<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12588
----------------
CENTERTRUST RETAIL PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
MARYLAND 95-4444963
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
3500 SEPULVEDA BOULEVARD, MANHATTAN BEACH, CALIFORNIA 90266
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 546-4520
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
FORMERLY ALEXANDER HAAGEN PROPERTIES, INC.
----------------
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days. YES [X] NO [_]
As of August 10, 1998, 23,015,968 shares of Common Stock, Par Value $.01 Per
Share, were outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997....................................... 3
Consolidated Statements of Operations (unaudited) for the
three and six months ended June 30, 1998 and 1997........... 4
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1998 and 1997......................... 5
Notes to Consolidated Financial Statements (unaudited)....... 6
Managements Discussion and Analysis of Financial Condition
Item 2. and Results of Operations .................................. 10
PART II OTHER INFORMATION............................................ 15
SIGNATURES............................................................... 16
</TABLE>
2
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Rental properties..................................... $1,006,290 $ 783,279
Accumulated depreciation and amortization............. (131,004) (121,202)
---------- ---------
Rental properties, net................................ 875,286 662,077
Cash and cash equivalents............................. 3,515 3,613
Tenant receivables, net............................... 8,040 6,017
Other receivables..................................... 6,151 7,575
Restricted cash....................................... 7,140 9,435
Deferred charges, net................................. 19,589 19,759
Other assets.......................................... 1,547 2,237
---------- ---------
TOTAL............................................... $ 921,268 $ 710,713
========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
LIABILITIES:
Secured Debt........................................ $ 438,949 $ 313,660
7 1/2% Convertible subordinated debentures.......... 138,599 138,599
7 1/4% Exchangeable subordinated debentures......... 30,000 30,000
Accounts payable and other accrued expenses......... 5,646 8,482
Accrued dividends and distributions................. 9,940 7,371
Accrued interest.................................... 5,944 5,604
Accrued construction costs.......................... 2,882 10,996
Tenant security and other deposits.................. 5,405 4,729
---------- ---------
Total liabilities................................. 637,365 519,441
---------- ---------
MINORITY INTERESTS:
Operating Partnership (5,272,239 and 4,280,789 units
issued as of June 30, 1998 and December 31, 1997,
respectively)...................................... 53,896 39,685
Other minorities.................................... 1,885 1,748
---------- ---------
Total minority interests.......................... 55,781 41,433
---------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK
510,034 shares outstanding as of June 30, 1998 and
December 31, 1997, redeemable on May 25, 1999...... 8,543 8,385
---------- ---------
STOCKHOLDERS' EQUITY:
Common stock ($.01 par value, 50,000,000 shares
authorized; 21,838,226 and 15,664,814 shares issued
and outstanding as of June 30, 1998 and
December 31, 1997, respectively)................... 218 157
Additional paid-in capital.......................... 313,576 223,972
Accumulated distributions and deficit............... (94,215) (82,675)
---------- ---------
Total stockholders' equity........................ 219,579 141,454
---------- ---------
TOTAL............................................... $ 921,268 $ 710,713
========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents.............................. $23,156 $15,708 $42,688 $31,634
Recoveries from tenants.................... 6,617 4,510 12,790 9,497
Percentage rents........................... 323 167 562 438
Other income............................... 1,268 953 2,493 1,952
------- ------- ------- -------
Total revenues......................... 31,364 21,338 58,533 43,521
------- ------- ------- -------
EXPENSES:
Interest................................... 12,172 9,025 22,426 17,922
Depreciation and amortization.............. 5,916 4,475 11,305 8,790
Property Operating Costs:
Common Area.............................. 4,738 3,218 8,815 6,567
Property taxes........................... 2,932 1,805 5,704 3,881
Leasehold rentals........................ 414 417 825 820
Marketing................................ 83 40 158 152
Other operating.......................... 596 222 1,026 674
General and administrative................. 2,454 1,252 3,923 2,490
------- ------- ------- -------
Total expenses......................... 29,305 20,454 54,182 41,296
------- ------- ------- -------
INCOME FROM OPERATIONS BEFORE MINORITY
INTEREST.................................. 2,059 884 4,351 2,225
MINORITY INTERESTS:
Operating Partnership...................... (421) (212) (864) (544)
Other minorities........................... (68) (71) (137) (147)
------- ------- ------- -------
NET INCOME................................. $ 1,570 $ 601 $ 3,350 $ 1,534
======= ======= ======= =======
Basic and Diluted Income Per Share......... $ 0.08 $ 0.05 $ 0.18 $ 0.13
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 3,350 $ 1,534
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of rental properties.... 11,305 8,790
Amortization of deferred financing costs.............. 1,403 1,109
Minority interests in operations...................... 1,001 691
Net changes in operating assets and liabilities....... (883) (1,425)
--------- --------
Net cash provided by operating activities........... 16,176 10,699
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties............................... (117,884) --
Construction and development costs...................... (12,714) (11,451)
--------- --------
Net cash used in investing activities............... (130,598) (11,451)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage financing................ (1,691) (1,209)
Borrowings on secured line of credit.................... 135,933 15,500
Repayment of secured line of credit..................... (96,000) (2,500)
Proceeds from issuance of common stock.................. 90,513 --
Costs of obtaining financing............................ (698) (12)
Decrease in restricted cash............................. 2,295 62
Dividends to shareholders............................... (12,668) (8,658)
Distributions to minority interests..................... (3,360) (4,524)
Other................................................... -- 70
--------- --------
Net cash provided by (used in) financing activities. 114,324 (1,271)
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. (98) (2,023)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD......... 3,613 5,941
--------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD............... $ 3,515 $ 3,918
========= ========
NON-CASH TRANSACTIONS:
Fair value of debt assumed to acquire properties........ $ 87,047 $ --
========= ========
Issuance of Operating Partnership Units to acquire
properties............................................. $ 16,357 $ --
========= ========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
CenterTrust Retail Properties, Inc. ("Center Trust"), formerly Alexander
Haagen Properties, Inc. is a self-administered and self-managed real estate
investment trust ("REIT"). The Company engages in the ownership, management,
leasing, acquisition, development and redevelopment of unenclosed retail
shopping centers in the Western United States. As of June 30, 1998 Center
Trust owned 61 retail shopping centers (the "Properties") comprising 11.8
million square feet of total shopping center gross leasable area.
The accompanying financial statements and related notes of Center Trust are
unaudited; however, they have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and the
instructions to Form 10-Q and the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared under generally accepted
accounting principles have been condensed or omitted pursuant to such rule. In
the opinion of management, all adjustments considered necessary for fair
presentation of Center Trust's financial position, results of operations and
cash flows have been included. These financial statements should be read in
conjunction with Center Trust's Form 10-K for the year ended December 31,
1997.
Certain reclassifications have been made in the 1997 financial statements to
conform to the 1998 financial statement presentation.
2. REDEEMABLE COMMON STOCK
In connection with the Separation Agreement, as defined in Note 4 below,
Center Trust has agreed to purchase, or cause to have purchased, from the
Haagen Family, on May 25, 1999, an aggregate of 3,656,818 shares of common
stock and Operating Partnership Units (the "Shares") at a price per share
equal to the greater of $17 or the then current market price (as determined in
accordance with the Separation Agreement). Under the terms of the Separation
Agreement, the Haagen Family retain all rights and privileges as owners of the
Shares up to the date of purchase and may therefore sell such shares on the
American Stock Exchange, subject to certain limitations set forth under the
Securities Act of 1933. Included in the Shares to be repurchased are 510,034
shares of common stock. Such shares have been reflected as Redeemable Common
Stock.
3. STOCKHOLDER'S EQUITY
On June 1, 1997 Center Trust entered into a Stock Purchase Agreement with LF
Strategic Realty Investors, L.P. and Prometheus Western Retail, LLC,
affiliates of Lazard Freres Real Estate Investors, LLC, (together "LFREI"),
providing for LFREI to invest a total of up to $235 million in Common Stock of
Center Trust (the "Transaction"). Pursuant to the Stock Purchase Agreement
Center Trust will sell an aggregate of 15,666,666 shares of Common Stock to
LFREI at a price of $15.00 per share, for an aggregate purchase price of $235
million (the "Total Equity Commitment"). The purchase price per share was
determined as a result of arm's length negotiations between Center Trust and
its advisors and LFREI and its advisors. On August 14, 1997, the Stockholders
of Center Trust approved the Transaction.
As of December 31, 1997, Center Trust had sold 4,006,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $60.1 million.
During the first six months of 1998, Center Trust has sold 6,033,333 shares to
LFREI for aggregate proceeds of $90.5 million. As of June 30, 1998, LFREI was
obligated to purchase an additional 5,626,899 Shares of Common Stock for
aggregate proceeds of $84.4 million (the "Remaining Equity Commitment").
Subsequent to June 30, 1998, Center Trust sold 666,667 shares to LFREI for
proceeds of $10.0 million, reducing the Remaining Equity Commitment to $74.4
million. As of July 31, 1998, LFREI owned 10,706,434 shares of Common Stock
which represents 46.5% of the shares outstanding.
6
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Center Trust must sell the Remaining Equity Commitment not later than
February 14, 1999. If Center Trust has not drawn the Remaining Equity
Commitment by such date, LFREI will have the right on such date to purchase
such shares from Center Trust, at a price of $15.00 per share. If LFREI
acquires all of the share represented by the Remaining Equity Commitment (and
assuming no other change in the number of outstanding shares), LFREI will own
approximately 56.3% of the outstanding Common Stock (37.9% on a Diluted
Basis).
Subject to certain restrictions, in the event that Center Trust issues or
sells shares of capital stock for cash, LFREI will be entitled to purchase or
subscribe for, either as part of such issuance or in a concurrent issuance,
that portion of the total number of shares to be issued equal to LFREI's
proportionate holdings of Common Stock prior to such issuance (but not to
exceed 37.5% of the offering).
For a period of five years following stockholder approval (the "Standstill
Period") and any Standstill Extension Term, LFREI and its affiliates may not
(i) acquire beneficial ownership of more than 49.9% of the outstanding shares
of Common Stock, on an Adjusted Fully Diluted Basis (as defined below), (ii)
sell, transfer or otherwise dispose of any shares of Common Stock except in
accordance with certain specified limitations (including a requirement that
Center Trust, in its sole and absolute discretion, approve any transfer in a
negotiated transaction that would result in the transferee beneficially owning
more than 9.8% of Center Trust's capital stock). As used herein, the term
Adjusted Fully Diluted Basis shall mean on a Diluted Basis, except that shares
of Common Stock issuable upon conversion of Center Trust's outstanding
convertible debt or upon exercise of options granted under management benefit
plans shall not be included. After giving effect to the sale of 15,666,666
shares to LFREI, and assuming no other change in the number of outstanding
shares, LFREI will own 49.0% of the Common Stock on an Adjusted Fully Diluted
Basis. In the event that the number of outstanding shares were to increase for
any reason (including as a result of issuance of Common Stock upon conversion
or exercise of the outstanding convertible debt or management stock options),
then LFREI would be allowed to acquire additional shares of Common Stock, up
to 49.9% on an Adjusted Fully Diluted Basis. In addition to the above, LFREI
nominated four members to Center Trust's Board of Directors. Further, LFREI is
entitled to receive access to certain operating statements and other financial
reports used in operating Center Trust on a monthly basis.
4. INVESTMENT IN MANAGEMENT COMPANY
Through December 31, 1997, Haagen Property Management, Inc. ("HPMI")
conducted all of the executive, construction, leasing, legal, acquisition, and
property management functions pursuant to management agreements between CT
Operating Partnership Ltd. (the "OP") and HPMI. Prior to December 31, 1997,
the OP owned a 95% economic interest in, but did not control, HPMI. The
investment had been accounted for on the equity basis as an unconsolidated
subsidiary. No dividends were paid by HPMI during the year ended December 31,
1997. HPMI provided leasing and property management services to other
properties owned by certain third parties. In connection with an agreement
dated November 24, 1997 between Center Trust and Alexander Haagen, Sr.,
Charlotte Haagen and Alexander Haagen, III (collectively the "Haagen Family"),
(the "Separation Agreement"), the OP purchased the remaining 5% economic
interest in HPMI. As such, the balance sheet of HPMI has been consolidated as
of December 31, 1997. Executive and property management fees paid to HPMI for
the six months ended June 30, 1997 totaled $1,942,000 and are included in
general and administrative expenses. In addition, HPMI provided acquisition,
leasing, legal and construction services for the properties owned or acquired
by Center Trust, such fees for the six months ended June 1997, of $1,507,000
were capitalized and are being amortized over the useful lives of the related
leases and/or properties.
7
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY ACQUISITIONS
During the three months ended June 30, 1998, Center Trust has acquired eight
unenclosed shopping centers comprising approximately 1,238,000 square feet of
Company owned GLA for an aggregate purchase price of approximately $108.1
million. The acquisitions consist of the following:
<TABLE>
<CAPTION>
COMPANY
OWNED
DATE ACQUIRED PROPERTY LOCATION GLA
------------- -------- -------- -------
<S> <C> <C> <C>
April 30, 1998....... Southern Palms Center Tempe, AZ 254,863
April 30, 1998....... Sixth Avenue Plaza Tacoma, WA 139,107
May 1, 1998.......... Mineral King Plaza Visalia, CA 39,060
May 12, 1998......... Madera Marketplace Madera, CA 168,596
May 18, 1998......... Fairwood Center Renton, WA 211,682
June 24, 1998........ Charleston Plaza Las Vegas, NV 222,594
June 25, 1998........ Kyrene Village Shopping Center Chandler, AZ 161,174
June 30, 1998........ Sunrise Place Center Tucson, AZ 40,974
</TABLE>
In connection with the above acquisitions, Center Trust assumed three non-
recourse mortgage notes aggregating $25.8 million. The first mortgage of $3.4
million matures in August, 2006, bears interest at 9.68% and requires monthly
principal and interest payments. The second note has a face value of $7.4
million, bears interest at 8.75% and requires monthly interest payments
through maturity of January, 2004. The final note has a value of $15.0
million, bears interest at 8.05% and matures January, 2006. This note requires
monthly principal and interest payments. In addition, Center Trust issued
78,978 Operating Partnership Units valued at approximately $1.3 million in
connection with one of the above acquisitions.
6. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma information for the six months ended
June 30, 1998 and 1997 are presented as if the acquisitions, as described in
Note 5 to the financial statements had occurred on January 1, 1997. Such pro
forma information is based upon the historical consolidated financial
statements of Center Trust and should be read in conjunction with the
consolidated and combined financial statements and the notes thereto.
This unaudited pro forma condensed consolidated information does not purport
to represent what the actual results of operations of Center Trust would have
been assuming such acquisitions had been completed as set forth above, nor do
they purport to predict the results of operations for future periods.
PRO FORMA INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------
1998 1997
------- -------
<S> <C> <C>
Total revenues............................................ $63,186 $49,653
======= =======
Net Income................................................ $ 3,541 $ 1,807
======= =======
Basic and Diluted Income per share........................ $ 0.19 $ 0.15
======= =======
Basic weighted average number of shares of common stock
outstanding.............................................. 18,621 12,082
======= =======
Diluted weighted average number of shares of common stock
outstanding.............................................. 18,715 12,092
======= =======
</TABLE>
8
<PAGE>
CENTERTRUST RETAIL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PER SHARE DATA
In accordance with SFAS No. 128 (Earnings Per Share), basic earnings per
share is based on the weighted average number of shares of common stock
outstanding during the period and diluted earnings per share is based on the
weighted average number of shares of common stock outstanding combined with
the incremental weighted average shares that would have been outstanding if
all dilutive potential common shares had been issued as of the beginning of
the period. The weighted average number of shares of common stock used in the
computation for the three-month periods ended June 30, 1998 and 1997 was
19,586,347 and 12,110,055, respectively. The weighted average number of shares
of common stock used in the computation for the six-month period ended June
30, 1998 and 1997 was 18,621,379 and 12,081,818, respectively. The diluted
weighted average number of shares used in the computation for the three-month
periods ended June 30, 1998 and 1997 was 19,687,457 and 12,123,591,
respectively. The diluted weighted average number of shares used in the
computation for the six-month period ended June 30, 1998 and 1997 was
18,714,669 and 12,091,580, respectively. Units held by limited partners in the
Operating Partnership may be exchanged for shares of common stock of Center
Trust on a one- for-one basis in certain circumstances and therefore are not
dilutive. Accordingly, the increase in weighted average shares outstanding
under the diluted method over the basic method in every period presented is
due entirely to the effect of outstanding options issued under Center Trust's
Amended and Restated 1993 Stock Option and Incentive Plan. Basic and diluted
earnings were the same for all periods presented.
8. SUBSEQUENT EVENTS
On June 25, 1998, the shareholders approved an increase in the number of
authorized common shares from 50,000,000 to 100,000,000 shares and the change
of the name of the Company to CenterTrust Retail Properties, Inc. Such changes
were effective July 30, 1998.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
HISTORICAL RESULTS OF OPERATIONS
Comparison of the six months ended June 30, 1998 to the six months ended June
30, 1997.
Rental revenues increased by $11.1 million to $42.7 million for the six
months ended June 30, 1998 from $31.6 million for the six months ended June
30, 1997. The acquisition of 24 community shopping centers subsequent to June
30, 1997 resulted in an increase of $11.8 million in revenues. This increase
was partially offset by a $0.5 million decrease in revenues related to
increased vacancy at Empire Center and the closure of Montgomery Wards at El
Camino North.
Property operating costs increased by $4.4 million to $16.5 million for the
six months ended June 30, 1998 from $12.1 million for the six months ended
June 30, 1997. The increase is a result of increased property taxes and an
increase in operating costs as a result of the 24 properties acquired in the
later part of 1997 and the first six months of 1998. In addition, Center Trust
experienced an increase in operating costs of its two regional malls.
Interest expense increased to $22.4 million for the six months ended June
30, 1998 from $17.9 million for the six months ended June 30, 1997. The
increase was caused by additional borrowings on Center Trust's line of credit
and the assumption of $87.0 in mortgage debt associated with the acquisition
of twenty-four community shopping centers acquired between August 1997 and
June 1998.
General and Administrative costs increased by $1.4 million from $2.5 million
for the six months ended June 30, 1997 to $3.9 million for the six months
ended June 30, 1998. The increase was primarily the result of the change in
accounting for costs related to the acquisition of community shopping centers
as mandated by the Financial Accounting Standards Board. In addition, Center
Trust has increased its staffing in order to accommodate its growth. These
increases include senior management as well as regional property management
personnel.
Net income increased by $1.9 million from $1.5 million for the six months
ended June 30, 1997 to income of $3.4 million for the six months ended June
30, 1998 for the reasons stated above.
Selected Property Financial Information
Net operating income (defined as revenues, less property operating costs)
for Center Trust's properties is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------
1998 1997
------- -------
<S> <C> <C>
Retail Properties (61 in 1998 and 35 in 1997):
Regional Malls.......................................... $ 8,451 $ 9,281
Community Centers....................................... 29,607 18,141
Single Tenants.......................................... 3,769 3,851
Other income............................................ 178 154
------- -------
Net Operating Income.................................. $42,005 $31,427
======= =======
</TABLE>
10
<PAGE>
The following summarizes the percentage of leased GLA (excluding non-owned
GLA and GLA leased but not yet constructed) as of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Retail Properties (61 in 1998 and 46 in 1997):
Regional Malls...................................... 90.0% 91.3%
Community Centers................................... 92.2 93.8
Portfolio Sub-total (excluding Single Tenants).... 91.9 93.3
Single Tenants...................................... 100.0 100.0
Aggregate Portfolio................................. 92.9 94.6
</TABLE>
Funds from Operations
Center Trust considers funds from operations ("FFO") to be an alternative
measure of the performance of an equity REIT since such measure does not
recognize depreciation and amortization expenses as operating expenses. FFO
has been defined by the National Association of Real Estate Investment Trusts
("NAREIT") as net income plus depreciation and amortization of real estate,
less gains on sales of properties. Management concurs with NAREIT in believing
that reductions for the depreciation and amortization of real estate and its
related costs are not meaningful in evaluating income-producing real estate.
Center Trust computes FFO on both a basic and diluted basis and considers
Operating Partnership Units as the equivalent of shares for the purpose of
these computations. The fully diluted basis assumes the conversion of the
convertible and exchangeable debentures and other common stock. In computing
diluted FFO Center Trust adds back the amortization of deferred financing
costs related to the outstanding debentures, principally representing the
underwriting discount on the convertible debentures. The following table
summarizes Center Trust's computation of FFO and provides certain additional
disclosures (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------- ----------------
1998 1997 1998 1997
-------- ------ -------- -------
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net income................................... $ 1,570 $ 601 $ 3,350 $ 1,534
Adjustments to reconcile net income to funds
from operations:
Depreciation and Amortization:
Buildings and improvements............... 3,865 2,901 7,265 5,818
Tenant improvements and allowances....... 1,234 1,147 2,842 2,218
Leasing costs............................ 777 422 1,117 736
Minority Interests......................... 347 138 714 397
Other...................................... 414 -- 439 --
-------- ------ -------- -------
Funds from Operations, basic................. 8,207 5,209 15,727 10,703
Debenture interest expense................... 3,142 3,142 6,284 6,284
Amortization of debenture financing costs.... 325 325 650 650
-------- ------ -------- -------
Funds from Operations, diluted............... $ 11,674 $8,676 $ 22,661 $17,637
======== ====== ======== =======
SUPPLEMENTAL DISCLOSURES
Expansion of Center Trust's portfolio:
Acquisitions............................... $105,817 $ -- $221,647 $ --
Construction and Development............... 125 4,140 2,095 9,853
Leasing.................................... 791 381 1,275 882
-------- ------ -------- -------
$106,733 $4,521 $225,017 $10,735
======== ====== ======== =======
Releasing and maintenance of portfolio:
Construction and Development............... $ 8 $ 30 $ 8 $ 79
Leasing.................................... 85 227 197 361
-------- ------ -------- -------
$ 93 $ 257 $ 205 $ 440
======== ====== ======== =======
</TABLE>
11
<PAGE>
Funds from operations, on a basic basis, increased to $15.7 million for the
six months ended June 30, 1998, as compared to $10.7 million for the same
period in 1997. On a diluted basis, assuming conversion of the debentures and
other common stock equivalents, funds from operations increased to $22.7
million from $17.6 million. The increase in funds from operations is
principally a result of the reasons stated above under Results of Operations.
Funds from operations do not represent cash flows from operations as defined
by Generally Accepted Accounting Principles and should not be considered as an
alternative to net income as an indicator of Center Trust's operating
performance or to cash flows as a measure of liquidity.
LIQUIDITY SOURCES AND REQUIREMENTS
In December 1997, the Operating Partnership entered into a new revolving
line of credit with a maximum borrowing limit of $250 million (the "Credit
Facility"). The Credit Facility will primarily provide continued funding for
Center Trust's planned acquisition and redevelopment activities. The Credit
Facility expires in December 2000. Borrowings under the Credit Facility are
secured by first mortgage liens on fifteen of Center Trust's properties. At
June 30, 1998, outstanding borrowings on the Credit Facility were
approximately $148.7 million, with an additional $4.2 million having been
utilized to provide letters of credit.
Borrowings under the facility bear interest at a floating rate equal to
London Inter-Bank Offering Rate ("LIBOR") plus 100 basis points. To the extent
the borrowings are in excess of the outstanding LFREI commitment such excess
will bear interest at LIBOR plus 137.5 basis points.
Upon conversion to an unsecured facility, borrowings will bear interest at
varying rates based upon Center Trust's leverage ratio and investment grade
rating interest. The range of rates is from 75 to 137.5 basis points over
LIBOR.
On June 1, 1997 Center Trust entered into a Stock Purchase Agreement with LF
Strategic Realty Investors, L.P. and Prometheus Western Retail. LLC affiliates
of Lazard Freres Real Estate Investors, LLC, (together "LFREI"), providing for
LFREI to invest a total of up to $235 million in Common Stock of Center Trust
(the "Transaction"). Pursuant to the Stock Purchase Agreement Center Trust
will sell an aggregate of 15,666,666 shares of Common Stock to LFREI at a
price of $15.00 per share, for an aggregate purchase price of $235 million
(the "Total Equity Commitment"). The purchase price per share was determined
as a result of arm's length negotiations between Center Trust and its advisors
and LFREI and its advisors.
As of December 31, 1997, Center Trust had sold 4,006,434 shares, to LFREI
under the terms of the Transaction for aggregate proceeds of $60.1 million.
During the first six months of 1998, Center Trust has sold 6,033,333 shares to
LFREI for aggregate proceeds of $90.5 million. As of June 30, 1998, LFREI was
obligated to purchase an additional 5,626,899 Shares of Common Stock for
aggregate proceeds of $84.4 million (the "Remaining Equity Commitment").
Subsequent to June 30, 1998, Center Trust sold 666,667 shares to LFREI for
proceeds of $10.0 million, reducing the Remaining Equity Commitment to $74.4
million. As of July 31, 1998, LFREI owned 10,706,434 shares of Common Stock
which represents 46.5% of the shares outstanding.
Loans maturing of $28.2 million in 1999 and $18.7 million in 2002, as well
as significant amounts due from 2004 to 2015, may require refinancing.
Additionally, Center Trust's secured line of credit is due in 2000 and the
convertible debentures of $138.6 million and exchangeable debentures of $30.0
million are due in 2001 and 2003, respectively. Center Trust believes, based
on the collateral available within the Properties and in cash flow at the
Redevelopment Properties, that it will be able to effect such refinancings for
the foreseeable future.
12
<PAGE>
During the three months ended June 30, 1998, Center Trust has acquired eight
unenclosed shopping centers comprising approximately 1,238,000 square feet of
Company owned GLA for an aggregate purchase price of approximately $108.1
million. The acquisitions consist of the following:
<TABLE>
<CAPTION>
COMPANY
OWNED
DATE ACQUIRED PROPERTY LOCATION GLA
------------- -------- -------- -------
<S> <C> <C> <C>
April 30, 1998....... Southern Palms Center Tempe, AZ 254,863
April 30, 1998....... Sixth Avenue Plaza Tacoma, WA 139,107
May 1, 1998.......... Mineral King Plaza Visalia, CA 39,060
May 12, 1998......... Madera Marketplace Madera, CA 168,596
May 18, 1998......... Fairwood Center Renton, WA 211,682
June 24, 1998........ Charleston Plaza Las Vegas, NV 222,594
June 25, 1998........ Kyrene Village Shopping Center Chandler, AZ 161,174
June 30, 1998........ Sunrise Place Center Tucson, AZ 40,974
</TABLE>
These acquisitions were funded from borrowings under the Credit Facility,
the assumption of certain non-recourse mortgage notes and the issuance of
Operating Partnership Units.
Center Trust anticipates continuing to execute its acquisition and
redevelopment strategy during the next 12 months. Center Trust believes that
such acquisitions will be funded from the LFREI Equity Commitment, Center
Trust's Credit Facility, future debt refinancings and financings, and the
issuance of equity.
CASH FLOWS
Net cash used by investment activities increased to $130.6 million for the
six months ended June 30, 1998 from $11.5 million for the six months ended
June 30, 1997 as a result of the purchase of sixteen properties during 1998.
Net cash provided by financing activities increased to $114.3 million for the
six months ended June 30, 1998 from $1.3 million used in financing activities
in the six months ended June 30, 1997. The principal cause of the increase in
cash provided by financing activities was the result of the sale of Common
Stock to LFREI and borrowings on Center Trust's Secured line of Credit.
INFLATION
Center Trust's long term leases contain provisions designed to mitigate the
adverse impact of inflation on its results from operations. Such provisions
include clauses enabling Center Trust to receive percentage rents based upon
tenants' gross sales, which generally increase as prices rise, and/or, in
certain cases, escalation clauses, which generally increase rental rates
during the term of the leases. Such escalation clauses are often related to
increases in the CPI or similar inflation indices. In addition, many of Center
Trust's leases are for terms of less than ten years, which permits Center
Trust to seek to increase rents upon re-rental at market rates if rents are
below then existing market rates. Many of Center Trust's leases require the
tenants to pay a pro rata share of operating expenses, including common area
maintenance, real estate taxes, insurance and utilities, thereby reducing
Center Trust's exposure to increases in costs and operating expenses resulting
from inflation.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process information containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. As the
Year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
As Center Trust principally relies on third party vendors for its
applications, Center Trust has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which Center Trust is vulnerable to any third party Year 2000
issues. Center Trust has received
13
<PAGE>
statements of compliance from its primary third party vendors which state
their systems will be in compliance by 1999. However, there can be no
guarantee that the systems of other companies on which Center Trust's systems
rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with Center Trust's systems,
would not have a material adverse effect on Center Trust.
The total cost to Center Trust of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which
Center Trust plans to complete the Year 2000 modifications and testing
processes are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
FACTORS AFFECTING FUTURE RESULTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements that are subject to
risk and uncertainty. Investors and potential investors in Center Trust's
securities are cautioned that a number of factors could adversely affect
Center Trust's ability to obtain these results, including (a) the inability to
lease currently vacant space in Center Trust's properties; (b) the inability
of tenants to pay contractual rent and other expenses; (c) bankruptcies of
tenants; (d) decisions by tenants, and anchor retailers which own their own
space, to close stores at Center Trust's properties; (e) increases in certain
operating costs at Center Trust's properties; (f) decreases in rental rates
available from tenants leasing space at Center Trust's properties; (g)
unavailability of financing for acquisition, development and redevelopment of
properties by Center Trust; (h) increases in interest rates; and (i) a general
economic downturn resulting in lower retail sales and, in turn, store
closures, rent delinquencies, reduced percentage rents and other downward
pressure on occupancies and rents at retail properties.
14
<PAGE>
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
During the three and six months ended June 30, 1998, Center Trust sold
3,333,333 and 6,033,333 shares of Common Stock, respectively to an affiliate
of Lazard Freres Real Estate Investors, LLC, under the terms of the Stock
Purchase Agreement approved by the shareholders in August, 1997. The proceeds
of $50.0 million and $90.5 million, respectively, were used to purchase
community Shopping Centers as well as reduce the outstanding balance on Center
Trust's Line of Credit.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.3 Articles of Amendment
Exhibit 27 Financial Data Schedule
Exhibit 27.2 Restated Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K on April 10, 1998 under Item 2--Acquisitions or Disposition
of Assets, announcing the purchase of $60.3 million portfolio of
assets.
Form 8-K/A on June 8, 1998 under Item 7--Financial Statements and
Exhibits, filing financial statements of acquired portfolio.
15
<PAGE>
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.
ALEXANDER HAAGEN PROPERTIES, INC.
/s/ Stuart J.S. Gulland
By: _________________________________
Stuart J.S. Gulland
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
/s/ Edward A. Stokx
By: _________________________________
Edward A. Stokx
Controller
(Principal Accounting Officer)
Dated: August 13, 1998
16
<PAGE>
EXHIBIT 3.3
ALEXANDER HAAGEN PROPERTIES, INC.
ARTICLES OF AMENDMENT
---------------------
ALEXANDER HAAGEN PROPERTIES, INC., a Maryland corporation (the
"Corporation"), having its principal offices within the State of Maryland c/o
Prentice-Hall Corporation System Maryland, 1123 Eutaw Street, Baltimore,
Maryland 21201, hereby certifies to the State Department of Assessments and
Taxation of Maryland (the "Department") that:
FIRST: The charter of the Corporation as currently in effect,
-----
consisting of Articles of Amendment and Restatement of Alexander Haagen
Properties, Inc. filed with the Department on December 9, 1993 (the "Charter"),
is hereby further amended by deleting therefrom in its entirety Article I and by
substituting in lieu thereof the following new Article I:
ARTICLE I.
NAME
The name of the corporation is: CenterTrust Retail Properties, Inc.
SECOND: The Charter of the Corporation is hereby further amended by
------
deleting therefrom in its entirety Section 1 of Article IV and by substituting
in lieu thereof the following new Section 1 of Article IV:
ARTICLE IV.
STOCK
Section 1. Authorized Shares. The total number of shares of stock
which the Corporation is authorized to issue is one hundred and sixty
million (160,000,000), of which one hundred million (100,000,000) are
shares of common stock, $.01 par value per share ("Common Stock"),
fifty million (50,000,000) are shares of excess stock, $.01 par value
per share ("Excess Stock"), and ten million (10,000,000) are shares of
preferred stock, $.01 par value per share ("Preferred Stock"). The
aggregate par value of all authorized shares of stock having par value
is $1,600,000. Each of the Common Stock, the Excess Stock and the
Preferred Stock are separate classes of stock of the Corporation.
The remaining paragraphs of Article IV of the Charter (other than Section 1 of
such Article) are unchanged and continue in full force and effect.
THIRD: The foregoing amendments to the Charter of the Corporation
-----
were duly advised by the Board of Directors of the Corporation and duly approved
by the stockholders of the Corporation, all in accordance with applicable
sections of the Maryland General Corporation Law and the Charter and Bylaws of
the Corporation.
<PAGE>
FOURTH: Immediately prior to the amendments contained in these
------
Articles of Amendment, the Corporation had authority to issue eighty million
(80,000,000) shares, consisting of fifty million (50,000,000) shares of Common
Stock, twenty-five million (25,000,000) shares of Excess Stock and five million
(5,000,000) shares of Preferred Stock, and the aggregate par value of all such
authorized shares of stock of the Corporation having par value was eight hundred
thousand dollars ($800,000).
FIFTH: Immediately following the amendments contained in these
-----
Articles of Amendment, the Corporation will have authority to issue one hundred
sixty million (160,000,000) shares of stock, consisting of one hundred million
(100,000,000) shares of Common Stock, fifty million (50,000,000) shares of
Excess Stock and ten million (10,000,000) shares of Preferred Stock, and the
aggregate par value of all such authorized shares of stock of the Corporation
having par value will be one million six hundred thousand dollars ($1,600,000).
SIXTH: The preferences, conversion and other rights, voting powers,
-----
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of each class of capital stock of the Corporation is
not changed by these Articles of Amendment.
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name and on its behalf by its President and its
corporate seal to be hereunder affixed and attested by its Secretary as of the
30th day of July, 1998, and its President acknowledges that these Articles of
Amendment are the act and deed of the Corporation and, under the penalties of
perjury, that the matters and facts set forth herein with respect to
authorization and approval are true in all material respects to the best of his
knowledge, information and belief.
ATTEST: ALEXANDER HAAGEN PROPERTIES, INC.
/s/ Steven M. Jaffe By: /s/ Edward D. Fox
- ---------------------------- ---------------------------(SEAL)
Steven M. Jaffe Edward D. Fox
Secretary President
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,515
<SECURITIES> 0
<RECEIVABLES> 8,040
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,006,290
<DEPRECIATION> 131,004
<TOTAL-ASSETS> 921,268
<CURRENT-LIABILITIES> 0
<BONDS> 607,548
0
0
<COMMON> 24,347
<OTHER-SE> 218
<TOTAL-LIABILITY-AND-EQUITY> 219,361
<SALES> 0
<TOTAL-REVENUES> 58,533
<CGS> 0
<TOTAL-COSTS> 16,223
<OTHER-EXPENSES> 16,534<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,426
<INCOME-PRETAX> 3,350
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,350
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<FN>
<F1>INCLUDES DEPRECIATION AND AMORTIZATION OF $11,305, $1,001 ALLOCATED TO MINORITY
INTERESTS AND $3,923 IN G&A COSTS.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,918
<SECURITIES> 0
<RECEIVABLES> 4,832
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 669,497
<DEPRECIATION> 112,392
<TOTAL-ASSETS> 593,659
<CURRENT-LIABILITIES> 0
<BONDS> 423,032
0
0
<COMMON> 120
<OTHER-SE> 109,420
<TOTAL-LIABILITY-AND-EQUITY> 593,659
<SALES> 0
<TOTAL-REVENUES> 43,521
<CGS> 0
<TOTAL-COSTS> 12,094
<OTHER-EXPENSES> 11,971<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,922
<INCOME-PRETAX> 1,534
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,534
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<FN>
<F1>INCLUDES DEPRECIATION AND AMORTIZATION OF $8,790 AND $691 ALLOCATED TO MINORITY
INTERESTS, RESPECTIVELY.
</FN>
</TABLE>
