/s/ Mark E. Pasquerilla
Mark E. Pasquerilla
President
(Authorized Officer of the Registrant
and Principal Operating Officer)
Date: August 14, 1998 CROWN AMERICAN REALTY TRUST
/s/ John M. Kriak
John M. Kriak
Executive Vice-President and
Chief Financial Officer
(Authorized Officer of the Registrant
and Principal Financial Officer)
Date: August 14 , 1998 CROWN AMERICAN REALTY TRUST
/s/ Terry L. Stevens
Terry L. Stevens
Senior Vice President and
Chief Accounting Officer
(Authorized Officer of the Registrant
and Principal Accounting Officer)
EXHIBIT 99 (a)
NEWS FROM:
C R O W N A M E R I C A N R E A L T Y T R U S T
CONTACT: Media: Christine Menna 814-536-9520
Investors: Frank Pasquerilla 814-535-9347
Mark Pasquerilla 814-535-9364
Internet: http://www.crownam.com
IMMEDIATE RELEASE: Wednesday, July 29, 1998
CROWN AMERICAN REALTY TRUST REPORTS
MALL SHOP LEASING SET RECORD - UP 71 PERCENT IN FIRST HALF
CORE MALL OPERATIONS UP 13.3 PERCENT FOR THE SECOND QUARTER
AND 11.4 PERCENT IN THE FIRST HALF
FIRST HALF FFO RESULTS UP TWO PERCENT OVER 1997
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the quarter ended June 30, 1998. The Board of Trustees also declared
regular quarterly dividends on its common and senior preferred shares.
_______________________
"Operating performance in the second quarter showed continued strength"
stated Crown American President, Mark E. Pasquerilla. "Funds from Operations
("FFO") contributed from core mall operations (before interest, land sales, G&A,
and any non-recurring items) was up $2.9 million, or 13.3 percent, in the second
quarter compared to 1997, of which nearly $1.0 million (4.4 percent) was from
existing properties and $1.9 million (8.9 percent) from recently acquired
properties. The improvement in core mall operating results relates primarily to
improved mall shop base and percentage rents, which were up over 10 percent in
the second quarter from the existing properties before the impact of the recent
acquisitions. The Company also achieved all-time records for leasing in the
second quarter and first half with $12.4 million in annual base rents in the
second quarter and $17.5 million in the first half, up 71 percent from the first
half of 1997. Mall shop occupancy increased to 81 percent at June 30, 1998
compared to 79 percent at March 31, 1998 and 77 percent at June 30, 1997. As we
have reported in prior quarters, the transformation that we have effected in our
properties during the last several years has begun to bear fruit. In addition to
the improved core mall results, interest expense in the quarter was also lower
by $0.55 million ($0.015 per share). After preferred dividends of $3.4 million,
FFO for the second quarter was $0.28 per share, the same as the second quarter
of 1997, and slightly exceeding consensus analyst estimates for the quarter."
Pasquerilla continued, "Comparable mall shop sales also continued to show
strength, up 8.2 percent in the first half compared to 1997. This sales growth
reflects the shopper drawing power of stronger anchors, such as May Company and
the revitalized Bon-Ton, that have been added to the portfolio in recent years
and the stronger mall shop tenants that also have been added. One example is
The Gap, America's top mall-based specialty retailer. The Gap continues to grow
its presence in the Crown portfolio, signing leases of 104,500 square feet in
1998, including four Old Navy's, three Gap Stores, and expansions of two
existing Gap stores. The Gap consistently produces about $400 per square foot
in annual sales."
Pasquerilla concluded, "We are very pleased with our second quarter and
first half results which reflect the positive momentum that began in 1997 from
mall shop leasing, plus the accretive impact from each of our acquired
properties. Looking ahead, we continue to see modest FFO growth in the second
half of 1998 compared to 1997, as some of the new leases begin to open and from
our recent acquisitions. However, due to timing of expected future land sale
closings and also due to our increased focus on out-parcel development and
leasing, gain on land sales for the remainder of this year is now expected to be
minimal. In 1999 we see accelerating FFO growth from the full year effect of
mall shop leasing and our various mall expansions and acquisitions."
Dividend Information
For the quarter ended June 30, 1998, the Board of Trustees declared regular
quarterly dividends of $.20 per common share and $1.375 per senior preferred
share. Both dividends are payable September 11, 1998 to shareholders of record
on August 28, 1998.
Financial Information
For the quarter ended June 30, 1998, the Company reports that Funds from
Operations ("FFO") before allocations to minority interest and to preferred
dividends was $13.6 million, up from $10.5 million in the same quarter of 1997.
FFO allocable to common shares (after minority interest and preferred dividends)
was $7.4 million, or $0.28 per share, compared to $7.8 million, or $0.28 per
share, in the same quarter of 1997. The increase in FFO before allocations to
minority interest and preferred dividends during the second quarter was mainly
due to the following: FFO contributed from core mall operations was up $2.9
million ($0.08 per share), or 13.3 percent; Valley Mall (acquired in November
1997) and Jacksonville Mall, Crossroads Mall, and Greater Lewistown (all
acquired in May 1998) accounted for $1.9 million ($0.05 per share) of the total
increase in core mall operations. Interest expense was lower by $0.6 million
($0.02 per share) due to lower average balances and lower average rates compared
to the second quarter of 1997. These positive variances were offset by higher
general and administrative expenses of $0.4 million ($0.01 per share) due to
increased costs (primarily for leasing) partially reduced by higher
capitalization of leasing costs, and by higher preferred dividends of $3.4
million ($0.09 per share) as the preferred shares were not outstanding in the
second quarter of 1997. FFO per share in the second quarter was also positively
impacted by $0.005 due to fewer outstanding shares in 1998.
Total revenues for the second quarter of 1998 were $35.3 million, up $4.3
million, or 14 percent, from $31.0 million in the same period in 1997. The four
recently acquired properties accounted for $2.6 million of the total increase
with $1.7 million arising from the existing properties, mainly in mall shop base
and percentage rent.
For the second quarter of 1998 the Company reported net income of $2.2
million. This compares to a net loss of $1.0 million for the second quarter of
1997. After deducting preferred dividends, there was a net loss in the second
quarter applicable to common shares of $1.3 million, or $0.05 per share. This
compares to a net loss of $1.0 million, or $0.03 per share applicable to common
shares for the second quarter of 1997.
For the first six months of 1998, FFO before allocations to minority
interest and to preferred dividends was $27.1 million, or $0.56 per share, as
compared to $20.4 million, or $0.55 per share for the same period in 1997.
Total revenues for the first six months of 1998 were $69.6 million compared to
$61.9 million for the same period in 1997.
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
current accounting method, which was fully acceptable under GAAP, recognizes
percentage rent when a tenant's achievement of its sales breakpoint is
considered probable. This EITF consensus can be implemented on a prospective
basis, or retroactively as a change in accounting method. The Company's
adoption of the consensus on a prospective basis for the quarter ended June 30,
1998 was not material. However, the Company is evaluating the effect of EITF
98-9 as a change in accounting method and expects to implement the EITF
consensus as a change in accounting method in the quarter ending September 30,
1998. Excluding a one-time cumulative catch-up adjustment (non-FFO), the new
accounting method is not expected to materially effect the amount of percentage
rent income on an annual basis but may have a larger impact on the recognition
of percentage rent income on an interim quarterly basis.
Operating Information
During the second quarter of 1998, leases for 686,000 square feet of mall shops
were signed resulting in $12.1 million in annual base rental income. This
compares to 182,000 square feet for $3.7 million during the same period in 1997,
a 227 percent increase based on annual rental income. A total of 264 leases
were signed, which included 131 renewals and 133 new leases. For the six months
ended June 30, 1998, the average rent for mall shop leases signed was $18.32 per
square foot compared with $20.53 for the same period in 1997. The average rents
per square foot were $19.30 for new leases and $17.38 for renewals in the first
six months of 1998 compared with $23.17 and $18.43, respectively in 1997.
Also during the second quarter of 1998, leases for 35,000 square feet in non-
mall shop and/or freestanding locations were signed resulting in $324,000 in
annual base rental income.
The average mall shop base rent of the portfolio at June 30, 1998 was $16.95 per
square foot, up 5 percent compared to $16.13 per square foot at June 30, 1997.
This is the 19th consecutive quarter that average mall shop base rent has
increased.
Mall shop occupancy was 81 percent at June 30, 1998, up from 79 percent reported
at March 31, 1998, and up from 77 percent reported at June 30, 1997.
Comparable mall shop sales for the second quarter of 1998 were $100.52 per
square foot, an 8.2 percent increase over the $92.88 per square foot reported
for the second quarter of 1998. The 1998 sales include Valley Mall which was
acquired in November 1997.
Occupancy costs, that is, base rent, percentage rent and expense recoveries as a
percentage of mall shop sales at all properties, were 10.4 percent as of June
30, 1998, as compared to 10.7 percent as of June 30, 1997.
Seasonal and temporary leasing income for the first half of 1998 amounted to
$3.4 million,
a four percent increase over the same period in 1997.
Financings
We are proceeding with a $465 million ten-year loan with GE Capital Real Estate
(GECRE), a subsidiary of GE Capital Corporation. Closing is scheduled for late
August 1998. The proceeds from the loan will be used primarily to (1) refinance
$420 million of existing loans, including the Company's existing $280.6 million
REMIC, (2) pay for expansion and redevelopment of the Patrick Henry Mall
(Newport News, VA), Nittany Mall (State College, PA) and various other Crown
malls, and (3) pay loan transaction costs, prepayment penalties, and related
loan reserves. The loan is interest only for the first two years and has
25-year amortization during the final eight years. Moody's and S&P have both
rated the loan, which is secured by the underlying portfolio of 15 malls, as
investment grade.
Acquisitions/Dispositions
Greater Lewistown Plaza, a 171,695 square foot shopping center in Lewistown, Pa.
was acquired for $4.5 million in June. The Company had been managing this
property for a number of years. The transaction involved the assumption of the
current $3.7 million mortgage and issuance of operating partnership units valued
at approximately $0.8 million. The property had been owned by a general
partnership in which Frank Pasquerilla and Crown American Enterprises were the
sole general partners. JCPenney, Weis Market and Comet Foods anchor the shopping
facility.
Middletown Mall, together with approximately 60 acres of undeveloped outparcels
and vacant land, located in Fairmont, West Virginia, was sold in July 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 issued a $3.5
million one-year 9.5 percent mortgage to 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.
Expansion/Renovations
In early July, work began on a major expansion and renovation on Franklin Mall
(Washington, Pa.) The project will include the addition of a new 140,000 square
foot Kaufmann's department store, a new 14-screen Hollywood Theater, a
relocation of the existing food court and a complete mall renovation. As part
of the redevelopment of this project, the mall is being renamed Washington Crown
Center. Construction is expected to be completed in Fall 1999. The project
costs are expected to be funded under a bank construction loan.
Construction has also begun on an expansion of Valley Mall (Hagerstown, Md.). A
new wing is being added to the mall to accommodate a new 120,000 square foot
Hecht's department store, a 16-screen R/C Theatres complex, a new food court and
additional mall shop space. A fall 1999 opening is planned. Crown American
acquired Valley Mall in November 1997.
Work on a major expansion at Patrick Henry Mall (Newport News, Va.) is nearing
completion. The May Department Stores Company is adding a new 140,000 square
foot Hecht's department store, scheduled for a November 1998 opening. In
addition, tenants in the newly added 29,000 square feet of additional mall shop
space are beginning to open.
Construction is continuing at Nittany Mall (State College, Pa.) where The May
Department Stores Company is building a 95,000 square foot Kaufmann's department
store that is expected to open in Spring 1999. Kaufmann's is replacing Value
City at that location and is responsible for the construction costs of its new
store.
At Martinsburg Mall (Martinsburg, WV) work is nearing completion to more than
double the Wal-Mart store. The existing 90,000 square foot store will grow to a
204,000 square foot Wal-Mart super-center expected to open in August 1998. Wal-
Mart is responsible for the construction costs of this project.
Multi-Screen Theater and Other Additions
U.S. Factory Outlets will open a 53,000 square foot store this Fall in the
former Hess's department store location in Schuylkill Mall (Frackville, Pa.).
This will be the first Pennsylvania location for the New York City-based
retailer.
At West Manchester Mall (York, Pa.) construction is continuing on the addition
of a 13-screen Regal Cinema. The 43,400 square foot theater is planning an
August 1998 opening.
Construction is continuing at Oak Ridge Mall (Oak Ridge, Tenn.) where a new 14-
screen 50,000 square foot Cinemark Theater is under construction, with a late
1998 planned opening.
_______________________
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.
Selected financial data follows for Crown American Realty Trust for the
three and six months ended June 30, 1998. A copy of the Company's Supplemental
Financial and Operational Information Package is available by calling Investor
Relations at 1-800-860-2011.
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.
EXHBIT 99 (b)
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SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
SECOND QUARTER 1998
OTHER FINANCIAL AND OPERATING DATA (unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 vs. 1997 1998 vs. 1997
(in thousands, except per share data)
FINANCIAL AND ANALYTICAL DATA:
<S> <C> <C> <C> <C>
Total FFO - Incr (decr) $ 000 $ per share $ 000 $ per share
- - 1998 compared to 1997:
Base and percentage $ 1,582 $ 0.043 $ 2,575 $ 0.071
rents from anchors and
mall shops
Temporary and promotional (128) (0.004) (66) (0.002)
leasing income
Mall operating costs, (704) (0.019) (1,044) (0.029)
net of tenant recovery
income
Utility and misc. mall 86 0.002 209 0.006
income, equity in joint
venture
Straight line rental 123 0.003 244 0.007
income
Core mall operations 959 0.025 1,918 0.053
- -same properties
Impact of Valley, 1,929 0.053 3,006 0.083
Jacksonville, &
Crossroads Malls;
Lewistown
Core mall operations - 2,888 0.078 4,924 0.136
all properties
Property admin. and (347) (0.009) (521) (0.015)
general & admin. expenses
Cash flow support earned 48 0.001 250 0.007
Interest expense 554 0.015 1,659 0.046
Gain on sale of 42 0.001 365 0.010
outparcel land
Fee income on sales of 30 0.001 76 0.002
non-company properties
Lease buyout income (76) (0.002) (84) (0.002)
Impact on per share 0.005 0.010
amount from changes in
the number of common
shares and units outstanding
Change before pref'd 3,139 0.090 6,669 0.194
div's and minority interest
Allocation to preferred (3,437) (0.094) (6,875) (0.189)
shareholders (preferred
dividends)
Allocation to minority (108) (302)
interest in Operating
Partnership
Rounding to whole cents 0.004 0.005
Change in FFO allocable $ (406) $ $ (508) $ 0.010
to common shareholders
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Funds from Operations
($000
except per share data):
Net income (loss) $ 2,171 $ (1,048) $ 4,381 $ (2,317)
Adjustments:
Minority Interest in (486) (359) (948) (793)
Operating Partnership
Depreciation and 10,354 9,623 20,423 19,815
amortization -
real estate
Operating covenant 657 657 1,315 1,315
amortization
Cash flow support 934 886 1,926 1,676
amounts
Extraordinary loss on 732 732
early extinguishment
of debt
FFO before allocations 13,630 10,491 27,097 20,428
to minority interest and
pref'd shares
Allocation to preferred (3,437) (6,875)
shareholders (preferred
dividends)
Allocation to minority (2,775) (2,667) (5,500) (5,198)
interest in Operating
Partnership
FFO allocable to common $ 7,418 $ 7,824 $ 14,722 $ 15,230
shares
FFO per common share $ 0.28 $ 0.28 $ 0.56 $ 0.55
Average shares 26,476 27,685 26,476 27,657
outstanding during
the period
Shares outstanding at 26,476 27,721 26,476 27,721
period end
Avg. partnership units 36,380 37,124 36,366 37,096
and shares outstanding
during period
Partnership units and 36,433 37,160 36,433 37,160
shares outstanding at
period end
Components of Minimum
Rents:
Anchor - contractual or $ 6,039 $ 5,723 $ 11,638 $ 11,235
base rents
Mall shops - 17,322 14,563 33,396 29,140
contractual or base rents
Straight line rental 134 (7) 272 (78)
income
Ground lease - 549 374 986 750
contractual or base rents
Lease buyout income 4 80 4 88
Operating covenant (657) (657) (1,315) (1,315)
amortization
Total minimum rents $ 23,391 $ 20,076 $ 44,981 $ 39,820
Components of
Percentage Rents:
Anchors $ 688 $ 626 $ 1,491 $ 1,405
Mall shops and ground 656 504 1,565 1,203
leases
$ 1,344 $ 1,130 $ 3,056 $ 2,608
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SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
SECOND QUARTER 1998
OTHER FINANCIAL AND OPERATING DATA (unaudited)
Three Months Ended Six Months Ended
June 30, June 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 and all $ 23,670 $ 21,138 $ 46,464 $ 41,792
depreciation and amortization
Debt and Interest:
Fixed rate debt at period end $ 410,334 $ 417,883 $ 410,334 $417,883
Variable rate debt at period end 214,008 168,216 214,008 168,216
Total debt at period end $ 624,342 $ 586,099 $ 624,342 $586,099
Weighted avg. interest rate on fixed 7.5% 7.8% 7.5% 7.8%
rate debt for the period
Weighted avg. interest rate on 7.5% 8.1% 7.5% 8.0%
variable
rate debt for the period
Total interest expense for period $ 10,906 $ 11,460 $ 21,161 $ 22,820
Amort. of deferred debt cost for 868 836 1,727 1,685
period
(incl. in interest exp)
Capitalized interest costs during 744 656 1,295 1,265
period
Capital Expenditures Incurred:
Allowances for mall shop tenants $ 4,154 $ 1,801 $ 6,513 $ 2,655
Allowances for anchors tenants 2,598 2,873
Leasing costs and commissions 1,188 1,123 2,346 1,561
Expansions and major renovations 7,574 7,264 11,100 10,745
Acquisition of operating properties 64,973 64,973
All other capital expenditures 669 171 1,066 270
(included
in Other Assets)
Total Capital Expenditures during the $ 78,558 $ 12,957 $ 85,998 $18,104
period
OPERATING DATA:
Mall shop GLA at period end (000 sq. 5,898 5,243
ft.)
Occupancy percentage at period end 81% 77%
Comp. Store Mall shop sales - 6 $ 100.52 $ 92.88
months
(per sq. ft.)
Mall shop occupancy cost percentage 10.4% 10.7%
at
period end
Average mall shop base rent at period $ 16.95 $ 16.13
end (per sq. ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 358 81 442 174
New leases - $ per sq. ft. $ 18.58 $ 23.46 $ 19.30 $ 23.17
Number of new leases signed. 133 48 188 105
Renewal leases - sq. feet (000) 328 101 458 218
Renewal leases - $ per sq. ft. $ 16.59 $ 17.81 $ 17.38 $ 18.43
Number of renewal leases signed. 131 48 206 104
Tenant Allowances for leases signed
during the period:
First Generation Space - per $ 24.15 $ 42.08 $ 23.17 $ 32.69
sq. ft.
Second Generation Space - per $ 13.88 $ 7.48 $ 12.87 $ 5.86
sq. ft.
Leases Signed during the period by:
First Generation Space - sq. feet 26 39 32 55
(000)
Second Generation Space - sq. feet 660 143 868 337
(000)
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SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
TOP 25 REVENUE-GENERATING TENANTS
LISTED IN ORDER OF SQUARE FEET OCCUPIED
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
PERCENT OF NUMBER OF TOTAL
TOTAL OPEN STORES SQ FT
TENANT NOTES REVENUES AT JUNE 30 OCCUPIED
<S> <C> <C> <C> <C>
SEARS, ROEBUCK AND CO. 6.7% 21 2,099,639
J C PENNEY INC. (1) 5.0% 27 1,835,167
THE BON-TON 3.5% 18 1,182,922
THE LIMITED STORES INC. (2) 4.2% 51 374,503
F.W. WOOLWORTH (3) 3.6% 83 234,048
MAY DEPARTMENT STORES CO. 1.7% 8 382,640
CHARMING SHOPS (4) 1.7% 22 193,843
SHOE SHOW OF ROCKY MT. 1.5% 25 112,906
INC.
HALLMARK-OWNED STORES 1.7% 28 101,249
DEB SHOPS, INC. 1.0% 16 99,316
INTIMATE BRANDS, INC. (5) 1.8% 31 97,799
CAMELOT, INC. (6) 1.8% 22 92,618
VALUE CITY DEPARTMENT 1.3% 5 91,447
STORES
CONSOLIDATED STORES (7) 1.4% 25 82,571
WALDEN BOOK CO., INC. 1.5% 23 79,522
PAYLESS SHOESOURCE INC. 1.2% 24 79,246
WAL-MART STORES 1.2% 3 75,509
K-MART CORPORATION 1.0% 3 72,222
TANDY CORPORATION (8) 1.0% 27 65,726
THE GAP 1.0% 10 58,164
MORAY INC. (9) 0.9% 14 53,350
THE FINISH LINE, INC. 0.7% 12 46,869
GENERAL NUTRITION INC. 0.8% 27 40,782
STERLING 0.9% 19 22,169
PIERCING PAGODA 0.7% 32 5,665
47.8% 7,579,892
Notes:
(1) Includes 20 J.C. Penney department stores and 7 Eckerd stores.
(2) Includes Limited Express, Lane Bryant, Lerner Shops, The Limited (core
division), and Structures.
(3) Includes Woolworth, Afterthoughts, Kinney, Footlocker, Lady Footlocker,
Champs, and Northern Reflections.
(4) Operates as the Fashion Bug and Fashion Bug Plus stores.
(5) Spun off by the Limited. Includes Victoria Secrets and Bath & Body.
(6) Recently acquired The Wall Music Inc.
(7) Includes Kay-Bee Toys which it recently purchased from Melville Realty Co.
(8) Operates as Radio Shack
(9) Operates as B. Moss
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SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 23,391 $ 20,076 $ 44,981 $ 39,820
Percentage rent 1,344 1,130 3,056 2,608
Property operating cost 7,934 7,298 16,020 14,437
recoveries
Temporary and promotional 1,585 1,607 3,395 3,262
leasing
Net utility income 695 681 1,591 1,413
Miscellaneous income 314 194 528 319
35,263 30,986 69,571 61,859
Property operating costs:
Recoverable operating costs 10,637 9,318 21,468 18,855
Property administrative costs 570 447 1,180 1,024
Other operating costs 601 485 1,107 924
Depreciation and amortization 10,042 9,330 19,797 19,134
21,850 19,580 43,552 39,937
13,413 11,406 26,019 21,922
Other expenses:
General and administrative 1,137 894 2,359 2,049
Interest 10,906 11,460 21,161 22,820
12,043 12,354 23,520 24,869
1,370 (948) 2,499 (2,947)
Property sales, disposals and
adjustments:
Gain on sale of outparcel land 315 273 934 569
Income (loss) before
extraordinary items
and minority interest 1,685 (675) 3,433 (2,378)
Extraordinary loss on early (732) (732)
extinguishment of debt
Income (loss) before minority 1,685 (1,407) 3,433 (3,110)
interest
Minority interest in (income)
loss of
Operating Partnership 486 359 948 793
Net income (loss) 2,171 (1,048) 4,381 (2,317)
Dividends on preferred shares (3,437) (6,875)
Net income (loss) applicable to
common shareholders $ (1,266) $ (1,048) $ (2,494) $ (2,317)
Per common share information:
Basic EPS:
(Loss) before extraordinary $ (0.05) $ (0.01) $ (0.09) $ (0.06)
item
Extraordinary item (0.02) (0.02)
Net (loss) $ (0.05) $ (0.03) $ (0.09) $ (0.08)
Weighted average shares 26,476 27,685 26,476 27,657
outstanding (000)
Diluted EPS:
(Loss) before extraordinary $ (0.05) $ (0.01) $ (0.09) $ (0.06)
item
Extraordinary item (0.02) (0.02)
Net (loss) $ (0.05) $ (0.03) $ (0.09) $ (0.08)
Weighted average shares 26,476 27,685 26,476 27,657
outstanding (000)
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SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTYTRUST
Consolidated Balance Sheets
June 30, December 31,
1998 1997
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 146,873 $ 132,055
Buildings and improvements 924,687 852,674
Deferred leasing and other charges 41,961 39,912
Net 1,113,521 1,024,641
Accumulated depreciation and amortization (334,112) (315,125)
Net 779,409 709,516
Investment in joint venture 5,878 5,808
Cash and cash equivalents, non-restricted 4,379 9,472
Restricted cash and escrow deposits 18,050 14,237
Tenant and other receivables 16,104 16,986
Deferred charges and other assets 28,007 29,930
Net $ 851,827 $ 785,949
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 624,342 $ 541,713
Accounts payable and other liabilities 23,954 29,132
Net 648,296 570,845
Minority interest in Operating Partnership 23,191 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, 27,728,342
and 27,727,212 shares issued at June 30, 1998
and December 31, 1997, respectively 277 277
Additional paid-in capital 312,210 308,571
Accumulated deficit (119,950) (106,881)
Net 192,562 201,992
Less common shares held in treasury at cost;
1,251,898 shares at both June 30, 1998 and
December 31, 1997 (12,222) (12,222)
Net 180,340 189,770
Net $ 851,827 $ 785,949
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,381 $ (2,317)
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Minority interest in Operating Partnership (948) (793)
Equity earnings in joint venture (255) (255)
Depreciation and amortization 23,499 22,897
Extraordinary loss on early extinguishment of debt 732
Net changes in:
Tenant and other receivables 2,807 3,314
Deferred charges and other assets (4,486) (3,277)
Accounts payable and other liabilities (5,178) (8,044)
Net cash provided by operating activities 19,820 12,257
Cash flows from investing activities:
Investment in income properties (19,960) (17,834)
Acquisition of enclosed malls (64,972)
Distributions from joint venture 150
Net cash (used in) investing activities (84,932) (17,684)
Cash flows from financing activities:
Net proceeds from exercise of stock options and 8 858
dividend
reinvestment plan
Proceeds from issuance of debt, net of issuance cost 94,215 77,435
Debt repayments (12,788) (62,049)
Dividends and distributions paid on common shares and (14,541) (14,839)
partnership units
Dividends paid on senior preferred shares (6,875)
Net cash provided by financing activities 60,019 1,405
Net (decrease) increase in cash and cash equivalents (5,093) (4,022)
Cash and cash equivalents, beginning of period 9,472 6,746
Cash and cash equivalents, end of period $ 4,379 $ 2,724
Interest paid (net of capitalized amounts) $ 19,434 $ 21,135
Interest capitalized $ 1,295 $ 1,265
Non-cash financing activities:
Cash flow support credited to minority interest and
paid-in capital
that was prefunded in 1995. $ $ 1,676
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 4,379
<SECURITIES> 0
<RECEIVABLES> 16,104
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,113,521
<DEPRECIATION> 334,112
<TOTAL-ASSETS> 779,409
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 180,038
<TOTAL-LIABILITY-AND-EQUITY> 851,827
<SALES> 0
<TOTAL-REVENUES> 69,571
<CGS> 0
<TOTAL-COSTS> 43,552
<OTHER-EXPENSES> 2,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,161
<INCOME-PRETAX> 3,433
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,381
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
