SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 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 March 31, 1999
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998
Consolidated Statement of Shareholders' Equity for the
three months ended March 31, 1999
Consolidated Statements of Cash Flows for the three months
ended March 31, 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
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<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
1999 1998
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 145,237 $ 145,226
Buildings and improvements 957,878 946,654
Deferred leasing and other charges 42,938 42,469
Net 1,146,053 1,134,349
Accumulated depreciation and amortization (357,766) (347,649)
Net 788,287 786,700
Other assets:
Investment in joint venture 5,430 5,799
Cash and cash equivalents, unrestricted 9,877 13,512
Restricted cash and escrow deposits 15,560 15,005
Tenant and other receivables 13,349 17,430
Deferred charges and other assets 27,545 30,842
Net $ 860,048 $ 869,288
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 676,969 $ 669,971
Accounts payable and other liabilities 31,478 38,076
Net 708,447 708,047
Minority interest in Operating Partnership 9,066 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 March 31, 1999 and
December 31, 1998, respectively 277 277
Additional paid-in capital 314,781 314,252
Accumulated deficit (157,896) (150,385)
Net 157,187 164,169
Less common shares held in treasury at cost,
1,534,398 shares at both March 31, 1999 and
December 31, 1999 (14,652) (14,652)
Net 142,535 149,517
Net $ 860,048 $ 869,288
The accompanying notes are an integral part of these statements.
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<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1999 1998
(in thousands, except
per share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 24,914 $ 21,590
Percentage rent 1,268 1,712
Property operating cost recoveries 8,853 8,086
Temporary and promotional leasing 1,923 1,810
Net utility income 896 896
Miscellaneous income 265 214
Net 38,119 34,308
Property operating costs:
Recoverable operating costs 11,572 10,831
Property administrative costs 528 610
Other operating costs 500 506
Depreciation and amortization 10,968 9,755
Net 23,568 21,702
Net 14,551 12,606
Other expenses:
General and administrative 1,057 1,222
Restructuring costs 1,039
Interest 12,206 10,255
Net 14,302 11,477
Net 249 1,129
Property sales, and adjustments:
Gain on sale of outparcel land 619
619
Income before cumulative effect of a change in
accounting method and minority interest in
Operating Partnership 249 1,748
Cumulative effect of a change in accounting method (1,703)
Income before minority interest in Operating Partnership 249 45
Minority interest in loss of Operating Partnership 923 925
Net income 1,172 970
Dividends on preferred shares (3,438) (3,438)
Net (loss) applicable to common shares $ (2,266) $ (2,468)
Per common share data:
Basic EPS:
Income (loss) before cumulative effect of a change in
accounting method $ (0.09) $ (0.04)
Cumulative effect of a change in accounting method (0.05)
Net income (loss) $ (0.09) $ (0.09)
Weighted average shares outstanding 26,208 26,475
Diluted EPS:
Income (loss) before cumulative effect of a change in
accounting method $ (0.09) $ (0.04)
Cumulative effect of a change in accounting method (0.05)
Net income (loss) $ (0.09) $ (0.09)
Weighted average shares outstanding 26,208 26,475
The accompanying notes are an integral part of these statements.
</TABLE>
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<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 1
stock option program
Transfer in (out) of limited
partner's interest in the
Operating Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support
Net income
Dividends paid and accrued
Balance, March 31, 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 (67) (67)
Partnership
Capital contributions from
Crown Investments Trust:
Cash flow support 590 590
Net income 1,172 1,172
Dividends paid and accrued (8,683) (8,683)
Balance, March 31, 1999 $ 314,781 $ (157,896) $ (14,652) $ 142,535
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1999 1998
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,172 $ 970
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in Operating Partnership (923) (925)
Equity earnings in joint venture (149) (127)
Depreciation and amortization 12,313 11,599
Cumulative effect of a change in accounting method 1,703
Restructuring costs 1,039
Net changes in:
Tenant and other receivables 4,081 4,025
Restricted cash and escrow deposits (1,783) (39)
Deferred charges and other assets 2,079 (274)
Accounts payable and other liabilities (7,637) (4,956)
Net cash provided by operating activities 10,192 11,976
Cash flows from investing activities:
Investment in income-producing properties (11,337) (7,043)
Distributions from joint venture 425
Net cash (used in) investing activities (10,912) (7,043)
Cash flows from financing activities:
Net proceeds from exercise of stock options 6
Proceeds from issuance of debt, net of deposits 11,526 12,722
Cost of issuance of debt (81)
Debt repayments (4,511) (9,684)
Dividends and distributions paid on common shares and (7,232) (7,270)
partnership units
Dividends paid on senior preferred shares (3,438) (3,438)
Cash flow support payments 815
Net cash (used in) financing activities (2,915) (7,670)
Net (decrease) in cash and cash equivalents (3,635) (2,737)
Cash and cash equivalents, beginning of period 13,512 9,472
Cash and cash equivalents, end of period $ 9,877 $ 6,735
Interest paid (net of capitalized amounts) $ 11,854 $ 9,396
Interest capitalized $ 323 $ 550
Non-cash financing activities:
Cash flow support credited to minority interest and
paid in capital that was prefunded in 1995. $ $ 992
Issuance of partnership units related to the 1995
purchase of Middletown Mall $ $ 3,711
The accompanying notes are an integral part of these statements.
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 March 31, 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 March
31, 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.
NOTE 3 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
March 31, December 31,
1999 1998
Mortgage loans $ 465,000 $ 465,000
Permanent loans 133,447 133,960
Construction loans 4,443 2,932
Secured term loans and lines of credit 74,079 68,079
Net $ 676,969 $ 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 March 31, 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 $10.8 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
At March 31, 1999 the Company had $155.6 million in available revolving lines of
credit, which includes a $100.0 million acquisition credit facility with GECRE
bearing interest at LIBOR plus 2.35%, a $50.0 million general credit facility
with GECRE secured by cross collateralized mortgages on four of the Company's
mall properties bearing interest at LIBOR plus 1.95%, and a $5.6 million line
with a bank secured by a mortgage on the Company's headquarters office building
bearing interest at prime plus 0.625%. Amounts outstanding under all lines of
credit at March 31, 1999 and December 31, 1998 were $74.1 and $68.1 million,
respectively. The $74.1 million outstanding at March 31, 1999 includes $27.4
million under the acquisition line, and $46.7 million under the general lines.
Both of the GECRE lines have a minimum initial term ending November 17, 1999,
have no required amortization, and can be extended to November 17, 2001 under
renewal provisions so long as certain conditions are satisfied. The remaining
$5.6 million line is renewable annually on April 30 and has been renewed through
April 30, 2000. All the lines have a 0.125% per annum commitment fee based on
the unused amounts of the line.
The $100 million acquisition line 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; in addition $26.0 million of this line has been earmarked for the
Valley Mall construction loan. The Company is in the process of finalizing this
$26.0 million construction line with GECRE. It is anticipated that the first
construction draw under the GECRE loan will occur in summer 1999. Any
properties acquired under this line will be mortgaged to secure the borrowings
under this line. Amounts may be borrowed under the other $55.6 million credit
lines for general corporate purposes.
Covenants and Restrictions
Various of the above loans and lines of credit contain certain financial
covenants and other restrictions, including limitations on the ratios, as
defined, of total Company debt to EBITDA, EBITDA to fixed charges, and floating
rate debt to total debt. The Company was in compliance with all such loan
covenants as of and during the period ended March 31, 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 $598.5 million at March
31, 1999 have fixed interest rates ranging from 4.25% to 9.11%. The weighted
average interest rate on this fixed-rate debt at March 31, 1999 and 1998 was
7.63% and 7.51%, respectively. The weighted average interest rates during the
three months ended March 31, 1999 and 1998 were 7.63%, and 7.52%, respectively.
All of the remaining loans with an aggregate principal balance of $78.5 million
at March 31, 1999 have variable interest rates based on spreads ranging from
1.90% to 2.35% above 30 day LIBOR. The weighted average interest rates on the
variable rate debt at March 31, 1999 and 1998 were 7.03% and 7.44%,
respectively. The weighted average interest rates during the three months ended
March 31, 1999 and 1998 were 7.10% and 7.42%, respectively.
Debt Maturities
As of March 31, 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 $ 2,013
2000 5,453
2001 84,671
2002 40,471
2003 17,010
Thereafter 527,351
Net $ 676,969
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 (loss) is equal to its net income (loss) at March 31, 1999, as the
Company has just one reportable operating segment. In the fourth quarter of
1998, the Company adopted FAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This new standard has not had a material
effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value, FAS No. 133 is
effective for fiscal years beginning after June 15, 1999. Had the Company
applied this standard currently, the effect on the Company's results of
operations at March 31, 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
$15 million and $7 million, respectively, had been incurred as of March 31,
1999. In addition to amounts incurred at March 31, 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
$4.4 million was borrowed and outstanding at March 31, 1999. For the Valley
Mall expansion, GE Capital Real Estate (GECRE) has agreed to enter into a loan
for up to $26.0 million. This $26.0 million loan will be part of the existing
$100 million acquisition line of credit with GECRE, but will be subject to a
separate loan agreement that is currently being prepared and will bear interest
at LIBOR plus 3.0%. It is anticipated the first construction draw under the
GECRE loan will occur in summer 1999.
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 represent
approximately 1.2% of the total common Partnership Units outstanding prior to
the issuance of the new units. In July 1998 the Company sold Middletown Mall,
together with approximately 60 acres of undeveloped outparcels and vacant land,
to an unrelated third party. The aggregate purchase price was $12.2 million.
The Company received $8.5 million in cash, net of closing costs, and received a
$3.5 million one-year 9.5% mortgage from the purchaser, secured by a first
mortgage on all the undeveloped land and outparcels and by a second mortgage on
the mall. Gain on the sale of approximately $1.3 million has been deferred
until all conditions for profit recognition under FASB 66 are satisfied.
NOTE 7 - RESTRUCTURING COSTS
During the first quarter of 1999, the Company recorded a restructuring charge
of $1.0 million related to severance and associated costs for employees affected
by an eight percent reduction in the corporate office work force, as announced
in February 1999 in connection with other management salary reductions and other
cost reduction initiatives.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain of the following comments contain forward looking statements that
involve risk and uncertainties. Factors that could cause actual results to
differ materially include: overall economic conditions, local economic
conditions in the market areas surrounding each property, consumer buying
trends, expansion and development plans of retailers and other current and
potential tenants, the impact of competition, weather patterns and related
impact on consumer spending, changing interest rates and financing conditions,
and other risk factors listed from time to time in the Company's SEC reports,
including this report on Form 10-Q for the quarter ended March 31, 1999.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three months ended March 31, 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 11.
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>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
Selected Financial Data:
<S> <C> <C>
EBITDA (1 & 3) $ 25,542 $ 22,794
Funds from Operations (FFO) (2 & 3):
Net Income $ 1,172 $ 970
Adjustments:
Minority interest in Operating Partnership (923) (925)
Depreciation and amortization - real estate 11,356 10,069
Operating covenant amortization 658 658
Cash flow support 815 992
Cumulative effect of change in accounting method 1,703
Restructuring costs 1,039
Funds from Operations, before allocations to
minority interests and preferred shares 14,117 13,467
Less:
Amount allocable to preferred shares 3,438 3,438
Amount allocable to minority interest 2,940 2,725
Funds from Operations applicable to common
shares $ 7,739 $ 7,304
Weighted average common shares outstanding (000) 26,208 26,475
Cash Flows:
Net cash provided by operating activities $ 10,192 $ 11,976
Net cash (used in) investing activities $ (10,912) $ (7,043)
Net cash (used in) financing activities $ (2,915) $ (7,670)
(1) EBITDA represents revenues and gain on sale of outparcel land, less
operating costs, including general and administrative expenses, before
interest, and all depreciation and amortization; EBITDA also excludes gain
on sales of properties and anchor store locations, adjustments to carrying
values of assets to be disposed of, and extraordinary items because such
items are uncommon and not a part of ongoing operations.
(2) Funds from Operations represents net income before minority interest and
before depreciation and amortization plus earned cash flow support and
adjustment for certain unusual items.
(3) EBITDA and Funds from Operations (i) do not represent cash flow from
operations as defined by generally accepted accounting principles, (ii) are
not necessarily indicative of cash available to fund all cash flow needs
and (iii) should not be considered as an alternative to net income for
purposes of evaluating the Company's operating performance.
</TABLE>
Comparison of Three Months Ended March 31, 1999 to the corresponding period in
1998
- - Revenues
Total revenues for the first quarter of 1999 were $38.1 million, up 11% from
$34.3 million for the same period in 1998, of which $1.7 million of the increase
came from existing properties and the remaining $2.1 million is attributable to
properties acquired and/or sold in 1998.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the first quarter
of 1999 were $12.6 million, up $0.7 million from the corresponding period in
1998. Properties acquired and/or sold in 1998 accounted for $0.4 million of
this increase, with the remaining $0.3 million coming from existing properties.
Depreciation and amortization expense for the first quarter of 1999 was $11.0
million, an increase of $1.2 million over the first quarter of 1998. Of this
increase, $0.8 million is attributable to a higher depreciation base associated
with the acquisition properties, with the remaining increase of $0.4 million
coming from existing properties.
- - General, Administrative and Interest Expenses:
For the first quarter of 1999, general and administrative expenses were
approximately $1.0 million, a decrease of $0.2 million from 1998, due mainly to
a reduction in employee census. Interest expense increased by $2.0 million in
the first quarter of 1999 versus 1998. Approximately $1.4 million of this
increase came from the properties acquired and/or sold during 1998, while the
remaining increase of $0.6 million was due to higher borrowings associated with
existing properties.
- - Gain on Property Sales and Disposals:
There were no land sales during the first quarter of 1999, compared to $0.6
million of gain recorded in the first quarter of 1998.
- - Net Income (loss):
The net income for the first quarter of 1999 was $1.2 million compared to $1.0
million for the first quarter of 1998. The first quarter of 1999 includes a
restructuring charge of $1.0 million related to severance costs for employees
affected by an eight percent reduction in the corporate office work force
announced in February 1999. First quarter 1998 results were impacted by a $1.7
million adjustment for the cumulative effect of a change in the method of
accounting for percentage rental income. After deducting preferred dividends,
there was a net loss of $2.3 million applicable to common shares, compared to a
net loss of $2.5 million for the first quarter of 1998.
- - Funds from Operations:
For the quarter ended March 31, 1999, Funds from Operations ("FFO") before
allocations to minority interest and to preferred dividends was $14.1 million,
up from $13.5 million in the same quarter of 1998. FFO including land sales
allocable to common shares (after minority interest and preferred dividends) was
$7.7 million, compared to $7.3 million in the same quarter of 1998. The net
increase in total FFO during the first quarter was largely comprised of the
following: a) a $1.8 million increase in mall shop and anchor base rents from
the existing properties reflecting higher occupancy and higher average rents;
b) $0.3 million contribution from properties acquired and sold in mid-1998, net
of interest costs on invested assets; and c) $0.2 million in lower property
and general administrative expenses. These positive variances in FFO were
partially offset by; d) $0.5 million in lower mall shop and anchor percentage
rents, of which $0.3 million is due to the change in the method of accounting
for percentage rents adopted in 1998 and the remainder is largely due to
conversion of mall shop percentage rents into base rents upon lease renewal; e)
$0.6 million in higher net interest expense, excluding amounts allocable to
acquired and sold properties; and f) $0.6 million in lower gain on land sales.
EBITDA
For the quarter ended March 31, 1999, EBITDA was $25.5 million compared to $22.8
million in 1998, 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 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 $15 million and $7 million,
respectively, had been incurred as of March 31, 1999. In addition to amounts
incurred at March 31, 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 $4.4 million was borrowed and
outstanding at March 31, 1999. For the Valley Mall expansion, GE Capital Real
Estate (GECRE) has agreed to enter into a loan for up to $26.0 million. This
$26.0 million loan will be part of the existing $100 million acquisition line of
credit with GECRE, but will be subject to a separate loan agreement that is
currently being prepared and will bear interest at LIBOR plus 3.0%. It is
anticipated the first construction draw under the GECRE loan will occur in
summer 1999.
As of March 31, 1999 the scheduled principal payments on all debt are $2.0
million, $5.5 million, $84.7 million, $40.5 million, and $17.0 million for the
years ended December 31, 1999 through 2003, respectively, and $527.3 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
is also beginning to develop contingency plans for both its headquarters and
mall properties. These contingency plans will also address certain potential
external effects on the Company, including possible loss of utilities. No
assurance can be given that these contingency plans will be sufficient to
mitigate all Year 2000 effects that could impact the Company. No material
changes in information has occurred for the three months ended March 31, 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 seek 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. These motions are currently
pending.
The consolidated legal action and the Warden action are 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 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.
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. On April 7, 1999, the Pennsylvania Superior Court entered an
Order in favor of Crown and May. Bon-Ton filed an Application for Reargument to
the Superior Court on or about April 22, 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
The Annual Meeting of Shareholders was held in Pittsburgh,
Pennsylvania on April 26, 1999 for the purpose of considering and acting on the
following proposals:
1. Election of persons (Mark E. Pasquerilla, Clifford A. Barton, and
Peter J. Siris) to serve as Trustees for a three-year term.
The proposals were described in a proxy statement dated March 29,
1999. A quorum was present at the meeting, and the three 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 Mark E. Pasquerilla,
Clifford A. Barton, and Peter J. Siris as Trustees of the Company for three-
year terms expirirng at the annual meeting of shareholders in 2002.
There were no other nominees for election as a Trustee for a three-
year term expiring at the annual meeting of shareholders is 2002. Accordingly,
Mark E. Pasquerilla, Clifford A. Barton, and Peter J. Siris were elected as
Trustees of the Company for a three-year term expiring at the annual meeting of
shareholders in 2002.
Item 5: Other Information
On April 26, 1999, the Company issued its regular quarterly earnings
release and its First 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 April 26, 1999
Exhibit 99 (b) - First 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: May 5, 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: May 5, 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: May 5, 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: Mark Pasquerilla 814-535-9364
Internet: http://www.crownam.com
IMMEDIATE RELEASE: Monday, April 26, 1999
CROWN AMERICAN REALTY TRUST REPORTS
BOARD DECLARES 2.5 PERCENT INCREASE IN COMMON DIVIDENDS
FFO PER SHARE, EXCLUDING LAND SALES, UP 15.4 PERCENT IN THE FIRST QUARTER
Johnstown, Pa. - Crown American Realty Trust (NYSE:CWN), a real estate
investment trust, today announced financial results and operating information
for the quarter ended March 31, 1999. The Board of Trustees also declared
regular quarterly dividends on its common and senior preferred shares. The
regular quarterly dividend on common shares was increased 2 1/2 percent to
$0.205 per share per quarter, which was the Company's first dividend increase.
_______________________
"The transformation of our properties that we have effected in the last
several years, our record level of leasing activity, and our 1998 acquisitions
have all contributed to a significant growth in Funds from Operations ("FFO") in
the first quarter of 1999," stated Crown American Realty Trust Chairman and CEO,
Mark E. Pasquerilla. "FFO per common share including land sales for the quarter
was $0.30, up from $0.28 per share in 1998. Excluding the impact from land
sales, FFO per share in the first quarter increased 15.4 percent from $0.26 per
share to $0.30 per share."
"Operating trends continue to be strong. Average mall shop base rents
increased again, up 6.0 percent from year ago levels. Mall shop occupancy
increased to 82 percent from 79 percent in the same quarter of 1998. We
continue to expect mall shop occupancy to end the year at or above 84 percent.
Mall shop tenant sales also continued their strong growth, up 7.1 percent in the
first quarter. We remain confident that solid FFO growth will continue through
1999 and beyond."
"In 1998 we showed an increase in FFO per share and established a solid
platform for growth. Accordingly, our Board of Trustees voted today to increase
the quarterly dividend on common shares from $0.200 to $0.205, a 2 1/2 percent
increase, effective with the common dividend payable on June 18, 1999. The
Board also indicated its intention to increase dividends in the future as FFO
growth and cash availability may warrant."
Mark Pasquerilla concluded, "On a personal note, I want to thank many of
you for your support upon the recent death of my father and our Chairman and
CEO, Frank J. Pasquerilla. My father was a pioneer in this industry. Over a
nearly 50 year period, he built a large and successful real estate and hotel
business. We will all deeply miss his leadership and guidance. However, the
management team and I are prepared and eager to lead our Company to even greater
success as we approach the new millennium."
Dividend Information
For the quarter ended March 31, 1999, the Board of Trustees declared
regular quarterly dividends of $0.205 per common share and $1.375 per senior
preferred share. Both dividends are payable June 18, 1999 to shareholders of
record on June 4, 1999.
Financial Information
For the quarter ended March 31, 1999, the Company reported that total Funds
from Operations ("FFO") before allocations to minority interest and to preferred
dividends was $14.1 million, up from $13.5 million in the same quarter of 1998.
FFO including land sales allocable to common shares (after minority interest and
preferred dividends) was $7.7 million, or $0.30 per share, compared to $7.3
million, or $0.28 per share, in the same quarter of 1998. The net increase in
total FFO during the first quarter was largely comprised of the following:
$1.8 million increase in mall shop and anchor base rents from the existing
properties reflecting higher occupancy and higher average rents;
$0.5 million in lower mall shop and anchor percentage rents of which $0.3
million is due to the change in the method of accounting for percentage
rents adopted in 1998 and the remainder is largely due to conversion of
mall shop percentage rents into base rents upon lease renewal;
$0.3 million contribution from properties acquired and sold in mid-1998,
net of interest cost on the invested assets;
$0.6 million in higher net interest expense excluding amounts allocable to
acquired and sold properties;
$0.6 million in lower gain in land sales;
$0.2 million in lower property and general administrative expenses.
Total revenues for the first quarter of 1999 were $38.1 million, up 11.1
percent from $34.3 million for the same period in 1998 of which $1.7 million
came from existing properties and the remaining $2.1 million is attributable to
properties acquired and/or sold in 1998.
For the first quarter of 1999 the Company reported net income of $1.2
million. After deducting preferred dividends, there was a net $2.3 million loss
applicable to common shares, or $0.09 per share, compared to a net loss of $2.5
million, or $0.09 per share, for the first quarter of 1998. First quarter 1999
was also impacted by a $1.0 million restructuring charge related to severance
and related costs for employees affected by an eight percent reduction in the
Corporate office work force announced in February 1999 in connection with other
management salary reductions and other cost reduction initiatives. This
restructuring charge was not included in the calculation of FFO which is
primarily an operating performance statistic. First quarter 1998 was impacted
by a $1.7 million adjustment for the cumulative effect of a change in the method
of accounting for percentage rental income.
Operating Information
During the first quarter of 1999, leases for 225,000 square feet of mall shops
were signed at rates that will produce $4.0 million in annual base rental
income, compared to 214,000 square feet for $4.4 million during the same period
in 1998. The first quarter 1999 leasing included 62 new leases for 102,000
square feet at an average base rent of $22.11 per square foot and 41 renewal
leases for 123,000 square feet at $14.18 per square foot. The $22.11 average
base rental rate on new leases in the quarter was 23 percent higher than the
portfolio average base rent as of March 31, 1999 and 95 percent than the average
base rent on the 135,000 square feet of space that closed in the quarter.
The average mall shop base rent of the portfolio at March 31, 1999 was $17.95
per square foot. This is a six percent increase from $16.94 per square foot at
March 31, 1998, and the 22nd consecutive quarter that average base rent has
increased.
Mall shop occupancy was 82 percent at March 31, 1999, up from 79 percent
reported at March 31, 1998.
Comparable mall shop sales for the first quarter of 1999 were $51.48 per square
foot, a 7.1 percent increase over the $48.05 per square foot reported for the
first quarter of 1998.
Occupancy costs (base rent, percentage rent and expense recoveries as a
percentage of mall shop sales) at all properties were 10.2 percent as of March
31, 1999 down from 10.4 percent as of March 31, 1998 as strong tenant sales
growth outpaced rents and as we control mall operating costs.
Seasonal and temporary leasing income for the first quarter of 1999 amounted to
$1.9 million,
a six-percent increase over the $1.8 million for the same period in 1998.
Expansion/Renovations
A new 95,000 square foot Kaufmann's department store opened on March 17, 1999 at
Nittany Mall (State College, Pa.). Kaufmann's, a division of The May Department
Stores Company, replaced Value City at that property.
Construction is continuing at Valley Mall (Hagerstown, MD) on a major expansion
that includes the addition of 120,000 square foot Hecht's department store (a
division of The May Department Stores Company), a 16-screen R/C Theaters
megaplex, a food court and additional mall shop space. A Fall 1999 completion
is expected. The company is finalizing a $26 million construction loan with
GECC for this expansion.
At Washington Crown Center (Washington, Pa.) construction is also continuing on
a major expansion/renovation. A new 140,000 square foot Kaufmann's department
store is expected to open in early October. The project also includes a
complete mall renovation and the addition of a multi-screen theater complex. A
late October 1999 opening is currently planned.
An expansion of the Kaufmann's department store at Shenango Valley Mall (Sharon,
Pa.) is underway. Kaufmann's will be expanded from 76,000 square feet to
106,000 square feet by building into the former BiLo supermarket. The project
is being funded by The May Department Stores Company and is expected to be
completed this summer.
A previously announced multi-screen theater project for North Hanover Mall
(Hanover, Pa.) has been cancelled. Because of additional competition in the
market, Hollywood Theaters has decided to not pursue this project. Crown
American will continue to operate the highly successful Black Rose Antique Mall
in this location while pursuing a permanent tenant for the space.
_______________________
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 expense 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.
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 enclosed regional malls and one
shopping center aggregating 16 million square feet of gross leasable area.
Selected financial data follows for Crown American Realty Trust for the
three months ended March 31, 1999. A copy of the Company's Supplemental
Financial and Operational Information Package is available by calling Investor
Relations at 1-800-860-2011.
- 30 -
EXHIBIT 99 (b)
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 1999
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Quarter Ended March 31,
FINANCIAL AND ANALYTICAL DATA: 1999 vs. 1998
Total FFO - Incr (Decr) - 1999 compared to 1998: $ 000 $ per share
<S> <C> <C>
Base and percentage rents from anchors and mall shops $ 1,296 $ 0.036
Temporary and promotional leasing income (38) (0.001)
Mall operating costs, net of tenant recovery income (103) (0.003)
Utility income, miscellaneous mall income, equity in (3) -
joint venture
Straight line rental income 171 0.005
Core mall operations--"comparable" properties 1,323 0.037
Contribution before interest of 3 properties acquired 1,966 0.054
in May 1998
Effect of sale of Middletown in July 1998, before (272) (0.008)
interest
Interest expense, including $1,360 related to acquired (1,951) (0.054)
and sold0 prop's.
Property admin. and general & admin. expenses 247 0.007
Cash flow support earned (177) (0.005)
Gain on sale of outparcel land (619) (0.017)
Fee income on sales of non-company properties 49 0.001
Depreciation and amortization expense 66 0.002
Lease buyout income 18 -
Impact on per share amount from common share - 0.002
repurchases and other changes in common shares and
Partnership units outstanding
Change in FFO before preferred div's and minority 650 0.019
interest
Allocation to minority interest in Operating (215) -
Partnership
Rounding to whole cents - 0.001
Change in FFO allocable to common shareholders $ 435 $ 0.020
Quarter Ended March 31,
1999 1998
Funds from Operations ($000 except per share data):
Net income $ 1,172 $ 970
Adjustments:
Minority Interest in Operating Partnership (923) (925)
Restructuring costs 1,039 -
Cumulative effect of change in accounting method - 1,703
Depreciation and amortization - real estate 11,356 10,069
Operating covenant amortization 658 658
Cash flow support amounts 815 992
FFO before allocations to minority interest and 14,117 13,467
preferred shares
Less preferred share dividends (3,438) (3,438)
Less portion of FFO allocable to minority interest (2,940) (2,725)
FFO allocable to common shares $ 7,739 $ 7,304
FFO per common share $ 0.30 $ 0.28
Average common shares outstanding during the period 26,208 26,475
Common shares outstanding at period end 26,208 26,475
Avg. partnership units and common shares outstanding 36,164 36,351
during the period
Partnership units and common shares outstanding at 36,164 36,351
period end
Components of Minimum Rents:
Anchor - contractual or base rents $ 6,030 $ 5,647
Mall shops - contractual or base rents 18,700 16,074
Straight line rental income 312 90
Ground leases - contractual or base rents 512 437
Lease buyout income 18 -
Operating covenant amortization (658) (658)
Total minimum rents $ 24,914 $ 21,590
Components of Percentage Rents:
Anchors $ 685 $ 803
Mall shops and ground leases 583 909
$ 1,268 $ 1,712
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 1999
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Quarter Ended March 31,
1999 1998
<S> <C> <C>
EBITDA: earnings after G&A (including gain on sale $ 25,542 $ 22,794
of outparcel land) before interest, taxes and all
depreciation and amortization
Debt and Interest:
Fixed rate debt at period end $ 598,447 $ 393,370
Variable rate debt at period end 78,522 151,361
Total debt at period end $ 676,969 $ 544,731
Weighted avg. interest rate on fixed rate debt for 7.6 % 7.5 %
the period
Weighted avg. interest rate on variable rate debt 7.1 % 7.4 %
for the period
Total interest expense for period $ 12,206 $ 10,255
Amort. of deferred debt cost for period (incl. In 352 859
interest exp)
Capitalized interest costs during period 323 551
Capital Expenditures Incurred:
Allowances for anchors tenants $ 400 $ -
Allowances for mall shop tenants 4,894 2,359
Leasing costs and commissions 798 1,158
Expansions and major renovations, including escrow 5,245 3,526
deposits
All other capital expenditures (included in Other 146 397
Assets)
Total Capital Expenditures during the period $ 11,483 $ 7,440
OPERATING DATA:
Mall shop GLA at period end (000 sq. ft.) 5,739 5,539
Mall Shop occupancy percentage at period end 82 % 79 %
Comp. Store Mall shop sales - 3 months ( $ per sq. $ 51.48 $ 48.05
ft.)
Mall shop occupancy cost percentage at period end 10.2 % 10.4 %
Average mall shop base rent at period end ($ per sq. $ 17.95 $ 16.94
ft.)
Mall shop leasing for the period:
New leases - sq. feet (000) 102 84
New leases - $ per sq. ft. $ 22.11 $ 22.34
Number of new leases signed. 62 55
Renewal leases - sq. feet (000) 123 130
Renewal leases - $ per sq. ft. $ 14.18 $ 19.36
Number of renewal leases signed. 41 75
Tenant Allowances for leases signed during the
period:
First Generation Space - per sq. ft. $ 47.68 $ 18.93
Second Generation Space - per sq. ft. $ 4.37 $ 9.68
Leases Signed during the period by:
First Generation Space - sq. feet (000) 18 6
Second Generation Space - sq. feet (000) 207 208
Theater and free-standing leasing for the period:
New leases - sq. feet (000) - 68
New leases - $ per sq. ft. $ - $ 10.55
Tenant allowances - $ per sq. ft. $ - $ 43.24
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements Of Operations
Three Months Ended March 31,
1999 1998
(Unaudited)
(in thousands, except
per share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 24,914 $ 21,590
Percentage rent 1,268 1,712
Property operating cost recoveries 8,853 8,086
Temporary and promotional leasing 1,923 1,810
Net utility income 896 896
Miscellaneous income 265 214
Net 38,119 34,308
Property operating costs:
Recoverable operating costs 11,572 10,831
Property administrative costs 528 610
Other operating costs 500 506
Depreciation and amortization 10,968 9,755
Net 23,568 21,702
Net 14,551 12,606
Other expenses:
General and administrative 1,057 1,222
Restructuring costs 1,039 -
Interest 12,206 10,255
Net 14,302 11,477
Net 249 1,129
Property sales and adjustments:
Gain on sale of outparcel land - 619
Net - 619
Income before cumulative effect of a change in
accounting method and minority interest 249 1,748
Cumulative effect of change in accounting method - (1,703)
Income before minority interest in Operating
Partnership 249 45
Minority interest in (income) loss of Operating
Partnership 923 925
Net income 1,172 970
Dividends on preferred shares (3,438) (3,438)
Net (loss) applicable to
common shareholders $ (2,266) $ (2,468)
Per common share information:
Basic and Diluted EPS:
Income (loss) before cumulative effect of a
change in accounting method $ (0.09) $ (0.04)
Cumulative effect of a change in accounting
method - (0.05)
Net income (loss) $ (0.09) $ (0.09)
Weighted average shares outstanding (000)
26,208 26,475
FFO per share $ 0.30 $ 0.28
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
1999 1998
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 145,237 $ 145,226
Buildings and improvements 957,878 946,654
Deferred leasing and other charges 42,938 42,469
Net 1,146,053 1,134,349
Accumulated depreciation and amortization (357,766) (347,649)
Net 788,287 786,700
Investment in joint venture 5,430 5,799
Cash and cash equivalents, unrestricted 9,877 13,512
Restricted cash and escrow deposits 15,560 15,005
Tenant and other receivables 13,349 17,430
Deferred charges and other assets 27,545 30,842
Net $ 860,048 $ 869,288
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 676,969 $ 669,971
Accounts payable and other liabilities 31,478 38,076
Net 708,447 708,047
Minority interest in Operating Partnership 9,066 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 March 31, 1999
and December 31, 1998, respectively 277 277
Additional paid-in capital 314,781 314,252
Accumulated deficit (157,896) (150,385)
Net 157,187 164,169
Less common shares held in treasury at cost;
1,534,398 shares at both March 31, 1999 and
December 31, 1998 (14,652) (14,652)
Net 142,535 149,517
Net $ 860,048 $ 869,288
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Quarter Ended March 31,
1999 1998
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,172 $ 970
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in Operating Partnership (923) (925)
Equity earnings in joint venture (149) (127)
Depreciation and amortization 12,313 11,599
Cumulative effect of change in accounting - 1,703
method
Restructuring costs 1,039 -
Net changes in:
Tenant and other receivables 4,081 4,025
Deferred charges and other assets 2,079 (274)
Restricted cash and escrow deposits (1,783) (39)
Accounts payable and other liabilities (7,637) (4,956)
Net cash provided by operating activities 10,192 11,976
Cash flows from investing activities:
Investment in income-producing properties (11,337) (7,043)
Distributions from joint venture 425 -
Net cash (used in) investing activities (10,912) (7,043)
Cash flows from financing activities:
Net proceeds from sale of common shares 6 -
Proceeds from issuance or assumption of debt, net 11,526 12,722
of deposits
Cost of issuance of debt (81) -
Debt repayments (4,511) (9,684)
Dividends and distributions paid on common shares (7,232) (7,270)
and partnership units
Dividends paid on senior preferred shares (3,438) (3,438)
Cash flow support payments 815 -
Net cash (used in) financing activities (2,915) (7,670)
Net decrease in cash and cash equivalents (3,635) (2,737)
Cash and cash equivalents, beginning of period 13,512 9,472
Cash and cash equivalents, end of period $ 9,877 $ 6,735
Interest paid (net of capitalized amounts) $ 11,854 $ 9,396
Interest capitalized $ 323 $ 550
Non-cash financing activities:
Cash flow support credited to minority interest and
paid-in capital that was prefunded in 1995. $ - $ 992
Issuance of partnership units related to the 1995 $ - $ 3,711
purchase of Middletown Mall
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 9,877
<SECURITIES> 0
<RECEIVABLES> 13,349
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,146,053
<DEPRECIATION> 357,766
<TOTAL-ASSETS> 860,048
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 142,233
<TOTAL-LIABILITY-AND-EQUITY> 860,048
<SALES> 0
<TOTAL-REVENUES> 38,119
<CGS> 0
<TOTAL-COSTS> 23,568
<OTHER-EXPENSES> 2,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,206
<INCOME-PRETAX> 249
<INCOME-TAX> 0
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
