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, 2000
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 17, 2000, 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, 2000
INDEX
Part I - Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999
Consolidated Statement of Shareholders' Equity for the
three months ended March 31, 2000
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999
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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CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
2000 1999
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Income-producing properties:
Land $ 154,342 $ 154,341
Buildings and improvements 1,003,007 986,042
Deferred leasing and other charges 44,675 44,313
Net 1,202,024 1,184,696
Accumulated depreciation and amortization (399,893) (388,965)
Net 802,131 795,731
Other assets:
Investment in joint venture 4,849 5,055
Cash and cash equivalents, unrestricted 8,019 17,171
Restricted cash and escrow deposits 13,341 15,635
Tenant and other receivables 15,087 15,859
Deferred charges and other assets 22,056 25,757
Net $ 865,483 $ 875,208
Liabilities and Shareholders' Equity
Liabilities:
Debt on income-producing properties $ 714,925 $ 709,000
Accounts payable and other liabilities 31,409 37,630
Net 746,334 746,630
Minority interest in Operating Partnership 132 2,727
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
shares issued at both March 31, 2000 and
December 31, 1999 277 277
Additional paid-in capital 316,914 316,421
Accumulated deficit (183,547) (176,220)
Net 133,669 140,503
Less common shares held in treasury at cost,
1,534,398 shares at both March 31, 2000 and
December 31, 1999 (14,652) (14,652)
Net 119,017 125,851
Net $ 865,483 $ 875,208
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
2000 1999
(in thousands, except
per share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 26,928 $ 24,914
Percentage rent 1,785 1,268
Property operating cost recoveries 9,448 8,584
Temporary and promotional leasing 2,063 1,923
Net utility income 979 896
Miscellaneous income 190 265
Net 41,393 37,850
Property operating costs:
Recoverable operating costs 12,181 11,303
Property administrative costs 607 528
Other operating costs 557 500
Depreciation and amortization 11,823 10,968
Net 25,168 23,299
Net 16,225 14,551
Other expenses:
General and administrative 1,216 1,057
Restructuring costs 369 1,039
Interest 13,903 12,206
Net 15,488 14,302
Income before minority interest in
Operating Partnership 737 249
Minority interest in loss of
Operating Partnership 746 923
Net income 1,483 1,172
Dividends on preferred shares (3,438) (3,438)
Net (loss) applicable to common
shares $ (1,955) $ (2,266)
Per common share data:
Basic EPS:
Net income (loss) $ (0.07) $ (0.09)
Weighted average shares outstanding 26,208 26,208
Diluted EPS:
Net income (loss) $ (0.07) $ (0.09)
Weighted average shares outstanding 26,208 26,208
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statement of Shareholders' Equity
(Unaudited)
Common
Shares Senior
Issued Preferred Common
and
Outstanding Shares Shares
(in thousands)
<S> <C> <C> <C> <C>
Balance, December 31,
1999 26,208 $ 25 $ 277
Transfer in (out) of
limited partner's
interest in the
Operating Partnership
Capital contributions
from Crown Investments
Trust:
Cash flow support
Net income
Dividends paid and
accrued
Balance, March 31, 2000 26,208 $ 25 $ 277
Common
Additional Accumu- Shares
Paid in lated Held in
Capital Deficit Treasury Total
(in thousands)
Balance, December 31,
1999 $ 316,421 $(176,220) $(14,652) $ 125,851
Transfer in (out) of
limited partner's
interest in the
Operating (54) (54)
Partnership
Capital contributions
from Crown Investments
Trust:
Cash flow support 547 547
Net income 1,483 1,483
Dividends paid and
accrued (8,810) (8,810)
Balance, March 31,
2000 $ 316,914 $(183,547) $(14,652) $ 119,017
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,
2000 1999
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,483 $ 1,172
Adjustments to reconcile net income
to net cash provided by operating
activities:
Minority interest in Operating
Partnership (746) (923)
Equity earnings in joint venture (39) (149)
Depreciation and amortization 13,406 12,313
Restructuring costs 369 1,039
Net changes in:
Tenant and other receivables 772 4,081
Restricted cash and escrow deposits (1,890) (1,783)
Deferred charges and other assets 2,066 2,079
Accounts payable and other liabilities (6,591) (7,637)
Net cash provided by operating
activities 8,830 10,192
Cash flows from investing activities:
Investment in income-producing
properties (14,011) (11,337)
Distributions from joint venture 153 425
Net cash (used in) investing
activities (13,858) (10,912)
Cash flows from financing activities:
Net proceeds from exercise of stock
options 6
Proceeds from issuance of debt, net
of deposits 6,987 11,526
Cost of issuance of debt (81)
Debt repayments (1,016) (4,511)
Dividends and distributions paid on
common shares and partnership units (7,413) (7,232)
Dividends paid on senior preferred
shares (3,438) (3,438)
Cash flow support payments 756 815
Net cash (used in) financing
activities (4,124) (2,915)
Net (decrease) in cash and cash
equivalents (9,152) (3,635)
Cash and cash equivalents, beginning
of period 17,171 13,512
Cash and cash equivalents, end of
period $ 8,019 $ 9,877
SUPPLEMENTAL CASH FLOW DATA:
Interest paid (net of capitalized
amounts) $ 13,289 $ 11,854
Interest capitalized $ 267 $ 323
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") and by Crown
American Investment Company (a subsidiary of Crown Investments).
As of March 31, 2000, the Properties consist of: (1) 26 wholly-owned 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 interest
rates, 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, 2000 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,
1999, 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
Minority Interest
Minority interest represents the common partnership units in the Operating
Partnership that are owned by Crown Investments and its subsidiary. At March
31, 2000 Crown Investments and its subsidiary owned 9,956,398 common partnership
units, or 27.53% of the total common partnership units outstanding. Crown
American Realty Trust owns the remaining 72.47%. The minority interest balance
is adjusted each year for Crown Investments' and its subsidiary's proportionate
share of net income (loss) of the Operating Partnership (after deducting
preferred unit distributions), common partnership distributions, and additional
capital contributions. Primarily because the common partnership distributions
have been larger than the Operating Partnership's income (loss) after preferred
unit distributions, the minority interest account on the consolidated balance
sheet has been declining each year. Based on current trends, the balance will
be reduced to zero in the second quarter of 2000. Under generally accepted
accounting principles, when and if the minority partner's share of the Operating
Partnership's net income (loss) and the minority partner's cash distributions
and capital contributions, would cause the minority interest balance to be less
than zero, such balance must be reported at zero unless there is a legal
obligation of the minority partner to reimburse the Operating Partnership for
such excess amounts. The partnership agreement does not provide for any such
obligation by the minority partner. Accordingly, when the minority interest
account is reduced to zero, the minority partner's share of income and loss and
cash distributions, net of its capital contributions, must be charged for
financial reporting purposes against the Company's share of earnings, as the
general partner. Subsequently, any future positive amounts representing the
minority partner's share of the Operating Partnership's income and loss and cash
distributions net of capital contributions would be credited in full to the
Company's share of earnings to the extent such amounts were previously charged
against the Company's earnings. This accounting method will not impact the cash
flows of the Company or the cash distributions made to shareholders or to the
minority partner.
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 three months ended March 31,
2000 and 1999 are identical.
The assumed exercise of options under the Company's share incentive plans had no
effect on the calculation of diluted earnings per share for the three months
ended March 31, 2000 and 1999, as the assumed exercise price of the options was
higher than the market price during these periods.
NOTE 3 - DEBT ON INCOME-PRODUCING PROPERTIES
Debt on income-producing properties consisted of the following (in thousands):
March 31, 2000 December 31, 1999
Mortgage loans $ 465,000 $ 465,000
Permanent loans 130,413 131,429
Construction loans 17,880 15,625
Secured term loans and lines of credit 101,632 96,946
Net $ 714,925 $ 709,000
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 General Electric Capital Corporation ("GECC"). The gross proceeds
from the new loan (the "GECC 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 GECC Mortgage
Loan has a fixed stated interest rate of 7.43% and is secured by cross-
collateralized mortgages on 15 of the malls. The loan provides for payment of
interest only during the first two years and interest and principal
amortization, based on 25 year amortization, during the last eight years. Crown
Investments has guaranteed $250 million of the GECC Mortgage Loan. In
connection with the GECC Mortgage Loan, in November 1997, the Company made a
$6.0 million interest-bearing good-faith deposit with GECC, and in July and
August 1998, the Company made $12.2 million in non-interest bearing rate lock
deposits with GECC. These deposits were refunded at closing.
Permanent Loans
At March 31, 2000, permanent loans consisted of nine loans secured by seven
properties held by the Operating Partnership. Included in permanent loans is a
$2.6 million interest free Urban Development Action Grant loan with the City of
Johnstown, Pennsylvania, secured by an office building and due October 2006. A
$1.0 million loan related to Carlisle Plaza Mall is an Industrial Development
Bond secured with a $1.0 million letter of credit, which expires in January,
2008. Crown Holding has guaranteed one of the permanent loans with a current
outstanding balance of $10.3 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 completed an extension to November 2001 and
certain modifications to its existing secured line of credit facility with
General Electric Capital Corporation. Prior to the modifications, the line of
credit consisted of a $50 million general line, of which $49.2 million was
outstanding, and a $100 million acquisition line of which $27.1 million was
outstanding related to the 1998 acquisition of Jacksonville Mall. The modified
credit facility combines the prior two lines into a single line of credit with a
$150 million maximum commitment level, and an initial $109 million availability,
of which $20 million is reserved for the Valley Mall expansion project. The
availability under the line can be increased up to the maximum amount upon
achieving certain financial and debt service ratio tests that depend on the
future operating performance of the five malls that secure the line and on
future interest rates. Interest under the modified line is based on LIBOR plus
2.95%. Borrowings under this credit facility totaled $97.9 million at March 31,
2000.
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 2.25%. This line is renewable annually on April 30 and
has been renewed through April 30, 2001. $3.7 million was outstanding under
this line as of March 31, 2000.
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, 2000. Twenty of the
Company's malls are mortgaged under the GECC Mortgage Loan and the GECC 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 $595.4 million at March
31, 2000 have fixed interest rates ranging from 4.25% to 9.11%. The weighted
average interest rate on this fixed-rate debt at both March 31, 2000 and 1999
was 7.63%. The weighted average interest rate during the three months ended
March 31, 2000 and 1999 were each 7.63%. All of the remaining loans with an
aggregate principal balance of $119.5 million at March 31, 2000 have variable
interest rates based on spreads ranging from 1.90% to 2.95% above 30 day LIBOR.
The weighted average interest rates on the variable rate debt at March 31, 2000
and 1999 were 8.93% and 7.03%, respectively. The weighted average interest
rates during the three months ended March 31, 2000 and 1999 were 8.66% and
7.10%, respectively.
Debt Maturities
As of March 31, 2000, 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,
2000 (nine months) $ 4,453
2001 (year) 112,377
2002 (year) 40,725
2003 (year) 30,042
2004 (year) 77,376
Thereafter 449,952
Net $ 714,925
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"). 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. Had the Company applied this standard
currently, the effect on the Company's financial position and results of
operations for the quarter ended March 31, 2000 would be immaterial.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. Specifically, SAB No. 101 provides guidance on lessors' accounting
for contingent rent. SAB No. 101 explains the SEC staff's general framework for
revenue recognition. SAB No. 101 does not change existing literature on revenue
recognition, but rather clarifies the SEC's position on preexisting literature.
SAB No. 101 did not require the Company to change existing revenue recognition
policies and therefore had no impact on the Company's financial position or
results of operations at March 31, 2000.
NOTE 5 - MALL EXPANSIONS
The Company has substantially completed construction of an expansion and
redevelopment of Washington Crown Center and an expansion at Valley Mall. The
total costs of the two projects, including capitalized construction overhead,
interest, and tenant allowances, are estimated at $33 million and $33 million,
respectively, of which $24 million and $26 million, respectively, had been
incurred as of March 31, 2000. In addition to amounts incurred at March 31,
2000, 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 $17.9 million was borrowed and outstanding at March 31,
2000. The Valley Mall expansion is being financed under the line of credit
with GECC 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. The note was paid in full in December 1999 at which time the deferred
gain of $1.3 million was recognized.
NOTE 7 - RESTRUCTURING COSTS
During the first quarter of 2000, the Company recorded a restructuring charge of
$0.4 million related to severance and related costs for employees affected by an
8% reduction in the corporate office staff together with reductions in other
corporate expenses. The restructuring involved approximately twelve home office
employees who were terminated and who represented a cross-section of
management,, clerical, and secretarial employees.
During the first and third quarters of 1999, the Company recorded restructuring
charges of $1.0 million and $1.2 million, respectively, related to severance and
related costs for employees affected by two reductions in the number of
corporate office staff together with reductions in other corporate office-
related expenses. The restructurings involved approximately thirty-five home
office employees who were terminated and who represented a cross-section of
management, clerical, and secretarial employees.
The restructuring costs are shown as a separate line item in the Consolidated
Statements of Operations. The amount remaining to be paid at March 31, 2000 was
approximately $0.6 million, and is included in "Accounts payable and other
liabilities" in the Consolidated Balance Sheet. It is expected that most of the
remaining liability that exists at March 31, 2000 will be paid out in 2000 and
2001.
NOTE 8 - SUBSEQUENT EVENT
On April 26, 2000 the Board of Trustees voted to amend the 1993 Crown American
Realty Option Plan to increase the number of limited partnership units available
for the issuance of options to officers and key employees from 1,200,000 to
2,200,000. In addition, a total of 390,000 options were granted to officers
effective April 26, 2000 at a price of $5.4375.
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, 2000.
Selected Financial Data
The table on the following page sets forth selected financial data for the
Company for the three months ended March 31, 2000 and 1999. 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 1999 Form 10-K). Funds from Operations is used in the
real estate industry as a measure of operating performance because reductions
for real estate depreciation and amortization charges are not meaningful in
evaluating the operating results of real estate, which have historically been
appreciating assets. Gain on sales of outparcel land have been included in
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.
In 1999, the National Association of Real Estate Investment Trusts (NAREIT)
adopted changes to the definition of Funds from Operations that became effective
in 2000, at which time prior years' reported FFO is restated to conform to the
new changes. The primary impact on the Company is that "unusual non-recurring"
items previously excluded from FFO are now being included. As a result, for the
first quarter of 2000 and 1999, restructuring costs (see Note 7 of the interim
consolidated financial statements) in the amounts of $0.4 million and $1.0
million, respectively, are being deducted from FFO (first quarter 1999 has been
restated).
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 interim financial statements and notes thereto.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
(restated)
<S> <C> <C>
Selected Financial Data:
EBITDA (1 & 3) $ 27,910 $ 25,542
Funds from Operations (FFO)
(2 & 3):
Net Income $ 1,483 $ 1,172
Adjustments:
Minority interest in Operating
Partnership (746) (923)
Depreciation and amortization -
real estate 12,210 11,356
Operating covenant amortization 658 658
Cash flow support 756 815
Funds from Operations, before
allocations to minority
interests and preferred shares 14,361 13,078
Less:
Amount allocable to preferred
shares 3,438 3,438
Amount allocable to minority
interest 3,007 2,654
Funds from Operations applicable to
common shares $ 7,916 $ 6,986
Weighted average common shares
outstanding (000) 26,208 26,208
Cash Flows:
Net cash provided by operating
activities $ 8,830 $ 10,192
Net cash (used in) investing $(13,858) $ (10,912)
activities
Net cash (used in) financing
activities $ (4,124) $ (2,915)
(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, 2000 to the corresponding period in
1999
- - Revenues
Total revenues for the first quarter of 2000 were $41.4 million, up 9.2% from
$37.9 million for the same period in 1999.
The total revenue increase of $3.5 million in the first quarter of 2000 versus
1999 was primarily the result of a) $2.5 million increase in base and percentage
rents as a result of a higher occupancy percentage, higher average base rents
per square foot, and higher mall shop sales, b) higher tenant recovery income of
$0.9 million as a result of higher operating costs and an increased recovery
percentage and c) higher temporary and seasonal income in the amount of $0.1
million.
- - Property Operating Costs:
Total recoverable and non-recoverable mall operating costs for the first quarter
of 2000 were $12.7 million, up $0.9 million, or 7.6%, from the corresponding
period in 1999.
Depreciation and amortization expense for the first quarter of 2000 was $11.8
million, an increase of $0.9 million over the first quarter of 1999.
- - General, Administrative and Interest Expenses:
For the first quarter of 2000, general and administrative expenses were
approximately $1.2 million, an increase of $0.2 million from 1999, due primarily
to a decrease in the amount of cost capitalized, especially to construction
activities. Interest expense increased by $1.7 million in the first quarter of
2000 versus 1999 due to a combination of higher average borrowings outstanding,
higher rates on variable-rated debt, and higher amortization of deferred
financing costs.
- - Gain on Property Sales and Disposals:
There were no land sales during either the first quarter of 2000 or 1999.
- - Net Income (loss):
The net income for the first quarter of 2000 was $1.5 million compared to $1.2
million for the first quarter of 1999. The first quarter of 2000 and 1999
include restructuring charges of $0.4 million and $1.0 million, respectively,
related to severance costs for employees affected by a reduction in the
corporate office work force. After deducting preferred dividends, there was a
net loss of $2.0 million applicable to common shares in the first quarter of
2000, compared to a net loss of $2.3 million for the first quarter of 1999.
- - Funds from Operations:
For the quarter ended March 31, 2000, Funds from Operations ("FFO") before
allocations to minority interest and to preferred dividends was $14.4 million,
up from $13.1 million in the same quarter of 1999. FFO including land sales
allocable to common shares (after minority interest and preferred dividends) was
$7.9 million, compared to $7.0 million in the same quarter of 1999. The net
increase in total FFO during the first quarter was largely comprised of the
following: a) a $2.5 million increase in mall shop and anchor base and
percentage rents from the existing properties reflecting higher occupancy and
higher average rents; b) $0.5 million in lower restructuring costs, net of
slightly higher general and administrative expenses; and c) $0.1 million in
higher temporary and seasonal leasing. These positive variances in FFO were
partially offset by d) $1.7 million in higher net interest expense primarily as
a result of higher LIBOR interest rates, higher amortization of deferred
financing costs, lower interest capitalization, and higher average borrowings
outstanding; and e) $0.1 million in higher property costs net of recoveries.
EBITDA - Earnings before Interest, Taxes, Depreciation and Amortization
The computation of EBITDA is shown below for the three months ended March 31,
2000 and 1999 (000's):
Three Months Ended
March 31,
2000 1999
Total revenues $ 41,393 $ 37,850
Add back operating covenant
amortization deducted in
minimum rent 658 658
42,051 38,508
Less recoverable costs and
expenses 12,181 11,303
Less non-recoverable costs and
expenses 557 500
Less property general and
administrative costs 607 528
Less corporate general and
administrative costs 1,216 1,057
Add back depreciation/amortization
in above expense lines and joint
venture depreciation 420 422
Gain on outparcel land sales - -
EBITDA, as reported $ 27,910 $ 25,542
For the quarter ended March 31, 2000, EBITDA was $27.9 million compared to $25.5
million in the first quarter of 1999, an increase of 9.3 percent. EBITDA was
largely impacted by the same factors as FFO above, except for interest costs,
preferred stock dividends and restructuring costs, 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 $33
million and $33 million respectively, of which $24 million and $26 million,
respectively, had been incurred as of March 31, 2000. In addition to amounts
incurred at March 31, 2000, 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 $17.9 million was borrowed and
outstanding at March 31, 2000. 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 March 31, 2000 the scheduled principal payments on all debt are $4.5
million, $112.4 million, $40.7 million, $30.0 million, and $77.4 million for the
years ended December 31, 2000 through 2004, respectively, and $449.9 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, 1999, 1998, and 1997 were 2.06 to 1, 2.14 to 1, and
2.04 to 1, respectively.
Part II - Other Information
Item 1: Legal Proceedings
The Company from time to time is involved in litigation incidental to its
business. Except as described below, neither the Company 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
consolidated results of operations or financial condition.
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held in Johnstown, Pennsylvania
on April 26, 2000 for the purpose of considering and acting on the following
proposals:
1. Election of persons (Donato B. Zucco and Zachary L. Solomon) to
serve as Trustees for a three-year term.
2. Amend the 1993 Crown American Realty Option Plan to increase the
number of limited partnership units available for issuance under
the plan to 2,200,000.
The proposals were described in a proxy statement dated March 31, 2000. A
quorum was present at the meeting, and the two proposals were approved.
Item 5: Other Information
On April 26, 2000, the Company issued its regular quarterly earnings
release and its First Quarter 2000 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, 2000
Exhibit 99 (b) - First Quarter 2000 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 3, 2000 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 3, 2000 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 3, 2000 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)
EHIBIXT 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 L. Stevens 814-536-9538
Internet: www.crownam.com
IMMEDIATE RELEASE: Wednesday, April 26, 2000
CROWN AMERICAN REALTY TRUST REPORTS
FIRST QUARTER FFO PER SHARE UP 11 PERCENT FROM 1999
SAME CENTER NOI INCREASED 9.8%
BOARD INCREASES COMMON DIVIDEND BY 1.2%
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, 2000. 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 from $0.2050 to
$0.2075 per quarter, which is the Company's second consecutive annual increase.
_______________________
"The first quarter of 2000 showed a continuation of the growth that we have
effected as a transformed company over the last several years," stated Company
Chairman, CEO and President, Mark E. Pasquerilla. "FFO per common share was
$0.30 in the first quarter, up 11 percent from $0.27 in the first quarter of
1999, as restated. There were no land sales in either quarter, and the number
of properties was the same in both quarters. Same center NOI for the quarter
was up 9.8% compared to the first quarter of 1999. In March 2000 as previously
announced, we implemented a small reduction in our corporate office staff and
related costs that will produce $600,000 in annual cash savings. This action
follows similar cost and staff reductions that we made in the first and third
quarters of 1999. Due to the resultant one-time severance-related costs we
incurred in connection with these restructurings, FFO was negatively impacted
by $0.4 million, or $0.01 per share, in the first quarter of 2000 and by $1.0
million, or $0.03 per share, in the first quarter of 1999. First quarter 1999's
FFO results have been restated to include this $0.03 per share restructuring
charge under the revised definition of FFO which became effective this year and
which requires prior periods to be restated.
"Operating trends continue to show progress. Mall shop occupancy ended the
quarter at 84%, up from 82% a year ago, and even with year-end 1999. Average
mall shop base rent per square foot increased for the 26th consecutive quarter
to $18.82 per square foot, up 5% from one year ago. Leasing results continued
to be strong for the quarter with 225,000 square feet of new and renewal mall
shop leases signed at rates that will produce $4.5 million in annual base rental
income, up from $4.0 million in the comparable period of last year. Base rent
on new leases was $21.00 per foot compared to $12.55 per foot for tenants that
closed, an uplift of 67%. Comparable mall shop sales for the first quarter of
2000 were $53.07 per square foot, a 3.1% increase over the first quarter of last
year. Our tenants' occupancy cost percentage fell again in the first quarter to
10.0%, down from 10.2% a year ago, as strong tenant sales growth continues to
outpace rents and as we continue to focus on controlling costs.
"Beginning in 1998, we began to show increases in FFO which accelerated in
1999. The Board of Trustees voted to increase the quarterly dividend from
$0.205 per common share to $0.2075 per common share, an annual increase of $0.01
per common share, or a 1.2% increase. This increase is the Company's second
consecutive annual dividend increase and is effective for the dividend to be
paid on June 16, 2000. The Board reconfirmed its intention to increase
dividends in the future as FFO growth and cash availability may warrant."
Mr. Pasquerilla concluded, "As I've mentioned before, the past investments
we've made in our regional mall portfolio are beginning to bear the fruit of
solid NOI and FFO growth. Our strong NOI growth is not fully translating into
the same degree of FFO growth this year due to the impact of the higher interest
rate environment on our variable rate debt. Our major redevelopment and
expansion projects in the existing portfolio are successfully winding down which
will produce future NOI growth, but importantly also reduce our future capital
spending. We will be using more of our cash flows in the future for debt
amortization as we work to reduce our debt leverage. We continue to focus our
effort on improving internal cash flows by increasing mall shop occupancy and
controlling costs. In this difficult capital market for REIT's, we are managing
the Company conservatively to grow internal cash flow and to improve the
Company's financial flexibility."
Dividend Information
For the quarter ended March 31, 2000, the Board of Trustees declared
regular quarterly dividends of $0.2075 per common share and $1.375 per senior
preferred share. Both dividends are payable June 16, 2000 to shareholders of
record on June 5, 2000.
Financial Information
For the quarter ended March 31, 2000, the Company reported that total Funds
from Operations ("FFO") before allocations to minority interest and to preferred
dividends was $14.4 million, up from $13.1 million in the same quarter of 1999,
as restated. FFO including land sales allocable to common shares (after
minority interest and preferred dividends) was $7.9 million, or $0.30 per share,
compared to $7.0 million, or $0.27 per share, in the same quarter of 1999. The
first quarter of 2000 was impacted by $0.4 million of restructuring costs ($0.01
per share), while the first quarter of 1999, as restated, was impacted by $1.0
million of similar restructuring costs ($0.03 per share). The net increase in
total FFO during the first quarter was largely comprised of the following:
A $2.5 million increase in mall shop and anchor base and percentage rents,
reflecting higher occupancy, higher average rents, and higher mall shop
sales;
$0.5 million in lower restructuring costs, net of slightly higher general
and administrative expenses, primarily due to lower capitalization of costs
to construction activities;
$0.1 million in higher temporary and seasonal leasing; offset by
$1.7 million in higher interest expense, primarily as a result of higher
LIBOR interest rates, higher amortization of deferred financing costs,
lower interest capitalization, and higher average borrowings outstanding;
and
$0.1 million in higher property operating costs, net of recoveries from
tenants.
Total revenues for the first quarter of 2000 were $41.4 million, up 9.2%
from $37.9 million for the same period in 1999. This revenue increase of $3.5
million was primarily the result of an increase in mall shop base and percentage
rents, higher tenant recoveries on mall operating expenses, and higher temporary
and seasonal leasing.
For the first quarter of 2000 the Company reported net income of $1.5
million compared to $1.2 million for the first quarter of 1999. After deducting
preferred dividends, there was a net $2.0 million loss applicable to common
shares, or $0.07 per share, compared to a net loss of $2.3 million, or $0.09 per
share, for the first quarter of 1999.
Operating Information
During the first quarter of 2000, leases for 225,000 square feet of mall
shops were signed at rates that will produce $4.5 million in annual base rental
income, compared to 225,000 square feet for $4.0 million during the same period
in 1999. The first quarter included 56 new leases for 134,000 square feet at an
average base rent of $21.00 per square foot and 42 renewal leases for 91,000
square feet at $18.20 per square foot. The $21.00 average base rental rate on
new leases in the quarter was 12% higher than the portfolio average base rent as
of March 31, 2000 and 67 percent higher than the average base rent on the
133,000 square feet of space that closed in the quarter.
During the first quarter of 2000, the Company signed leases on 6,000 square
feet of freestanding tenants, representing $79,000 in annualized base rental
income.
The average mall shop base rent of the portfolio at March 31, 2000 was
$18.82 per square foot. This is a 4.8% increase from $17.95 per square foot at
March 31, 1999, and the 26th consecutive quarter that average base rent has
increased.
The net effective rent (annual gross rent less the annual amortization of
tenant allowances and leasing costs) for new leases signed in the first quarter
was $17.49 per square foot as compared to $19.34 per square foot for the same
period in 1999. Due primarily to a concentration of signing five Gap leases this
quarter, net effective rents declined. Going forward we expect this trend to
reverse, and a major focus of management is to increase net effective rents from
new leasing.
Mall shop occupancy was 84 % at March 31, 2000, up from 82% reported at
March 31, 1999.
Mall shop sales for the first quarter of 2000 were $53.07 per square foot,
a 3.1% increase over the $51.48 per square foot reported for the first quarter
of 1999. Small shop sales in the first quarter were negatively affected
because Easter occurred in late April this year versus in late March last year.
Occupancy costs (base rent, percentage rent and expense recoveries as a
percentage of mall shop sales) at all properties were 10.0% as of March 31,
2000, down from 10.2% as of March 31, 1999. The decrease reflects strong tenant
sales growth which is outpacing the growth in rental rates as existing leases
renew or are replaced and also reflects our cost containment efforts on mall
operations.
Seasonal and temporary leasing income for the first quarter of 2000
amounted to $2.1 million,
a 7.3% increase over the $1.9 million for the same period in 1999.
Expansion/Renovations
Construction is nearing completion at Valley Mall (Hagerstown, MD) on a 16-
screen R/C Theaters megaplex. The new theater is expected to open in May 2000.
A major expansion of this property was completed in October 1999.
At Washington Crown Center (Washington, Pa.) construction is also nearing
completion on a Hollywood (Wallace Theater) 14-screen complex. A May 2000
opening is planned. In October a major renovation was completed at this
property.
Construction has begun on a 16-screen Carmike Cinema at Jacksonville Mall
(Jacksonville, NC). The project is expected to be completed in Fall 2000.
_______________________
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.
A copy of the Company's Supplemental Financial and Operational Information
Package follows.
- 30 -
<TABLE>
<CAPTION>
EXHIBIT 99 (b)
SUPPLEMENTAL FINANCIAL AND OPERATIONAL INFORMATION PACKAGE
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 2000
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Quarter Ended March 31,
FINANCIAL AND ANALYTICAL DATA: 2000 vs. 1999
Total FFO - Incr (Decr) - 2000 compared to $ 000 $ per share
1999:
<S> <C> <C>
Base and percentage rents from anchors and mall shops $ 2,726 $ 0.075
Temporary and promotional leasing income 140 0.004
Mall operating costs, net of tenant recovery income (71) (0.002)
Utility income, miscellaneous mall income, equity in
joint venture 22 0.001
Straight line rental income (193) (0.005)
Core mall operations-same properties 2,624 0.073
Interest expense (1,697) (0.047)
Property admin. And general & admin. Expenses (238) (0.007)
Restructuring costs 670 0.019
Cash flow support earned (59) (0.002)
Depreciation and amortization expense (1) -
Lease buyout income and other items, net (16) -
Change in FFO before preferred div's and minority
interest 1,283 0.036
Allocation to minority interest in Operating
Partnership (353) -
Rounding to whole cents - (0.003)
Change in FFO allocable to common shareholders $ 930 $ 0.033
Quarter Ended March 31,
2000 1999
(restated) *
Funds from Operations ($000 except per share data):
Net income $ 1,483 $ 1,172
Adjustments:
Minority Interest in Operating Partnership (746) (923)
Depreciation and amortization - real estate 12,210 11,356
Operating covenant amortization 658 658
Cash flow support amounts 756 815
FFO before allocations to minority interest and
preferred shares 14,361 13,078
Allocation to preferred shareholders (preferred
dividends) (3,438) (3,438)
Allocation to minority interest in Operating
Partnership (3,007) (2,654)
FFO allocable to common shares $ 7,916 $ 6,986
FFO per common share $ 0.30 $ 0.27
*Restated to adopt changes to the definition of FFO as promulgated by NAREIT.
1999's previously reported FFO of $0.30 for 1Q99 was restated to $0.27 to
reflect restructuring charges that were excluded from FFO under the previous
definition.
Average common shares outstanding during the period 26,208 26,208
Common shares outstanding at period end 26,208 26,208
Avg. partnership units and common shares outstanding
during the period 36,164 36,164
Partnership units and common shares outstanding at
period end 36,164 36,164
Components of Minimum Rents:
Anchor - contractual or base rents $ 6,189 $ 6,030
Mall shops - contractual or base rents 20,108 18,202
Mall shops - percentage rent in lieu of fixed base
rent 680 498
Straight line rental income 119 312
Ground leases - contractual or base rents 474 512
Lease buyout income 16 18
Operating covenant amortization (658) (658)
Total minimum rents $ 26,928 $ 24,914
Components of Percentage (Overage) Rents:
Anchors $ 485 $ 685
Mall shops and ground leases 1,300 583
$ 1,785 $ 1,268
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
FIRST QUARTER 2000
OTHER FINANCIAL AND OPERATING DATA
(unaudited)
Quarter Ended March 31,
2000 1999
<S> <C> <C>
EBITDA: earnings (including gain on sale of outparcel
land) before interest, taxes and all depreciation and
amortization and extraordinary items $ 27,910 $ 25,542
Debt and Interest:
Fixed rate debt at period end $ 595,412 $ 598,447
Variable rate debt at period end 119,513 78,522
Total debt at period end $ 714,925 $ 676,969
Weighted avg. interest rate on fixed rate debt for the
period 7.6% 7.6%
Weighted avg. interest rate on variable rate debt for
the period 8.7% 7.1%
Total interest expense for period $ 13,903 $ 12,206
Amort. of deferred debt cost for period (incl. in
interest exp) 614 352
Capitalized interest costs during period 267 323
Capital Expenditures Incurred:
Allowances for anchor/ big box tenants $ 1,978 $ 400
Allowances for mall shop tenants 7,490 4,894
Leasing costs and commissions 623 798
Expansions and major renovations, including escrow
deposits 3,920 5,245
All other capital expenditures (included in Other
Assets) 893 146
Total Capital Expenditures during the period $ 14,904 $ 11,483
OPERATING DATA:
Mall shop GLA at period end (000 sq. ft.) 5,769 5,739
Mall Shop occupancy percentage at period end 84% 82%
Comp. Store Mall shop sales - 3 months ( $ per sq. ft.) $ 53.07 $ 51.48
Mall shop occupancy cost percentage at period end 10.0% 10.2%
Average mall shop base rent at period end ($ per
sq. ft.) $ 18.82 $ 17.95
Mall shop leasing for the period:
New leases - sq. feet (000) 134 102
New leases - $ per sq. ft. $ 21.00 $ 22.11
Number of new leases signed. 56 62
Net effective rent for new leases signed in the period
(per sq. ft.) $ 17.49 $ 19.34
Renewal leases - sq. feet (000) 91 123
Renewal leases - $ per sq. ft. $ 18.20 $ 14.18
Number of renewal leases signed. 42 41
Tenant Allowances for leases signed during the period:
First Generation Space - per sq. ft. $ 6.46 $ 47.68
Second Generation Space - per sq. ft. $ 14.89 $ 4.37
Leases Signed during the period by:
First Generation Space - sq. feet (000) 7 18
Second Generation Space - sq. feet (000) 218 207
Theater and free-standing leasing for the period:
New leases - sq. feet (000) 4 -
New leases - $ per sq. ft. $ 13.25 $ -
Tenant allowances - $ per sq. ft. $ 8.75 $ -
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements Of Operations
(unaudited)
Three Months Ended
March 31,
2000 1999
(reclass-
ified) *
(in thousands, except
per share data)
<S> <C> <C>
Rental operations:
Revenues:
Minimum rent $ 26,928 $ 24,914
Percentage rent 1,785 1,268
Property operating cost recoveries 9,448 8,584
Temporary and promotional leasing 2,063 1,923
Net utility income 979 896
Miscellaneous income 190 265
Net 41,393 37,850
Property operating costs:
Recoverable operating costs 12,181 11,303
Property administrative costs 607 528
Other operating costs 557 500
Depreciation and amortization 11,823 10,968
Net 25,168 23,299
Net 16,225 14,551
Other expenses:
General and administrative 1,216 1,057
Restructuring costs 369 1,039
Interest 13,903 12,206
Net 15,488 14,302
Net 737 249
Property sales and adjustments:
Gain on sale of outparcel land - -
Income before minority interest in Operating
Partnership 737 249
Minority interest in (income) loss of Operating
Partnership 746 923
Net income 1,483 1,172
Dividends on preferred shares (3,438) (3,438)
Net (loss) applicable to
common shareholders $ (1,955) $ (2,266)
Per common share information:
Basic and Diluted EPS:
Net income (loss) $ (0.07) $ (0.09)
Weighted average shares outstanding (000) 26,208 26,208
FFO per share $ 0.30 $ 0.27
*Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Balance Sheets
March 31, December 31,
2000 1999
(Unaudited)
(in thousands, except share
and per share data)
<S> <C> <C>
Assets
Income-producing properties:
Land $ 154,342 $ 154,341
Buildings and improvements 1,003,007 986,042
Deferred leasing and other charges 44,675 44,313
Net 1,202,024 1,184,696
Accumulated depreciation and amortization (399,893) (388,965)
Net 802,131 795,731
Investment in joint venture 4,849 5,055
Cash and cash equivalents, unrestricted 8,019 17,171
Restricted cash and escrow deposits 13,341 15,635
Tenant and other receivables 15,087 15,859
Deferred charges and other assets 22,056 25,757
Net $ 865,483 $ 875,208
Liabilities and Shareholders' Equity
Debt on income-producing properties $ 714,925 $ 709,000
Accounts payable and other liabilities 31,409 37,630
Net 746,334 746,630
Minority interest in Operating Partnership 132 2,727
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 shares
issued at both March 31, 2000 and December 31, 1999 277 277
Additional paid-in capital 316,914 316,421
Accumulated deficit (183,547) (176,220)
Net 133,669 140,503
Less common shares held in treasury at cost;
1,534,398 shares at both March 31, 2000 and
December 31, 1999 (14,652) (14,652)
Net 119,017 125,851
Net $ 865,483 $ 875,208
</TABLE>
<TABLE>
<CAPTION>
CROWN AMERICAN REALTY TRUST
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2000 1999
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,483 $ 1,172
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in Operating Partnership (746) (923)
Equity earnings in joint venture (39) (149)
Depreciation and amortization 13,406 12,313
Restructuring costs 369 1,039
Net changes in:
Tenant and other receivables 772 4,081
Deferred charges and other assets 2,066 2,079
Restricted cash and escrow deposits (1,890) (1,783)
Accounts payable and other liabilities (6,591) (7,637)
Net cash provided by operating activities 8,830 10,192
Cash flows from investing activities:
Investment in income-producing properties (14,011) (11,337)
Distributions from joint venture 153 425
Net cash (used in) investing activities (13,858) (10,912)
Cash flows from financing activities:
Net proceeds from sale of common shares - 6
Proceeds from issuance or assumption of debt, net of
deposits 6,987 11,526
Cost of issuance of debt - (81)
Debt repayments (1,016) (4,511)
Dividends and distributions paid on common shares and
partnership units (7,413) (7,232)
Dividends paid on senior preferred shares (3,438) (3,438)
Cash flow support payments 756 815
Net cash (used in) financing activities (4,124) (2,915)
Net decrease in cash and cash equivalents (9,152) (3,635)
Cash and cash equivalents, beginning of period 17,171 13,512
Cash and cash equivalents, end of period $ 8,019 $ 9,877
Supplemental Cash Flow Data:
Interest paid (net of capitalized amounts) $ 13,289 $ 11,854
Interest capitalized $ 267 $ 323
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,019
<SECURITIES> 0
<RECEIVABLES> 15,087
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,202,024
<DEPRECIATION> 399,893
<TOTAL-ASSETS> 865,483
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
25
<COMMON> 277
<OTHER-SE> 118,715
<TOTAL-LIABILITY-AND-EQUITY> 865,483
<SALES> 0
<TOTAL-REVENUES> 41,393
<CGS> 0
<TOTAL-COSTS> 25,168
<OTHER-EXPENSES> 1,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,903
<INCOME-PRETAX> 737
<INCOME-TAX> 0
<INCOME-CONTINUING> 737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,483
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
