SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number: 1-12216
CROWN AMERICAN REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
25-1713733
(IRS Employer Identification No.)
Pasquerilla Plaza, Johnstown, Pennsylvania 15901
(Address of principal executive offices)
(814) 536-4441
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $.01 per share
11.00% Senior Preferred Shares, par value $.01 per share ($50.00 Liquidation
Preference)
(Title of Class)
As of October 15, 1999, 26,207,919 Common Shares of Beneficial Interest and
2,500,000 11.00% Senior Preferred Shares of the registrant were issued and
outstanding.
New York Stock Exchange
(Name of Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes X No ____
Crown American Realty Trust
Form 10-Q
For the Quarterly Period ended September 30, 1999
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998
Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998
Consolidated Statement of Shareholders' Equity for the
nine months ended September 30, 1999
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults Upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
September 30, December 31,
1999 1998
(Unaudited)
(in thousands, except share
and per share data
<S> <C> <C>
Assets
Income-producing properties:
Land $ 145,070 $ 145,226
Buildings and improvements 985,542 946,654
Deferred leasing and other charges 43,756 42,469
Net 1,174,368 1,134,349
Accumulated depreciation and amortization (378,222) (347,649)
Net 796,146 786,700
Other assets:
Investment in joint venture 5,220 5,799
Cash and cash equivalents, unrestricted 11,912 13,512
Restricted cash and escrow deposits 13,996 15,005
Tenant and other receivables 13,827 17,430
Deferred charges and other assets 31,872 30,842
Net $ 872,973 $ 869,288
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 708,369 $ 669,971
Accounts payable and other liabilities 32,388 38,076
Net 740,757 708,047
Minority interest in Operating Partnership 3,729 11,724
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, 27,742,317 and
27,741,542 shares issued at September 30, 1999
and December 31, 1998, respectively 277 277
Additional paid-in capital 315,916 314,252
Accumulated deficit (173,079) (150,385)
Net 143,139 164,169
Less common shares held in treasury at cost,
1,534,398 shares at both September 30, 1999
and December 31, 1998 (14,652) (14,652)
Net 128,487 149,517
Net $ 872,973 $ 869,288
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 25,311 $ 23,688 $ 75,556 $ 68,669
Percentage rent 1,382 1,333 4,083 4,389
Property operating cost
recoveries 8,851 8,362 25,886 24,382
Temporary and promotional
leasing 1,951 1,715 5,759 5,110
Net utility income 701 633 2,349 2,224
Miscellaneous income 220 221 617 749
Net 38,416 35,952 114,250 105,523
Property operating costs:
Recoverable operating costs 11,406 10,969 33,748 32,437
Property administrative costs 537 548 1,651 1,728
Other operating costs 470 539 1,464 1,646
Depreciation and amortization 10,933 11,038 33,259 30,835
Net 23,346 23,094 70,122 66,646
Net 15,070 12,858 44,128 38,877
Other expenses:
General and administrative 1,073 1,098 3,301 3,457
Restructuring costs 1,212 - 2,251 -
Interest 12,901 11,780 37,632 32,941
Net 15,186 12,878 43,184 36,398
Net (116) (20) 944 2,479
Gain on sale of outparcel land - - 100 934
Income (loss) before extraordinary
item, minority interest, and
cumulative effect of a change in
accounting method (116) (20) 1,044 3,413
Extraordinary loss on early
extinguishment of debt - (22,512) - (22,512)
Cumulative effect on prior years
(to December 31, 1997)
of a change in accounting method - - - (1,703)
Income (loss) before minority
interest (116) (22,532) 1,044 (20,802)
Minority interest in loss of
Operating Partnership 984 7,052 2,566 8,463
Net income (loss) 868 (15,480) 3,610 (12,339)
Dividends on preferred shares (3,438) (3,438) (10,313) (10,313)
Net (loss) applicable to common
shares $ (2,570) $ (18,918) $ (6,703) $ (22,652)
Per common share data:
Basic EPS:
(Loss) before cumulative effect
of a change in accounting method
and extraordinary item $ (0.10) $ (0.10) $ (0.26) $ (0.19)
Extraordinary item - (0.62) - (0.62)
Cumulative effect on prior years
of a change in accounting method - - - (0.05)
Net income (loss) $ (0.10) $ (0.72) $ (0.26) $ (0.86)
Weighted average shares
outstanding 26,208 26,418 26,208 26,456
Diluted EPS:
(Loss) before cumulative effect
of a change in accounting method
and extrarodinary item $ (0.10) $ (0.10) $ (0.26) $ (0.19)
Extraordinary item - (0.62) - (0.62)
Cumulative effect on prior years
of a change in accounting method - - - (0.05)
Net income (loss) $ (0.10) $ (0.72) $ (0.26) $ (0.86)
Weighted average shares
outstanding 26,208 26,418 26,208 26,456
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statement of Shareholders' Equity
(Unaudited)
Common
Shares Senior
Issued and Preferred Common
Outstanding Shares Shares
(in thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1998 26,207 $ 25 $ 277
Common shares issued under
stock option program 1
Transfer in (out) of limited
partner's interest in the
Operating Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support
Net income
Dividends paid and accrued
Balance, September 30, 1999 26,208 $ 25 $ 277
Common
Additional Shares
Paid in Accumulated Held in
Capital Deficit Treasury Total
(in thousands)
Balance, December 31, 1998 $ 314,252 $ (150,385) $ (14,652) $ 149,517
Common shares issued under
stock option program 6 6
Transfer in (out) of limited
partner's interest in the
Operating Partnership (22) (22)
Capital contributions from
Crown Investments Trust:
Cash flow support 1,680 1,680
Net income 3,610 3,610
Dividends paid and accrued (26,304) (26,304)
Balance, September 30, 1999 $ 315,916 $ (173,079) $ (14,652) $ 128,487
</TABLE>
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<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1999 1998
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,610 $ (12,339)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest in Operating Partnership (2,566) (8,463)
Equity earnings in joint venture (249) (382)
Depreciation and amortization 37,371 36,233
Extraordinary loss on early extinguishment of debt - 22,512
Cumulative effect of a change in accounting method - 1,703
Restructuring costs 2,251 -
Net changes in:
Tenant and other receivables 3,603 1,675
Deferred charges and other assets (2,812) (3,557)
Restricted cash and escrow deposits 1,256 (5,762)
Accounts payable and other liabilities (7,939) 4,530
Net cash provided by operating activities 34,525 36,150
Cash flows from investing activities:
Investment in income-producing properties (42,718) (34,626)
Acquisition of operating properties - (64,972)
Proceeds from the sale of Middletown Mall - 8,148
Distributions from joint venture 550 -
Net cash (used in) investing activities (42,168) (91,450)
Cash flows from financing activities:
Net proceeds from exercise of stock options and
dividend reinvestment plan 6 132
Purchase of common shares held in treasury - (2,430)
Proceeds from issuance of debt, net of deposits and
issuance cost 48,214 551,535
Debt repayments (12,122) (469,176)
Dividends and distributions paid on common shares an
partnership units (22,060) (21,830)
Dividends paid on senior preferred shares (10,313) (10,313)
Cash flow support payments 2,318 2,916
Net cash provided by financing activities 6,043 50,834
Net (decrease) in cash and cash equivalents (1,600) (4,466)
Cash and cash equivalents, beginning of period 13,512 9,472
Cash and cash equivalents, end of period $ 11,912 $ 5,006
Interest paid (net of capitalized amounts) $ 36,533 $ 30,547
Interest capitalized $ 1,205 $ 1,812
Non-cash financing activities:
Issuance of partnership units related to Middletown
Mall and Greater Lewistown acquisitions $ - $ 4,479
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. These proceeds, along with new borrowings, were used by the
Operating Partnership to retire debt related to the Properties.
Simultaneously with the public offering, Crown Associates and an affiliate
transferred the Properties and the management operations into either the
Company, the Operating Partnership, or Crown American Financing Partnership (the
"Financing Partnership"), a partnership which is 99.5% owned by the Operating
Partnership and 0.5% owned by the Company.
The limited partnership interest in the Operating Partnership and the 1.6
million shares in the Company received for two malls transferred in 1993 are
currently held by Crown Investments Trust ("Crown Investments"), by Crown
American Investment Company (a subsidiary of Crown Investments), and by members
of the Pasquerilla family.
As described in Notes 5 and 6, the Company acquired three properties in 1998,
and sold one mall in 1998.
Simultaneously with the above transactions, the Financing Partnership borrowed
through Kidder approximately $300 million of mortgage debt (the "Kidder Mortgage
Loans") secured by its 15 enclosed shopping malls (see Note 3). The proceeds
from $300 million of mortgage debt together with the proceeds of the equity
offering were used to retire existing debt contributed with the Properties (see
Note 3). As described in Note 3, in August 1998 the Kidder Mortgage Loans were
refinanced in their entirety.
As of September 30, 1999, the Properties consist of: (1) 26 enclosed shopping
malls (together with adjoining outparcels and undeveloped land) located in
Pennsylvania, New Jersey, Maryland, Tennessee, North Carolina, West Virginia,
Virginia and Georgia, (2) a 50% general partnership interest in Palmer Park Mall
Venture, which owns Palmer Park Mall located in Easton, Pennsylvania, (3) a non-
enclosed strip shopping center located in Lewistown, PA, (4) Pasquerilla Plaza,
an office building in Johnstown, Pennsylvania, which serves as the headquarters
of the Company and is partially leased to other parties, and (5) 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 financial statements of the Company include all
accounts of the Company, its wholly-owned subsidiaries, and its majority-owned
subsidiary, the Operating Partnership. The Operating Partnership directly owns
seven malls, the 50% joint venture interest in Palmer Park Mall, the Corporate
headquarters building, and the Westgate anchor pad. All remaining properties
are owned by seven partnerships and limited liability companies that are either
99.5% or 100.0% owned by the Operating Partnership. The remaining 0.5%
interests in these second-tier entities are owned by the Company through its
wholly-owned subsidiaries. The Operating Partnership also has all paid
employees and manages all properties except the Palmer Park Mall and the
Westgate anchor pad. Other than its ownership interests in its subsidiaries,
the Company owns no other assets and has no other business activities. The
Company is the sole general partner in the Operating Partnership, and at
September 30, 1999 the Company held 100% of the preferred partnership interests
and 72.47% of the common partnership interests. All significant intercompany
amounts have been eliminated.
In the opinion of management, the accompanying unaudited consolidated interim
financial statements include all adjustments of a normal recurring nature
necessary for a fair presentation of the financial position and results of
operations of the Company. These consolidated interim financial statements and
the accompanying notes should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended December 31,
1998, 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.
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Change in Accounting Method
On May 21, 1998 the Emerging Issues Task Force ("EITF") discussed Issue 98-9
"Accounting for Contingent Rent" and reached a consensus that lessors should
defer the accounting recognition of contingent rent, such as percentage rent,
until the specific tenant sales breakpoint target is achieved. The Company's
previous accounting method, which was fully acceptable under Generally Accepted
Accounting Principles ("GAAP"), recognized percentage rent on a pro-rata basis
when a tenant's achievement of its sales breakpoint was considered probable.
This EITF consensus can be implemented on a prospective basis, or retroactively
as a change in accounting method.
During the third quarter of 1998, the Company implemented this EITF consensus as
a change in accounting method and accordingly recorded as of January 1, 1998 a
$1.7 million cumulative effect adjustment representing the change in prior
years' percentage rent income based on the new method of accounting. The impact
on percentage rent income of the new method for the year ended December 31, 1998
was a reduction of percentage rents of about $12,000 from what would have been
reported under the Company's previous method of accounting.
Net Income (Loss) Per Share
During 1997 the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share. Under SFAS No. 128, basic income (loss)
per common share is computed by dividing net income (loss) applicable to common
shares, as shown in the Consolidated Statements of Operations, by the weighted
average number of common shares outstanding for the year. Diluted income (loss)
per share is computed the same way except that the weighted average number of
common shares outstanding is increased, using the treasury stock method, for the
assumed exercise of options under the Company's share incentive plans, which are
the Company's only dilutive securities. Because no anti-dilution is permitted
under SFAS No. 128, diluted and basic EPS for the nine months ended September
30, 1999 and 1998 are identical.
The calculation of diluted earnings per share for the nine months ended
September 30, 1999 and 1998 would have included approximately 0 shares and
154,000 shares, respectively, for the assumed exercise of options under the
Company's share incentive plans, except that no anti-dilution is permitted under
SFAS No. 128.
NOTE 3 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
September 30, 1999 December 31, 1998
Mortgage loans $ 465,000 $ 465,000
Permanent loans 132,157 133,960
Construction loans 13,096 2,932
Secured term loans and lines of credit 98,116 68,079
Net $ 708,369 $ 669,971
Mortgage Loans
Concurrently with the offering of shares of the Company in 1993, the Financing
Partnership borrowed an aggregate $300 million in mortgage debt through Kidder
Peabody Mortgage Capital Corporation (collectively, the "Kidder Mortgage
Loans"). In connection with obtaining a construction loan for rebuilding and
expanding Logan Valley Mall, in December 1995 the Company repaid $19.4 million
of the Kidder Mortgage Loans in order to release the Logan Valley Mall from the
Kidder Mortgage Loans and Financing Partnership. No prepayment penalty was
incurred. On August 28, 1998, the Company closed a $465 million 10-year
mortgage with GE Capital Real Estate ("GECRE"). The gross proceeds from the new
loan (the "GECRE Mortgage Loan") were used to refinance the $280.6 million
Kidder Mortgage Loans, the $110.0 million interim mortgage loan, and the $30.0
million secured term loan. The remaining proceeds were used largely to
establish escrows to fund the remaining expansion and redevelopment costs of
Patrick Henry Mall and Nittany Mall, and to fund closing costs, initial loan
reserves and prepayment penalties with respect to $200.0 million of the Kidder
Mortgage Loans and the $30.0 million secured term loan that were pre-paid prior
to their maturity dates. The prepayment penalties for the Kidder Mortgage Loans
and the $30 million term loan were approximately $16.6 million. In addition,
approximately $5.9 million of unamortized deferred financing costs related to
the Kidder Mortgage Loans and the $110.0 million interim mortgage loan were
written off in the third quarter of 1998. Both of these items were accounted
for as an extraordinary loss on early extinguishment of debt. The GECRE
Mortgage Loan has a fixed stated interest rate of 7.43% and is secured by cross-
collateralized mortgages on 15 of the malls. Crown Investments has guaranteed
$250 million of the GECRE Mortgage Loan. In connection with the GECRE Mortgage
Loan, in November 1997, the Company made a $6.0 million interest-bearing good-
faith deposit with GECRE, and in July and August 1998, the Company made $12.2
million in non-interest bearing rate lock deposits with GECRE. These deposits
were refunded at closing.
Permanent Loans
At September 30, 1999, permanent loans consisted of nine loans secured by seven
properties held by the Operating Partnership. Included in permanent loans is a
$2.8 million interest free Urban Development Action Grant loan with the City of
Johnstown, Pennsylvania, secured by an office building and due October 2006. A
$1.1 million loan related to Carlisle Plaza Mall is an Industrial Development
Bond secured with a $1.1 million letter of credit, which expires in January,
2008. Crown Holding has guaranteed one of the permanent loans with a current
outstanding balance of $10.6 million.
Construction Loans
In September 1998 the Company entered into a $26.8 million construction and
three-year permanent loan with a bank lender to finance a renovation/expansion
program at Washington Crown Center. The loan has an interest rate of LIBOR plus
1.90%. The construction loan term is for two years followed by a three-year
permanent term loan.
Secured Term Loans and Lines of Credit
In September 1999 the Company announced a two-year extension and certain
modifications to its existing secured line of credit facility with GE Capital
Real Estate. The modified credit facility has a $150 million maximum commitment
level; however, initially the maximum funding level available is $109 million,
which can be increased up to the maximum $150 million upon achieving certain
financial and debt service coverage ratio tests that will depend on future
operating performance of the five mortgaged mall properties and future interest
rate levels. The initial funding level of $109 million includes $20 million
reserved for the construction and tenanting costs for the Valley Mall Expansion
that began in late 1998 and which will be substantially completed in late 1999.
The existing credit facility has been extended until November 2001. The
interest rate on the combined line is LIBOR plus 2.95% with no unused line fees.
Borrowings under this credit facility totaled $93.6 million at September 30,
1999.
In addition to the above facility, the Company has a $6.0 million line with a
bank secured by a mortgage on the Company's headquarters office building bearing
interest at LIBOR plus 3.00%. This line is renewable annually on April 30 and
has been renewed through April 30, 2000. This line has a 0.125% per annum
commitment fee based on the unused amount of the line. There was $4.5 million
outstanding under this line as of September 30, 1999.
Covenants and Restrictions
Various of the above loans and lines of credit contain certain financial
covenants and other restrictions, including limitations on the ratios, as
defined, of total Company debt to EBITDA, EBITDA to fixed charges, and floating
rate debt to total debt. The Company was in compliance with all such loan
covenants as of and during the period ended September 30, 1999. Twenty of the
Company's malls are mortgaged under the GECRE Mortgage Loan and the GECRE lines
of credit. All of these malls are owned by special purpose subsidiaries of the
Company. The sole business purpose of these subsidiaries, as an ongoing
covenant under the related loan agreements, is the ownership and operation of
the properties. The mortgaged malls and related assets owned by these
subsidiary entities are restricted under the loan agreements for the payment of
the related mortgage loans and are not available to pay other debts of the
consolidated Company. However, so long as the loans are not under an event of
default, as defined in the loan agreements, the cash flows from these
properties, after debt service and reserve payments are made, are available for
the general use of the consolidated Company.
Interest Rates
The Mortgage Loans on the Financing Partnership properties and nine of the
permanent loans with an aggregate principal balance of $597.2 million at
September 30, 1999 have fixed interest rates ranging from 4.25% to 9.11%. The
weighted average interest rate on this fixed-rate debt at September 30, 1999 and
1998 was 7.63% and 7.65%, respectively. The weighted average interest rates
during the three months ended September 30, 1999 and 1998 were 7.63%, and 7.56%,
respectively. All of the remaining loans with an aggregate principal balance of
$111.2 million at September 30, 1999 have variable interest rates based on
spreads ranging from 1.90% to 3.00% above 30 day LIBOR. The weighted average
interest rates on the variable rate debt at September 30, 1999 and 1998 were
8.23% and 7.60%, respectively. The weighted average interest rates during the
three months ended September 30, 1999 and 1998 were 7.59% and 7.58%,
respectively.
Debt Maturities
As of September 30, 1999, the scheduled principal payments on all debt,
including extensions available at the Company's option provided the debt is not
in default at the extension dates, are as follows (in thousands):
Year Ending
December 31,
1999 (three months) $ 723
2000 (year) 9,983
2001 (year) 104,333
2002 (year) 40,605
2003 (year) 25,374
Thereafter 527,351
Net $ 708,369
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standard No. 130 ("SFAS"), establishes standards for
reporting and displaying comprehensive income and its components, requires the
reporting of all changes in equity of an enterprise that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-owner changes
in equity. Comprehensive income calculated under SFAS No. 130 is the same as
the net income reported by the Company for the three months and nine months
ended September 30, 1999 and 1998.
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 FASB has
approved Statement No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the effective date of FASB Statement No. 133, which
amends Statement 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (that is, January 1, 2001 for companies with
calendar-years). Had the Company applied this standard currently, the effect on
the Company's results of operations for the three and nine months ended
September 30, 1999 would be immaterial.
NOTE 5 - MALL ACQUISITIONS AND EXPANSIONS
In May 1998 the Company acquired, in a single transaction, two regional shopping
malls: Jacksonville Mall in Jacksonville, North Carolina, and Crossroads Mall
in Beckley, West Virginia. The two malls include gross leasable area of 416,000
and 450,000 square feet, respectively. Sears, J.C. Penney 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. Each property is held in a limited partnership
or a limited liability corporation.
On April 29, 1998 the Independent Trustees approved the purchase of the
partnership interests in Greater Lewistown Shopping Mall. The partnership owned
an existing ground lease interest in Greater Lewistown Plaza, a 192,000 square
feet non-enclosed retail shopping center located near Lewistown, PA together
with fee simple interests in 4 separate adjacent parcels that total 0.59 acres
(together the "Greater Lewistown Plaza"). The partnership had been 99.5% owned
by Frank Pasquerilla and 0.5% owned by Crown American Enterprises, a company
that is a wholly-owned indirect subsidiary of Crown Holding. The purchase price
was $4.5 million and was paid by the assumption of the existing first mortgage
($3.686 million), issuance of 79,551 common partnership units to Frank
Pasquerilla, valued at $10.183 per unit which was based on the weighted average
closing market price of the Company's common shares for the ten days preceding
the May 31, 1998 closing date, and a cash payment of $4,071 to Crown American
Enterprises for its 0.5% ownership interest. Greater Lewistown Plaza is
currently 94.4% leased, and the major tenants include a Weis Markets and a J.C.
Penney store.
The Company has commenced construction of an expansion and redevelopment of
Washington Crown Center and an expansion at Valley Mall. The total cost of the
two projects, including capitalized construction overhead, interest, and tenant
allowances, are estimated at $32 million and $27 million respectively, of which
$21 million and $17 million, respectively, had been incurred as of September
30, 1999. In addition to amounts incurred at September 30, 1999, the Company is
committed for future payments under various construction purchase orders and
certain leases. The Company has secured through a bank lender a $26.8 million
construction and three-year permanent loan for the Washington Crown Center
expansion and redevelopment; the loan bears interest at LIBOR plus 1.90%, and
$13 million was borrowed and outstanding at September 30, 1999. The Valley Mall
expansion is being financed under the lines of credit with GECRE, as described
in Note 3.
NOTE 6 - PROPERTY SALES AND DISPOSALS
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 represented
approximately 1.2% of the total common Partnership Units outstanding prior to
the issuance of the new units. In July 1998 the Company sold Middletown Mall,
together with approximately 60 acres of undeveloped outparcels and vacant land,
to an unrelated third party. The aggregate purchase price was $12.2 million.
The Company received $8.5 million in cash, net of closing costs, and received a
$3.5 million one-year 9.5% mortgage from the purchaser, secured by a first
mortgage on all the undeveloped land and outparcels and by a second mortgage on
the mall. This note was due to be paid in full on July 21, 1999 and is
currently in default. The Company has been advised by the purchaser that the
purchaser is in the process of concluding a refinancing which is expected to
occur in November, 1999. Gain on the sale of approximately $1.3 million has
been deferred until all conditions for profit recognition under FAS 66 are
satisfied.
NOTE 7 - RESTRUCTURING COSTS
During the third quarter of 1999, the Company recorded a restructuring charge of
$1.2 million related to severance and related costs for employees affected by a
twelve percent reduction in the number of corporate office staff together with
reductions in other corporate office-related expenses, as announced in September
1999.
Similarly, during the first quarter of 1999, the Company recorded a $1.0 million
restructuring charge associated with an eight percent reduction in the corporate
office work force.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain of the following comments contain forward looking statements that
involve risk and uncertainties. Factors that could cause actual results to
differ materially include: overall economic conditions, local economic
conditions in the market areas surrounding each property, consumer buying
trends, expansion and development plans of retailers and other current and
potential tenants, the impact of competition, weather patterns and related
impact on consumer spending, changing interest rates and financing conditions,
and other risk factors listed from time to time in the Company's SEC reports,
including this report on Form 10-Q for the quarter ended September 30, 1999.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three and nine months ended September 30, 1999 and 1998.
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with this table and the interim
consolidated financial statements on pages 3 to 12.
Performance Measurement
Management believes that there are several important factors that contribute to
the ability of the Company to increase rent and improve profitability of its
enclosed shopping malls and other income properties, including aggregate anchor
tenant and mall shop tenant sales volume, mall shop retail tenant sales per
square foot and occupancy levels. Each of these factors has a significant
effect on Funds from Operations and EBITDA.
Funds from Operations (FFO) is a recognized industry performance measure for
real estate investment trusts (REIT's) and as defined by the National
Association of Real Estate Investment Trusts (NAREIT) generally represents net
income or loss (computed in accordance with generally accepted accounting
principles) before minority interest, real estate depreciation and amortization
(as defined) and extraordinary and unusual non-recurring items, and additionally
includes earned cash flow support (see Note 8 to the financial statements
included in the Company's 1998 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. The restructuring charge referred to in Note 7 of the
interim financial statements is considered as an unusual and non-recurring item
and, as such, is not included in the calculation of Funds from Operations. Gain
on sales of outparcel land have been included in Funds from Operations. 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 Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
Selected Financial Data:
<S> <C> <C> <C> <C>
EBITDA (1 & 3) $ 26,004 $ 23,875 $ 77,465 $ 70,339
Funds from Operations (FFO)
(2 &3):
Net Income (loss) $ 868 $ (15,480) $ 3,610 $ (12,339)
Adjustments:
Minority interest in Operating
Partnership (844) (7,052) (2,566) (8,463)
Depreciation and amortization -
real estate 11,309 11,380 34,451 31,803
Operating covenant amortization 658 658 1,973 1,973
Cash flow support 746 1,000 2,317 2,926
Cumulative effect of a change in
accounting method - - - 1,703
Extraordinary loss on early
extinguishment of debt - 22,512 - 22,512
Restructuring costs 1,212 - 2,251 -
Funds from Operations, before
allocations to minority
interests and preferred shares 13,809 13,018 42,036 40,115
Less:
Amount allocable to preferred
shares 3,438 3,438 10,313 10,313
Amount allocable to minority
interest 2,855 2,622 8,733 8,122
Funds from Operations applicable
to common shares $ 7,516 $ 6,958 $ 22,990 $ 21,680
Average common shares outstanding
(000) 26,208 26,418 26,208 26,456
Cash Flows:
Net cash provided by operating
activities $ 11,614 $ 16,330 $ 34,525 $ 36,150
Net cash (used in) investing
activities $ (17,639) $ (21,236) $(42,168) $ (91,450)
Net cash provided by financing
activities $ 8,143 $ 5,533 $ 6,043 $ 50,834
(1) EBITDA represents revenues and gain on sale of outparcel land, less
operating costs, including general and administrative expenses, before
interest, and all depreciation and amortization; EBITDA also excludes gain
on sales of properties and anchor store locations, adjustments to carrying
values of assets to be disposed of, and extraordinary items because such
items are uncommon and not a part of ongoing operations.
(2) Funds from Operations represents net income before minority interest and
before depreciation and amortization plus earned cash flow support and
adjustment for certain unusual items.
(3) EBITDA and Funds from Operations (i) do not represent cash flow from
operations as defined by generally accepted accounting principles, (ii) are
not necessarily indicative of cash available to fund all cash flow needs
and (iii) should not be considered as an alternative to net income for
purposes of evaluating the Company's operating performance.
</TABLE>
Comparison of Three and Nine Months Ended September 30, 1999 to the
corresponding period in 1998
- - Revenues
Total revenues for the third quarter of 1999 were $38.4 million, up $2.4
million, or 7 percent, from $36.0 million for the same period in 1998. Mall
shop and anchor base and percentage rents accounted for $1.6 million of this
increase.
Total revenues for the first nine months of 1999 were $114.2 million compared to
$105.5 million for the same period in 1998, an increase of $8.7 million, or 8
percent, of which $5.7 million came from existing properties and $3.0 million
was from the net impact of properties acquired and/or sold in 1998.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the third quarter
of 1999 were $12.4 million, an increase of $0.3 million over the corresponding
period in 1998. For the first nine months of 1999, recoverable and non-
recoverable mall operating costs were $36.9 million, an increase of $1.1 million
over the first nine months of 1998, of which $0.8 million came from the net
impact of properties acquired and/or sold in 1998.
Depreciation and amortization expense for the third quarter of 1999 was $10.9
million, a decrease of $0.1 million over the third quarter of 1998.
Depreciation and amortization expense for the first nine months of 1999 totals
$33.3 million, up $2.4 million over the same period of 1998, of which $1.4
million came from existing properties and $1.0 million came from
acquisition/disposition properties.
- - General, Administrative and Interest Expenses:
For the third quarter of 1999, general and administrative expenses were $1.1
million, or even with the third quarter of 1998. For the first nine months of
1999, general and administrative costs were $3.3 million, a decrease of $0.2
million compared to the first nine months of 1998. This decrease is the result
of lower gross spending associated with our expense reduction program announced
earlier this year, partially offset by lower capitalization.
Interest expense increased by $1.1 million in the third quarter of 1999 versus
the third quarter of 1998, primarily due to higher average borrowings
outstanding and due to lower amounts of interest capitalized. For the first
nine months of 1999, interest expense was $37.6 million, an increase of $4.7
million over the comparable period of 1998, of which $3.0 million is
attributable to existing properties and $1.7 million is attributable to the new
properties acquired in 1998.
- - Gain on Property Sales and Disposals:
There were no land sales in the third quarters of 1999 and 1998. For the first
nine months of 1999, gain on land sales was $0.1 million compared to $0.9
million in the first nine months of 1998.
- - Net Income (loss):
The net income for the third quarter of 1999 was $0.9 million compared to a net
loss of $15.5 million for the third quarter of 1998. After deducting preferred
dividends, there was a net loss of $2.6 million in the third quarter of 1999
applicable to common shares, compared to a net loss of $18.9 million for the
third quarter of 1998. The third quarter of 1999 includes a restructuring
charge of $1.2 million related to severance costs, as mentioned in Note 7 to the
financial statements. The third quarter of 1998 includes an extraordinary loss
on the early extinguishment of debt in the amount of $22.5 million.
The Company's net income for the first nine months of 1999 was $3.6 million
compared to a net loss of $12.3 million for the comparable period of 1998.
After deducting preferred dividends, there was a net loss for the first nine
months of 1999 applicable to common shares of $6.7 million; this compares to a
net loss of $22.7 million applicable to common shares for the first nine months
of 1998.
- - Funds from Operations:
For the quarter ended September 30, 1999, Funds from Operations ("FFO") before
allocations to minority interest and to preferred dividends was $13.8 million,
up from $13.0 million in the same quarter of 1998. FFO including land sales
allocable to common shares (after minority interest and preferred dividends) was
$7.5 million, compared to $7.0 million in the same quarter of 1998. The net
increase in total FFO during the quarter was largely comprised of the following:
a) a $1.6 million increase in mall shop and anchor base and percentage rents
from the existing properties reflecting higher occupancy and higher average
rents; b) $0.2 million in higher temporary and seasonal leasing; and c) $0.3
million lower general and administrative costs, higher mall net recovery income,
and higher miscellaneous revenues. These positive variances in FFO were
partially offset by; d) $1.1 million in higher net interest expense; and e)
$0.2 million in lower cash flow support payments.
For the first nine months of 1999, FFO before allocations to minority interest
and to preferred dividends was $42.0 million compared to $40.1 million for the
same period in 1998. FFO allocable to common shares (after minority interest
and preferred dividends) was $23.0 million for the first nine months of 1999,
compared to $21.7 million for the first nine months of 1998. The $1.9 million
increase in total FFO for the first nine months of 1999 compared to 1998 was
largely comprised of: a) a $4.3 million increase in mall shop and anchor base
and percentage rents as a result of higher occupancy and average rents; b) $0.4
million in higher temporary and seasonal rents; c) $0.7 million contribution
from properties acquired and/or sold in mid-1998, net of interest costs; d)
$0.2 million in higher lease buyout income; e) $0.2 million in lower net
general and administrative expenses; offset by f) $3.0 million in higher net
interest expense from existing properties; g) $0.8 million in lower gain on
land sales; and h) $0.6 million in lower cash flow support payments.
EBITDA - Earnings before Interest, Taxes, Depreciation and Amortization
The computation of EBITDA is shown below for the nine months ended September 30,
1999 and 1998 (000's):
Nine Months Ended
September 30,
1999 1998
Total revenues $ 114,250 $ 105,523
Add back operating covenant
amortization deducted in minimum rent 1,973 1,973
Net 116,223 107,496
Less recoverable costs and expenses (33,748) (32,437)
Less non-recoverable costs and expenses (1,464) (1,646)
Less property general and
administrative costs (1,651) (1,728)
Less corporate general and
administrative costs (3,301) (3,457)
Add back depreciation/amortization
in above expense lines and joint venture
depreciation 1,306 1,177
Gain on outparcel land sales 100 934
EBITDA, as reported $ 77,465 $ 70,339
For the quarter ended September 30, 1999, EBITDA was $26.0 million compared to
$23.9 million in the third quarter of 1998, an increase of 9 percent. 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. For the first
nine months of 1999, EBITDA was $77.5 million, an increase of $7.1 million, or
10 percent, over the same period in 1998.
Liquidity and Capital Resources
The Company has significant ongoing capital requirements. The Company believes
that its cash generated from property operations and funds obtained from
property financings and general corporate borrowings will provide the necessary
funds on a short-term and long-term basis for its operating expenses, interest
expense on outstanding indebtedness and recurring capital expenditures and
tenant allowances, and all dividends to the shareholders necessary to satisfy
the REIT dividend distribution requirements under the Internal Revenue Code.
The Company intends to pay regular quarterly dividends to its shareholders.
However, the Company's ability to pay dividends is affected by several factors,
including cash flow from operations, capital expenditures, and its ability to
refinance its maturing debt as described below. Dividends by the Company will
be at the discretion of the Board of Trustees and will depend on the cash
available to the Company, its financial condition, capital and other
requirements, and such other factors as the Trustees may consider.
Sources of capital for non-recurring capital expenditures, such as major
building renovations and expansions, as well as for scheduled principal
payments, including balloon payments on the outstanding indebtedness, are
expected to be obtained from additional Company or property financings and
refinancings, sale of non-strategic assets, additional equity raised in the
public or private markets, and from retained internally generated cash flows, or
from combinations thereof. The Company has commenced construction of an
expansion and redevelopment of Washington Crown Center and an expansion at
Valley Mall. The total cost of the two projects, including capitalized
construction overhead, interest, and tenant allowances, are estimated at $32
million and $27 million respectively, of which $21 million and $17 million,
respectively, had been incurred as of September 30, 1999. In addition to
amounts incurred at September 30, 1999, the Company is committed for future
payments under various construction purchase orders and certain leases. The
Company has secured through a bank lender a $26.8 million construction and three
year permanent loan for the Washington Crown Center expansion and redevelopment;
the loan bears interest at LIBOR plus 1.90%, and $13 million was borrowed and
outstanding at September 30, 1999. The Valley Mall expansion is being financed
under the lines of credit with GECRE, as described in Note 3 to the interim
financial statements.
As of September 30, 1999 the scheduled principal payments on all debt are $0.7
million, $10.0 million, $104.3 million, $40.6 million, and $25.4 million for the
years ended December 31, 1999 through 2003, respectively, and $527.4 million
thereafter. The Company expects to refinance or extend the majority of the
maturities over the next five years through additional Company financings and
from refinancing the maturing loans. The Company's ability to refinance or
extend these loans on or before their due dates depends on the level of income
generated by the properties, prevailing interest rates, credit market trends,
and other factors that may be in effect at the time of such refinancings or
extensions and there is no assurance that such refinancings or extensions will
be executed. The ratios of the Company's EBITDA to interest paid on total
indebtedness (exclusive of capitalized interest and interest income) for the
years ended December 31, 1998, 1997, and 1996 were 2.14 to 1, 2.04 to 1, and
2.08 to 1, respectively.
Year 2000
Management of the Company has made a preliminary and partial assessment of the
so-called "Year 2000 problem" which relates to the ability of electronic
equipment, computer hardware and software to properly recognize date sensitive
information on or after January 1, 2000. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Company's assessment and corrective action efforts to date have focused
primarily on internal equipment and software used by the Company. Based on this
preliminary assessment, management estimates that the cost to replace certain
electronic and computer equipment and to reprogram certain software will
approximate $300 thousand. Beginning in 1994, the Company has made significant
investments in upgraded computer hardware and third-party software operating and
financial systems; management believes such new systems are Year 2000 capable
based on communications with the hardware and software vendors and on limited
testing. Management also believes that the potential impact and disruption of
Year 2000 on internally used equipment and software, to the extent not replaced
or repaired by 2000, should not result in direct material adverse effects on the
Company's ability to operate. Contributing to this preliminary assessment is
the relatively passive nature of the Company's business of leasing space to
retailers.
However, the Company may be impacted in a number of direct and indirect ways if
its suppliers and customers (tenants and the ultimate consumers), or if the
general United States or world economies, are disrupted from the impact of Year
2000. Such effects could include, for example, temporary loss of utilities and
telecommunications services which could prevent the shopping malls or tenants
from maintaining normal sales hours, disruption of financial services such as
processing of checks or credit card transactions, adverse effects on the
manufacture and delivery of goods to tenants to be sold in the Company's mall
properties (many such goods are produced outside the United States), and the
inability of tenants' systems to process sales and control inventories. It is
possible that these effects could reduce tenant sales and thus reduce percentage
rents received by the Company. It is also possible that some tenants may be
unable to remain in business and thus cease paying rents. Some commentators on
Year 2000 have suggested that Year 2000 issues could cause, or contribute to, an
economic recession which could affect the overall levels of tenant sales, future
leasing activity, interest rates, and other general economic factors that could
adversely impact the Company. While management of the Company is unable to
estimate the magnitude of all these effects, they could have a material adverse
effect on the future results of operations and financial condition of the
Company.
Management is continuing to complete its efforts to identify non-compliant
equipment and systems, and to correct and/or replace such systems. Management
has also developed contingency plans for both its headquarters and mall
properties. These contingency plans address certain potential external effects
on the Company, including possible loss of utilities. No assurance can be given
that these contingency plans will be sufficient to mitigate all Year 2000
effects that could impact the Company. No material changes in information has
occurred for the three and nine months ended September 30, 1999 that would cause
the information reported in this section in the Company's 1998 Form 10-K to be
inaccurate.
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 nor any of the
Partnerships are currently involved in any material litigation and, to the best
of the Company's knowledge, there is no material litigation currently threatened
against the Company or the Partnerships, other than routine litigation arising
in the ordinary course of business, most of which is expected to be covered by
liability insurance or established reserves.
Shareholder litigation
On August 10, 1995, August 17, 1995, and September 8, 1995 complaints were filed
by various individuals on behalf of themselves and also purportedly on behalf of
other similarly situated persons against the Company and certain of its
executive officers in United States District Court for the Western District of
Pennsylvania to recover unspecified damages under the federal securities laws
resulting from a decline in the market price for the Company's common shares of
beneficial interest which are listed and traded on the New York Stock Exchange.
The decline in the Company's share price followed the announcement on August 8,
1995 of various operational and capital resource initiatives by the Company,
including the reduction of the Company's quarterly dividend to increase its
levels of retained internal cash flow and the planned sale of certain assets
that at the time did not fit the Company's growth strategy. The complaints in
these three cases were consolidated by the Court and a consolidated amended
complaint was filed on July 30, 1996. The consolidated amended complaint
asserts a class period extending from March 1, 1995 to August 8, 1995,
inclusive.
A fourth Complaint was filed the week of December 15, 1995 by an individual on
behalf of himself and also purportedly on behalf of other similarly situated
persons against the Company and certain of its current and former executive
officers in the United States District Court for the Eastern District of
Pennsylvania (the Warden action). This action was subsequently transferred to
the Western District of Pennsylvania. While this Complaint is substantially
similar to the previous Complaints, it alleged a class period extending from
August 17, 1993 (the IPO date) to August 8, 1995.
The Company filed a motion seeking to dismiss the consolidated action and
negotiated a stay of the Warden action pending resolution of the motion to
dismiss the consolidated actions. On September 15, 1997 the Court issued an
opinion dismissing the consolidated amended complaint. In its ruling, the Court
dismissed certain allegations with prejudice and others with an opportunity to
amend. On October 10, 1997 the Plaintiffs filed a second amended complaint in
the consolidated action. On December 2, 1997 the court entered an order
consolidating the cases for pretrial purposes. On December 16, 1997 the
Plaintiff in the Warden action filed a second amended complaint, which changed
the end of the putative class period to February 28, 1995. On January 16, 1998
the Company filed motions seeking dismissal of both the consolidated action and
the Warden action. On October 15, 1998 the Court in the Warden action granted
the Company's motion to dismiss and permitted the plaintiffs to file a third
amended complaint.
On November 2, 1998, the Court granted in part and denied in part the Company's
motion to dismiss the second amended complaint in the consolidated action. In
its ruling, the Court dismissed the Company as a defendant and dismissed all of
the plaintiff's claims with prejudice, except for a narrow set of allegations
relating to projections of the 1995 dividend at a March 1995 REIT conference and
in the 1994 annual report. On November 30, 1998, the plaintiffs in the Warden
action and the consolidated action each filed third amended complaints. In the
consolidated action, plaintiffs sought to renew certain claims against the
Company notwithstanding the Court's prior rulings. On December 21, 1998, the
Company filed a motion seeking dismissal of the third amended complaint in the
Warden action. On February 5, 1999, the Company filed a motion to dismiss the
third amended complaint in the consolidated action.
On July 6, 1999, the Court granted the Company's motion to dismiss the third
amended complaint in the Warden action in its entirety with prejudice. On
August 5, 1999, the plaintiffs filed an appeal to the U.S. Court of Appeals for
the Third Circuit. On July 20, 1999, the Court granted in part and denied in
part the Company's motion to dismiss the third amended complaint in the
consolidated action. In its ruling, the Court dismissed the Company as a
defendant and otherwise ruled consistent with its November 2, 1998, decision,
dismissing all of the claims, except for the narrow set of allegations
referenced above.
The consolidated legal action and the Warden action are both in a 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 action. The Company's
current and former officers that are named in this litigation are covered under
a liability insurance policy paid for by the Company. The Company's officers
also have indemnification agreements with the Company. While the final
resolution of this litigation cannot be presently determined, management does
not believe that it will have a material adverse 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 seeking to enjoin the development of a Kaufmann's department
store at the Nittany Mall. Bon-Ton claims 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's and
May's motion for a declaratory judgment. Bon-Ton appealed to the Pennsylvania
Superior Court which entered an Order in favor of Crown and May on April 7,
1999. Bon-Ton filed an Application Requesting Reargument which the Pennsylvania
Superior Court denied by Order dated June 15, 1999. On July 15, 1999, Bon-Ton
filed a Petition for Allowance of Appeal to the Pennsylvania Supreme Court,
which said Court denied by Order dated October 18, 1999. While the final
resolution of this litigation cannot be presently determined, management does
not believe that it will have a material adverse affect on the Company's results
of operations or financial condition.
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
On November 1, 1999, the Company issued its regular quarterly
earnings release and its Third Quarter 1999 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 November 1, 1999
Exhibit 99 (b) - Third Quarter 1999 Supplemental Financial and
Operational Information Package
Item 6: Exhibits and Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 9, 1999 CROWN AMERICAN REALTY TRUST
/s/ Mark E. Pasquerilla
Mark E. Pasquerilla
Chairman of the Board of Trustees,
Chief Executive Officer and President
(Authorized Officer of the Registrant
and Principal Executive and Operating Officer)
Date: November 9, 1999 CROWN AMERICAN REALTY TRUST
/s/ Terry L. Stevens
Terry L. Stevens
Executive Vice President and
Chief Financial Officer
(Authorized Officer of the Registrant
and Principal Financial Officer)
Date: November 9, 1999 CROWN AMERICAN REALTY TRUST
/s/ John A. Washko
John A. Washko
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: Terry Stevens 814-533-4651
Internet: www.crownam.com
IMMEDIATE RELEASE: Monday, November 1, 1999
CROWN AMERICAN REALTY TRUST REPORTS
THIRD QUARTER FFO PER SHARE INCREASED 11 PERCENT FROM 1998
-------------------------------------------
CROWN AMERICAN REALTY TRUST ANNOUNCES
THIRD QUARTER RESULTS AND DECLARES DIVIDENDS
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the third quarter and for the nine months ended September 30, 1999. The
Board of Trustees also declared regular quarterly dividends on its common and
senior preferred shares.
_______________________________
"The Company is now stronger than it has been for several years, with
increased financial flexibility, higher occupancy and a stronger tenant base,"
stated Crown American Realty Trust Chairman, CEO and President, Mark E.
Pasquerilla. "The transformation of our properties that we have effected during
the last several years and our recent strong leasing results continue to
contribute to growth in Funds from Operations ("FFO") in the third quarter of
1999. FFO per common share was $0.29 in the third quarter, up 11 percent from
$0.26 per share in the corresponding quarter of 1998. There were no land sales
in either quarter and the number of properties in the portfolio was the same in
both quarters. For the first nine months, FFO per share including land sales
was $0.88, up 7 percent from $0.82 per share in 1998. Excluding the impact of
land sales, FFO per share for the first nine months of 1999 was $0.88 per share,
up 11 percent from $0.79 per share in 1998. The near completion of the Valley
Mall expansion and the Washington Crown Center redevelopment marks the end of
our planned major capital spending for the existing portfolio. Management's
primary focus will be on reaping the financial benefits from the improvements in
the portfolio that were made over the last few years as we continue to lease up
the properties. Also, management is extremely cognizant of today's harsh
capital markets for REITs. The Company's primary focus will be in growing cash
flow which will provide flexibility to enhance shareholder value.
"Operating trends continue to be strong. Average mall shop base rent per
square foot increased for the 24th consecutive quarter to $18.34, up 6 percent
from one year ago. Mall shop occupancy at the end of the quarter was 83
percent, up from 81 percent a year ago, and we expect mall shop occupancy to end
the year near 84 percent. Mall shop tenant sales through September continued
their strong performance, up 6.5 percent compared to 1998; for nearly the last
three years, Crown's percentage growth in mall shop tenant sales has
significantly outperformed the mall peer group. Our program of expense cuts
announced earlier this year is producing results with 1999 gross corporate
office costs expected to decrease by approximately $3.0 million, or 15 percent,
from 1998's levels. To date much of the net savings that impacts earnings has
been offset by lower capitalization of leasing costs compared to 1998. In
September we announced a two year extension and other modifications to our
secured line of credit facility. Under the modified line we have increased
financial capacity and funding for the expansion of Valley Mall in Hagerstown,
MD. The modified line provides improved liquidity, but as we indicated in our
September announcement, interest costs are higher than under the previous terms
and will reduce 2000 earnings by about $0.04 per share.
Mr. Pasquerilla concluded, "We continue to focus on improving our internal
cash flows by increasing mall shop occupancy and continuing our cost containment
efforts. In this difficult capital market for REIT's, we are managing the
Company conservatively, and we also recognize that our cheapest source of
capital is internally generated funds."
Dividend Information
The Board of Trustees declared a regular quarterly dividend of $.205 per
common share and $1.375 per senior preferred share. Both dividends are payable
on December 17, 1999 to shareholders of record on December 3, 1999.
Financial Information - Third Quarter
For the quarter ended September 30, 1999, the Company reports that Funds
from Operations (FFO) before allocations to minority interest and to preferred
dividends was $13.8 million, up from $13.0 million in the third quarter of 1998.
FFO allocable to common shares was $7.5 million, or $0.29 per common share,
compared with $7.0 million, or $0.26 per common share, for the third quarter of
1998. The increase in FFO before allocations to minority interest and to
preferred dividends was due primarily to the following factors. The number of
properties in the portfolio was the same in both quarters:
$1.6 million increase in mall shop and anchor base rents reflecting higher
occupancy and higher average rents;
$0.2 million in higher temporary and seasonal leasing income;
$0.3 million in lower G&A costs, a higher recovery rate on mall operating
costs, and higher other revenues; offset by
$1.1 million in higher net interest expense;
$0.2 million in lower cash flow support payments.
Total revenues for the third quarter were $38.4 million, up $2.4 million or
7% from $36.0 million in the third quarter of 1998. Revenues in the quarter
were favorably impacted by the higher occupancy and average rental rates as
noted above, by higher cost recovery income caused by higher mall operating
costs, and by higher temporary and seasonal leasing revenues. Net income for
the third quarter was $0.9 million compared to a net loss of $15.5 million last
year. This quarter's net income was negatively affected by $1.2 million in
restructuring costs announced in September. Last year's net income was affected
by a $22.5 million extraordinary loss on early extinguishment of debt in
connection with the $465 million refinancing transaction completed in August
1998. After deducting dividends on preferred shares, there was a net loss
applicable to common shares in the third quarter of $2.6 million, or $0.10 per
common share, compared to a net loss of $18.9 million, or $0.72 per common share
in 1998.
For the first nine months of 1999, FFO before allocations to minority
interest and to preferred dividends was $42.0 million ($0.88 per common share)
compared to $40.1 million ($0.82 per share) for the same period of 1998. Total
revenues for the nine months were $114.2 million compared to $105.5 million in
1998, an increase of $8.7 million, of which $5.7 million was from existing
properties and $3.0 million relates to properties acquired and/or sold in 1998.
Net income for the nine months was $3.6 million compared to a net loss of $12.3
million in 1998. Net income in 1999 was impacted by $2.3 million in
restructuring costs while net income in 1998 was impacted by $22.5 million in
extraordinary loss on early extinguishment of debt. After deducting dividends
on preferred shares, there was a net loss applicable to common shares for the
first nine months of 1999 of $6.7 million, or $0.26 per common share, compared
to a net loss of $22.7 million, or $0.86 per common share in 1998.
Operating Information
During the third quarter of 1999, leases for 270,000 square feet of mall
shops were signed resulting in $5.9 million in annual base rental income.
This compares to 120,000 square feet for $3.1 million during the same
period in 1998, an increase of 90 percent. A total of 113 leases were
signed, which included 64 renewals and 49 new leases. Annualized revenues
from new and renewal signed mall shop leases during the nine months were
$15.1 million, 23 percent lower than the same period in 1998 when we
achieved an all-time high in leasing.
For the nine months ended September 30, 1999, the average rent for mall
shop leases signed was $20.43 per square foot compared with $19.18 for the
same period in 1998, up 6.5 percent. The average rents per square foot
were $21.63 for new leases and $18.56 for renewals in the first nine months
of 1999, compared with $20.14 and $18.21, respectively, in 1998.
Also during the third quarter of 1999, leases for 100,000 square feet in
non-mall shop and/or freestanding locations were signed resulting in $1.2
million in annual base rental income. For the nine months ended September
30, 1999, the Company has signed leases on 153,000 square feet resulting in
$1.9 million in annual base rental income.
The average mall shop base rent of the portfolio at September 30, 1999 was
$18.34 per square foot. This is a 6.0 percent increase from $17.30 per
square foot at September 30, 1998, and the 24th consecutive quarter that
average mall shop base rent has increased.
Overall, mall shop occupancy was 83 percent at September 30, 1999. This
compares to 81 percent at September 30, 1998 and 82 percent at June 30,
1999.
Mall shop comparable sales for the nine months ended September 30, 1999
were $163.98 per square foot. This is a 6.5 percent increase over the
$153.97 reported for the nine months ended September 30, 1998.
Occupancy costs, that is, base rent, percentage rent and expense recoveries
as a percentage of mall shop sales at all properties, were 10.2 percent as
of September 30, 1999, unchanged from September 30, 1998.
Temporary and promotional leasing income for the first nine months of 1999
amounted to $5.8 million, as compared to $5.1 million for the same period
in 1998.
Expansion/Renovation Projects
Construction is complete at Washington Crown Center (formerly Franklin
Mall, Washington, Pa.). This project included the addition of a new
140,000 square foot May Company (Kaufmann's) department store that opened
in September, a new 14-screen Hollywood Theater scheduled to open in Spring
2000, a relocation of the food court and a complete mall renovation.
Official grand re-opening ceremonies were held on October 21, 1999.
At Valley Mall (Hagerstown, Md.) work has also been completed on a mall
expansion that included a new 120,000 square foot May Company (Hecht's)
department store that opened October 27, a 16-screen R/C Theatres complex
that will open Spring 2000, a new Gardenside Cafe food court and additional
mall shop space. Grand re-opening ceremonies were held on October 28,
1999.
Financings
As previously announced in September, the Company completed a two-year
extension and certain modifications to its existing secured line of credit
facility with GE Capital Real Estate. The modifications were done to
increase the effective borrowing capacity of the existing facility and to
provide construction funding for the Valley Mall expansion project.
The existing credit facility, which had been scheduled to mature in
November 1999, was extended to November 2001. The initial maximum funding
available under the modified line is $109 million, which can be increased
up to the maximum $150 million upon achieving certain financial and debt
service coverage ratio tests that will depend on future operating
performance of the five mortgaged mall properties and future interest rate
levels. The initial funding level of $109 million includes $20 million
reserved for the construction and tenanting costs for the Valley Mall,
which has been substantially completed.
The interest rate on the combined line is LIBOR plus 2.95% with no unused
line fees. Interest on the former acquisition and general lines was LIBOR
plus 2.35% and 1.95%, respectively, plus 0.125% in unused line fees. As we
indicated in our September announcement, the effect of the higher average
interest rate and amortization of the fees and related costs of securing
the extension and modifications will be to decrease net income and FFO by
approximately $0.01 per share in the fourth quarter of 1999 and
approximately $0.04 per share in 2000.
___________________________________________________
Crown American Realty Trust through various affiliates and subsidiaries
owns, acquires, operates and develops regional shopping malls in Pennsylvania,
Maryland, West Virginia, Virginia, New Jersey, North Carolina, Tennessee and
Georgia. The current portfolio includes 27 regional shopping malls.
This news release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
based on assumptions and expectations, which may not be realized and are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy. Future events and actual results, financial and otherwise, may
differ from the results discussed in the forward-looking statements. Risk and
other factors that might cause differences, some of which could be material,
include, but are not limited to, economic and credit market conditions, the
ability to refinance maturing indebtedness, the impact of competition, consumer
buying trends, financing and development risks, construction and lease-up
delays, cost overruns, the level and volatility of interest rates, the rate of
revenue increases versus expenses increases and financial stability of tenants
within the retail industry, as well as other risks listed from time to time in
the Company's reports filed with the Securities and Exchange Commission or
otherwise publicly disseminated by the Company.
A copy of the Company's Supplemental Financial and Operational Information
Package follows.
- 30 -
EXHIBIT 99 (b)
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
THIRD QUARTER 1999
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 vs. 1998 1999 vs. 1998
(in thousands, except per share data)
FINANCIAL AND ANALYTICAL DATA:
Total FFO - Incr (decr) -
1999 compared to 1998:
$ 000 $ per share $ 000 $ per share
<S> <C> <C> <C> <C>
Base and percentage rents from $ 1,620 $ 0.044 $ 4,335 $ 0.119
anchors and mall shops
Temporary and promotional leasing 236 0.007 367 0.010
income
Mall operating costs, net of tenant 115 0.003 61 0.002
recovery income
Utility and misc. mall income, equity 63 0.002 (7) -
in joint venture
Straight line rental income 56 0.002 188 0.005
Core mall operations--same properties 2,090 0.058 4,944 0.136
Contribution before interest of 3 - - 2,938 0.081
properties acquired in May 1998
Effect of sale of Middletown in July - - (534) (0.015)
1998, before interest
Property admin. and general & admin. 36 0.001 233 0.006
expenses
Cash flow support earned (254) (0.007) (609) (0.017)
Interest expense, including $1.8 (1,121) (0.031) (4,691) (0.130)
million related to acquired prop.
Gain on sale of outparcel land - - (834) (0.023)
Depreciation and amortization expense 34 0.001 208 0.006
Lease buyout income (4) - 244 0.007
Other miscellaneous changes 10 - 22 -
Impact on per share amount from - 0.002 - 0.006
common share repurchases and
other changes in common shares and
O.P. units outstanding
Change before pref'd div's and 791 0.024 1,921 0.057
minority interest
Allocation to minority interest in (233) - (616) -
Operating Partnership
Rounding to whole cents - 0.006 - 0.003
Change in FFO allocable to common $ 558 $ 0.030 $ 1,305 $ 0.060
shareholders
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Funds from Operations ($000 except
per share data):
Net income (loss) $ 868 $ (15,480) $ 3,610 $ (12,339)
Adjustments:
Minority Interest in Operating (984) (7,052) (2,566) (8,463)
Partnership
Restructuring costs 1,212 - 2,251 -
Cumulative effect of a change in - - - 1,703
accounting method
Depreciation and amortization - real 11,309 11,380 34,451 31,803
estate
Operating covenant amortization 658 658 1,973 1,973
Cash flow support amounts 746 1,000 2,317 2,926
Extraordinary loss on early - 22,512 - 22,512
extinguishment of debt
FFO before allocations to minority 13,809 13,018 42,036 40,115
interest and pref'd shares
Allocation to preferred shareholders (3,438) (3,438) (10,313) (10,313)
(preferred dividends)
Allocation to minority interest in (2,855) (2,622) (8,733) (8,122)
Operating Partnership
FFO allocable to common shares $ 7,516 $ 6,958 $ 22,990 $ 21,680
FFO per common share $ 0.29 $ 0.26 $ 0.88 $ 0.82
Average shares outstanding during the 26,208 26,418 26,208 26,456
period
Shares outstanding at period end 26,208 26,207 26,208 26,207
Avg. partnership units and shares 36,164 36,369 36,164 36,367
outstanding during period
Partnership units and shares 36,164 36,156 36,164 36,156
outstanding at period end
Components of Minimum Rents:
Anchor - contractual or base rents $ 6,077 $ 5,885 $ 18,151 $ 17,523
Mall shops - contractual or base 19,206 17,882 56,975 51,278
rents
Straight line rental income 167 111 523 383
Ground lease - contractual or base 519 464 1,544 1,450
rents
Lease buyout income - 4 336 8
Operating covenant amortization (658) (658) (1,973) (1,973)
Total minimum rents $ 25,311 $ 23,688 $ 75,556 $ 68,669
Components of Percentage Rents:
Anchors $ 613 $ 685 $ 2,024 $ 2,176
Mall shops and ground leases 769 648 2,059 2,213
Net $ 1,382 $ 1,333 $ 4,083 $ 4,389
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
THIRD QUARTER 1999
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(in thousands, except as noted)
<S> <C> <C> <C> <C>
EBITDA: earnings (including gain on
sale of outparcel land)
before interest, taxes, all
depreciation and amortization
and extraordinary items $ 26,004 $ 23,875 $ 77,465 $ 70,339
Debt and Interest:
Fixed rate debt at period end $597,157 $593,852 $ 597,157 $ 593,852
Variable rate debt at period end 111,212 64,752 111,212 64,752
Total debt at period end $708,369 $658,604 $ 708,369 $ 658,604
Weighted avg. interest rate on fixed 7.6 % 7.6 % 7.6 % 7.5 %
rate debt for the period
Weighted avg. interest rate on 7.6 % 7.6 % 7.3 % 7.5 %
variable rate debt for the period
Total interest expense for period $ 12,901 $ 11,780 $ 37,632 $ 32,941
Amort. of deferred debt cost for 391 667 1,098 2,394
period (incl. in interest exp)
Capitalized interest costs during 489 517 1,205 1,812
period
Capital Expenditures Incurred:
Allowances for mall shop tenants $ 3,242 $ 5,003 $ 11,123 $ 11,516
Allowances for anchor/ big box 3,689 572 4,730 572
tenants
Leasing costs and commissions 751 1,518 2,144 3,864
Expansions and major renovations, 9,957 22,291 24,721 33,391
including escrow deposits *
Acquisition of operating properties - - - 64,973
All other capital expenditures 263 464 929 1,530
(included in Other Assets)
Total Capital Expenditures during $ 17,902 $ 29,848 $ 43,647 $ 115,846
the period
*1998 data includes approximately $11 million in deposits to expansion
construction and related escrows under the new GECC mortgage loan.
OPERATING DATA:
Mall shop GLA at period end 5,748 5,706
(000 sq. ft.)
Occupancy percentage at period end 83 % 81 %
Comp. Store Mall shop sales - 9 $ 163.98 $ 153.97
months ($ per sq. ft.)
Mall shop occupancy cost percentage 10.2 % 10.2 %
at period end
Average mall shop base rent at $ 18.34 $ 17.30
period end ($ per sq. ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 170 70 440 512
New leases - $ per sq. ft. $ 21.02 $ 25.45 $ 21.63 $ 20.14
Number of new leases signed. 49 48 190 236
Renewal leases - sq. feet (000) 100 50 298 508
Renewal leases - $ per sq. ft. $ 23 $ 25.81 $ 18.56 $ 18.21
Number of renewal leases signed. 64 31 147 237
Tenant Allowances for leases signed
during the period:
First Generation Space - per $ 39.66 $ - $ 37.13 $ 20.04
sq. ft.
Second Generation Space - per $ 16.33 $ 8.28 $ 14.02 $ 12.34
sq. ft.
Leases Signed during the period by:
First Generation Space - sq. ft. 39 5 70 37
(000)
Second Generation Space - sq. ft. 231 115 668 983
(000)
Theater and free-standing leasing
for the period:
New leases- sq. feet (000) 100 25 153 128
New leases- $ per sq. ft. $ 12.04 $ 10.29 $ 12.24 $ 10.16
Tenant allowances - $ per sq. ft. $ 42.14 $ 16.76 $ 48.13 $ 29.76
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 25,311 $ 23,688 $ 75,556 $ 68,669
Percentage rent 1,382 1,333 4,083 4,389
Property operating cost 8,851 8,362 25,886 24,382
recoveries
Temporary and promotional 1,951 1,715 5,759 5,110
leasing
Net utility income 701 633 2,349 2,224
Miscellaneous income 220 221 617 749
Net 38,416 35,952 114,250 105,523
Property operating costs:
Recoverable operating costs 11,406 10,969 33,748 32,437
Property administrative costs 537 548 1,651 1,728
Other operating costs 470 539 1,464 1,646
Depreciation and amortization 10,933 11,038 33,259 30,835
Net 23,346 23,094 70,122 66,646
Net 15,070 12,858 44,128 38,877
Other expenses:
General and administrative 1,073 1,098 3,301 3,457
Restructuring costs 1,212 - 2,251 -
Interest 12,901 11,780 37,632 32,941
Net 15,186 12,878 43,184 36,398
Net (116) (20) 944 2,479
Property sales, disposals and
adjustments:
Gain on sale of outparcel land - - 100 934
Income (loss) before extraordinary (116) (20) 1,044 3,413
items, minority interest, and
cumulative effect of a change in
accounting method
Extraordinary loss on early - (22,512) - (22,512)
extinguishment of debt
Cumulative effect on prior - - - (1,703)
years (to December 31,1997)
of a change in accounting
method
Income (loss) before minority (116) (22,532) 1,044 (20,802)
interest
Minority interest in (income) 984 7,052 2,566 8,463
loss of Operating Partnership
Net income (loss) 868 (15,480) 3,610 (12,339)
Dividends on preferred shares (3,438) (3,438) (10,313) (10,313)
Net income (loss) applicable $ (2,570) $(18,918) $ (6,703) $ (22,652)
to common shareholders
Per common share information:
Basic and Diluted EPS:
Income (loss) before $ (0.10) $ (0.10) $ (0.26) $ (0.19)
extraordinary item and
cumulative effect of a change
in accounting method
Extraordinary item - (0.62) - (0.62)
Cumulative effect on prior - - - (0.05)
years of a change in accounting
method
Net (loss) $ (0.10) $ (0.72) $ (0.26) $ (0.86)
Weighted average shares 26,208 26,418 26,208 26,456
outstanding (000)
FFO per share $ 0.29 $ 0.26 $ 0.88 $ 0.82
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 145,070 $ 145,226
Buildings and improvements 985,542 946,654
Deferred leasing and other charges 43,756 42,469
Net 1,174,368 1,134,349
Accumulated depreciation and amortization (378,222) (347,649)
Net 796,146 786,700
Investment in joint venture 5,220 5,799
Cash and cash equivalents, non-restricted 11,912 13,512
Restricted cash and escrow deposits 13,996 15,005
Tenant and other receivables 13,827 17,430
Deferred charges and other assets 31,872 30,842
Net $ 872,973 $ 869,288
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 708,369 $ 669,971
Accounts payable and other liabilities 32,388 38,076
Net 740,757 708,047
Minority interest in Operating Partnership 3,729 11,724
Commitments and contingencies
Shareholders' equity:
Non-redeemable senior preferred shares, 11% 25 25
cumulative, $.01 par value, 2,500,000 shares
issued and outstanding
Common shares, par value $.01 per share, 277 277
120,000,000 shares authorized, 27,742,317
and 27,741,542 shares issued at
September 30, 1999 and December 31, 1998,
respectively
Additional paid-in capital 315,916 314,252
Accumulated deficit (173,079) (150,385)
Net 143,139 164,169
Less common shares held in treasury at cost; (14,652) (14,652)
1,534,398 shares at both September 30,1999
and December 31,1998
Net 128,487 149,517
Net $ 872,973 $ 869,288
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1999 1998
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,610 $ (12,339)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority interest in Operating Partnership (2,566) (8,463)
Equity earnings in joint venture (249) (382)
Depreciation and amortization 37,371 36,233
Restructuring costs 2,251 -
Extraordinary loss on early extinguishment of debt - 22,512
Cumulative effect of a change in accounting method - 1,703
Net changes in:
Tenant and other receivables 3,603 1,675
Deferred charges and other assets (2,812) (3,557)
Restricted cash and escrow deposits 1,256 (5,762)
Accounts payable and other liabilities (7,939) 4,530
Net cash provided by operating activities 34,525 36,150
Cash flows from investing activities:
Investment in income properties and related escrow (42,718) (34,626)
deposits
Acquisition of enclosed malls - (64,972)
Proceeds from sale of Middletown Mall - 8,148
Distributions from joint venture 550 -
Net cash (used in) investing activities (42,168) (91,450)
Cash flows from financing activities:
Net proceeds from exercise of stock options and 6 132
dividend reinvestment plan
Proceeds from issuance of debt, net of issuance cost 48,214 551,535
Debt repayments (12,122) (469,176)
Dividends and distributions paid on common shares (22,060) (21,830)
and partnership units
Dividends paid on senior preferred shares (10,313) (10,313)
Purchase of common shares held in treasury - (2,430)
Cash flow support payments 2,318 2,916
Net cash provided by financing activities 6,043 50,834
Net decrease in cash and cash equivalents (1,600) (4,466)
Cash and cash equivalents, beginning of period 13,512 9,472
Cash and cash equivalents, end of period $ 11,912 $ 5,006
Interest paid (net of capitalized amounts) $ 36,533 $ 30,547
Interest capitalized $ 1,205 $ 1,812
Non-cash financing activities:
Issuance of partnership units related to Middletown $ - $ 4,479
Mall and Greater Lewistown acquisitions
Assumption of debt related to Greater Lewistown and $ - $ 14,718
Crossroads acquisitions
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 11,912
<SECURITIES> 0
<RECEIVABLES> 13,827
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,174,368
<DEPRECIATION> 378,222
<TOTAL-ASSETS> 872,973
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 128,185
<TOTAL-LIABILITY-AND-EQUITY> 872,973
<SALES> 0
<TOTAL-REVENUES> 114,250
<CGS> 0
<TOTAL-COSTS> 70,122
<OTHER-EXPENSES> 5,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,632
<INCOME-PRETAX> 1,044
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,610
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
