Crown American Realty Trust hereby furnishes the text and commentary for a
presentation to be made on September 11, 2000 at the Friedman Billings Ramsey
Investor Conference in Washington, DC.
CROWN AMERICAN
REALTY TRUST
Friedman Billings Ramsey
Investor Conference
September 11, 2000
Safe Harbor Statement
This presentation 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.
Before we begin I want to remind everyone that any forward looking comments in
today's presentation are intended to be within the meaning of the SEC's safe
harbor provisions as noted in this slide.
Crown Background
Fully-Integrated Real Estate Company
27 Enclosed Malls
16 million square feet of GLA
50 years in business
Strong Capabilities and Experience in:
Property Management and Reporting
Leasing
Redevelopment and Expansion
Construction & Project Management
For those of you not familiar with Crown, we are an enclosed mall REIT with a
long history and strong management team.
We are a fully integrated company and handle all real estate activities
internally.
Enclosed Mall Locations
Bradley Square, Cleveland, TN
Capital City Mall, Camp Hill, PA
Carlisle Plaza Mall, Carlisle, PA
Chambersburg Mall, Chambersburg, PA
Crossroads Mall, Beckley, WV
Francis Scott Key Mall, Frederick, MD
Jacksonville Mall, Jacksonville, NC
Logan Valley Mall, Altoona, PA
Lycoming Mall, Williamsport, PA
Martinsburg Mall, Martinsburg, WV
Mount Berry Square, Rome, GA
New River Valley Mall, Christiansburg, VA
Nittany Mall, State College, PA
North Hanover Mall, Hanover, PA
Oak Ridge Mall, Oak Ridge, PA
Patrick Henry Mall, Newport News, VA
Phillipsburg Mall, Phillipsburg, NJ
Schuylkill Mall, Frackville, PA
Shenango Valley Mall, Sharon (Hermitage), PA
South Mall, Allentown, PA
Uniontown Mall, Uniontown, PA
Valley Mall, Hagerstown, MD
Viewmont Mall, Scranton, PA
Washington Crown Center, Washington, PA
West Manchester Mall, York, PA
Wyoming Valley Mall, Wilkes Barre, PA
This map show the geographic diversity of the current portfolio. Our strategy
has been to locate malls in middle market communities. We strive to have the
largest and dominant enclosed mall in our market areas.
Our malls average about 570,000 square feet of GLA and typically have 4
department or discount anchor stores.
Financial Results - First Half 2000
In Millions (except per share data) 1H00 1H99
Revenues $ 81.5 $ 75.2
FFO Per share $ 0.61 $ 0.56
First Half 2000 compared to First Half 1999:
Revenues up 8%
Same center NOI up 9%
FFO per share up 9%
Turning to recent financial results...
The first half of 2000 continued the positive trend of 1999, with first half
2000 revenues up 8.4% over 1999 and same center Net Operating Income, or NOI, up
9%.
FFO per share was up 9%.
FFO results in both periods were impacted by one-time restructuring costs for
home office work-force reductions and other cost savings actions that we have
taken.
First half 2000 results were negatively impacted by about $.01 per share and
first half 1999 results were negatively impacted by about $.03 per share from
these one time costs.
However, we are also now beginning to enjoy the benefits of these changes in
lower operating costs.
Revenue and FFO Growth
1999 1998
Revenues ($M) $159.1 $146.7
FFO Per Share $1.28 $1.18
FFO Per Share w/o land sales $1.27 $1.15
1999's Revenues up 8.5%
"Same center" NOI up 7.0%
FFO per share up $0.10, or 8.5%
FFO per share without land sales up 10.4%
While the positive operating trends started earlier, 1998 was the turnaround
year for FFO growth, and 1999 was a great year.
Total revenues were up 8.5% in 1999, and importantly, same center NOI was up
7.0%.
FFO per share without land sales, which is a better way to evaluate the core
property performance, was up 10.4% in 1999
In recognition of the improving performance that we saw occurring in the
business, the Board of Trustees raised the quarterly common dividend rate in
April 1999 by 2.5%.
Dividends
Common share dividends
Current annual payout rate of $0.83 per share
In April 2000 the Board approved our second consecutive annual dividend increase
Preferred share dividends
$5.50 per preferred share - annual rate
Tax treatment of dividends in 1999
Common: 95% non-taxable return-of-capital
Preferred: 100% taxable income
In April 2000 Board of Trustees voted to increase the annual common dividend
from $0.82 to $0.83, a 1.2% increase and our second consecutive annual increase.
Our dividends continue to have tax benefits for individual investors. 95% of
the common dividends paid in 1999 represented a non-taxable return of capital
distribution. 100% of the preferred share dividends represented taxable
dividends.
While we cannot predict the tax aspects of our 2000 dividends with a high degree
of certainty at this time, we do expect that a significant portion of the common
dividends in 2000 will continue to represent a non-taxable return of capital.
Positive Trends Continuing
Growing FFO
Strong "same center" NOI growth
Higher leasing activity and occupancy
Higher average base rents
Higher tenant sales
Improved tenant quality
Enhanced quality of earnings
The Company's performance has never been stronger.
We've enjoyed solid operating performance trends over the last few years, and
those positive trends have been continuing in 2000.
Mid-2000 versus Mid-1997
Mid-2000 Mid-1997
Revenue Trend Up Down
FFO Trend Up Down
Mall Shop Occupancy 85% 76%
Debt maturing next 3.5 Yrs. $191M $360M
G&A gross costs $14M+ $19M+
Stock price $9.50+/- $6.00+/-
As this shows, and as we will demonstrate in other slides, we believe that the
Company is in fundamentally far better condition today than it was 3 years ago.
Yet our common share price is significantly lower than it was at that time.
Let me address each of the key operating and financial trends in more detail.
Strong Real Estate Leasing
1998 and 1999 were record years
Net effective rent on new leases up 9.5% in 1999
Out-for-signature leases (our revenue pipeline) continue to be good
1995 1996 1997 1998 1999
New Leases $5.90 $5.30 $8.40 $12.10 $12.9
Renewals $3.10 $3.10 $6.60 $11.40 $ 7.4
We have been focused intensely on our mall shop leasing during the last few
years, as this chart clearly shows.
We've had three very strong years, and the leasing pipeline - out for signature
deals, still remains very good, even as the remaining available space is
diminishing due to our past leasing successes.
We've also been working hard to improve the tenant mix in addition to growing
occupancy, and I'll have more to say on that in a few minutes.
Higher Mall Shop Occupancy
Mall shop occupancy now at 85%
10 malls with mall shop occupancy > 90%
Total portfolio occupancy = 93%
1995 1996 1997 1998 1999 2Q00
Occupancy 82% 76% 79% 82% 84% 85%
The results of our leasing efforts show up in several ways.
Mall Shop occupancy has been growing consistently since late 1996 and ended the
second quarter at 85%. We expect to see further occupancy growth in the
portfolio.
At June 30, 10 properties had mall shop occupancies over 90%.
When anchors and freestanding space are both factored in, our total portfolio
occupancy is approximately 93%.
Higher Mall Shop Base Rent
Portfolio average: $19.01 psf at 6/30/00 up 5.2% from 6/30/99
Up every quarter since IPO
1994 1995 1996 1997 1998 1999 2Q00
Base Rents 14.61 15.1 15.85 16.82 17.54 18.63 19.01
Our leasing results also get reflected in higher average base rent, up every
quarter since our IPO in 1993.
Average mall shop base rent for the total portfolio ended the year at $19.01 per
square foot, up 5.2% in one year, and up 22.2% in four years.
Rising Net Effective Rents
Net effective rent =
Base rent psf, less amortization of tenant allowances and leasing commissions
Net effective rent 1999 new leases: $18.39 psf
Up 9.5% over 1998
Rent on closed and renewal tenants = $15.05 avg. over last 3 years
Compares to $19.88 avg. base new rents on new & renewal leases
But the higher rents are not the result of higher allowances. Net effective
rent, which is the annual base rent on new leases, less the annual amortization
of tenant allowances and lease acquisition costs, rose by 9.5% in 1999. Our
leasing bonus plan has been revised to emphasize net effective rents, or
contribution to EVA. Again, this is consistent with our efforts to grow cash
flow, and not just buy "earnings growth."
We continue to get significant uplift on leases that close and renew. The
combined rental rate of tenants that closed and the old rates for tenants that
renewed averaged $15.05 per foot from 1997 to 1999. That compares to almost $20
per foot average rates on new and renewal leases during the same period, an
uplift of nearly $5 per foot.
Higher Mall Shop Tenant Sales
Comp Mall Shop Sales psf
1998: Up 6.1% to $242
1999: Up 6.6% to $258
2000: Up 4.2% thru 6/30.
7 Centers over $300 psf
ICSC Regional Mall sales growth
1998: Up 2.8%
1999: Up 2.4%
Anchor Sales psf
1998: Up 3.7%
1999: Down 1.1%
1994 1995 1996 1997 1998 1999 2000 Est.
Comp Sales $204 $206 $217 $228 $242 $258 $268
Our mall shop tenant sales have been growing rapidly since 1995. Up 6.1% in
1998 and up 6.6% in 1999, ending the year at $258 per foot. This strong trend
demonstrates that we have been increasing the number of stronger, more
productive tenants in our portfolio, such as the GAP, Victoria's Secrets, Bath
and Body, American Eagle Outfitters, and others.
Our mall shop sales growth has significantly outpaced the ICSC shopping center
sales index for the last few years.
The only negative item last year was that anchor sales numbers per foot were
slightly lower, which mainly reflected Sears' poorer sales productivity last
year. However, total anchor sales in the portfolio were actually up
significantly: $1.36 billion in 1998 to $1.44 billion in 1999, an increase of
5.9%. This increase in total anchor sales mainly reflects the several
additional May Co. units in the portfolio, and also demonstrates that we
continue to pull increasing number of shoppers into our properties.
Lower Occupancy Costs for Tenants
Tenants' occupancy costs decreasing at same time their sales are increasing
Crown's malls are affordable for tenants
Potential for raising future rents
1995 1996 1997 1998 1999 2Q00
Occupancy Cost % 11.10% 10.60% 10.40% 10.30% 10.10% 9.90%
Despite the growing rental rates, our tenants' occupancy costs have been
declining. This reflects their rapidly growing sales levels and our continuing
cost containment efforts at the property level.
Our malls are affordable and profitable for our tenants.
We are not intentionally driving the occupancy costs downward, and in fact, we
believe that we can reverse this trend through continuing to drive rental rates
up. In the short run, however, tenant sales have grown faster than our ability
to raise rents from rollovers or new deals.
We further believe that because of fixed operating costs, as tenants average
sales levels increase, they can afford a higher occupancy cost percentage and
still maintain appropriate profit levels. We plan to take advantage of this in
future leasing.
Tenant Quality and Diversity
Top 25 Revenue-Generating Tenants*
Sears, Roebuck and Co. 5.4%
J.C. Penney, Inc. 4.1%
The Limited Stores, Inc. 3.4%
The Bon-Ton 3.1%
Venator 2.7%
Victoria's Secrets/Bath & Body 2.2%
The Gap/Old Navy 2.2%
Transworld Music 2.0%
Hallmark-Owned Stores 1.7%
Shoe-Show of Rocky Mt. 1.7%
The Walden Book Co., Inc. 1.5%
Consolidated Stores 1.4%
Fashion Bug 1.3%
The Finish Line, Inc. 1.3%
American Eagle Outfitters 1.3%
Payless Shoesource 1.1%
May Department Stores Co. 1.1%
Wal-Mart Stores 1.1%
Value City Dept Stores 1.1%
Sterling Jewelers 1.0%
Deb Shops Inc. 0.9%
Tandy Corporation 0.9%
Claires, Inc. 0.9%
American Outfitters 0.9%
Regis Stores 0.9%
Total Top 25 45.2%
*For 12 months ended June 30, 2000
For several years now we've been disclosing our "Top 25 Revenue Generating
Tenants." We update the list every 6 months.
The credit quality of the tenants in the Top 25 is strong and much improved from
4 to 5 years ago.
Improved Tenant Quality & Diversity
Occupancy growth was combined with stronger tenants and more diverse tenants
Top 25 Tenants generated 49% of revenues in 1997, down to 45% at June 2000
Examples of growing tenant quality:
GAP/Old Navy:
1.0% of revenues in 1998 to 2.2% of revenues by June 2000
American Eagle Outfitters:
0.7% of revenues in 1998 to 1.3% of revenues by June 2000
We been improving tenant diversity and tenant quality.
The Top 25 tenants represented almost half of our revenues in 1997, but only 45%
by mid-2000.
Within the Top 25, improved quality is reflected by the trends of such strong
branded retailers like The Gap and American Eagle Outfitters, who are a growing
presence in our malls.
GAP and Old Navy
Growing presence in Crown Malls
17 "GAP" units leased
Average sales over $400 psf
5 Old Navy stores opened in 1999
Sales exceeding expectations, on track to hit over $450 psf
Will contribute significantly to percentage rent in 2000
1 additional Old Navy to open in 2000
The GAP and Old Navy are an excellent example of how we have expanded the number
of strong branded tenants in our portfolio.
The Old Navy stores that were added last year have been particularly strong
performers, and their sales are just beginning to be reflected in our comp store
sales statistics.
All the Old Navy's will be in percentage rent in their first year of operation
which will positively impact our percentage rent income in 2000.
Theaters in Crown Malls
14 theaters in the portfolio:
4 are stadium seating -new state of art facilities
115 screens in total
$4.0M in annualized rents (2.4% of total revenues)
Financial restructuring should strengthen the theater industry.
We tend to have strong/dominant theater locations in the market area, similar to
dominance of the malls.
Theaters have been the news a lot lately. We have moderate exposure to theaters
in our portfolio - only 2.4% of total revenues. Our exposure is widely diverse,
with no one chain accounting for more than $1.0 million in rents.
It is clear that some obsolete or out-positioned theaters will be closed
throughout the country as the industry consolidates and goes through a financial
shake-out, which will strengthen the industry in the longer run.
We have proactively and conservatively identified a few theaters in our
portfolio that may be at risk and begun to develop alternative uses and tenants.
For example, at our mall in Newport News, Virginia, AMC has just bought-out
their existing theater lease which is now obsolete due to the recent opening of
their large multiplex nearby. However, we already identified Old Navy, H&M, and
a theme restaurant as potential replacement tenants.
In addition, we have taken into account potential theater closings in our
internal forecasts for the remainder of 2000 and beyond.
Theaters in Crown Malls
Property Theater No. of Screens
Capital City United Artist 6
Chambersburg Carmike 7
Crossroads Marquee 6
Logan Valley Carmike 8
Lycoming United Artist 4
New River Valley Regal 10
Oak Ridge Cinemark 14
Schuylkill United Artist 4
Uniontown Carmike 6
Valley RC Theater 16
Wash. Crown Center Wallace 14
West Manchester Regal 13
Wyoming Valley General Cinema 7 (two locations)
Totals 115
JCPenney - Beginning of
Turn-around?
21 Anchor locations in Crown Malls
No impact from closing announcement in Spring
One new JCP store to open in 2000 - Newport News
10+ years average remaining term
JCP's turn-around efforts are welcome
Upside potential for percentage rents
3 remaining Eckerd locations - all in-line
3 have closed this year, including one buy-out
Upside potential from low rent levels
JCPenney was in the news last Spring, and I'd like to discuss Penney's situation
because they continue to be one of our top 5 tenants.
First, none of their 21 anchor stores in our portfolio was on their store
closing list. On average, the anchors have over 10 years remaining lease term
and their sales productivity is very near their corporate-wide average. We
currently get very little percentage rent from the JCPenney stores, so their
turnaround efforts could present an opportunity for us should they begin to grow
sales more aggressively.
3 of our 6 Eckerd stores did close this year, including one buyout, but this
presents more of an opportunity. Their rents are well below the in-line mall
shop averages, which presents us an opportunity to release the space at better
rents.
Finally, we applaud JCPenney's efforts to turn-around their operations.
Temporary & Seasonal Leasing
Strong growth trends:
1999 - $10.7M, up 10.3%
1998 - $9.7M, up 4.8%
1997 - $9.3M, up 10.7%
1996 - $8.4M, up 23.1%
Mitigates mall shop vacancy
Incubates permanent tenants
Investment in RMU's
Temporary and seasonal leasing continues to be a major contributor for us, even
as the availability of in-line space for these tenants is declining as our
permanent leasing occupancy grows. This business is highly profitable, with
little to no investment required.
To grow revenues, we have been aggressively raising rates to reflect the overall
stronger mall sales and consumer traffic, and have been pushing for more
temporary tenants during periods other than the traditional holiday season.
We've stepped up our use of RMU's - another name for movable kiosks - which
allows us to place more temporary tenants in the common areas and at the same
time improve the overall presentation of their merchandise.
Sponsorship Programs
Opportunity for brand managers to enhance their customer relationship at POS.
Examples:
Pepsi - portfolio-wide sponsorship and vending machine commissions
Portfolio-wide ATM contract with regional bank
Interactive kiosks - Center-Linq
Paid community room and kids club sponsors
Others in pipeline
Health care organizations- mall walker sponsors
D.M.X. - mall music and intercom sponsor
We get millions of consumer visits annually to our properties. This creates
opportunities for new "sponsorship" revenue sources. Sponsorship revenues are
expected to be over a penny per share in 2000, and we believe we have only begun
to tap the potential of this area.
Development and Anchor Repositioning
Washington Crown Center, Washington, PA
New May Co. anchor (140,000 sq. ft. Kaufmann's)
New stadium seating theater opened May 2000
Renovated center
Construction + 3 year mini-perm loan financing
Valley Mall, Hagerstown, MD
New May Co. anchor (120,000 sq. ft. Hecht's)
New stadium seating theater opened May 2000
New mall shop & food court space. Nearly 100% leased or committed
8 new out-parcels for lease or sale
The Washington Crown Center redevelopment and the Valley Mall expansion
represent the last of our planned major capital spending projects.
Last fall the construction phase of both projects was completed and stadium
style theaters at both properties opened in May 2000.
Development and Anchor Repositioning
Other Completed Recent Projects include:
Patrick Henry Mall, Newport News VA
New May Co. anchor (140,000 sq. ft .Hecht's) - Opened 11/98
Dillards replaced Proffitt's - Opened 4/98
29,000 sq. ft. of new mall shop space opened 11/98
JCPenney replacing Uptons'
Nittany Mall, State College PA
Currently - Sears, Bon-Ton, JCPenney
Value City store bought and demolished in 1998 to allow for new May Co.
(Kaufmann's)
May Co. built its own store - opened Spring 1999
Other recently completed projects include adding new May Company anchors to
Patrick Henry Mall in late 1998 and to Nittany Mall in early 1999. The Patrick
Henry project also included 29,000 square feet of additional mall shop space
which is all leased. Patrick Henry Mall is our most productive mall in terms of
mall shop tenant sales, which averaged $364 per square foot last year.
Peripheral Land Development
Approximately 70 Acres in Inventory
Estimated market value of $10M+
Completes and complements the retail district around the mall
Restaurants and big-box retail users
In addition to mall development expansion projects, we continue to develop the
surrounding retail district by leasing or selling out-parcel land.
Of course, the timing of land sale closings is difficult to predict, so we have
downplayed this source of FFO in our discussions with investors and analysts.
This is consistent with our efforts to manage the business in a conservative
manner - to under-promise but over-perform.
Controlling Operating Costs
Corporate office costs in 2000 down significantly from 1998's level:
Gross costs down 25%
Expensed costs down 8%
Impact is more significant to cash flows than to earnings and FFO
Last year we announced two restructurings to reduce the number of corporate
office staff and certain other expenses, plus a further reduction in March of
this year.
We incurred $2.2 million last year and $0.4 million in March of this year in one
time severance and related costs.
A major part of the reductions impacted development and construction related
staff in recognition of the completion of most of our improvement projects.
Since much of those costs were previously capitalized to construction, the costs
savings have not impacted FFO 100%, but do represent ongoing cash flow savings.
Technology and Retailing
Impact of Internet retail sales on mall shop leasing and sales minimal to date
Malls and retailers will continue to adapt to the Internet
Mall Web-Sites implemented in early August of 2000 as mall marketing tool
driving customer loyalty and traffic to our malls
Broadband and other telecommunication services for tenants
Last year, particularly during the holiday shopping season, there was a
tremendous amount of media attention about the future impact of Internet on
retailing.
After the past Christmas season, many media industry pundits have begun to
realize that bricks and mortar retailing will be around for a long time and that
the Internet can complement a good retailer's bricks and mortar retailing
strategy.
So far, the identifiable impact of the Internet on tenant sales and importantly
on our leasing activity, has been minimal.
At Crown, we are using the Internet for mall marketing purposes. Just this
month we rolled out customized web-sites for each property. We are using the
Internet to enhance our mall marketing initiatives and we have been very pleased
with the consumer response to date.
I strongly encourage you to take a look at the new mall sites which can be
accessed from our corporate web-site: www.crownam.com. On the following slides
are some examples of the content of the sites.
This slide shows a photograph of the Logan Valley Mall from our mall web-site.
This is the initial page from one of our mall web-sites. This page will be
tailored to each viewer based on their identified areas of interest. The
content varies daily based on input from the mall staff. The sites offer just-
in-time information on each store, coupons redeemable only at the mall, push
email based on customer preferences, and ability to sell gift certificates.
The total cost of developing these mall web-sites was than $300,000, consistent
with our goal of keeping the cost of our technology investments as low as
possible.
This slide shows a photograph of the Logan Valley Mall from our mall web-site.
State-of-Art Internal Systems
RCT People Counters at 10 malls, more in 2000
Crown Corporate Web-site implemented in 1996 and upgraded in 1999
Mall web-sites implemented 2000
Mapping technology, Sales Logic contact mgt.
Imaging technology - leases, payables, loans
CTI Real Estate property management and accounting systems implemented in 1994
Company-wide Intranet for internal uses
Speaking of technology, there is a lot more happening than just the Internet.
At Crown we have been using a number of new technologies to drive performance.
The most recent innovation we've deployed is people counter technology at 10 of
our properties last year, with more coming on stream this year. The data gained
has more than paid for the cost, through better marketing of space to permanent
and temporary tenants, through better negotiating of renewal leases, and through
identifying operating cost savings.
Crown has been fully networked down to the mall level for a number of years.
Our corporate website is almost 5 years old, and was expanded significantly last
year to provide extensive financial information for investors and analysts.
Capital Strategy
"We will continue to focus on improving our internal cash flows by increasing
mall shop occupancy and continuing our cost containment efforts. In this
difficult capital market for REITs, we are managing the Company conservatively
to grow internal cash flow and improve the Company's financial flexibility."
Mark E. Pasquerilla, Chairman and CEO, from February 28, 2000 press release
Moving now from operations, I'd like to briefly address capital strategy
matters.
Recycling Capital
External sources of capital continue to be relatively expensive
Recycle capital - potential asset sales
May be FFO negative but Free Cash Flow positive
De-leverage balance sheet from asset sales, or
Buy other assets with upside
Preferably with JV partner to leverage capital and property management capacity
Share repurchases also possible
Common and/or preferred shares
25,000 preferred shares recently repurchased
While the REIT capital markets have improved this year, we recognize that
external sources of new capital are still quite expensive.
We are looking at ways to recycle existing capital already deployed in the
Company through potential dispositions. In this regard, it is possible that
potential asset sales could be FFO negative but positive to free cash flow after
capital spending and debt amortization are factored in. We are prepared to make
those tradeoffs.
We sold our only non-enclosed shopping center in July and received over $1.2
million in free cash. Much of the cash proceeds were used to buy-back preferred
shares.
We have no other properties under a contract of sale at this time, but we are
exploring several possibilities for asset sales.
Net proceeds after paying off debt could be used for debt reduction, mall
acquisitions or share repurchases.
Financial Flexibility
Line of Credit with GECC renewed in Sept 99
Current availability - $127M
Balance outstanding - $106M
Maximum availability - $150M
Secured by 5 malls
LIBOR plus 2.95%
Line used to fund the Valley Mall project
Expires November 2001
Only 18% of total debt is floating - $130M
As some of you may recall, last September we extended and modified our lines of
credit with GECC.
Previously we had a $50M general line and a $100M line reserved only for
acquiring new properties.
The new line combines both pieces into one general purpose line that gives the
Company greater flexibility and funding availability.
The new line does have a higher effective interest rate, about 75 basis points
higher than the old line.
Future Operating Results
Expect positive operating trends and NOI growth to continue for remainder of
2000
But FFO growth rate this year is moderating compared to 1999's near double-digit
growth rate:
Higher LIBOR interest rate impact
Revised GECC line of credit has higher rates but also increased funding
availability
No acquisitions impact in 2000
The positive operating trends have continued through the first half of 2000.
FFO growth, however, has been mitigated from 1999's pace due to higher interest
rates.
Crown currently has approximately $130 million of variable rate debt (with
interest costs based on LIBOR).
In addition, we will incur a full year impact of the higher marginal rate on the
GECC line compared to 1999.
We believe that most analysts have considered these matters in their FFO
estimates for 2000.
Insider Ownership
Ownership by management and trustees continues to increase:
2Q00: 37.6%
1999: 37.2%
1998: 35.7%
1997: 33.2%
One outside trustee significantly added to his position in 1999, such that he
would be one of our top 20 investors.
Insiders continued to increase their ownership position in the Company, which
now stands at 37.6%.
Crown American vs Mall Peer Group
Considerable Multiple Growth Potential Remains for Crown
----------------------2000E---------------------
FFO Dividend Payout
Multiple Yield Ratio
Crown American 4.5 14.0% 62%
Simon Property Grp. 6.9 8.9% 61%
Taubman 8.3 9.0% 75%
General Growth 7.1 6.4% 45%
Macerich 7.2 9.7% 69%
CBL & Assoc. 6.7 8.5% 58%
Urban 9.4 6.8% 64%
Glimcher 5.3 12.5% 67%
Regional Mall Average 7.0 9.4% 64%
Source: Merrill Lynch research report: September 1, 2000
Based on those consensus FFO estimates for 2000, Crown continues to be
significantly undervalued by the market in our view.
You can see from this slide that we trade at a large discount to our mall peer
companies.
I won't argue that we should trade at Simon's or Taubman's multiples, but our
discount from the average is significant and represents a real investment
opportunity.
Multiple Expansion Potential
Recent Crown American common share price:
As of September 5, 2000 $5.875
Potential common share price if valued at current peer group multiples:
At FFO multiple avg => $9.31
At dividend yield avg => $8.83
As this slide shows, we believe our shares have major upside pricing potential.
Even if our share price remains flat and even if we do not increase our dividend
again, our current dividend rate generates a 14+% shareholder return.
A small share price improvement toward the peer averages can result in a large
total return for investors.
For those of you who have an interest in preferred stock, our public preferred
shares also represent an excellent current 14%+ yield for investors.
For individual investors, our common dividends have had a large return of
capital component for tax purposes in the last few years, which gives a major
boost to the tax effective yield on our common shares.
Summary
Positive Operating Trends
Increasing FFO, Occupancy, Rental Rates, and Tenant Sales
High current tax-advantaged yield
Experienced Management and Capabilities
Managing conservatively for cash flow during current difficult capital markets
In summary, we believe that the Crown American property portfolio has been
transformed.
Our past investments are now generating solid growth and future capital spending
needs are declining.
During these difficult capital markets, we are managing the Company
conservatively for cash flow and to preserve and enhance our future financial
flexibility.
At current prices our shares are a great investment opportunity.
CROWN AMERICAN
REALTY TRUST
NYSE: CWN
www.crownam.com
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.
CROWN AMERICAN REALTY TRUST
By: /s/Terry L. Stevens
Name: Terry L. Stevens
Title: Executive Vice President and
Chief Financial Officer
Date: September 11, 2000
